Arcadia Biosciences, Inc. — FY 2017 Form 10-K
Reporting period: Year ended December 31, 2017; comparisons are with FY 2016. This is an annual filing, not a standalone fourth-quarter report. Unless noted otherwise, financial amounts below are in millions of dollars.
Business context
Arcadia is an early-stage agricultural biotechnology and food-ingredient company. It develops crop productivity traits and nutritional-quality products using breeding, TILLING and gene-editing technologies. Current commercial product revenue is primarily from SONOVA GLA safflower oil; much of the broader pipeline depends on collaborators, regulatory approvals and eventual commercialization.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Total revenue | $4.026 | $3.188 |
| Product revenue | $0.514 | $0.669 |
| License revenue | $1.470 | $0.144 |
| Contract research and government grants | $2.042 | $2.375 |
| Research and development expense | $7.407 | $8.663 |
| Selling, general and administrative expense | $10.651 | $12.250 |
| Operating loss | $(14.315) | $(18.620) |
| Net loss | $(15.707) | $(19.624) |
| Net loss per share, basic and diluted | $(7.28) | $(8.85) |
| Net cash used in operating activities | $(13.965) | $(17.055) |
- Revenue increased 26%. License revenue rose mainly because terminated licenses released deferred upfront fees into income; $0.528 million was recognized in Q4 2017 following certain Mahyco license terminations. Product revenue declined 23%, while contract research and grant revenue declined 14%.
- Operating loss narrowed 23%, reflecting lower operating expenses. Net loss also improved despite a $0.900 million loss on debt extinguishment in 2017.
- Cash and cash equivalents were $9.125 million and short-term investments were $3.898 million at year-end, totaling about $13.0 million. Working capital was $11.522 million, versus $49.093 million in 2016.
- Operating cash use remained significant. The $47.178 million provided by investing activities primarily reflected investment sales and maturities, not operating cash generation.
- The $25.0 million term loan was repaid in July 2017, together with prepayment and end-of-term fees; year-end notes payable were zero. The balance sheet also included a $3.0 million noncurrent contingent liability related to the Anawah acquisition.
- Management said existing cash and investments would not cover anticipated requirements through at least March 2019, raising substantial doubt about the company’s ability to continue as a going concern. The auditor included a going-concern emphasis.
Material changes, outlook and risks
- Portfolio and partners: Arcadia and Mahyco returned certain licensed geographies and crops where Mahyco lacked resources or regulatory capability; the company planned to seek new local licensees in some territories. Dow AgroSciences’ corn yield-trait collaboration was terminated after performance did not justify further investment; a separate improved-wheat-quality collaboration began in August 2017.
- Development outlook: Management prioritized wheat nutrition and quality traits, including resistant-starch and reduced-gluten wheat, and continued development of HB4 drought-tolerant soybeans through Verdeca. The filing anticipates wheat ingredient launches over the next two to three years, but elsewhere cautions that meaningful product sales beyond SONOVA may not occur for at least three to five years. Agricultural-trait commercialization remains dependent on development, partner execution and regulatory approvals.
- Regulatory status: HB4 soybean approvals included Argentina and U.S. food/feed consultation; USDA nonregulated-status approval and approvals in other markets remained pending. Regulatory delays, particularly in India, have delayed partner field trials and commercialization timelines.
- Funding: Management planned to seek financing, monetize or out-license intellectual property, and pursue partnerships; there is no assurance these efforts would secure adequate funds. Subsequent to year-end, on March 19, 2018, the company entered into agreements for a $10 million private placement of common stock and warrants, subject to closing conditions.
- Accounting change: Arcadia adopted the new revenue standard in Q1 2018 using the modified retrospective method. It expected approximately $2.4 million of unearned upfront license revenue to be removed through an opening retained-earnings adjustment; future upfront license fees were expected to be recognized at execution rather than over estimated development periods.
- Other notable items: The company completed a 1-for-20 reverse stock split in January 2018 and regained Nasdaq minimum-bid compliance in February 2018. It reported no material litigation. Management concluded disclosure controls and internal control over financial reporting were effective at year-end.
- Key risks: Continued losses and financing needs; long and uncertain product-development cycles; dependence on a small number of collaborators and grant funding; regulatory and consumer-acceptance risks; field-trial and weather risks; and potential dilution from future equity financing. Revenue concentration was notable: two customers represented 26% and 18% of 2017 revenue, respectively.
Most important facts for investors to verify
- Whether the March 2018 $10 million private placement closed, its final share and warrant terms, and the resulting dilution and cash runway.
- How management’s going-concern assessment changes with subsequent financing, cash use and operating requirements.
- Progress and approval status for HB4 soybeans, wheat products and other key pipeline programs, including the effect of regulatory delays and the Mahyco license changes.
- Whether future revenue growth is recurring or depends on one-time deferred-license-fee recognition, grants, or concentrated customers; also confirm the financial effects of adopting the new revenue standard.
- Current operating cash burn, partner commitments and funding milestones, including any material license, royalty or contingent-liability payments.