Arcturus Therapeutics Holdings Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The unaudited statements are consolidated. Arcturus is a clinical-stage mRNA medicines company; reported revenue came from collaborations, not product sales.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $2.0 million | $2.3 million | $4.1 million | $5.0 million |
| Research and development expense, net | $45.7 million | $7.9 million | $95.7 million | $15.9 million |
| General and administrative expense | $10.0 million | $4.4 million | $19.8 million | $8.6 million |
| Net loss | $54.6 million | $10.3 million | $110.9 million | $20.0 million |
| Basic and diluted loss per share | $2.07 | $0.55 | $4.22 | $1.20 |
- Cash and cash equivalents were $433.6 million at June 30, down from $462.9 million at year-end 2020. Current assets were $438.0 million and current liabilities $70.8 million, or approximately $367.3 million of working capital.
- Operating cash used was $75.9 million in the first half, versus $20.4 million a year earlier. Investing cash used was $0.5 million; financing provided $47.1 million, mainly from the Singapore loan. Cash, cash equivalents and restricted cash declined $29.3 million.
- Debt carrying value was approximately $61.3 million, including $5.0 million current and $56.3 million long-term. This includes the Singapore loan and Western Alliance debt. Total liabilities were $143.2 million; stockholders’ equity was $305.6 million.
- Gross margins are not meaningful for this pre-commercial business; the filing reports collaboration revenue and operating expenses rather than product sales.
Material changes and unusual items
- First-half collaboration revenue fell 16.9% year over year, primarily because prior-year sublicense and material-transfer revenue did not recur; Q2 revenue fell 13.8%.
- Operating expenses rose sharply, driven principally by COVID-19 vaccine development and pre-launch inventory, expanded discovery programs, increased staffing and higher share-based compensation. Q2 and first-half net R&D expense rose to $45.7 million and $95.7 million, respectively.
- The company recorded a $5.0 million non-cash acquired in-process R&D charge for an Alexion license, paid for with shares. First-half share-based compensation was $14.5 million versus $2.0 million in 2020.
- In January 2021, Arcturus drew the full S$62.1 million (approximately $46.6 million) Singapore manufacturing loan. It bears 4.5% interest and is generally intended to be repaid from 10% of net vaccine sales, subject to specified repayment, default, security and forgiveness terms. The company reported covenant compliance at June 30.
- Accrued liabilities increased to $42.6 million from $20.6 million, including a $10.0 million Vinbiocare deposit liability. The company disclosed a subsequent Vietnam collaboration agreement, with a $40 million upfront payment contemplated, plus supply payments and royalties.
Outlook, management commentary and risks
- Management said available working capital was expected to fund operations for at least 12 months from issuance of the statements. It also expects continued losses, potentially increasing, and anticipates needing additional capital or partnerships for longer-term development.
- ARCT-021 completed Phase 1 and entered Phase 2; 579 participants were enrolled and dosed. Interim safety reviews supported continuing the trial, and the company reported greater than 90% IgG seroconversion after a single 5-microgram dose. A global entity selected ARCT-021 for a planned Phase 3 trial, but may delay, halt or not initiate it.
- Vinbiocare received Vietnam CTA approval for an ARCT-154 Phase 1/2/3 study, intended to be funded by the partner. Arcturus also reported UK approval to initiate a Phase 2 study of ARCT-810 and expected LUNAR-CF to move toward CTA submission in the first half of 2022. These are development plans, not assurances of success.
- Key risks include clinical failure or delay, dependence on partners and external funding, manufacturing and regulatory challenges, competition, and potential effects of government action limiting enforcement of COVID-19 vaccine patents. Singapore loan and grant terms include audits, reporting, manufacturing and delivery milestones, and other conditions.
- A former-employee lawsuit was settled in May 2021; the company said insurance covered the payment and no material liability resulted. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether planned partner-sponsored COVID-19 trials proceed, and whether human trial results support safety and efficacy.
- Cash burn, development spending and runway against management’s stated funding outlook; assess the timing and terms of any additional financing.
- Singapore loan repayment, forgiveness, collateral and milestone conditions, along with compliance and foreign-exchange exposure.
- Final terms, payments and execution of the Vinbiocare arrangement; distinguish the $10 million deposit already recorded from the contemplated $40 million upfront payment.
- The MD&A overview gives accumulated deficit as $247.4 million, while the balance sheet and financial-statement note report $254.7 million at June 30, 2021. The filing text does not explain this discrepancy.