Arvinas, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018; the filing also reports unaudited fourth-quarter results. Filed March 26, 2019.
Business context
Arvinas is a clinical-stage biopharmaceutical company developing PROTAC protein degraders. It had no product sales; revenue came from research collaboration and license agreements. Its lead programs were ARV-110, targeting androgen receptor for metastatic castration-resistant prostate cancer, and ARV-471, targeting estrogen receptor for ER-positive/HER2-negative breast cancer.
Key financial metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Collaboration revenue | $14.3 million | $7.6 million |
| Research and development expense | $45.2 million | $28.8 million |
| General and administrative expense | $12.9 million | $3.5 million |
| Total operating expenses | $58.1 million | $32.3 million |
| Loss from operations | $43.8 million | $24.8 million |
| Net loss | $41.5 million | $24.0 million |
| Operating cash flow | $(16.1) million | $5.1 million |
| Cash, cash equivalents and marketable securities at year-end | $187.8 million | $39.2 million |
| Working capital at year-end | $172.7 million | $47.7 million |
| Debt at year-end | $2.2 million | $0.3 million |
Fourth-quarter 2018 revenue was $3.4 million, operating expenses were $20.4 million, and net loss was $16.1 million. The company reported no product-sales revenue, so product gross margin and profitability are not applicable at this stage.
FY 2018 revenue rose about 89% year over year, primarily reflecting Pfizer and Genentech collaboration activity. R&D expense increased about 57%, reflecting higher personnel and program costs; G&A expense increased substantially, including stock-based compensation and public-company costs. Cash and securities increased following financing, although operating activities used cash.
The reported loss attributable to common shares was $239.8 million in 2018, including a $198.4 million accounting charge for the change in redemption value of preferred units. The preferred shares converted to common stock in connection with the October 2018 IPO; therefore, this charge materially affects the reported common-share loss and per-share figure but is distinct from the $41.5 million net loss.
Liquidity, financing and material changes
- The October 2018 IPO generated $123.2 million gross proceeds and approximately $111.0 million net proceeds. By year-end, approximately $4.1 million of net proceeds had been used; the remainder was invested in capital-preservation instruments.
- Arvinas also raised $55.0 million from Series C preferred units in March 2018 and received $28.0 million in Pfizer upfront and milestone payments during 2018.
- Management estimated year-end cash and securities would fund operating and capital needs into the first half of 2021 in the risk discussion; the MD&A separately stated funding for “at least the next 24 months.” These are estimates based on assumptions, not committed financing.
- Debt included a $2.0 million Connecticut loan bearing 3.25% interest, with potential forgiveness of up to $1.0 million subject to employment conditions, and a smaller CII loan. The Connecticut agreements include location and employment covenants and potential repayment penalties.
Outlook, commentary and key risks
- ARV-110 Phase 1 dosing began in March 2019. The company expected preliminary results in the second half of 2019. ARV-471’s IND submission was expected in Q2 2019, Phase 1 initiation in Q3 2019, and preliminary data in 2020.
- Management expected expenses and operating losses to increase as clinical trials and pipeline research advanced. The company did not expect product revenue for many years, if ever, and anticipated needing substantial additional funding.
- Preclinical activity cited in the filing is not clinical proof. Both candidates remained unapproved, and safety, efficacy, trial enrollment, regulatory review, manufacturing, intellectual property, competition, reimbursement, and financing present material risks.
- Arvinas relied on third-party manufacturers and CROs and had no long-term supply arrangements. Collaboration revenue was concentrated: two collaborators each represented more than 45% of 2018 revenue, and one collaborator accounted for the year-end accounts receivable balance.
- The company reported no material legal proceedings. Management concluded disclosure controls were effective; the filing did not include management’s internal-control assessment or auditor attestation because of the transition period for newly public companies.
Important facts for investors to verify
- Clinical-trial progress, safety, enrollment and data timelines for ARV-110 and ARV-471, compared with the stated plans.
- Cash burn, the actual runway implied by the differing “first half of 2021” and “at least 24 months” statements, and the timing and terms of any additional financing.
- Revenue and receivable concentration, collaboration milestones and options, and whether collaborators continue funding or development.
- Debt balances and compliance with Connecticut loan employment and location conditions.
- Whether the platform’s preclinical degradation results translate into clinical benefit and whether patent rights provide adequate protection.