10-Q
0001768224falsehttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesCurrentQ1http://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesCurrent--12-310001768224arct:JanssenMember2021-01-012021-03-310001768224country:SG2021-01-012021-12-310001768224us-gaap:RetainedEarningsMember2021-03-310001768224us-gaap:AdditionalPaidInCapitalMember2020-12-310001768224arct:ResearchCollaborationAndExclusiveLicenseAgreementMemberus-gaap:AccountingStandardsUpdate201409Memberarct:UltragenyxMember2022-01-012022-03-310001768224arct:COVIDNineteenVaccineDevelopmentMemberarct:GrantOneMember2021-01-012021-03-3100017682242021-01-012021-12-310001768224arct:GrantOneMemberarct:COVIDNineteenVaccineDevelopmentMember2022-01-012022-03-310001768224arct:VinbiocareAgreementMemberus-gaap:AccountingStandardsUpdate201409Member2021-06-112021-08-020001768224us-gaap:CommonStockMember2021-12-310001768224arct:JanssenMember2022-01-012022-03-310001768224srt:MaximumMemberarct:TwentyTwentyOneInducementEquityIncentivePlanMember2021-10-200001768224arct:LoanAndSecurityAgreementMemberarct:WesternAllianceBankMemberus-gaap:LongTermDebtMember2021-10-012021-10-310001768224us-gaap:FurnitureAndFixturesMember2022-03-310001768224us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-03-310001768224arct:LUNARCFMemberarct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2019-07-312019-08-010001768224arct:GrantTwoMemberarct:COVIDNineteenVaccineDevelopmentMember2022-01-012022-03-310001768224us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001768224us-gaap:AdditionalPaidInCapitalMember2021-12-310001768224us-gaap:EmployeeStockOptionMemberarct:TwentyTwentyOneInducementEquityIncentivePlanMember2022-03-310001768224arct:LoanAndSecurityAgreementMemberarct:WesternAllianceBankMemberus-gaap:LongTermDebtMember2018-10-120001768224us-gaap:SubsequentEventMemberarct:TwentyTwentyOneInducementEquityIncentivePlanMember2022-04-300001768224arct:UltragenyxMember2022-01-012022-03-310001768224us-gaap:RetainedEarningsMember2021-01-012021-03-310001768224arct:OtherCollaborationAgreementsMemberarct:PharmaceuticalCompanyMember2022-01-310001768224srt:MaximumMemberarct:TwentyTwentyOneInducementEquityIncentivePlanMember2021-10-150001768224country:SG2020-11-0700017682242021-12-310001768224arct:ResearchCollaborationAndExclusiveLicenseAgreementMemberus-gaap:AccountingStandardsUpdate201409Memberarct:UltragenyxMember2022-03-310001768224country:SG2022-03-310001768224arct:LoanAndSecurityAgreementMemberus-gaap:LongTermDebtMemberarct:WesternAllianceBankMembersrt:MinimumMember2018-10-122018-10-120001768224us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310001768224arct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2021-01-012021-03-310001768224arct:UnderlyingAgreementMemberarct:DisbursementPeriodFourMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2019-08-010001768224arct:AxceleadIncMember2022-03-310001768224us-gaap:CommonStockMember2022-01-012022-03-310001768224us-gaap:CommonStockMember2020-12-310001768224arct:VinbiocareAgreementMemberus-gaap:AccountingStandardsUpdate201409Member2021-12-310001768224arct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2019-08-010001768224arct:LoanAndSecurityAgreementMemberus-gaap:LongTermDebtMemberarct:WesternAllianceBankMemberus-gaap:SubsequentEventMember2022-04-012022-04-300001768224arct:UnderlyingAgreementMemberarct:DisbursementPeriodTwoMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2019-08-010001768224us-gaap:EquipmentMember2021-12-310001768224arct:ResearchCollaborationAndExclusiveLicenseAgreementMemberus-gaap:AccountingStandardsUpdate201409Memberarct:UltragenyxMember2021-12-310001768224srt:MinimumMemberarct:SeptemberTwoThousandAndTwentyOneLeaseAgreementMember2021-09-012021-09-300001768224arct:FebruaryTwoThousandAndTwentyOneLeaseAgreementMember2022-01-012022-03-310001768224arct:CureVacAGMember2021-01-012021-03-310001768224arct:LoanAndSecurityAgreementMemberarct:WesternAllianceBankMemberus-gaap:LongTermDebtMember2019-10-302019-10-300001768224arct:SeptemberTwoThousandAndTwentyOneLeaseAgreementMember2022-01-012022-03-310001768224arct:JanssenMemberus-gaap:AccountingStandardsUpdate201409Memberarct:ResearchCollaborationAndLicenseAgreementMember2021-12-310001768224arct:LoanAndSecurityAgreementMemberarct:WesternAllianceBankMemberus-gaap:LongTermDebtMember2018-10-122018-10-120001768224arct:OtherMember2021-01-012021-03-310001768224arct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2022-01-012022-03-310001768224us-gaap:ConstructionInProgressMember2022-03-310001768224arct:AlexionPharmaceuticalsIncMember2021-02-192021-02-190001768224us-gaap:EmployeeStockOptionMemberarct:TwoThousandNineteenOmnibusIncentivePlanMember2022-03-310001768224us-gaap:RetainedEarningsMember2022-03-310001768224us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001768224arct:VallonPharmaceuticalsIncMembersrt:MaximumMemberarct:ADAIRTechnologyMember2021-02-280001768224srt:MaximumMember2022-03-310001768224country:SG2022-01-012022-03-310001768224us-gaap:AdditionalPaidInCapitalMember2021-03-310001768224srt:MaximumMemberarct:TwoThousandNineteenOmnibusIncentivePlanMember2020-06-300001768224arct:VinbiocareAgreementMemberus-gaap:AccountingStandardsUpdate201409Member2022-03-310001768224arct:VinbiocareMember2022-01-012022-03-310001768224us-gaap:CommonStockMember2021-01-012021-03-310001768224us-gaap:RetainedEarningsMember2022-01-012022-03-310001768224us-gaap:LeaseholdImprovementsMember2022-03-310001768224arct:OtherMember2022-01-012022-03-310001768224arct:GrantTwoMemberarct:COVIDNineteenVaccineDevelopmentMember2020-10-012020-12-310001768224arct:LoanAndSecurityAgreementMemberus-gaap:LongTermDebtMemberarct:WesternAllianceBankMember2022-01-012022-03-310001768224arct:VallonPharmaceuticalsIncMemberarct:ADAIRTechnologyMember2018-06-300001768224us-gaap:AdditionalPaidInCapitalMember2022-03-310001768224arct:FebruaryTwoThousandAndTwentyLeaseAgreementMember2022-01-012022-03-310001768224arct:OctoberTwoThousandAndSeventeenLeaseAmendmentMember2017-10-012017-10-3100017682242022-03-310001768224arct:SeptemberTwoThousandAndTwentyOneLeaseAgreementMember2021-09-3000017682242021-03-310001768224arct:DisbursementPeriodOneMemberarct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2019-08-010001768224arct:OtherCollaborationAgreementsMemberarct:PharmaceuticalCompanyMember2022-03-310001768224us-gaap:RetainedEarningsMember2020-12-310001768224us-gaap:EquipmentMember2022-03-310001768224arct:AlexionPharmaceuticalsIncMember2021-01-012021-03-310001768224arct:DisbursementPeriodThreeMemberarct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2019-08-010001768224arct:GrantTwoMembersrt:MaximumMembercountry:SGarct:COVIDNineteenVaccineDevelopmentMember2020-10-020001768224srt:MinimumMemberarct:TwoThousandNineteenOmnibusIncentivePlanMember2020-06-300001768224arct:COVIDNineteenVaccineDevelopmentMemberarct:GrantOneMember2021-01-012021-12-3100017682242022-05-040001768224arct:LoanAndSecurityAgreementMemberus-gaap:LongTermDebtMemberarct:WesternAllianceBankMembersrt:MinimumMember2019-10-302019-10-300001768224arct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2019-07-312019-08-010001768224country:IL2020-10-310001768224arct:CureVacAGMemberarct:MRNATechnologyMemberus-gaap:AccountingStandardsUpdate201409Member2022-01-012022-03-310001768224arct:CureVacAGMemberarct:MRNATechnologyMemberus-gaap:AccountingStandardsUpdate201409Member2022-03-310001768224srt:MaximumMemberarct:SeptemberTwoThousandAndTwentyOneLeaseAgreementMember2021-09-012021-09-3000017682242020-12-310001768224us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-03-310001768224country:SG2020-11-072020-11-070001768224srt:MaximumMembercountry:SGarct:COVIDNineteenVaccineDevelopmentMemberarct:GrantOneMember2020-03-040001768224arct:GrantTwoMemberarct:COVIDNineteenVaccineDevelopmentMember2020-10-022020-10-020001768224arct:VallonPharmaceuticalsIncMemberarct:ADAIRTechnologyMember2021-02-280001768224arct:UltragenyxMember2021-01-012021-03-310001768224us-gaap:CommonStockMember2022-03-310001768224arct:LoanAndSecurityAgreementMemberarct:WesternAllianceBankMemberus-gaap:LongTermDebtMember2019-10-300001768224country:SG2021-01-012021-03-310001768224country:SG2021-01-290001768224arct:LoanAndSecurityAgreementMembersrt:MaximumMemberus-gaap:LongTermDebtMemberarct:WesternAllianceBankMember2019-10-302019-10-300001768224arct:OctoberTwoThousandAndSeventeenLeaseAmendmentMember2022-01-012022-03-310001768224arct:VinbiocareAgreementMember2021-06-112021-08-020001768224arct:FebruaryTwoThousandAndTwentyOneLeaseAgreementMember2021-02-012021-02-280001768224us-gaap:ComputerEquipmentMember2021-12-310001768224arct:JanssenMemberarct:ResearchCollaborationAndExclusiveLicenseAgreementMember2022-04-01us-gaap:AccountingStandardsUpdate201409Member2022-03-310001768224us-gaap:LeaseholdImprovementsMember2021-12-310001768224arct:CureVacAGMember2022-01-012022-03-310001768224country:IL2022-03-3100017682242021-01-012021-03-310001768224arct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2021-01-012021-12-310001768224arct:VallonPharmaceuticalsIncMember2022-03-3100017682242022-01-012022-03-310001768224arct:FebruaryTwoThousandAndTwentyLeaseAgreementMember2020-02-290001768224us-gaap:CommonStockMember2021-03-310001768224arct:LUNARCFMemberarct:UnderlyingAgreementMemberarct:CysticFibrosisFoundationTherapeuticsIncMember2019-07-122019-07-120001768224country:SG2021-12-310001768224arct:OctoberTwoThousandAndSeventeenLeaseAmendmentMember2017-10-310001768224us-gaap:FurnitureAndFixturesMember2021-12-310001768224arct:CureVacAGMemberarct:MRNATechnologyMemberus-gaap:AccountingStandardsUpdate201409Member2021-12-310001768224arct:JanssenMemberus-gaap:AccountingStandardsUpdate201409Memberarct:ResearchCollaborationAndLicenseAgreementMember2022-03-310001768224us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-03-310001768224us-gaap:ConstructionInProgressMember2021-12-310001768224us-gaap:ComputerEquipmentMember2022-03-310001768224us-gaap:RetainedEarningsMember2021-12-31xbrli:purearct:VaccineDosearct:Installmentxbrli:sharesiso4217:SGDarct:Performancearct:Segmentiso4217:USDxbrli:sharesiso4217:USD

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File Number: 001-38942

 

ARCTURUS THERAPEUTICS HOLDINGS INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

32-0595345

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

10628 Science Center Drive, Suite 250

San Diego, California

 

92121

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (858) 900-2660

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

ARCT

 

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of May 4, 2022, the registrant had 26,418,965 shares of voting common stock outstanding.

 

 

 


 

ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (unaudited)

1

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

2

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2022 and 2021

3

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Signatures

32

 

 

i


 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, or this quarterly report, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the documents incorporated by reference herein may contain “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under Part II, Item 1A, “Risk Factors” in this quarterly report. Except as required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise. These statements, which represent our current expectations or beliefs concerning various future events, may contain words such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or other words indicating future results, though not all forward-looking statements necessarily contain these identifying words. Such statements may include, but are not limited to, statements concerning the following:

 

the initiation, cost, progress and results of, and our expected ability to undertake certain activities and accomplish certain goals with respect to, our research and preclinical development activities, including the selection of a STARR candidate for our LUNAR-Flu program;
the initiation, design, enrollment, cost, timing, progress and results of, and submissions of applications to conduct, any clinical trials, including with respect to the anticipated ARCT-154 booster study and other ongoing ARCT-154 studies, the anticipated ARCT-021 Phase 3 study, the anticipated CTA filing for ARCT-032;
the potential safety, immunogenicity, efficacy or regulatory approval of ARCT-154 or any of our COVID-19 vaccine candidates as a booster or primary vaccination series;
the potential effects and benefits of our technologies and product candidates on their own and in comparison to technologies, drugs or courses of treatment currently available or that may be developed by competitors;
the likelihood that preclinical or clinical data will be predictive of future clinical results or efficacy or safety of a product candidate, including the clinical data on ARCT-154 as both a primary vaccination series and booster vaccination;
the likelihood that clinical data will be sufficient for regulatory approval;
the anticipated timing for receipt of data or results of a study or clinical trial, including the anticipated data for our ARCT-810 trial;
the likelihood or timing of any regulatory approval, including the anticipated EUA decision for ARCT-154;
the potential administration regimen or dosage, or ability to administer multiple doses of, any of our product candidates;
our plans to research, develop and commercialize our product candidates;
our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;
our ability to successfully commercialize, and our expectations regarding future therapeutic and commercial potential with respect to, our product candidates;
the rate and degree of market acceptance of our product candidates;
the success of competing therapies that are or may become available;
our ability to obtain and maintain intellectual property protection for our product candidates;
interactions with regulatory authorities in the United States and foreign countries;
our ability to attract and retain experienced and seasoned scientific and management professionals to lead the Company;
the performance of our third-party suppliers and manufacturers, including our ability to scale-up manufacturing levels as necessary, including the timing and anticipated capacity of the manufacturing facility in Hanoi, Vietnam;
our strategic alliance partners’ election to pursue development and commercialization of any programs or product candidates that are subject to our collaboration and license agreements with such partners;
our ability to attract collaborators with relevant development, regulatory and commercialization expertise;
future activities to be undertaken by our strategic alliance partners, collaborators and other third parties;
our ability to develop sales and marketing capabilities, whether alone or with potential future collaborators;
our ability to avoid, settle or be victorious at costly litigation with shareholders, former executives or others, should these situations arise;
our ability to develop sales and marketing capabilities, whether alone or with potential future collaborators;

ii


 

our ability to avoid, settle or be victorious at costly litigation with shareholders, former executives or others, should these situations arise;
our ability to obtain and deploy funding for our operations and to efficiently use our financial and other resources;
our ability to continue as a going concern; and
the accuracy of our estimates regarding future expenses, future revenues, capital requirements and need for additional financing.

 

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. In addition, historic results of scientific research, preclinical and clinical trials do not guarantee that future research or trials will suggest the same conclusions, nor that historic results referred to herein will be interpreted in the same manner due to additional research, preclinical and clinical trial results or otherwise. The forward-looking statements contained in this quarterly report are subject to risks and uncertainties, including those discussed in our other filings with the United States Securities and Exchange Commission, or the Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value information)

 

 

 

March 31,
2022

 

 

December 31,
2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

319,678

 

 

$

370,492

 

Accounts receivable

 

 

3,691

 

 

 

3,367

 

Prepaid expenses and other current assets

 

 

3,636

 

 

 

5,102

 

Total current assets

 

 

327,005

 

 

 

378,961

 

Property and equipment, net

 

 

7,530

 

 

 

5,643

 

Operating lease right-of-use asset, net

 

 

5,245

 

 

 

5,618

 

Equity-method investment

 

 

131

 

 

 

515

 

Non-current restricted cash

 

 

2,077

 

 

 

2,077

 

Total assets

 

$

341,988

 

 

$

392,814

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

10,014

 

 

$

10,058

 

Accrued liabilities

 

 

19,970

 

 

 

23,523

 

Current portion of long-term debt

 

 

24,260

 

 

 

22,474

 

Deferred revenue

 

 

53,062

 

 

 

43,482

 

Total current liabilities

 

 

107,306

 

 

 

99,537

 

Deferred revenue, net of current portion

 

 

6,641

 

 

 

19,931

 

Long-term debt, net of current portion

 

 

39,235

 

 

 

40,633

 

Operating lease liability, net of current portion

 

 

4,057

 

 

 

4,502

 

Total liabilities

 

$

157,239

 

 

$

164,603

 

Stockholders’ equity

 

 

 

 

 

 

Common stock: $0.001 par value; 60,000 shares authorized; 26,407 issued and
outstanding at March 31, 2022 and
26,372 issued and outstanding at December 31, 2021

 

 

26

 

 

 

26

 

Additional paid-in capital

 

 

583,382

 

 

 

575,675

 

Accumulated deficit

 

 

(398,659

)

 

 

(347,490

)

Total stockholders’ equity

 

 

184,749

 

 

 

228,211

 

Total liabilities and stockholders’ equity

 

$

341,988

 

 

$

392,814

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

$

5,244

 

 

$

2,127

 

Operating expenses:

 

 

 

 

 

 

Research and development, net

 

 

44,893

 

 

 

50,050

 

General and administrative

 

 

10,730

 

 

 

9,743

 

Total operating expenses

 

 

55,623

 

 

 

59,793

 

Loss from operations

 

 

(50,379

)

 

 

(57,666

)

(Loss) gain from equity-method investment

 

 

(384

)

 

 

1,248

 

Gain from foreign currency

 

 

158

 

 

 

430

 

Finance expense, net

 

 

(564

)

 

 

(358

)

Net loss

 

$

(51,169

)

 

$

(56,346

)

Net loss per share, basic and diluted

 

$

(1.94

)

 

$

(2.15

)

Weighted-average shares outstanding, basic and diluted

 

 

26,376

 

 

 

26,243

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(51,169

)

 

$

(56,346

)

Comprehensive loss

 

$

(51,169

)

 

$

(56,346

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

in thousands

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

BALANCE – December 31, 2021

 

 

26,372

 

 

$

26

 

 

$

575,675

 

 

$

(347,490

)

 

$

228,211

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(51,169

)

 

 

(51,169

)

Share-based compensation expense

 

 

 

 

 

 

 

 

7,371

 

 

 

 

 

 

7,371

 

Issuance of common stock upon exercise of stock options

 

 

35

 

 

 

 

 

 

336

 

 

 

 

 

 

336

 

BALANCE – March 31, 2022

 

 

26,407

 

 

$

26

 

 

$

583,382

 

 

$

(398,659

)

 

$

184,749

 

 

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

BALANCE – December 31, 2020

 

 

26,192

 

 

$

26

 

 

$

540,343

 

 

$

(143,816

)

 

$

396,553

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(56,346

)

 

 

(56,346

)

Issuance of common stock related to acquired in-process research and development

 

 

75

 

 

 

 

 

 

5,000

 

 

 

 

 

 

5,000

 

Share-based compensation expense

 

 

 

 

 

 

 

 

6,987

 

 

 

 

 

 

6,987

 

Issuance of common stock upon exercise of stock options

 

 

52

 

 

 

 

 

 

413

 

 

 

 

 

 

413

 

BALANCE – March 31, 2021

 

 

26,319

 

 

$

26

 

 

$

552,743

 

 

$

(200,162

)

 

$

352,607

 

 

3


 

ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

in thousands

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(51,169

)

 

$

(56,346

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

224

 

 

 

307

 

Share-based compensation expense

 

 

7,371

 

 

 

6,987

 

Acquired in-process research and development expense

 

 

 

 

 

5,000

 

Loss (gain) from equity-method investment

 

 

384

 

 

 

(1,248

)

Foreign currency transaction gain

 

 

(158

)

 

 

(440

)

Other non-cash expenses

 

 

919

 

 

 

696

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

(324

)

 

 

118

 

Prepaid expense and other assets

 

 

1,466

 

 

 

1,619

 

Accounts payable

 

 

(44

)

 

 

(5,415

)

Accrued liabilities

 

 

(3,998

)

 

 

7,143

 

Deferred revenue

 

 

(3,710

)

 

 

(1,371

)

Net cash used in operating activities

 

 

(49,039

)

 

 

(42,950

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(2,111

)

 

 

(118

)

Net cash used in investing activities

 

 

(2,111

)

 

 

(118

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from debt

 

 

 

 

 

46,599

 

Proceeds from exercise of stock options

 

 

336

 

 

 

413

 

Net cash provided by financing activities

 

 

336

 

 

 

47,012

 

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(50,814

)

 

 

3,944

 

Cash, cash equivalents and restricted cash at beginning of the period

 

 

372,569

 

 

 

463,002

 

Cash, cash equivalents and restricted cash at end of the period

 

$

321,755

 

 

$

466,946

 

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

169

 

 

$

169

 

Non-cash investing activities

 

 

 

 

 

 

Right-of-use asset obtained in exchange for lease liabilities

 

$

 

 

$

1,828

 

Acquisition of in-process research and development through issuance of common stock

 

$

 

 

$

5,000

 

Purchase of property and equipment in accounts payable

 

$

 

 

$

238

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Description of Business, Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Arcturus Therapeutics Holdings Inc. (the “Company” or "Arcturus") is a late-stage global clinical messenger RNA medicines company focused on the development of infectious disease vaccines and significant opportunities within liver and respiratory rare diseases. The Company became a clinical stage company during 2020 when it announced that its Investigational New Drug (“IND”) application for ornithine transcarbamylase (“OTC”) deficiency and its Clinical Trial Application (“CTA”) candidate LUNAR-COV19 were approved by applicable health authorities.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Arcturus Therapeutics Holdings Inc. and its subsidiaries and are unaudited. All intercompany accounts and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management’s opinion, the accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented.

Interim financial results are not necessarily indicative of results anticipated for the full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

These condensed consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions regarding the valuation of debt instruments, the equity-method investment, share-based compensation expense, accruals for liabilities, income taxes, revenue and deferred revenue, leases, and other matters that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Although these estimates are based on management’s knowledge of current events and actions the Company may undertake in the future, actual results may ultimately differ from these estimates and assumptions.

Joint Ventures, Equity Method Investments and Variable Interest Entities

Investments for which the Company exercises significant influence, but does not have control are accounted for under the equity method. Equity method investment activity is related to a 49% joint venture with Axcelead, Inc. (see the following paragraph for further details) and a 12% ownership in Vallon Pharmaceuticals, Inc. (see “Note 10, Related Party Transactions” for further details). The Company’s share of the investees’ results is presented as either income or loss from equity method investees in the accompanying condensed consolidated statements of operations and comprehensive loss.

In April 2021, Arcturus and Axcelead, Inc., a company existing under the laws of Japan (“Axcelead”), formed a joint venture entity, named Arcalis, Inc. (“JV Entity”), which operates as a corporation under the laws of Japan. Axcelead is an integrated drug discovery solutions provider to the pharmaceutical industry in Japan. On July 1, 2017, Axcelead became the successor to a portion of the drug discovery research department of Takeda Pharmaceutical Company Limited. The goal of the JV Entity is to be a contract development and manufacturing organization focused on mRNA manufacturing that would provide manufacturing services to the Company and also to third parties. The joint venture includes a shareholders agreement which sets forth initial funding of the JV Entity and rights of the JV Entity shareholders, including certain approval rights of Arcturus. As part of the joint venture, the Company entered into a License and Technology Transfer Agreement with the JV Entity, pursuant to which Arcturus grants to JV Entity a nonexclusive license to certain intellectual property for use at the JV Entity’s facilities, and obligates Arcturus to conduct certain technology transfer activities.

The Company consolidates variable interest entities (“VIEs”) where it has been determined that the Company is the primary beneficiary of those entities’ operations. Management believes that power is shared between Arcturus and Axcelead, as unrelated parties. The consent of each of the parties is substantive and is required to make the decisions about the JV Entity’s significant activities. Management does not believe that Arcturus has the power to direct the activities of the JV Entity that most significantly impact the JV Entity’s economic performance. Therefore, the Company concluded it is not required to consolidate the JV Entity under the VIE model.

5


 

The equity method of accounting is applicable for the JV Entity as the Company does not own more than 50% of voting power, but has influence over the operation and financial policies of the investee. The Company accounts for its investment in the JV Entity using the equity method of accounting as specified in Accounting Standard Codification (“ASC”) 323, Investments — Equity Method and Joint Ventures. Under ASC 323, equity method investments are recorded initially at cost. The Company’s initial investment in the JV Entity totaled $9.2 million. However, the JV Entity paid the Company back the initial investment of $9.2 million as an upfront fee/consideration for the License and Technology Transfer Agreement. In substance, there was no cash consideration paid by the Company for its 49% equity interest in the JV Entity.

Liquidity

The Company has incurred significant operating losses since its inception. As of March 31, 2022 and December 31, 2021, the Company had an accumulated deficit of $398.7 million and $347.5 million, respectively.

The Company’s activities since inception have consisted principally of research and development activities, general and administrative activities, and raising capital. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before the Company achieves sustainable revenues and profit from operations. From the Company’s inception through March 31, 2022, the Company has funded its operations principally with the proceeds from the sale of capital stock, revenues earned through collaboration agreements and proceeds from long-term debt. During fiscal year 2021, the Company received a term loan of $46.6 million from Economic Development Board of the Republic of Singapore as well as an upfront payment of $40.0 million from Vinbiocare to assist with funding a phase 3 clinical trial in Vietnam. At March 31, 2022, the Company’s balance of cash and cash equivalents, including restricted cash, was $321.8 million.

Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these condensed consolidated financial statements were available to be issued. There can be no assurance that the Company will be successful in securing additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Segment Information

In making decisions regarding resource allocation and assessing performance, the chief operating decision-maker identifies operating segments as components of an enterprise for which separate discrete financial information is available for evaluation. The Company and its chief operating decision-maker view the Company’s operations and manage its business in one operating segment, which is the research and development of medical applications for the Company’s nucleic acid-focused technology.

Revenue Recognition

The Company determines revenue recognition for arrangements within the scope of Topic 606 by performing the following five steps: (i) identify the contract; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation.

The terms of the Company’s revenue agreements include license fees, upfront payments, milestone payments, reimbursement for research and development activities, option exercise fees, consulting and related technology transfer fees and royalties on sales of commercialized products. Arrangements that include upfront payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs obligations under these arrangements. The event-based milestone payments represent variable consideration, and the Company uses the most likely amount method to estimate this variable consideration because the Company will either receive the milestone payment or will not, which makes the potential milestone payment a binary event. The most likely amount method requires the Company to determine the likelihood of earning the milestone payment. Given the high degree of uncertainty around achievement of these milestones, the Company determines the milestone amounts to be fully constrained and does not recognize revenue until the uncertainty associated with these payments is resolved. The Company will recognize revenue from sales-based royalty payments when or as the sales occur. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.

A performance obligation is a promise in a contract to transfer a distinct good or service to the collaborative partner and is the unit of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied.

See “Note 2, Collaboration Revenue” for specific details surrounding the Company’s collaboration arrangements.

Leases

See “Note 9, Commitments and Contingencies” for specific details surrounding the Company’s leases.

6


 

Research and Development, Net

All research and development costs are expensed as incurred. Research and development costs consist primarily of salaries, employee benefits, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services), in process research and development expenses and license agreement expenses, net of any grants, and prelaunch inventory. Payments made
prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

The Company records accruals for estimated research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites, and others. Some of these contractors bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones. For the latter, the Company accrues the expenses as goods or services are used or rendered. Clinical trial site costs related to patient enrollment are accrued as patients enter and progress through the trial.

Pre-Launch Inventory

Prior to obtaining initial regulatory approval for an investigational product candidate, the Company expenses costs relating to production of inventory as research and development expense in its condensed consolidated statements of operations and comprehensive loss, in the period incurred. When the Company believes regulatory approval and subsequent commercialization of an investigational product candidate is probable, and the Company also expects future economic benefit from the sales of the investigational product candidate to be realized, it will then capitalize the costs of production as inventory.

Statement of Cash Flows

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the total of the same such amounts shown in the condensed consolidated statement of cash flows:

 

(in thousands)

 

March 31, 2022

 

 

March 31, 2021

 

Cash and cash equivalents

 

$

319,678

 

 

$

466,839

 

Non-current restricted cash

 

 

2,077

 

 

 

107

 

Total cash, cash equivalents and restricted
   cash shown in the statement of cash flows

 

$

321,755

 

 

$

466,946

 

 

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock method.

No dividends were declared or paid during the reported periods.

Note 2. Revenue

The Company has entered into license agreements and collaborative research and development arrangements with pharmaceutical and biotechnology companies, as well as consulting, related technology transfer and product revenue agreements. Under these arrangements, the Company is entitled to receive license fees, consulting fees, product fees, technological transfer fees, upfront payments, milestone payments if and when certain research and development milestones or technology transfer milestones are achieved, royalties on approved product sales and reimbursement for research and development activities. The Company’s costs of performing these services are included within research and development expenses. The Company’s milestone payments are typically defined by achievement of certain preclinical, clinical, and commercial success criteria. Preclinical milestones may include in vivo proof of concept in disease animal models, lead candidate identification, and completion of IND-enabling toxicology studies. Clinical milestones may, for example, include successful enrollment of the first patient in or completion of Phase 1, 2 and 3 clinical trials, and commercial milestones are often tiered based on net or aggregate sale amounts. The Company cannot guarantee the achievement of these milestones due to risks associated with preclinical and clinical activities required for development of nucleic acid medicine-based therapeutics and vaccines.

7


 

The following table presents changes during the three months ended March 31, 2022 in the balances of contract assets, including receivables from collaborative partners, consulting and related technology transfer partners, and contract liabilities, including deferred revenue, as compared to what was disclosed in the Company’s Annual Report.

 

(in thousands)

 

Contract Assets

 

BALANCE - December 31, 2021

 

$

3,367

 

Additions for revenue recognized from billings

 

 

1,534

 

Deductions for cash collections

 

 

(1,210

)

BALANCE – March 31, 2022

 

$

3,691

 

 

 

 

 

(in thousands)

 

Contract Liabilities

 

BALANCE - December 31, 2021

 

$

63,413

 

Additions for advanced billings

 

 

1,534

 

Deductions for promised services provided in current period

 

 

(5,244

)

BALANCE – March 31, 2022

 

$

59,703

 

 

The following table summarizes the Company’s revenues for the periods indicated (in thousands).

 

 

 

For the Three Months
Ended March 31,

 

 

(Dollars in thousands)

 

2022

 

 

2021

 

 

Vinbiocare

 

$

2,858

 

 

$

 

 

Janssen

 

 

1,131

 

 

 

824

 

 

Ultragenyx

 

 

926

 

 

 

925

 

 

CureVac

 

 

224

 

 

 

225

 

 

Other

 

 

105

 

 

 

153

 

 

Total revenue

 

$

5,244

 

 

$

2,127

 

 

 

The following paragraphs provide information regarding the nature and purpose of the Company’s most significant collaboration arrangements.

Vinbiocare

From June 11, 2021 through August 2, 2021, the Company entered into a series of agreements with Vinbiocare, a member of Vingroup Joint Stock Company (collectively, the “Vinbiocare Agreement”), whereby the Company will provide technical expertise and support services to Vinbiocare to assist in the build out of a mRNA drug product manufacturing facility in Vietnam. Such expertise shall include a specified level of access to the Company’s personnel and drug substance necessary to validate the successful set up of the facility. Under the terms of the arrangements, the Company will also provide a specified number of doses of ARCT-154 for use by Vinbiocare in a phase 3 clinical study within Vietnam. The Company received an upfront payment in aggregate of $40.0 million and subsequent to achieving emergency use authorization, the Company will receive low single digit payments per dose for drug substance and related royalties.


In evaluating the Vinbiocare Agreement in accordance with ASC Topic 606, the Company concluded that Vinbiocare is a customer. The Company identified all promised goods/services within the Vinbiocare Agreement, and when combining certain promised goods/services, the Company concluded that there are four distinct performance obligations. The
four performance obligations include (i) consulting to support the build out of the manufacturing facility and technical transfer, (ii) shipment of 80 grams of drug substance to validate the manufacturing facility, (iii) the sale of 2,500 vials of drug product to support the phase 3 clinical trial and (iv) consulting to support the phase 3 clinical trial and related regulatory filings. For each performance obligation, the Company estimated the standalone selling price based on cost plus margin for drug substance and drug product as well as estimated headcount and full-time equivalent (“FTE”) rates for consulting services to support the phase 3 clinical trial, the build out of the manufacturing facility and the technology transfer.

As of March 31, 2022, the transaction price consists of upfront consideration received and budgeted reimbursable out-of-pocket costs to support the build out of the manufacturing facility and technology transfer. The Company allocated the transaction price to the performance obligations in proportion to their standalone selling price, the relative standalone selling price basis. The drug substance and drug product performance obligations are recognized at the point in time the goods are transferred. The consulting performance obligations are recognized over a period of time based on the percentage of services rendered, meaning actual costs incurred divided by total costs budgeted to satisfy the performance obligation. Any consideration related to sales-based royalties will be recognized

8


 

when the drug product is manufactured as they are constrained. The revenue recognized in 2022 relates to consulting to support the build out of the manufacturing facility and technical transfer and consulting to support the phase 3 clinical trial.

Total deferred revenue as of March 31, 2022 and December 31, 2021 for the Vinbiocare agreement was $34.8 million and $37.2 million, respectively.

Janssen Pharmaceuticals, Inc., Ultragenyx Pharmaceutical Inc., CureVac AG

For each of Janssen Pharmaceuticals, Inc. (“Janssen”), Ultragenyx Pharmaceutical Inc. (“Ultragenyx”) and CureVac AG (“CureVac”), the Company evaluated the respective agreement in accordance with ASC Topic 606. The Company concluded that the contract counterparty is a customer. The Company identified all promised goods/services within each agreement, and concluded that the promised goods/services are incapable of being distinct and consequently do not have any value on a standalone basis. Accordingly, the promised goods/services within each agreement were determined to represent a single performance obligation. Lastly, the Company concluded that any options to select additional collaboration targets and to license rights to selected targets were not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated.

Janssen

In October 2017, the Company entered into a research collaboration and license agreement with Janssen (the “2017 Agreement”) to collaborate on developing candidates for treating HBV with RNA therapeutics. The 2017 Agreement allocated discovery, development, funding obligations, and ownership of related intellectual property among the Company and Janssen.

As of March 31, 2022, the remaining transaction price consisting of upfront consideration received and budgeted reimbursable out-of-pocket costs, is expected to be recognized using an input method over the remaining research period of 12 months. None of the development and commercialization milestones were included in the transaction price as they are outside the control of the Company and contingent upon success in future clinical trials and the collaborator’s efforts. Any consideration related to sales-based royalties will be recognized when the related sales occur, provided that the reported sales are reliably measurable, and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to Janssen and therefore have also been excluded from the transaction price.

Total deferred revenue as of March 31, 2022 and December 31, 2021 for Janssen was $6.2 million and $6.3 million, respectively.

Ultragenyx

In October 2015 the Company entered into a research collaboration and license agreement with Ultragenyx (as amended, the “Ultragenyx Agreement”), whereby Arcturus granted to Ultragenyx a co-exclusive license to certain Arcturus technology, which is in effect only during the reserve target exclusivity term as discussed in the following paragraphs. This collaboration agreement was amended in 2017, 2018 and during the second quarter of 2019. During the initial phase of the collaboration, the Company will design and optimize therapeutics for certain rare disease targets. Ultragenyx has the option under the Ultragenyx Agreement to add additional rare disease targets during the collaborative development period. Additionally, during the collaborative development period, the Company will participate with Ultragenyx in a joint steering committee.

The current potential development, regulatory and commercial milestone payments for the existing development targets as of March 31, 2022 are $138.0 million. Ultragenyx will pay royalties as a single-digit percentage of net sales on a product-by-product and country-by-country basis during the applicable royalty term. As of March 31, 2022, Ultragenyx is working to identify and enroll patients in a Phase 1/2 study.

As of March 31, 2022, the transaction price included the upfront consideration received, option payments, exclusivity extension payments and additional consideration received pursuant to Amendment 3 of the Ultragenyx Agreement (“Amendment 3”). The Company recognizes the reimbursement of labor and expenses as costs are incurred and none of the development and commercialization milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that the consideration is outside the control of the Company and contingent upon success in future clinical trials, approval from the FDA and the collaborator’s efforts. Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to Ultragenyx and therefore have also been excluded from the transaction price.

9


 

Amendment 3 was deemed a contract modification and accounted for as part of the original Ultragenyx Agreement. The transaction price is recognized to revenue on a straight-line basis using an input method over the 4-year reserve target exclusivity period. The reserve target exclusivity period represents the timing over which promised goods/services will be provided. Total deferred revenue at March 31, 2022 and December 31, 2021 from Ultragenyx was $4.6 million and $5.5 million, respectively.

CureVac

In January 2018, the Company entered into a Development and Option Agreement (the “Development and Option Agreement”) with CureVac. Under the terms of the Development and Option Agreement, the parties agreed to conduct joint preclinical development programs once CureVac makes a payment to pull down a target on the basis of which CureVac is granted options for taking a license on pre-agreed license terms to develop and commercialize certain products incorporating the Company’s patents and know-how related to LUNAR® delivery technology (the “Arcturus Delivery Technology”), and CureVac patents and know-how related to mRNA technology.

As of March 31, 2022, the transaction price included the upfront consideration received. The Company recognizes the reimbursement of labor and expenses as costs are incurred and none of the development and commercialization milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future clinical trials and the collaborator’s efforts. Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to CureVac and therefore have also been excluded from the transaction price. As of March 31, 2022, no adjustments were made to the transaction price.
 

The upfront consideration of $5.0 million was recorded as deferred revenue in the Company’s balance sheet upon receipt and is currently being recognized as revenue on a straight-line basis using an input method over the remaining 16 month contractual term as of March 31, 2022. Total deferred revenue as of March 31, 2022 and December 31, 2021 for CureVac was $1.2 million and $1.4 million, respectively.

Other Agreements

In January 2022, the Company entered into an agreement with a pharmaceutical company, whereby the pharmaceutical company agreed to fund up to $25 million for a clinical trial for a LUNAR-COV19 vaccine candidate as a booster. As of March 31, 2022, the Company has submitted to such company billings from a third party related to the clinical trial of approximately $4.9 million, which falls under the expected funding of $25.0 million of the booster program, but has not yet been reimbursed as of March 31, 2022.

Israeli Ministry of Health

On August 17, 2020, the Company entered into an agreement with the Israeli Ministry of Health (the “MOH”) to supply the Company’s COVID-19 vaccine candidate to Israel (the “Israel Supply Agreement”) subject to certain conditions, including applicable regulatory approvals. In October 2020, and in association with the Israel Supply Agreement, the Company received a non-refundable payment of $12.5 million from the MOH which is included in deferred revenue as of March 31, 2022. This payment of $12.5 million is associated with a specified clinical trial milestone and serves as an initial reserve payment for a specified number of doses of the LUNAR-COV19 vaccine candidate pursuant to the Israel Supply Agreement. As a result of the making of this payment, the MOH became bound to purchase an initial quantity of 500,000 reserved vaccine doses, as set forth in and subject to the terms and conditions of the Israel Supply Agreement. Furthermore, the Israel Supply Agreement may be terminated immediately by the MOH upon written notice to Arcturus if the Company has not obtained the required regulatory approvals by December 31, 2021. On April 14, 2022, Arcturus received notice from the MOH to terminate the Israel Supply Agreement. No termination penalties were incurred by the Company connection therewith.

10


 

Note 3. Fair Value Measurements

The Company establishes the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company established a fair value hierarchy based on the inputs used to measure fair value.

The three levels of the fair value hierarchy are as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Level 3: Unobservable inputs in which little or no market data exists and are therefore determined using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

The carrying value of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities and the Singapore loan approximate their respective fair values due to their relative short maturities. The carrying amounts of long-term debt for the amount drawn on the Company’s debt facility approximates fair value as the interest rate is variable and reflects current market rates.

As of March 31, 2022 and December 31, 2021, all assets measured at fair value on a recurring basis consisted of cash equivalents and money market funds, which were classified within Level 1 of the fair value hierarchy. The fair value of these financial instruments was measured based on quoted prices.

Note 4. Balance Sheet Details

Property and equipment, net balances consisted of the following:

 

(in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Research equipment

 

$

6,902

 

 

$

6,735

 

Computers and software

 

 

377

 

 

 

488

 

Office equipment and furniture

 

 

567

 

 

 

574

 

Leasehold improvements

 

 

44

 

 

 

44

 

Construction in progress

 

 

4,120

 

 

 

2,058

 

Total

 

 

12,010

 

 

 

9,899

 

Less accumulated depreciation and amortization

 

 

(4,480

)

 

 

(4,256

)

Property and equipment, net

 

$

7,530

 

 

$

5,643

 

 

Depreciation and amortization expense was $0.2 million and $0.3 million for the three months ended March 31, 2022 and December 31, 2021, respectively. Construction in progress primarily includes research equipment that is expected to be placed into service during 2022.

Accrued liabilities consisted of the following:

 

(in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Accrued compensation

 

$

5,171

 

 

$

3,578

 

Cystic Fibrosis Foundation Liability (Note 9)

 

 

1,826

 

 

 

2,777

 

Current portion of operating lease liability

 

 

1,653

 

 

 

1,537

 

Clinical accruals

 

 

3,801

 

 

 

8,675

 

Other accrued research and development expenses

 

 

7,519

 

 

 

6,956

 

Total

 

$

19,970

 

 

$

23,523

 

 

Note 5. Debt

Manufacturing Supply Agreement

On November 7, 2020, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc., entered into a Manufacturing Support Agreement (the “Support Agreement”) with the Economic Development Board of the Republic of Singapore (the “EDB”). Pursuant to the Support Agreement, the EDB agreed to make a term loan (the “Singapore Loan”) of S$62.1 million to the Company, subject to the satisfaction of customary deliveries, to support the manufacture of the LUNAR-COV19 vaccine candidate (ARCT-021). The EDB has agreed to an extension of the reconciliation period to March 31, 2022 with unused funds as of such date to be subsequently returned within thirty days, subject to any further agreed upon extension of the reconciliation date. The parties are in continued negotiations with respect to amendments of the Singapore Loan terms. Under current terms, (i) the Company will provide a quarterly reconciliation report within forty-five days of each financial quarter end, (ii) the Company will provide a projection of expenditures through March 31, 2022 followed by an audited statement of actual expenditures through March 31, 2022 by June 30, 2022, (iii) the Company will provide EDB with a right of first refusal on GMP manufacturing slots of the LUNAR-COV19 vaccine

11


 

candidate up to an agreed-upon maximum amount, (iv) and the obligation to repay the Singapore Loan will be secured by an interest in the raw materials and manufacturing equipment purchased by the Company with the funds from the Singapore Loan in form and substance satisfactory to the EDB in its sole discretion. The Company elected to borrow the full amount available under the Support Agreement of S$62.1 million ($46.6 million) on January 29, 2021. As of March 31, 2022, the Company has reported a portion of the Singapore Loan as current to reflect a potential principal repayment of approximately 20.9 million Singapore dollars (US $15.4 million) in fiscal year 2022 based on amounts not used toward the manufacture of ARCT-021 and is expecting to refund this portion during the third quarter of 2022.

The Singapore Loan accrues interest at a rate of 4.5% per annum calculated on a daily basis. Subject to certain exceptions, the Singapore Loan is intended to be a limited recourse loan that will be repaid solely through a royalty
payment of
10% of net sales proceeds of the LUNAR-COV19 vaccine candidate, up to the amount of the outstanding principal and interest under the Singapore Loan. However, all unpaid principal and interest under the Singapore Loan will be due and payable five years after draw date, if net sales of the LUNAR-COV19 vaccine exceed a certain minimum threshold during this five year period or the Company obtains clearance to sell the vaccine in specified jurisdictions. Unpaid principal and interest under the Singapore Loan will also become due and payable upon an event of default under the Support Agreement. The first vaccine sales, including the amount of net sales, shall be reported to EDB within 10 days of delivery and quarterly reports of aggregate vaccine sales, including net sales proceeds shall be provided within 30 days after quarter end.

The Singapore Loan is forgivable if the Company has not obtained regulatory approval by the final repayment date and net sales of the LUNAR-COV19 vaccine candidate are less than $100 million. If, any portion of the Singapore Loan is required to be forgiven pursuant to the terms of the Support Agreement, the EDB has the right to take ownership of certain raw materials and equipment that were purchased by the Company with proceeds of the Singapore Loan (the “Specified Assets”). The Company entered into a security agreement (the “Security Agreement”) for the benefit of the EDB to provide that repayment of the Singapore Loan and related obligations are secured by a lien on the Specified Assets.

In connection with the entry into the Support Agreement, the Company entered into a consent agreement with Western Alliance Bank (the “Bank”) and an amendment to the Loan and Security Agreement, dated as of October 12, 2018, between Western Alliance Bank and the Company (the “Loan Agreement”), to exclude the Specified Assets from Western Alliance Bank’s lien on certain assets of the Company.

The Singapore Loan was initially recorded as long-term debt at $46.6 million, the amount of cash proceeds at the time the Company received the funding. As of March 31, 2022, accrued interest of $1.9 million related to 2021 was added to the principal debt balance in accordance with the terms of the Support Agreement and the balance was adjusted to reflect the current exchange rate resulting in an increase in the debt balance to $47.8 million and a net foreign currency transaction gain of $0.2 million for the three months ended March 31, 2022 compared to a net foreign currency transaction gain of $0.4 million for the three months ended March 31, 2021. For the three months ended March 31, 2022, the Company recorded interest expense and a corresponding liability of $0.5 million compared to interest expense and a corresponding liability of $0.4 million for the three months ended March 31, 2021. Lastly, the Company was in compliance with all covenants under the Singapore Loan and related commitments.

Long-term debt with Western Alliance Bank

On October 12, 2018, Arcturus Therapeutics, Inc. entered into the Loan with the Bank, whereby it received $10.0 million.

The Loan is collateralized by all of the assets of Arcturus Therapeutics, Inc., excluding intellectual property, which is subject to a negative pledge. The Loan contains customary conditions of borrowing, events of default and covenants, including covenants that restrict Arcturus Therapeutics, Inc.’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of its capital stock. In addition, Arcturus Therapeutics, Inc. is required to maintain at least 100% of its consolidated, unrestricted cash, or $15.0 million, whichever is lower, with the Bank.

On October 30, 2019, Arcturus Therapeutics, Inc. and the Bank entered into a Third Amendment (the “Third Amendment”) to the Loan (as amended, the “Loan Agreement”).

Pursuant to the amendment, the Bank agreed to make a term loan to Arcturus Therapeutics, Inc. on October 30, 2019, in the amount of $15.0 million (the “Term Loan”). The resulting net increase in the indebtedness of Arcturus Therapeutics, Inc. was $5.0 million. The Term Loan bears interest at a floating rate ranging from 1.25% to 2.75% above the prime rate. The amendment further provides that the Term Loan has a maturity date of October 30, 2023. Arcturus Therapeutics, Inc. will make monthly payments of interest only until October 1, 2021. The Fourth Amendment was executed in connection with the Singapore Loan. In October of 2021, the Company and the Bank entered into a Fifth Amendment to Loan Agreement that provided for a six month extension to the interest only period which moved the first principal payment to May 1, 2022. In April of 2022, the Company and the Bank entered into a Sixth Amendment to Loan Agreement that provided for a three month extension to the interest only period which moved the first principal payment to August 1, 2022.

Arcturus Therapeutics, Inc. paid a loan origination fee of $54,000 which was recorded as a debt discount along with the remaining loan origination fee from the Loan and is being accreted over the term of the Term Loan. In addition, Arcturus Therapeutics, Inc. is required to pay a fee of $525,000 upon certain change of control events.

The Term Loan may be prepaid in full at any time, subject to a prepayment fee ranging from 0.50% to 2.00% of the prepaid principal amount depending upon the date of the prepayment.

12


 

Upon maturity or prepayment (as previously discussed), Arcturus Therapeutics, Inc. will be required to pay a 2% fee as a result of the FDA’s approval to proceed with the Company’s LUNAR-OTC program based on its IND submission. Such fee is accreted to the long-term debt balance using the effective interest method over the term of the Loan Agreement.
 

Should an event of default occur, including the occurrence of a material adverse effect, the Company could be liable for immediate repayment of all obligations under the Loan Agreement. As of March 31, 2022, the Company was in compliance with all covenants under the Loan Agreement.

Principal payments, including the final payment due at repayment, on the long-term debt are as follows as of March 31, 2022:

 

 

 

 

2022

 

$

5,000,000

 

2023

 

 

10,300,000

 

Total

 

$

15,300,000

 

The Company recognized interest expense related to its long-term debt of $0.7 million and $0.2 million during the three months ended March 31, 2022 and 2021, respectively.

 

Note 6. Stockholders’ Equity

Alexion Pharmaceuticals License Agreement

On February 17, 2021, the Company entered into an exclusive license agreement with Alexion Pharmaceuticals, Inc. (“Alexion”) pursuant to which Alexion granted to the Company an exclusive, worldwide license to exploit certain specified Alexion patent applications. In accordance with the terms of the license agreement, and in exchange for the license, the Company issued 74,713 shares of its common stock to Alexion on February 19, 2021 valued at approximately $5.0 million. The number of shares issued under the agreement was calculated by dividing (i) five million dollars ($5.0 million) by (ii) the volume-weighted average price per share of the Company’s common stock on the Nasdaq Global Market for the thirty (30) trading days immediately preceding the Effective Date (rounded to the nearest whole share). The Company recorded the transaction as an asset purchase as management concluded that all of the value received was related to a single identifiable asset. Further, the Company concluded that there was no alternative future use for the asset and recorded a charge at the closing of the transaction for the full $5.0 million value assigned to the shares issued in connection with the license agreement. This non-cash charge was recorded as acquired in-process research and development expense in the statements of operations and comprehensive loss.

13


 

Net Loss per Share

Dilutive securities that were not included in the calculation of diluted net loss per share for the three months ended March 31, 2022 and 2021 as they were anti-dilutive totaled 824,792 and 1,320,390, respectively.

Note 7. Share-Based Compensation Expense

In June 2020, the stockholders of the Company approved an increase to the number of shares authorized for use in making awards under the 2019 Omnibus Equity Incentive Plan (the “2019 Plan”) by 2,400,000 shares to 5,000,000. Accordingly, as of March 31, 2022, a total of 344,428 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan.

In October 2021, the Company adopted the 2021 Inducement Equity Incentive Plan which covers the award of up to 1,000,000 shares of common stock (the “2021 Plan”) effective as of October 15, 2021. Approval of the Company’s stockholders will not be required as a condition to the effectiveness of the 2021 Plan for so long as the plan is in compliance with applicable Nasdaq inducement plan rules. On October 20, 2021, the Company filed a Form S-8 with the United States Securities and Exchange Commission to register the issuance of up to 1,000,000 shares underlying awards under the 2021 Plan. As of March 31, 2022, a total of 745,300 shares remain available for future issuance under the 2021 Plan, subject to the terms of the 2021 Plan. In April 2022, the compensation committee of the Company’s board of directors approved a proposal to reduce the total number of shares available for future issuance under the 2021 Plan to 130,000.

Stock Options

Share-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive loss for the three March 31, 2022 and 2021 was as follows:

 

 

 

For the Three Months
Ended March 31,

 

 

(in thousands)

 

2022

 

 

 

2021

 

 

Research and development

 

$

3,455

 

 

 

$

3,246

 

 

General and administrative

 

 

3,916

 

 

 

 

3,741

 

 

Total

 

$

7,371

 

 

 

$

6,987

 

 

 

Note 8. Income Taxes

The Company is subject to taxation in the United States and various states. The Company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. The primary difference between the effective tax rate and the federal statutory tax rate relates to the valuation allowances on the Company’s net operating losses.