What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-08-07 · 222 added, 156 removed, 556 unchanged (40% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands, except par value information)

16 unchanged sentences

Deferred revenue, net of current portion

Long-term debt

Operating lease liability, net of current portion

4 unchanged sentences

60,000 shares authorized;

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

outstanding shares were 26,723 at September 30, 2023 and 26,555 at December 31, 2022

Additional paid-in capital

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

26 unchanged sentences

Share-based compensation expense

Issuance of common stock upon exercise of stock options

BALANCE –

4 unchanged sentences

June 30, 2023

Share-based compensation expense

Issuance of common stock upon exercise of stock options

Issuance of common stock under equity plans

BALANCE –

September 30, 2023

Stockholders’

10 unchanged sentences

June 30, 2022

Share-based compensation expense

Issuance of common stock upon exercise of stock options

Issuance of common stock under equity plans

BALANCE –

September 30, 2022

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEM ENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Operating activities

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

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

Depreciation and amortization

17 unchanged sentences

Financing activities

Proceeds from debt

Proceeds from exercise of stock options

Proceeds from the issuance of common stock under equity plans

Payments on debt obligations

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net decrease in cash, cash equivalents and restricted cash

1 unchanged sentence

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

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental disclosure of cash flow information

26 unchanged sentences

Investments for which the Company exercises significant influence, but does not have control are accounted for under the equity method.

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

and an ownership in GRI Bio, Inc.

(formerly Vallon Pharmaceuticals, Inc.) (see “

Note 10, Related Party Transactions ”

for further details).

Equity method investment activity is related to the Companay's joint venture in ARCALIS, Inc.

with Axcelead, Inc.

As of September 30, 2023, the Company's ownership in ARCALIS was 45.8 %.

ARCALIS has received financial grants of $ 165 million to date from the Japanese government, which are subject to certain terms and conditions that have not yet been met, that may increase the value of ARCALIS in the future.

The Company’s share of the investees’

1 unchanged sentence

The Company has incurred significant operating losses since its inception.

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

As of September 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $ 356.2 million and $ 338.1 million, respectively.

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

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

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

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

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

At September 30, 2023, the Company’s balance of cash and cash equivalents, including restricted cash and non-current restricted cash, was $ 369.1 million.

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

There can be no assurance that the Company will be successful in securing additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

There can be no assurance that the

Company will be successful in securing additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Segment Information

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(iv) allocate the transaction price to the performance obligations in the contract;

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

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

The terms of the Company’s revenue agreements include license fees, upfront payments, 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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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 Company includes the restricted cash balance in the cash, cash equivalents and restricted cash reconciliation of operating, investing and financing activities in the condensed consolidated statements of cash flows.

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

(in thousands)

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

Cash and cash equivalents

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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 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.

The following table presents changes during the nine months ended September 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

June 30, 2023

September 30, 2023

Contract Assets:

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For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(in thousands)

Collaboration Revenue:

Israel Ministry of Health

Other collaboration revenue

4 unchanged sentences

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.

Under the terms of the CSL Collaboration Agreement, the Company provides CSL Seqirus with an exclusive global license to its mRNA technology (including STARR ® ) LUNAR ® lipid-mediated delivery, along with mRNA drug substance and drug product manufacturing process.

CSL Seqirus will lead development and commercialization of vaccines under the collaboration.

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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 received from CSL Seqirus during the second quarter of 2023.

In March 2023, the Company 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 advance payment was for specified manufacturing runs of ARCT-154 which include 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.

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

In September 2023, the Company achieved a development milestone related to the completion of the first GMP batch manufacture of drug product in a multi-dose vial for clinical studies in the SARS-CoV-2 field.

The Company invoiced CSL Seqirus and added $ 35.0 million to the transaction price during the three months ended September 30, 2023.

The Company anticipates that it will receive this payment from CSL Seqirus during the fourth quarter of 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 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.

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

Additional variable consideration was not included in the transaction price at September 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.

1 unchanged sentence

The research and development and regulatory activities performance obligations are recognized over a period of time based on the percentage of services rendered using the input method, meaning actual costs incurred divided by total costs budgeted to satisfy the performance obligation.

Any consideration related to sales-based royalties will be recognized when the amounts are probable of non-reversal, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as they are constrained and therefore have also been excluded from the transaction price.

The revenue recognized 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.

are constrained and therefore have also been excluded from the transaction price.

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

Total deferred revenue as of September 30, 2023 and December 31, 2022 was $ 82.5 million and $ 45.6 million, respectively.

In August 2023, the Company entered into an amendment to the CSL Collaboration Agreement, pursuant to which the Company agreed to sponsor and conduct a Phase I clinical study in the influenza field.

As part of the amendment, the Company and CSL Seqirus agreed to a $ 17.5 million milestone payment which was met during the third quarter of 2023 upon the execution of a Phase I study start-up agreement.

The amendment also provides for up to $ 1.5 million in additional payments which are achievable upon meeting certain clinical milestones relating to the Phase I clinical study in the influenza field.

The Company previously concluded that the expansion of research and development support services under the CSL Collaboration Agreement represented an option that was not a material right.

Therefore the Company concluded the promise to sponsor and conduct the Phase I clinical study is a separate contract and the sole performance obligation under the new arrangement.

During the third quarter of 2023, the Company recognized $ 1.2 million related to the performance obligation and recorded the remaining amount of $ 16.3 million to deferred revenue.

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.

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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 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.

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

As of September 30, 2023 , the Company has accrued liabilities related to this arrangement of $ 3.5 million in current liabilities and $ 1.0 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 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.

The 2017 Agreement allocated discovery, development, funding obligations, and ownership of related intellectual property among the Company and Janssen.

The Company received an upfront payment of $ 7.7 million and was reimbursed for research costs as incurred.

On October 31, 2022, Arcturus received notice of termination from Janssen Pharmaceuticals, Inc.

of the 2017 Agreement, and the termination was effective as of December 30, 2022.

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

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.

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

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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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.

The Company recognized $ 1.8 million and $ 3.3 million of revenue during the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023 , the remaining available funding net of revenue earned was $ 59.6 million.

Fair Value Measurements

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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.

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.

Prior to payoff and forgiveness of

long-term debt in the first quarter of 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 September 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)

June 30, 2023

September 30, 2023

December 31, 2022

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Property and equipment, net

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.

Depreciation and amortization expense was $ 0.8 million and $ 2.1 million for the three and nine months ended September 30, 2023 , respectively, and $ 0.4 million and $ 1.0 million for the three and nine months ended September 30, 2022, respectively.

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

1 unchanged sentence

(in thousands)

June 30, 2023

September 30, 2023

December 31, 2022

3 unchanged sentences

Clinical accruals

Vinbiocare contractual liabilities

Contractual liabilities

Other accrued research and development expenses

8 unchanged sentences

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.

In September 2023, the Company drew down $ 20.0 million from the Loan.

Manufacturing Support Agreement

6 unchanged sentences

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.

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

For the nine months ended September 30, 2023, the Company recorded interest expense of $ 0.5 million, compared to interest expense o f $ 1.6 million fo r the same period in 2022.

Termination of Agreement with Western Alliance Bank

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

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.

For the three months ended September 30, 2023, the Company recorded no interest expense, compared to interest expense of $ 0.7 million for the same period in 2022.

For the nine months ended September 30, 2023 and 2022, the Company recorded interest expense of $ 0.3 million and $ 2.1 million, respectively.

Stockholders’

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.

Potentially dilutive securities that were not included in the calculation of diluted net loss per share for the three and nine months ended September 30, 2023 as they were anti-dilutive totaled 1.2 million and 0.8 million, respectively, and 0.5 million and 0.7 million for the three and nine months ended September 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, 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.

As of September 30, 2023, a total of 1,523,452 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.

1 unchanged sentence

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 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.

As of September 30, 2023, a total of 100,725 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 loss for the three and six months ended June 30, 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 nine months ended September 30, 2023 and 2022 was as follows:

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(in thousands)

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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.

For the three and nine months ended September 30, 2023, the Company recorded $ 0.9 million and $ 1.6 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.

1 unchanged sentence

Cystic Fibrosis Foundation Agreement

On August 1, 2019, the Company amended its Development Program Letter Agreement, dated May 16, 2017 and as amended July 13, 2018, with the Cystic Fibrosis Foundation (“CFF”).

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.

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 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.

On September 25, 2023, the Company amended its Development Program Letter Agreement, dated May 16, 2017 and as amended July 13, 2018 and August 1, 2019, with the Cystic Fibrosis Foundation (“CFF”).

Pursuant to the amendment, (i) CFF increased the amount it will award to advance LUNAR-CF to $ 24.6 million from approximately $ 15.6 million, (ii) the Company agreed to incur at least $ 15.0 million toward activities under the research plan.

Subsequent to September 30, 2023, the Company received the full payment from CFF related to the amendment.

The funds received from CFF will be recognized as contra research and development expense beginning in the three months ended September 30, 2023.

Total contra expense of $ 1.8 million was recognized during the three and nine months ended September 30, 2023.

For the three and nine months ended September 30, 2022, the Company recognized contra expense of $ 0.5 million and $ 3.2 million, respectively, which related to the August 2019 amendment.

As of September 30, 2023 and December 31, 2022, no amounts were included in accrued liabilities.

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 is also responsible for its proportional share of operating expenses of the building and common areas.

In conjunction with the new lease, the Company received free rent for four months and received a tenant improvement allowance of $ 74,000 .

In conjunction with the new lease, the Company received free rent for four months and received a tenant improvement allowance of $ 0.1 million.

The lease may be extended for one five-year period at the then current market rate with annual escalations ;

however, the Company deemed the extension option not reasonably certain to be exercised and therefore excluded the option from the lease terms.

The Company entered into an irrevocable standby letter of credit with the landlord for a security deposit of $ 96,000 upon executing the lease which is included (along with additional funds required to secure the letter of credit) in the balance of non-current restricted cash.

The Company entered into an irrevocable standby letter of credit with the landlord for a security deposit of $ 0.1 million upon executing the lease which is included (along with additional funds required to secure the letter of credit) in the balance of non-current restricted cash.

In February 2020, the Company entered into a second non-cancellable operating lease agreement for office space near its current headquarters.

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When the lease term was determined for the operating lease right-of-use assets and lease liabilities, the extension option for the lease was not included.

The lease has a monthly base rent ranging from $ 268,000 to $ 360,000 which escalates over the lease term.

The lease has a monthly base rent ranging from $ 0.3 million to $ 0.4 million which escalates over the lease term.

The Company received a free rent period of four months and also pays for various operating costs, including utilities and real property taxes.

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

As of September 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 $ 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.

Operating lease costs were $ 1.4 million and $ 4.2 million for the three and nine months ended September 30, 2023 , respectively, and $ 1.4 million and $ 3.3 million for the three and nine months ended September 30, 2022, respectively.

Related Party Transactions

Equity-Method Investment

In June 2018, the Company completed the sale of its intangible asset related to the ADAIR technology.

Pursuant to the asset purchase agreement for ADAIR, the Company received a 30 % ownership interest in the common stock of Vallon Pharmaceuticals, Inc.

(“Vallon”) in consideration for the sale of the ADAIR technology.

Vallon completed an initial public offering and began trading on The Nasdaq Stock Market under the ticker “VLON”

in February 2021.

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.

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

On December 13, 2022, Vallon Pharmaceuticals, Inc.

(“Vallon”) entered into an agreement with GRI Bio, Inc.

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

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

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.

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

The following is a discussion of the financial condition and results of operations of Arcturus Therapeutics Holdings Inc.

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

for the three and nine month periods ended September 30, 2023.

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

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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, 2022 (the “2022 Annual Report”), which was filed with the U.S.

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, 2022 (the “2022 Annual Report”), which was filed with the U.S.

Securities and Exchange Commission (the “Commission”) on March 29, 2023.

12 unchanged sentences

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

(“CSL Seqirus”), a part of CSL Limited, and one of the world’s leading influenza vaccine providers, for the global exclusive rights to research, develop, manufacture and commercialize self-amplifying mRNA vaccines against COVID-19, influenza and three other respiratory infectious diseases with non-exclusive rights to pandemic pathogens.

(“CSL Seqirus”), a part of CSL Limited, and one of the world’s leading influenza vaccine providers, for global exclusive rights to research, develop, manufacture and commercialize self-amplifying mRNA vaccines against COVID-19, influenza and three other respiratory infectious diseases and global non-exclusive rights to pandemic pathogens.

The CSL Collaboration Agreement became effective on December 8, 2022.

2 unchanged sentences

manufacturing expertise and innovative STARR ® self-amplifying mRNA vaccine and LUNAR ® delivery platform technologies.

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).

Under the framework of our collaboration with CSL Seqirus, we continue the development of the COVID-19 vaccine to establish a differentiated platform and address routine recommendations for periodic vaccine composition updates in a timely manner.

On August 10, 2023, we entered into an amendment to the CSL Collaboration Agreement, pursuant to which CSL Seqirus agreed to make a $17.5 million milestone payment related to a development milestone for the LUNAR-FLU program under the collaboration.

We plan to initiate a Phase 1 clinical study with a candidate influenza vaccine during the fourth quarter of 2023 as a part of this collaboration program.

COVID Collaboration Program Updates

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 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.

In April 2023, we received an advance payment of $23.6 million for the manufacturing and supply of ARCT-154 from CSL Seqirus.

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.

The interim results of this study demonstrated immunological non-inferiority and superiority of ARCT-154 over the conventional mRNA vaccine as measured by neutralizing antibodies against ancestral SARS-CoV-2 strain and Omicron BA.4/5 subvariant, which was dominated

during the study period.

In September 2023, we achieved a development milestone related to the completion of the first GMP batch manufacture of drug product in a multi-dose vial for clinical studies in the SARS-CoV-2 field.

On July 13, 2023, an article with the study results 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.

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

Following the completion of the peer review by Lancet Infectious Diseases in October 2023, the journal accepted the manuscript, which should be published by the end of the year.

In August 2023, we submitted the primary manuscript with efficacy, immunogenicity and safety results of the pivotal Phase 1/2/3 clinical study of ARCT-154 in Vietnam that completed dosing of over 19,000 participants in 2022.

The preprint of this article is available on https://doi.org/10.21203/rs.3.rs-3329097/v1.

The peer review of the manuscript is ongoing by Nature Communications.

On August 7, 2023, we announced that Phase 1/2 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.

The results of this study were presented as a poster at the 9th Influenza Conference of the European Scientific Working Group on Influenza (ESWI) in Valencia, Spain.

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.

On November 1, 2023, at the 11th mRNA conference in Berlin, we presented the preliminary 6-month durability data of immune response of our COVID-19 vaccine candidate, ARCT-154, compared to the licensed conventional mRNA vaccine (Comirnaty) from the Phase 3 study in Japan that completed enrollment in February 2023 is now available.

The results indicate a

superior antibody persistence of our COVID-19 vaccine over the comparator, as measured by pseudoviral neutralization assays with ancestral SARS-CoV-2 strain and Omicron BA.4/5 subvariant.

On September 29, 2023, CSL's Japanese distribution partner, Meiji, initiated a Phase 3 clinical study with a bivalent version of our COVID-19 vaccine candidate (ancestral strain, ARCT-154 and Omicron BA.4/5) to further support immunogenicity and safety of our self-amplifying mRNA platform and which may facilitate the timely release of future seasonal updates of our COVID-19 vaccine against evolving variants of concern.

The study is enrolling healthy adults and individuals with comorbidities, who previously received 2-4 doses of mRNA COVID-19 vaccines, including the last booster at least 3 months prior to recruitment, and has exceeded the targeted enrollment of 850 participants ahead of schedule.

The study will compare the investigational vaccine, ARCT-2301 and COMIRNATY (ancestral strain and BA.4/5), for evaluation of safety and immunogenicity between observer-blind groups.

Preliminary results of his study are expected by the end of Q1 2024.

The results of this study of the bivalent version of our COVID-19 vaccine candidate are not required for approval of ARCT-154 in Japan but will facilitate the timely release of future seasonal updates of the COVID-19 vaccine without the need for additional clinical data.

On September 5, 2023, we announced that the European Medicines Agency (EMA) validated the marketing authorization application (MAA) for ARCT-154, a next generation mRNA vaccine, for active immunization to prevent COVID-19 caused by SARS-CoV-2 in individuals 18 years of age and older.

Flu Collaboration Program Updates

We received this milestone payment during the quarter ended September 30 2023 and the Company intends to use the

proceeds from this milestone payment to fund the Company’s development activities under the LUNAR-FLU program, including the initiation of Phase 1 clinical study.

We have generated a comprehensive non-clinical data package to support the initiation of the Phase 1 clinical trial with a novel influenza mRNA vaccine candidate.

All necessary approvals to initiate the Phase 1 study have been received.

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.

LUNAR-OTC/ARCT-810 - We remain committed to our rare disease program for ornithine transcarbamylase (OTC) deficiency.

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

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

We expect the final database lock to occur in the fourth quarter of 2023.

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.

We are taking various actions to address the continued challenging enrollment rate in Europe, by adding study sites and patient services to eliminate barriers to participation.

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.

o In June 2023, ARCT-810 received Rare Pediatric Disease Designation from the FDA.

Such 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.

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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.

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, with each participant receiving two administrations of ARCT-032.

We initiated Phase 1b enrollment in October 2023, with dosing of first participant scheduled in November 2023.

o In September 25, 2023, we entered into an amendment to our Development Program Letter Agreement with the Cystic Fibrosis Foundation Agreement.

Please see “Updates on Collaboration Agreements”

“Cystic Fibrosis Foundation Agreement”.

o On October 25, 2023, ARCT-032 received Rare Pediatric Disease Designation from the FDA.

Such 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-032 achieves approval for a pediatric indication in the original rare pediatric disease product application in the United States, Arcturus (or the sponsor of ARCT-032) will receive a voucher for priority review of a subsequent marketing application for a different product.

o In November 2023, we presented new data showing proof of activity in vivo (G551D CF Ferret model) at the North American Cystic Fibrosis Conference.

The ferrets in the study require continuous treatment with the CFTR modulator ivacaftor to prevent disease progression.

A single administration of ARCT-032 showed successful transfection of airway epithelial cells and restoration of mucociliary clearance of ARCT-032 above the level maintained with ivacaftor.

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”).

On December 1, 2021, Ultragenyx announced that the first patient had been dosed in its Phase 1/2 study of UX053, an investigational messenger RNA therapy in development under the collaboration for the treatment of Glycogen Storage Disease Type III, and thus the first milestone under the collaboration agreement had been met.

Ultragenyx has completed dosing in the single ascending dose, or SAD, stage of the Phase 1/2 study of UX053 with no safety issues observed.

Ultragenyx has disclosed that it will not enroll patients in the multiple ascending dose cohorts at this time to allow greater focus on its other late-stage and larger indication clinical programs.

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

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.

CSL Collaboration Agreement.

Please see “

Business Updates ”

Updates on Vaccine Program ”

Cystic Fibrosis Foundation Agreement

On May 16, 2017, pursuant to a Development Program Letter Agreement (as amended, the “CFF Agreement”) with the Cystic Fibrosis Foundation (“CFF”), CFF agreed to award us funding for a development program to identify lead CFTR mRNA sequences and LUNAR ® formulations, demonstrate tolerability of LUNAR ® CFTR mRNA, and demonstrate translatability of aerosolized LUNAR ® .

The award includes a grant of rights to CFF know-how to assist us to research, develop, commercialize, make or otherwise exploit a product.

If the award results in a successful commercialized product, we will pay CFF (i) royalties on sales of the product up to a maximum of a single-digit multiple of the total award amount actually paid to us by CFF, and (ii) thereafter, a single-digit percentage of annual net sales.

Further, in the event of a license, sale or other transfer of the product or our development program technology (including a change of control transaction), we will pay CFF a percentage of such license, sale or transfer payments actually received by us or our shareholders (subject to a royalty cap).

On August 1, 2019, we entered into an amendment to the CFF Agreement.

Pursuant to the amendment, (i) CFF will increase the amount it will award to advance LUNAR-CF, (ii) we will provide a certain amount of matching funds for remaining budgeted costs, and (iii) the related disbursement schedule from CFF to us was modified such that (a) a disbursement was made upon execution of the amendment, (b) an agreed upon amount will be disbursed to us within thirty days of the first day of each of January, April, July and October 2020, and (c) the last payment will be disbursed upon us invoicing CFF to meet good manufacturing practices and submitting an IND application.

In January 2022, the parties signed an additional amendment for CFF to fund the development of a CF ferret model for application in the development of ARCT-032, our LUNAR-CF candidate.

On September 25, 2023, we entered into an additional amendment (the “Fourth Amendment”) to the CFF Agreement, pursuant to which we and CFF agreed to:

(a) increase the Amount of Award (as defined in the CFF Agreement and applicable amendment) from CFF to advance LUNAR-CF by up to $9 million (for a total to date of up to approximately $25 million), and required Arcturus to provide $15 million in matching funds for remaining budgeted costs;

(b) modify the existing rates and caps on royalties due to CFF under the CFF Agreement, including the addition of an option for Arcturus to reduce the royalty rate through a one-time payment;

(c) modify the calculation of payments from Arcturus to CFF in the event of certain dispositions or licensing of cystic fibrosis or other pulmonary assets or of a change of control of Arcturus;

and (d) make corresponding changes to exhibits, definitions and other provisions of the CFF 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”).

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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 ARCALIS Joint Venture

On August 14, 2023, we announced that ARCALIS Inc.

(ARCALIS), our manufacturing joint venture in Japan to support the production of mRNA vaccines and therapeutics, had been awarded up to $115 million in two separate grants from the Japanese government.

We anticipate that these grants will be used to fund the construction of a factory and the purchase of capital equipment to support current Good Manufacturing Practice (cGMP) production of mRNA drug substance and mRNA drug product operations.

On October 4, 2023, we announced that ARCALIS was selected by the Japanese Ministry of Economy, Trade and Industry to receive additional financial support to construct a DNA template manufacturing facility along with new state-of-the-art equipment.

DNA plasmid generated at this facility would be used as key starting material in the manufacture of mRNA drug substance at

ARCALIS’

neighboring mRNA drug substance facility, which was completed in July 2023.

To date, approximately $165 million has been awarded to ARCALIS by the Japanese government, subject to certain terms and conditions, to build mRNA Drug Substance, mRNA Drug Product manufacturing capabilities and to construct a DNA template manufacturing facility.

As of November 6, 2023, our ownership in ARCALIS is 36.7%.

Updates on Research and Platform Activities

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

Three Months Ended June 30,

Three Months Ended September 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,

* Greater than 100%

Revenue increased by $31.8 million during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

The increase was primarily attributable to $45.2 million of revenue recognized from the collaboration agreement and flu Phase I agreement with CSL Seqirus, as well as grant revenue recognized from the agreement with BARDA, which were both executed in the second half of 2022 with negligible revenue recognized during the third quarter of 2022.

The increase was primarily offset by a decrease in revenue of $13.4 million related to decreased revenue recognized as a result of the termination of collaboration agreements with CureVac, UGX, Janssen and Vinbiocare.

Nine Months Ended September 30,

(in thousands)

* Greater than 100%

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

Revenue increased by $90.2 million during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

The increase was attributable to an increase in revenue of $133.0 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.

(i) $27.2 million related to the termination of the agreement

with Vinbiocare, (ii) $12.5 million related to the agreement with the Israeli Ministry of Health, (iii) $1.9 million related to the termination of the agreement with Janssen and (iv) $1.0 million related to the termination of the agreement with UGX.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 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 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.

Research and development expenses were $51.1 million for the three months ended September 30, 2023, compared with $37.7 million in the comparable period last year, primarily reflecting increased clinical research and manufacturing costs of $11.6 million and an increase of $2.0 million in personnel related costs, an increase in travel and consulting expenses of $0.2 million, an increase of $0.7 million in facilities expense and offset by a decrease of contra research and development expenses recognized of $1.1 million.

Research and development expenses were $155.5 million for the nine months ended September 30, 2023, compared with $120.8 million in the comparable period last year, primarily reflecting increased manufacturing costs of $27.8 million, an increase of $5.7 million in personnel related costs, an increase in consulting expenses of $1.4 million, an increase of $2.1million in facilities expense and a decrease of contra research and development expenses recognized of $1.6 million.

The increase was primarily offset by a decrease of clinical-related expenses of $3.9 million.

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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 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.

Personnel related expenses primarily consist of employee salaries and benefits, share-based compensation and consultants.

Although such expenses increased during 2023 as compared to 2022, we expect that they will not increase over the next twelve months.

Facilities and equipment expenses increased during the nine months ended September 30, 2023 as a result of increased rent and associated costs related to a new facility we took possession of in April 2022.

Facilities and equipment expenses are not expected to increase during the next twelve months.

General and Administrative Expenses

General and administrative expenses primarily consist of salaries and related benefits for our executive, administrative, legal and accounting functions and professional service fees for legal and accounting services as well as other general and administrative expenses.

General and administrative expenses were $13.2 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 June 30,

Six Months Ended June 30,

The Company does not expect that general and administrative expenses will increase on a yearly basis from the current quarter September 30, 2023 expense trend.

General and administrative expenses were $13.4 million and $40.4 million for the three and nine months ended September 30, 2023, respectively, compared with $12.5 million and $34.2 million in the comparable periods last year.

These increases in expenses 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.

The Company does not expect that general and administrative expenses will increase on a yearly basis from the current quarter September 30, 2023 expense trend.

Finance income (expense), net

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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Interest income is generated on cash and cash equivalents.

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.

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

Interest expense decreased as no interest expense was incurred during the second and third quarters of 2023 related 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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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.

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

We recorded no gain or loss in the three and nine months ended September 30, 2023, compared with no gain or loss in the three months ended September 30, 2023 and $0.5 million losses in the nine months ended September 30, 2022 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 changes in gain (loss) from foreign currency for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 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 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.

Through September 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 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.

From the Company’s inception through the quarter ended September 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.

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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.

At September 30, 2023, we had $311.9 million in unrestricted cash and cash equivalents which includes amounts borrowed of $20.0 million from the Wells Fargo Credit Agreement.

Balances outstanding under the line of credit will vary from quarter to quarter as cash flow from collaborations fluctuate.

CSL Seqirus, Inc.

Collaboration and License Agreement

We entered into the CSL Collaboration Agreement with CSL Seqirus, a part of CSL Limited, one of the world’s leading influenza vaccine providers, for the global exclusive rights to research, develop, manufacture and commercialize 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.

We received an up-front payment of $200.0 million during the fourth quarter of 2022.

We will be eligible to potentially receive development milestones totaling more than $1.3 billion if all products are registered in the licensed fields.

We will also be entitled to potentially receive up to $3.0 billion in commercial milestones based on “net sales”

We will be eligible to receive development milestones totaling more than $1.3 billion if all products are registered in the licensed fields.

We will also be entitled to receive up to $3.0 billion in commercial milestones based on “net sales”

of vaccines in the various fields.

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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”).

entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”) whereby Wells Fargo agreed to make a $50.0 million revolving credit line available to the Company (the “Wells Fargo Loan”) and each Wells Fargo Loan evidenced by a revolving line of credit note (the “Note”).

Borrowings under the agreement will bear interest at a rate of 1.00% above either the Daily Simple SOFR or Term SOFR (as such terms are defined in the Wells Fargo Note), with “SOFR”

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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.

During the three months ended September 30, 2023, we drew down $20.0 million which was subsequently repaid in October 2023.

Grant from the Biomedical Advanced Research and Development Authority

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Department of Health and Human Services (HHS) to support the development of a low-dose pandemic influenza candidate based on our proprietary self-amplifying messenger RNA-based vaccine platform.

The BARDA Contract is to support our non-clinical and pre-clinical development, early-stage clinical development through Phase 1, and associated drug product manufacturing, regulatory and quality-assurance activities over a period of three years.

The BARDA Contract is to support our non-clinical and pre-clinical development, early-stage clinical development through Phase 1, and associated drug product

manufacturing, regulatory and quality-assurance activities over a period of three years.

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

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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