Arcturus Therapeutics Holdings Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter report. Arcturus is a clinical-stage mRNA medicines company; it has not generated product-sale revenue. Its business depends on collaboration and grant revenue, especially its CSL Seqirus vaccine collaboration.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenue | $166.8 million | $206.0 million |
| Research and development expense, net | $192.1 million | $147.8 million |
| General and administrative expense | $52.9 million | $46.1 million |
| Operating income (loss) | $(78.2) million | $12.2 million |
| Net income (loss) | $(29.7) million | $9.3 million |
| Net cash from (used in) operating activities | $(18.1) million | $32.0 million |
- Revenue fell $39.2 million, or about 19%, year over year. CSL Seqirus contributed $154.3 million, approximately 92% of 2023 revenue; BARDA grant revenue was $9.1 million. Revenue included collaboration milestones and other non-product revenue.
- Operating loss was about 47% of revenue; net loss was about 18% of revenue. Gross margin is not a useful comparable measure because the company has no product sales.
- Net loss includes a $34.0 million gain on debt extinguishment and $16.6 million of net finance income, largely reflecting interest income. These items materially reduced the reported net loss relative to the operating loss.
- Cash and cash equivalents were $292.0 million; total cash, cash equivalents and restricted cash were $348.9 million, including $55.0 million pledged as collateral to Wells Fargo and $1.9 million restricted for leases. Current assets were $386.6 million and current liabilities $82.0 million; the current-asset total includes restricted cash.
- No debt was outstanding at year-end. The $50.0 million Wells Fargo revolving facility was undrawn and secured by the $55.0 million cash pledge. The Singapore loan was partly repaid and the remaining $34.0 million was forgiven; the Western Alliance loan was paid off in March 2023.
- Cash and restricted cash decreased $45.1 million during 2023. Investing cash use was $2.9 million and financing cash use was $24.1 million, mainly reflecting debt repayments.
Material changes and business developments
- Revenue declined from 2022, when it included revenue from arrangements with Vinbiocare and the Israeli Ministry of Health that did not recur at comparable levels in 2023. R&D expense increased about 30%, primarily due to higher manufacturing costs and personnel and facility expenses; G&A increased about 15%.
- Arcturus received $147.9 million in CSL Seqirus milestone payments during 2023 and reported an additional $23.8 million received after year-end. The company remains eligible for further development and commercial milestones, profit share and royalties, subject to contract terms and future performance.
- ARCT-154 received marketing approval in Japan in November 2023 for primary immunization and booster use—the first approved self-amplifying RNA COVID-19 vaccine, according to the filing. A European marketing application was under review. Approval in Japan does not assure sales or approval elsewhere.
- ARCT-810, for OTC deficiency, completed dosing in a 16-person Phase 1b study; a Phase 2 multiple-dose study was ongoing. ARCT-032, for cystic fibrosis, began dosing in a small Phase 1b patient study in November 2023.
- CSL’s seasonal influenza program advanced to Phase 1 dosing in Australia in January 2024, after the reporting year. The BARDA-funded pandemic influenza program was in preclinical development, with Phase 1 enrollment expected before the end of 2024.
Outlook, risks and unusual items
- Management expects continued losses and substantial R&D spending. It believes current cash should fund anticipated requirements through at least the next 12 months, assuming no significant unforeseen expenses and partner funding at expected levels; additional capital or partnerships will be needed for longer-term plans.
- Key uncertainties include clinical results, regulatory decisions, vaccine demand and competition, manufacturing and supply-chain execution, and reliance on CSL Seqirus and other partners. CSL can terminate the collaboration under specified terms, and milestone and royalty receipts depend on development progress and sales.
- The BARDA contract reimburses permitted costs up to $63.2 million; it does not guarantee purchase of a vaccine and may be terminated under specified circumstances. The Cystic Fibrosis Foundation increased its award to up to $24.6 million, with Arcturus required to incur at least $15.0 million toward program activities; $7.6 million remained accrued at year-end.
- Management and the auditor identified material weaknesses in financial-reporting controls: IT general controls and controls reviewing costs incurred under collaboration arrangements. Disclosure controls were deemed ineffective, and the auditor issued an adverse opinion on internal control over financial reporting. The auditor gave an unqualified opinion on the financial statements; management said the weaknesses did not adversely affect reported results and planned remediation during 2024.
- The company reports an accumulated deficit of $367.9 million and no history of product-sale revenue. It also flags potential dilution from future equity financing and uncertainty over the use of tax attributes.
Important facts for investors to verify
- Whether CSL milestones, the post-year-end payment and future collaboration funding are received as expected, and how much revenue depends on nonrecurring milestones.
- Unrestricted cash, restricted collateral and operating cash burn, including whether the stated 12-month funding outlook remains valid as program costs evolve.
- Regulatory and commercialization progress for ARCT-154 beyond Japan, including updated vaccine formulations, and any evidence of actual sales or profit-share revenue.
- Clinical progress, safety and efficacy evidence for ARCT-810 and ARCT-032, and the timing and cost of subsequent trials.
- Whether the company remediates the material weaknesses and demonstrates effective controls over IT systems and collaboration revenue recognition.