Arcutis Biotherapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The unaudited statements are prepared under U.S. GAAP. Arcutis is an early commercial-stage biopharmaceutical company developing dermatology treatments. It reported no product sales revenue for the periods presented.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | No product sales | No product sales | No product sales | No product sales |
| Research and development expense | $38.2 million | $30.8 million | $78.8 million | $52.4 million |
| General and administrative expense | $27.6 million | $11.3 million | $49.6 million | $25.8 million |
| Net loss | $67.4 million | $42.0 million | $131.7 million | $78.1 million |
| Basic and diluted loss per share | $1.31 | $0.84 | $2.58 | $1.60 |
| Cash used in operating activities | Not separately reported | Not separately reported | $119.0 million | $82.0 million |
At June 30, 2022, cash and cash equivalents were $61.5 million, restricted cash $1.2 million, and marketable securities $220.7 million, totaling $283.4 million. Total assets were $300.5 million; total liabilities were $105.1 million; and stockholders’ equity was $195.4 million. The accumulated deficit was $540.0 million. The company had $75.0 million in loan principal outstanding; the balance-sheet carrying amount of long-term debt, net, was $73.1 million. No profit margins are meaningful because the filing reports no product revenue and operating losses.
Changes versus the prior comparable period
- Q2 operating expenses rose 56% to $65.8 million, and net loss widened 60% to $67.4 million year over year.
- For the first half, operating expenses rose 64% to $128.5 million, and net loss widened 69% to $131.7 million.
- Higher roflumilast development and manufacturing costs, increased headcount, and launch-related sales, marketing, and professional-service spending drove much of the expense growth. JAK-inhibitor program costs declined following completion of ARQ-252 Phase 2 studies.
- First-half operating cash use increased from $82.0 million to $119.0 million. Investing activities provided $67.9 million, primarily from marketable-security maturities; financing provided $15.8 million, principally from the ATM share sale. Cash, cash equivalents, and restricted cash decreased $35.2 million during the period.
- Interest expense was $2.0 million in Q2 and $3.8 million for the first half, compared with none in the 2021 periods, reflecting the loan agreement.
Outlook, developments, and risks
- Regulatory and financing developments after quarter-end: FDA approved ZORYVE (roflumilast cream 0.3%) for plaque psoriasis, including intertriginous psoriasis, in patients 12 and older on July 29, 2022. Following approval, Arcutis drew $125.0 million under its loan facility on August 2; debt principal outstanding became $200.0 million, with up to $25.0 million more potentially available subject to conditions. The company also priced an August 2 common-stock offering expected to generate $161.7 million net, subject to closing, anticipated August 5. These are subsequent events, not June 30 balances.
- Approval made a $7.5 million AstraZeneca milestone payable and triggers low-to-high-single-digit royalties on applicable roflumilast net sales. Additional development and sales milestones and royalties may be payable under license agreements.
- Management expects operating losses to continue and expenses to increase with commercialization, clinical development, and expansion of the commercial organization. It stated that available resources were expected to fund projected requirements for at least 12 months from issuance of the financial statements, while noting that future financing may be needed and may not be available on acceptable terms.
- Clinical outlook: topline data from the two Phase 3 atopic dermatitis trials in patients six and older were expected by year-end 2022, with an sNDA planned in 2023 if supported by results. Data for the pediatric atopic dermatitis trial in ages two to five were expected in 2023. The company reported positive topline Phase 3 data for roflumilast foam in seborrheic dermatitis and expected an NDA submission basis in Q1 2023; scalp and body psoriasis trial data were expected late Q3 or early Q4 2022. It planned to initiate an ARQ-255 alopecia areata trial in 2022.
- Management attributed a likely minor clinical-trial enrollment impact to the Omicron wave and challenges enrolling young children. It reported no supply-chain disruptions at the time but relies on third parties, including some single-source suppliers, for manufacturing and clinical supply. Firm minimum commercial manufacturing commitments included approximately $8.1 million over the next six months.
- Key risks include the company’s limited commercialization experience and uncertainty of ZORYVE’s market acceptance; continued cash burn and potential need for dilutive or debt financing; clinical, regulatory, manufacturing, and trial-enrollment uncertainty; and floating-rate debt secured by substantially all assets, including intellectual property. The loan also has covenants, milestone-based revenue requirements beginning in December 2023 (subject to a market-capitalization exception), and fees. The company reported covenant compliance at June 30, 2022.
- Arcutis reported no material litigation, no off-balance-sheet arrangements, and effective disclosure controls and internal control over financial reporting as of June 30, 2022.
Important facts for investors to verify
- Whether the August 2022 equity offering closed as expected and the actual net proceeds received.
- Commercial launch progress, uptake, pricing and reimbursement, and any resulting product revenue and cash runway.
- Actual financing costs, interest-rate exposure, remaining loan availability, covenant compliance, and the AstraZeneca milestone and royalty impact.
- Timing and results of the named atopic dermatitis, seborrheic dermatitis, scalp/body psoriasis, and ARQ-255 programs, including whether trial timelines change.
- Future cash burn, commercial supply commitments, reliance on third-party or single-source suppliers, and any additional capital needs or stock dilution.