ARVINAS, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

You should read the following discussion and analysis of financial condition and
results of operations together with our unaudited condensed consolidated
financial statements and the related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and the consolidated financial statements and the related
notes and discussion and analysis of financial condition and results of
operations in our Annual Report on Form 10-K for the year ended December 31,
2021 filed on February 28, 2022. This discussion contains forward-looking
statements that involve risks and uncertainties. As a result of many factors,
such as those set forth in the section titled "Risk Factors" and elsewhere in
this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the
year ended December 31, 2021, filed on February 28, 2022, our actual results may
differ materially from those anticipated in or implied by these forward-looking
statements.

                                    Overview

Our Business

We are a clinical-stage biopharmaceutical company dedicated to improving the
lives of patients suffering from debilitating and life-threatening diseases
through the discovery, development and commercialization of therapies to degrade
disease-causing proteins. We use our PROTAC Discovery Engine, proprietary
technology platform to engineer proteolysis targeting chimeras, or PROTAC
targeted protein degraders, that are designed to harness the body's own natural
protein disposal system to selectively remove disease-causing proteins. We
believe that our targeted protein degradation approach is a therapeutic modality
that may provide distinct advantages over existing modalities, including
traditional small molecule therapies and gene-based medicines. Our small
molecule PROTAC technology has the potential to address a broad range of
intracellular disease targets, including those representing up to the 80% of
proteins that currently cannot be addressed by existing small molecule
therapies, commonly referred to as "undruggable" targets. We are using our
PROTAC Discovery Engine to build an extensive pipeline of protein degradation
product candidates to target diseases in oncology (including immuno-oncology),
neuroscience, and other therapeutic areas. Our three lead product candidates are
bavdegalutamide, ARV-471, and ARV-766.

Bavdegalutamide

We are developing bavdegalutamide, an investigational orally bioavailable PROTAC
protein degrader targeting the androgen receptor protein, or AR, for the
treatment of men with metastatic castration-resistant prostate cancer, or mCRPC.
We initiated a Phase 1 clinical trial of bavdegalutamide designed to assess the
safety, tolerability and pharmacokinetics of bavdegalutamide, which also
includes measures of anti-tumor activity as secondary endpoints, including
reduction in prostate specific antigen, or PSA, a well-recognized biomarker of
prostate cancer progression. We received fast track designation for
bavdegalutamide for mCRPC in May 2019. We have completed dose escalation in the
Phase 1 clinical trial. In the fourth quarter of 2020, we initiated ARDENT, the
Phase 2 single agent expansion portion of the bavdegalutamide clinical trial. In
the fourth quarter of 2021, we initiated a Phase 1b clinical trial with
bavdegalutamide in combination with abiraterone for the treatment of men with
mCRPC. In the second quarter of 2022, we intend to initiate discussions with the
U.S. Food and Drug Administration, or FDA, about the potential for an
accelerated approval pathway with bavdegalutamide in molecularly defined mCRPC
and finalize a partnership for a companion diagnostic. In the second half of
2022, we plan to initiate a pivotal trial for patients with AR T878/H875 tumor
mutations. We anticipate that future studies will be planned to explore the
potential to treat earlier-line patients with AR-dependent tumors who may
benefit from bavdegalutamide therapy.

ARV-471

We are developing ARV-471, an investigational orally bioavailable PROTAC protein
degrader targeting the estrogen receptor protein, or ER, for the treatment of
patients with locally advanced or metastatic ER positive / HER2 negative breast
cancer. We initiated a Phase 1 clinical trial of ARV-471 designed to assess the
safety, tolerability and pharmacokinetics of ARV-471, which also includes
measures of anti-tumor activity as secondary endpoints. In the fourth quarter of
2020, we initiated a Phase 1b cohort expansion of ARV-471 in combination with
Ibrance® (palbociclib). We have completed dose escalation in the Phase 1
clinical trial. In the first quarter of 2021, we initiated VERITAC, the Phase 2
single agent expansion cohort of the ARV-471 clinical trial. In July 2021, we
entered into a collaboration agreement with Pfizer Inc., or Pfizer, pursuant to
which we
                                       16

————————————————– ——————————

Contents

granted Pfizer worldwide coexclusive rights to develop and commercialize
ARV-471. In December 2021, we presented data from the dose escalation portion of
the Phase 1/2 clinical trial at the San Antonio Breast Cancer Symposium. In the
second half of 2022, we plan to present data from the VERITAC Phase 2 dose
expansion (with patients dosed at 200 and 500 mg) and present safety data from
the Phase 1b combination study with palbociclib. Additionally, in 2022, we plan
to initiate a Phase 1b clinical trial with ARV-471 in combination with
everolimus in patients with metastatic breast cancer, initiate a Phase 1b
combination trial with cyclin-dependent kinase, or CDK, inhibitors or other
targeted therapies, initiate a Phase 2 clinical trial in patients with early
breast cancer in the neoadjuvant setting and initiate two Phase 3 clinical
trials in patients with metastatic breast cancer as a monotherapy and in
combination.

ARV-766

We are developing ARV-766, an investigational orally bioavailable PROTAC protein
degrader for the treatment of men with mCRPC. In preclinical studies, ARV-766
degraded all tested resistance-driving point mutations of AR, including L702H, a
mutation associated with treatment with abiraterone and other AR-pathway
therapies, which bavdegalutamide did not degrade in preclinical studies. In
2021, we initiated a Phase 1 clinical trial for ARV-766 designed to assess the
safety, tolerability and pharmacokinetics of ARV-766, which also includes
measures of anti-tumor activity as secondary endpoints, including reduction in
PSA. In the second half of 2022, we plan to present Phase 1 dose escalation data
and initiate a Phase 2 expansion trial for the treatment of men with mCRPC.

Bavdegalutamide, ARV-471 and ARV-766 have all demonstrated potent and selective
protein degradation in our preclinical studies. We believe favorable clinical
trial results in these initial oncology programs would provide validation of our
platform as a new therapeutic modality for the potential treatment of diseases
caused by dysregulated intracellular proteins regardless of therapeutic area.

Our operations

As a result of the COVID-19 pandemic, many companies have experienced
disruptions in their operations and in the markets they serve. We have instated
some and may take additional precautionary measures intended to help ensure our
employees' well-being and minimize business disruption. We temporarily shut down
our laboratories in mid-March 2020 and initiated work with biology contract
research organizations, or CROs, but have since reopened our laboratories and
our office-based employees are working in a hybrid of remote and in-person work.
We considered the impact of COVID-19 on the assumptions and estimates used and
determined that there were no material adverse impacts on our results of
operations and financial position as of March 31, 2022. The full extent of the
future impacts of COVID-19 on our operations remains uncertain. A prolonged
outbreak could have a material adverse impact on our financial results and
business operations, including the timing and our ability to complete certain
clinical trials and other efforts required to advance our preclinical pipeline.

We commenced operations in 2013. Our operations to date have been limited to
organizing and staffing our company, business planning, raising capital,
conducting discovery and research activities, filing patent applications,
identifying potential product candidates, undertaking preclinical studies and
clinical trials and establishing arrangements with third parties for the
manufacture of initial quantities of our product candidates. To date, we have
not generated any revenue from product sales and have financed our operations
primarily through sales of our equity interests, proceeds from our
collaborations, grant funding and debt financing. Since inception through
March 31, 2022, we raised approximately $1.3 billion in gross proceeds from the
sale of equity instruments and the exercise of stock options and had received an
aggregate of $780.5 million in payments primarily from collaboration partners.

We are a clinical-stage company. Bavdegalutamide and ARV-471 are each in Phase
1/2 clinical trials, ARV-766 is in a Phase 1 clinical trial and our other drug
discovery activities are at the research and preclinical development stages. Our
ability to generate revenue from product sales sufficient to achieve
profitability will depend heavily on the successful development and eventual
commercialization of one or more of our product candidates. Since inception, we
have incurred significant operating losses. We expect to continue to incur
significant expenses and increasing operating losses for at least the next
several years. Our net loss was $63.4 million for the three months ended
March 31, 2022. As of March 31, 2022, we had an accumulated deficit of $746.3
million.
                                       17

————————————————– ——————————

Contents

Our total operating expenses were $84.2 million for the three months ended
March 31, 2022. We anticipate that our expenses will increase substantially due
to costs associated with our ongoing and anticipated clinical activities for
bavdegalutamide, ARV-471, and ARV-766, development activities associated with
our other product candidates, research activities in oncology, neurological and
other disease areas to expand our pipeline, hiring additional personnel in
research, clinical trials, quality and other functional areas, increased
expenses incurred with contract manufacturing organizations, or CMOs, to supply
us with product for our preclinical and clinical studies and CROs for the
synthesis of compounds in our pre-clinical development activities, as well as
other associated costs including the management of our intellectual property
portfolio.

We do not expect to generate revenue from sales of any product for many years,
if ever. Accordingly, we will need to obtain substantial additional funding in
connection with our continuing operations. If we are unable to raise capital
when needed or on attractive terms, we could be forced to delay, reduce or
eliminate our research or product development programs or any future
commercialization efforts, or to relinquish valuable rights to our technologies,
future revenue streams, research programs or product candidates or grant
licenses on terms that may not be favorable to us.

                         Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales and do not expect
to generate any revenue from the sale of products in the foreseeable future. Our
revenues to date have been generated through research collaboration and license
agreements. Revenue is recognized ratably over our expected performance period
under each agreement. We expect that any revenue for the next several years will
be derived primarily from our current collaboration agreements and any
additional collaborations that we may enter into in the future. To date, we have
not received any sales-based milestone payments or royalties under any of the
collaboration agreements.

Genentech License Agreement

In September 2015, we entered into an Option and License Agreement with
Genentech, Inc. and F. Hoffmann-La Roche Ltd, collectively referred to as
Genentech, focused on PROTAC targeted protein degrader discovery and research
for target proteins, or Targets, based on our proprietary platform technology,
other than excluded Targets as described below. This collaboration was expanded
in November 2017 through an Amended and Restated Option, License and
Collaboration Agreement, which we refer to as the Restated Genentech Agreement.

Under the Restated Genentech Agreement, Genentech has the right to designate up
to ten Targets for further discovery and research utilizing our PROTAC platform
technology. Genentech may designate as a Target any protein to which a PROTAC
targeted protein degrader, by design, binds to achieve its mechanism of action,
subject to certain exclusions. Genentech also has the right to remove a Target
from the collaboration and substitute a different Target that is not an excluded
Target at any time prior to us commencing research on such Target or in certain
circumstances following commencement of research by us.

At the time we entered into the original agreement with Genentech we received an
upfront payment of $11.0 million, and at the time we entered into the Restated
Genentech Agreement, we received an additional $34.5 million in upfront and
expansion target payments. We are eligible to receive up to an aggregate of
$27.5 million in additional expansion target payments if Genentech exercises its
options for all remaining Targets. We are also eligible to receive payments
aggregating up to $44.0 million per Target upon the achievement of specified
development milestones; payments aggregating up to $52.5 million per Target
(assuming approval of two indications) subject to the achievement of specified
regulatory milestones; and payments aggregating up to $60.0 million per PROTAC
targeted protein degrader directed against the applicable Target, subject to the
achievement of specified sales milestones. These milestone payments are subject
to reduction if we do not have a valid patent claim covering the licensed PROTAC
targeted protein degrader at the time the milestone is achieved. We are also
eligible to receive, on net sales of licensed PROTAC targeted protein degraders,
mid-single digit royalties, which may be subject to reductions.
                                       18

————————————————– ——————————

Contents

Pfizer Research Collaboration Agreement

In December 2017, we entered into a Research Collaboration and License Agreement
with Pfizer, setting forth our collaboration to identify or optimize PROTAC
targeted protein degraders that mediate for degradation of Targets, using our
proprietary platform technology that are identified in the agreement or
subsequently selected by Pfizer, subject to certain exclusions. We refer to this
agreement as the Pfizer Research Collaboration Agreement.

Under the Pfizer Research Collaboration Agreement, Pfizer has designated a
number of initial Targets. For each identified Target, we and Pfizer will
conduct a separate research program pursuant to a research plan. Pfizer may make
substitutions for any of the initial Target candidates, subject to the stage of
research for such Target.

In the year ended December 31, 2018, we received an upfront non-refundable
payment and certain additional payments totaling $28.0 million in exchange for
use of our technology license and to fund Pfizer-related research as defined
within the Pfizer Research Collaboration Agreement. We are 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. We are 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 mid- to high-single digit tiered royalties, which may be subject to
reductions, on net sales of PROTAC targeted protein degrader-related products.
We received payments totaling $3.5 million in the quarter ended March 31, 2022,
and $1.2 million and $4.4 million in the years ended December 31, 2021 and 2020,
respectively, for additional targets and services.

Bayer collaboration agreement

In June 2019, we entered into a Collaboration and License Agreement, or the
Bayer Collaboration Agreement, with Bayer AG, or, together with its controlled
affiliates, Bayer, setting forth our collaboration to identify or optimize
PROTAC targeted protein degraders that mediate for degradation of Targets, using
our proprietary platform technology, that are selected by Bayer, subject to
certain exclusions and limitations. The Bayer Collaboration Agreement became
effective in July 2019.

Under the Bayer Collaboration Agreement, we and Bayer conduct a research program
pursuant to separate research plans mutually agreed to by us and Bayer and
tailored to each Target selected by Bayer. Bayer may make substitutions for any
such initial Target candidates, subject to certain conditions and based on the
stage of research for such Target. During the term of the Bayer Collaboration
Agreement, we are not permitted, either directly or indirectly, to design,
identify, discover or develop any small molecule pharmacologically-active agent
whose primary mechanism of action is, by design, directed to the inhibition or
degradation of any Target selected or reserved by Bayer, or grant any license,
covenant not to sue or other right to any third party in the field of human
disease under the licensed intellectual property for the conduct of such
activities.

Under the terms of the Bayer Collaboration Agreement, we received an aggregate
upfront non-refundable payment of $17.5 million. Bayer is committed to fund a
total of $12.0 million in research funding payments through 2023, of which $10.5
million was received through March 31, 2022, subject to potential increases if
our costs for research activities exceed the research funding payments allocated
to a Target and certain conditions are met. We are 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, we are
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.

Pfizer ARV-471 Collaboration Agreement

In July 2021, we entered into we entered into a collaboration agreement with
Pfizer, or the ARV-471 Collaboration Agreement, pursuant to which we granted
Pfizer worldwide co-exclusive rights to develop and commercialize products
containing our proprietary compound ARV-471, or the Licensed Products.

Under the ARV-471 collaborative agreement, we received an initial non-refundable payment of $650.0 million. Additionally, we are eligible to receive up to an additional amount $1.4 billion in conditional payments

                                       19

————————————————– ——————————

Contents

based on specified regulatory and commercial milestones for licensed products. Of the total contingent payments, $400 million in the regulatory milestones are linked to marketing authorizations and $1.0 billion are tied to sales-based milestones.

We and Pfizer will share equally (50/50) all development costs (including costs
for conducting any clinical trials) for the Licensed Products, subject to
certain exceptions. Except for certain regions described below, we will also
share equally (50/50) all profits and losses in commercialization and medical
affairs activities for the Licensed Products in all other countries, subject to
certain exceptions.

We will be the marketing authorization holder and, subject to marketing
approval, book sales in the United States, while Pfizer will hold marketing
authorizations outside the United States. We will determine with Pfizer 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 all profits and losses for
the Licensed Products based on the role each party will be performing.

Unless earlier terminated in accordance with its terms, the ARV-471
Collaboration Agreement will expire on a Licensed Product-by-Licensed Product
and country-by-country basis when such Licensed Products are no longer
commercialized or developed for commercialization in such country. Pfizer may
terminate the ARV-471 Collaboration Agreement for convenience in its entirety or
on a region-by-region basis subject to certain notice periods. Either party may
terminate the ARV-471 Collaboration Agreement for the other party's uncured
material breach or insolvency. Subject to applicable terms of the ARV-471
Collaboration Agreement, including certain payments to Pfizer upon termination
for our uncured material breach, effective upon termination of the ARV-471
Collaboration Agreement, we are entitled to retain specified licenses to be able
to continue to exploit the Licensed Products.

Subject to specified exceptions, we and Pfizer have each agreed not to directly
or indirectly research, develop, or commercialize any competing products outside
of the ARV-471 Collaboration Agreement anywhere in the world during the term of
the ARV-471 Collaboration Agreement.

Functionnary costs

Our operating expenses since inception consist solely of research and development expenses and general and administrative expenses.

Research and development costs

Research and development expenses consist primarily of costs incurred for our
research activities, including our discovery efforts, and the development of our
product candidates, and include:

•salaries, benefits and other related costs, including stock-based compensation expenses, for personnel engaged in research and development functions;

•expenses incurred under agreements with third parties, including CROs and other
third parties that conduct research and preclinical activities on our behalf as
well as third parties that manufacture our product candidates for use in our
preclinical studies and clinical trials;

• the costs of external consultants, including their fees, stock-based compensation and associated travel expenses;

•costs of laboratory supplies and development of preclinical studies and clinical trial materials;

•expenses related to installations, which include direct depreciation of equipment and expenses allocated to rent and maintenance of installations and other operating expenses; and

•Third party license fees.

We expense research and development costs when incurred.

                                       20

————————————————– ——————————

Contents

We typically use our employee and infrastructure resources across our
development programs, and as such, do not track all of our internal research and
development expenses on a program-by-program basis. The following table
summarizes our research and development expenses for our AR program, which
includes bavdegalutamide and ARV-766, ER program, which includes ARV-471, and
all other platform and exploratory research and development costs:

                                               For the Three Months Ended
                                                       March 31,
(in millions)                                       2022                   2021
AR program development costs           $         16.1                    $  7.2
ER program development costs                     14.8                       5.6
Other research and development costs             33.1                      

22.1

Total research and development costs   $         64.0                    $ 

34.9

Research and development activities are central to our business model. We expect
that our research and development expenses will continue to increase
substantially for the foreseeable future as we conduct clinical trials for
bavdegalutamide, ARV-471 and ARV-766, including our ongoing Phase 1/2 clinical
trials for bavdegalutamide and ARV-471 and our ongoing Phase 1 clinical trial
for ARV-766, and continue to discover and develop additional product candidates.
Research and development expenses related to ARV-471 are shared equally with
Pfizer from July 22, 2021, the effective date of the ARV-471 Collaboration
Agreement. The ER program development costs in the table above reflect the cost
sharing with Pfizer.

We cannot reasonably estimate or determine with certainty the duration and costs
of future clinical trials of bavdegalutamide, ARV-471 and ARV-766 or any other
product candidate we may develop or if, when, or to what extent we will generate
revenue from the commercialization and sale of any product candidate for which
we obtain marketing approval. We may never succeed in obtaining marketing
approval for any product candidate. The successful development and
commercialization of our product candidates is highly uncertain. This is due to
the numerous risks and uncertainties associated with developing drugs, including
the uncertainty of:

•the success of preclinical studies;

•the successful initiation of clinical trials;

•successful enrollment of patients and completion of clinical trials;

•receipt and related conditions of marketing authorizations from applicable regulatory authorities;

•obtain and maintain patent and trade secret protection and regulatory exclusivity for our product candidates;

• enter into agreements with third-party manufacturers, or establish manufacturing capabilities, for the clinical and commercial supply of our product candidates;

•establish sales, marketing and distribution capabilities and initiate commercial sales of our products, if and when approved, whether alone or in collaboration with others;

•the acceptance of our products, if approved, by patients, the medical community and third-party payers;

•obtain and maintain third-party coverage and adequate reimbursement;

• maintain an acceptable continuing safety profile of products after approval; and

•effective competition with other therapies.

A change in the outcome of any of these variables relative to the development of a product candidate could mean a significant change in the costs and schedule associated with the development of that product candidate. For example, if the US Food and Drug Administrationor the FDA, or other regulatory agency

                                       21

————————————————– ——————————

Contents

authority were to require us to conduct clinical trials beyond those that we
anticipate will be required for the completion of clinical development of a
product candidate, or if we experience significant delays in our clinical trials
due to patient enrollment or other reasons, we would be required to expend
significant additional financial resources and time on the completion of
clinical development.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation for personnel in our
executive, finance, business development and administrative functions. General
and administrative expenses also include legal fees relating to intellectual
property and corporate matters; professional fees for accounting, auditing, tax
and consulting services; insurance costs; travel expenses; and facility-related
expenses, which include direct depreciation costs and allocated expenses for
rent and maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the
future as we increase our personnel headcount to support increased research and
development activities relating to our product candidates. We also expect to
incur increased expenses associated with being a public company, including costs
of accounting, audit, legal, regulatory and tax-related services associated with
maintaining compliance with the Nasdaq Stock Market and Securities and Exchange
Commission requirements; director and officer insurance costs; and investor and
public relations costs.

Income Taxes
Since our inception in 2013, we have not recorded any U.S. federal or state
income tax benefits for the net losses we have incurred in any year or for our
federal or state earned research and development tax credits, due to our
uncertainty of realizing a benefit from those items. As of December 31, 2021, we
had federal net operating loss carryforwards of $373.6 million, which begin to
expire in 2033, state and local net operating loss carryforwards of
$346.9 million, and federal and state research and development tax credit
carryforwards of $15.2 million and $4.5 million, respectively, which begin to
expire in 2033 and 2036, respectively. We expected to fully utilize these net
operating loss and credit carryforwards in the current year due to taxable
income resulting from revenue recognition for tax purposes from our ARV-471
Collaboration Agreement and the capitalization of qualified research and
development expenses incurred on or after January 1, 2022. The revenue
recognition and capitalization of research expenses are timing differences for
tax purposes and deferred tax assets were established. We have provided a
valuation allowance against the full amount of the deferred tax assets since, in
the opinion of management, based upon our earnings history, it is more likely
than not that the benefits will not be realized.

As of March 31, 2022, Arvinas, Inc. had four wholly-owned subsidiaries organized
as C-corporations: Arvinas Operations, Inc., Arvinas Androgen Receptor, Inc.,
Arvinas Estrogen Receptor, Inc., and Arvinas Winchester, Inc. Prior to December
31, 2018, these subsidiaries were separate filers for federal tax purposes.

                         Critical Accounting Estimates

Our management's discussion and analysis of financial condition and results of
operations is based on our unaudited condensed consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles in the United States. The preparation of our condensed
consolidated financial statements and related disclosures requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, costs and expenses and the disclosure of contingent assets and
liabilities in our condensed consolidated financial statements. We base our
estimates on historical experience, known trends and events and various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. We evaluate
our estimates and assumptions on an ongoing basis. Our actual results may differ
from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting estimates from
those described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the Securities and Exchange Commission on
February 28, 2022.
                                       22

————————————————– ——————————

Contents

                             Results of Operations

Comparison of the three months ended March 31, 2022 and 2021

                                             For the Three Months Ended
                                                      March 31,
(dollars in millions)                             2022                  2021        $ change
Revenue                               $         24.2                  $   5.5      $   18.7
Research and development expenses               64.0                     34.9          29.1
General and administrative expenses             20.2                     12.3           7.9
Other income                                     1.1                      0.7           0.4
Income tax expense                              (4.5)                       -          (4.5)
Net loss                              $        (63.4)                 $ (41.0)     $  (22.4)


Revenues

Revenues for the three months ended March 31, 2022 totaled $24.2 million, as
compared to $5.5 million for the three months ended March 31, 2021. The increase
of $18.7 million was due to revenue from the ARV-471 Collaboration Agreement
with Pfizer entered into during the third quarter of 2021.

Research and development costs

Research and development expenses for the three months ended March 31, 2022
totaled $64.0 million, compared with $34.9 million for the three months ended
March 31, 2021. The increase of $29.1 million was primarily due to an increase
in our continued investment in our platform and exploratory programs of
$11.0 million as well as increases in expenses related to our AR and ER programs
of $8.9 million and $9.2 million, respectively. The increase in spending over
all of our programs was primarily due to increased personnel and personnel costs
utilized across all of our programs of $9.2 million, including $3.4 million
related to stock compensation expense. Clinical trial costs and related drug
manufacturing costs increased by $15.6 million as we expanded our AR and ER
programs into additional clinical studies. Direct expenses related to our
platform and exploratory targets increased by $3.6 million as we continued to
expand the number of protein targets in the exploratory and lead optimization
phases and continued to make investments into our platform discovery efforts.

General and administrative expenses

General and administrative expenses totaled $20.2 million for the three months
ended March 31, 2022, compared with $12.3 million for the three months ended
March 31, 2021. The increase of $7.9 million was primarily due to an increase of
personnel and facility related costs of $5.5 million, including $2.3 million
related to stock compensation expense, and insurance, taxes and professional
fees of $2.4 million.

Other Income
Other income totaled $1.1 million for the three months ended March 31, 2022,
compared with $0.7 million for the three months ended March 31, 2021. The
increase of $0.4 million was primarily due to higher interest income of
$0.7 million from marketable security investments as compared to prior year due
to higher interest rates, offset in part by lower refundable research and
development credits from the State of Connecticut of $0.3 million. The Company
is no longer eligible to receive a cash refund for the research and development
credits in the State of Connecticut.

income tax expense

Income tax expense totaled $4.5 million for the three months ended March 31,
2022, compared with zero for the three months ended March 31, 2021, primarily
due to current income taxes resulting from revenue recognition for tax purposes
from our ARV-471 Collaboration Agreement and the capitalization of research and
development expenses incurred on or after January 1, 2022. Under the Tax Cuts
and Jobs Act of 2017, qualified
                                       23

————————————————– ——————————

Contents

research expenses incurred after 2021 are no longer immediately deductible for
tax purposes and instead must be amortized over 5 years for tax purposes. As a
result of these items, we expect to fully utilize our federal net operating loss
and credit carryforwards in the current year, resulting in current income tax
expense for the period.

                        Liquidity and Capital Resources

Insight

We do not currently have any approved products and have never generated any
revenue from product sales. To date, we have financed our operations primarily
through the sale of equity interests and through payments from collaboration
partners, grant funding and loans from the State of Connecticut. Since inception
through March 31, 2022, we had received an aggregate of $780.5 million in
payments from collaboration partners, grant funding and forgivable and partially
forgivable loans from the State of Connecticut, and raised approximately
$1.3 billion in gross proceeds from the sale of equity interests and the
exercise of stock options, including:

•October 2018: our initial public offering in which we issued an aggregate of
7,700,482 shares of common stock, for aggregate gross proceeds of $123.2 million
before fees and expenses;

• July 2019: the sale of 1,346,313 ordinary shares to Bayer AG for total gross proceeds of $32.5 million;

•November 2019: completion of a follow-on offering in which we issued 5,227,273
shares of common stock for aggregate gross proceeds of $115.0 million before
fees and expenses;

•September - December 2020: sale of 2,593,637 shares of common stock in an
"at-the-market offering" for aggregate gross proceeds of $65.6 million before
fees and expenses;

•December 2020: completion of a follow-on offering in which we issued 6,571,428
shares of common stock for aggregate gross proceeds of $460.0 million before
fees and expenses; and

• September 2021: issuance of 3,457,815 common shares to Pfizer for total gross proceeds of $350.0 million.

In May 2021, we entered into a lease for approximately 160,000 square feet of
laboratory and office space to be occupied in 2024. In connection with the
signing of the lease, and at our election to increase the landlord's
contribution to the tenant improvement allowance, we issued a letter of credit
for $4.5 million, collateralized by a certificate of deposit in the same amount.
Once occupied, the base rent will range from $7.7 million to $8.8 million
annually over a ten-year lease term.

In August 2021, we entered into an Equity Distribution Agreement with Piper
Sandler & Company and Cantor Fitzgerald & Co., as agents, pursuant to which we
may offer and sell from time to time, through the agents, up to $300.0 million
of the common stock registered under our universal shelf registration statement
pursuant to one or more "at-the-market" offering. At March 31, 2022, no shares
have been issued under this agreement.

Cash flow

Our cash, cash equivalents, restricted cash and marketable securities totaled
$1.4 billion as of March 31, 2022 and $1.5 billion as of December 31, 2021. We
had an outstanding loan balance of $1.0 million as of each of March 31, 2022 and
December 31, 2021.
                                       24

————————————————– ——————————

Contents

The following table summarizes our sources and uses of cash for the period
presented:

                                                                       For the Three Months Ended
                                                                                March 31,
(dollars in millions)                                                   2022                  2021
Net cash used in operating activities                             $       (57.1)         $     (39.0)
Net cash provided by (used in) investing activities                         8.6               (207.8)
Net cash provided by financing activities                                   2.5                  4.5

Net decrease in cash, cash equivalents and restricted cash $(46.0) $(242.3)

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2022
totaled $57.1 million, primarily due to our net loss of $63.4 million, a net
reduction in accrued expenses and accounts payable of $15.6 million and a
reduction in deferred revenue of $21.2 million, partially offset by non-cash
charges of $22.3 million and a decrease in account and other receivables of
$19.1 million. Non-cash charges included stock compensation expense of $16.6
million, net accretion of bond discounts/premiums of $3.3 million, and
depreciation and amortization of $1.5 million.

Net cash used in operating activities for the three months ended March 31, 2021
totaled $39.0 million, primarily due to our net loss of $41.0 million, a net
reduction in accrued expenses and accounts payable of $9.1 million and a
reduction in deferred revenue of $2.5 million, partially offset by non-cash
charges of $12.7 million and a decrease in account and other receivables of $3.3
million. Non-cash charges were primarily stock compensation expense of $10.3
million, depreciation and amortization of $1.1 million and net accretion of bond
discounts/premiums of $1.0 million.

Investing activities

Net cash provided by investing activities for the three months ended March 31,
2022 totaled $8.6 million, attributable to maturities of marketable securities
in excess of purchases of $10.7 million, offset by purchases of property and
equipment of $2.1 million.

Net cash used in investing activities for the three months ended March 31, 2021
totaled $207.8 million, attributable to purchases of marketable securities in
excess of the maturities of marketable securities of $206.8 million and
purchases of property and equipment of $1.0 million.

Fundraising activities

Net cash provided by financing activities for the three months ended March 31,
2022 totaled $2.5 million, attributable to the proceeds from the exercise of
stock options.

Net cash provided by financing activities for the three months ended March 31,
2021 totaled $4.5 million, attributable to the proceeds from the exercise of
stock options.

Funding Requirements

Since our inception, we have incurred significant operating losses. We expect to
continue to incur significant expenses and increasing operating losses for the
foreseeable future as we advance the preclinical and clinical development of our
product candidates. In addition, we expect to continue to incur additional costs
associated with operating as a public company.

Specifically, we expect our expenses to increase significantly if and to the extent that we:

•continue a Phase 1/2 clinical trial of our product candidate bavdegalutamide
and a Phase 1b clinical trial of bavdegalutamide in combination with abiraterone
for the treatment of men with metastatic castration-resistant prostate cancer,
or mCRPC, and initiate one or more additional
                                       25

————————————————– ——————————

Contents

Phase 1b clinical extensions of bavdegalutamide in combination with standard of care agents, in men with mCRPC;

•continue a Phase 1/2 clinical trial of our product candidate ARV-471 and a
Phase 1b clinical trial of ARV-471 in combination with palbociclib, and initiate
an additional Phase 1b cohort expansion in combination with a standard of care
agent, each in patients with locally advanced or metastatic ER positive / HER2
negative breast cancer and initiate a window of opportunity study in early
breast cancer;

•pursue a phase 1 clinical trial of our product candidate ARV-766 in men with mCRPC and launch a phase 2 cohort expansion trial planned for 2022;

•apply our PROTAC discovery engine to advance other product candidates into preclinical and clinical development;

•expand the capabilities of our PROTAC Discovery Engine;

• seek marketing approvals for any product candidates that have successfully completed clinical trials;

•ultimately establish a sales, marketing and distribution infrastructure and
scale up external manufacturing capabilities to commercialize any products for
which we may obtain marketing approval;

•expand, maintain and protect our intellectual property portfolio;

•hire additional development personnel, including clinical, regulatory and scientific personnel; and

•add operational, financial and management information systems and personnel to
support our research, product development and future commercialization efforts
and support our operations as a public company.

We had cash, cash equivalents, restricted cash and marketable securities
totaling $1.4 billion as of March 31, 2022. We believe that our cash, cash
equivalents, restricted cash and marketable securities as of March 31, 2022 will
enable us to fund our planned operating expenses and capital expenditure
requirements multiple additional years beyond 2024. We have based this estimate
on assumptions that may prove to be wrong, and we could use our capital
resources sooner than we currently expect. Our future capital requirements will
depend on many factors, including:

•the progress, costs and results of our ongoing clinical trials for bavdegalutamide, ARV-471 and ARV-766 and any future clinical development of bavdegalutamide, ARV-471 and ARV- 766;

•the scope, progress, costs and results of preclinical and clinical development of our other product candidates and development programs;

•the number and development requirements of other product candidates we are pursuing, including our other research programs in oncology and neurodegeneration;

•the success of our collaborations with Pfizer, Genentech and Bayer;

•the costs, timing and results of regulatory review of our product candidates;

•the costs and timing of future commercialization activities, including manufacturing, marketing, sales and product distribution, for each of our product candidates for which we receive marketing approval;

•revenues, if any, from commercial sales of our product candidates for which we receive marketing authorization;

•the costs and timing of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending any
intellectual property-related claims; and
                                       26

————————————————– ——————————

Contents

•our ability to establish additional collaboration arrangements with other
biotechnology or pharmaceutical companies on favorable terms, if at all, for the
development or commercialization of our product candidates.

As a result of these anticipated expenditures, we will need to obtain
substantial additional financing in connection with our continuing operations.
Until such time, if ever, as we can generate substantial revenue from product
sales, we expect to finance our cash needs through a combination of equity
offerings, debt financings, collaborations, strategic alliances and marketing,
distribution or licensing arrangements. Although we may receive potential future
payments under our collaborations with Pfizer, Genentech and Bayer, we do not
currently have any committed external source of funds. Adequate additional funds
may not be available to us on acceptable terms, or at all. If we are unable to
raise capital when needed or on attractive terms, we may be required to delay,
limit, reduce or terminate our research, product development programs or any
future commercialization efforts or grant rights to develop and market product
candidates that we would otherwise prefer to develop and market ourselves.

To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the terms of these securities may include
liquidation or other preferences that adversely affect the rights of our common
stockholders. Debt financing and preferred equity financing, if available, may
involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making acquisitions or
capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or
marketing, distribution or licensing arrangements with third parties, we may
have to relinquish valuable rights to our technologies, future revenue streams,
research programs or product candidates or grant licenses on terms that may not
be favorable to us.

Borrowings

In January 2014, we entered into an Assistance Agreement with the State of
Connecticut, or the 2014 Assistance Agreement, under which we borrowed $2.5
million. Borrowings under the 2014 Assistance Agreement were forgivable if we
maintained a minimum number of full-time jobs in the State of Connecticut for a
minimum period at a minimum annual salary. Effective in March 2016, the full
principal amount under the 2014 Assistance Agreement had been forgiven. While
borrowings under the 2014 Assistance Agreement have been forgiven, we remain
subject to an ongoing covenant to be located in the State of Connecticut through
January 2024. Upon violation of this covenant, we would be required to repay the
full original funding amount of $2.5 million plus liquidated damages of 7.50%.

In June 2018, we entered into an additional Assistance Agreement with the State
of Connecticut, or the 2018 Assistance Agreement, to provide funding for the
expansion and renovation of laboratory and office space. We borrowed $2.0
million under the 2018 Assistance Agreement in September 2018, of which $1.0
million was forgiven upon meeting certain employment conditions. Borrowings
under the agreement bear an interest rate of 3.25% per annum, with interest only
payments required for the first 60 months, and mature in September 2028. The
2018 Assistance Agreement requires that we be located in the State of
Connecticut through 2028 with a default penalty of repayment of the full
original funding amount of $2.0 million plus liquidated damages of 7.5% of the
total amount of funding received. At March 31, 2022, $1.0 million remains
outstanding under the 2018 Assistance Agreement.

© Edgar Online, source Previews