Arcutis Biotherapeutics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Arcutis is a clinical-stage dermatology biopharmaceutical company with no approved products and no product revenue.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $25.2 million | $6.2 million |
| General and administrative expense | $3.5 million | $0.7 million |
| Total operating expenses | $28.7 million | $7.0 million |
| Net loss | $28.0 million | $6.7 million |
| Net loss per share, basic and diluted | $1.15 | $4.08 |
| Net cash used in operating activities | $21.0 million | $7.1 million |
With no revenue, gross profit and operating margins are not meaningful. R&D expense rose 306%, principally from clinical trial and manufacturing costs; G&A rose 363%, reflecting higher staffing, professional services and public-company insurance costs.
At March 31, 2020, cash and cash equivalents were $190.9 million and marketable securities were $58.4 million, totaling $249.3 million, versus $101.3 million at year-end 2019. Current assets were $253.9 million and current liabilities $12.2 million. The company reported no debt. Accumulated deficit was $94.3 million.
Operating cash use was $21.0 million; investing cash use was $20.3 million, mainly net purchases of marketable securities. Financing provided $168.9 million, primarily from the IPO. Cash and cash equivalents increased $127.6 million during the quarter.
Material changes and capital events
- On January 31, 2020, Arcutis completed its IPO, selling 10.8 million shares at $17 per share. The filing reports approximately $167.2 million of net proceeds in its IPO discussion; the cash flow statement reports $168.6 million of IPO proceeds net of issuance costs.
- All 24.4 million outstanding preferred shares converted into common stock at the IPO. Common shares outstanding were 37.5 million at March 31; 38.2 million were outstanding as of May 1, 2020.
- Management expects continued operating losses and says existing cash, cash equivalents and marketable securities are expected to fund planned operations through 2021. The financial-statement note separately says resources should cover at least 12 months from issuance.
Outlook, commentary and risks
- Topline results from the Phase 3 DERMIS-1 and DERMIS-2 plaque psoriasis trials of roflumilast cream were expected in the first half of 2021. The company also expected Phase 2b atopic dermatitis trial initiation in the second half of 2020 and topline results in the second half of 2021.
- For roflumilast foam, management expected seborrheic dermatitis topline data in the second half of 2020 and scalp psoriasis data in Q4 2020 or Q1 2021. ARQ-252 hand eczema topline data were expected in the second half of 2021; a vitiligo Phase 2a study was planned for the second half of 2020.
- COVID-19 had caused limited trial screening, enrollment and monitoring disruptions as of the filing date. Management did not then expect changes to disclosed clinical timelines and reported no supply-chain disruption, but noted that further impact was uncertain.
- Key risks include clinical and regulatory failure or delay, ongoing funding needs, reliance on third-party clinical and manufacturing providers (including single-source suppliers), competition, and potential future dilution or restrictive financing terms.
- In April 2020, the company amended its lease to move to expanded premises. The new lease is for 91 months after commencement, with initial base rent of $76,000 per month, approximately one year of rent-free periods, and a required $1.5 million letter of credit.
Investor verification points
- Track enrollment, trial execution and reported results against the stated development timelines, including any subsequent COVID-related changes.
- Reconcile the IPO proceeds figures reported in the IPO discussion, equity statement and cash flow statement.
- Monitor quarterly cash burn and confirm whether the stated runway through 2021 remains supported by spending plans and available liquidity.
- Review future disclosures on the expanded lease’s commencement, total obligations and letter-of-credit requirement, and on any milestone or royalty obligations under the AstraZeneca and Hengrui licenses.