Arcadia Biosciences, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed March 8, 2016. This is an annual report, not a standalone fourth-quarter report. Unless noted, figures are in U.S. dollars.
Business context
Arcadia develops agricultural biotechnology traits intended to improve crop yield and product quality. Its model relies on licensing and collaboration with research institutions, seed companies and consumer-product partners; commercial partners generally lead seed development and commercialization. Sonova GLA safflower oil was its only established commercial product. Most crop-yield traits remained in development, and the company said seed-product revenue was not expected for at least three to five years.
Financial results and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Total revenue | $5.414 million | $6.982 million |
| Product revenue | $0.466 million | $0.355 million |
| License revenue | $1.216 million | $2.325 million |
| Contract research and grants | $3.732 million | $4.302 million |
| Operating expenses | $20.977 million | $22.135 million |
| Loss from operations | $(15.563) million | $(15.153) million |
| Net loss | $(17.956) million | $(18.339) million |
| Net loss attributable to common stockholders | $(20.727) million | $(22.077) million |
| Operating cash used | $15.109 million | $14.787 million |
- Revenue declined about 22%. License revenue fell 48%, principally because FY2014 included a significant milestone; grant and contract research revenue declined 13%, including lower grant revenue, partly offset by new contract research. Product revenue increased 31% from new customer product launches.
- Net loss narrowed modestly, while operating loss increased. Research and development expense declined 10% to $8.966 million; selling, general and administrative expense rose 10% to $11.119 million, including higher public-company costs. Interest expense increased 91% to $2.658 million, mainly due to 2015 borrowing.
- Product cost of revenue was $0.892 million against product revenue of $0.466 million, a $0.426 million shortfall before other operating costs. The filing does not provide an overall gross margin that is meaningful across its revenue categories.
- At year-end, cash and cash equivalents were $23.973 million, short-term investments $26.270 million and long-term investments $19.748 million. Working capital was $48.567 million; total assets were $74.242 million.
- Debt was $24.930 million, principally the new Silicon Valley Bank term loan. The filing reports no current portion at year-end; principal repayments were scheduled to begin after interest-only payments through December 2017. The loan matures December 1, 2020 and includes a $0.6 million final payment.
- The company reported that existing cash and cash equivalents were expected to cover anticipated cash needs for at least 12 months. Operating cash use and continued losses make funding needs and runway important to monitor.
Material developments and outlook
- The May 2015 IPO raised $58.4 million net; preferred shares converted to common stock. In December, Arcadia replaced existing debt with a $25 million secured facility, using proceeds to repay prior borrowings. The loan is secured by substantially all assets other than intellectual property and includes a liquidity covenant.
- Arcadia and Dow AgroSciences announced a corn-trait collaboration in December 2015; a separate collaboration involving Dow and Verdeca addressed soybean traits. Verdeca’s stress-tolerance soybean trait received its first regulatory approval in Argentina in April 2015; other approvals remained in process.
- Management emphasized advancing yield traits through field testing, regulatory work and commercialization with partners. It expected research and development spending to increase over time and acknowledged that substantial losses could continue until commercial seed products generate revenue. No quantified earnings or revenue guidance was provided.
- Reported trial results included average yield improvement of about 30% for leading NUE rice lines over four years, and soybean drought-tolerance trial gains of up to 14% under suboptimal conditions. These are development results, not company-wide financial performance or guaranteed commercial outcomes.
- Key risks include lengthy and uncertain development and regulatory timelines; reliance on a small number of collaborators and government grants; partner decisions over development and commercialization; competition, GM-crop acceptance and changing regulation; field-trial and weather risk; and potential need for additional financing.
- Leadership changed shortly after year-end: the CEO resigned effective February 11, 2016, and Roger Salameh became interim CEO; Steven Brandwein was interim CFO. The filing also describes the company’s transition to public-company controls. Management said disclosure controls were effective at a reasonable-assurance level and reported no 2015 control deficiencies rising to significant-deficiency level.
- No material litigation was reported. Routine audits of government-grant revenues were in process. A contingent liability of up to $3.0 million related to the Anawah acquisition remained, with payment timing and amount dependent on future commercial sales.
Important facts for investors to verify
- Cash, investments, operating cash burn and the company’s ability to meet the bank loan’s liquidity covenant as development spending continues.
- Whether partners achieve field, regulatory and commercialization milestones, particularly for NUE, drought-tolerant soybean, and corn programs.
- Revenue concentration and durability: contract research and grants were 69% of FY2015 revenue, and the filing identifies dependence on a limited number of collaborators.
- The terms, security, interest-rate exposure and repayment schedule of the Silicon Valley Bank loan, including the final payment and covenant alternatives.
- Effects of executive turnover, public-company reporting demands and ongoing internal-control improvements on execution and financial reporting.
- Potential grant-audit adjustments, contingent Anawah payments, and future license royalties or milestone obligations not included in the contractual-obligations table.