Arcturus Therapeutics Holdings Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Financial statements are unaudited; dollar amounts below are in millions unless noted.
Business context
Arcturus is a clinical-stage mRNA medicines company developing infectious-disease vaccines and therapies for rare liver and respiratory diseases. Its programs include COVID-19 candidates ARCT-021 and ARCT-154, OTC-deficiency candidate ARCT-810, and cystic-fibrosis candidate ARCT-032. The company has no approved commercial products described in this filing and remains dependent on research, development, and collaboration funding.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.4 | $2.3 | $6.6 | $7.3 |
| Research and development, net | $45.4 | $17.7 | $141.1 | $33.6 |
| General and administrative | $10.9 | $5.6 | $30.6 | $14.2 |
| Operating loss | $(53.8) | $(20.9) | $(165.2) | $(40.4) |
| Net loss | $(54.1) | $(21.0) | $(165.0) | $(41.0) |
| Net loss per share | $(2.05) | $(0.92) | $(6.27) | $(2.19) |
- Cash and liquidity: Cash and cash equivalents were $413.9 at September 30, 2021, down from $462.9 at December 31, 2020. Including restricted cash, period-end cash was $416.0. Management said available working capital was sufficient for at least 12 months from issuance of the statements.
- Cash flows: Nine-month operating cash use was $92.5, investing cash use was $2.3, and financing provided $47.8. Cash, cash equivalents, and restricted cash decreased by $47.0. Operating cash use was substantially below net loss, in part because deferred revenue and accrued liabilities increased.
- Debt and liabilities: The balance sheet reports $42.3 of long-term debt, net of current portion; a further $18.5 current portion is included in accrued liabilities. The Singapore loan balance was $45.7 at quarter-end; the Western Alliance debt schedule shows $15.3 of principal and final payment. Singapore loan interest is 4.5%; Western Alliance debt bears a floating rate. The company reported covenant compliance.
- Margins: The filing does not present a meaningful gross margin measure; operating expenses substantially exceed collaboration revenue.
- Other balance-sheet measures: Total assets were $434.5, total liabilities $175.4, and stockholders’ equity $259.1. Accumulated deficit was $308.8.
Changes versus prior comparable periods
- Q3 revenue increased 4.5% year over year, while nine-month revenue fell 10.1%. Q3’s increase included $0.6 of revenue from Vinbiotech, partly offset by lower revenue from existing partners. The nine-month decline reflected lower Janssen, Takeda, sublicense, and material-transfer revenue, partly offset by Vinbiotech.
- Operating expenses rose sharply: nine-month R&D increased $107.6 and G&A increased $16.5 year over year. The largest driver was COVID-19 vaccine development; Q3 and nine-month LUNAR-COVID R&D costs increased $23.1 and $77.0, respectively. Pre-launch inventory contributed $17.3 and $43.6 of those increases.
- Nine-month net loss increased to $165.0 from $41.0. Share-based compensation was $21.4 versus $3.9, and interest expense increased with the Singapore loan funding.
- Cash declined despite $46.6 of Singapore loan proceeds. The prior-year period included substantial equity financing; 2021 financing cash flows did not include a comparable public offering.
Outlook, commentary, risks, and unusual items
- Pipeline outlook: Management expected an EUA application for ARCT-154 in Vietnam in December 2021, depending on trial results. It anticipated a CTA for ARCT-032 in the first half of 2022 and for LUNAR-FLU in the second half of 2022. The ARCT-154 Vietnam trial was partner-funded; the company cautioned that the partner could delay or halt it. These are forward-looking expectations, not assured outcomes.
- Clinical uncertainty: ARCT-021 Phase 2 safety and immunogenicity data supported continuation of the trial, but the filing says available data were not conclusive evidence of safety and efficacy. A global entity had selected ARCT-021 for a planned Phase 3 trial, but could decide not to proceed or could delay or halt it. Non-human-primate ARCT-154 results do not ensure similar human results.
- Funding and execution risks: The company expects continuing losses and rising development costs and may need additional debt, equity, or partnerships. Failure to obtain financing, meet milestones, control costs, or satisfy debt covenants could require spending reductions or program delays. COVID-19-related disruption could delay clinical supplies, sites, and enrollment.
- Vinbiotech agreement: The company received a nonrefundable $40.0 upfront payment for manufacturing-facility support and related commitments. Only $0.6 was recognized as revenue through September 30; $39.4 remained deferred. Future low-single-digit per-dose payments and royalties depend on relevant events and sales.
- Debt terms: Singapore loan repayment is generally intended to come from a 10% royalty on LUNAR-COV19 net sales, subject to exceptions, including repayment triggers and default provisions. It is secured by specified materials and equipment and may be forgivable under stated conditions. In October 2021, Western Alliance extended the interest-only period, moving first principal payment to May 1, 2022.
- Unusual expenses and commitments: The company expensed $5.0 for an Alexion license acquired with shares, determining the asset had no alternative future use. A new laboratory/office lease signed in September has a 10-year, 8-month initial term and monthly base rent ranging from $268,000 to $360,000; access was expected in Q1 2022.
- Other risks and controls: The filing highlights possible effects of a government patent waiver for COVID-19 vaccines and pandemic-related operational disruption. No legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- Progress, enrollment, efficacy, safety, regulatory decisions, and partner commitment for ARCT-021 and ARCT-154; confirm whether planned trials and Vietnam EUA milestones occurred.
- Cash burn, deferred revenue conversion, and the runway assumptions behind management’s at-least-12-month liquidity assessment.
- Final terms, repayment triggers, security, and treatment of the Singapore loan, together with Western Alliance repayment obligations.
- Whether Vinbiotech completes facility validation and clinical/commercial milestones, and the timing and amount of any additional payments or royalties.
- Whether rapidly rising R&D, pre-launch inventory, and share-based compensation costs remain on the expected trajectory, and whether additional financing or dilution is required.