Arcutis Biotherapeutics, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The filing was signed November 4, 2021. Arcutis is a late-stage biopharmaceutical company with no products approved for commercial sale and no product revenue.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $40.6 million | $32.7 million | $93.0 million | $87.9 million |
| General and administrative expense | $16.5 million | $5.6 million | $42.2 million | $14.6 million |
| Total operating expenses | $57.1 million | $38.3 million | $135.2 million | $102.6 million |
| Net loss | $57.0 million | $38.2 million | $135.0 million | $101.6 million |
| Basic and diluted loss per share | $1.14 | $1.01 | $2.75 | $3.06 |
Margins are not meaningful because the company had no revenue. Nine-month operating cash use was $122.9 million, versus $80.5 million in 2020. Investing cash use was $99.5 million, primarily reflecting purchases of marketable securities, while financing provided $209.1 million, primarily from the February 2021 stock offering.
At September 30, 2021, cash and cash equivalents were $51.8 million, restricted cash $1.5 million, and marketable securities $315.5 million. Together these totaled $368.8 million; the MD&A separately cites $367.3 million for cash, cash equivalents, and marketable securities, excluding restricted cash. Total assets were $387.0 million, total liabilities $24.0 million, and stockholders’ equity $363.0 million. The company reported no debt outstanding. Accumulated deficit was $337.0 million.
Material changes versus prior comparable periods
- Q3 net loss increased 49% year over year; nine-month net loss increased 33%.
- Q3 R&D expense rose 24%, mainly from personnel, consulting and medical-affairs costs, and roflumilast manufacturing; lower topical JAK program costs partly offset the increase. Nine-month R&D rose 6%, as higher personnel and other costs were partly offset by lower roflumilast program costs.
- G&A expense increased sharply: 196% in Q3 and 188% for the nine-month period, primarily from increased headcount, professional services and commercialization preparation. Nine-month expense also included $5.3 million of incremental stock compensation related to the former CFO’s retirement and award modifications.
- In February 2021, the company raised $207.5 million net through a public offering. Shares issued and outstanding rose to 50.1 million from 43.3 million at year-end 2020. The $100 million at-the-market program had not been used as of September 30.
Outlook, developments and risks
- In September 2021, Arcutis submitted an NDA to the FDA for roflumilast cream for mild-to-severe plaque psoriasis. The filing says management expected current cash, cash equivalents and marketable securities to fund planned operations well into 2023; the financial-statement note also states resources were expected to cover at least 12 months from issuance. Management expects continuing losses and says additional capital will be needed.
- Roflumilast cream Phase 3 trials for atopic dermatitis were underway, with topline results expected in the second half of 2022. Roflumilast foam Phase 3 trials were underway for seborrheic dermatitis and scalp/body psoriasis; topline results were expected in Q2 or Q3 2022 and the second half of 2022, respectively.
- ARQ-252’s Phase 1/2b chronic hand eczema study missed its primary endpoint. The company attributed the result in part to insufficient local drug delivery; no safety or tolerability issues were reported. The vitiligo proof-of-concept study was terminated, and reformulation work continued. ARQ-255 formulation and preclinical work for alopecia areata also continued.
- Management reported limited COVID-19 impact to date, no supply-chain disruptions affecting clinical-trial drug supply, and no expected change to previously disclosed clinical timelines, while noting that further effects remained uncertain.
- Risks include clinical and regulatory uncertainty, trial enrollment and endpoint subjectivity, reliance on third-party manufacturers and CROs, future financing needs and potential dilution. Contractual minimum manufacturing commitments included approximately $5.4 million due within the next three months and about $0.6 million annually for the following four years. License agreements also provide for potential development, regulatory and sales milestones and royalties.
Most important facts for investors to verify
- FDA acceptance and review milestones for the roflumilast cream NDA, and any resulting regulatory timeline changes.
- Upcoming Phase 3 topline results and whether trial outcomes support the company’s development and filing plans.
- Cash burn, spending plans and runway assumptions, including the distinction between liquidity totals that include and exclude restricted cash.
- Manufacturing readiness, minimum purchase commitments and dependence on single-source third parties.
- Potential future financing, ATM usage, share dilution and milestone or royalty obligations under license agreements.