10-Q
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cs

 

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 June 30, 2023

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

https://cdn.kscope.io/ebe420adc23b34becbdaa70a3a9b1c0a-img266240365_0.jpg 

 

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)

 

(858) 900-2660

(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

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 August 2, 2023, the registrant had 26,598,539 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 June 30, 2023 and December 31, 2022

1

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022

2

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022

3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022

4

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

Signatures

30

 

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 express or implied “forward-looking statements” within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 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. Forward-looking statements in this quarterly report include, but are not limited to, statements about:

 

our compliance, and ability to remain in compliance, with the stringent requirements of our current and potential government contracts, including our arrangements with the Biomedical Advanced Research and Development Authority, a division of the Office of the Assistant Secretary for Preparedness and Response within the U.S. Department of Health and Human Services and the Department of Defense;
our compliance, and ability to remain in compliance, with the requirements of our collaboration agreements, including our collaboration with Seqirus Inc. (“CSL Seqirus”);
the anticipated benefits and success of our collaboration agreement with CSL Seqirus related to the licensure of our STARR® mRNA technology and LUNAR® lipid-mediated delivery, including our timely receipt of upfront and potential royalty and other payments thereunder;
the status and success of studies conducted by Meiji Holdings Co., Ltd. and their affiliates, including those related to ARCT-154;
the status, success and benefits of our arrangements with private and governmental entities, some of which are subject to termination for convenience by our counterparties;
the initiation, design, cost, timing, progress and results of, and our expected ability to undertake certain activities and accomplish certain goals with respect to, our research and development activities, preclinical studies and clinical trials, including those related to ARCT-154, ARCT-810 and ARCT-032;
our ability to expand our platform technologies and discovery efforts;
the potential safety, immunogenicity, efficacy or regulatory approval of 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, including with respect to ARCT-154, will be predictive of future clinical results or efficacy or safety of a product candidate;
the anticipated timing of enrollment, duration, milestones and announcements of results of clinical trials, and the submission of applications to conduct clinical trials;
the likelihood that clinical data will be sufficient for regulatory approval or completed in time to submit an application for regulatory approval within a particular timeframe;
the likelihood or timing of any regulatory approval, including of the NDA filed in Japan for ARCT-154;
the potential administration regimen or dosage, or ability to administer multiple doses of, any of 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 plans to research, develop and commercialize our product candidates;
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;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets and address unmet medical needs;

ii


 

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;
the performance of our third-party suppliers and manufacturers;
our ability to advance manufacturing process and capabilities, develop scalable manufacturing processes, conduct technology transfers, and prepare for and scale-up manufacturing levels for commercialization;
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;
the likelihood or timing of achieving milestones under our collaborations and other agreements;
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 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, cash flows, capital requirements need for additional financing, and possible sources of revenue.

 

These and other forward-looking 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 unless specifically stated otherwise. Although we currently 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

 

 

 

June 30,
2023

 

 

December 31,
2022

 

(in thousands, except par value information)

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

323,471

 

 

$

391,883

 

Restricted cash

 

 

55,000

 

 

 

 

Accounts receivable

 

 

2,799

 

 

 

2,764

 

Prepaid expenses and other current assets

 

 

3,974

 

 

 

8,686

 

Total current assets

 

 

385,244

 

 

 

403,333

 

Property and equipment, net

 

 

12,722

 

 

 

12,415

 

Operating lease right-of-use asset, net

 

 

30,553

 

 

 

32,545

 

Non-current restricted cash

 

 

2,127

 

 

 

2,094

 

Total assets

 

$

430,646

 

 

$

450,387

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

13,619

 

 

$

7,449

 

Accrued liabilities

 

 

28,763

 

 

 

30,232

 

Current portion of long-term debt

 

 

 

 

 

60,655

 

Deferred revenue

 

 

47,963

 

 

 

28,648

 

Total current liabilities

 

 

90,345

 

 

 

126,984

 

Deferred revenue, net of current portion

 

 

25,725

 

 

 

20,071

 

Operating lease liability, net of current portion

 

 

28,111

 

 

 

30,216

 

Other non-current liabilities

 

 

1,290

 

 

 

2,804

 

Total liabilities

 

 

145,471

 

 

 

180,075

 

Stockholders’ equity

 

 

 

 

 

 

Common stock, $0.001 par value; 60,000 shares authorized; issued and
outstanding shares were
26,574 at June 30, 2023 and 26,555 at December 31, 2022

 

 

27

 

 

 

27

 

Additional paid-in capital

 

 

625,085

 

 

 

608,426

 

Accumulated deficit

 

 

(339,937

)

 

 

(338,141

)

Total stockholders’ equity

 

 

285,175

 

 

 

270,312

 

Total liabilities and stockholders’ equity

 

$

430,646

 

 

$

450,387

 

 

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)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(in thousands, except per share data)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

9,565

 

 

$

27,093

 

 

$

89,294

 

 

$

32,337

 

Grant revenue

 

 

954

 

 

 

 

 

 

1,510

 

 

 

 

Total revenue

 

 

10,519

 

 

 

27,093

 

 

 

90,804

 

 

 

32,337

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, net

 

 

52,668

 

 

 

38,189

 

 

 

104,436

 

 

 

83,082

 

General and administrative

 

 

13,225

 

 

 

10,993

 

 

 

26,987

 

 

 

21,723

 

Total operating expenses

 

 

65,893

 

 

 

49,182

 

 

 

131,423

 

 

 

104,805

 

Loss from operations

 

 

(55,374

)

 

 

(22,089

)

 

 

(40,619

)

 

 

(72,468

)

Loss from equity-method investment

 

 

 

 

 

(131

)

 

 

 

 

 

(515

)

Gain (loss) from foreign currency

 

 

149

 

 

 

1,217

 

 

 

(179

)

 

 

1,375

 

Gain on debt extinguishment

 

 

 

 

 

 

 

 

33,953

 

 

 

 

Finance income (expense), net

 

 

3,252

 

 

 

(560

)

 

 

5,729

 

 

 

(1,124

)

Net loss before income taxes

 

 

(51,973

)

 

 

(21,563

)

 

 

(1,116

)

 

 

(72,732

)

Provision for income taxes

 

 

577

 

 

 

-

 

 

 

680

 

 

 

 

Net loss

 

$

(52,550

)

 

$

(21,563

)

 

$

(1,796

)

 

$

(72,732

)

Net loss per share, basic and diluted

 

$

(1.98

)

 

$

(0.82

)

 

$

(0.07

)

 

$

(2.75

)

Weighted-average shares outstanding, basic and diluted

 

 

26,563

 

 

 

26,425

 

 

 

26,557

 

 

 

26,401

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(52,550

)

 

$

(21,563

)

 

$

(1,796

)

 

$

(72,732

)

Comprehensive loss

 

$

(52,550

)

 

$

(21,563

)

 

$

(1,796

)

 

$

(72,732

)

 

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)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

(in thousands)

 

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

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(21,563

)

 

 

(21,563

)

Share-based compensation expense

 

 

 

 

 

 

 

 

7,274

 

 

 

 

 

 

7,274

 

Issuance of common stock upon exercise of stock options

 

 

27

 

 

 

 

 

 

257

 

 

 

 

 

 

257

 

   BALANCE – June 30, 2022

 

 

26,434

 

 

$

26

 

 

$

590,913

 

 

$

(420,222

)

 

$

170,717

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

(in thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

   BALANCE – December 31, 2022

 

 

26,555

 

 

$

27

 

 

$

608,426

 

 

$

(338,141

)

 

$

270,312

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

50,754

 

 

 

50,754

 

Share-based compensation expense

 

 

 

 

 

 

 

 

8,182

 

 

 

 

 

 

8,182

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   BALANCE – March 31, 2023

 

 

26,555

 

 

$

27

 

 

$

616,608

 

 

$

(287,387

)

 

$

329,248

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(52,550

)

 

 

(52,550

)

Share-based compensation expense

 

 

 

 

 

 

 

 

8,383

 

 

 

 

 

 

8,383

 

Issuance of common stock upon exercise of stock options

 

 

19

 

 

 

 

 

 

94

 

 

 

 

 

 

94

 

   BALANCE – June 30, 2023

 

 

26,574

 

 

$

27

 

 

$

625,085

 

 

$

(339,937

)

 

$

285,175

 

 

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

3


 

ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Six Months Ended June 30,

 

(in thousands)

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(1,796

)

 

$

(72,732

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,315

 

 

 

559

 

Share-based compensation expense

 

 

16,565

 

 

 

14,645

 

Loss from equity-method investment

 

 

 

 

 

515

 

Foreign currency translation loss (gain)

 

 

160

 

 

 

(1,410

)

Gain on debt extinguishment

 

 

(33,953

)

 

 

 

Other non-cash expenses

 

 

502

 

 

 

1,082

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(35

)

 

 

1,120

 

Prepaid expense and other assets

 

 

4,712

 

 

 

(933

)

Right-of-use assets

 

 

1,992

 

 

 

1,329

 

Accounts payable

 

 

5,593

 

 

 

(4,422

)

Accrued liabilities

 

 

(2,983

)

 

 

5,861

 

Deferred revenue

 

 

24,969

 

 

 

(31,474

)

Lease liabilities

 

 

(2,105

)

 

 

 

Net cash provided by (used in) operating activities

 

 

14,936

 

 

 

(85,860

)

Investing activities

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(1,045

)

 

 

(1,733

)

Net cash used in investing activities

 

 

(1,045

)

 

 

(1,733

)

Financing activities

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

94

 

 

 

593

 

Payments on debt obligations

 

 

(27,364

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(27,270

)

 

 

593

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(13,379

)

 

 

(87,000

)

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

 

 

393,977

 

 

 

372,569

 

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

 

$

380,598

 

 

$

285,569

 

 

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

2,102

 

 

$

355

 

Non-cash investing activities

 

 

 

 

 

 

Right-of-use assets acquired through operating leases

 

$

 

 

$

30,191

 

Purchase of property and equipment in accounts payable and accrued expenses

 

$

577

 

 

$

2,134

 

 

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 global late-stage clinical messenger RNA medicines company focused on the development of infectious disease vaccines and 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”) for candidate LUNAR-COV19 were approved by applicable health authorities.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Arcturus 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 consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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. and an ownership in GRI Bio, Inc. (formerly 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.

Liquidity

The Company has incurred significant operating losses since its inception. As of June 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $339.9 million and $338.1 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 June 30, 2023, 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.

At June 30, 2023, the Company’s balance of cash and cash equivalents, including restricted cash and non-current restricted cash, was $380.6 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.

5


 

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

At contract inception, the Company analyzes executed arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808). For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration reflect a vendor-customer relationship and are therefore within the scope of ASC 606.

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 Ccurompany 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.

For performance obligations that are recognized over time, the Company measures the progress using an input method. The input methods used are based on the effort expended or costs incurred toward the satisfaction of the performance obligation. The Company estimates the amount of effort expended, including the time estimated it will take to complete the activities, or costs incurred in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This approach requires the Company to make estimates and use judgment. If estimates or judgments change over the course of the collaboration, a cumulative catch up of revenue is recognized in the period such changes are identified.

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

Leases

The Company determines if an arrangement is a lease at inception. Lease right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. For operating leases with an initial term greater than 12 months, the Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of lease payments over the lease term at the commencement date. Operating lease right-of-use assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options to renew or terminate the lease when the Company is reasonably certain that the renewal option will be exercised or when it is reasonably certain that the termination option will not be exercised. For the Company's operating leases, if the interest rate used to determine the present value of future lease payments is not readily determinable, the Company estimates its incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic environments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to not separate lease and non-lease components.

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

6


 

Research and Development Costs, 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 performance of research and development services are capitalized until the services are performed.

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 activities performed by third parties are accrued and expensed based upon estimates of the proportion of work completed over the life of the individual clinical trial and patient enrollment rates in accordance with agreements established with Clinical Research Organizations ("CROs") and clinical trial sites. Estimates are determined by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

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.

Restricted Cash

We include our restricted cash balance in the cash, cash equivalents and restricted cash reconciliation of operating, investing and financing activities in the condensed consolidated statements 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)

 

June 30, 2023

 

 

June 30, 2022

 

Cash and cash equivalents

 

$

323,471

 

 

$

283,491

 

Restricted cash

 

 

55,000

 

 

 

-

 

Non-current restricted cash

 

 

2,127

 

 

 

2,078

 

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

 

$

380,598

 

 

$

285,569

 

 

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.

Recently Issued Accounting Standards Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the condensed consolidated financial statements and disclosures.

7


 

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.

The following table presents changes during the six months ended June 30, 2023 in the balances of contract assets and liabilities as compared to what was disclosed in the Company’s Annual Report.

 

(in thousands)

 

December 31, 2022

 

 

Additions

 

 

Deductions

 

 

June 30, 2023

 

Contract Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

2,764

 

 

$

115,948

 

 

$

(115,913

)

 

$

2,799

 

Contract Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

48,719

 

 

$

115,773

 

 

$

(90,804

)

 

$

73,688