ORKA

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2008, for ARCA biopharma, Inc. (formerly Nuvelo, Inc.). The filing reflects the financial position and operations of Nuvelo prior to its reverse merger with ARCA biopharma, Inc., which was consummated on January 27, 2009. Following the merger, the combined entity operates as ARCA biopharma, Inc., a biopharmaceutical company focused on genetically-targeted therapies for heart failure, with its lead product candidate, Gencaro (bucindolol hydrochloride), under FDA review.

Key Financial Metrics

Debt: As of March 2, 2009, approximately $3.5 million was outstanding under a credit facility with Silicon Valley Bank (SVB). The facility was originally set to mature in March 2009 but was extended to April 6, 2009, pending refinancing discussions.

Material Changes Versus Prior Period

• Revenue Decline: Contract revenues decreased by approximately 67% from $46.9 million in 2007 to $15.3 million in 2008. The 2007 figure included a $44.9 million recognition of deferred revenue from a terminated Bayer collaboration. The 2008 figure included a $15.0 million termination payment from Bayer recognized in May 2008.
• Increased Net Loss: Net loss widened to $29.9 million in 2008 from $12.3 million in 2007. This was driven by the significant drop in contract revenues and a $4.7 million goodwill impairment charge, partially offset by reductions in operating expenses.
• Expense Reductions: R&D expenses decreased by 35% and G&A expenses decreased by 28% due to workforce reductions (19% in 2008, 30% in 2007) and the discontinuation of the alfimeprase clinical program in March 2008.
• Liquidity Decrease: Total cash and marketable securities declined by $46.6 million, primarily due to operating expenditures and a reduction in the yield on investments.

Guidance, Outlook, and Risks

Outlook and Guidance:

• Regulatory Milestone: The FDA accepted the New Drug Application (NDA) for Gencaro in September 2008. The PDUFA goal date for a decision is May 31, 2009. Management anticipates a decision in the second or third quarter of 2009.
• Commercialization: If approved, ARCA plans to commercialize Gencaro in the U.S. using a specialized sales force and a companion genetic test (Gencaro Test) developed with LabCorp to identify responsive patients.
• Capital Needs: Management believes current cash and marketable securities are sufficient to fund operations through at least December 31, 2009. However, substantial additional capital will be required to fund the commercialization of Gencaro if approved.

Risks and Contingencies:

• Regulatory Approval: There is no guarantee the FDA will approve Gencaro. The approval relies on data from a single Phase III trial (BEST), which the FDA typically views as requiring two trials, though ARCA argues the data is sufficient.
• Companion Diagnostic: Commercial success depends on the FDA approval of the Gencaro Test by LabCorp. Delays or failure to approve the test could significantly hinder market adoption.
• Legal Proceedings: The company is defending a securities class action lawsuit regarding the discontinuation of the alfimeprase program. Management believes insurance will cover costs, but outcomes are uncertain.
• Debt Refinancing: The SVB credit facility requires refinancing. Failure to refinance on acceptable terms could impact liquidity.

Investor Verification Checklist

• FDA Decision Timeline: Verify the status of the Gencaro NDA review and the May 31, 2009 PDUFA date.
• Companion Test Approval: Confirm the regulatory status of the Gencaro Test PMA submission with LabCorp.
• Cash Runway: Monitor quarterly cash burn rates to confirm sufficiency of funds through the end of 2009 and beyond.
• Debt Status: Verify the terms and completion of the refinancing of the Silicon Valley Bank credit facility.
• Legal Settlements: Track developments in the securities class action litigation regarding alfimeprase.