Arvinas, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Arvinas is a clinical-stage biopharmaceutical company developing PROTAC protein degraders. It has no approved products and has generated no product-sales revenue; reported revenue comes from research collaborations and licenses.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $5.7 million | $4.0 million | $12.0 million | $8.0 million |
| Research and development | $23.4 million | $16.0 million | $45.1 million | $30.2 million |
| General and administrative | $8.8 million | $6.4 million | $16.7 million | $12.1 million |
| Total operating expenses | $32.2 million | $22.4 million | $61.9 million | $42.3 million |
| Operating loss | $26.5 million | $18.4 million | $49.9 million | $34.2 million |
| Net loss | $25.2 million | $17.2 million | $47.0 million | $31.6 million |
| Basic and diluted loss per share | $0.65 | $0.55 | $1.22 | $1.01 |
- Revenue increased year over year, primarily reflecting Bayer collaboration revenue and increased license and research activity under the Pfizer collaboration. Revenue is recognized over estimated performance periods.
- R&D and G&A increases reflected expanded platform and exploratory research, higher clinical-trial and drug-manufacturing costs, and increased personnel and stock-based compensation. No operating margin was reported; the company remained loss-making.
- Cash used in operations was $38.4 million for the first half of 2020, versus $26.3 million in the prior-year period. Investing activities provided $48.1 million, mainly from marketable-security maturities and sales exceeding purchases; financing activities provided $2.6 million, mainly from stock-option exercises.
- At June 30, cash and cash equivalents were $21.6 million and marketable securities were $221.1 million, totaling $242.7 million. Total current assets were $249.6 million and current liabilities $33.7 million. Stockholders’ equity was $197.8 million.
- Long-term debt was $2.0 million, unchanged from year-end 2019; it bears fixed interest of 3.25%. Operating lease liabilities totaled approximately $2.5 million.
- Accumulated deficit was $419.5 million. Shares outstanding were 38.8 million at June 30; 39.2 million were outstanding July 24, 2020. Potential common shares were excluded from diluted loss per share as antidilutive.
Material changes and business developments
- First-half revenue rose approximately 49% year over year, while R&D expense rose approximately 49% and net loss increased from $31.6 million to $47.0 million.
- Cash, cash equivalents and marketable securities declined from $280.9 million at December 31, 2019 to $242.7 million at June 30, 2020. Management estimated these resources would fund planned operating expenses and capital needs into 2022, subject to assumptions that could prove incorrect.
- Deferred revenue was $50.5 million at June 30, down from $58.4 million at year-end. The filing expected approximately $11.5 million to be recognized during the remainder of 2020, $20.2 million in 2021, $14.0 million in 2022 and $4.8 million in 2023.
- The company reported an equity-method investment in Oerth Bio with a carrying value of zero after recognizing its share of losses; it recorded no further losses beyond that carrying value.
Outlook, commentary and risks
- Arvinas expected to continue incurring substantial expenses and operating losses for the foreseeable future and did not expect product-sales revenue for many years, if ever. It anticipated increasing clinical, research, staffing, manufacturing and public-company costs and stated it would need substantial additional financing.
- The Phase 1/2 trials of ARV-110 for metastatic castration-resistant prostate cancer and ARV-471 for ER-positive/HER2-negative breast cancer were ongoing. The company expected to provide additional dose-escalation data for both in Q4 2020; this was forward-looking guidance, not a guarantee.
- In ARV-110 interim data reported in May, two of seven patients in a described subgroup with degradable androgen-receptor forms had confirmed PSA responses; one also had a confirmed partial RECIST response. These were small, interim results and may change with additional data. Some observed AR forms were not degradable in preclinical studies.
- A potential ARV-110 interaction with rosuvastatin was identified. Two patients taking rosuvastatin had elevated liver enzymes; one had a Grade 4 dose-limiting toxicity followed by acute renal failure, and the other had a Grade 3 liver-enzyme elevation. Concomitant rosuvastatin was subsequently prohibited. The filing reported no other ARV-110-related Grade 3 or 4 adverse events as of the cited cutoff.
- COVID-19 temporarily closed the company’s laboratories from mid-March; laboratories reopened and work with biology CROs began. Clinical-site enrollment pauses were lifted, but the company reported a short ARV-471 enrollment delay and a prior delay in production of certain ARV-471 drug-substance building blocks at a China-based manufacturer. Further disruption could delay trials or preclinical work.
- Key risks include clinical efficacy and safety uncertainty, trial enrollment and timing, reliance on CROs and contract manufacturers, collaboration-partner decisions, intellectual-property protection, competition, and the need to raise additional capital. Connecticut funding agreements also impose location and employment conditions; noncompliance could trigger repayment and liquidated damages.
- Management said disclosure controls and procedures were effective as of June 30, 2020, and reported no material change in internal control over financial reporting during the quarter. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether later ARV-110 and ARV-471 trial data support the preliminary activity and safety signals, including the significance of the rosuvastatin interaction.
- Whether the expected Q4 2020 clinical updates occurred and whether enrollment, manufacturing or COVID-19 disruptions affected trial timelines.
- Whether the stated runway into 2022 remains achievable as clinical and R&D spending rises, and what financing may be needed.
- How collaboration revenue, deferred-revenue recognition and potential milestone or royalty payments develop; contingent collaboration payments are not assured.
- Potential dilution from future equity financing and equity compensation; reported cash runway depends on management assumptions.