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 period ended September 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 of Partnered mRNA Therapeutics and Vaccines:
19
Key Updates on our Vaccine Program
On November 1, 2022, we announced a strategic collaboration with CSL Seqirus, one of the world’s leading influenza vaccine providers, for the development, manufacture, and global commercialization of self-amplifying mRNA vaccines. CSL Seqirus is part of CSL Limited.
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. Arcturus' manufacturing expertise and innovative STARR self-amplifying mRNA vaccine and LUNAR® delivery platform technologies have enabled the Company’s low dose, lyophilized and durable self-amplifying mRNA vaccines against COVID.
Summary of CSL Seqirus Collaboration
Under the terms of the agreement, CSL Seqirus will receive exclusive global access to Arcturus’ technology for vaccines against SARS-CoV-2 (COVID-19), influenza and three other globally prevalent respiratory infectious diseases. Specifically, the Collaboration Agreement grants CSL Seqirus a license to Arcturus’ STARR mRNA technology and LUNAR lipid-mediated delivery, as well as mRNA drug substance and drug product manufacturing expertise. CSL Seqirus will also receive global non-exclusive access to Arcturus’ intellectual property rights in the field of pandemic preparedness (i.e., pathogens identified as priority diseases by the World Health Organization), with the right to convert to an exclusive license. CSL Seqirus will lead manufacturing scale up and commercialization of approved vaccines. The collaboration plans to advance our current LUNAR-COV19 and LUNAR-FLU vaccine programs, as well as three other globally prevalent respiratory infectious diseases.
Arcturus will receive $200 million upfront and is eligible to receive over $1.3 billion in development milestones and over $3 billion in commercial milestones. In addition, the Company is eligible to receive a 40% net profit share for COVID vaccine products and up to low double-digit royalties for vaccines against flu and three other respiratory pathogens.
Arcturus will receive mid-single-digit royalties of any Advance Purchase Agreement (APAs) contracts consummated by CSL Seqirus with government and related entities that use Arcturus technology.
Arcturus will also receive up to low double-digit royalties on sales for vaccines developed with Arcturus technology for use against pathogens listed in the World Health Organization (WHO) Blueprint List of Priority Diseases or declared a Public Health Emergency of International Concern (PHEIC) as part of Seqirus’ pandemic preparedness efforts.
Key Updates on Arcturus-Owned mRNA Therapeutic Development Candidates
The following chart represents our current pipeline of Arcturus-Owned mRNA Therapeutic Candidates:
•LUNAR-OTC/ARCT-810 - Our rare disease program for ornithine transcarbamylase (OTC) deficiency is continuing to advance. With the increased availability of COVID-19 vaccines and the corresponding reduction of restrictions, 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, second and third cohorts (0.2 mg/kg, 0.3 mg/kg and 0.4mg/kg) has completed, and the fourth cohort (0.5 mg/kg) is being added to the study. In addition, health authorities in the UK, Belgium, Sweden 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. Screening has begun and dosing is expected to begin in Q4 2022. On July 18, 2022, Orphan Drug Designation was granted in the EU by the European Commission based on a positive opinion issued by the EMA.
•LUNAR-CF/ARCT-032 – Our preclinical program for cystic fibrosis is being supported in part by the Cystic Fibrosis Foundation. Results from preclinical studies demonstrate robust protein expression in respiratory epithelium treated with
20
LUNAR-mRNA in vitro and in vivo. Further, CF human bronchial epithelial cells treated with ARCT-032 in vitro demonstrate restoration of CFTR activity. Nonclinical studies also support advancement of ARCT-032 into clinical development. We expect to file an application for a first-in-human study for ARCT-032, our mRNA therapeutic candidate for CF, by year end.
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 September 30, |
|
|
2021 to 2022 |
(in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
Revenue |
|
$ |
13,369 |
|
|
$ |
2,437 |
|
|
$ |
10,932 |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2021 to 2022 |
(in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
Revenue |
|
$ |
45,706 |
|
|
$ |
6,565 |
|
|
$ |
39,141 |
|
|
* |
* Greater than 100%
Revenue increased by $10.9 million during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. The increase in revenue primarily relates to an increase in revenue of $10.6 million related to the agreement with Vinbiocare.
Revenue increased by $39.1 million during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. The increase in revenue primarily relates to an increase in revenue of $26.2 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2021 to 2022 |
|
|
Nine Months Ended September 30, |
|
|
2021 to 2022 |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net |
|
$ |
37,688 |
|
|
$ |
45,398 |
|
|
$ |
(7,710 |
) |
|
|
-17.0 |
% |
|
$ |
120,770 |
|
|
$ |
141,127 |
|
|
$ |
(20,357 |
) |
|
|
-14.4 |
% |
General and administrative |
|
|
12,488 |
|
|
|
10,860 |
|
|
|
1,628 |
|
|
|
15.0 |
% |
|
|
34,211 |
|
|
|
30,645 |
|
|
|
3,566 |
|
|
|
11.6 |
% |
Total |
|
$ |
50,176 |
|
|
$ |
56,258 |
|
|
$ |
(6,082 |
) |
|
|
-10.8 |
% |
|
$ |
154,981 |
|
|
$ |
171,772 |
|
|
$ |
(16,791 |
) |
|
|
-9.8 |
% |
21
Research and Development Expenses, net
The following table presents our total research and development expenses by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2021 to 2022 |
|
|
Nine Months Ended September 30, |
|
|
2021 to 2022 |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
External pipeline development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LUNAR-COVID, net |
|
$ |
16,018 |
|
|
$ |
29,392 |
|
|
$ |
(13,374 |
) |
|
|
-45.5 |
% |
|
$ |
60,774 |
|
|
$ |
85,790 |
|
|
$ |
(25,016 |
) |
|
|
-29.2 |
% |
LUNAR-OTC, net |
|
|
2,063 |
|
|
|
1,478 |
|
|
|
585 |
|
|
|
39.6 |
% |
|
|
6,471 |
|
|
|
6,631 |
|
|
|
(160 |
) |
|
|
-2.4 |
% |
Early stage programs |
|
|
2,801 |
|
|
|
727 |
|
|
|
2,074 |
|
|
|
285.3 |
% |
|
|
7,031 |
|
|
|
3,601 |
|
|
|
3,430 |
|
|
|
95.3 |
% |
Discovery technologies |
|
|
3,680 |
|
|
|
3,708 |
|
|
|
(28 |
) |
|
|
-0.8 |
% |
|
|
8,287 |
|
|
|
17,259 |
|
|
|
(8,972 |
) |
|
|
-52.0 |
% |
External platform development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel related expenses |
|
$ |
11,013 |
|
|
$ |
8,719 |
|
|
$ |
2,294 |
|
|
|
26.3 |
% |
|
$ |
31,862 |
|
|
$ |
24,191 |
|
|
$ |
7,671 |
|
|
|
31.7 |
% |
Facilities and equipment expenses |
|
|
2,113 |
|
|
|
1,374 |
|
|
|
739 |
|
|
|
53.8 |
% |
|
|
6,345 |
|
|
|
3,655 |
|
|
|
2,690 |
|
|
|
73.6 |
% |
Total research and development expenses, net |
|
$ |
37,688 |
|
|
$ |
45,398 |
|
|
$ |
(7,710 |
) |
|
|
-17.0 |
% |
|
$ |
120,770 |
|
|
$ |
141,127 |
|
|
$ |
(20,357 |
) |
|
|
-14.4 |
% |
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 $37.7 million for the three months ended September 30, 2022, respectively, compared with $45.4 million in the comparable period last year, primarily reflecting decreased manufacturing costs of $10.9 million offset by an increase of $2.3 million in personnel related expenses and an increase of facilities expense of $0.7 million. Research and development expense was $120.8 million for the nine months ended September 30, 2022, respectively, compared with $141.1 million in the comparable period last year, primarily attributable to decreases in clinical and manufacturing costs of $27.3 million and lab supplies of $4.0 million, offset by increases in personnel costs of $7.7 million and facilities and equipment costs of $2.7 million and a decrease in contra research and development expenses $1.4 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 program. 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. 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. Additionally, personnel related expenses will continue to rise as we increase salaries in line with increases in the market rates in order to retain our employees.
Facilities and equipment expenses continue to increase as we expand. The nine months ended September 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 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 expense was $12.5 million and $34.2 million for the three and nine months ended September 30, 2022, respectively, compared with $10.9 million and $30.6 million in the comparable periods last year. The increases resulted primarily from personnel expense due to increased headcount and salaries, as well as increased rent expense associated with the new facility.
22
Finance (expense) income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2021 to 2022 |
|
|
Nine Months Ended September 30, |
|
|
2021 to 2022 |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
Interest income |
|
$ |
444 |
|
|
$ |
192 |
|
|
$ |
252 |
|
|
|
131.3 |
% |
|
$ |
766 |
|
|
$ |
569 |
|
|
$ |
197 |
|
|
|
34.6 |
% |
Interest expense |
|
|
(765 |
) |
|
|
(711 |
) |
|
|
(54 |
) |
|
|
7.6 |
% |
|
|
(2,211 |
) |
|
|
(1,966 |
) |
|
|
(245 |
) |
|
|
12.5 |
% |
Total |
|
$ |
(321 |
) |
|
$ |
(519 |
) |
|
$ |
198 |
|
|
|
-38.2 |
% |
|
$ |
(1,445 |
) |
|
$ |
(1,397 |
) |
|
$ |
(48 |
) |
|
|
3.4 |
% |
Interest income is generated on cash and cash equivalents. The increases in interest income for the three and nine months ended September 30, 2022 as compared to the prior year periods were primarily a result of increased interest rates. Interest expense was incurred in conjunction with our Loan and Security Agreement with Western Alliance Bank and the Singapore Loan and was relatively flat for the three and nine months ended September 30, 2022 as compared to the prior year periods.
Other income and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2021 to 2022 |
|
|
Nine Months Ended September 30, |
|
|
2021 to 2022 |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
|
2022 |
|
|
2021 |
|
|
$ change |
|
|
% change |
|
Gain (loss) from equity-method investment |
|
$ |
— |
|
|
$ |
(250 |
) |
|
$ |
250 |
|
|
|
-100.0 |
% |
|
$ |
(515 |
) |
|
$ |
670 |
|
|
$ |
(1,185 |
) |
|
* |
|
Gain from foreign currency |
|
|
1,862 |
|
|
|
506 |
|
|
|
1,356 |
|
|
* |
|
|
|
3,237 |
|
|
|
923 |
|
|
|
2,314 |
|
|
* |
|
Total |
|
$ |
1,862 |
|
|
$ |
256 |
|
|
$ |
1,606 |
|
|
* |
|
|
$ |
2,722 |
|
|
$ |
1,593 |
|
|
$ |
1,129 |
|
|
|
70.9 |
% |
* 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 $1.9 million and $3.2 million for the three and nine months ended September 30, 2022, respectively, compared with gains of $0.5 million and $0.9 million in the comparable periods last year which is primarily attributable to the Singapore Loan.
We recorded no gain or loss for the three months ended September 30, 2022 and a loss of $0.5 million for the nine months ended September 30, 2022, compared with a $0.3 million loss and $0.7 million gain in the comparable periods last year in connection with our equity-method investment in Vallon Pharmaceuticals, Inc.
Off-balance sheet arrangements
Through September 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 September 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 September 30, 2022, we had $237.7 million in unrestricted cash and cash equivalents.
During fiscal year 2021, the Company received a term loan of $46.6 million from Economic Development Board of the Republic of Singapore ("EDB"). The Company is in discussions with EDB regarding the loan and is expecting that it will pay back approximately $15.7 million during the first quarter of 2023, representing funds that were not spent on the original ARCT-021 COVID-19 vaccine candidate. The Company has notified EDB that the ARCT-021 program will not continue and has asked that the remaining portion of the loan related to the ARCT-021 program be forgiven at time the amendment is signed, which is expected during the fourth quarter of 2022.
Additionally, during 2021, the Company received an upfront payment of $40.0 million from Vinbiocare to fund the technology transfer and build out of a mRNA drug product manufacturing facility in Vietnam during 2021, in connection with entering into the Technology License and Technical Support Agreement and the Framework Drug Substance Supply Agreement, each signed July 29, 2021 and effective July 30, 2021 (collectively, the “License & Supply Agreements”). In October 2022, in association with the termination of the existing License and Supply Agreements, Vinbiocare and the Company signed a new Study Support Agreement which will fund certain parts of the Vietnam clinical trial. As such, the Company has reserved a portion of the original $40.0 million upfront payment within accrued expenses that will be paid over the next two years to Vinbiocare as part of the new Study Support Agreement.
23
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,ad and we began making payments towards the principal balance.
Manufacturing Support Agreement
On November 7, 2020, our wholly-owned subsidiary, Arcturus Therapeutics, Inc., entered into a Manufacturing Support Agreement (the “Support Agreement”) with the Economic Development Board of the Republic of Singapore (the “EDB”). Pursuant to the Support Agreement, the EDB agreed to make a term loan (the “Singapore Loan”) of S$62.1 million to the Company, subject to the satisfaction of customary deliveries, to support the manufacture of the LUNAR-COV19 vaccine candidate (ARCT-021). The 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 following the completion of the customary audit of the Singapore Loan. This audit is scheduled to be completed during the fourth quarter of 2022. During the third quarter of 2022, we reported a portion of the Singapore Loan as current to reflect a potential principal repayment of approximately S$20.9 million ($15.7 million) in fiscal year 2022 based on amounts not used towards the manufacture of ARCT-021. We expect to refund this portion in the first quarter of fiscal year 2023.
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 $3.0 million for the nine months ended September 30, 2022 compared to a net foreign currency transaction gain of $0.9 million for the nine months ended September 30, 2021. For the three and nine months ended September 30, 2022, we recorded interest expense and a corresponding liability of $0.5 million and $1.6 million, respectively, compared to interest expense and a corresponding liability of $0.5 million and $1.4 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, we were in compliance with all covenants under the Singapore Loan and related commitments.
Vinbiocare Agreement
During 2021 we entered into the Technology License and Technical Support Agreement and the Framework Drug Substance Supply Agreement with Vinbiocare, a member of Vingroup Joint Stock Company (collectively, the “License & Supply Agreements”), whereby we would provide technical expertise and support services to Vinbiocare to assist in the build out of a mRNA drug product manufacturing facility in Vietnam. We received an upfront payment in aggregate of $40.0 million as part of the License and Supply Agreements. In October 2022, in association with the termination of the License and Supply Agreements, we signed the Study Support Agreement with Vinbiocare which continues Vinbiocare’s clinical obligations and reserved a portion of the original $40 million upfront payment received from the License and Supply Agreements to be paid over the future periods.
The Study Support Agreement requires us to pay to 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.
We have reclassified a portion of the $40 million upfront payment received from Vinbiocare under the License and Supply Agreements from deferred revenue to short-term and long-term liabilities, based on the anticipated timing of the payments to Vinbiocare by the Company under the Study Support Agreement, and removed that portion from the transaction price of the License and Supply Agreements. In association with the termination of the License and Supply Agreements, we have concluded that the Company has no remaining performance obligations as of September 30, 2022 related to the License and Supply Agreements, and therefore has recognized the remaining transaction price of $4.2 million as revenue during the period ended September 30, 2022. The revenue recognized in 2022 relates to the delivery of drug substance, consulting to support the build out of the manufacturing facility and technical transfer and consulting to support the phase 3 clinical trial.
General Financial Resources
We have a current unrestricted cash and cash equivalents balance of $237.7 million. On November 1, 2022, the Company entered into a collaboration and license agreement with CSL Seqirus and will receive an upfront payment of $200 million and will be eligible to potentially receive development milestones totaling more than $1.3 billion if all products are registered in licensed fields. We will also be entitled to potentially receive up to $3 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
24
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. We expect to utilize our remaining funds on (i) the continued Phase 2 trial of ARCT-810, our LUNAR-OTC candidate, (ii) advances to our LUNAR-CF program toward submission of a CTA during the fourth quarter of 2022 and (iii) 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; and
•market disruptions, including significant volatility in the financial markets caused by the Russia/Ukraine conflict.
25
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.
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.