Arcturus Therapeutics Holdings Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report; it does not provide standalone fourth-quarter results. The company is a preclinical RNA medicines business focused on rare liver and respiratory diseases and vaccines, using its LUNAR delivery platform and STARR technology. It had no approved products and no product-sales revenue. Financial figures below are in U.S. dollars.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Collaboration revenue | $20.789 million | $15.753 million |
| Research and development expense, net | $33.640 million | $16.982 million |
| General and administrative expense | $12.662 million | $20.582 million |
| Loss from operations | $25.513 million | $21.811 million |
| Net loss | $25.991 million | $21.785 million |
| Net loss per share, basic and diluted | $2.15 | $2.16 |
| Net cash used in operating activities | $6.445 million | $20.760 million |
- Revenue increased 32%, driven principally by higher Janssen activity, CureVac-related revenue and a Synthetic Genomics sublicense payment; lower Ultragenyx activity partly offset the increase.
- R&D expense nearly doubled, primarily reflecting ARCT-810/ LUNAR-OTC IND-enabling work. G&A fell 38.5%, largely because 2018 included nonrecurring proxy-related costs and 2019 included a $2.4 million insurance settlement.
- Cash and cash equivalents were $71.353 million at year-end; working capital was $52.966 million. Cash, cash equivalents and restricted cash totaled $71.460 million.
- Operating cash outflow was lower than net loss, substantially reflecting working-capital changes, including increased deferred revenue and cash received under the Ultragenyx amendment. It should not be read as a recurring cash-burn rate.
- Long-term debt was $14.995 million. The Western Alliance facility carries floating-rate interest and includes covenants, including an IND submission and acceptance timeline. Total liabilities were $56.351 million; total assets were $82.143 million.
- Accumulated deficit was $71.668 million. Collaboration revenue was concentrated: the top four customers represented 91% of 2019 revenue, and one customer accounted for 98% of year-end receivables.
Material changes and business developments
- Ultragenyx bought 2.4 million shares for $24.0 million and paid a $6.0 million upfront fee under an expanded collaboration; it also received a two-year option to buy 600,000 additional shares at $16 per share. The company raised a further $21.3 million net through 2019 registered direct offerings.
- Debt increased following a $15 million term loan in October 2019, a $5 million net increase in indebtedness. The loan has a stated maturity in 2023 and an interest-only period through April 2021, subject to extension under specified conditions.
- The company reassumed worldwide rights to ARCT-810 from CureVac in 2019. It reported submitting an IND application for LUNAR-OTC in the first quarter of 2020, after the reporting year.
- The Cystic Fibrosis Foundation increased potential LUNAR-CF funding to $15 million; Arcturus committed $5 million in matching funds. Management expected an IND submission for LUNAR-CF in 2021.
- After year-end, Singapore’s Economic Development Board awarded up to S$14 million (approximately US$10 million) to support co-development of a potential COVID-19 vaccine with Duke-NUS Medical School. Payments are partly milestone-dependent; Arcturus agreed to pay royalties on sales outside Singapore.
Outlook, risks and unusual items
- Management expected continuing losses and increased R&D spending as programs advance. It estimated that year-end cash would fund anticipated requirements through the first quarter of 2021, subject to assumptions including partner funding and no significant unforeseen costs.
- Despite that estimate, management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern for at least twelve months after issuance of the financial statements. Additional financing was not assured; management said a shortfall could require scaling back or discontinuing programs.
- Management described ARCT-810 as on track to enter first-in-human studies in 2020. The loan covenant required submission of a clinical candidate IND by May 31, 2020 and FDA acceptance by June 30, 2020. The filing also reports the ARCT-810 IND submission in Q1 2020; the status and timing of FDA acceptance should be checked.
- All pipeline programs were preclinical at year-end, and no product candidate had been tested in humans. Development, regulatory, manufacturing, partner-execution and financing outcomes remain uncertain.
- A former employee’s lawsuit seeks $30 million, including punitive and emotional-distress damages. The company disputed the allegations but said it could not estimate a potential loss or range of losses.
- Other notable risks include reliance on third-party manufacturers and collaborators, customer concentration, variable-rate debt and covenant compliance, intellectual-property challenges, and possible disruption from the coronavirus outbreak. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls, with a going-concern explanatory paragraph.
Important facts for investors to verify
- Current cash, cash burn and financing runway, particularly given the going-concern warning and management’s Q1 2021 runway estimate.
- ARCT-810 IND submission and FDA acceptance status, and whether the debt-facility milestones and clinical-development timetable were met.
- Actual and expected partner funding, milestone receipts and collaboration progress, including the concentration of revenue among a small number of partners.
- Use of the CFF award, required matching funds, and progress toward the planned LUNAR-CF IND submission.
- Developments and any financial exposure in the lawsuit seeking $30 million.
- Debt terms, covenant compliance, repayment obligations and any future equity issuance or dilution.