arvn-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________

FORM 10-Q

__________________________________________

(Mark One)


ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-38672

__________________________________________

ARVINAS, INC.

(Exact name of registrant as specified in its Charter)

__________________________________________


Delaware			47-2566120
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
5 Science Park 395 Winchester Ave. New Haven, Connecticut			06511
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (203) 535-1456

__________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

ARVN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	ý	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of November 3, 2023, the registrant had 55,025,504 shares of common stock, $0.001 par value per share, outstanding.

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		Page
PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II.	OTHER INFORMATION	35

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 5.	Other Information	35
Item 6.	Exhibits	36

Signatures		37

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “goals,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

•the initiation, timing, progress and results of our current and future clinical trials of vepdegestrant (ARV-471), ARV-766 and bavdegalutamide (ARV-110), including statements regarding the period during which the results of the clinical trials will become available;

•the timing of, and our ability to obtain, marketing approval of vepdegestrant (ARV-471), ARV-766 and bavdegalutamide (ARV-110), and the ability of vepdegestrant (ARV-471), ARV-766, bavdegalutamide (ARV-110) and our other product candidates to meet existing or future regulatory standards;

•the potential achievement of milestones and receipt of payments under our collaborations, including our collaboration with Pfizer Inc., or Pfizer, entered into in July 2021, or the Vepdegestrant (ARV-471) Collaboration;

•our plans to pursue research and development of other product candidates;

•our plans to submit Investigational New Drug Applications and/or Clinical Trial Applications;

•the potential advantages of our platform technology and our product candidates;

•the extent to which our scientific approach and platform technology may potentially address a broad range of diseases and disease targets;

•the potential receipt of revenue from future sales of our product candidates;

•the rate and degree of market acceptance and clinical utility of our product candidates;

•our estimates regarding the potential market opportunity for our product candidates;

•our sales, marketing and distribution capabilities and strategy;

•our ability to establish and maintain arrangements for manufacture of our product candidates;

•our ability to enter into additional collaborations with third parties;

•our intellectual property position;

•our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

•the impact of government laws and regulations; and

•our competitive position.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 23, 2023, and this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” sections, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do

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not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may differ materially from what we expect. We do not assume any obligation to update any forward-looking statements except as required by applicable law.

Throughout this Quarterly Report on Form 10-Q, references to the “Company,” “Arvinas,” “we,” “us,” and “our,” refer to Arvinas, Inc. and its consolidated subsidiaries, except where the context requires otherwise, or any one or more of them as the context may require, and “our board of directors” refers to the board of directors of Arvinas, Inc.

The Arvinas name and logo are our trademarks. We also own the service mark and the registered U.S. trademark for PROTAC®. This Quarterly Report on Form 10-Q contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

iii

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ARVINAS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (unaudited)


(dollars and shares in millions, except per share amounts)	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	113.7	$	81.3
Restricted cash	5.5		5.5
Marketable securities	884.8		1,124.0
Accounts receivable	15.7		1.0
Other receivables	4.9		7.0
Prepaid expenses and other current assets	8.4		21.4
Total current assets	1,033.0		1,240.2
Property, equipment and leasehold improvements, net	12.7		13.4
Operating lease right of use assets	3.0		4.4
Collaboration contract asset and other assets	9.6		10.8
Total assets	$	1,058.3	$	1,268.8
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$	91.0	$	74.7
Deferred revenue	224.2		218.6
Current portion of long term debt	0.2		—
Current portion of operating lease liability	1.9		1.8
Total current liabilities	317.3		295.1
Deferred revenue	281.9		405.1
Long term debt	0.8		1.0
Operating lease liability	1.1		2.7
Total liabilities	601.1		703.9
Commitments and Contingencies
Stockholders’ equity:
Common stock, $0.001 par value; 55.0 and 53.2 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	0.1		0.1
Accumulated deficit	(1,177.9)		(965.4)
Additional paid-in capital	1,644.2		1,549.4
Accumulated other comprehensive loss	(9.2)		(19.2)
Total stockholders’ equity	457.2		564.9
Total liabilities and stockholders’ equity	$	1,058.3	$	1,268.8

See accompanying notes to the condensed consolidated financial statements

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ARVINAS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(dollars and shares in millions, except per share amounts)	2023		2022		2023		2022
Revenue	$	34.6	$	33.2	$	121.6	$	93.6
Operating expenses:
Research and development	85.9		77.5		284.5		216.7
General and administrative	22.6		20.0		73.3		64.5
Total operating expenses	108.5		97.5		357.8		281.2
Loss from operations	(73.9)		(64.3)		(236.2)		(187.6)
Other income (expenses)
Other expense, net	—		(0.2)		(1.1)		(0.4)
Interest income, net	10.0		3.4		26.6		6.3

Total other income	10.0		3.2		25.5		5.9
Net loss before income taxes and loss from equity method investment	(63.9)		(61.1)		(210.7)		(181.7)
Income tax (expense) benefit	—		(2.2)		0.7		(10.1)
Loss from equity method investment	(0.1)		(2.9)		(2.5)		(7.8)
Net loss	$	(64.0)	$	(66.2)	$	(212.5)	$	(199.6)
Net loss per common share, basic and diluted	$	(1.18)	$	(1.24)	$	(3.97)	$	(3.76)
Weighted average common shares outstanding, basic and diluted	54.1		53.2		53.6		53.1


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(dollars in millions)	2023		2022		2023		2022
Net loss	$	(64.0)	$	(66.2)	$	(212.5)	$	(199.6)
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities	3.0		(2.8)		10.0		(20.2)
Comprehensive loss	$	(61.0)	$	(69.0)	$	(202.5)	$	(219.8)

See accompanying notes to the condensed consolidated financial statements

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ARVINAS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)


(dollars and shares in millions)	Common			Accumulated Deficit		Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity
For the Three Months Ended September 30, 2023 and 2022	Shares	Amount
Balance as of June 30, 2023	53.4	$	0.1	$	(1,113.9)	$	1,589.6	$	(12.2)	$	463.6
Stock-based compensation	—	—		—		16.7		—		16.7
Net loss	—	—		(64.0)		—		—		(64.0)

Issuance of common stock under equity incentive plans	0.1	—		—		1.9		—		1.9
Common stock issued, net of issuance costs of $1.1 million	1.5	—		—		36.0		—		36.0
Unrealized gain on available-for-sale securities	—	—		—		—		3.0		3.0
Balance as of September 30, 2023	55.0	$	0.1	$	(1,177.9)	$	1,644.2	$	(9.2)	$	457.2
Balance as of June 30, 2022	53.2	$	0.1	$	(816.3)	$	1,508.8	$	(22.0)	$	670.6
Stock-based compensation	—	—		—		18.8		—		18.8
Net loss	—	—		(66.2)		—		—		(66.2)

Issuance of common stock under equity incentive plans	—	—		—		1.1		—		1.1
Unrealized loss on available-for-sale securities	—	—		—		—		(2.8)		(2.8)
Balance as of September 30, 2022	53.2	$	0.1	$	(882.5)	$	1,528.7	$	(24.8)	$	621.5


(dollars and shares in millions)	Common			Accumulated Deficit		Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity
For the Nine Months Ended September 30, 2023 and 2022	Shares	Amount
Balance as of December 31, 2022	53.2	$	0.1	$	(965.4)	$	1,549.4	$	(19.2)	$	564.9
Stock-based compensation	—	—		—		54.9		—		54.9
Net loss	—	—		(212.5)		—		—		(212.5)

Issuance of common stock under equity incentive plans	0.3	—		—		3.9		—		3.9
Common stock issued, net of issuance costs of $1.1 million	1.5	—		—		36.0		—		36.0
Unrealized gain on available-for-sale securities	—	—		—		—		10.0		10.0
Balance as of September 30, 2023	55.0	$	0.1	$	(1,177.9)	$	1,644.2	$	(9.2)	$	457.2
Balance as of December 31, 2021	53.0	$	—	$	(682.9)	$	1,469.2	$	(4.6)	$	781.7
Stock-based compensation	—	—		—		55.4		—		55.4
Net loss	—	—		(199.6)		—		—		(199.6)

Issuance of common stock under equity incentive plans	0.2	0.1		—		4.1		—		4.2

Unrealized loss on available-for-sale securities	—	—		—		—		(20.2)		(20.2)
Balance as of September 30, 2022	53.2	$	0.1	$	(882.5)	$	1,528.7	$	(24.8)	$	621.5

See accompanying notes to the condensed consolidated financial statements

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ARVINAS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (unaudited)


	For the Nine Months Ended September 30,
(dollars in millions)	2023		2022
Cash flows from operating activities:
Net loss	$	(212.5)	$	(199.6)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	3.6		4.6
Net accretion of bond discounts/premiums	(11.6)		6.5

Loss on sale of marketable securities	0.9		0.4
Amortization of right-of-use assets	1.4		1.5
Amortization of collaboration contract asset	2.0		1.3

Stock-based compensation	54.9		55.4
Changes in operating assets and liabilities:
Accounts receivable	(14.7)		14.0
Other receivables	2.2		4.9
Prepaid expenses and other current assets	12.3		(2.0)

Accounts payable and accrued liabilities	16.0		(5.0)
Operating lease liability	(1.5)		(1.5)
Deferred revenue	(117.7)		(82.8)
Net cash used in operating activities	(264.7)		(202.3)
Cash flows from investing activities:
Purchases of marketable securities	(665.7)		(702.2)
Maturities of marketable securities	873.4		872.2
Sales of marketable securities	52.3		59.1
Purchases of property, equipment and leasehold improvements	(2.8)		(5.7)

Net cash provided by investing activities	257.2		223.4
Cash flows from financing activities:
Proceeds from issuance of common stock	37.1		—
Payment of common stock issuance costs	(1.1)		—
Proceeds from exercise of stock options and issuance of ESPP shares	3.9		4.2
Net cash provided by financing activities	39.9		4.2
Net increase in cash, cash equivalents and restricted cash	32.4		25.3
Cash, cash equivalents and restricted cash, beginning of the period	86.8		112.8
Cash, cash equivalents and restricted cash, end of the period	$	119.2	$	138.1
Supplemental disclosure of cash flow information:
Purchases of property, equipment and leasehold improvements unpaid at period end	$	—	$	0.3
Cash paid for taxes	$	9.1	$	8.1

See accompanying notes to the condensed consolidated financial statements

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ARVINAS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Nature of Business and Basis of Presentation

Arvinas, Inc. and its subsidiaries (“Arvinas” or the "Company”) is a clinical-stage biotechnology company dedicated to improving the lives of patients suffering from debilitating and life-threatening diseases through the discovery, development and commercialization of therapies that degrade disease-causing proteins.

The accompanying unaudited condensed consolidated financial statements include the accounts of Arvinas, Inc. and its subsidiaries. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (“SEC”) rules. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the Company's audited consolidated financial statements as of that date. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022, forming part of Arvinas’ 2022 Annual Report on Form 10-K filed with the SEC on February 23, 2023.

As previously disclosed in the Company's 2022 Annual Report on Form 10-K, the Company revised the accounting for its investment in Oerth Bio LLC ("Oerth Bio"). Accordingly, Arvinas recorded an adjustment to the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 that were previously included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022. See Note 12, Equity Method Investments, for further details.

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expenses. These estimates include assumptions and judgments based on historical experience, current conditions, future expectations and other factors the Company considers reasonable. These estimates are reviewed on an ongoing basis and revised as necessary. Actual results could differ from these estimates.

Risks and Uncertainties

The Company is subject to a number of risks similar to other biotechnology companies in the early stage, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s products and protection of proprietary technology. If the Company does not successfully obtain regulatory approval, it will be unable to generate revenue from product sales or achieve profitability.

To date, the Company has not generated any revenue from product sales and expects to incur additional operating losses and negative operating cash flows for the foreseeable future. The Company has financed its operations primarily through sales of equity interests, proceeds from collaborations, grant funding and debt financing. The Company had cash, cash equivalents, restricted cash and marketable securities of approximately $1.0 billion as of September 30, 2023.

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2. Accounting Pronouncements and Significant Accounting Policies

Accounting Pronouncements

The Company reviews new accounting standards as issued. As of September 30, 2023, the Company has not identified any new standards that it believes will have a material impact on the Company’s financial statements.

Significant Accounting Policies

There were no changes to the Company’s significant accounting policies during the nine months ended September 30, 2023.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the total amounts shown in the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022:


(dollars in millions)	September 30, 2023		September 30, 2022
Cash and cash equivalents	$	113.7	$	132.6
Restricted cash	5.5		5.5
Cash, cash equivalents and restricted cash	$	119.2	$	138.1

Restricted cash represents a letter of credit collateralized by a certificate of deposit in the same amount as required under the terms of the Company's laboratory and office space lease entered into in May 2021 and amended in August 2022.

3. Research Collaboration and License Agreements

Vepdegestrant (ARV-471) Collaboration Agreement

In July 2021, the Company entered into a Collaboration Agreement with Pfizer Inc. (“Pfizer”) (the “Vepdegestrant (ARV-471) Collaboration Agreement”) pursuant to which the Company granted Pfizer worldwide co-exclusive rights to develop and commercialize products containing the Company’s proprietary compound ARV-471 (the “Licensed Products”). Under the Vepdegestrant (ARV-471) Collaboration Agreement, the Company received an upfront, non-refundable payment of $650.0 million. In addition, the Company is eligible to receive up to an additional $1.4 billion in contingent payments based on specific regulatory and sales-based milestones for the Licensed Products. Of the total contingent payments, $400.0 million in regulatory milestones are related to marketing approvals and $1.0 billion are related to sales-based milestones. There were no regulatory or sales-based milestone payments received through September 30, 2023.

The Company and Pfizer share equally all development costs, including costs of conducting clinical trials, for the Licensed Products, subject to certain exceptions. Except for certain regions described below, the parties will also share equally all profits and losses in commercialization and medical affairs activities for the Licensed Products in all other countries, subject to certain exceptions.

The Company will be the marketing authorization holder in the United States and, subject to marketing approval, book sales in the United States, while Pfizer will hold marketing authorizations outside the United States. The parties will determine which, if any, regions within the world will be solely commercialized by one party, and in such region the parties will adjust their share of profits and losses for the Licensed Products based on the role each party will be performing.

As a direct result of the Company’s entry into the Vepdegestrant (ARV-471) Collaboration Agreement, the Company incurred direct and incremental costs to obtain the contract, paid to a financial advisor, totaling $12.9 million. In accordance with ASC 340, Other Assets and Deferred Costs, the Company recognized an asset of $12.9 million in collaboration contract asset and other assets in the condensed consolidated balance sheet at inception of the agreement, which is being amortized as general and administrative expense over the total estimated period of performance under the Vepdegestrant (ARV-471) Collaboration Agreement.

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Bayer Collaboration Agreement

In June 2019, the Company and Bayer AG entered into a Collaboration and License Agreement (the “Bayer Collaboration Agreement”) setting forth the Company’s collaboration with Bayer AG to identify or optimize proteolysis targeting chimeras ("PROTAC® targeted protein degraders") that mediate the degradation of target proteins. Under the terms of the Bayer Collaboration Agreement, the Company received an upfront, non-refundable payment of $17.5 million in exchange for the use of the Company’s technology license. Bayer AG was committed to fund an additional $12.0 million through 2023, all of which was received as of September 30, 2023, including $1.5 million and $3.0 million in the nine months ended September 30, 2023 and 2022, respectively. These payments are being recognized over the total estimated period of performance.

The Company is also eligible to receive up to $197.5 million in development milestone payments and up to $490.0 million in sales-based milestone payments for all designated targets. In addition, the Company is eligible to receive, on net sales of PROTAC targeted protein degrader-related products, mid-single digit to low-double digit tiered royalties, which may be subject to reductions. There were no development or sales-based milestone payments or royalties received through September 30, 2023.

Pfizer Research Collaboration Agreement

In December 2017, the Company entered into a Research Collaboration and License Agreement with Pfizer (the “Pfizer Research Collaboration Agreement”). Under the terms of the Pfizer Research Collaboration Agreement, the Company received an upfront, non-refundable payment and certain additional payments totaling $28.0 million in 2018 in exchange for use of the Company’s technology license and to fund Pfizer-related research as defined within the Pfizer Research Collaboration Agreement. These payments are being recognized as revenue over the total estimated period of performance. The Company is eligible to receive up to an additional $37.5 million in non-refundable option payments if Pfizer exercises its options for all targets under the Pfizer Research Collaboration Agreement. The Company is also entitled to receive up to $225.0 million in development milestone payments and up to $550.0 million in sales-based milestone payments for all designated targets under the Pfizer Research Collaboration Agreement, as well as tiered royalties based on sales. During the nine months ended September 30, 2023 and 2022, the Company received payments totaling $1.0 million and $3.5 million which were included in accounts receivable as of December 31, 2022 and 2021, respectively, for additional targets and services which are being recognized as revenue over the total period of performance. There were no sales-based milestone payments or royalties received through September 30, 2023.

Restated Genentech Agreement

In November 2017, the Company entered into an Amended and Restated Option, License, and Collaboration Agreement (the “Restated Genentech Agreement”) with Genentech, Inc. and F. Hoffman-La Roche Ltd. (together "Genentech"), amending a previous Genentech agreement entered into in September 2015. Under the Restated Genentech Agreement, the Company received additional upfront, non-refundable payments of $34.5 million (in addition to $11.0 million received under the previous agreement in 2015) to fund Genentech-related research. Upfront non-refundable payments were recognized as revenue over the performance period.

The Company is eligible to receive up to $44.0 million per target in development milestone payments, $52.5 million in regulatory milestone payments and $60.0 million in commercial milestone payments based on sales as well as tiered royalties based on sales. There were no development, regulatory or commercial milestone payments or royalties received through September 30, 2023.

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Changes in the Company's contract balances for the nine months ended September 30, 2023 and 2022 were as follows:


(dollars in millions)	September 30, 2023		September 30, 2022
Accounts receivable related to collaborations
Beginning balance	$	1.0	$	15.0
Additions	21.7		2.4
Payments received	(7.0)		(16.4)
Ending balance	$	15.7	$	1.0
Accounts payable related to collaborations
Beginning balance	$	5.0	$	—
Additions	31.0		—
Payments made	(6.7)		—
Ending balance	$	29.3	$	—
Contract assets: Collaboration contract asset
Beginning balance	$	10.7	$	12.5
Additions	—		—
Amortization	(2.0)		(1.3)
Ending balance	$	8.7	$	11.2
Contract liabilities: Deferred revenue
Beginning balance	$	623.7	$	740.5
Revenue recognized from balances held at the beginning of the period	(119.1)		(85.8)
Additions to collaboration agreements	1.5		3.0
Ending balance	$	506.1	$	657.7

During the nine months ended September 30, 2023, the Company recorded cumulative catch-up adjustments from contract modifications totaling $(8.2) million, relating to performance obligations which were satisfied in prior periods. During the three months ended September 30, 2023 and the three and nine months ended September 30, 2022, the Company recorded no cumulative catch-up adjustments.

The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied as of September 30, 2023 was $506.1 million, which is expected to be recognized in the following periods:


(dollars in millions)
Remainder of 2023	$	64.1
2024	200.9
2025	90.2
2026	55.3
2027	34.7
2028	10.8
Thereafter	50.1
Total	$	506.1

4. Marketable Securities and Fair Value Measurements

The Company’s marketable securities consist of corporate bonds and government securities which are adjusted to fair value as of each balance sheet date based on quoted prices, which are considered Level 2 inputs.

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The following is a summary of the Company’s available-for-sale marketable securities measured at fair value on a recurring basis.


	September 30, 2023
(dollars in millions)	Valuation Hierarchy	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate bonds	Level 2	$	821.6	$	—	$	(9.1)	$	812.5
Government securities	Level 2	72.4		—		(0.1)		72.3
Total		$	894.0	$	—	$	(9.2)	$	884.8


	December 31, 2022
(dollars in millions)	Valuation Hierarchy	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate bonds	Level 2	$	1,008.0	$	—	$	(18.5)	$	989.5
Government securities	Level 2	135.2		—		(0.7)		134.5
Total		$	1,143.2	$	—	$	(19.2)	$	1,124.0

The Company does not intend to sell any investments prior to recovery of their amortized cost basis for any investment in an unrealized loss position. As such, the Company has classified these losses as temporary in nature.

The carrying values of accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these assets and liabilities.

5. Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consist of the following:


(dollars in millions)	September 30, 2023		December 31, 2022
Laboratory equipment	$	18.5	$	17.1
Leasehold improvements	11.5		10.9
Office equipment	2.6		2.0
Total property, equipment and leasehold improvements	32.6		30.0
Less: accumulated depreciation and amortization	(19.9)		(16.6)
Property, equipment and leasehold improvements, net	$	12.7	$	13.4

Depreciation and amortization expense totaled $1.2 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively, and $3.6 million and $4.6 million for the nine months ended September 30, 2023 and 2022, respectively.

6. Right-of-Use Assets and Liabilities

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the condensed consolidated balance sheets.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining

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the present value of lease payments, which ranges from 3.0% - 7.5%. Lease expense is recognized on a straight-line basis over the lease term. The Company considers options to extend or terminate leases in recognizing ROU assets and lease liabilities when it is reasonably certain that such options will be exercised.

In May 2021, the Company entered into a lease arrangement, which was amended in August 2022, for approximately 160,000 square feet of laboratory and office space, expected to be occupied in 2025. Once occupied, the base rent will range from $7.7 million to $8.8 million annually over a ten-year lease term.

In connection with the signing of the lease and the related amendment, and at the Company’s election to increase the landlord’s contribution to the tenant improvement allowance, the Company initially issued a letter of credit totaling $4.5 million, which was subsequently increased to $5.5 million, collateralized by a certificate of deposit in the same amount, which is presented as restricted cash in the consolidated balance sheets.

The Company has operating leases for its corporate office, laboratories and certain equipment, which expire no later than January 2026. The leases have a weighted average remaining term of 1.6 years.

The components of lease expense were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2023		2022		2023		2022
Operating lease cost	$	0.5	$	0.5	$	1.5	$	1.6

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended September 30,
(dollars in millions)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1.5	$	1.5
Supplemental non-cash information:
Right-of-use assets obtained in exchange for new lease obligations	$	—	$	2.4

Maturities of operating lease liabilities as of September 30, 2023, were as follows:


(dollars in millions)
Remainder of 2023	$	0.4
2024	2.2
2025	0.5
2026	—



Total lease payments	3.1
Less: imputed interest	(0.1)
Total	$	3.0

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7. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:


(dollars in millions)	September 30, 2023		December 31, 2022
Accounts payable	$	34.3	$	5.7
Accrued liabilities
Research and development expenses	36.0		35.9
Employee expenses	16.7		18.7
Professional fees and other	2.9		4.1
Income taxes	1.1		10.3
Total accounts payable and accrued liabilities	$	91.0

SEC Form 10-Q filed by Arvinas Inc.