Arvinas, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Arvinas is a clinical-stage biopharmaceutical company developing PROTAC protein degraders. It had no approved products and generated no product-sales revenue; reported revenue came from research collaborations and licenses.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $4.0 million | $4.1 million |
| Research and development expense | $14.2 million | $7.1 million |
| General and administrative expense | $5.6 million | $1.2 million |
| Operating loss | $15.8 million | $4.3 million |
| Net loss | $14.4 million | $4.2 million |
| Net loss per share | $0.46 | $39.86 |
| Cash used in operating activities | $12.7 million | Cash provided: $19.3 million |
Q1 2018 loss attributable to common shares was $75.6 million, including a $71.5 million noncash change in the redemption value of preferred units; that item did not recur in Q1 2019. The comparative per-share losses also reflect the transition from pre-IPO units to public-company shares.
At March 31, 2019, cash, cash equivalents and marketable securities totaled $175.0 million, versus $187.8 million at December 31, 2018. Cash and cash equivalents were $28.8 million and marketable securities $146.2 million. Total assets were $186.6 million; total liabilities were $58.8 million; stockholders’ equity was $127.7 million. Outstanding debt was approximately $2.1 million. The filing reports no product gross margin; margin is not meaningful for this collaboration-revenue business.
Changes and notable items
- Operating expenses rose substantially year over year: R&D increased by $7.0 million and G&A by $4.4 million. Management attributed much of the increase to IPO-related stock compensation, expanded research and platform spending, clinical-trial activity, and public-company costs.
- Operating cash flow shifted from positive to negative. Q1 2018 included collection of a $25.0 million collaboration receivable; Q1 2019 reflected the net loss, a $4.0 million decrease in deferred revenue, and lower payables and accruals, partly offset by noncash compensation and collaboration receipts.
- Investing cash flow was positive $38.4 million in Q1 2019, mainly as marketable securities matured in excess of purchases; this largely reflects portfolio movements, not operating cash generation.
- Stock-based compensation was $5.2 million. The company adopted lease accounting in 2019 and recognized approximately $2.4 million of operating lease right-of-use assets and liabilities at adoption.
Outlook, management commentary and risks
- Arvinas initiated a Phase 1 trial of ARV-110 in men with metastatic castration-resistant prostate cancer in Q1 2019 and expected preliminary data in the second half of 2019.
- Management expected to submit an IND for ARV-471 in Q2 2019, begin a Phase 1 trial in patients with locally advanced or metastatic ER-positive/HER2-negative breast cancer in Q3 2019, and report preliminary data in 2020.
- The company expected expenses and operating losses to increase as it advances clinical and preclinical programs. It estimated existing cash and investments would fund operating and capital requirements into the first half of 2021, while cautioning that assumptions could prove wrong. No product-sales revenue or profitability was forecast for the foreseeable future.
- Key risks include early-stage clinical and technology uncertainty, trial enrollment and safety, regulatory approval, manufacturing and third-party dependence, competition, intellectual-property protection, collaboration-partner decisions, and the need for additional financing. Future funding may dilute shareholders or require licensing rights on unfavorable terms.
- State of Connecticut financing includes location and employment covenants; breach may trigger repayment and liquidated damages. Up to $1.0 million of the $2.0 million 2018 loan may be forgiven subject to employment conditions. A $50,000 payment to Yale was triggered by ARV-110 Phase 1 trial initiation.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2019. It had an accumulated deficit of $316.7 million.
Important facts for investors to verify
- Whether ARV-110 and ARV-471 clinical milestones and data timelines were achieved, and what the complete safety and efficacy data show.
- Whether the stated first-half-2021 cash runway remains reasonable given actual spending, trial costs, collaboration receipts and financing needs.
- How much collaboration revenue is recurring over performance periods versus dependent on future options, milestones or royalties; no royalties had been received to date.
- Potential dilution from equity awards and future financing; common shares outstanding were 31.37 million at March 31 and 32.33 million at May 3, 2019.
- Compliance with Connecticut loan covenants and the conditions for potential forgiveness, as well as Yale license obligations and future milestone payments.