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 nine-month periods ended September 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. This report also includes certain statements based solely on information, reports and studies provided by or conducted by Seqirus, Inc. and Meiji Holdings Co., Ltd or their respective affiliates. 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 commercial 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) has been demonstrated to be 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 in September 2024 KOSTAIVE became the world’s first approved and commercially available 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. 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, KOSTAIVE ® , a self-amplifying messenger 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 for adults 18 years and older. The approval was based on positive clinical data from several ARCT-154 studies, including a 19,000-subject efficacy, safety, and immunogenicity study performed in Vietnam, as well as a Phase 3 booster study in Japan. KOSTAIVE ® is the brand name approved in Japan for ARCT-154, which is the version of the sa-mRNA COVID vaccine encoding the ancestral strain of SARS-CoV-2, and for updated variant-specific versions of this vaccine. We may use KOSTAIVE or the specific internally generated name, such as ARCT-154, ARCT-2302 and ARCT-2303, to identify the vaccine. 16 In September 2024, we announced that Japan’s Ministry of Health, Labor and Welfare (MHLW) granted approval and authorization for an updated version of KOSTAIVE, targeted to protect against the JN.1 lineage of Omicron subvariants for adults 18 years of age and older. CSL’s exclusive partner in Japan, Meiji Holdings Co., Ltd (“Meiji”) began distributing the updated vaccine in Japan in October 2024, marking the world’s first commercially available sa-mRNA COVID-19 vaccine for adults 18 and older. The approval was based on manufacturing data demonstrating the quality and consistency of the vaccine product, non-clinical immunogenicity data against JN.1 lineage of Omicron subvariants of KOSTAIVE (JN.1), and clinical evidence supporting the safety and immunogenicity of KOSTAIVE (bivalent, BA.4/5 and ancestral strain). The European Medicines Agency (EMA) is currently reviewing a marketing authorization application for ARCT-154. The review procedure started on August 17, 2023. Earlier this year, CSL Seqirus’ partner Meiji Seika Pharma announced that it submitted a partial change application for an amendment to the manufacturing and marketing approval of KOSTAIVE ® to include manufacturing sites in Japan, including ARCALIS, Inc., Arcturus’ manufacturing joint venture in Japan. Meiji Seika Pharma will begin selling domestically produced KOSTAIVE ® this season. Clinical Studies of KOSTAIVE (COVID-19 vaccine) In connection with our collaboration with CSL Seqirus, we continue to collect data from the various ongoing studies described below. Pivotal Phase 3 Non-Inferiority Study of KOSTAIVE (ARCT-154) in Japan 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 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. 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 six-month follow-up results from this study. These additional data demonstrate the extended persistence of neutralizing antibodies after administration with 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. On September 30, 2024, we announced results from this study demonstrating that ARCT-154 maintained superior immunogenicity compared to the conventional mRNA vaccine (COMIRNATY) for up to 12 months against Wuhan-Hu-1, Omicron BA.4-5 and certain other COVID-19 variants, and at one-sixth the dose of the comparator (5µg vs 30µg, respectively). In October 2024, Lancet Infectious Diseases published the follow-up article ‘12-month persistence of immune responses to self-amplifying mRNA COVID-19 vaccines: ARCT-154 versus BNT162b2 vaccine’ ( https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(24)00615-7/fulltext ), which confirmed a better neutralizing immune response against a panel of SARS-CoV-2 strains in pre-immunized Japanese adults boosted with ARCT-154 compared with the conventional mRNA vaccine, BNT162b2, which persisted up to 12 months post-vaccination, including in those age 50 years and older. Phase 3 Study of Bivalent Version of COVID-19 KOSTAIVE in Japan On September 29, 2023, Meiji initiated an additional Phase 3 clinical study with ARCT-2301, a bivalent version of KOSTAIVE (ancestral strain 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 study endpoint (non-inferiority). 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 BA.4/5 and Wuhan strains) met pre-specified non-inferiority and superiority criteria versus COMIRNATY. There were no causally-associated severe or serious adverse events with ARCT-2301. In September 2024, we announced 6-month immunogenicity and safety results from this study. As with the monovalent vaccine, the bivalent sa-mRNA formulation demonstrates superior immunogenicity over the conventional bivalent mRNA vaccine 17 COMIRNATY, a higher immune response persisting up to six months after a booster dose, and improved breadth, supporting the robustness of the sa-mRNA vaccine platform for future vaccine strain updates. The study results were presented at OPTIONS XII for the Control of Influenza conference in Brisbane, Australia, in September 2024. Phase 3 Study in Southern Hemisphere of KOSTAIVE (Monovalent XBB1.5) 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 study aims to generate additional immunogenicity and safety data in multiple ethnicities to support regulatory filings in the US and globally. In addition, the study will assess the co-administration of the ARCT-2303 vaccine 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 study results show that all four primary study objectives and key secondary study objectives were met. ARCT-2303 demonstrated superior immune response compared to ARCT-154 as measured by neutralizing antibodies against Omicron XBB.1.5 in terms of GMT ratio and SCR difference. Co-administration of ARCT-2303 and quadrivalent influenza vaccine (QIV; Flucelvax, CSL) in adults 18-64 years old showed noninferior immune response compared to standalone QIV. Co-administration of ARCT-2303 and QIV also showed noninferior immune response compared to standalone ARCT-2303. Co-administration of ARCT-2303 and adjuvanted QIV (Fluad, CSL) in adults 65 years of age and above showed similar results for co-administered and separately administered groups. The safety and reactogenicity of co-administered vaccines were comparable with standalone administration. No safety concerns were raised based on the study results. Seasonal Flu Collaboration Program Updates 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 sa-mRNA vaccine candidate. A Phase 1 dose-finding safety and immunogenicity study was initiated in January 2024 in Australia. 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 18 granted, and a 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. The IND application was submitted on October 9, 2024. 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 was completed in the United States in September 2023. The trial assessed safety, tolerability and pharmacokinetics of a single dose of ARCT-810, and exploratory biomarkers of drug activity. The Phase 1b study was a single ascending dose, placebo-controlled study that enrolled 16 adults with mild OTC-deficiency. ARCT-810 was generally safe and well tolerated at doses ranging from 0.1-0.5mg/kg and no serious or severe adverse events were observed. Sporadic infusion-related reactions (IRRs) were managed with symptomatic treatment and appeared 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. Study results were presented at the Society for Inherited Metabolic Disorders meeting in Charlotte, North Carolina in April 2024 and at the annual symposium for the Society for the Study of Inborn Errors of Metabolism in Porto, Portugal in August 2024. o A Phase 2 double-blind study of ARCT-810 in OTC-deficient adolescents and adults in the European Union and United Kingdom completed dosing of eight subjects in August 2024 at the 0.3 mg/kg dose level. The participants in this group were randomized 3:1 to receive 6 doses of ARCT-810 or placebo administered every 14 days, and follow-up is ongoing. o We are expanding the Phase 2 clinical program of ARCT-810 to the U.S. with an open-label, multiple-dose study to evaluate pharmacodynamics and safety in adult and adolescent patients requiring clinical management for OTC-deficiency. The study is currently recruiting patients. o ARCT-810 was granted Orphan Drug Designation in June 2019, Fast Track Designation in May 2023, and Rare Pediatric Disease Designation in June 2023 by the FDA, and Orphan Medicinal Product Designation in August 2022 by the European Commission (EC). by the FDA. • 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 completed a safety and tolerability Phase 1 single ascending dose study of ARCT-032 (LUNAR-CF), our mRNA therapeutic candidate for cystic fibrosis (CF). Thirty-two healthy participants (eight subjects in each of four dose cohorts) received a single inhaled dose of ARCT-032. A subsequent protocol amendment to transition to a safety and tolerability Phase 1b clinical study of ARCT-032 in adults with CF received regulatory approval in August 2023 and completed dosing and follow-up visits for 7 CF participants in August 2024, with each CF participant having received two administrations of ARCT-032 separated by two days. o In the Phase 1/1b clinical study, ARCT-032 was generally safe and well tolerated in healthy volunteers and in the participants with CF. Of the seven total CF participants in the Phase 1b study, six were being treated with CFTR modulators while one subject had Class I mutations that do not benefit from modulator therapy. No serious or severe adverse events (SAEs) were observed, and the safety profile was similar between healthy volunteers and CF participants. Mild, transient events of elevated temperature or feeling hot accompanied by other nonspecific symptoms were observed at dose levels that are higher than those planned for the Phase 2 study. In the CF subjects, lung function measured over 8 days did not demonstrate a discernable pattern or safety concern after 2 doses of 19 ARCT-032. Preliminary findings from the study were presented at the European CF Society Conference in June 2024 in Glasgow, Scotland, and at the North American CF Conference in September 2024 in Boston, MA. o We submitted an IND application at the end of July 2024, and on August 29, 2024, the FDA issued a “Study May Proceed” notification 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 two-administration Phase 1b study. 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 Research and Platform Activities We continue to invest and improve our LUNAR-lipid mediated delivery of mRNA with continuous improvements in our mRNA and sa-mRNA platforms in conjunction with improvements in our next generation proprietary lipids to improve targeting, efficacy and safety profiles for both our vaccine and therapeutic protein platforms. This investment has led to key innovations ensuring that our LUNAR formulated drug product candidates have optimal characteristics for therapeutic use, which we believe sets us apart from other nucleic acid therapeutics and lipid-mediated delivery platforms. As such, we consider ourselves a leader in the research and development of mRNA therapeutics for multiple indications. 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 KOSTAIVE, a self-amplifying messenger RNA (sa-mRNA) vaccine for COVID-19, we initiated new vaccine discovery programs earlier this year for Lyme disease and gonorrhea and continue to progress such programs. The 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 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 to lower and single-dose vial presentation, we continue, with our collaborator CSL Seqirus, to evaluate and pursue different forms of drug product presentations, 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. 20 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. We expect that sales of KOSTAIVE ® by Meiji Holdings Co., Ltd, CSL’s partner in Japan will commence in the fourth quarter of 2024 in Japan. However, revenues for us will be subject to a profit sharing mechanism whereby development costs are deducted from sales revenues prior to any distribution to the Company. The following table summarizes our total revenues for the periods indicated: Three Months Ended September 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change Revenue $ 41,673 $ 45,140 $ (3,467 ) -7.7 % Revenue decreased by $3.5 million during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decline was mostly attributable to a lower milestone achievement from the CSL agreement during the third quarter of 2024. This decrease was offset by revenue recognized from a supply agreement related to the commercial production of KOSTAIVE ® and an increase in revenue from the BARDA agreement during the three months ended September 30, 2024. Nine Months Ended September 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change Revenue $ 129,544 $ 135,944 $ (6,400 ) -4.7 % Revenue decreased by $6.4 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The decrease was due to the timing and value of milestone achievements and the achievement of a conditional payment during the nine months ended 2023, offset by revenue from supply agreements during the current year. Additionally, there was a decrease in revenue recognized under other agreements during the nine months ended September 30, 2024 due to lower activity or completion of collaboration agreements. The total decrease in revenue was offset by an increase in revenue recognized from the BARDA Contract. Operating expenses Our operating expenses consist of research and development and general and administrative expenses. Three Months Ended September 30, 2023 to 2024 Nine Months Ended September 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change 2024 2023 $ change % change Operating expenses: Research and development, net $ 39,134 $ 51,077 $ (11,943 ) -23.4 % $ 151,376 $ 155,513 $ (4,137 ) -2.7 % General and administrative 13,276 13,377 (101 ) -0.8 % 40,443 40,364 79 0.2 % Total $ 52,410 $ 64,454 $ (12,044 ) -18.7 % $ 191,819 $ 195,877 $ (4,058 ) -2.1 % Research and Development Expenses, net 21 The following table presents our total research and development expenses by category: Three Months Ended September 30, 2023 to 2024 Nine Months Ended September 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change 2024 2023 $ change % change External pipeline development expenses: LUNAR-COVID, net $ 12,035 $ 24,892 $ (12,857 ) -51.7 % $ 55,092 $ 71,501 $ (16,409 ) -22.9 % LUNAR-OTC, net 890 2,001 (1,111 ) -55.5 % 7,200 7,520 (320 ) -4.3 % BARDA 1,347 930 417 44.8 % 6,949 1,576 5,373 * Early-stage programs 7,602 2,326 5,276 * 26,543 10,018 16,525 * Discovery technologies 2,071 4,662 (2,591 ) -55.6 % 4,453 16,266 (11,813 ) -72.6 % External platform development expenses: Personnel related expenses 13,718 13,478 240 1.8 % 43,234 40,206 3,028 7.5 % Facilities and equipment expenses 1,471 2,788 (1,317 ) -47.2 % 7,905 8,426 (521 ) -6.2 % Total research and development expenses, net $ 39,134 $ 51,077 $ (11,943 ) -23.4 % $ 151,376 $ 155,513 $ (4,137 ) -2.7 % * 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 $39.1 million for the three months ended September 30, 2024, compared with $51.1 million for the three months ended September 30, 2023. The decrease was due to high manufacturing expenses in 2023 for Meiji supply batches and other clinical trial batches which were not incurred in 2024. The decrease was also due to lower facilities and equipment expenses in 2024. This was offset by an increase in clinical trial related expenses. Research and development expenses for the nine months ended September 30, 2024 were $151.4 million compared with $155.5 million for the nine months ended September 30, 2023. The decrease was due to lower manufacturing expenses in 2023 for Meiji supply batches and other clinical trial batches which were not incurred in 2024. Additionally, there was a decrease in consulting expenses as well as facilities and equipment expenses in 2024. This was offset by increased clinical related expenses for the COVID program and increased personnel related expenses in 2024. 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. 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 expenses, 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 $13.3 million for the three months ended September 30, 2024 compared with $13.4 million for the three months ended September 30, 2023. The decrease in general and administrative expenses was attributable to decreased personnel expenses, partially offset by increased legal and other professional expenses, facilities expenses and other various general and administrative expenses. General and administrative expenses for the nine months ended September 30, 2024 remained consistent compared to the nine months ended September 30, 2023. The Company expects that general and administrative expenses will remain relatively consistent over the next fiscal year with the current pipeline. 22 Finance income (expense), net Three Months Ended September 30, 2023 to 2024 Nine Months Ended September 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change 2024 2023 $ change % change Interest income $ 3,818 $ 4,001 (183 ) -4.6 % $ 11,981 $ 10,473 $ 1,508 14.4 % Interest expense — (20 ) 20 -100.0 % — (763 ) 763 -100.0 % Total $ 3,818 $ 3,981 $ (163 ) -4.1 % $ 11,981 $ 9,710 $ 2,271 23.4 % Interest income is generated on cash and cash equivalents. The decrease in interest income for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily the result of decreased interest earned on investment accounts. The increase in interest income for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily the result of increased interest earned on investment accounts caused by higher interest rates. Interest expense during the nine months ended September 30, 2023 was incurred in connection with the Western Alliance Agreement and the Singapore Loan, both of which have since been terminated. Other income and expense Three Months Ended September 30, 2023 to 2024 Nine Months Ended September 30, 2023 to 2024 (in thousands) 2024 2023 $ change % change 2024 2023 $ change % change (Loss) gain from foreign currency $ (201 ) $ 4 $ (205 ) * $ (642 ) $ (175 ) $ (467 ) * Gain on debt extinguishment — — — — — 33,953 (33,953 ) * Total $ (201 ) $ 4 $ (205 ) * $ (642 ) $ 33,778 $ (34,420 ) * * 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 September 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 September 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 third quarter of 2024, we have achieved a total of approximately $462.1 million in upfront payments and milestones from CSL Seqirus, including a milestone of $25.0 million achieved in the current quarter with payment anticipated in the fourth quarter of 2024. At September 30, 2024, we had $294.1 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, our 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 September 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, we agreed to pledge $55.0 million in cash to be held in our 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. As of September 30, 2024, the remaining available funding net of revenue earned was $41.6 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 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 clinical trials for OTC and CF and identifying and developing successful mRNA drug and vaccine candidates. If we are not able to 24 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 and commercialization 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.