Arcturus Therapeutics Holdings Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Arcturus is a clinical-stage mRNA medicines company focused on rare liver and respiratory diseases and infectious-disease vaccines. It reported collaboration revenue, not commercial product sales.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $2.3 million | $3.3 million | $7.3 million | $17.8 million |
| Research and development, net | $17.7 million | $7.1 million | $33.6 million | $21.6 million |
| General and administrative | $5.6 million | $3.9 million | $14.2 million | $10.9 million |
| Operating loss | $20.9 million | $7.6 million | $40.4 million | $14.7 million |
| Net loss | $21.0 million | $7.4 million | $41.0 million | $15.0 million |
| Basic and diluted loss per share | $0.92 | $0.56 | $2.19 | $1.33 |
Amounts are in U.S. dollars; financial statement figures are converted from thousands. Profit margins are not meaningful given the company’s clinical-stage, loss-making operations.
- Cash and liquidity: Cash and cash equivalents were $307.0 million at September 30, 2020, plus $0.1 million of restricted cash. Current assets were $314.1 million and current liabilities $28.0 million.
- Cash flow: Nine-month operating cash use was $36.2 million, investing cash use $1.0 million, and financing cash inflow $272.9 million. Cash, cash equivalents and restricted cash increased $235.7 million.
- Debt: Long-term debt was $15.1 million, with interest-only payments through October 2021 and maturity in October 2023. The company reported compliance with loan covenants. Cash exceeded reported debt by about $292 million, before lease obligations.
- Other balance-sheet items: Total liabilities were $60.9 million; deferred revenue was $19.3 million; accumulated deficit was $112.7 million.
Material changes versus the prior comparable period
- Nine-month collaboration revenue fell 59% year over year. The filing attributes the decrease mainly to lower CureVac reimbursements after termination of its co-development agreement, the absence of $3.3 million of 2019 Synthetic Genomics sublicense revenue, and lower Ultragenyx revenue following 2019 upfront-payment amortization.
- Nine-month R&D expense rose 55%, primarily reflecting development of LUNAR-COV19 and higher LUNAR-CF, personnel and facility costs. Net R&D expense includes grant funding offsets.
- The company raised $261.9 million net from common stock issuance during the first nine months, including approximately $186.6 million from its July offering, and received $9.6 million from Ultragenyx’s option exercise.
- Shares issued and outstanding increased to 24.5 million from 15.1 million at December 31, 2019. The July offering alone issued approximately 3.75 million shares.
Outlook, risks and unusual items
- Management expected existing cash, cash equivalents and investments to fund current operations for at least the next 12 months, but said the company expects continued losses and will need additional capital to complete development and commercialization. Future funding needs depend on clinical progress, regulatory outcomes, manufacturing and other factors.
- Program updates: the LUNAR-COV19 Phase 1/2 study began dosing in August 2020; all subjects in the first cohort had been dosed by the filing date. The first three dose-escalation cohorts of the ARCT-810 OTC-deficiency study were completed in October 2020. The company expected LUNAR-CF development costs to rise as it moved toward an anticipated 2021 IND submission.
- Singapore grants provided up to approximately $10.1 million for LUNAR-COV19, of which approximately $10.0 million had been funded by September 30. A further grant of up to approximately $6.7 million was awarded October 2, 2020, subject to milestones.
- In October 2020, Arcturus received a non-refundable $12.5 million payment from Israel’s Ministry of Health under a vaccine supply agreement, subject to contract terms and regulatory conditions.
- On November 7, 2020, after quarter-end, Singapore’s Economic Development Board agreed to provide a loan of up to $45 million for vaccine development, subject to conditions and security documentation. It is intended to be repaid principally from vaccine sales royalties, but repayment may be accelerated in specified circumstances, including certain sales or regulatory clearances and default.
- Key risks include clinical-trial safety and efficacy uncertainty, competition and changing vaccine demand, reliance on external funding and collaborators, and difficulty enrolling patients in rare-disease trials. Management cautioned that preliminary or interim data may not predict later-stage results.
- A former employee lawsuit seeks $30 million, including punitive and emotional-distress damages. The company disputes the claims and stated it could not estimate a potential loss or range at this preliminary stage.
- The company reported no material market-risk exposure and stated disclosure controls were effective. It had no authorized common shares available for issuance after existing reservations and planned a November 10, 2020 stockholder vote to increase authorized shares from 30 million to 60 million.
Important facts for investors to verify
- Progress, safety data and financing needs for LUNAR-COV19 and ARCT-810, and the anticipated LUNAR-CF IND timing.
- Conditions, drawdown, interest, repayment triggers and collateral terms of the post-quarter Singapore loan; it was not quarter-end cash or debt.
- Regulatory and contractual conditions tied to the Israel supply agreement and treatment of the $12.5 million payment in later financial statements.
- Whether stockholders approved the increase in authorized shares, and the potential dilution from future equity issuance and outstanding equity awards.
- Resolution and any financial impact of the $30 million lawsuit, which the filing says cannot yet be estimated.