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 six month period ended June 30, 2022. 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, 2021 (the “2021 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “Commission”) on March 1, 2022. Unless otherwise defined herein, capitalized words and expressions used herein shall have the same meanings ascribed to them in the 2021 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.
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
Arcturus is a global late-stage clinical messenger RNA medicines company focused on the development of infectious disease vaccines and significant opportunities within liver and respiratory rare diseases. In addition to our messenger RNA (“mRNA”) platform, our proprietary lipid nanoparticle delivery system, LUNAR®, has the potential to enable multiple nucleic acid medicines, and our proprietary self-amplifying mRNA technology (Self-Transcribing and Replicating RNA or STARR) technology has the potential to provide longer-lasting RNA and sustained protein expression at lower dose levels.
We are leveraging our proprietary platform relating to LUNAR and our nucleic acid technologies to develop and advance a pipeline of mRNA-based vaccines and therapeutics for the prevention of infectious diseases and treatment of rare genetic disorders with significant unmet medical needs. We continue to expand this platform with innovative delivery solutions that allow us to expand our discovery efforts. Our proprietary LUNAR technology is intended to address major hurdles in RNA drug development, such as the effective and safe delivery of RNA therapeutics to disease-relevant target tissues and for RNA vaccines the mitigation of challenges associated with cold chain storage and distribution via lyophilization. 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 will allow us to deliver on the next generation of nucleic acid medicines.
The following chart represents our current pipeline:
17
Key Updates on our COVID-19 Vaccine Program
Phase 1/2 Study in United States and Singapore
In January 2022, we announced immunogenicity data for participants of a Phase 1/2 study being conducted in the U.S. and Singapore. Results from the arms where participants were dosed with 5 mcg of ARCT-154 as a booster after at least five months of being vaccinated with two doses of Comirnaty showed encouraging increases in levels of neutralizing antibody activity against D614G and several variants of concern (VoCs) and variants of interest (VoIs). In May 2022, we provided additional neutralization antibody activity data at Day 91 showing durability of neutralizing antibody response. Validated pseudovirus microneutralization (MNT) assay results for D614G variant showed a 28- and 40-fold increase in geometric mean fold rise (GMFR) on Day 15 and 29 after booster dose compared to pre-dose levels, respectively. The antibody levels remained elevated at 30-fold for Day 91 over pre-boost levels indicating the durability of the neutralizing antibody response. We also shared immunogenicity data obtained in a validated MNT assay against Beta variant and the data indicated similar durability of the neutralizing antibody response with the increases in GMFR of 26-, 31-, and -24 at Days 15, 29, and 91, respectively.
Figure: Validated pseudovirus microneutralization (MNT) assay results (left: D614G; right: Beta), showing GMFR levels of neutralizing antibody responses over Day 1 (baseline levels prior to boosting with ARCT-154) based on geometric mean concentrations (with 95% confidence intervals) obtained for participants (for D614G: n = 12/12 for Days 1, 91 and 11/12 for Days 15 29; For Beta: n = 12/12 for Days 1, 29, 91 and 11/12 for Day 15)
18
In May 2022, we announced that ARCT-154 booster administered arms also demonstrated robust and durable neutralizing antibody responses against VOCs strains including the Beta and the Delta, and VOIs SARS-CoV-2 strains in a surrogate virus neutralization (sVNT) assay through Day 91.
Figure: Surrogate virus neutralization (sVNT) assay results for SARS-CoV-2 variants. The panel shows GMFR on Days 15, 29, and 91 over Day 1 (pre-boost baseline levels; n = 12/12 for Days 1, 29, 91; n = 11/12 for Day 15). VOCs = Variants of Concern; VOIs = Variants of Interest
From the same Phase 1/2 trial, we also reported data (exploratory MNT assay; Moore Laboratory, National Institute for Communicable Diseases and University of the Witwatersrand, South Africa) demonstrating neutralizing antibody immune response to SARS-CoV-2 Omicron variants, BA.1 and BA.2, in participants that received ARCT-154 as booster. Omicron-specific pseudovirus MNT assay results demonstrated neutralizing antibody titers of 54-fold (BA.1) and 46-fold (BA.2) GMFRs over baseline on Day 29 post-boost in ARCT-154 arm (n=12).
In August 2022 we reported additional data (exploratory MNT assay; Moore Laboratory, National Institute for Communicable Diseases and University of the Witwatersrand, South Africa) from the Phase 1/2 trial demonstrating sustained neutralizing antibody immune response to the SARS-CoV-2 Omicron variants, BA.1 and BA.2 at Day 91 post-boost in the ARCT-154 arm (n=12). Omicron-specific pseudovirus MNT assay results demonstrated neutralizing antibody titers of 44-fold (BA.1) and 39-fold (BA.2) at Day 91 post-boost. Six-month data for Omicron variants, including BA.5, is being collected and is expected to be shared during the third quarter of 2022.
19
Figure: Exploratory pseudovirus microneutralization (MNT) assay results (left: BA.1, right: BA.2), showing GMFR levels of neutralizing antibody responses over Day 1 (baseline levels prior to boosting with ARCT-154) calculated with virus neutralization concentrations (with 95% confidence intervals) obtained for participants (for BA.1 and BA.2: n = 12/12, Day 91).
Phase 1/2/3 Study in Vietnam
During 2021, we entered into a significant collaboration with Vinbiocare Biotechnology Joint Stock Company (Vinbiocare), a member company of the Vingroup Joint Stock Company (Vingroup) group of companies, whereby we provide technical expertise and support services to Vinbiocare to assist in the build out of a manufacturing facility in Vietnam. Together with Vinbiocare, we advanced ARCT-154, our investigational next generation, self-amplifying mRNA-based vaccine for COVID-19, into a Phase 1/2/3 study in Vietnam, which is being funded and sponsored by Vinbiocare. The trial is randomized, observer-blinded, placebo and active-controlled and is intended to assess the safety, immunogenicity and efficacy of ARCT-154. The Phase 3 arm of the Phase 1/2/3 study was initiated in September 2021. The study enrolled over 19,000 adult subjects in Vietnam, including individuals with medical conditions putting them at higher risk of severe complications of COVID-19. The Phase 3 placebo-controlled efficacy portion of the study enrolled over 16,000 participants.
In February 2022, our partner, Vinbiocare, completed the submission to the Vietnam Ministry of Health of ARCT-154 Emergency Use Authorization (EUA) application, which includes the safety and immunogenicity data from the placebo-controlled Phase 1/2/3a portions of the study with approximately 1,000 participants. In April 2022, Vinbiocare submitted results from the vaccine safety and efficacy analysis of the Phase 3b portion study to the Vietnam Ministry of Health to complement the data package under review for potential EUA of ARCT-154. The vaccine primary efficacy endpoint in the placebo-controlled Phase 3b portion of the study was met. Analysis of the data demonstrated that two 5-mcg doses of ARCT-154 administered 28 days apart resulted in vaccine efficacy of 55.0% (95% CI; 46.9% - 61.9%) for protection against COVID-19 overall and 95.3% (95% CI; 80.4% - 98.9%) against severe and fatal COVID-19, respectively. Nine COVID-19 related deaths were reported in the placebo group and one in the ARCT-154 vaccinated group. The single death in the ARCT-154 vaccination arm occurred in an older age group participant who was also at increased risk of severe COVID-19. During the window when COVID-19 cases in the study were detected, the prevalent SARS-CoV-2 strains associated with COVID-19 infections in Vietnam were Delta and Omicron (https://covariants.org/per-country; https://covid19.who.int/region/wpro/country/vn; https://ourworldindata.org COVID-19 Data Explorer - Vietnam Link).
Review of safety data has been performed by Vinbiocare from over 17,000 participants in the placebo-controlled Phase 1/2/3 portions through one month after second dose of ARCT-154. The incidence of unsolicited events was found to be comparable in the vaccinated and placebo groups and no incidence of myocarditis or pericarditis have been reported so far. Analysis of solicited events also demonstrated that most events were mild or moderate in severity. An independent review by the Data Safety Monitoring Board has advised for the study to continue without modification.
20
Additional data shared by Vinbiocare shows that the study also met the immunogenicity primary endpoint, with 98.4% 4-fold seroconversion for ancestral (Wuhan) strain, measured by surrogate virus neuralization test (sVNT) 28 days after the second dose of ARCT-154. This analysis was conducted in the first approximately 1,000 participants enrolled in the Phase 1/2/3a study and was provided earlier by Vinbiocare to the Vietnam Ministry of Health as part of the filing for EUA. More comprehensive immunogenicity, efficacy and safety data from the study will be disclosed at a later time.
Pivotal Booster Study
We expect a registrational booster study for ARCT-154 to begin in Q4 2022. Based on recent health authority guidance, Arcturus is considering an updated design consisting of two trials to support global registration of ARCT-154. We have suspended all development activities for our first generation ARCT-021 COVID-19 vaccine, as the global entity initially interested in collaborating with us on the development of ARCT-021 chose not to proceed.
Vaccine Platform Stability Data
New data regarding the product format, stability and cold chain characteristics of our lyophilized COVID-19 vaccine compares favorably to existing COVID-19 vaccine stability requirements. The lyophilized powder demonstrated room temperature stability for 4 days (25°C; 60% RH), refrigerator stability for 6 months (2-8°C), and long-term stability for 18 months (-25°C to -15°C). The vaccines are approved for shipping at 2-8°C and notably, remain stable in the event of temperature cycling.
Key Updates on our Other Development Candidates
•LUNAR-FLU. In early 2022 we added a self-amplifying mRNA approach for our LUNAR-FLU program. A clinical candidate containing mRNA based on our STARR platform is expected to be identified by the year end and a Clinical Trial Application is anticipated to be filed in 2023.
•LUNAR-OTC/ARCT-810 - Our rare disease program for ornithine transcarbamylase (OTC) deficiency is continuing to advance. With the improvement of the COVID-19 scenario, there was a significant uptick in recruitment and enrollment activity for the Phase 1b ascending-dose study of ARCT-810 in 12 adults with OTC deficiency. Dosing of the first and second cohorts (0.2 mg/kg and 0.3 mg/kg) have completed, and the Safety Review Committee has recently approved dose escalation to the third cohort (0.4 mg/kg). In addition, health authorities in the UK, Belgium and Spain have approved a randomized, double-blind, placebo-controlled, nested single and multiple ascending dose Phase 2 study of ARCT-810 in 24 adolescent and adult patients with OTC-deficiency. We have identified several dozens of patients in pre-screening, with the goal of obtaining interim proof-of-concept data by year end. On July 18, 2022, Orphan Drug Designation in the EU was granted by the European Commission based on the a positive opinion issued by the EMA.
•LUNAR-CF/ARCT-032 – In our preclinical program for cystic fibrosis, which is being supported in part by the Cystic Fibrosis Foundation, nonclinical and preclinical studies have led to the identification of a Preclinical Candidate and nebulizer system that should allow this product to be advanced into clinical development. We expect to file an application for a first-in-human study for ARCT-032, our mRNA therapeutic candidate for CF, in 2022.
Key Updates on our Research and Platform Activities
•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.
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, 2021. 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.
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. The following table summarizes our total revenues for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2021 to 2022 |
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
Revenue |
|
$ |
27,093 |
|
|
$ |
2,001 |
|
|
$ |
25,092 |
|
|
* |
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2021 to 2022 |
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
Revenue |
|
$ |
32,337 |
|
|
$ |
4,128 |
|
|
$ |
28,209 |
|
|
* |
* Greater than 100%
Revenue increased by $25.1 million during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. The increase in revenue primarily relates to an increase in revenue of $12.7 million related to the agreement with Vinbiocare and an increase of $12.5 million related to the recognition of reservation fees from the Israeli MOH.
Revenue increased by $28.2 million during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The increase in revenue primarily relates to an increase in revenue of $15.6 million related to the agreement with Vinbiocare and an increase of $12.5 million related to the recognition of reservation fees from the Israeli MOH.
Our operating expenses consist of research and development and general and administrative expenses.
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2021 to 2022 |
|
|
Six Months Ended June 30, |
|
|
2021 to 2022 |
|
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net |
|
$ |
38,189 |
|
|
$ |
45,679 |
|
|
$ |
(7,490 |
) |
|
|
-16.4 |
% |
|
$ |
83,082 |
|
|
$ |
95,729 |
|
|
$ |
(12,647 |
) |
|
|
-13.2 |
% |
General and administrative |
|
|
10,993 |
|
|
|
10,042 |
|
|
|
951 |
|
|
|
9.5 |
% |
|
|
21,723 |
|
|
|
19,785 |
|
|
|
1,938 |
|
|
|
9.8 |
% |
Total |
|
$ |
49,182 |
|
|
$ |
55,721 |
|
|
$ |
(6,539 |
) |
|
|
-11.7 |
% |
|
$ |
104,805 |
|
|
$ |
115,514 |
|
|
$ |
(10,709 |
) |
|
|
-9.3 |
% |
Research and Development Expenses, net
The following table presents our total research and development expenses by category:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2021 to 2022 |
|
|
Six Months Ended June 30, |
|
|
2021 to 2022 |
|
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
External pipeline development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LUNAR-COVID, net |
|
$ |
16,939 |
|
|
$ |
27,085 |
|
|
$ |
(10,146 |
) |
|
|
-37.5 |
% |
|
$ |
44,755 |
|
|
$ |
56,397 |
|
|
$ |
(11,642 |
) |
|
|
-20.6 |
% |
Early stage programs |
|
|
5,087 |
|
|
|
3,074 |
|
|
|
2,013 |
|
|
|
65.5 |
% |
|
|
8,638 |
|
|
|
8,027 |
|
|
|
611 |
|
|
|
7.6 |
% |
Discovery technologies |
|
|
3,242 |
|
|
|
5,706 |
|
|
|
(2,464 |
) |
|
|
-43.2 |
% |
|
|
4,607 |
|
|
|
13,551 |
|
|
|
(8,944 |
) |
|
|
-66.0 |
% |
External platform development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel related expenses |
|
$ |
10,533 |
|
|
$ |
8,563 |
|
|
$ |
1,970 |
|
|
|
23.0 |
% |
|
$ |
20,850 |
|
|
$ |
15,472 |
|
|
$ |
5,378 |
|
|
|
34.8 |
% |
Facilities and equipment expenses |
|
|
2,388 |
|
|
|
1,251 |
|
|
|
1,137 |
|
|
|
90.9 |
% |
|
|
4,232 |
|
|
|
2,282 |
|
|
|
1,950 |
|
|
|
85.5 |
% |
Total research and development expenses, net |
|
$ |
38,189 |
|
|
$ |
45,679 |
|
|
$ |
(7,490 |
) |
|
|
-16.4 |
% |
|
$ |
83,082 |
|
|
$ |
95,729 |
|
|
$ |
(12,647 |
) |
|
|
-13.2 |
% |
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 expense was $38.2 million for the three months ended June 30, 2022, respectively, compared with $45.7 million in the comparable period last year, primarily reflecting decreased clinical costs of $13.4 million offset by an increase of $3.3 million in contract manufacturing and lab costs, an increase of facilities expense of $1.1 million and an increase in personnel and consulting expense of $2.0 million. Research and development expense was $83.1 million for the six months ended June 30, 2022, respectively, compared with $95.7 million in the comparable period last year, primarily attributable to decreases in clinical costs of $11.9 million, license fees of $4.9 million and contract manufacturing and lab costs of $3.3 million, offset by increases in personnel costs of $5.4 million and facilities costs of $2.0 million. We expect that our research and development efforts and associated costs will increase and 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 CF and OTC programs. Discovery technologies represents our efforts to expand our product pipeline and are primarily related to pre-partnered studies and new capabilities assessment. For several 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.
22
The expenses primarily consist of external manufacturing costs, lab supplies, equipment, and consulting and professional fees. Both 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 and are expected to continue to increase in the near future as we continue increase headcount to meet the needs of our external pipeline, platform and clinical trial efforts.
Facilities and equipment expenses continue to increase as we expand. The three months ended June 30, 2022 includes increased rent and associated costs related to a new facility we took possession of in April 2022. Facilities and equipment expenses are expected to increase in the near term due to increased rent expense related to our new facility.
General and Administrative Expenses
General and administrative expenses primarily consists 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 expense was $11.0 million and $21.7 million for the three and six months ended June 30, 2022, respectively, compared with $10.0 million and $19.8 million in the comparable periods last year. The increases resulted primarily from personnel expense due to increased headcount and increased rent expense associated with the new facility.
Finance (expense) income, net
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2021 to 2022 |
|
|
Six Months Ended June 30, |
|
|
2021 to 2022 |
|
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
Interest income |
|
$ |
168 |
|
|
$ |
190 |
|
|
$ |
(22 |
) |
|
|
-11.6 |
% |
|
$ |
322 |
|
|
$ |
378 |
|
|
$ |
(56 |
) |
|
|
-14.8 |
% |
Interest expense |
|
|
(728 |
) |
|
|
(710 |
) |
|
|
(18 |
) |
|
|
2.5 |
% |
|
|
(1,446 |
) |
|
|
(1,256 |
) |
|
|
(190 |
) |
|
|
15.1 |
% |
Total |
|
$ |
(560 |
) |
|
$ |
(520 |
) |
|
$ |
(40 |
) |
|
|
7.7 |
% |
|
$ |
(1,124 |
) |
|
$ |
(878 |
) |
|
$ |
(246 |
) |
|
|
28.0 |
% |
Interest income is generated on cash and cash equivalents. The decrease in interest income for the three and six months ended June 30, 2022 as compared to the prior year period was a result of decreased cash and cash equivalents balances. Interest expense was incurred in conjunction with our Loan and Security Agreement with Western Alliance Bank and the Singapore Loan. The increase in interest expense for the three and six months ended June 30, 2022 as compared to the prior year period was primarily a result of additional accrued interest expense related to the Singapore Loan that was funded in January 2021.
Other income and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2021 to 2022 |
|
|
Six Months Ended June 30, |
|
|
2021 to 2022 |
|
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
Gain (loss) from equity-method investment |
|
$ |
(131 |
) |
|
$ |
(328 |
) |
|
$ |
197 |
|
|
|
-60.1 |
% |
|
$ |
(516 |
) |
|
$ |
920 |
|
|
$ |
(1,436 |
) |
|
* |
|
Gain (loss) from foreign currency |
|
|
1,217 |
|
|
|
(13 |
) |
|
|
1,230 |
|
|
* |
|
|
|
1,376 |
|
|
|
417 |
|
|
|
959 |
|
|
* |
|
Total |
|
$ |
1,086 |
|
|
$ |
(341 |
) |
|
$ |
1,427 |
|
|
* |
|
|
$ |
860 |
|
|
$ |
1,337 |
|
|
$ |
(477 |
) |
|
|
-35.7 |
% |
* Greater than 100%
Other income and expense items relate to gains and losses from foreign currency transactions and from equity-method investments. We recorded foreign currency gains of $1.2 million and $1.4 million for the three and six months ended June 30, 2022, respectively, compared with a $0.0 million loss and $0.4 million gain in the comparable periods last year which is primarily attributable to the Singapore Loan.
We recorded a loss of $0.1 million and $0.5 million for the three and six months ended June 30, 2022, respectively, compared with a $0.3 million loss and $0.9 million gain in the comparable periods last year in connection with our equity-method investment in Vallon Pharmaceuticals, Inc.
23
Off-balance sheet arrangements
Through June 30, 2022, 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 June 30, 2022, 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. At June 30, 2022, we had $283.5 million in unrestricted cash and cash equivalents.
Loan and Security Agreement
On October 12, 2018, we entered into a Loan and Security Agreement with Western Alliance Bank (the “Loan Agreement”). Pursuant to the Third Amendment, the Bank agreed to increase the Loan Agreement to $15.0 million on October 30, 2019. The Loan Agreement bears interest at a floating rate ranging from 1.25% to 2.75% above the prime rate. The amendment further provides that the Loan Agreement has a maturity date of October 30, 2023. The interest-only period ended on August 1, 2022 and we began making payments towards the principal balance.
Manufacturing Support Agreement
On November 7, 2020, we entered into a Manufacturing Support Agreement (the “Support Agreement”) with the EDB. Pursuant to the Support Agreement, the EDB agreed to make a term loan (the “Singapore Loan”) of S$62.1 million to us, subject to the satisfaction of customary deliveries, to support the manufacture of the LUNAR-COV19 vaccine candidate (ARCT-021). The Singapore Loan accrues interest at a rate of 4.5% per annum calculated on a daily basis. We elected to borrow the full amount available under the Support Agreement of S$62.1 million ($46.6 million) on January 29, 2021. The EDB agreed to an extension of the reconciliation period to March 31, 2022 with unused funds as of such date returned to the EDB within 30 days of the completion of the audit which is expected to be completed during the third quarter of 2022. The parties are in continued negotiations with respect to amendments of the Singapore Loan terms. As of June 30, 2022, we have reported a portion of the Singapore Loan as current to reflect a potential principal repayment of approximately S$20.9 million ($15.4 million) in fiscal year 2022 based on amounts not used toward the manufacture of ARCT-021, and we expect to refund this portion in fiscal year 2022. According to the Support Agreement, the remaining portion of the Singapore Loan, approximately $31.2 million, is forgivable if we have not obtained regulatory approval by the final payment date and net sales are less than $100 million. We currently anticipate that we will not move forward with obtaining regulatory approval for ARCT-021, and we intend to begin discussions with the EDB during fiscal year 2022 regarding forgiveness of the remaining portion of the Singapore Loan.
The Singapore Loan was initially recorded as long-term debt at $46.6 million, the amount of cash proceeds at the time we received the funding. During the first quarter of 2022, accrued interest of $1.9 million related to 2021 was added to the principal debt balance in accordance with the terms of the Support Agreement and the balance was adjusted to reflect the current exchange rate resulting in an increase in the debt balance to $47.8 million. We recorded a net foreign currency transaction gain of $1.4 million for the six months ended June 30, 2022 compared to a net foreign currency transaction gain of $0.4 million for the six months ended June 30, 2021. For the three and six months ended June 30, 2022, we recorded interest expense and a corresponding liability of $0.5 million and $1.1 million, respectively, compared to interest expense and a corresponding liability of $0.5 million and $0.9 million, respectively, for the three and six months ended June 30, 2021. As of June 30, 2022, the Company was in compliance with all covenants under the Singapore Loan and related commitments.
Vinbiocare Agreement
On August 2, 2021, we announced an agreement with Vinbiocare, a member of Vingroup Joint Stock Company, to establish a manufacturing facility in Vietnam for the manufacture of our investigational COVID-19 vaccine program, for sale and use within Vietnam. In addition, Vinbiocare agreed to execute a phase 1/2/3 study in Vietnam.
Under the terms of the arrangement, Vinbiocare is building out a manufacturing facility in Vietnam, and we have provided to Vinbiocare access to proprietary technologies and processes for the manufacture of our investigational COVID-19 vaccine candidate. We also provided Vinbiocare with an exclusive license to manufacture the vaccines in Vietnam at the facility solely for distribution in Vietnam. The license and technology transfer applies toward drug product manufacturing but not toward mRNA drug substance manufacturing. Vinbiocare made an upfront payment of $40 million and is responsible for costs associated with the technology transfer. Vinbiocare will also pay for mRNA drug substance supplied by us and royalties on vaccines produced at the manufacturing facility.
General Financial Resources
A significant portion of our current unrestricted cash and cash equivalents balance of $283.5 million is expected to be utilized during fiscal year 2022 to fund (i) a portion of the COVID Booster trial, (ii) further progress of our FLU vaccine programs, (iii) the
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continued Phase 2 trial of ARCT-810, our LUNAR-OTC candidate, (iv) advances to our LUNAR-CF program toward submission of a CTA during the second half of 2022 and (v) continued expansion of 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 for the foreseeable future, and we will need to raise additional debt or equity financing or enter into additional partnerships to fund development. The ability of our Company to transition to profitability is dependent on identifying and developing successful mRNA drug candidates. If we are not able to achieve planned milestones, incur costs in excess of our forecasts, or do not meet covenant requirements of our debt, we will need to reduce discretionary spending, discontinue the development of some or all of our products, 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, continued funding from partners at anticipated levels and our payment obligations continuing to follow the current maturity schedule under our long-term credit facility referenced in Note 5. 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:
•the development of our LUNAR-COV19 and LUNAR-FLU vaccine candidates;
•the achievement of milestones under our strategic alliance agreements;
•maintaining and/or expanding our manufacturing network and capabilities;
•the terms and timing of any other strategic alliance, licensing and other arrangements that we may establish;
•the initiation, progress, timing and completion of preclinical studies and clinical trials for our product candidates;
•the number and characteristics of product candidates that we pursue;
•the outcome, timing and cost of regulatory approvals;
•delays that may be caused by changing regulatory requirements;
•the cost and timing of hiring new employees to support our continued growth;
•the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
•the costs and timing of procuring clinical and commercial supplies of our product candidates;
•the costs and timing of establishing sales, marketing and distribution capabilities;
•the costs associated with legal proceedings;
•the extent to which we acquire or invest in businesses, products or technologies;
•market disruptions, including significant volatility in the financial markets caused by the Russia/Ukraine conflict.
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 judgements 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, 2021.
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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 2021 Annual Report.