UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
|
||
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer |
|
|
|
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
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.
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).
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.
|
☒ |
|
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
As of May 4, 2022, the registrant had
ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES
TABLE OF CONTENTS
|
|
Page |
PART I. |
1 |
|
Item 1. |
1 |
|
|
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
1 |
|
2 |
|
|
3 |
|
|
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 |
4 |
|
5 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 3. |
27 |
|
Item 4. |
27 |
|
PART II. |
28 |
|
Item 1. |
28 |
|
Item 1A. |
28 |
|
Item 2. |
28 |
|
Item 3. |
28 |
|
Item 4. |
28 |
|
Item 5. |
28 |
|
Item 6. |
29 |
|
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:
ii
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, |
|
|
December 31, |
|
||
|
|
(unaudited) |
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use asset, net |
|
|
|
|
|
|
||
Equity-method investment |
|
|
|
|
|
|
||
Non-current restricted cash |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and stockholders’ equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Deferred revenue, net of current portion |
|
|
|
|
|
|
||
Long-term debt, net of current portion |
|
|
|
|
|
|
||
Operating lease liability, net of current portion |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
Stockholders’ equity |
|
|
|
|
|
|
||
Common stock: $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ equity |
|
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
|
$ |
|
|
$ |
|
||
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 |
|
$ |
|
|
$ |
|
||
Operating expenses: |
|
|
|
|
|
|
||
Research and development, net |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
(Loss) gain from equity-method investment |
|
|
( |
) |
|
|
|
|
Gain from foreign currency |
|
|
|
|
|
|
||
Finance expense, net |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average shares outstanding, basic and diluted |
|
|
|
|
|
|
||
Comprehensive loss: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
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 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
BALANCE – March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Three Months Ended March 31, 2021 |
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|||||
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders’ |
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||
BALANCE – December 31, 2020 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuance of common stock related to acquired in-process research and development |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
BALANCE – March 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
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 |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Share-based compensation expense |
|
|
|
|
|
|
||
Acquired in-process research and development expense |
|
|
— |
|
|
|
|
|
Loss (gain) from equity-method investment |
|
|
|
|
|
( |
) |
|
Foreign currency transaction gain |
|
|
( |
) |
|
|
( |
) |
Other non-cash expenses |
|
|
|
|
|
|
||
Changes in operating assets and liabilities |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
Prepaid expense and other assets |
|
|
|
|
|
|
||
Accounts payable |
|
|
( |
) |
|
|
( |
) |
Accrued liabilities |
|
|
( |
) |
|
|
|
|
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Acquisition of property and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from debt |
|
|
— |
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of the period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of the period |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Non-cash investing activities |
|
|
|
|
|
|
||
Right-of-use asset obtained in exchange for lease liabilities |
|
$ |
|
|
$ |
|
||
Acquisition of in-process research and development through issuance of common stock |
|
$ |
|
|
$ |
|
||
Purchase of property and equipment in accounts payable |
|
$ |
|
|
$ |
|
||
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
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
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 $
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 $
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
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 |
|
$ |
|
|
$ |
|
||
Non-current restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted |
|
$ |
|
|
$ |
|
||
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.
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 |
|
$ |
|
|
Additions for revenue recognized from billings |
|
|
|
|
Deductions for cash collections |
|
|
( |
) |
BALANCE – March 31, 2022 |
|
$ |
|
|
|
|
|
|
|
(in thousands) |
|
Contract Liabilities |
|
|
BALANCE - December 31, 2021 |
|
$ |
|
|
Additions for advanced billings |
|
|
|
|
Deductions for promised services provided in current period |
|
|
( |
) |
BALANCE – March 31, 2022 |
|
$ |
|
|
The following table summarizes the Company’s revenues for the periods indicated (in thousands).
|
|
For the Three Months |
|
|
|||||
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
||
Vinbiocare |
|
$ |
|
|
$ |
— |
|
|
|
Janssen |
|
|
|
|
|
|
|
||
Ultragenyx |
|
|
|
|
|
|
|
||
CureVac |
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
|
||
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 $
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
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 $
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
Total deferred revenue as of March 31, 2022 and December 31, 2021 for Janssen was $
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 $
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”).
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
CureVac
In
As of March 31, 2022, the transaction price included the upfront consideration received.
The upfront consideration of $
Other Agreements
In January 2022, the Company entered into an agreement with a pharmaceutical company, whereby the pharmaceutical company agreed to fund up to $
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 $
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 |
|
$ |
|
|
$ |
|
||
Computers and software |
|
|
|
|
|
|
||
Office equipment and furniture |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation and amortization expense was $
Accrued liabilities consisted of the following:
(in thousands) |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Accrued compensation |
|
$ |
|
|
$ |
|
||
Cystic Fibrosis Foundation Liability (Note 9) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Clinical accruals |
|
|
|
|
|
|
||
Other accrued research and development expenses |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
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$
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$
The Singapore Loan accrues interest at a rate of
payment of
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 $
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 $
Long-term debt with Western Alliance Bank
On October 12, 2018, Arcturus Therapeutics, Inc. entered into the Loan with the Bank, whereby it received $
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 $
Arcturus Therapeutics, Inc. paid a loan origination fee of $
The Term Loan may be prepaid in full at any time, subject to a prepayment fee ranging from
12
Upon maturity or prepayment (as previously discussed), Arcturus Therapeutics, Inc. will be required to pay a
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 |
|
$ |
|
|
2023 |
|
|
|
|
Total |
|
$ |
|
|
The Company recognized interest expense related to its long-term debt of $
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
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
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
In October 2021, the Company adopted the 2021 Inducement Equity Incentive Plan which covers the award of up to
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 |
|
|
||||||
(in thousands) |
|
2022 |
|
|
|
2021 |
|
|
||
Research and development |
|
$ |
|
|
|
$ |
|
|
||
General and administrative |
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
$ |
|
|
||
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.
For the three months ended March 31, 2022 and 2021, the Company recorded
Note 9. Commitments and Contingencies
COVID-19 Vaccine Development
On March 4, 2020, the Company was awarded a grant (“Grant 1”) from the Singapore EDB to support the co-development of a potential COVID-19 vaccine with the Duke-NUS Medical School. The Grant provides for up to S$
On October 2, 2020, the Company was awarded another grant (“Grant 2”) from the Singapore EDB to support the clinical development of a potential COVID-19 vaccine (ARCT-021). The grant provides for up to S$
14
as contra research and development expense as costs are incurred