Oruka Therapeutics, Inc. annual report, FY2017

Filing identity and reporting period

Important: The supplied filing is ARCA biopharma, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, filed March 22, 2018. It is not a filing for Oruka Therapeutics, Inc.; the filing identifies ARCA biopharma as the registrant.

ARCA was a clinical-stage precision-medicine biopharmaceutical company focused on cardiovascular therapies. Its lead candidate was Gencaro (bucindolol hydrochloride); it reported no product revenue.

Financial performance and liquidity

There were no debt outstanding at December 31, 2017. Year-end current assets were $12.3 million and current liabilities were $2.1 million. The company’s operating model generated losses, so conventional operating margins are not meaningful. It reported a $61,000 income-tax benefit in 2017, related to research-credit monetization.

Operating cash use rose by about $2.5 million year over year. The decline in cash and marketable securities primarily reflected operating outflows, partly offset by equity financing. Financing activities provided $5.8 million net cash in 2017, including approximately $6.1 million net proceeds from an at-the-market stock offering, less vendor-financing repayments.

Material changes and developments

• R&D expense increased approximately $1.7 million, mainly because of GENETIC-AF trial costs; management expected R&D expense to fall in 2018 after trial completion.
• In February 2018, ARCA reported GENETIC-AF Phase 2B results. Across 267 patients, Gencaro showed a similar treatment benefit to metoprolol overall: primary-endpoint hazard ratio 1.01 (95% CI 0.71–1.42), with a predictive probability of success of 14%.
• In the 127-patient U.S. subgroup, the reported hazard ratio was 0.70 (95% CI 0.41–1.19), with a 61% predictive probability of success. These were subgroup trends, not proof of statistically significant superiority; the trial was not powered for conventional significance on the primary endpoint.
• Gencaro was generally described as safe and well tolerated. Drug-related adverse events were reported in 23.8% of Gencaro patients versus 30.1% for metoprolol; bradycardia was reported in 3.7% versus 12.0%, respectively. The filing also reports three deaths during the metoprolol 24-week efficacy follow-up and three deaths in the Gencaro long-term extension.
• ARCA acquired Aeolus Pharmaceuticals’ minority interest in CPEC in October 2017, reducing or eliminating a portion of potential Gencaro milestone and royalty obligations.
• ARCA announced plans to start IND-enabling work on AB171, a potential genetically targeted candidate for peripheral arterial disease and heart failure.

Outlook, risks and contingencies

Management said year-end 2017 liquidity plus $3.4 million net proceeds from January 2018 stock sales was expected to fund operations through the end of 2018 at the projected cost structure. The filing nevertheless states that substantial doubt exists about ARCA’s ability to continue as a going concern because it needs additional capital and its ability to raise it is uncertain. The auditor’s report includes a going-concern emphasis; the financial statements were prepared on a going-concern basis.

ARCA had sold all shares available under its at-the-market prospectus by January 19, 2018. It said further Gencaro development depended on additional analysis, an FDA meeting requested for the second quarter of 2018, and financing through a strategic transaction or capital raise. The FDA meeting might not yield an economically viable development path. The company also faced potential dilution, financing constraints, and Nasdaq listing risk; its March 19, 2018 closing share price was $0.65, below the stated $1.00 minimum bid requirement.

Other important risks include the need for additional clinical trials and regulatory approval, the potential requirement for a separately approved companion diagnostic, reliance on external clinical and manufacturing providers, competition, and the uncertain commercial value of Gencaro following results that showed no overall superiority in GENETIC-AF. Potential Gencaro approval obligations include an $8.0 million U.S. milestone and additional foreign approval milestones, as well as royalties, subject to the licensing terms and the Aeolus transaction.

Investor verification priorities

• Confirm the registrant: this document is ARCA biopharma’s 2017 Form 10-K, not an Oruka Therapeutics filing.
• Review the complete GENETIC-AF results and subsequent FDA feedback, especially the overall result, subgroup analyses, and whether a Phase 3 program is justified.
• Verify the company’s cash runway, subsequent financing, spending assumptions, and ability to secure further funding or a strategic transaction.
• Assess Nasdaq bid-price compliance and potential dilution from future equity financing and outstanding warrants.
• Check the regulatory and development requirements, costs, and partner arrangements for both Gencaro and its companion diagnostic, and for AB171.