Arcutis Biotherapeutics, Inc. — Q1 2022 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2022. Arcutis is a late-stage biopharmaceutical company developing dermatology treatments. It had no product-sales revenue and continued to fund operations through financing and investment resources.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | No product-sales revenue | No product-sales revenue |
| Research and development expense | $40.6 million | $21.6 million; up 88% |
| General and administrative expense | $22.0 million | $14.5 million; up 52% |
| Total operating expenses | $62.6 million | $36.1 million; up 74% |
| Net loss | $64.3 million | $36.0 million; loss increased 78% |
| Net loss per share, basic and diluted | $1.27 | $0.76 |
| Operating cash used | $57.0 million | $46.2 million |
| Cash, cash equivalents and restricted cash at quarter-end | $71.0 million | $290.2 million at March 31, 2021 |
| Cash, cash equivalents, restricted cash and marketable securities | $344.8 million at March 31, 2022 | $388.6 million at December 31, 2021 |
| Long-term debt, net | $72.7 million | $72.4 million at December 31, 2021 |
Cash provided by investing activities was $15.3 million, primarily reflecting maturities of marketable securities net of purchases. Financing provided $14.7 million, principally from $14.5 million of net ATM proceeds. Cash, cash equivalents and restricted cash declined by $27.0 million during the quarter. Gross margin is not applicable because the company reported no product revenue.
Total assets were $364.1 million and stockholders’ equity was $253.8 million at March 31, 2022, compared with $408.2 million and $297.7 million, respectively, at December 31, 2021. The company recorded a $0.8 million unrealized loss on marketable securities in other comprehensive income.
Material changes versus the prior comparable period
- R&D spending rose $19.0 million, mainly from increased clinical-trial and manufacturing costs for topical roflumilast, including Phase 3 studies. Topical JAK-inhibitor program costs fell $2.7 million following completion of the ARQ-252 chronic hand eczema Phase 2 study.
- G&A expense increased $7.6 million, chiefly due to higher professional services and commercialization preparation, as well as increased headcount.
- Interest expense was $1.8 million, reflecting the SLR term loan; there was no interest expense in Q1 2021.
- Net loss and operating cash use increased. The prior-year period included $207.5 million of net proceeds from a follow-on offering; Q1 2022 financing instead included $14.5 million of ATM proceeds.
Outlook, risks and contingencies
- Pipeline and milestones: The FDA set a July 29, 2022 PDUFA action date for roflumilast cream for plaque psoriasis. The company expected topline results from the INTEGUMENT-1 and -2 atopic dermatitis trials by year-end 2022, with a potential sNDA in 2023. It expected INTEGUMENT-PED results in 2023, citing likely minor Omicron-related enrollment impact and challenges enrolling young children. Roflumilast foam seborrheic dermatitis results were anticipated mid-2022; scalp and body psoriasis results late Q3 or early Q4 2022. If positive, management expected submissions in 2023 or following the trial results, as applicable.
- Other programs: ARQ-252’s chronic hand eczema Phase 2 trial did not meet its primary endpoint; the company stopped its vitiligo Phase 2a trial while pursuing reformulation. It expected to initiate an ARQ-255 alopecia areata trial in 2022.
- Liquidity and financing: Management projected existing cash, cash equivalents and marketable securities, together with committed loan funding, would support planned operations into 2024. The filing also states the company expects to need substantial additional capital; financing may not be available on acceptable terms. If funding is insufficient, it may cut spending, delay or discontinue programs, or relinquish product rights.
- Debt: $75.0 million principal was outstanding under a secured term loan bearing a floating rate of 7.68% at March 31, 2022, with maturity January 1, 2027. The agreement provides up to $150.0 million of additional conditional funding; access depends on regulatory or revenue milestones. The debt is secured by substantially all assets, including intellectual property, and carries fees, covenants and default provisions. The company reported covenant compliance at quarter-end.
- Commitments and operating risks: Firm minimum manufacturing commitments were approximately $9.3 million over the next nine months, plus about $0.6 million annually for 2023–2025. The company relies on third parties, including single-source suppliers, for trials and manufacturing and had not completed its commercial sales organization. License agreements include potential milestone and royalty obligations with uncertain timing and amount.
- The company reported no material litigation and no material changes to the risk factors in its 2021 Form 10-K. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- FDA action on the plaque psoriasis NDA by the July 29, 2022 PDUFA date and the commercial implications of any decision.
- Actual timing and results of the roflumilast cream and foam Phase 3 programs, including the pediatric trial now expected to report in 2023.
- Quarterly cash burn, cash and marketable-securities balances, and whether management’s runway estimate into 2024 remains achievable.
- Conditions and availability of the additional loan tranches, floating-rate exposure, collateral, fees, and future revenue covenant requirements.
- Clinical, supply and commercialization execution risks, along with potential dilution from equity financing, ATM sales and equity awards.