What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-09 · 232 added, 224 removed, 480 unchanged (49% of the section changed)

6 unchanged sentences

Cash and cash equivalents

Restricted cash

Accounts receivable

18 unchanged sentences

60,000 shares authorized;

outstanding shares were 26,555 at March 31, 2023 and 26,555 at December 31, 2022

outstanding shares were 26,574 at June 30, 2023 and 26,555 at December 31, 2022

Additional paid-in capital

5 unchanged sentences

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Three Months Ended

Six Months Ended

(in thousands, except per share data)

6 unchanged sentences

Total operating expenses

Income (loss) from operations

Loss from operations

Loss from equity-method investment

(Loss) gain from foreign currency

Gain (loss) from foreign currency

Gain on debt extinguishment

Finance income (expense), net

Net income (loss) before income taxes

Net loss before income taxes

Provision for income taxes

Net income (loss)

Earnings (loss) per share:

Weighted-average shares used in calculation of earnings (loss) per share:

Comprehensive income (loss):

Net income (loss)

Comprehensive income (loss)

Net loss per share, basic and diluted

Weighted-average shares outstanding, basic and diluted

Comprehensive loss:

Comprehensive loss

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

4 unchanged sentences

(in thousands)

Balance at December 31, 2022

BALANCE –

December 31, 2021

Share-based compensation expense

Balance at March 31, 2023

Issuance of common stock upon exercise of stock options

BALANCE –

March 31, 2022

Share-based compensation expense

Issuance of common stock upon exercise of stock options

BALANCE –

June 30, 2022

Stockholders’

(in thousands)

Balance at December 31, 2021

BALANCE –

December 31, 2022

Share-based compensation expense

Issuance of common stock upon exercise of stock options

Balance at March 31, 2022

BALANCE –

March 31, 2023

Share-based compensation expense

Issuance of common stock upon exercise of stock options

BALANCE –

June 30, 2023

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEM ENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

Operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

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

Depreciation and amortization

12 unchanged sentences

Lease liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Investing activities

8 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental disclosure of cash flow information

1 unchanged sentence

Non-cash investing activities

Right-of-use assets acquired through operating leases

Purchase of property and equipment in accounts payable and accrued expenses

23 unchanged sentences

Equity method investment activity is related to a 49 % joint venture with Axcelead, Inc.

(see the following paragraph for further details) and an ownership in GRI Bio, Inc.

and an ownership in GRI Bio, Inc.

(formerly Vallon Pharmaceuticals, Inc.) (see “

2 unchanged sentences

The Company’s share of the investees’

results is presented as either income or loss from equity method investees in the accompanying condensed consolidated statements of operations and comprehensive income (loss).

results is presented as either income or loss from equity method investees in the accompanying condensed consolidated statements of operations and comprehensive loss.

The Company has incurred significant operating losses since its inception.

As of March 31, 2023 and December 31, 2022, the Company had an accumulated deficit of $ 287.4 million and $ 338.1 million, respectively.

As of June 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $ 339.9 million and $ 338.1 million, respectively.

The Company’s activities since inception have consisted principally of research and development activities, general and administrative activities, and raising capital.

The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before the Company achieves sustainable revenues and profit from operations.

From the Company’s inception through March 31, 2023, the Company has funded its operations principally with the proceeds from the sale of capital stock, revenues earned through collaboration agreements and proceeds from long-term debt.

At March 31, 2023, the Company’s balance of cash and cash equivalents, including restricted cash, w as $ 330.1 million.

From the Company’s inception through June 30, 2023, the Company has funded its operations principally with the proceeds from the sale of capital stock, revenues earned through collaboration agreements and proceeds from long-term debt.

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

Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these condensed consolidated financial statements were available to be issued.

4 unchanged sentences

Revenue Recognition

At contract inception, the Company analyzes the 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 ASC Topic 808, Collaborative Arrangements (ASC 808).

At contract inception, the Company analyzes executed arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808).

For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration reflect a vendor-customer relationship and are therefore within the scope of ASC 606.

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(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.

and (v) recognize revenue when, or as, the Ccurompany satisfies a performance obligation.

The terms of the Company’s revenue agreements include license fees, upfront payments, milestone payments, reimbursement for research and development activities, option exercise fees, consulting and related technology transfer fees and royalties on sales of commercialized products.

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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 judgement.

If estimates or judgements change over the course of the collaboration, a cumulative catch up of revenue is recognized in the period such changes are identified.

This approach requires the Company to make estimates and use judgment.

If estimates or judgments change over the course of the collaboration, a cumulative catch up of revenue is recognized in the period such changes are identified.

See “Note 2, Revenue”

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Research and development costs consist primarily of salaries, employee benefits, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services), in process research and development expenses and license agreement expenses, net of any grants and prelaunch inventory.

Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Payments made prior to the performance of research and development services are capitalized until the services are performed.

The Company records accruals for estimated research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites, and others.

4 unchanged sentences

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 income (loss), in the period incurred.

When the Company believes regulatory approval and subsequent commercialization of an investigational product candidate is probable, and the Company also expects future economic benefit from the sales of the investigational product candidate to be realized, it will then capitalize the costs of production as inventory.

Statement of Cash Flows

Restricted Cash

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

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the total of the same such amounts shown in the condensed consolidated statement of cash flows:

(in thousands)

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Cash and cash equivalents

Restricted cash

Non-current restricted cash

1 unchanged sentence

cash shown in the statement of cash flows

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding for the period, without consideration for common stock equivalents.

Diluted net income (loss) per share is calculated by dividing the net income (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 months ended March 31, 2023 and 2022 are comprised of stock options.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for common stock equivalents.

Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock method.

No dividends were declared or paid during the reported periods.

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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 three months ended March 31, 2023 in the balances of receivables and contract liabilities related to strategic collaboration agreements as compared to what was disclosed in the Company’s Annual Report.

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

(in thousands)

December 31, 2022

March 31, 2023

June 30, 2023

Contract Assets:

4 unchanged sentences

For the Three Months

Ended March 31,

Ended June 30,

For the Six Months

Ended June 30,

(in thousands)

Collaboration Revenue:

Israel Ministry of Health

Other collaboration revenue

Total collaboration revenue

1 unchanged sentence

Total grant revenue

The following paragraphs provide information regarding the nature and purpose of the Company’s most significant collaboration arrangements.

On November 1, 2022, the Company entered into a Collaboration and License Agreement (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.

The following paragraphs provide information regarding the nature and purpose of the Company’s most significant collaboration and grant arrangements.

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 will provide CSL Seqirus with an exclusive global license to its STARR ® self-amplifying mRNA technology, LUNAR ® lipid-mediated delivery, along with mRNA drug substance and drug product manufacturing process.

1 unchanged sentence

The collaboration plans to advance vaccines against SARS-CoV-2 (COVID-19), influenza, pandemic preparedness as well as three other respiratory infectious diseases.

The Company received a $ 200.0 million upfront payment and is eligible to receive over $ 1.3 billion in development milestones if all products are registered in the licensed fields and entitled to potentially receive up to $ 3.0 billion in commercial milestones based on “net sale”

of vaccines in the various fields.

In addition, the Company is eligible to receive a 40 % net profit share for COVID-19 vaccine products and up to low double-digit royalties for vaccines against flu, pandemic preparedness and three other respiratory pathogens.

In March 2023, Arcturus achieved development milestones, including milestones associated with nominating next generation vaccine candidates, resulting in $ 90.0 million due from CSL Seqirus.

Subsequently, in April 2023 the Company received an advance payment of $ 23.6 million for the manufacturing and supply of ARCT-154.

The advance payment is for specified manufacturing runs of ARCT-154 which includes the drug substance utilized, as well as the reservation fees and related manufacturing requirements.

In March 2023, Arcturus achieved development milestones, including milestones associated with nominating next generation vaccine candidates, resulting in $ 90.0 million received from CSL Seqirus during the second quarter of 2023.

In April 2023 the Company also received an advance payment of $ 23.6 million for the manufacturing and supply of ARCT-154 drug product.

The advance payment was for specified manufacturing runs of ARCT-154 which includes the drug substance utilized, as well as the reservation fees and related manufacturing requirements.

The Company concluded that the promise to manufacture and supply ARCT-154 drug product is a customer option as part of the CSL Collaboration Agreement and is accounted for as a separate contract.

The advance payment of $ 23.6 million is included in deferred revenue as of June 30, 2023.

In evaluating the CSL Collaboration Agreement in accordance with Accounting Standards Codification (“ASC”) Topic 606, the Company concluded that CSL Seqirus is a customer.

2 unchanged sentences

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 March 31, 2023, the transaction price consisted of upfront consideration received and milestones achieved in March 2023.

Additional variable consideration was not included in the transaction price at March 31, 2023 because the Company could not conclude that it is probable that including the variable consideration will not result in a significant revenue reversal.

As of June 30, 2023 , the transaction price consisted of upfront consideration received and milestones achieved in March 2023.

There were no milestones achieved during the second quarter of 2023.

Additional variable consideration was not included in the transaction price at June 30, 2023 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.

2 unchanged sentences

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 during the quarter ended March 31, 2023 relates to the license delivered, milestones achieved and services performed.

Total deferred revenue as of March 31, 2023 and December 31, 2022 was $ 57.4 million and $ 45.6 million, respectively.

The revenue recognized during the quarter ended June 30, 2023 relates to the license delivered, milestones achieved and services performed.

Total deferred revenue as of June 30, 2023 and December 31, 2022 was $ 73.4 million and $ 45.6 million, respectively.

During 2021 the Company entered into certain agreements (collectively, the “Vinbiocare License & Supply Agreements”) with Vinbiocare Biotechnology Joint Stock Company (“Vinbiocare”), a member of Vingroup Joint Stock Company, whereby the Company would provide technical expertise and support services to Vinbiocare to assist in the build out of a mRNA drug product manufacturing facility in Vietnam.

The Company received an upfront payment in aggregate of $ 40.0 million as part of the Vinbiocare License & Supply Agreements.

In October 2022, the Company and Vinbiocare executed a letter agreement terminating the License & Supply Agreements.

In October 2022, the Company and Vinbiocare executed a letter of agreement terminating the License & Supply Agreements.

The Company incurred no financial penalties in connection with the termination of the License & Supply Agreements and has no further financial obligations to Vinbiocare under these terminated agreements.

1 unchanged sentence

To support the continuing activities of these studies, the Study Support Agreement further provides for the Company to conduct certain services and to compensate Vinbiocare to help achieve the objectives of these studies.

In February of 2023, the Company agreed to provide additional financial support in the amount of approximately $ 2.1 million to allow Vinbiocare to provide additional study support duties related to the ARCT-154 clinical study.

In February 2023, the Company agreed to provide additional financial support in the amount of approximately $ 2.1 million to allow Vinbiocare to provide additional study support duties related to the ARCT-154 clinical study.

As a result, the Company reserved $ 11.8 million of the original upfront payment to be paid to Vinbiocare over the future periods pursuant to the Study Support Agreement by reclassifying a portion of the upfront payment received from Vinbiocare pursuant to the License & Supply Agreements, from deferred revenue to short-term and long-term liabilities, based on the anticipated timing of the payments to Vinbiocare, and removed that portion of the upfront payment from the transaction price of the modified arrangement.

The transaction price was not adjusted for payments that are contingent upon the occurrence of future regulatory or sales-related events based on the information currently available to the Company.

The Company has concluded that it has no remaining performance obligations under its prior arrangements with Vinbiocare as summarized above as of March 31, 2023.

As of March 31, 2023 , the Company has accrued liabilities related to this arrangement of $ 8.1 million in current liabilities and $ 1.9 million in non-current liabilities that will be paid upon the occurrence of specified events through the first quarter of 2025.

The Company has concluded that it has no remaining performance obligations under its prior arrangements with Vinbiocare as summarized above as of June 30, 2023.

As of June 30, 2023 , the Company has accrued liabilities related to this arrangement of $ 4.0 million in current liabilities and $ 1.4 million in non-current liabilities that will be paid upon the occurrence of specified events through the first quarter of 2025.

Vinbiocare is also eligible to receive a single digit percentage of amounts from net sales, if any, of ARCT-154 (or next-generation COVID vaccine) up to a capped amount of low single digit millions.

The Company has no remaining deferred revenue as of March 31, 2023 and December 31, 2022.

The Company has no remaining deferred revenue as of June 30, 2023 and December 31, 2022.

In October 2017, the Company entered into a research collaboration and license agreement with Janssen (the “2017 Agreement”) to collaborate on developing candidates for treating HBV with RNA therapeutics.

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The Company did not incur any penalties as a result of this termination.

As of March 31, 2023 , the licenses granted to Janssen have terminated and the Company recognized upfront consideration received and a portion of a development milestone achieved in October of 2021.

The remaining transaction price of approximately $ 0.1 million is expected to be recognized using an input method during the second quarter of 2023.

Total deferred revenue as of March 31, 2023 and December 31, 2022 for Janssen was $ 0.1 million and $ 0.4 million, respectively.

As of June 30, 2023, the licenses granted to Janssen have terminated and the Company recognized the remaining upfront consideration received and development milestone achieved in October of 2021.

The Company has no remaining deferred revenue as of June 30, 2023 and total deferred revenue as of December 31, 2022 for Janssen was $ 0.4 million.

In August 2022, the Company entered into a cost reimbursement 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.

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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).

The Company recognized $ 0.6 million of revenue during the three months ended March 31, 2023.

As of March 31, 2023 , the remaining available funding net of revenue earned was $ 62.4 million.

Other Agreements

Remaining collaboration revenue recognized for the quarters ended March 31, 2023 and 2022 related to amortization of upfront payments received from Curevac N.V.

("Curevac") and Ultragenyx.

Total deferred revenue as of March 31, 2023 and December 31, 2022 for Curevac was $ 0.3 million and $ 0.5 million, respectively.

Total deferred revenue as of March 31, 2023 and December 31, 2022 for Ultragenyx was $ 0.9 million and $ 1.8 million, respectively.

The costs associated with these reimbursements are reflected as a component of research and development expenses in the Company’s condensed consolidated statements of operations and comprehensive loss.

The Company recognized $ 1.0 million and $ 1.5 million of revenue during the three and six months ended June 30, 2023, respectively.

As of June 30, 2023 , the remaining available funding net of revenue earned was $ 61.4 million.

Fair Value Measurements

6 unchanged sentences

The carrying value of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities and the Singapore Loan (as defined below) approximate their respective fair values due to their relative short maturities.

The carrying amounts of long-term debt for the amount drawn on the Company’s debt facility approximates fair value as the interest rate is variable and reflects current market rates.

As of March 31, 2023 and December 31, 2022 , 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.

Prior to payoff of long-term debt in Q1 2023, the carrying amounts of long-term debt for the amount drawn on the Company’s debt facility approximated fair value as the interest rate was variable and reflected current market rates.

As of June 30, 2023 and December 31, 2022 , 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.

2 unchanged sentences

(in thousands)

March 31, 2023

June 30, 2023

December 31, 2022

6 unchanged sentences

Property and equipment, net

Depreciation and amortization expense was $ 0.6 million and $ 0.2 million for the three months ended March 31, 2023 and 2022, respectively.

Construction in progress primarily includes research equipment that is expected to be placed into service during 2023.

Depreciation and amortization expense was $ 0.7 million and $ 1.3 million for the three and six months ended June 30, 2023 , respectively, and $ 0.4 million and $ 0.6 million for the three and six months ended June 30, 2022, respectively.

Construction in progress at December 31, 2022 primarily includes research equipment that was placed into service during 2023.

Accrued liabilities consisted of the following:

(in thousands)

March 31, 2023

June 30, 2023

December 31, 2022

5 unchanged sentences

Other accrued research and development expenses

Manufacturing Supply Agreement

Wells Fargo Credit Agreement

On April 21, 2023, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc.

entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”) whereby Wells Fargo will make a $ 50.0 million revolving credit line available to the Company (the “Loan”) and each 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 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 agreement) occurs, then all 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.

The term of the agreement is 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 Loan amount for each such renewal.

There is no penalty for terminating the facility prior to the maturity date of the Note.

As collateral, the Company has agreed to pledge $ 55.0 million in cash to be held at the Company’s securities accounts with Wells Fargo Securities, LLC, an affiliate of Wells Fargo, pursuant to a security agreement.

Manufacturing Support Agreement

On November 7, 2020, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc., entered into a Manufacturing Support Agreement (the “Support Agreement”) with the Economic Development Board of the Republic of Singapore (the “EDB”).

2 unchanged sentences

The Company elected to borrow the full amount available under the Support Agreement of S$ 62.1 million ($ 46.6 million) on January 29, 2021.

On March 23, 2023, the EDB agreed to an extension of the reconciliation period to March 22, 2023, with unused funds not utilized for the manufacture of ARCT-021 as of such date returned to the EDB.

During the first quarter of 2023, the EDB agreed to an extension of the reconciliation period to March 22, 2023, with unused funds not utilized for the manufacture of ARCT-021 as of such date returned to the EDB.

As of December 31, 2022, the outstanding balance of the Singapore Loan, which includes accrued interest, was $ 50.4 million of which the Company paid S$ 22.8 million ($ 17.1 million) in March 2023.

As of March 31, 2023, the remaining principal portion the Singapore Loan plus accrued interest, totaling $ 34.0 million, was forgiven.

This has been recorded as a gain on debt extinguishment in the condensed consolidated statement of operations and comprehensive income (loss).

The Company recorded a net foreign currency translation loss of $ 0.2 million for the three months ended March 31, 2023 and a net foreign currency translation gain of $ 0.2 million for the three months ended March 31, 2022.

The Company also recorded interest expense of $ 0.5 million and $ 0.5 million for the three months ended March 31, 2023 and 2022, respectively.

During the first quarter of 2023, the remaining principal portion of the Singapore Loan plus accrued interest, totaling $ 34.0 million, was forgiven and recorded as a gain on debt extinguishment in the condensed consolidated statement of operations and comprehensive loss.

For the three months ended June 30, 2023, the Company recorded no interest expense, compared to interest expense of $ 0.5 million for the same period in 2022.

For the six months ended June 30, 2023, the Company recorded interest expense of $ 0.5 million, compared to interest expense of $ 1.1 million for the same period in 2022.

Termination of Agreement with Western Alliance Bank

3 unchanged sentences

The Company was released from all liens under the Western Alliance Agreement.

The Company recognized interest expense related to its debt with Western Alliance Bank of $ 0.3 million and $ 0.2 million during the three months ended March 31, 2023 and 2022, respectively.

For the three months ended June 30, 2023, the Company recorded no interest expense, compared to interest expense of $ 0.2 million for the same period in 2022.

For the six months ended June 30, 2023 and 2022, the Company recorded interest expense of $ 0.3 million.

Stockholders’

Earnings per Share

Potentially dilutive securities that were not included in the calculation of diluted earnings per share for the three months ended March 31, 2023 as they were anti-dilutive totaled 5.2 million.

Potentially dilutive securities that were not included in the calculation of diluted net loss per share for the three months ended March 31, 2022 as they were anti-dilutive totaled 0.8 million.

Net Loss per Share

Potentially dilutive securities that were not included in the calculation of diluted net loss per share for the three and six months ended June 30, 2023 as they were anti-dilutive totaled 1.0 million and 0.8 million, respe ctively, and 0.6 million and 0.8 million for the three and six months ended June 30, 2022, respectively.

Share-Based Compensation Expense

In June 2022 at the Company’s 2022 Annual Meeting of Stockholders (the "2022 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, increases the aggregate number of shares authorized for use in making awards to eligible persons under the 2019 Plan by 3,750,000 shares, for a total of up to 8,750,000 shares available for issuance.

As of March 31, 2023, a total of 1,712,029 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan.

In June 2022 at the Company’s 2022 Annual Meeting of Stockholders (the "2022 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 3,750,000 shares, for a total of up to 8,750,000 shares available for issuance.

As of June 30, 2023, a total of 1,645,061 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan.

In October 2021, the Company adopted the 2021 Inducement Equity Incentive Plan which covers the award of up to 1,000,000 shares of common stock (the “2021 Plan”) effective as of October 15, 2021.

Approval of the Company’s stockholders will not be required as a condition to the effectiveness of the 2021 Plan for so long as the plan is in compliance with applicable Nasdaq inducement plan rules.

Approval of the Company’s stockholders is not required as a condition to the effectiveness of the 2021 Plan for so long as the plan is in compliance with applicable Nasdaq inducement plan rules.

In April 2022, the compensation committee of the Company’s board of directors approved a proposal to reduce the total number of shares available for future issuance under the 2021 Plan to 130,000 .

As of March 31, 2023, a total of 96,400 shares remain available for future issuance under the 2021 Plan, subject to the terms of the 2021 Plan.

As of June 30, 2023, a total of 96,400 shares remain available for future issuance under the 2021 Plan, subject to the terms of the 2021 Plan.

Stock Options

Share-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2023 and 2022 was as follows:

Share-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022 was as follows:

For the Three Months

Ended March 31,

Ended June 30,

For the Six Months

Ended June 30,

(in thousands)

3 unchanged sentences

The Company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter.

The primary difference between the effective tax rate and the federal statutory tax rate relates to the valuation allowances on the Company’s net operating losses.

For the three months ended March 31, 2023 and 2022, the Company recorded $ 0.1 million of income tax expense.

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 and six months ended June 30, 2023 , the Company recorded $ 0.6 million and $ 0.7 million of income tax expense, respectively.

No tax benefit was provided for losses incurred in United States because those losses are offset by a full valuation allowance.

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Pursuant to the amendment, (i) CFF increased the amount it will award to advance LUNAR-CF to $ 15.0 million from approximately $ 3.2 million, (ii) the Company will provide $ 5.0 million in matching funds for remaining budgeted costs, (iii) the related disbursement schedule from CFF to Arcturus will be modified such that (a) $ 4.0 million will be disbursed upon execution of the CFF Amendment, (b) $ 2.0 million will be disbursed within 30 days of the first day of each of January, April, July and October 2020 upon Arcturus invoicing CFF to meet project goals, and (c) the last payment of $ 3.0 million less the prior award previously paid out, equaling approximately $ 2.1 million.

In the first quarter of 2023, the last payment of $ 2.1 million was disbursed upon the Company invoicing CFF to meet good manufacturing practices and opening an Investigational New

Drug (“IND”) application.

In the first quarter of 2023, the last payment of $ 2.1 million was disbursed upon the Company invoicing CFF to meet good manufacturing practices and opening an Investigational New Drug (“IND”) application.

All remaining funds received from CFF were recognized as contra research and development expense during the year ended 2022.

As such, no contra expense was recognized during the three months ended March 31, 2023.

For the three months ended March 31, 2022, the Company recognized contra expense of $ 1.4 million.

As such, no contra expense was recognized during the six months ended June 30, 2023.

For the three and six months ended June 30, 2022, the Company recognized contra expense of $ 1.3 million and $ 2.7 million, respectively.

In October 2017, the Company entered into a non-cancellable operating lease agreement for office space adjacent to its previously occupied headquarters.

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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 March 31, 2023, the remaining payments of the operating lease liability were as follows:

As of June 30, 2023, the remaining payments of the operating lease liability were as follows:

(in thousands)

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Operating lease costs consist of the fixed le ase payments included in operating lease liability and are recorded on a straight-line basis over the lease terms.

Operating lease costs were $ 1.4 million and $ 0.5 million for the three months ended March 31, 2023 and 2022, respectively.

Operating lease costs were $ 1.4 million and $ 2.8 million for the three and six months ended June 30, 2023 , respectively, and $ 1.4 million and $ 2.2 million for the three and six months ended June 30, 2022, respectively.

Related Party Transactions

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Additionally, Vallon executed the sale of 3,700,000 shares of common stock through a private placement in May 2022 as well as an exercise of warrants for 2,960,000 shares of common stock in August and December 2022.

As a result, Arcturus owned 843,750 shares of Vallon, or approximately 6 % as of March 31, 2023.

On December 13, 2022, Vallon entered into an agreement with GRI Bio, Inc.

(“GRI Bio”) pursuant to which GRI Bio will merge with a wholly-owned subsidiary of Vallon in an all-stock transaction.

(“GRI Bio”) pursuant to which GRI Bio was to merge with a wholly-owned subsidiary of Vallon in an all-stock transaction.

The transaction closed in April 2023 and the Company's executive resigned from the board of directors of Vallon.

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Following the closing of the merger, the Company holds 28,125 shares in GRI Bio, or approximately 1 %.

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.

Subsequent Events

Wells Fargo Credit Agreement

On April 21, 2023, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc.

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 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.

There is no penalty for terminating the agreement.

There is no penalty for terminating the facility prior to the maturity date of the Note.

Upon the closing of the merger, the Company determined that it did not have the ability to exercise significant influence over operating and financial policies of GRI Bio.

As such, the Company discontinued equity method of accounting for its investment in GRI Bio.

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 month period ended March 31, 2023.

for the three and six month periods ended June 30, 2023.

Unless otherwise specified herein, references to the “Company,”

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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.

Key Updates on our Vaccine Program

Business Updates

Updates on Vaccine Program

In November 2022, we entered into a Collaboration and License Agreement (the “CSL Collaboration Agreement”) with Seqirus, Inc.

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Under the framework of our collaboration with CSL Seqirus, we are evaluating in preclinical studies the efficacy and safety of a seasonal influenza vaccine (our LUNAR-FLU mRNA vaccine candidate).

Pursuant to a third party study agreement executed in December 2022 with Meiji Seika Pharma Co., Ltd.

Pursuant to a third party study agreement executed in December 2022 with Meiji Seika Pharma Co., Ltd., a subsidiary of Meiji Holdings Co., Ltd.

(“Meiji”), a Japanese leader in the area of infectious disease, a Phase 3 clinical trial of ARCT-154 was initiated in Japan by Meiji to evaluate safety and immunogenicity of a booster shot of ARCT-154, and to evaluate non-inferiority of ARCT-154 as a booster.

The trial targeted a total of 780 adult participants, with half in the ARCT-154 group and half in a comparator group (Comirnaty ® , Pfizer-BioNTech), and completed enrollment with 828 participants in February 2023.

On April 11, 2023, Meiji announced that it entered into a distribution agreement with CSL Seqirus for the distribution and sales of ARCT-154, our self-amplifying mRNA vaccine candidate against COVID-19, in Japan.

On April 11, 2023, Meiji announced that it entered into an agreement with CSL Seqirus for the distribution and sales of ARCT-154, our self-amplifying mRNA vaccine candidate against COVID-19, in Japan.

On April 28, 2023, Meiji announced that it submitted to the Japanese Pharmaceuticals and Medical Devices Agency (PMDA) a New Drug Application (NDA) to manufacture and market ARCT-154 for primary immunization to prevent COVID-19 in adults in Japan.

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The advance payment is for specified manufacturing runs of ARCT-154 which includes the drug substance utilized, as well as the reservation fees and related manufacturing requirements.

On June 30, 2023, Meiji announced that it submitted an additional application to the PMDA for a booster dose of ARCT-154 to prevent COVID-19 in adults in Japan.

On July 13, 2023, an article titled “Booster dose of self-amplifying SARS-CoV-2 RNA vaccine vs.

mRNA vaccine:

a phase 3 comparison of ARCT-154 with Comirnaty”

posted on medRxiv.org at https://www.medrxiv.org/content/10.1101/2023.07.13.23292597v1.

The article is based on interim results of the Phase 3 clinical trial of ARCT-154 conducted in Japan by Meiji evaluating the safety and immunogenicity of ARCT-154 compared to Comirnaty as a booster against COVID-19.

The article is a preprint and has not been certified by peer review.

On August 7, 2023, we announced that Phase1/2 clinical trial data demonstrated one-year durability of immune response following ARCT-154 booster vaccine administration as measured using validated microneutralization (MNT) assays.

The Phase 1/2 study data is from 12 participants in the United States and Singapore.

The geometric mean fold rise (GMFR) in neutralizing antibodies remained greater than 10-fold above baseline for one year across a panel of SARS-CoV-2 variants, including ancestral strain with the D614G mutation, Beta (B.1.351), Delta (B.1.617.2), and Omicron (BA.1), for participants receiving ARCT-154 booster.

who received any non-study COVID-19 vaccines or had a positive SARS-CoV-2 PCR result were excluded from the analysis after the event.

Additional exploratory assays demonstrated similar trends.

Geometric mean fold rise (GMFR) of neutralizing antibodies against SARS-CoV-2 variants (versus pre-booster levels) after ARCT-154 booster vaccination measured by validated psuedoviral microneutralization assays (N=12).

Error bars represent the 95% CI.

GMFR values are included in white.

Participants who received any COVID-19 vaccines or had laboratory-confirmed SARS-CoV-2 infection during the follow-up period were excluded from immunogenicity analysis at sampling times after the event.

Key Updates on Arcturus-Owned mRNA Therapeutic Development Candidates

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LUNAR-OTC/ARCT-810 - Our rare disease program for ornithine transcarbamylase (OTC) deficiency is continuing to advance.

A Phase 1b study in stable OTC-deficient adults is being conducted in the United States.

o A Phase 1b study in stable OTC-deficient adults is being conducted in the United States.

The trial is designed to assess safety, tolerability and pharmacokinetics of a single dose of ARCT-810, as well as various exploratory biomarkers of drug activity.

Fifteen of the planned sixteen subjects, divided among four cohorts, have completed the study.

A Phase 2 multiple-dose study of ARCT-810 in OTC-deficient adolescents and adults initiated dosing in December 2022 and plans to enroll approximately 24 participants in 2 dose cohorts.

The study has completed enrollment and dosing of all four cohorts (N = 16 subjects).

o A Phase 2 multiple-dose study of ARCT-810 in OTC-deficient adolescents and adults initiated dosing in December 2022 and plans to enroll approximately 24 participants in 2 dose cohorts.

The study has been approved by the regulatory authorities in the UK and several other countries in Europe.

o In June 2023, the US Food and Drug Administration (the “FDA”) granted Fast Track Designation to ARCT-810.

Fast Track Designation is designed to facilitate development and expedite review of new therapeutics intended to treat serious or life-threatening conditions that demonstrate the potential to address important unmet medical needs.

o In June 2023, we received Rare Pediatric Disease Designation from the FDA.

Rare Pediatric Disease Designation is designed to recognize rare pediatric diseases in which the serious or life-threatening manifestations primarily affect patients from birth to 18 years of age.

Due to such designation, if ARCT-810 achieves approval for a pediatric indication in the original rare pediatric disease product application in the United States, Arcturus (or the sponsor of ARCT-810) will receive a voucher for priority review of a subsequent marketing application for a different product.

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 LUNAR-mRNA in vitro and in vivo.

Our program for cystic fibrosis is being supported in part by the Cystic Fibrosis Foundation.

o Results from preclinical studies demonstrate robust protein expression in respiratory epithelium treated with 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.

A CTA was filed in December 2022 for the first-in-human study, and we have achieved the recruitment target and administration in a Phase 1 single ascending dosing study with 32 health participants (8 subjects in each of 4 cohorts).

We are working on a protocol amendment to allow the dosing of patients with CF.

Updates on our Program Partnered with Ultragenyx

o A CTA was filed in December 2022 for the first-in-human study, and we completed dosing of the Phase 1 single ascending dosing study in 32 healthy participants (eight subjects in each of four cohorts).

o In August 2023 we received regulatory approval of a protocol amendment to allow the transition to a Phase 1b clinical study of ARCT-032 in up to eight adults with CF.

Updates on Collaboration Agreements

On October 26, 2015, we entered into a Research Collaboration and License Agreement with Ultragenyx, which was later amended in 2017, 2018 and during the second quarter of 2019 (as amended, the “Ultragenyx Agreement”).

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Ultragenyx has announced that the data from the SAD cohort are being analyzed and expected in the second quarter of 2023.

Key Updates on our Research and Platform Activities

On June 18, 2023, the exclusivity period for reserved targets expired.

Prior to this expiration, Ultragenyx exercised its option with respect to some of its reserved targets thereby converting them to development targets under the agreement.

On January 1, 2018, we entered into a Development and Option Agreement with CureVac, which was amended on May 3, 2018, restated on September 28, 2018 and amended on July 24, 2019 (as amended and restated, the “Development and Option Agreement”).

Under the terms of the Development and Option Agreement, CureVac and Arcturus agreed to conduct joint preclinical development programs and we granted CureVac a license to develop and commercialize certain products incorporating certain of our technology (the “Arcturus LMD Technology”) and CureVac technology.

CureVac did not exercise its option to extend the term prior to its expiration, and the Development and Option Agreement expired as of July 24, 2023.

Updates on 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.

Discovery Program –

Hepatitis B (HBV)

In April 2023, we presented LUNAR-HBV Gene Editing Data at the 18th annual Global Hepatitis Summit Conference in Paris, France.

LUNAR-HBV, a potential genome editing therapeutic for Hepatitis B consisting of a pair of transcription activator-like effector nucleases (TALENs), delivered as mRNA encapsulated in our proprietary liver-directed LUNAR lipid nanoparticles.

TALENs translated in the liver are designed to specifically target and irreversibly inactivate both cccDNA and integrated HBV DNA by inducing targeted mutations, typically frameshift deletions (Figure 1, Figure 2).

Figure 1 LNP-mRNA Technology for the delivery of TALENs as a potential genome editing therapy for HBV

Figure 2 HBV TALEN pair designed to target specific HBV DNA sequences

In vitro assessment of LUNAR-HBV mRNA activity and specificity in multiple cell types demonstrated a strong reduction of HBsAg production with concomitant deletions in the HBV DNA targeted sequence.

Using various HBV mouse models, LUNAR-HBV showed significant dose dependent efficacy and targeting of both integrated and non-integrated HBV DNA in the liver of infected mice.

In the AAV-HBV mouse model, LUNAR- HBV achieved greater than a two-log reduction of both HBV DNA and HBsAg levels in the plasma (Figure 3).

Furthermore, these reductions directly correlated with the levels of edited HBV DNA observed in the livers of treated mice (Figure 3, Figure 4).

LUNAR-HBV TALEN with an inactivated Fok1 nuclease did not demonstrate any gene editing activity.

Figure 3 LUNAR-HBV targets and edits episomal HBV DNA and reduces HBsAg in serum and HBV DNA levels in the AAV-HBV Mouse Model

Figure 4 LUNAR-HBV reduces the levels of rcDNA and nuclear HBV DNA in AAV-HBV mouse hepatocytes

In addition to this, LUNAR-HBV showed a significant safety margin relative to the minimal efficacious dose either with single or repeat dosing.

Biodistribution studies in mice show that the liver is the main target organ of LUNAR-HBV with no genome editing activity detected in other organs.

Furthermore, both the therapeutic TALEN mRNAs and proteins are short lived and are not detected in the liver 24 hours after dosing.

Orthogonal scientific approaches, combined with a rigorous risk assessment, are being used to examine the potential off target activity of LUNAR-HBV.

Bioinformatic tools did not reveal any significant LUNAR-HBV potential off-target site and cell-based assays using the highest tolerated dose of mRNA encoding the genome editing nucleases (at least five-fold higher than the estimated therapeutic dose) preliminarily generated a small number of potential off-target sites at low occurrence.

These potential sites are in non-coding regions of genomic areas not associated with any disease or disorder.

Ex-vivo assays using human PBMCs from multiple donors suggest a low risk of an immunogenic response to LUNAR-HBV from pre-existing immunity.

Furthermore, mice receiving repeat doses of LUNAR-HBV did not show evidence of an immunogenic response based on the absence of antibodies against the genome editing nucleases in the plasma and immune cells (T-cells, B-cells or NK cells) in the liver.

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 formats to lower and single-dose vial formats, we continue, with our collaborator CSL Seqirus, to evaluate and advance manufacturing process and capabilities and technology transfers, and prepare for stockpiling and commercialization of COVID vaccines.

Results of Operations

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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 March 31,

The following table summarizes our total revenues for the periods indicated:

Three Months Ended June 30,

(in thousands)

Revenue decreased by $16.6 million during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

The decrease was primarily attributable to a decrease in revenue of $12.7 million related to the termination of the agreement with Vinbiocare and a decrease in revenue of $12.5 million related to the agreement with the Israeli Ministry of Health.

The decrease was primarily offset by an increase in revenue of $8.6 million related to the collaboration agreement with CSL Seqirus and the grant agreement with BARDA which were both executed in the second half of 2022.

Six Months Ended June 30,

(in thousands)

* Greater than 100%

Revenue increased by $75.0 million during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

The increase in revenue is primarily attributable to an increase in revenue of $78.2 million related to the agreement with CSL Seqirus and the associated milestones achieved in the first quarter of 2023.

Revenue increased by $58.5 million during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The increase was attributable to an increase in revenue of $87.6 million primarily related to the collaboration agreement with CSL Seqirus and the grant agreement with BARDA which were both executed in the second half of 2022.

The increase was primarily offset by decreases in revenue of the following:

(i) $15.6 million related to the termination of the agreement with Vinbiocare, (ii) $12.5 million related to the agreement with the Israeli Ministry of Health and (iii) $1.0 million related to the termination of the agreement with Janssen.

Our operating expenses consist of research and development and general and administrative expenses.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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The following table presents our total research and development expenses by category:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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* 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 expense was $51.8 million for the three months ended March 31, 2023, compared with $44.9 million in the comparable period last year, primarily reflecting increased manufacturing costs of $5.7 million, an increase of $2.3 million in personnel related expenses, an increase of travel and consulting expenses of $0.9 million, and increase in facility expenses of $0.7 million.

Additionally, the increase was partially caused by $1.5 million less contra research and development expense related to the CFF agreement recognized in the three months ended March 31, 2023 as compared to the same period in 2022.

The increases were offset by a decrease in clinical-related expenses of $4.4 million.

expenses and laboratory supplies related to conducting research and development activities.

Research and development expenses were $52.7 million for the three months ended June 30, 2023, compared with $38.2 million in the comparable period last year, primarily reflecting increased clinical research and manufacturing costs of $11.4 million and an increase of $2.9 million in personnel related costs.

Research and development expenses were $104.4 million for the six months ended June 30, 2023, compared with $83.1 million in the comparable period last year, primarily reflecting increased manufacturing costs of $11.1 million, an increase of $5.9 million in personnel related costs, an increase in consulting expenses of $1.8 million, an increase of $1.3 million in facilities expense and a decrease of contra research and development expenses recognized of $2.7 million.

The increase was primarily offset by a decrease of clinical-related expenses of $1.2 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.

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 primarily consist of external manufacturing costs, lab supplies, equipment, and consulting and professional fees.

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Facilities and equipment expenses continue to increase as we expand.

The three months ended March 31, 2023 includes increased rent and associated costs related to a new facility we took possession of in April 2022.

The six months ended June 30, 2023 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 three facilities.

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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 $13.8 million for the three months ended March 31, 2023, compared with $10.7 million in the comparable period last year.

The increases resulted primarily from personnel expense due to increased headcount and salaries, increased travel and consulting expenses as well as increased rent expense associated with the new facility.

General and administrative expenses were $13.2 million and $27.0 million for the three and six months ended June 30, 2023, respectively, compared with $11.0 million and $21.7 million in the comparable periods last year.

The increases resulted primarily from increased personnel expenses due to increased headcount and salaries, increased travel and consulting expenses as well as increased rent expense associated with the new facility.

Finance (expense) income, net

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Interest income is generated on cash and cash equivalents.

The increase in interest income for the three months ended March 31, 2023 as compared to the prior year period was the result of increased interest rates.

Interest expense was incurred in conjunction with the Western Alliance Agreement and the Singapore Loan and was relatively flat for the three months ended March 31, 2023 as compared to the prior year period.

The increase in interest income for the three and six month periods ended June 30, 2023 as compared to the comparable periods last year was primarily the result of increased interest rates and an increased cash balance as a result of amounts received under the CSL Seqirus agreement.

Interest expense decreased as no interest expense was incurred during the second quarter of 2023 due to the extinguishment of the Western Alliance Agreement and the forgiveness of the Singapore Loan during the first quarter of 2023.

Other income and expense

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Loss from equity-method investment

(Loss) gain from foreign currency

Gain (loss) from foreign currency

Gain on debt extinguishment

* Greater than 100%

Other income and expense items relate to gains and losses from foreign currency transactions and from equity-method investments.

Additionally, we recorded a gain on debt extinguishment related to the Singapore Loan of $34.0 million during the three months ended March 31, 2023.

We recorded a foreign currency loss of $0.3 million for the three months ended March 31, 2023 compared with a gain of $0.2 million in the comparable period last year which is primarily attributable to the Singapore Loan.

We recorded no gain or loss for the three months ended March 31, 2023 compared with a $0.4 million loss in the comparable period last year in connection with our equity-method investment in Vallon Pharmaceuticals, Inc.

Other income and expense items primarily relate to gains and losses from equity-method investments and foreign currency transactions.

Additionally, we recorded a gain on debt extinguishment related to the Singapore Loan of $34.0 million during the six months ended June 30, 2023 as a result of the Singapore Loan being forgiven during the first quarter of 2023.

We recorded no gain or loss in the three and six months ended June 30, 2023, compared with $0.1 million and $0.5 million losses in the three and six months ended June 30, 2022, respectively, in connection with our investment in GRI Bio, Inc.

(formerly Vallon Pharmaceuticals, Inc.)

The changes in gain (loss) from foreign currency for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 were primarily attributable to the Singapore Loan being forgiven during the first quarter of 2023.

The remaining amounts recorded as gain (loss) from foreign currency relate to transactions made in foreign currencies.

Off-balance sheet arrangements

Through March 31, 2023, 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.

Through June 30, 2023, 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 March 31, 2023, 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.

Additionally, during the fourth quarter of 2022, we received a $200.0 million upfront payment from CSL Seqirus and expect to receive future payments primarily from meeting future milestones related to the arrangement.

At March 31, 2023, we had $327.9 million in unrestricted cash and cash equivalents.

Pursuant to the Third Amendment to the Loan and Security Agreement (as amended and supplemented, the “Western Alliance Agreement”) with Western Alliance Bank, an Arizona corporation (“Western Alliance”), Western Alliance agreed to make a term loan to us on October 30, 2019, in the amount of $15.0 million (the “Term Loan”).

The Term Loan bore interest at a floating rate ranging from 1.25% to 2.75% above the prime rate.

The amendment further provides that the Term Loan has a maturity date of October 30, 2023.

In October of 2021, we entered into a Fifth Amendment to the Western Alliance Agreement, which provided for a six month

extension to the interest only period which moves the first principal payment to May 1, 2022.

On March 14, 2023, the Western Alliance Agreement was terminated (the “Termination”) upon the receipt by Western Alliance of a payoff amount of approximately $7.36 million.

The payoff amount was made to Western Alliance from available cash on hand, pursuant to a payoff letter, and included payment of (i) approximately $7.02 million in principal and interest, (ii) $300,000 fee payable upon prepayment as a result of prior FDA approval of an IND, (iii) $35,000 in prepayment charges and (iv) de minimis amounts for various operational fees.

We were released from all liens under the Western Alliance Agreement.

From the Company’s inception through the quarter ended June 30, 2023, 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.

We received a $200.0 million upfront payment from CSL Seqirus during the fourth quarter of 2022.

Additionally, in the three months ended June 30, 2023, we received $90.0 million in milestone payments and $23.6 million for the manufacturing and supply of ARCT-154 from CSL Seqirus.

We expect to receive future payments from CSL Seqirus primarily by meeting future milestones related to the CSL Collaboration Agreement.

At June 30, 2023, we had $323.5 million in unrestricted cash and cash equivalents.

CSL Seqirus, Inc.

Collaboration and License Agreement

We entered into the CSL Collaboration Agreement with Seqirus, Inc.

(“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 of self-amplifying mRNA vaccines.

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 of self-amplifying 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 with non-exclusive rights to pandemic pathogens.

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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.

In March 2023, Arcturus achieved development milestones, including milestones associated with nominating next generation vaccine candidates, resulting in $90.0 million due from CSL Seqirus.

The CSL Collaboration Agreement sets forth how CSL Seqirus and us shall collaborate to research and develop vaccine candidates.

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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, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc.

entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”) whereby Wells Fargo will 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.

The term of the agreement is 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.

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, the Company has agreed to pledge $55.0 million in cash to be held at the Company’s 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

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It provides for reimbursement by BARDA of our permitted costs up to $63.2 million.

During the three months ended March 31, 2023, we incurred $0.6 million that is expected to be reimbursed during the second quarter of 2023.

Grants from the Economic Development Board of the Republic of Singapore

On March 4, 2020, we were awarded a grant (“Grant 1”) from the Economic Development Board of the Republic of Singapore (the “EDB”) to support the co-development of a potential COVID-19 vaccine program with the Duke-NUS Medical School.

Grant 1 provided for up to S$14.0 million (approximately $10.0 million using the exchange rate at the time the grant contract was entered into) in grants to support the development of the vaccine.

Grant 1 has been paid in full by the EDB as a result of the achievement of certain milestones related to the progress of the development of the vaccine, as set forth in the award agreement.

The funds received have been recognized as contra research and development expense.

The parties are in continued negotiations with respect to amendments of Grant 1.

We do not believe there will be any further obligations related to this grant.

On October 2, 2020, we were awarded another grant (“Grant 2”) from the EDB to support the clinical development of a potential COVID-19 vaccine (ARCT-021).

Grant 2 provides for up to S$9.3 million (approximately $6.7 million) to support the clinical development of the vaccine candidate for costs incurred in Singapore subject to certain conditions.

Grant 2 is to be paid in two installments upon the achievement of certain milestones related to the progress of the development of the vaccine candidate.

We received the first installment of $3.6 million in the fourth quarter of 2020.

A portion of the funds received were recognized as contra research and development expense as costs were incurred during the fourth quarter of 2020.

As costs were incurred during fiscal year 2021, we recognized the remaining amount of the first installment as contra expense for Grant 2.

The parties are in continued negotiations with respect to amendments of Grant 2.

We do not believe there will be any further obligations related to this grant.

Manufacturing Support Agreement

On November 7, 2020, we entered into the EDB “Support Agreement”

with the EDB.

Pursuant to the EDB Support Agreement, the EDB agreed to make a term loan (the “Singapore Loan”) of $62.1 million, subject to the satisfaction of customary deliveries, to support the manufacture of the LUNAR-COV19 vaccine candidate (ARCT-021).

On March 23, 2023, we and the EDB agreed to

certain amendments to the EDB Agreement, including that (i) the audit of the funds utilized for ARCT-021 is to be completed on March 22, 2023, (ii) EDB waiving the loan and interest on funds used to manufacture ARCT-021, (iii) upon audit completion we will pay EDB interest (calculated at 4.5% per annum) and principal for outstanding funds not used for ARCT-021 by March 30, 2023 and (iv) the delivery requirement of ARCT-021 shall be waived.

The result of this notice is that we paid $17.1 million to the EDB and recorded a gain on debt forgiveness of $34.0 million during the first quarter of 2023.

Vinbiocare Agreement

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General Financial Resources

A portion of our current cash balance of $330.1 million is expected to be utilized during fiscal year 2023 to fund (i) the continued Phase 2 trial of ARCT-810, our LUNAR-OTC candidate, (ii) advances to our LUNAR-CF program in clinical trials, (iii) expenses incurred prior to customer payments under the CSL Collaboration Agreement and BARDA agreement and (iv) continued exploratory activities related to our platform and other general administrative activities.

A portion of our current cash balance is expected to be utilized during fiscal year 2023 to fund (i) the continued Phase 2 trial of ARCT-810, our LUNAR-OTC candidate, (ii) advances to our LUNAR-CF program in clinical trials, (iii) expenses incurred prior to customer payments under the CSL Collaboration Agreement and BARDA agreement 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.

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Our ability to transition to profitability is dependent on executing on milestones within the CSL Collaboration Agreement and identifying and developing successful mRNA drug and vaccine 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 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.

If we are not able to 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

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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 terms and timing of any other strategic alliance, licensing and other arrangements that we may establish, including those with CSL Seqirus and CSL Seqirus’

arrangement with Meiji, and any related payments thereunder;

the initiation, progress, timing and completion of preclinical studies and clinical trials for our product candidates;

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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.

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, 2022.

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Quantitative and Qualitati ve Disclosures About Market Risk.

Our primary exposure to market risk is interest income and expense sensitivity and foreign currency exchange rates.

Interest income and expense sensitivity is affected by changes in the general level of interest rates in the United States.

Foreign exchange market risks relate to the grants and loan from the Singapore Economic Development Board which is discussed in this Quarterly Report in “Notes to Condensed Consolidated Financial Statements, Note 1.

Description of Business.”

When deemed appropriate, we may manage our exposure to foreign exchange market risks through the use of derivative financial instruments.

We may utilize such derivative financial instruments for hedging or risk management purposes.

D ue to the nature of our cash and cash equivalents and our evaluation of the potential impact of foreign currency exchange rates, we believe that we are not currently subject to any material market risk exposure.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements