Arcutis Biotherapeutics, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Arcutis is a late-stage biopharmaceutical company developing treatments for dermatological diseases. It had no approved products and generated no product revenue.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $32.7 million | $12.3 million | $87.9 million | $25.8 million |
| General and administrative expense | $5.6 million | $2.3 million | $14.6 million | $4.4 million |
| Total operating expenses | $38.3 million | $14.6 million | $102.6 million | $30.1 million |
| Net loss | $38.2 million | $14.5 million | $101.6 million | $29.4 million |
| Basic and diluted loss per share | $1.01 | $7.56 | $3.06 | $16.60 |
Margins are not meaningful because the company had no revenue. Q3 R&D expense increased primarily with clinical-trial and manufacturing activity; G&A growth reflected increased staffing and public-company costs.
- At September 30, cash and cash equivalents were $45.7 million and marketable securities were $144.0 million, totaling $189.7 million. Current assets were $194.1 million versus current liabilities of $21.2 million.
- For the first nine months, operating cash use was $80.5 million; financing provided $168.8 million, principally from the IPO. Investing cash use of $105.9 million primarily reflected purchases of marketable securities, net of maturities. Cash and cash equivalents declined $17.6 million.
- Total liabilities were $24.9 million; the company reported no debt outstanding. Accumulated deficit was $167.9 million.
- The February 2020 IPO generated $167.2 million net proceeds. After quarter-end, the October 6 follow-on public offering and concurrent private placement generated $128.4 million net proceeds. The September 30 balance sheet does not include those proceeds.
Material changes and business developments
- Compared with Q3 2019, quarterly operating expenses rose 161% and net loss widened by $23.7 million. For the nine-month comparison, operating expenses rose 240% and net loss widened by $72.2 million, reflecting expanded development programs and operating scale.
- Roflumilast cream (ARQ-151) is in Phase 3 trials for plaque psoriasis. Enrollment was complete in DERMIS-1, DERMIS-2 and the open-label extension; topline results were expected in Q1 2021, with an NDA submission anticipated by year-end 2021.
- After an FDA End-of-Phase-2 meeting in September, the company planned to advance roflumilast cream into Phase 3 studies for atopic dermatitis, bypassing a previously planned Phase 2b study. Its earlier Phase 2 study did not achieve statistical significance on the primary endpoint.
- Roflumilast foam (ARQ-154) produced positive topline Phase 2 results in seborrheic dermatitis. Enrollment in a Phase 2b scalp psoriasis study was complete, with data expected by year-end 2020. ARQ-252 hand-eczema study data were expected by mid-2021; a vitiligo study was planned for late 2020 or early 2021. ARQ-255 remained in formulation and preclinical development.
Outlook, risks and contingencies
- Management expects continued operating losses and increased spending as development advances. Including the October financing, management expected available resources to fund planned operations into 2022, but stated that additional capital will ultimately be required; funding may not be available on acceptable terms.
- COVID-19 had caused limited screening, enrollment and monitoring disruption. At the filing date, management did not expect delays to previously disclosed trial timelines, but noted that the full impact remained uncertain.
- The company relies on third parties for clinical trials and manufacturing, including single-source suppliers, and has no internal manufacturing capability or established commercial infrastructure. Clinical, regulatory, manufacturing, financing, competition and intellectual-property risks remain substantial.
- License agreements include potential future milestone obligations: up to $12.5 million in regulatory and $15.0 million in sales milestones to AstraZeneca; and up to $20.5 million in development/regulatory and $200 million in sales milestones to Hengrui. Royalties may also apply to future product sales.
- Operating lease obligations totaled $6.7 million; the amended facility lease also requires a $1.5 million letter of credit upon occupancy. The filing reported no material litigation and no off-balance-sheet arrangements.
No revenue, earnings or product-launch guidance was provided. The stated development timelines and cash runway are management expectations, not assurances.
Important facts for investors to verify
- Final results from the pivotal plaque-psoriasis trials and whether they support the expected NDA timing.
- Atopic-dermatitis Phase 3 design, FDA requirements and how the prior Phase 2 endpoint miss informs the program.
- Subsequent clinical data for roflumilast foam and ARQ-252, including safety and endpoint results.
- Actual cash burn, updated runway assumptions and financing needs as trial and commercialization-preparation costs grow.
- Potential dilution from the October follow-on financing, equity compensation and any future capital raises.
- Clinical-trial continuity and supply-chain resilience amid COVID-19, third-party dependence and single-source manufacturing.