Arcturus Therapeutics Holdings Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Arcturus is a clinical-stage mRNA medicines company focused on vaccines and rare liver and respiratory diseases. Financial amounts below are in millions, except per-share data.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $45.1 | $13.4 | $135.9 | $45.7 |
| Operating expenses | $64.5 | $50.2 | $195.9 | $155.0 |
| Operating loss | $(19.3) | $(36.8) | $(59.9) | $(109.3) |
| Net loss | $(16.2) | $(35.3) | $(18.0) | $(108.0) |
| Net loss per share | $(0.61) | $(1.33) | $(0.68) | $(4.09) |
- CSL Seqirus accounted for $43.4 million of Q3 collaboration revenue and $129.3 million for the nine-month period. BARDA grant revenue was $1.8 million and $3.3 million, respectively.
- Nine-month net loss improvement includes a $34.0 million gain from forgiveness of the Singapore Loan. The company also reported $9.7 million of net finance income, mainly reflecting interest income.
- Research and development expense rose 35.5% in Q3 and 28.8% year to date, primarily due to manufacturing, clinical and personnel costs. General and administrative expense increased 7.1% in Q3 and 18.0% year to date.
- Operating cash used was $17.5 million for the first nine months, compared with $128.3 million in 2022. Cash, cash equivalents and restricted cash decreased $24.9 million during the period.
- At September 30, cash and cash equivalents were $311.9 million, with an additional $57.1 million of restricted cash. The company reported $82.7 million of deferred revenue.
- Long-term debt was $20.0 million at quarter-end, drawn under a $50 million Wells Fargo revolving facility. The filing says the $20 million draw was repaid in October 2023. The facility is secured by a $55 million cash pledge. There was no current portion of long-term debt at September 30.
- Total assets were $457.7 million, total liabilities $177.6 million, and stockholders’ equity $280.1 million. The filing does not present a gross margin measure.
Material changes and business developments
- Revenue increased $31.8 million in Q3 and $90.2 million year to date versus 2022, principally due to CSL Seqirus and BARDA revenue. The increases were partly offset by terminated or reduced legacy collaborations, including Vinbiocare.
- In Q3, Arcturus recognized revenue related to CSL milestones and services, including a $17.5 million influenza-program milestone. A further $35.0 million COVID-19 development milestone was invoiced in September and expected to be received in Q4.
- Arcturus received $200 million upfront from CSL in 2022, and $90 million in milestones plus a $23.6 million manufacturing advance in 2023. The CSL agreement offers potential development and commercial milestones, COVID-19 net-profit sharing and royalties; these future amounts are contingent and not assured.
- The Singapore Loan was partly repaid and the remaining principal and interest, totaling $34.0 million, was forgiven in Q1 2023. Arcturus also paid approximately $7.4 million to terminate its Western Alliance debt agreement.
Outlook, commentary and risks
- Management believes available working capital is sufficient to fund operations for at least 12 months from the financial statements’ issuance date, assuming no significant unforeseen expenses and partner funding at anticipated levels. The company expects continued losses and substantial R&D spending; it says R&D efforts and costs are expected to increase over the next several years.
- Arcturus expects to rely on CSL milestones, additional financing or partnerships to fund development. Failure to achieve milestones or obtain financing could require reduced spending, delayed or discontinued programs, or other significant actions.
- Pipeline updates include EMA validation of the ARCT-154 marketing application; ongoing ARCT-154 studies in Japan; and a planned Q4 2023 Phase 1 influenza-vaccine study. ARCT-810’s Phase 1b study completed enrollment and dosing, while the Phase 2 study faced challenging enrollment. ARCT-032 Phase 1b enrollment began after quarter-end.
- The filing highlights uncertain COVID-19 vaccine demand as the market shifts to endemic use, including less predictable and more seasonal orders, fragmented customers, higher distribution costs and costs associated with updated formulations. Clinical, regulatory, manufacturing, collaboration and funding risks remain significant.
- The Cystic Fibrosis Foundation increased its award for LUNAR-CF to up to approximately $24.6 million, subject to Arcturus providing at least $15 million in matching funding. The full amended payment was received after quarter-end.
- No specific full-year revenue or earnings guidance is provided. Management states that G&A is not expected to increase annually from the Q3 expense trend. Disclosure controls were assessed as effective; no material changes in internal control over financial reporting were reported.
Important facts for investors to verify
- Whether CSL milestones and other collaboration payments are achieved and collected on schedule, and how concentrated revenue remains in the CSL relationship.
- The October repayment of the Wells Fargo draw, the continuing $55 million cash pledge, and the amount of cash that is unrestricted and available for operations.
- Clinical and regulatory progress for ARCT-154, ARCT-810, ARCT-032 and the influenza program, including study timing, enrollment and results.
- Actual R&D spending, cash burn and financing needs relative to management’s stated 12-month liquidity outlook.
- The commercial and cost implications of COVID-19 vaccine market changes, and the conditions attached to BARDA, CFF and other partner funding.