Arcturus Therapeutics Holdings Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Arcturus is a clinical-stage mRNA medicines company developing infectious-disease vaccines and rare-disease programs using its STARR and LUNAR technologies. It had no commercial product revenue; reported revenue was from collaborations.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / prior period |
|---|---|---|
| Collaboration revenue | $2.646 million | $4.350 million |
| Research and development expense, net | $7.917 million | $7.324 million |
| General and administrative expense | $4.191 million | $3.534 million |
| Operating loss | $9.462 million | $6.508 million |
| Net loss | $9.777 million | $6.884 million |
| Net loss per share, basic and diluted | $0.67 | $0.68 |
| Net cash used in operating activities | $11.858 million | $5.411 million |
At March 31, cash and cash equivalents were $59.471 million ($59.578 million including restricted cash), compared with $71.353 million and $71.460 million, respectively, at year-end 2019. Current assets were $63.759 million and current liabilities $21.650 million. Total liabilities were $55.122 million, including $15.028 million of long-term debt; stockholders’ equity was $16.982 million. Product gross margin is not applicable because the company had no commercial product sales.
Changes and notable items
- Revenue fell $1.704 million, or 39.2%, year over year, primarily because CureVac reimbursements for the OTC collaboration ended in 2019. R&D expense rose 8.1%, and G&A rose 18.6%; total operating expenses increased 11.5%.
- Operating cash use increased to $11.858 million from $5.411 million, reflecting the larger loss and working-capital outflows. Cash, cash equivalents and restricted cash declined $11.882 million during the quarter.
- In April, the FDA allowed the ARCT-810 Phase 1b study in OTC-deficiency patients to proceed, and New Zealand approved a Phase 1 study in healthy volunteers.
- Arcturus received approximately $75.5 million net from an April underwritten offering of 4,735,297 shares at $17 per share. It also received about $5 million in April under the Singapore COVID-19 vaccine grant, which provides for up to approximately $10 million in total support. The March ATM agreement was terminated when the offering closed.
Outlook, risks and contingencies
- Management expects continued losses and significant cash use, with additional capital needed to fund operations and development. The April offering materially increased available capital after quarter-end; the filing does not provide a specific cash runway estimate.
- The COVID-19 vaccine effort, begun in Q1 with Duke-NUS Medical School and supported by the Singapore grant, was expected to enter human trials in Q3 2020. Management expected development costs to increase. The company cautioned that the program was early-stage, might not yield a safe or effective vaccine, could divert resources from other programs, and faced substantial competition.
- COVID-19-related restrictions could delay clinical supplies, trial enrollment or access to trial sites and could disrupt operations and financing. The company also noted that foreign-trial data may not be sufficient for FDA approval without additional studies.
- The Western Alliance loan carries a floating interest rate, is secured by substantially all company assets (with intellectual property subject to a negative pledge), and includes covenants and prepayment provisions. The company reported covenant compliance at March 31 and said the specified IND-submission covenant had been satisfied. Scheduled principal payments, including the final payment, are $4.0 million in 2021, $6.0 million in 2022 and $5.5 million in 2023.
- A former employee’s lawsuit seeks $30 million, including punitive and emotional-distress damages. The company disputes the claims and intends to defend itself but cannot estimate a potential loss or range at this preliminary stage.
- Arcturus reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification points
- Confirm the timing and use of April offering proceeds and Singapore grant payments, including milestone conditions and any repayment obligations for unused grant funds.
- Track clinical progress and trial timing for ARCT-810, the COVID-19 vaccine and LUNAR-CF, and assess pandemic-related delays and development spending.
- Monitor collaboration revenue and deferred revenue, particularly the effects of reduced CureVac activity and the pace of performance under other partner agreements.
- Review cash burn, financing needs, debt covenants and repayment obligations, as well as developments in the $30 million lawsuit.