SEC Form 10-Q filed by Arcturus Therapeutics Holdings Inc.
cs
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:
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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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 November 5, 2024, the registrant had
ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES
TABLE OF CONTENTS
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Page |
PART I. |
1 |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 |
1 |
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2 |
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3 |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
28 |
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Item 5. |
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Item 6. |
29 |
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32 |
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i
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (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. Such statements may include, but are not limited to, statements concerning the following:
ii
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 (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
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September 30, |
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December 31, |
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(in thousands, except par value information) |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net |
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Non-current restricted cash |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Deferred revenue |
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Total current liabilities |
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Deferred revenue, net of current portion |
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Operating lease liability, net of current portion |
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Other non-current liabilities |
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— |
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Total liabilities |
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Stockholders’ equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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(in thousands, except per share data) |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue: |
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Collaboration revenue |
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$ |
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$ |
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$ |
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$ |
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Grant revenue |
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Total revenue |
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Operating expenses: |
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Research and development, net |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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(Loss) gain from foreign currency |
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( |
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( |
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( |
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Gain on debt extinguishment |
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— |
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— |
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— |
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Finance income, net |
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Net loss before income taxes |
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( |
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( |
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( |
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( |
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Provision for income taxes |
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( |
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— |
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Net loss |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Weighted-average shares outstanding, basic and diluted |
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Comprehensive loss: |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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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)
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Stockholders’ |
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(in thousands) |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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Issuance of common stock under equity plans |
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— |
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— |
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BALANCE – September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Stockholders’ |
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(in thousands) |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation expense |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock upon exercise of stock options |
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— |
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— |
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Issuance of common stock under equity plans |
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— |
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— |
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BALANCE – September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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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)
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Nine Months Ended September 30, |
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(in thousands) |
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2024 |
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2023 |
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Operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Share-based compensation expense |
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Foreign currency transaction loss |
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Gain on debt extinguishment |
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— |
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( |
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Other non-cash expenses |
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— |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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Prepaid expense and other assets |
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( |
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Right-of-use assets |
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Accounts payable |
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Accrued liabilities |
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( |
) |
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( |
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Deferred revenue |
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( |
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Lease liabilities |
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( |
) |
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( |
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Net cash used in operating activities |
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( |
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( |
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Investing activities |
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Acquisition of property and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Financing activities |
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Proceeds from exercise of stock options |
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Proceeds from the issuance of common stock under equity plans |
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Proceeds from debt |
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— |
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Payments on debt obligations |
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— |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Net decrease in cash, cash equivalents and restricted cash |
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( |
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( |
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Cash, cash equivalents and restricted cash at beginning of the period |
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Cash, cash equivalents and restricted cash at end of the period |
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$ |
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$ |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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Supplemental disclosure of cash flow information |
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Cash paid for interest |
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$ |
— |
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$ |
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Non-cash investing activities |
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Non-cash asset disposal |
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$ |
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$ |
— |
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Right-of-use assets acquired through operating leases |
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$ |
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$ |
— |
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Purchase of property and equipment in accounts payable |
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$ |
— |
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$ |
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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 commercial messenger RNA medicines company focused on the development of infectious disease vaccines and opportunities within liver and respiratory rare diseases. Arcturus became a clinical stage company in 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. In 2023, our COVID-19 vaccine, ARCT-154 (also referred to as KOSTAIVE®), received marketing authorization approval in Japan for
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, 2023.
These condensed consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions regarding the valuation of certain debt and equity instruments, share-based compensation, 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 the Company's joint venture in ARCALIS, Inc. with Axcelead, Inc. (“Axcelead”). The Company’s share of the investee's results is presented as either income or loss from equity-method investment in the accompanying condensed consolidated statements of operations and comprehensive loss.
Liquidity
The Company has incurred significant operating losses since its inception. As of September 30, 2024 and December 31, 2023, 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 September 30, 2024, the Company has funded its operations principally with the proceeds from revenues earned through collaboration agreements, the sale of capital stock, expense reimbursements from government contracts and proceeds from long-term debt. At September 30, 2024, the Company’s balance of cash and cash equivalents, including restricted cash, was $
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
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company and its chief operating decision-maker view the Company’s operations and manage its business in
Revenue Recognition
At contract inception, the Company analyzes its collaboration 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 Accounting Standards Codification (“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 ASC 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, development and regulatory milestone payments, profit-sharing arrangements, reimbursement for research and development activities, option exercise fees, drug substance and drug product supply fees, consulting and related technology transfer fees and royalties on sales of commercialized products. 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 ASC 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 numerous estimates and use significant 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, pre-launch inventory and license agreement expenses. Research and development expenses are presented net of any grants. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods are received or 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
Restricted cash includes collateral pledged and held in the Company’s securities accounts pursuant to a security agreement with Wells Fargo Bank, National Association (“Wells Fargo”) (Note 5). At September 30, 2024, such collateral amounted to $
Restricted cash also includes cash required to be set aside as security for lease payments and to maintain a letter of credit for the benefit of the landlord for the Company’s offices. At September 30, 2024 and 2023, the Company had restricted cash of $
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited condensed consolidated statement of cash flows as of September 30, 2024 and 2023:
(in thousands) |
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
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. Dilutive shares of common stock for the three and nine months ended September 30, 2024 were comprised of stock options and restricted stock units. Dilutive shares of common stock for the three and nine months ended September 30, 2023 were comprised of stock options.
7
Recently Issued Accounting Standards Not Yet Adopted
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board 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.
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for annual reporting periods beginning after December 15, 2023, and for interim reporting periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the impact that adoption of ASU 2023-07 will have on our financial statement disclosures.
8
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, product revenue and government grant 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, technology transfer milestones or success-based 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 nine months ended September 30, 2024 in the balances of contract assets and liabilities as compared to what was disclosed in the Company’s Annual Report.
(in thousands) |
|
December 31, 2023 |
|
|
Additions |
|
|
Deductions |
|
|
September 30, 2024 |
|
||||
Contract Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Contract Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred revenue |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The following table summarizes the Company’s revenues for the periods indicated.
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Collaboration Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CSL Seqirus |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other collaboration revenue |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Total collaboration revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Grant revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
BARDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total grant revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following paragraphs provide information regarding the nature and purpose of the Company’s most significant collaboration and grant arrangements.
9
CSL Seqirus
On November 1, 2022, the Company entered into a Collaboration and License Agreement (as amended, the “CSL Collaboration Agreement”) with Seqirus, Inc., a part of CSL Limited (“CSL Seqirus”), for the global exclusive rights to research, develop, manufacture, and commercialize vaccines. Under the terms of the CSL Collaboration Agreement, the Company provides CSL Seqirus with an exclusive global license to its mRNA technology (including STARR®) and LUNAR® lipid-mediated delivery, along with mRNA drug substance and drug product manufacturing process. CSL Seqirus will lead development and commercialization of vaccines under the collaboration. The collaboration plans to advance vaccines against SARS-CoV-2 (COVID-19), influenza, pandemic preparedness as well as three other respiratory infectious diseases. In September 2024, our COVID-19 vaccine KOSTAIVE® became the world’s first approved and commercially available self-amplifying RNA (sa-mRNA) vaccine.
The Company received a $
In evaluating the CSL Collaboration Agreement in accordance with ASC 606, the Company concluded that CSL Seqirus is a customer. The Company identified all promised goods/services within the CSL Collaboration Agreement, and when combining certain promised goods/services, the Company concluded that there are five distinct performance obligations. The nature of the performance obligations consists of delivery of the vaccine license, research and development services for COVID and non-COVID vaccines and regulatory activities for COVID vaccines. For each performance obligation, the Company estimated the standalone selling price based on 1) in the case of the license, the fair value using costs to recreate plus margin method and 2) in the case of research and development services and regulatory activities, cost plus margin for estimated full-time equivalent (“FTE”) costs, direct costs including laboratory supplies, contractors, and other out-of-pocket expenses for research and development services and regulatory activities.
As of September 30, 2024, the transaction price consisted of upfront consideration received and milestones achieved. Additional variable consideration was not included in the transaction price at September 30, 2024 because the Company could not conclude that it is probable that including the variable consideration will not result in a significant revenue reversal.
The Company allocated the transaction price to the performance obligations in proportion to their standalone selling price. The vaccine license was recognized at the point in time it was transferred in 2022. The research and development and regulatory activities performance obligations are recognized over a period of time based on the percentage of services rendered using the input method, meaning actual costs incurred divided by total costs budgeted to satisfy the performance obligation. Any consideration related to sales-based royalties will be recognized when the amounts are probable of non-reversal, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as they are constrained and therefore have also been excluded from the transaction price. The revenue recognized in the third quarter of 2024 relates to the license delivered, milestones achieved and services performed through September 30, 2024.
Total deferred revenue as of September 30, 2024 and December 31, 2023 for the CSL Collaboration Agreement was $40.3 million and $
During 2023, the Company also received an advance payment of $
During 2023, the Company entered into an amendment to the CSL Collaboration Agreement, pursuant to which the Company agreed to sponsor and conduct a Phase 1 clinical study in the influenza field. As part of the amendment, the Company received $
10
During the fourth quarter of 2023, the Company received an advance payment of $
In March 2024, the Company entered into an amendment to the CSL Collaboration Agreement, pursuant to which the parties agreed to, among other things, adjust (i) the development plans for certain product candidates, (ii) various development milestones related to such product candidates, (iii) provisions of the CSL Collaboration Agreement related to specific royalty payments, (iii) provisions of the CSL Collaboration Agreement related to distributors, and (iv) proprietary payment calculations related to the foregoing.
BARDA Grant
In August 2022, the Company entered into a cost reimbursement contract (the “BARDA Contract”) with the Biomedical Advanced Research and Development Authority ("BARDA"), a division of the Office of the Assistant Secretary for Preparedness and Response (ASPR) within the U.S. Department of Health and Human Services (HHS) for an award of up to $
The Company determined that the BARDA Contract is not in the scope of ASC 808 or ASC 606. Applying International Accounting Standards No. 20 ("IAS 20"), Accounting for Government Grants and Disclosure of Government Assistance, by analogy, the Company recognizes grant revenue from the reimbursement of direct out-of-pocket expenses, overhead allocations and fringe benefits for research costs associated with the grant. The costs associated with these reimbursements are reflected as a component of research and development expense in the Company’s condensed consolidated statements of operations and comprehensive income (loss).
As of September 30, 2024, the remaining available funding net of revenue earned was $
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 and accrued liabilities approximate their respective fair values due to their relatively short maturities.
As of September 30, 2024 and December 31, 2023, 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.
11
Note 4. Balance Sheet Details
Property and equipment, net balances consisted of the following:
(in thousands) |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
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 expenses were $
Accrued liabilities consisted of the following:
(in thousands) |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Accrued compensation |
|
$ |
|
|
$ |
|
||
Cystic Fibrosis Foundation liability |
|
|
|
|
|
|
||
Income tax payable |
|
|
— |
|
|
|
|
|
Current portion of |
|
|
|
|
|
|
||
Clinical trial accruals |
|
|
|
|
|
|
||
Vinbiocare contractual liabilities |
|
|
|
|
|
|
||
Other accrued research and development expenses |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Note 5. Debt
Wells Fargo Credit Agreement
The Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc. (“Arcturus Therapeutics”) entered into a credit agreement with Wells Fargo Bank on April 21, 2023, and amended on June 26, 2024, whereby Wells Fargo will make a $
Borrowings under the agreement will bear interest at a rate of
The term of the agreement was originally
Note 6. Stockholders’ Equity
Net Loss per Share
Potentially dilutive securities that were not included in the calculation of diluted net loss per share for the three and nine months ended September 30, 2024 as they were anti-dilutive totaled
12
Sales Agreement
On December 23, 2022, the Company entered into a Controlled Equity Offering℠ Sales Agreement, which was amended on August 7, 2023 (as amended, the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”),Wells Fargo Securities, LLC (“Wells Fargo Securities”), and William Blair & Company, L.L.C. (“William Blair”) relating to shares of the Company's common stock. In accordance with the terms of the Sales Agreement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $
Note 7. Share-Based Compensation Expense
In June 2024 at the Company’s 2024 Annual Meeting of Stockholders (the "2024 Annual Meeting"), the stockholders of the Company approved an amendment to the Company’s 2019 Omnibus Equity Incentive Plan (as amended, the “2019 Plan”) which, among other things, increased the aggregate number of shares authorized for use in making awards to eligible persons under 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 and nine months ended September 30, 2024 and 2023 was as follows:
|
|
For the Three Months |
|
|
|
For the Nine Months |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
|
2024 |
|
|
2023 |
|
||||
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 is due to federal and state income tax expense offset by valuation allowance on the Company's deferred tax assets.
For the three months ended September 30, 2024, the Company recorded $
Note 9. Commitments and Contingencies
Cystic Fibrosis Foundation Agreement
On September 25, 2023, the Company amended its Development Program Letter Agreement, dated May 16, 2017 and as amended July 13, 2018 and August 1, 2019, with the Cystic Fibrosis Foundation (“CFF”). Pursuant to the amendment, CFF increased the amount it will award to advance LUNAR-CF to $
13
Leases
In October 2017, the Company entered into a non-cancellable operating lease agreement for office space adjacent to its previously occupied headquarters. The commencement of the lease began in March 2018 and the lease extends for approximately
The Company entered into an irrevocable standby letter of credit with the landlord for a security deposit of $
In February 2020, the Company entered into a second non-cancellable operating lease agreement for office space near its current headquarters. The lease extended for
In September 2021, the Company entered into a third non-cancellable lease agreement for office, research and development, engineering and laboratory space near its current headquarters, and such lease term commenced during the second quarter of 2022. The initial term of this lease extends
Operating lease right-of-use asset and liability on the condensed consolidated balance sheets represent the present value of remaining lease payments over the remaining lease terms. The Company does not allocate lease payments to non-lease components; therefore, payments for common-area-maintenance and administrative services are not included in the operating lease right-of-use asset and liability. The Company uses its incremental borrowing rate to calculate the present value of the lease payments, as the implicit rate in the lease is not readily determinable.
As of September 30, 2024, the remaining payments of the operating lease liability were as follows:
(in thousands) |
|
Remaining Lease Payments |
|
|
2024 (remainder of year) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total remaining lease payments |
|
|
|
|
Less: imputed interest |
|
|
( |
) |
Total operating lease liabilities |
|
$ |
|
|
Weighted-average remaining lease term |
|
|
|
|
Weighted-average discount rate |
|
|
% |
|
Operating lease costs consist of the fixed lease payments included in operating lease liability and are recorded on a straight-line basis over the lease terms. Operating lease costs were $
14
Note 10. Related Party Transactions
See “Note 1, Joint Ventures, Equity Method Investments and Variable Interest Entities” for specific details surrounding the Company’s agreement with Axcelead to form the joint venture entity, ARCALIS, Inc.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following is a discussion of the financial condition and results of operations of Arcturus Therapeutics Holdings Inc. for the three- and nine-month periods ended September 30, 2024. Unless otherwise specified herein, references to the “Company,” “Arcturus,” “we,” “our” and “us” mean Arcturus Therapeutics Holdings Inc. and its consolidated subsidiaries. You should read the following discussion and analysis together with the interim condensed consolidated financial statements and related notes included elsewhere herein. For additional information relating to our management’s discussion and analysis of financial conditions and results of operations, please see our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “Commission”) on March 14, 2024. Unless otherwise defined herein, capitalized words and expressions used herein shall have the same meanings ascribed to them in the 2023 Annual Report.
This report includes forward-looking statements which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those currently anticipated and expressed or implied by such forward-looking statements. This report also includes certain statements based solely on information, reports and studies provided by or conducted by Seqirus, Inc. and Meiji Holdings Co., Ltd or their respective affiliates.
You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. You should also review the factors and risks we describe in the reports we will file or submit from time to time with the Commission after the date of this report.
Overview
We are a commercial messenger RNA medicines company focused on the development of infectious disease vaccines and opportunities within liver and respiratory rare diseases. In addition to our messenger RNA (“mRNA”) platform, our proprietary lipid nanoparticle (“LNP”) delivery system, LUNAR®, may enable multiple nucleic acid medicines. Our proprietary self-amplifying mRNA technology (STARR® technology) has been demonstrated to be longer lasting and broader response at lower dose levels than conventional mRNA. In 2023, our COVID-19 vaccine, ARCT-154 (also referred to as KOSTAIVE®), received marketing authorization approval in Japan, and in September 2024 KOSTAIVE became the world’s first approved and commercially available self-amplifying RNA (sa-mRNA) vaccine.
We are leveraging our proprietary LUNAR platform and our nucleic acid technologies to develop and advance a pipeline of mRNA-based vaccines and therapeutics for infectious diseases and rare genetic disorders with significant unmet medical needs. We continue to expand this platform by adding new innovative delivery solutions that allow us to expand our discovery efforts. Our proprietary LUNAR technology is intended to address the major hurdles in RNA drug development, namely the effective and safe delivery of RNA therapeutics to disease-relevant target tissues. We believe the versatility of our platform to target multiple tissues, its compatibility with various nucleic acid therapeutics, and our expertise in developing scalable manufacturing processes can allow us to deliver on the next generation of nucleic acid medicines.
Business Updates
Vaccine Collaboration with CSL Seqirus
In November 2022, we entered into a Collaboration and License Agreement (as amended, the “CSL Collaboration Agreement”) with Seqirus, Inc. (“CSL Seqirus”), a part of CSL Limited, and one of the world’s leading influenza vaccine providers, for global exclusive rights to research, develop, manufacture and commercialize self-amplifying mRNA vaccines against COVID-19, influenza and three other respiratory infectious diseases and global non-exclusive rights to pandemic pathogens. The CSL Collaboration Agreement became effective on December 8, 2022. The collaboration combines CSL Seqirus’ established global vaccine commercial and manufacturing infrastructure with Arcturus’ manufacturing expertise and innovative STARR self-amplifying mRNA vaccine and LUNAR delivery platform technologies. Under the framework of our collaboration with CSL Seqirus, we continue the development of the COVID-19 vaccine to establish a differentiated platform and address routine recommendations for periodic vaccine composition updates in a timely manner.
In November 2023, KOSTAIVE®, a self-amplifying messenger RNA (sa-mRNA) vaccine, received marketing authorization approval from the Japanese Ministry of Health, Labour and Welfare for use as a primary immunization and booster in Japan for adults 18 years and older. The approval was based on positive clinical data from several ARCT-154 studies, including a 19,000-subject efficacy, safety, and immunogenicity study performed in Vietnam, as well as a Phase 3 booster study in Japan.
KOSTAIVE® is the brand name approved in Japan for ARCT-154, which is the version of the sa-mRNA COVID vaccine encoding the ancestral strain of SARS-CoV-2, and for updated variant-specific versions of this vaccine. We may use KOSTAIVE or the specific internally generated name, such as ARCT-154, ARCT-2302 and ARCT-2303, to identify the vaccine.
16
In September 2024, we announced that Japan’s Ministry of Health, Labor and Welfare (MHLW) granted approval and authorization for an updated version of KOSTAIVE, targeted to protect against the JN.1 lineage of Omicron subvariants for adults 18 years of age and older. CSL’s exclusive partner in Japan, Meiji Holdings Co., Ltd (“Meiji”) began distributing the updated vaccine in Japan in October 2024, marking the world’s first commercially available sa-mRNA COVID-19 vaccine for adults 18 and older. The approval was based on manufacturing data demonstrating the quality and consistency of the vaccine product, non-clinical immunogenicity data against JN.1 lineage of Omicron subvariants of KOSTAIVE (JN.1), and clinical evidence supporting the safety and immunogenicity of KOSTAIVE (bivalent, BA.4/5 and ancestral strain).
The European Medicines Agency (EMA) is currently reviewing a marketing authorization application for ARCT-154. The review procedure started on August 17, 2023.
Earlier this year, CSL Seqirus’ partner Meiji Seika Pharma announced that it submitted a partial change application for an amendment to the manufacturing and marketing approval of KOSTAIVE® to include manufacturing sites in Japan, including ARCALIS, Inc., Arcturus’ manufacturing joint venture in Japan. Meiji Seika Pharma will begin selling domestically produced KOSTAIVE® this season.
Clinical Studies of KOSTAIVE (COVID-19 vaccine)
In connection with our collaboration with CSL Seqirus, we continue to collect data from the various ongoing studies described below.
Pivotal Phase 3 Non-Inferiority Study of KOSTAIVE (ARCT-154) in Japan
Meiji sponsored a randomized, multicenter, Phase 3, observer-blind, active-controlled comparative study to evaluate the safety and immunogenicity of a booster dose of ARCT-154 and to evaluate the non-inferiority of ARCT-154 over COMIRNATY® (Monovalent, Original strain). The study targeted 780 adult participants, with half in the ARCT-154 group and half in a comparator group, and completed enrollment with 828 participants in February 2023. The study met all primary and secondary immunogenicity endpoints, including a secondary pre-defined superiority assessment over COMIRNATY® (Omicron BA.4/5 strain). Overall, the safety and immunogenicity results of the study support the favorable benefit/risk profile of the ARCT-154 vaccine when administered as a booster dose in adult individuals who previously received other mRNA COVID-19 vaccines.
On February 1, 2024, the journal Lancet Infectious Diseases published the article ‘Persistence of immune responses of a self-amplifying RNA COVID-19 vaccine (ARCT154) versus BNT162b2’ (https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(24)00060-4/fulltext), with six-month follow-up results from this study. These additional data demonstrate the extended persistence of neutralizing antibodies after administration with ARCT-154 compared with conventional mRNA vaccine in the clinical setting, indicating longer-lasting immunity and implying a longer duration of protection by ARCT-154.
On September 30, 2024, we announced results from this study demonstrating that ARCT-154 maintained superior immunogenicity compared to the conventional mRNA vaccine (COMIRNATY) for up to 12 months against Wuhan-Hu-1, Omicron BA.4-5 and certain other COVID-19 variants, and at one-sixth the dose of the comparator (5µg vs 30µg, respectively).
In October 2024, Lancet Infectious Diseases published the follow-up article ‘12-month persistence of immune responses to self-amplifying mRNA COVID-19 vaccines: ARCT-154 versus BNT162b2 vaccine’ (https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(24)00615-7/fulltext), which confirmed a better neutralizing immune response against a panel of SARS-CoV-2 strains in pre-immunized Japanese adults boosted with ARCT-154 compared with the conventional mRNA vaccine, BNT162b2, which persisted up to 12 months post-vaccination, including in those age 50 years and older.
Phase 3 Study of Bivalent Version of COVID-19 KOSTAIVE in Japan
On September 29, 2023, Meiji initiated an additional Phase 3 clinical study with ARCT-2301, a bivalent version of KOSTAIVE (ancestral strain and Omicron BA.4/5) to further support immunogenicity and safety data for our self-amplifying mRNA platform, which may facilitate the timely release of future seasonal updates of our COVID-19 vaccine against evolving variants of concern. On March 19, 2024, Meiji announced that the bivalent vaccine met the primary study endpoint (non-inferiority). The study enrolled 930 healthy adults and individuals with comorbidities, who previously received three to five doses of mRNA COVID-19 vaccines, including the last booster at least three months prior to recruitment. The study compares the investigational vaccine (ARCT-2301) and COMIRNATY (ancestral strain and BA.4/5) to evaluate safety and immunogenicity between observer-blind groups. Both the geometric mean titer (GMT) ratio and seroresponse rate (SRR) difference of neutralizing antibodies against SARS-CoV-2 (Omicron BA.4/5 and Wuhan strains) met pre-specified non-inferiority and superiority criteria versus COMIRNATY. There were no causally-associated severe or serious adverse events with ARCT-2301.
In September 2024, we announced 6-month immunogenicity and safety results from this study. As with the monovalent vaccine, the bivalent sa-mRNA formulation demonstrates superior immunogenicity over the conventional bivalent mRNA vaccine
17
COMIRNATY, a higher immune response persisting up to six months after a booster dose, and improved breadth, supporting the robustness of the sa-mRNA vaccine platform for future vaccine strain updates. The study results were presented at OPTIONS XII for the Control of Influenza conference in Brisbane, Australia, in September 2024.
Phase 3 Study in Southern Hemisphere of KOSTAIVE (Monovalent XBB1.5)
In March 2024, Arcturus and CSL Seqirus initiated a Phase 3 pivotal study with the ARCT-2303 candidate vaccine containing the XBB1.5 Omicron variant. The study aims to generate additional immunogenicity and safety data in multiple ethnicities to support regulatory filings in the US and globally. In addition, the study will assess the co-administration of the ARCT-2303 vaccine with the age-appropriate seasonal influenza vaccines. Overall, 1,499 young and older adults were recruited in the study in Australia, Costa Rica, Honduras and the Philippines.
The study results show that all four primary study objectives and key secondary study objectives were met. ARCT-2303 demonstrated superior immune response compared to ARCT-154 as measured by neutralizing antibodies against Omicron XBB.1.5 in terms of GMT ratio and SCR difference. Co-administration of ARCT-2303 and quadrivalent influenza vaccine (QIV; Flucelvax, CSL) in adults 18-64 years old showed noninferior immune response compared to standalone QIV. Co-administration of ARCT-2303 and QIV also showed noninferior immune response compared to standalone ARCT-2303. Co-administration of ARCT-2303 and adjuvanted QIV (Fluad, CSL) in adults 65 years of age and above showed similar results for co-administered and separately administered groups. The safety and reactogenicity of co-administered vaccines were comparable with standalone administration. No safety concerns were raised based on the study results.
Seasonal Flu Collaboration Program Updates
Our LUNAR-qsFLU (qs; quadrivalent seasonal) program, now exclusively licensed to CSL Seqirus, has the objective of producing a safe and effective seasonal influenza vaccine candidate with significant advantages over the traditional egg-based inactivated quadrivalent vaccine. Inaccurate predictions of circulating influenza strains as well as mutations due to adaptation in egg-grown vaccines can substantially reduce efficacy on a year-to-year basis. We believe the ability of mRNA platforms to nimbly adapt to new viral strains should help improve efficacy. In addition, we do not expect mRNA vaccines to face the challenge from mutations common to egg-grown vaccines.
LUNAR-qsFLU has been designed to take advantage of our expertise in both LUNAR lipid delivery systems and our STARR self-amplifying mRNA technology. This platform has been shown to deliver effective protection against COVID-19 and has been optimized to elicit robust immunogenicity with acceptable reactogenicity at a lower dose than conventional mRNA vaccines with the objective of creating a highly effective influenza vaccine for use in general and high-risk populations. Working with CSL Seqirus, we generated a comprehensive non-clinical data package to support the initiation of the Phase 1 clinical trial with a novel influenza sa-mRNA vaccine candidate. A Phase 1 dose-finding safety and immunogenicity study was initiated in January 2024 in Australia.
Pandemic Influenza Program
Our LUNAR-pandFLU program continues to progress under the award from the Biomedical Advanced Research and Development Authority (“BARDA”) that we obtained in 2022. The program includes all non-clinical, manufacturing, and regulatory support to advance a vaccine to protect against disease caused by H5N1 highly pathogenic avian influenza. A pre-IND meeting was
18
granted, and a Written Response Only (“WRO”) was received for integration into future development plans. Nonclinical safety studies have been completed that will enable the Phase 1 clinical trial.
The IND application was submitted on October 9, 2024. Enrollment for a Phase 1 clinical trial designed to evaluate the safety and immunogenicity of ARCT-2304 (LUNAR-pandFLU candidate vaccine) is expected to begin before the end of 2024.
Key Updates on Arcturus-Owned mRNA Therapeutic Development Candidates
The following chart represents our current pipeline of Arcturus-owned mRNA therapeutic candidates:
19
Updates on Research and Platform Activities
We continue to invest and improve our LUNAR-lipid mediated delivery of mRNA with continuous improvements in our mRNA and sa-mRNA platforms in conjunction with improvements in our next generation proprietary lipids to improve targeting, efficacy and safety profiles for both our vaccine and therapeutic protein platforms. This investment has led to key innovations ensuring that our LUNAR formulated drug product candidates have optimal characteristics for therapeutic use, which we believe sets us apart from other nucleic acid therapeutics and lipid-mediated delivery platforms. As such, we consider ourselves a leader in the research and development of mRNA therapeutics for multiple indications.
We continue to conduct exploratory platform development activities, including the evaluation of genome editing, and new targeting approaches, where our LUNAR® and STARR® platforms could potentially be useful for identification and development of additional products for our portfolio.
Discovery Programs – Vaccine Programs (Lyme Disease and Gonorrhea)
Based on the clinical and regulatory validation of LUNAR and STARR technologies provided by the approval of KOSTAIVE, a self-amplifying messenger RNA (sa-mRNA) vaccine for COVID-19, we initiated new vaccine discovery programs earlier this year for Lyme disease and gonorrhea and continue to progress such programs. The discovery programs rely on the evidence of superior immunogenicity, durability, and breadth of immune response compared to conventional mRNA vaccines, as observed in the COVID-19 program.
Lyme disease is a bacterial infection and is the most common vector-borne disease in the United States. Infection can spread to joints, the heart and the nervous system. Gonorrhea is a sexually transmitted disease (STD) that can infect the mucous membranes of the reproductive tract. It is the second most commonly reported bacterial sexually transmitted infection in the United States. We selected these diseases based on high unmet medical needs, good understanding of the path forward in vaccine target selection, and demonstration of proof of concept, as well as platform advantages that may be translated in a favorable vaccine product.
Updates on Supply and Manufacturing
We have built a global manufacturing footprint with our partners, including Aldevron, Catalent, Recipharm, Polymun and ARCALIS. With such collaborations we have established an Integrated Global Supply Chain Network with our primary and secondary sourcing contract development & manufacturing organizations (CDMOs) based in the United States, EU and Asia for producing critical raw materials, drug substance, and packaged finished product. As the market for COVID vaccines shifts from multi-dose vial to lower and single-dose vial presentation, we continue, with our collaborator CSL Seqirus, to evaluate and pursue different forms of drug product presentations, advance manufacturing process and capabilities and technology transfers, and prepare for stockpiling and commercialization of COVID vaccines.
Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Report and our audited financial statements and related notes for the year ended December 31, 2023. Our historical results of operations and the year-to-year comparisons of our results of operations that follow are not necessarily indicative of future results.
20
Revenue
We enter into arrangements with pharmaceutical and biotechnology partners and government agencies that may contain upfront payments, license fees for research and development arrangements, research and development funding, milestone payments, option exercise and exclusivity fees, royalties on future sales, consulting fees and payments for technology transfers. We expect that sales of KOSTAIVE® by Meiji Holdings Co., Ltd, CSL’s partner in Japan will commence in the fourth quarter of 2024 in Japan. However, revenues for us will be subject to a profit sharing mechanism whereby development costs are deducted from sales revenues prior to any distribution to the Company. The following table summarizes our total revenues for the periods indicated:
|
|
Three Months Ended September 30, |
|
|
2023 to 2024 |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
||||
Revenue |
|
$ |
41,673 |
|
|
$ |
45,140 |
|
|
$ |
(3,467 |
) |
|
|
-7.7 |
% |
Revenue decreased by $3.5 million during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decline was mostly attributable to a lower milestone achievement from the CSL agreement during the third quarter of 2024. This decrease was offset by revenue recognized from a supply agreement related to the commercial production of KOSTAIVE® and an increase in revenue from the BARDA agreement during the three months ended September 30, 2024.
|
|
Nine Months Ended September 30, |
|
|
2023 to 2024 |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
||||
Revenue |
|
$ |
129,544 |
|
|
$ |
135,944 |
|
|
$ |
(6,400 |
) |
|
|
-4.7 |
% |
Revenue decreased by $6.4 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The decrease was due to the timing and value of milestone achievements and the achievement of a conditional payment during the nine months ended 2023, offset by revenue from supply agreements during the current year. Additionally, there was a decrease in revenue recognized under other agreements during the nine months ended September 30, 2024 due to lower activity or completion of collaboration agreements. The total decrease in revenue was offset by an increase in revenue recognized from the BARDA Contract.
Operating expenses
Our operating expenses consist of research and development and general and administrative expenses.
|
|
Three Months Ended September 30, |
|
|
2023 to 2024 |
|
|
Nine Months Ended September 30, |
|
|
2023 to 2024 |
|
||||||||||||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Research and development, net |
|
$ |
39,134 |
|
|
$ |
51,077 |
|
|
$ |
(11,943 |
) |
|
|
-23.4 |
% |
|
$ |
151,376 |
|
|
$ |
155,513 |
|
|
$ |
(4,137 |
) |
|
|
-2.7 |
% |
General and administrative |
|
|
13,276 |
|
|
|
13,377 |
|
|
|
(101 |
) |
|
|
-0.8 |
% |
|
|
40,443 |
|
|
|
40,364 |
|
|
|
79 |
|
|
|
0.2 |
% |
Total |
|
$ |
52,410 |
|
|
$ |
64,454 |
|
|
$ |
(12,044 |
) |
|
|
-18.7 |
% |
|
$ |
191,819 |
|
|
$ |
195,877 |
|
|
$ |
(4,058 |
) |
|
|
-2.1 |
% |
Research and Development Expenses, net
21
The following table presents our total research and development expenses by category:
|
|
Three Months Ended September 30, |
|
|
2023 to 2024 |
|
|
Nine Months Ended September 30, |
|
|
2023 to 2024 |
|
||||||||||||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
||||||||
External pipeline development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
LUNAR-COVID, net |
|
$ |
12,035 |
|
|
$ |
24,892 |
|
|
$ |
(12,857 |
) |
|
|
-51.7 |
% |
|
$ |
55,092 |
|
|
$ |
71,501 |
|
|
$ |
(16,409 |
) |
|
|
-22.9 |
% |
LUNAR-OTC, net |
|
|
890 |
|
|
|
2,001 |
|
|
|
(1,111 |
) |
|
|
-55.5 |
% |
|
|
7,200 |
|
|
|
7,520 |
|
|
|
(320 |
) |
|
|
-4.3 |
% |
BARDA |
|
|
1,347 |
|
|
|
930 |
|
|
|
417 |
|
|
|
44.8 |
% |
|
|
6,949 |
|
|
|
1,576 |
|
|
|
5,373 |
|
|
* |
|
|
Early-stage programs |
|
|
7,602 |
|
|
|
2,326 |
|
|
|
5,276 |
|
|
* |
|
|
|
26,543 |
|
|
|
10,018 |
|
|
|
16,525 |
|
|
* |
|
||
Discovery technologies |
|
|
2,071 |
|
|
|
4,662 |
|
|
|
(2,591 |
) |
|
|
-55.6 |
% |
|
|
4,453 |
|
|
|
16,266 |
|
|
|
(11,813 |
) |
|
|
-72.6 |
% |
External platform development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Personnel related expenses |
|
|
13,718 |
|
|
|
13,478 |
|
|
|
240 |
|
|
|
1.8 |
% |
|
|
43,234 |
|
|
|
40,206 |
|
|
|
3,028 |
|
|
|
7.5 |
% |
Facilities and equipment expenses |
|
|
1,471 |
|
|
|
2,788 |
|
|
|
(1,317 |
) |
|
|
-47.2 |
% |
|
|
7,905 |
|
|
|
8,426 |
|
|
|
(521 |
) |
|
|
-6.2 |
% |
Total research and development expenses, net |
|
$ |
39,134 |
|
|
$ |
51,077 |
|
|
$ |
(11,943 |
) |
|
|
-23.4 |
% |
|
$ |
151,376 |
|
|
$ |
155,513 |
|
|
$ |
(4,137 |
) |
|
|
-2.7 |
% |
* Greater than 100%
Our research and development expenses consist primarily of external manufacturing costs, in-vivo research studies and clinical trials performed by contract research organizations, clinical and regulatory consultants, personnel related expenses, facility related expenses and laboratory supplies related to conducting research and development activities. Research and development expenses were $39.1 million for the three months ended September 30, 2024, compared with $51.1 million for the three months ended September 30, 2023. The decrease was due to high manufacturing expenses in 2023 for Meiji supply batches and other clinical trial batches which were not incurred in 2024. The decrease was also due to lower facilities and equipment expenses in 2024. This was offset by an increase in clinical trial related expenses. Research and development expenses for the nine months ended September 30, 2024 were $151.4 million compared with $155.5 million for the nine months ended September 30, 2023. The decrease was due to lower manufacturing expenses in 2023 for Meiji supply batches and other clinical trial batches which were not incurred in 2024. Additionally, there was a decrease in consulting expenses as well as facilities and equipment expenses in 2024. This was offset by increased clinical related expenses for the COVID program and increased personnel related expenses in 2024. We expect that our research and development efforts and associated costs will continue to be substantial over the next several years as our pipeline progresses.
Early-stage programs represent programs that are in the pre-clinical or Phase 1 clinical stage and may be partnered or unpartnered, including the LUNAR-CF and LUNAR-FLU programs. Discovery technologies represent our efforts to expand our product pipeline and are primarily related to pre-partnered studies and new capabilities assessment. For some of our programs, the activities are part of our collaborative and other relationships, and the expenses may be partially offset with funds that have been awarded to the Company. The expenses for early-stage programs and discovery technologies primarily consist of external manufacturing costs, lab supplies, equipment, and consulting and professional fees. Early-stage programs and discovery technologies expenses are expected to steadily increase over the coming years.
Personnel related expenses primarily consist of employee salaries and benefits, share-based compensation and consultants. Although such expenses increased during 2024 as compared to 2023, we expect that they will not increase over the next twelve months.
Facilities and equipment expenses primarily consist of rent expenses, common area maintenance charges, shipping costs, various costs of our offices and laboratories and depreciation expenses. Facilities and equipment expenses are not expected to increase during the next twelve months.
General and Administrative Expenses
General and administrative expenses primarily consist of salaries and related benefits for our executive, administrative, legal and accounting functions and professional service fees for legal and accounting services as well as other general and administrative expenses.
General and administrative expenses were $13.3 million for the three months ended September 30, 2024 compared with $13.4 million for the three months ended September 30, 2023. The decrease in general and administrative expenses was attributable to decreased personnel expenses, partially offset by increased legal and other professional expenses, facilities expenses and other various general and administrative expenses. General and administrative expenses for the nine months ended September 30, 2024 remained consistent compared to the nine months ended September 30, 2023. The Company expects that general and administrative expenses will remain relatively consistent over the next fiscal year with the current pipeline.
22
Finance income (expense), net
|
|
Three Months Ended September 30, |
|
|
2023 to 2024 |
|
|
Nine Months Ended September 30, |
|
|
2023 to 2024 |
|
||||||||||||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
||||||||
Interest income |
|
$ |
3,818 |
|
|
$ |
4,001 |
|
|
|
(183 |
) |
|
|
-4.6 |
% |
|
$ |
11,981 |
|
|
$ |
10,473 |
|
|
$ |
1,508 |
|
|
|
14.4 |
% |
Interest expense |
|
|
— |
|
|
|
(20 |
) |
|
|
20 |
|
|
|
-100.0 |
% |
|
|
— |
|
|
|
(763 |
) |
|
|
763 |
|
|
|
-100.0 |
% |
Total |
|
$ |
3,818 |
|
|
$ |
3,981 |
|
|
$ |
(163 |
) |
|
|
-4.1 |
% |
|
$ |
11,981 |
|
|
$ |
9,710 |
|
|
$ |
2,271 |
|
|
|
23.4 |
% |
Interest income is generated on cash and cash equivalents. The decrease in interest income for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily the result of decreased interest earned on investment accounts. The increase in interest income for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily the result of increased interest earned on investment accounts caused by higher interest rates. Interest expense during the nine months ended September 30, 2023 was incurred in connection with the Western Alliance Agreement and the Singapore Loan, both of which have since been terminated.
Other income and expense
|
|
Three Months Ended September 30, |
|
|
2023 to 2024 |
|
|
Nine Months Ended September 30, |
|
|
2023 to 2024 |
|||||||||||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|
|
2024 |
|
|
2023 |
|
|
$ change |
|
|
% change |
|||||||
(Loss) gain from foreign currency |
|
$ |
(201 |
) |
|
$ |
4 |
|
|
$ |
(205 |
) |
|
* |
|
|
$ |
(642 |
) |
|
$ |
(175 |
) |
|
$ |
(467 |
) |
|
* |
|
Gain on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33,953 |
|
|
|
(33,953 |
) |
|
* |
Total |
|
$ |
(201 |
) |
|
$ |
4 |
|
|
$ |
(205 |
) |
|
* |
|
|
$ |
(642 |
) |
|
$ |
33,778 |
|
|
$ |
(34,420 |
) |
|
* |
|
* Greater than 100%
Other income and expense items primarily relate to gains and losses from foreign currency transactions. Additionally, we recorded a gain on debt extinguishment related to the Singapore Loan of $34.0 million during the first quarter of 2023 as a result of the Singapore Loan being forgiven.
Off-balance sheet arrangements
Through September 30, 2024, we have not entered into and did not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Liquidity and Capital Resources
From the Company’s inception through the quarter ended September 30, 2024, the Company has funded its operations principally with the proceeds from the sale of capital stock, long-term debt and revenues earned through collaboration agreements and government contracts. Through the third quarter of 2024, we have achieved a total of approximately $462.1 million in upfront payments and milestones from CSL Seqirus, including a milestone of $25.0 million achieved in the current quarter with payment anticipated in the fourth quarter of 2024. At September 30, 2024, we had $294.1 million in cash and cash equivalents and restricted cash.
CSL Seqirus, Inc. Collaboration and License Agreement
We entered into the CSL Collaboration Agreement with CSL Seqirus, a part of CSL Limited, one of the world’s leading influenza vaccine providers, for the global exclusive rights to research, develop, manufacture and commercialize mRNA vaccines.
CSL Seqirus received exclusive global rights to our technology for vaccines against SARS-CoV-2 (COVID-19), influenza and three other respiratory infectious diseases and non-exclusive rights to pandemic pathogens. We received an up-front payment of $200.0 million during the fourth quarter of 2022. We will be eligible to receive development milestones totaling more than $1.3 billion if all products are registered in the licensed fields. We will also be entitled to receive up to $3.0 billion in commercial milestones based on “net sales” of vaccines in the various fields.
In addition, we are entitled to receive a 40% share of net profits from COVID-19 vaccine sales and up to low double-digit royalties of annual net sales for vaccines against influenza and the other three specified infectious disease pathogens, as well as royalties on revenues from vaccines that may be developed for pandemic preparedness.
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The CSL Collaboration Agreement sets forth how CSL Seqirus and we shall collaborate to research and develop vaccine candidates. In the COVID-19 field, we will lead activities for certain regulatory filings for ARCT-154 in the US and Europe and for research and development activities of a next-generation COVID vaccine candidate. CSL Seqirus will lead and be responsible for all other research and development in COVID-19, influenza and the other fields.
Wells Fargo Credit Agreement
On April 21, 2023, our wholly-owned subsidiary, Arcturus Therapeutics, Inc. entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”) whereby Wells Fargo agreed to make a $50.0 million revolving credit line available to the Company (the “Wells Fargo Loan”) and each Wells Fargo Loan evidenced by a revolving line of credit note (the “Note”).
Borrowings under the agreement will bear interest at a rate of 1.00% above either the Daily Simple SOFR or Term SOFR (as such terms are defined in the Wells Fargo Note), with “SOFR” being the rate per annum equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York. If an Event of Default (as defined in the credit agreement) occurs, then all Wells Fargo Loans shall bear interest at a rate equal to 2.00% above the interest rate applicable immediately prior to the occurrence of the Event of Default. As of September 30, 2024, no borrowings were made against the Wells Fargo Note.
The term of the agreement was originally two years, with an option for one-year renewals subject to Wells Fargo approval and the Company furnishing to Wells Fargo a non-refundable commitment fee equal to 0.25% of the Wells Fargo Loan amount for each such renewal. In June 2024, Arcturus Therapeutics and Wells Fargo entered into an amendment to the Note, whereby the term of the Note was extended by one year to April 2026. There is no penalty for terminating the agreement. There is no penalty for terminating the facility prior to the maturity date of the Wells Fargo Note. As collateral, we agreed to pledge $55.0 million in cash to be held in our securities accounts with Wells Fargo Securities, LLC, an affiliate of Wells Fargo, pursuant to a security agreement.
Grant from the Biomedical Advanced Research and Development Authority
On August 31, 2022, we entered into a cost reimbursement contract (the “BARDA Contract”) with the Biomedical Advanced Research and Development Authority (“BARDA”), a division of the Office of the Assistant Secretary for Preparedness and Response (ASPR) within the U.S. Department of Health and Human Services (HHS) to support the development of a low-dose pandemic influenza candidate based on our proprietary self-amplifying messenger RNA-based vaccine platform. The BARDA Contract is to support our non-clinical and pre-clinical development, early-stage clinical development through Phase 1, and associated drug product manufacturing, regulatory and quality-assurance activities over a period of three years. It provides for reimbursement by BARDA of our permitted costs up to $63.2 million. As of September 30, 2024, the remaining available funding net of revenue earned was $41.6 million.
Vinbiocare Agreement
During 2021, we entered into a technology license and technical support agreement and the framework drug substance supply agreement with Vinbiocare, a member of Vingroup Joint Stock Company (collectively, the “Vinbiocare License & Supply Agreements”), whereby we would provide technical expertise and support services to Vinbiocare to assist in the build out of an mRNA drug product manufacturing facility in Vietnam. We received an upfront payment in aggregate of $40.0 million as part of the Vinbiocare License and Supply Agreements. In October 2022, in association with the termination of the Vinbiocare License and Supply Agreements, we signed the Vinbiocare Support Agreement with Vinbiocare which continues Vinbiocare’s clinical obligations and reserved a portion of the original $40.0 million upfront payment received from the License and Supply Agreements to be paid over the future periods.
The Vinbiocare Support Agreement requires us to pay Vinbiocare certain limited payments, including upon the occurrence of specified events through the first quarter of 2025. Vinbiocare is also eligible to receive a single digit percentage of amounts received by Arcturus on net sales, if any, of ARCT-154 (or next-generation COVID vaccine) up to a capped amount.
General Financial Resources
A portion of our current cash balance is expected to be utilized during fiscal year 2024 to fund (i) advances to our LUNAR-CF program in clinical trials, (ii) the continued Phase 2 trial of ARCT-810, our LUNAR-OTC candidate, (iii) expenses incurred prior to customer payments under the CSL Collaboration Agreement and BARDA Contract and (iv) continued exploratory activities related to our platform and other general administrative activities.
Our future capital requirements are difficult to forecast and will depend on many factors that are out of our control. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. There can be no assurance that we will be able to obtain additional needed financing on acceptable terms or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of our existing shareholders.
We expect to continue to incur additional losses in the long term, and we will need to execute on milestones within the CSL Collaboration Agreement, raise additional debt or equity financing or enter into additional partnerships to fund development. Our ability to transition to profitability is dependent on executing on milestones within the CSL Collaboration Agreement, successful clinical trials for OTC and CF and identifying and developing successful mRNA drug and vaccine candidates. If we are not able to
24
achieve planned milestones or incur costs in excess of our forecasts, we will need to reduce discretionary spending, discontinue the development of some or all of our programs, which will delay part of our development programs, all of which will have a material adverse effect on our ability to achieve our intended business objectives.
Funding Requirements
We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin commercialization of our products. As a result, we will require additional capital to fund our operations in order to support our long-term plans. We believe that our current cash position will be sufficient to meet our anticipated cash requirements through at least the next twelve months, assuming, among other things, no significant unforeseen expenses and continued funding from partners at anticipated levels. We intend to seek additional capital through equity and/or debt financings, collaborative or other funding arrangements with partners or through other sources of financing. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.
Our future funding requirements are difficult to forecast and will depend on many factors, including the following:
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in conformity with GAAP. As such, we make certain estimates, judgments and assumptions that we believe are reasonable, based upon information available to us. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact our reported results of operations and financial condition. We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements for the year ended December 31, 2023.
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the 2023 Annual Report.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates in the United States. Due to the nature of our cash and cash equivalents, we believe that we are not subject to any material market risk exposure. We do not have any foreign currency or other derivative financial instruments.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer, our principal financial officer and our principal accounting officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management has concluded that as of September 30, 2024, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.
The Company’s disclosure controls and procedures have been designed to ensure that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including the CEO and the CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
Management does not expect that our disclosure controls and procedures will prevent all error and all fraud. The effectiveness of our or any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance that the objectives of the system will be met and is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating controls and procedures and the assumptions used in identifying the likelihood of future events.
Material Weaknesses in Internal Control over Financing Reporting Existing as of September 30, 2024
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Management concluded that the material weaknesses disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 continued to exist as of September 30, 2024. Specifically, management concluded that the following material weaknesses exist as of September 30, 2024:
Notwithstanding the identified material weaknesses, management does not believe that the deficiencies had an adverse effect on our reported operating results or financial condition, and management has determined that the financial statements and other information included in this report and other periodic filings present fairly in all material respects our financial condition and results of operations at and for the periods presented.
Plan for Remediation of Material Weaknesses
Our remediation efforts are ongoing, and we will continue our initiatives to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. We are committed to making the necessary changes and improvements to our system of controls to address the material weaknesses in internal control over financial reporting described above.
Our renewed emphasis of designing and implementing improved processes and controls involves but is not limited to the following:
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We are in the process of implementing the remediation activities as of the date of this report and believe that upon completion, we will have strengthened our ITGCs, and controls related to accounting for collaboration arrangements to address and successfully remediate the identified material weaknesses. However, control weaknesses are not considered remediated until new internal controls have been operational for a period of time, are tested, and management concludes that these controls are operating effectively. We expect to complete the remediation activities in the fiscal year 2024. We will continue to monitor the effectiveness of these remediation measures, and we will make any changes to the design of this plan and take such other actions that we deem appropriate given the circumstances.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial and accounting officer, conducted an evaluation of the internal control over financial reporting to determine whether any other changes occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and our principal financial and accounting officer concluded that there were no changes in our internal controls over financial reporting during the periods covered by this Quarterly Report on Form 10-Q that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business, including those related to governmental inquiries, intellectual property and commercial relationships. The subject matter of any such legal proceedings or claims are or will be highly complex and subject to substantial uncertainties. The outcome of any such proceedings or claims, regardless of the merits, are and will be inherently uncertain; therefore, assessing the likelihood of loss and any estimated damages is difficult and subject to considerable judgment.
Item 1A. Risk Factors.
Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which we strongly encourage you to review. There have been no material changes from the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Commission on March 14, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2024, none of our directors or officers
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Item 6. Exhibits.
Exhibit Index
Exhibit Number |
|
Description |
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1.1 |
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1.2 |
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3.1 |
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3.2 |
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3.3 |
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4.1 |
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10.1† |
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10.2† |
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10.3** |
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10.4** |
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10.5** |
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10.6** |
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10.7** |
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10.8** |
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10.9** |
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10.10** |
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10.11** |
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29
|
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10.12** |
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10.13 |
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10.14 |
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10.15 |
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10.16** |
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10.17† |
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10.18 |
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10.19 |
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10.20 |
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10.21 |
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10.22† |
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10.23† |
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10.24** |
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10.25** |
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10.26** |
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10.27** |
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10.28** |
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30
10.29** |
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10.30** |
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10.31** |
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10.32** |
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10.33** |
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10.34† |
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10.35** |
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10.36* |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101* |
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The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2024 formatted in Inline Extensible Business Reporting Language (Inline XBRL): |
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101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH Inline XBRL Taxonomy Extension Schema |
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101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Filed herewith.
** Certain confidential portions of this exhibit have been redacted from the publicly filed document because such portions are (i) not material and (ii) would be competitively harmful if publicly disclosed.
† Management compensatory plan, contract or arrangement.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ARCTURUS THERAPEUTICS HOLDINGS INC. |
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Date: November 7, 2024 |
By: |
/s/ Andy Sassine |
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Andy Sassine |
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Chief Financial Officer Principal Financial and Accounting Officer |
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