Arcturus Therapeutics Holdings Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Arcturus is a clinical-stage mRNA medicines company developing vaccines and treatments for rare liver and respiratory diseases. Financial amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $10.5 | $27.1 | $90.8 | $32.3 |
| Operating expenses | $65.9 | $49.2 | $131.4 | $104.8 |
| Loss from operations | $(55.4) | $(22.1) | $(40.6) | $(72.5) |
| Net loss | $(52.6) | $(21.6) | $(1.8) | $(72.7) |
| Net loss per share | $(1.98) | $(0.82) | $(0.07) | $(2.75) |
- Q2 R&D expense was $52.7 million, up 37.9%; general and administrative expense was $13.2 million, up 20.3%. The filing does not present a gross margin measure.
- Six-month operating cash flow was positive $14.9 million, versus negative $85.9 million in 2022. The 2023 result included a $25.0 million increase in deferred revenue and a $34.0 million noncash debt-extinguishment gain adjustment. Investing cash use was $1.0 million and financing cash use was $27.3 million, including debt payments. Cash, cash equivalents and restricted cash decreased $13.4 million.
- At June 30, cash and cash equivalents were $323.5 million; restricted cash was $57.1 million, including $55.0 million pledged to Wells Fargo. Current assets were $385.2 million and current liabilities were $90.3 million. Total liabilities were $145.5 million, including lease liabilities and deferred revenue.
- No long-term debt remained on the balance sheet at quarter-end. Arcturus paid off its Western Alliance loan in March and a portion of its Singapore loan; the remaining Singapore loan balance was forgiven, generating a $34.0 million gain. A $50.0 million Wells Fargo revolving facility was established in April; the filing does not report a drawn balance.
Material changes and business developments
- Q2 revenue declined 61.2% year over year, mainly because prior-period Vinbiocare and Israel Ministry of Health revenue did not recur; CSL Seqirus and BARDA revenue partly offset the decline. Six-month revenue rose 181%, mainly reflecting CSL Seqirus and BARDA activity.
- CSL Seqirus revenue was $85.8 million for the first half. Arcturus received $90.0 million in milestone payments during Q2 and a $23.6 million advance for ARCT-154 manufacturing and supply; the advance remained deferred revenue at June 30. The agreement includes a $200 million upfront payment received in 2022, potential development milestones exceeding $1.3 billion, up to $3.0 billion in commercial milestones, a 40% net-profit share on COVID-19 vaccines, and potential royalties on other vaccines. These future amounts are contingent, not guaranteed revenue.
- Arcturus reported that Japan’s Meiji submitted an NDA for ARCT-154 primary immunization in April and a booster application in June. The filing also describes a Phase 3 study completed with 828 participants; the cited interim results were from a preprint that had not been peer reviewed.
- ARCT-810 completed dosing in a 16-person Phase 1b study and its Phase 2 multiple-dose study began dosing in December 2022. The FDA granted Fast Track and Rare Pediatric Disease designations in June. ARCT-032 completed a Phase 1 single-ascending-dose study in 32 healthy participants; an amendment allowing transition to a Phase 1b study was approved in August, after quarter-end.
- The Vinbiocare license and supply agreements were terminated in 2022. Arcturus reported $5.4 million of related current and non-current accrued liabilities at June 30, payable upon specified events through Q1 2025. CureVac’s development and option agreement expired July 24, 2023.
Outlook, risks and contingencies
Management believes available working capital will fund operations for at least 12 months from issuance of the financial statements, assuming no significant unforeseen expenses and partner funding at anticipated levels. It expects continued losses and substantial R&D spending as programs advance; no specific revenue or earnings guidance is provided. Funding needs depend on clinical progress, regulatory outcomes, CSL milestones and other factors. Management says failure to secure financing or achieve milestones could require spending reductions, program delays or discontinuations, or other significant actions.
Key uncertainties include clinical safety and efficacy, regulatory approval of ARCT-154 and other candidates, partner decisions and milestone timing, manufacturing scale-up and supply, and the ability to obtain additional financing. The company reported no material changes to previously disclosed risk factors, no material changes in internal control over financial reporting, and no specific material legal proceeding in this filing. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- How much of the reported collaboration revenue and cash generation is recurring service revenue versus milestones or other nonrecurring consideration, and what future CSL milestones remain achievable.
- Whether ARCT-154 receives Japanese regulatory approval and how the full, peer-reviewed clinical evidence compares with the interim preprint results.
- Clinical progress, cash requirements and timelines for ARCT-810 and ARCT-032, alongside the company’s stated expectation of rising R&D costs.
- Availability of cash for operations after accounting for the $55.0 million Wells Fargo collateral, lease commitments, Vinbiocare payments and other contractual obligations.
- The six-month net loss of $1.8 million includes a $34.0 million debt-forgiveness gain; assess underlying operating losses and cash flows separately.