Arcutis Biotherapeutics, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 16, 2021. The filing also presents unaudited fourth-quarter results. Arcutis is a clinical-stage dermatology biopharmaceutical company with no approved products and no product-sales revenue.
Financial performance and position
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $115.3 million | $36.5 million |
| General and administrative expense | $21.3 million | $6.6 million |
| Total operating expenses | $136.6 million | $43.1 million |
| Net loss | $135.7 million | $42.0 million |
| Net loss per share, basic and diluted | $3.80 | $22.78 |
| Cash used in operating activities | $113.0 million | $42.8 million |
Losses widened as development advanced and the company expanded. R&D expense rose 216%, mainly from clinical-trial and manufacturing costs; G&A rose 223%, reflecting increased staffing, professional services and public-company costs. The lower loss per share in 2020 reflects a substantially larger weighted-average share count after the IPO, not improved profitability. Gross margin and operating margin are not meaningful because the company had no product revenue.
At December 31, 2020, cash and cash equivalents were $65.1 million, restricted cash $1.5 million, and marketable securities $219.4 million; working capital was $270.2 million and total assets $298.3 million. The company reported no debt. Financing cash flow was $298.1 million, primarily from the IPO and October 2020 equity financing. Investing cash outflow of $181.8 million mainly reflected purchases of marketable securities, rather than operating investment alone.
Fourth-quarter 2020 operating expenses were $34.1 million and net loss was $34.0 million, versus $13.0 million and $12.6 million, respectively, in Q4 2019. Q4 2020 basic and diluted loss per share was $0.79, compared with $6.13 in Q4 2019.
Material developments and outlook
- Roflumilast cream for plaque psoriasis: Two pivotal Phase 3 trials met their primary endpoint. IGA success was 42.4% versus 6.1% for vehicle in DERMIS-1, and 37.5% versus 6.9% in DERMIS-2. The company reported favorable tolerability and was preparing an NDA, with submission expected in the second half of 2021.
- Roflumilast cream for atopic dermatitis: Phase 3 trials had begun; topline results from two adult and adolescent studies were expected in the second half of 2022. The earlier Phase 2 study did not achieve statistical significance on its primary endpoint, though some secondary measures favored treatment.
- Roflumilast foam: Phase 2 studies showed positive results in seborrheic dermatitis and scalp psoriasis. A pivotal seborrheic dermatitis trial was planned for Q2 or Q3 2021; scalp psoriasis Phase 3 was planned for the second half of 2021, subject to regulatory discussions. Topline data for both programs were anticipated in 2022.
- ARQ-252/ARQ-255: Enrollment in a Phase 2b chronic hand eczema study was complete, with topline data expected by mid-2021. A vitiligo Phase 2 study was planned to start in Q1 2021. ARQ-255 remained in formulation and preclinical work for potential alopecia areata treatment.
- Funding: Management expected cash, cash equivalents and marketable securities at year-end, together with proceeds from a February 2021 equity offering, to fund planned operations into 2023. The company nevertheless expects continued losses and may require further financing.
Risks, contingencies and unusual items
- Clinical, regulatory and commercialization risks remain substantial: no product has been approved, and the lead candidate still required FDA review. Trial outcomes, timing, labeling and approval are uncertain.
- COVID-19 had caused some clinical-site screening, enrollment and monitoring disruptions; management reported limited impact to date and did not then expect disclosed timelines to change, but the full effect was uncertain.
- The company relies on third parties for clinical research and manufacturing, including single-source suppliers, and had not finalized a commercial drug-product manufacturing agreement.
- Commercial success depends on market acceptance, reimbursement, pricing and building sales and distribution capabilities. Competitors include approved therapies and products in development.
- License obligations include up to $12.5 million in regulatory milestones and $15.0 million in sales milestones to AstraZeneca, plus royalties; Hengrui obligations include up to $20.5 million in development/regulatory milestones and $200.0 million in sales milestones, plus royalties and certain sublicensing payments.
- Operating lease commitments totaled $6.7 million at year-end. No material litigation was reported. The auditor issued an unqualified opinion on the financial statements; management stated disclosure controls and internal control over financial reporting were effective. The auditor did not provide an internal-control attestation, under the emerging-growth-company exemption.
- Financing disclosure to reconcile: The filing generally reports approximately $207.4 million net proceeds from the February 2021 offering, but one liquidity note states $180.3 million. Investors should verify the correct net-proceeds figure.
Important facts for investors to verify
- Whether and when the roflumilast cream NDA was submitted, accepted for review and acted on, and any FDA requests or restrictions.
- Final clinical data and safety findings, particularly for atopic dermatitis, foam programs and ARQ-252, against the stated timelines.
- Current cash runway, quarterly operating cash burn, and the reconciled February 2021 offering proceeds; note year-end cash and investments exclude the subsequent offering.
- Commercial manufacturing readiness, supply concentration, expected launch costs, and the terms and timing of license milestones and royalties.
- Share dilution and equity-compensation overhang: 50,084,677 common shares were outstanding as of February 11, 2021, before considering subsequent equity awards or other issuances.