Arcutis Biotherapeutics, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; it does not provide separate fourth-quarter results. Arcutis is a late-stage dermatology biopharmaceutical company with no approved products or product-sales revenue at year-end.
Financial performance and position
| Metric | FY 2021 / Dec. 31, 2021 | Prior comparable period |
|---|---|---|
| Revenue from product sales | None | None |
| Research and development expense | $145.6 million | $115.3 million in 2020 |
| General and administrative expense | $61.0 million | $21.3 million in 2020 |
| Total operating expenses | $206.5 million | $136.6 million in 2020 |
| Net loss | $206.4 million; $4.18 per share | $135.7 million; $3.80 per share in 2020 |
| Cash used in operating activities | $174.6 million | $113.0 million in 2020 |
| Cash, cash equivalents and marketable securities | $387.1 million | $284.4 million in 2020 |
| Working capital | $369.4 million | $270.2 million in 2020 |
| Long-term debt, net | $72.4 million; $75.0 million principal outstanding | None in 2020 |
There are no meaningful operating margins to report because the company had no product revenue. Total assets were $408.2 million, total liabilities $110.5 million and stockholders’ equity $297.7 million at year-end. Cash, cash equivalents, restricted cash and marketable securities totaled $388.6 million, including $1.5 million of restricted cash. Financing activities provided $281.9 million, primarily from a $207.5 million net public offering and $72.4 million net debt proceeds.
Material changes and business developments
- Net loss increased 52% year over year, and operating expenses rose 51%. R&D expense increased 26%, principally from higher personnel, medical-affairs and manufacturing costs, partly offset by lower ARQ-252 program spending. G&A increased 186% as the company expanded headcount and commercial preparation.
- Stock-based compensation expense increased to $23.9 million from $7.9 million. This included approximately $5.3 million of incremental expense from modification of the former CFO’s awards in connection with retirement.
- Roflumilast cream completed pivotal Phase 3 trials for plaque psoriasis; the company submitted an NDA in September 2021. The FDA’s stated action date was July 29, 2022. Phase 3 atopic dermatitis trials were underway.
- Roflumilast foam Phase 3 trials were underway for seborrheic dermatitis and scalp/body psoriasis. Management anticipated topline data in mid-2022 and the second half of 2022, respectively.
- ARQ-252 failed to meet its primary endpoint in chronic hand eczema; management cited inadequate delivery of drug into the skin. The company stopped the vitiligo Phase 2a trial and pursued reformulation. ARQ-255 formulation and nonclinical work continued.
Liquidity, outlook and risks
Management said cash, cash equivalents and marketable securities, together with committed funding under the loan agreement, were expected to fund planned operations into 2024. This is an estimate based on current plans, not a guarantee; the company expects continued losses and says it will need substantial additional funding.
The December 2021 loan agreement provides up to $225 million in total, with $75 million funded at year-end and up to $150 million more subject to conditions. The debt bears a floating rate, 7.55% at December 31, 2021, and matures January 1, 2027. It is secured by substantially all assets, including intellectual property, and includes restrictive covenants and a revenue covenant beginning in December 2023, subject to a market-capitalization exception. The company reported compliance with covenants at year-end.
Key risks include regulatory approval and clinical-trial uncertainty, pediatric enrollment and COVID-19-related disruption, market access and reimbursement, competition, dependence on third-party manufacturers and clinical-research organizations, and the need to build commercial capabilities. License agreements also create potential milestones and royalties: AstraZeneca’s agreement includes a $7.5 million payment upon FDA approval of the first product; Hengrui’s agreement includes up to $20.5 million in development/regulatory milestones and up to $200 million in sales milestones. The filing reports no material litigation. Management and the auditor reported effective internal control over financial reporting; the financial statements received an unqualified audit opinion.
Investor verification priorities
- Confirm subsequent regulatory outcomes and the actual approval, labeling and launch status of roflumilast cream, including any FDA-required studies or restrictions.
- Track Phase 3 results and timing for atopic dermatitis and roflumilast foam, including whether pediatric enrollment delays persisted.
- Assess cash burn against the stated runway, and verify conditions and availability for the remaining loan tranches and any additional financing needs.
- Review debt costs, collateral, covenant compliance and potential license milestones, royalties and other contingent payments.
- Evaluate commercial launch costs, reimbursement access, competitive positioning and the ability to convert clinical results into sustained product revenue.