Arcadia Biosciences, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed April 1, 2019. This is an annual report, not a standalone fourth-quarter report. Arcadia develops agricultural traits and food ingredients, with commercial activity currently centered on SONOVA safflower oil and a pipeline of wheat and crop-productivity traits.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $1.464 million | $4.026 million |
| Product revenue | $657,000 | $514,000 |
| License revenue | $150,000 | $1.470 million |
| Contract research and government grants | $657,000 | $2.042 million |
| Operating expenses | $18.334 million | $18.341 million |
| Loss from operations | $(16.870) million | $(14.315) million |
| Net loss | $(13.480) million | $(15.707) million |
| Net loss per share, basic and diluted | $(3.58) | $(7.28) |
| Net cash used in operating activities | $(13.631) million | $(13.965) million |
- Margins: Product revenue of $657,000 was below product costs of $661,000, before other operating expenses. The company reported a substantial operating loss; conventional profitability margins are not meaningful given the scale of losses.
- Cash and liquidity: At year-end, cash and cash equivalents were $12.0 million and short-term investments were $9.8 million; working capital was $19.8 million. Operating cash use was $13.6 million.
- Debt: No long-term debt at year-end. The $25 million Silicon Valley Bank term loan was repaid in 2017.
- Equity and obligations: Stockholders’ equity was $12.8 million and total liabilities were $11.2 million. Contractual operating lease payments totaled $2.8 million. A $3.0 million contingent Anawah-acquisition liability remains recorded.
Changes versus 2017
- Revenue fell 64%, mainly because license revenue and contract research/grant revenue declined as agreements ended or activity decreased. Product revenue rose 28%, primarily from additional encapsulated SONOVA orders.
- Operating expenses were nearly flat: R&D declined 18% to $6.1 million, while SG&A rose 9% to $11.6 million, partly due to higher IP legal and marketing costs. A $310,000 inventory write-down increased product costs.
- Net loss narrowed, but included material financing-related accounting items: a $4.0 million initial noncash loss on warrant and adjustment-feature liabilities, a $9.6 million noncash gain from their fair-value changes, and $2.6 million of offering costs.
- Two 2018 equity financings generated $24.0 million gross proceeds: a March private placement ($10.0 million) and June offering/private placement ($14.0 million). Offering costs reduced proceeds. Shares outstanding increased from 2.13 million to 4.77 million during the year, with additional warrants outstanding.
- Adoption of ASC 606 on January 1, 2018 reduced accumulated deficit by $2.4 million; the company reported that adoption reduced 2018 revenue by $328,000. Prior-year results were not restated.
Outlook, commentary, and risks
- Going concern: Management said existing cash, cash equivalents, and investments would not be sufficient to meet anticipated cash needs through at least March 2020; the auditor highlighted substantial doubt about the company’s ability to continue as a going concern. Additional financing or partnerships may be needed, and equity financing could dilute shareholders.
- Revenue outlook: Management expected contract research and government-grant revenue to decline as projects conclude. It expected GoodWheat products to be marketed in 2019 and identified a 9–18 month anticipated window for commercialization of wheat ingredients; these are expectations, not assured outcomes.
- Pipeline: Priorities include high-fiber Resistant Starch and Reduced Gluten wheat, and the HB4 drought-tolerance soybean trait through 50%-owned Verdeca. Management anticipated possible HB4 market launch within 18–24 months, subject to regulatory progress. Regulatory approvals remain pending in several jurisdictions.
- Hemp: Arcadia announced Arcadia Specialty Genomics in February 2019 and expected research and pilot operations to begin in early 2019, subject to licensing and regulatory requirements. The company had no operating history in hemp/cannabis and anticipated increased expenses before meaningful revenue.
- Key risks: Persistent losses and financing dependence; long and uncertain development, field-trial, and regulatory timelines; reliance on collaborators and grants; customer concentration; competitive and consumer-acceptance risks; weather and crop failures; and intellectual-property uncertainty.
- Legal/IP matters: Arcadia’s patent interference involving Arista and Resistant Starch wheat was terminated by the USPTO in August 2018 and appealed, with a decision expected in the second half of 2019. A separate suit against Vilmorin, Limagrain Céréales Ingredients, and Arista was dismissed in January 2019; the case was closed.
- Other unusual items: The 1-for-20 reverse stock split took effect in January 2018. Warrant-related liabilities and their valuation were significant, with year-end common-stock warrant liabilities of $5.1 million. The company reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an opinion on internal-control effectiveness.
Investor verification priorities
- Confirm current cash, investment balances, cash burn, financing access, and any subsequent events affecting the going-concern outlook.
- Track GoodWheat launch timing, production scale-up, customer commitments, sales, and unit economics; verify whether projected commercialization milestones are achieved.
- Check progress and timing of HB4 soybean regulatory approvals and commercial partnerships, and whether expected launch windows remain realistic.
- Review dilution from outstanding warrants, options, and potential future financings, including the terms and accounting treatment of warrant liabilities.
- Monitor customer and partner concentration, declining grant/contract revenue, and the outcome of the Arista patent appeal and any related IP developments.