Arcturus Therapeutics Holdings Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following is a discussion of the financial condition and results of operations of Arcturus Therapeutics Holdings Inc. for the three and six month periods ended June 30, 2024. Unless otherwise specified herein, references to the “Company,” “Arcturus,” “we,” “our” and “us” mean Arcturus Therapeutics Holdings Inc. and its consolidated subsidiaries. You should read the following discussion and analysis together with the interim condensed consolidated financial statements and related notes included elsewhere herein. For additional information relating to our management’s discussion and analysis of financial conditions and results of operations, please see our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “Commission”) on March 14, 2024. Unless otherwise defined herein, capitalized words and expressions used herein shall have the same meanings ascribed to them in the 2023 Annual Report. This report includes forward-looking statements which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those currently anticipated and expressed or implied by such forward-looking statements. You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. You should also review the factors and risks we describe in the reports we will file or submit from time to time with the Commission after the date of this report. Overview We are a global messenger RNA medicines company focused on the development of infectious disease vaccines and opportunities within liver and respiratory rare diseases. In addition to our messenger RNA (“mRNA”) platform, our proprietary lipid nanoparticle (“LNP”) delivery system, LUNAR ® , may enable multiple nucleic acid medicines. Our proprietary self-amplifying mRNA technology (STARR ® technology) provides a longer-lasting and broader response at lower dose levels than conventional mRNA. In 2023, our COVID-19 vaccine, ARCT-154 (also referred to as Kostaive ® ), received marketing authorization approval in Japan and became the world’s first approved self-amplifying RNA (sa-mRNA) vaccine. We are leveraging our proprietary LUNAR platform and our nucleic acid technologies to develop and advance a pipeline of mRNA-based vaccines and therapeutics for infectious diseases and rare genetic disorders with significant unmet medical needs. We continue to expand this platform by adding new innovative delivery solutions that allow us to expand our discovery efforts. Our proprietary LUNAR technology is intended to address the major hurdles in RNA drug development, namely the effective and safe delivery of RNA therapeutics to disease-relevant target tissues. We believe the versatility of our platform to target multiple tissues, its compatibility with various nucleic acid therapeutics, and our expertise in developing scalable manufacturing processes can allow us to deliver on the next generation of nucleic acid medicines. 16 Business Updates Vaccine Collaboration with CSL Seqirus In November 2022, we entered into a Collaboration and License Agreement (as amended, the “CSL Collaboration Agreement”) with Seqirus, Inc. (“CSL Seqirus”), a part of CSL Limited, and one of the world’s leading influenza vaccine providers, for global exclusive rights to research, develop, manufacture and commercialize self-amplifying mRNA vaccines against COVID-19, influenza and three other respiratory infectious diseases and global non-exclusive rights to pandemic pathogens. The CSL Collaboration Agreement became effective on December 8, 2022. The collaboration combines CSL Seqirus’ established global vaccine commercial and manufacturing infrastructure with Arcturus’ manufacturing expertise and innovative STARR self-amplifying mRNA vaccine and LUNAR delivery platform technologies. Under the framework of our collaboration with CSL Seqirus, we continue the development of the COVID-19 vaccine to establish a differentiated platform and address routine recommendations for periodic vaccine composition updates in a timely manner. In November 2023, ARCT-154, our self-amplifying RNA (sa-mRNA) vaccine, received marketing authorization approval from the Japanese Ministry of Health, Labour and Welfare for use as a primary immunization and booster in Japan. The approval was based on positive clinical data from several ARCT-154 studies, including the pivotal 19,000 subject efficacy, safety and immunogenicity study performed in Vietnam as well as the pivotal Phase 3 booster study in Japan. In May 2024, we announced that Nature Communications published results from the 19,000 subject study performed in Vietnam, with results demonstrating that two 5µg doses of ARCT-154 were well-tolerated, immunogenic and provided significant protection against multiple strains of COVID-19. The Japanese Pharmaceuticals and Medical Devices Agency (PMDA) is currently reviewing a partial change application to update our COVID-19 vaccine (Kostaive ® ) with the JN.1 Variant of Concern. The European Medicines Agency (EMA) is currently reviewing a marketing authorization application for ARCT-154. The review procedure started on August 17, 2023. We continue to collect data from the various ongoing studies described below. Key Updates on Our COVID Collaboration Program Pivotal Phase 3 Non-Inferiority Study of ARCT-154 in Japan Meiji Holdings Co., Ltd. (“Meiji”) sponsored a randomized, multicenter, Phase 3, observer-blind, active-controlled comparative study to evaluate the safety and immunogenicity of a booster dose of ARCT-154 and to evaluate the non-inferiority of ARCT-154 over COMIRNATY (Monovalent, Original strain). The study targeted a total of 780 adult participants, with half in the ARCT-154 group and half in a comparator group, and completed enrollment with 828 participants in February 2023. As previously announced, the study met all primary and secondary immunogenicity endpoints, including a secondary pre-defined superiority assessment over COMIRNATY (Omicron BA.4/5 strain). Overall, the safety and immunogenicity results of the study support the favorable benefit/risk profile of the ARCT-154 vaccine when administered as a booster dose in adult individuals who previously received other mRNA COVID-19 vaccines. On February 1, 2024, the journal Lancet Infectious Diseases published the article ‘Persistence of immune responses of a self-amplifying RNA COVID-19 vaccine (ARCT154) versus BNT162b2’ (https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(24)00060-4/fulltext), with 6-month follow-up results from this study. These additional data demonstrate the extended persistence of neutralizing antibodies after ARCT-154 compared with conventional mRNA vaccine in the clinical setting, indicating longer-lasting immunity and implying a longer duration of protection by ARCT-154. Phase 3 Study of Bivalent Version of COVID-19 Vaccine Candidate in Japan On September 29, 2023, Meiji initiated an additional Phase 3 clinical study with a bivalent version of our COVID-19 vaccine candidate (ARCT-2301, which combines ancestral strain, ARCT-154 and Omicron BA.4/5) to further support immunogenicity and safety data for our self-amplifying mRNA platform, which may facilitate the timely release of future seasonal updates of our COVID-19 vaccine against evolving variants of concern. On March 19, 2024, Meiji announced that the bivalent vaccine met the primary endpoint (non-inferiority) in the study. The study enrolled 930 healthy adults and individuals with comorbidities, who previously received three to five doses of mRNA COVID-19 vaccines, including the last booster at least three months prior to recruitment. The study compares the investigational vaccine (ARCT-2301) and COMIRNATY (ancestral strain and BA.4/5), to evaluate safety and immunogenicity between observer-blind groups. Both the geometric mean titer (GMT) ratio and seroresponse rate (SRR) difference of neutralizing antibodies against SARS-CoV-2 (Omicron strain BA.4/5) met non-inferiority criteria. In addition, the superiority of 17 ARCT-2301 to COMIRNATY (BA.4/5) was confirmed for both SARS-CoV-2 (Omicron strain BA.4/5 and Wuhan strain). There were no causally-associated severe or serious adverse events with ARCT-2301. The results of this study of the bivalent version of our COVID-19 vaccine candidate were not required for approval of ARCT-154 in Japan but will facilitate the timely release of future seasonal updates of the COVID-19 vaccine. Figure: Geometric mean titers (GMT) of surrogate neutralizing antibodies at Days 1 (baseline) and 29, and geometric mean-fold rises (GMFR) in titers from Day 1 to Day 29; B) GMT Ratio; C) seroresponse rates (SRR) at Day 29; D) SRR Difference – Study ARCT-2301-J01. Note: GMT – Geometric Mean Titer; SRR – seroresponse rate. All values are from the Per Protocol Subset 1 (PPS-1) and are shown with 95% confidence intervals in parentheses. Solid circles ( ● ) represent the Wuhan variant, open circles ( ○ ) represent the Omicron BA.4/5 variant, and open squares ( ☐ ) represent the Omicron XBB.1.5 variant. Vertical lines represent the threshold for achieving the non-inferiority and superiority comparisons of ARCT-154 to Comirnaty . Bivalent ARCT-2301, when administered intramuscularly as a booster dose in subjects who had received three to five doses of authorized mRNA COVID-19 vaccines at least three months before the recruitment, demonstrated immunological superiority over the comparator vaccine (COMIRNATY ® bivalent: Wuhan strain/Omicron strain BA.4/5), as measured by GMT ratios and seroresponse rates differences for both vaccine strains (prototype Wuhan strain and Omicron BA.4/65 variant). In addition, ARCT-2301 induced a higher immune response against the epidemiologically dominant Omicron XBB.1.5 variant. Phase 3 Study in Southern Hemisphere of Monovalent XBB1.5 COVID-19 Vaccine Candidate In March 2024, Arcturus and CSL Seqirus initiated a Phase 3 pivotal study with the ARCT-2303 candidate vaccine containing the XBB1.5 Omicron variant. The purpose of this study is to generate additional immunogenicity and safety data in multiple ethnicities to support regulatory filings globally. In addition, the study will assess the co-administration of the ARCT-2303 vaccine 18 with the age-appropriate seasonal influenza vaccines. Overall, 1,499 young and older adults were recruited in the study in Australia, Costa Rica, Honduras and the Philippines. The results of this study are expected in the fourth quarter of 2024. Flu Collaboration Program Updates LUNAR-qsFLU (Quadrivalent Seasonal Influenza) Our LUNAR-qsFLU (qs; quadrivalent seasonal) program, now exclusively licensed to CSL Seqirus, has the objective of producing a safe and effective seasonal influenza vaccine candidate with significant advantages over the traditional egg-based inactivated quadrivalent vaccine. Inaccurate predictions of circulating influenza strains as well as mutations due to adaptation in egg-grown vaccines can substantially reduce efficacy on a year-to-year basis. We believe the ability of mRNA platforms to nimbly adapt to new viral strains should help improve efficacy. In addition, we do not expect mRNA vaccines to face the challenge from mutations common to egg-grown vaccines. LUNAR-qsFLU has been designed to take advantage of our expertise in both LUNAR lipid delivery systems and our STARR self-amplifying mRNA technology. This platform has been shown to deliver effective protection against COVID-19 and has been optimized to elicit robust immunogenicity with acceptable reactogenicity at a lower dose than conventional mRNA vaccines with the objective of creating a highly effective influenza vaccine for use in general and high-risk populations. Working with CSL Seqirus, we generated a comprehensive non-clinical data package to support the initiation of the Phase 1 clinical trial with a novel influenza mRNA vaccine candidate. A Phase 1 dose-finding safety and immunogenicity study was initiated in January 2024 in Australia. As of August 1, 2024, 100 healthy young adults and 35 older adults were recruited in the study and received one of four dose levels of the study vaccine or a licensed influenza vaccine. Pandemic Influenza Program Our LUNAR-pandFLU program continues to progress under the award from the Biomedical Advanced Research and Development Authority (“BARDA”) that we obtained in 2022. The program includes all non-clinical, manufacturing, and regulatory support to advance a vaccine to protect against disease caused by H5N1 highly-pathogenic avian influenza. A pre-IND meeting was granted and Written Response Only (“WRO”) was received for integration into future development plans. Nonclinical safety studies have been completed that will enable the Phase 1 clinical trial. Enrollment for a Phase 1 clinical trial designed to evaluate the safety and immunogenicity of ARCT-2304 (LUNAR-pandFLU candidate vaccine) is expected to begin before the end of 2024. Key Updates on Arcturus-Owned mRNA Therapeutic Development Candidates The following chart represents our current pipeline of Arcturus-owned mRNA therapeutic candidates: • LUNAR-OTC/ARCT-810 o A Phase 1b study in stable OTC-deficient adults completed dosing in the United States in August 2023. The trial was designed to assess safety, tolerability and pharmacokinetics of a single dose of ARCT-810, as well as exploratory biomarkers of drug activity. The Phase 1b study was a single ascending dose, placebo-controlled study that enrolled 16 adults with mild OTCD. ARCT-810 was generally safe and well tolerated at doses ranging from 0.1-0.5mg/kg and no severe adverse events were observed. Sporadic infusion-related reactions (IRRs) could be managed with symptomatic treatment and appear to be less frequent with slower infusion rates. In plasma, ARCT-810 mRNA could be detected up to 4 weeks, while ionizable lipid was no longer measurable after 48 hours, indicating rapid degradation of the lipid nanoparticle that was utilized to deliver ARCT-810 mRNA. o A Phase 2 double-blind multiple-dose study of ARCT-810 in OTC-deficient adolescents and adults in the European Union and United Kingdom initiated dosing in December 2022. In July 2024, the Phase 2 study completed enrollment of eight subjects, including adolescents and adults, at the 0.3 mg/kg dose level. The participants in this 19 group are randomized 3:1 to receive 6 doses of ARCT-810 or placebo administered every 14 days. Treatment and follow-up are ongoing. o We are expanding the Phase 2 clinical program of ARCT-810 by enrolling patients in the U.S. with more serious disease. Patient screening has been initiated in the study. • LUNAR-CF/ARCT-032 – Our program for cystic fibrosis is being supported in part by the Cystic Fibrosis Foundation (“CFF”). In 2023 we initiated and successfully achieved the recruitment target in a Phase 1 single ascending dose study of ARCT-032 (LUNAR-CF), our mRNA therapeutic candidate for cystic fibrosis (CF), in 32 healthy participants (eight subjects in each of four dose cohorts). In August 2023 we received regulatory approval of a protocol amendment to 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. o On June 7, 2024, we presented Phase 1 interim data of ARCT-032 at the 47 th Annual European Cystic Fibrosis Conference. ARCT-032 was generally safe and well tolerated with no serious or severe adverse events in healthy volunteers and in the first four dosed participants with CF in Phase 1b, of which one had 2 Class I mutations and the other three had F508del mutations and were being treated with Trikafta ® . o We submitted an IND application at the end of July 2024 for an ARCT-032 Phase 2 multiple ascending dose study designed to identify a safe and effective dose in Class I (null) and other CF participants who do not benefit from CFTR modulators. This study is supported by safety and tolerability data collected in healthy volunteers (N = 32) and the ongoing two-administration Phase 1b study. No serious adverse events (SAEs) have been observed in any clinical trial participants to date. No febrile reactions have been observed within the target dose range of the planned Phase 2 study. The Phase 1b study has completed dosing and follow-up visits. Of the seven total CF participants in Phase 1b, six are receiving CFTR modulator treatment while one subject has Class I mutations and therefore does not benefit from modulator therapy. The Class I CF subject had low lung function at baseline (ppFEV1 below 50%) and showed an improvement of 4% in ppFEV1 on Day 8, after receiving two well-tolerated administrations, with no febrile reactions.. o In February 2024, the European Commission (EC), based on a positive opinion issued by the European Medicines Agency (EMA), granted Orphan Medicinal Product Designation for ARCT-032 to treat CF. ARCT-032 was granted Rare Pediatric Disease Designation in October 2023, and Orphan Drug Designation in November 2023 by the FDA. Updates on Collaboration Agreements CSL Collaboration Agreement. In March 2024, we entered into Amendment Number Two to Collaboration and License Agreement between CSL and the Company to reflect updates to the development program and other adjustments consistent with our prior disclosures regarding the Collaboration and License Agreement (“Amendment Number Two”). Amendment Number Two, among other things, adjusts (i) the development plans for certain product candidates, (ii) various development milestones related to such product candidates, (iii) provisions of the CSL Collaboration Agreement related to specific royalty payments, (iii) provisions of the CSL Collaboration Agreement related to distributors, and (iv) proprietary payment calculations related to the foregoing. 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 Programs – Vaccine Programs (Lyme Disease and Gonorrhea) Based on the clinical and regulatory validation of LUNAR and STARR technologies provided by the approval of ARCT-154, our next-generation vaccine for COVID-19, we have initiated new vaccine discovery programs for Lyme disease and gonorrhea. The new discovery programs rely on the evidence of superior immunogenicity, durability, and breadth of immune response compared to conventional mRNA vaccines, as observed in the COVID-19 program. Lyme disease is a bacterial infection and is the most common vector-borne disease in the United States. Infection can spread to joints, the heart and the nervous system. Gonorrhea is a sexually transmitted disease (STD) that can infect the mucous membranes of the reproductive tract. It is the second most commonly reported bacterial sexually transmitted infection in the United States. We selected these diseases based on high unmet medical needs, good understanding of the path forward in vaccine target selection, and demonstration of proof of concept, as well as platform advantages that may be translated in a favorable vaccine product. Updates on Supply and Manufacturing 20 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 The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Report and our audited financial statements and related notes for the year ended December 31, 2023. Our historical results of operations and the year-to-year comparisons of our results of operations that follow are not necessarily indicative of future results. Revenue We enter into arrangements with pharmaceutical and biotechnology partners and government agencies that may contain upfront payments, license fees for research and development arrangements, research and development funding, milestone payments, option exercise and exclusivity fees, royalties on future sales, consulting fees and payments for technology transfers. The following table summarizes our total revenues for the periods indicated: Three Months Ended June 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change Revenue $ 49,859 $ 10,519 $ 39,340 * * Greater than 100% Revenue increased by $39.3 million during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was primarily attributable to the receipt of a milestone payment from CSL pursuant to the CSL agreement as $45.9 million total revenue was recognized during the second quarter of 2024, compared to $7.6 million total revenue related to CSL during the second quarter of 2023, resulting in an increase of $38.3 million primarily due to the timing and value of milestone achievements and the recognition of revenue from a supply agreement during the current quarter. Additionally, there was an increase in revenue of $2.9 million related to the BARDA Contract during the second quarter of 2024 as compared to the second quarter of 2023. The total increase in revenue was offset by a $1.9 million decrease in revenue recognized from other agreements during the second quarter of 2024 as compared to the second quarter of 2023 due to lower activity or completion of collaboration agreements. Six Months Ended June 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change Revenue $ 87,871 $ 90,804 $ (2,933 ) -3.2 % Revenue decreased by $2.9 million during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. We received revenue under the CSL agreement of $78.3 million during the six months ended June 30, 2024, compared to $85.8 million total revenue related to CSL during the six months ended June 30, 2023, resulting in a decrease of $7.5 million primarily due to the timing and value of milestone achievements and the achievement of a conditional payment during the first half of 2023, offset by the recognition of revenue from a supply agreement during the current year. Additionally, there was a decrease of $3.2 million in revenue recognized under other agreements during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 due to lower activity or completion of collaboration agreements. The total decrease in revenue was offset by a $7.8 million increase in revenue recognized from the BARDA Contract during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. Our operating expenses consist of research and development and general and administrative expenses. Three Months Ended June 30, 2023 to 2024 Six Months Ended June 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change 2024 2023 $ change % change Operating expenses: Research and development, net $ 58,669 $ 52,668 $ 6,001 11.4 % $ 112,242 $ 104,436 $ 7,806 7.5 % General and administrative 12,316 13,225 (909 ) -6.9 % 27,167 26,987 180 0.7 % Total $ 70,985 $ 65,893 $ 5,092 7.7 % $ 139,409 $ 131,423 $ 7,986 6.1 % 21 Research and Development Expenses, net The following table presents our total research and development expenses by category: Three Months Ended June 30, 2023 to 2024 Six Months Ended June 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change 2024 2023 $ change % change External pipeline development expenses: LUNAR-COVID, net $ 22,327 $ 19,688 $ 2,639 13.4 % $ 43,057 $ 42,516 $ 541 1.3 % LUNAR-OTC, net 4,926 2,200 2,726 * 6,310 5,519 791 14.3 % BARDA 2,367 491 1,876 * 5,602 646 4,956 * Early-stage programs 11,579 7,072 4,507 63.7 % 18,942 11,786 7,156 60.7 % Discovery technologies 1,192 6,853 (5,661 ) -82.6 % 2,382 11,604 (9,222 ) -79.5 % External platform development expenses: Personnel related expenses 13,998 13,458 540 4.0 % 29,515 26,728 2,787 10.4 % Facilities and equipment expenses 2,280 2,906 (626 ) -21.5 % 6,434 5,637 797 14.1 % Total research and development expenses, net $ 58,669 $ 52,668 $ 6,001 11.4 % $ 112,242 $ 104,436 $ 7,806 7.5 % * 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 $58.7 million for the three months ended June 30, 2024, compared with $52.7 million for the three months ended June 30, 2023, primarily reflecting increased clinical related expenses of $6.3 million, increased manufacturing expenses of $0.8 million and increased personnel expenses of $0.5 million. The increases were offset by a $1.0 million increase in contra research and development expenses related to the agreement with the CFF and a $0.6 million decrease in facilities and equipment expenses. Research and development expenses were $112.2 million for the six months ended June 30, 2024, compared with $104.4 million in the six months ended June 30, 2023, primarily reflecting increased clinical related expenses of $6.3 million, increased personnel related expenses of $2.8 million, increased facilities and equipment expenses of $0.8 million and increased manufacturing expenses of $0.3 million. The increases were offset by $1.4 million in consulting expenses and a $1.0 million increase in contra research and development expenses related to the agreement with the CFF. We expect that our research and development efforts and associated costs will continue to be substantial over the next several years as our pipeline progresses. Early-stage programs represent programs that are in the pre-clinical or Phase 1 clinical stage and may be partnered or unpartnered, including the LUNAR-CF and LUNAR-FLU programs. Discovery technologies represent our efforts to expand our product pipeline and are primarily related to pre-partnered studies and new capabilities assessment. For some of our programs, the activities are part of our collaborative and other relationships, and the expenses may be partially offset with funds that have been awarded to the Company. The expenses for early-stage programs and discovery technologies primarily consist of external manufacturing costs, lab supplies, equipment, and consulting and professional fees. 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. Although such expenses increased during 2024 as compared to 2023, we expect that they will not increase over the next twelve months. Facilities and equipment expenses primarily consist of rent expense, common area maintenance charges, shipping costs, various costs of our offices and laboratories and depreciation expenses. Facilities and equipment expenses are not expected to increase during the next twelve months. General and Administrative Expenses General and administrative expenses primarily consist of salaries and related benefits for our executive, administrative, legal and accounting functions and professional service fees for legal and accounting services as well as other general and administrative expenses. General and administrative expenses were $12.3 million for the three months ended June 30, 2024 compared with $13.2 million for the three months ended June 30, 2023. The decrease in expenses resulted primarily from decreased personnel expenses of $0.6 million, decreased facilities expenses of $0.3 million and decreased travel expenses of $0.2 million. The overall decrease was offset by an increase of $0.2 million in legal expenses. General and administrative expenses were $27.2 million for the six months ended June 30, 2024 compared with $27.0 million in the six months ended June 30, 2023. The increase in expenses resulted primarily from a $0.5 million increase in accounting and legal fees, a $0.5 million increase in supplies and a $0.1 million increase in software expense. 22 The increase was offset by a decrease of $0.6 million in personnel related expenses and a decrease of $0.3 million in insurance costs. The Company does not expect that general and administrative expenses will increase on a yearly basis from the current quarter June 30, 2024 expense trend. Finance income (expense), net Three Months Ended June 30, 2023 to 2024 Six Months Ended June 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change 2024 2023 $ change % change Interest income $ 4,148 $ 3,252 $ 896 27.6 % $ 8,164 $ 6,472 $ 1,692 26.1 % Interest expense — — — 0.0 % — (743 ) 743 100.0 % Total $ 4,148 $ 3,252 $ 896 27.6 % $ 8,164 $ 5,729 $ 2,435 42.5 % * Greater than 100% Interest income is generated on cash and cash equivalents. The increase in interest income for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily the result of increased interest earned on investment accounts. Interest expense during the six months ended June 30, 2023 was incurred in conjunction with the Western Alliance Agreement and the Singapore Loan, both of which have since been terminated. Other income and expense Three Months Ended June 30, 2023 to 2024 Six Months Ended June 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change 2024 2023 $ change % change (Loss) gain from foreign currency $ (388 ) $ 149 $ (537 ) * $ (441 ) $ (179 ) $ (262 ) * Gain on debt extinguishment — — — * — 33,953 (33,953 ) * Total $ (388 ) $ 149 $ (537 ) * $ (441 ) $ 33,774 $ (34,215 ) -101.3 % * Greater than 100% Other income and expense items primarily relate to gains and losses from foreign currency transactions. Additionally, we recorded a gain on debt extinguishment related to the Singapore Loan of $34.0 million during the first quarter of 2023 as a result of the Singapore Loan being forgiven. Off-balance sheet arrangements Through June 30, 2024, we have not entered into and did not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Liquidity and Capital Resources From the Company’s inception through the quarter ended June 30, 2024, the Company has funded its operations principally with the proceeds from the sale of capital stock, long-term debt and revenues earned through collaboration agreements and government contracts. Through the second quarter of 2024, we have achieved a total of approximately $437.1 million in upfront payments and milestones from CSL Seqirus, including a milestone of $17.0 million achieved in the current quarter with payment anticipated in the third quarter of 2024. At June 30, 2024, we had $317.2 million in cash and cash equivalents and restricted cash. CSL Seqirus, Inc. Collaboration and License Agreement We entered into the CSL Collaboration Agreement with CSL Seqirus, a part of CSL Limited, one of the world’s leading influenza vaccine providers, for the global exclusive rights to research, develop, manufacture and commercialize mRNA vaccines. CSL Seqirus received exclusive global rights to our technology for vaccines against SARS-CoV-2 (COVID-19), influenza and three other respiratory infectious diseases and non-exclusive rights to pandemic pathogens. We received an up-front payment of $200.0 million during the fourth quarter of 2022. We will be eligible to receive development milestones totaling more than $1.3 billion if all products are registered in the licensed fields. We will also be entitled to receive up to $3.0 billion in commercial milestones based on “net sales” of vaccines in the various fields. In addition, we are entitled to receive a 40% share of net profits from COVID-19 vaccine sales and up to low double-digit royalties of annual net sales for vaccines against influenza and the other three specified infectious disease pathogens, as well as royalties on revenues from vaccines that may be developed for pandemic preparedness. 23 The CSL Collaboration Agreement sets forth how CSL Seqirus and we shall collaborate to research and develop vaccine candidates. In the COVID-19 field, we will lead activities for certain regulatory filings for ARCT-154 in the US and Europe and for research and development activities of a next-generation COVID vaccine candidate. CSL Seqirus will lead and be responsible for all other research and development in COVID-19, influenza and the other fields. Wells Fargo Credit Agreement On April 21, 2023, 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 agreed to make a $50.0 million revolving credit line available to the Company (the “Wells Fargo Loan”) and each Wells Fargo Loan evidenced by a revolving line of credit note (the “Note”). Borrowings under the agreement will bear interest at a rate of 1.00% above either the Daily Simple SOFR or Term SOFR (as such terms are defined in the Wells Fargo Note), with “SOFR” being the rate per annum equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York. If an Event of Default (as defined in the credit agreement) occurs, then all Wells Fargo Loans shall bear interest at a rate equal to 2.00% above the interest rate applicable immediately prior to the occurrence of the Event of Default. As of June 30, 2024, no borrowings were made against the Wells Fargo Note. The term of the agreement was originally two years, with an option for one-year renewals subject to Wells Fargo approval and the Company furnishing to Wells Fargo a non-refundable commitment fee equal to 0.25% of the Wells Fargo Loan amount for each such renewal. In June 2024, Arcturus Therapeutics and Wells Fargo entered into an amendment to the Note, whereby the term of the Note was extended by one year to April 2026. There is no penalty for terminating the agreement. There is no penalty for terminating the facility prior to the maturity date of the Wells Fargo Note. As collateral, 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 On August 31, 2022, we entered into a cost reimbursement contract (the “BARDA Contract”) with the Biomedical Advanced Research and Development Authority (“BARDA”), a division of the Office of the Assistant Secretary for Preparedness and Response (ASPR) within the U.S. Department of Health and Human Services (HHS) to support the development of a low-dose pandemic influenza candidate based on our proprietary self-amplifying messenger RNA-based vaccine platform. The BARDA Contract is to support our non-clinical and pre-clinical development, early-stage clinical development through Phase 1, and associated drug product manufacturing, regulatory and quality-assurance activities over a period of three years. It provides for reimbursement by BARDA of our permitted costs up to $63.2 million. Vinbiocare Agreement During 2021, we entered into a technology license and technical support agreement and the framework drug substance supply agreement with Vinbiocare, a member of Vingroup Joint Stock Company (collectively, the “Vinbiocare License & Supply Agreements”), whereby we would provide technical expertise and support services to Vinbiocare to assist in the build out of an mRNA drug product manufacturing facility in Vietnam. We received an upfront payment in aggregate of $40.0 million as part of the Vinbiocare License and Supply Agreements. In October 2022, in association with the termination of the Vinbiocare License and Supply Agreements, we signed the Vinbiocare Support Agreement with Vinbiocare which continues Vinbiocare’s clinical obligations and reserved a portion of the original $40.0 million upfront payment received from the License and Supply Agreements to be paid over the future periods. The Vinbiocare Support Agreement requires us to pay to Vinbiocare certain limited payments, including upon the occurrence of specified events through the first quarter of 2025. Vinbiocare is also eligible to receive a single digit percentage of amounts received by Arcturus on net sales, if any, of ARCT-154 (or next-generation COVID vaccine) up to a capped amount. General Financial Resources A portion of our current cash balance is expected to be utilized during fiscal year 2024 to fund (i) advances to our LUNAR-CF program in clinical trials, (ii) the continued Phase 2 trial of ARCT-810, our LUNAR-OTC candidate, (iii) expenses incurred prior to customer payments under the CSL Collaboration Agreement and BARDA Contract and (iv) continued exploratory activities related to our platform and other general administrative activities. Our future capital requirements are difficult to forecast and will depend on many factors that are out of our control. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. There can be no assurance that we will be able to obtain additional needed financing on acceptable terms or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of our existing shareholders. We expect to continue to incur additional losses in the long term, and we will need to execute on milestones within the CSL Collaboration Agreement, raise additional debt or equity financing or enter into additional partnerships to fund development. Our ability to transition to profitability is dependent on executing on milestones within the CSL Collaboration Agreement, successful 24 clinical trials for OTC and CF and identifying and developing successful mRNA drug and vaccine candidates. 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 We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin commercialization of our products. As a result, we will require additional capital to fund our operations in order to support our long-term plans. We believe that our current cash position will be sufficient to meet our anticipated cash requirements through at least the next twelve months, assuming, among other things, no significant unforeseen expenses and continued funding from partners at anticipated levels. We intend to seek additional capital through equity and/or debt financings, collaborative or other funding arrangements with partners or through other sources of financing. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, or cease operations. Our future funding requirements are difficult to forecast and will depend on many factors, including the following: • the development of our LUNAR-COV19 and LUNAR-FLU vaccine candidates; • the achievement of milestones under our strategic alliance agreements; • maintaining and/or expanding our manufacturing network and capabilities; • the terms and timing of any other strategic alliance, licensing and other arrangements that we may establish, including those with CSL Seqirus and CSL Seqirus’ arrangement with Meiji, and any related payments thereunder; • the initiation, progress, timing and successful completion of preclinical studies and clinical trials for our product candidates, including OTC and CF; • the number and characteristics of product candidates that we pursue; • the outcome, timing and cost of regulatory approvals; • delays that may be caused by changing regulatory requirements; • the cost and timing of hiring new employees to support our continued growth; • the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims; • the costs and timing of procuring clinical and commercial supplies of our product candidates; • the costs and timing of establishing sales, marketing and distribution capabilities; • the costs associated with legal proceedings; • the costs associated with potential litigation related to collaboration agreements; and • the extent to which we acquire or invest in businesses, products or technologies. Critical Accounting Policies and Estimates We prepare our condensed consolidated financial statements in conformity with GAAP. As such, we make certain estimates, judgments and assumptions that we believe are reasonable, based upon information available to us. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact our reported results of operations and financial condition. We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements for the year ended December 31, 2023. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the 2023 Annual Report. 25 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates in the United States. Due to the nature of our cash and cash equivalents, we believe that we are not subject to any material market risk exposure. We do not have any foreign currency or other derivative financial instruments.