Arcturus Therapeutics Holdings Inc. quarterly report, Q1 FY2024

Arcturus Therapeutics Holdings Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024. Arcturus is a clinical-stage mRNA medicines company focused on vaccines and rare liver and respiratory diseases. Its ARCT-154 COVID-19 vaccine received marketing authorization in Japan in 2023; an application is under review in Europe.

Financial results

Amounts below are in millions of dollars except per-share data. The filing does not report gross margin.

Metric	Q1 2024	Q1 2023
Total revenue	$38.0	$80.3
Operating expenses	$68.4	$65.5
Operating income (loss)	$(30.4)	$14.8
Net income (loss)	$(26.8)	$50.8
Basic and diluted earnings (loss) per share	$(1.00)	$1.91 basic; $1.87 diluted
Net cash used in operating activities	$(5.6)	$(35.9)
Capital expenditures	$0.2	$0.7

• Revenue comprised $32.6 million of collaboration revenue and $5.4 million of grant revenue. CSL Seqirus contributed $32.4 million; BARDA grant revenue was $5.4 million.
• Research and development expense was $53.6 million, up 3.5%; general and administrative expense was $14.9 million, up 7.9%. Net loss included a $1.3 million lease impairment charge in the financial-statement note; MD&A separately cites $0.8 million, an amount to verify.
• Finance income was $4.0 million, compared with $2.5 million a year earlier. Q1 2023 included a $34.0 million gain on debt extinguishment; there was no comparable gain in Q1 2024.

Liquidity, debt and balance sheet

• Cash and cash equivalents were $288.4 million; restricted cash was $56.9 million, for total cash, cash equivalents and restricted cash of $345.3 million. The $55.0 million Wells Fargo collateral balance is restricted.
• Total assets were $418.8 million and total liabilities were $154.9 million at March 31, 2024. Operating lease liabilities totaled $31.9 million.
• No borrowings were outstanding under the $50.0 million Wells Fargo revolving facility. The facility is secured by $55.0 million of cash.
• Management believes available working capital is sufficient for at least the next 12 months, but expects continued losses and says additional capital may be needed over the longer term. The $19.2 million CSL development milestone achieved in Q1 was included in receivables, with payment expected in Q2.

Changes, outlook and key developments

• Revenue fell 52.7% year over year, principally because Q1 2023 included a CSL conditional payment and multiple milestones. CSL revenue declined from $78.2 million to $32.4 million. Higher BARDA revenue partly offset the decline.
• Operating expenses rose 4.4%. Higher BARDA, early-stage program, personnel, and facilities costs were partly offset by lower discovery technology, COVID-19, and OTC program expenses.
• Q1 2024 operating cash use improved versus Q1 2023; the filing’s cash-flow reconciliation includes substantial period-to-period working-capital differences. Cash, cash equivalents and restricted cash declined $3.6 million from year-end.
• CSL Seqirus’s March 2024 amendment adjusted development plans, milestones, royalty provisions, distributor provisions, and related payment calculations. The agreement provides potential development and commercial milestones, COVID-19 net-profit sharing, and royalties, but future payments depend on program progress and commercialization.
• ARCT-2301, a bivalent COVID-19 vaccine candidate, met its primary non-inferiority endpoint in a Japan Phase 3 study, with reported superiority on additional comparisons. A Phase 3 study of an XBB.1.5 candidate began in March 2024. A Phase 1 seasonal influenza study began in January; enrollment in a pandemic influenza Phase 1 study was expected before year-end 2024.
• ARCT-810’s Phase 2 study continued enrolling amid challenging enrollment; the Phase 1b adult study had completed dosing. ARCT-032 enrollment continued in a Phase 1b study in adults with cystic fibrosis.
• Management expects R&D efforts and associated costs to remain substantial and anticipates losses for the foreseeable future. Funding needs depend on clinical progress, collaboration milestones, regulatory outcomes, and other factors; additional financing may not be available on acceptable terms.

Risks, contingencies and controls

• Disclosure controls and procedures were deemed ineffective at March 31, 2024 because material weaknesses remained in IT general controls and revenue-recognition controls. Remediation was ongoing; management said the financial statements fairly present results in all material respects.
• Revenue and liquidity depend in part on CSL collaboration performance, milestone achievement, and partner funding. BARDA funding was up to $63.2 million, with $48.4 million remaining available at March 31, 2024.
• The company reported no material changes to the risk factors in its 2023 Form 10-K. It described ordinary-course legal claims and proceedings but provided no specific material case or quantified contingency in this filing.

Important facts for investors to verify

• Timing and collection of the $19.2 million CSL milestone receivable, and the pace of future CSL revenue recognition and milestones.
• Availability of unrestricted cash after accounting for the $55.0 million pledged collateral, and the company’s assumptions supporting its 12-month liquidity assessment.
• Progress in remediating the IT and revenue-recognition material weaknesses, including whether controls are tested and operating effectively.
• The lease impairment amount: the note reports $1.3 million while MD&A cites $0.8 million.
• Clinical enrollment, safety and efficacy results, regulatory review, and the timing and funding implications of the disclosed pipeline plans.