Arcturus Therapeutics Holdings Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results. Arcturus is a clinical-stage mRNA medicines company focused on infectious disease vaccines and rare liver and respiratory diseases. Amounts below are in U.S. dollars; financial-statement figures are in millions unless noted.
Financial results and liquidity
| Metric | Q3 2022 / September 30, 2022 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $13.4 million for Q3; $45.7 million for the first nine months | Q3 2021: $2.4 million; first nine months 2021: $6.6 million |
| Net loss | $35.3 million for Q3; $108.0 million for the first nine months | Q3 2021: $54.1 million; first nine months 2021: $165.0 million |
| Operating expenses | $50.2 million for Q3; $155.0 million for the first nine months | Q3 2021: $56.3 million; first nine months 2021: $171.8 million |
| Research and development, net | $37.7 million for Q3; $120.8 million for the first nine months | Q3 2021: $45.4 million; first nine months 2021: $141.1 million |
| Cash and cash equivalents | $237.7 million | $370.5 million at December 31, 2021 |
| Cash, cash equivalents and restricted cash | $239.8 million | $372.6 million at start of 2022 |
| Operating cash flow | $(128.3) million for the first nine months | $(92.5) million for the first nine months of 2021 |
| Debt | $59.7 million total: $27.7 million current and $32.0 million long-term | $63.1 million total at December 31, 2021 |
| Current assets / current liabilities | $246.7 million / $75.8 million | Working capital: approximately $170.8 million |
| Loss per share | $(1.33) for Q3; $(4.09) for the first nine months | Q3 2021: $(2.05); first nine months 2021: $(6.27) |
The filing does not report a conventional gross profit or gross margin; R&D-stage operations and collaboration revenue are central to the results. Revenue growth was driven mainly by Vinbiocare and recognition of a $12.5 million Israeli Ministry of Health reservation payment. The company remains loss-making. Management said existing working capital was expected to fund operations for at least 12 months, subject to assumptions including anticipated partner funding and expenses.
Changes versus prior periods
- First-nine-month revenue increased $39.1 million year over year, while net loss narrowed by $57.0 million. Operating expenses fell $16.8 million, primarily as COVID-19 manufacturing and clinical costs declined; personnel and facility costs increased.
- Cash and cash equivalents fell $132.8 million from year-end. Operating cash use increased by $35.7 million year over year, with the cash-flow statement showing a $53.6 million decrease in deferred revenue as a major working-capital factor.
- The Singapore loan includes an expected repayment of approximately $15.7 million related to funds not used for ARCT-021; repayment was expected in Q1 2023 pending audit and related steps. Arcturus sought forgiveness of the remaining portion, which was not assured.
- A new laboratory and office lease commenced in Q2 2022, contributing to higher lease assets, liabilities, and facilities costs. Lease liabilities totaled $35.0 million at September 30, with a nine-year weighted-average remaining term.
Outlook, developments and risks
- CSL Seqirus collaboration: Announced November 1, 2022, after quarter-end. The agreement provides for a $200 million upfront payment and potential development and commercial milestones, plus profit share or royalties. The agreement was subject to expiration of the Hart-Scott-Rodino waiting period; the upfront payment was not reported as Q3 revenue or cash. Milestones and sales-based payments are contingent, and CSL Seqirus has specified termination rights.
- Programs: Arcturus reported completion of dosing in the first three adult ARCT-810 Phase 1b cohorts and addition of a fourth cohort; a Phase 2 study was approved in several European countries, with dosing expected to begin in Q4 2022. The company expected to file a first-in-human application for ARCT-032 by year-end 2022. These are forward-looking statements, not reported outcomes.
- BARDA: An August 2022 cost-reimbursement contract provides for up to $63.2 million for pandemic influenza vaccine development. Revenue recognized through Q3 was immaterial. The government may audit, change scope or terminate the contract, and a negative audit could lead to repayment, penalties, or other sanctions.
- Partner changes: In October 2022, Vinbiocare’s manufacturing license and supply agreements were terminated without penalties; a replacement study-support agreement provides for payments to Vinbiocare, including liabilities accrued at September 30. Janssen gave notice on October 31, 2022, to terminate its collaboration for convenience, effective after 60 days, without penalties.
- COVID-19 risks: The filing cautions that ARCT-154 trial data may not support regulatory approval and that Vietnam trial completion and review could be delayed amid a reported testing-kit scandal and related government personnel changes.
- Arcturus expects continued losses and substantial R&D spending. Future financing needs depend on clinical progress, regulatory outcomes, partner activity, manufacturing investment, and other costs. The company warns that additional financing may not be available on acceptable terms.
Important facts for investors to verify
- Confirm HSR clearance, receipt and timing of the CSL Seqirus upfront payment, and the agreement’s final effective status and termination provisions.
- Reconcile Vinbiocare revenue: the note reports $11.2 million recognized in Q3 and the revenue table reports $11.237 million, while the MD&A describes $4.2 million as recognized in 2022. Review the agreement accounting and accrued payment obligations.
- Track the Singapore loan audit, the expected $15.7 million repayment, and the outcome of Arcturus’s request for forgiveness of the remaining balance.
- Monitor ARCT-154 clinical and regulatory progress, including the risks and timing of Vietnam trial data, and BARDA contract performance and reimbursements.
- Compare cash burn and available liquidity with management’s runway estimate, including the impact of partner receipts, continuing R&D costs, and scheduled debt and lease payments.