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-month period ended March 31, 2026. 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, 2025 (the “2025 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “Commission”) on March 3, 2026. Unless otherwise defined herein, capitalized words and expressions used herein shall have the same meanings ascribed to them in the 2025 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 messenger RNA medicines company focused on the development of liver and respiratory rare disease therapeutics. We have ongoing Phase 2 clinical studies for our RNA therapeutic candidates to potentially treat ornithine transcarbamylase (OTC) deficiency and cystic fibrosis (CF). We developed the world’s first approved self-amplifying messenger RNA (sa-mRNA) vaccine, KOSTAIVE ® (“KOSTAIVE”), which we have partnered with Seqirus, Inc. (“CSL Seqirus”), a part of CSL Limited. KOSTAIVE has achieved approval in Japan, the European Union and the United Kingdom as a vaccine against COVID-19, and sales of KOSTAIVE began in Japan in October 2024. We have several key platform technologies that we leverage to develop and advance a pipeline of mRNA-based therapeutics for rare genetic disorders with significant unmet medical needs and vaccines for infectious diseases. Current mRNA medicines have two critical components: the messenger RNA (“mRNA”) constructs and the lipid nanoparticles (“LNP”) which help deliver the mRNA to disease-relevant target tissues. We have extensive expertise in the design and optimization of mRNA constructs, including with respect to a type of mRNA technology known as self-amplifying mRNA (sa-mRNA). Our proprietary self-amplifying mRNA technology platform, or STARR ® (“STARR”), has been demonstrated to induce a robust, longer-lasting and broader humoral immune response at lower dose levels than conventional mRNA-based vaccines. Our proprietary LNP delivery system, LUNAR ® (“LUNAR”), is intended to address the major hurdle in RNA drug development, namely the effective and safe delivery of RNA to disease-relevant target tissues. LUNAR may enable multiple nucleic acid medicines. We also have significant expertise and valuable know-how in the development and scalability of complex and robust manufacturing processes required to deliver the next generation of nucleic acid medicines. Our internal pipeline includes RNA therapeutic candidates to potentially treat ornithine transcarbamylase (OTC) deficiency and cystic fibrosis (CF), both rare diseases. In our vaccine program, we have partnered with CSL Seqirus, one of the world’s leading influenza vaccine providers, on the development and commercialization of mRNA vaccines for COVID-19, influenza and other infectious diseases. In CSL Limited’s half-year results presented on February 11, 2026, CSL Limited reported an accounting write-down of approximately $430 million attributable to our collaboration agreement with CSL Seqirus, citing declining COVID-19 disease burden and more onerous U.S. regulatory requirements. Business Updates Key Updates on Arcturus-Owned mRNA Therapeutic Development Candidates 13 • LUNAR-CF/ARCT-032 . LUNAR-CF (ARCT-032) is our mRNA therapeutic candidate for CF and it continues to progress in the clinic. The ongoing Phase 2 clinical trial (NCT06747858) is an open-label, multiple ascending dose study to assess safety and efficacy of ARCT-032 in CF adults who do not benefit from current CFTR modulators, including those with Class I null mutations. The study initiated dosing in the U.S. in December 2024 and enrollment and dosing have completed for the initial three cohorts. Each participant received daily inhaled treatments of ARCT-032 at doses of 5 mg, 10 mg, or 15 mg for 28 days. The treatment was generally safe and well tolerated. Bronchospasm was not reported in these participants, either with or without pretreatment with a bronchodilator. Treatment-related AEs that were identified in the single-dose Phase 1 study were also observed in some participants for the first few doses but ceased with continued dosing. Two subjects experienced SAEs after the dosing period that were unrelated to ARCT-032, and the safety review committee approved the study to proceed. After amending the protocol, a fourth cohort of up to 20 subjects began enrolling in March 2026. The fourth cohort will monitor 10 mg daily dosing over 12 weeks for safety and evidence of early clinical benefits. • LUNAR-OTC/ARCT-810 . The LUNAR-OTC development program addresses ornithine transcarbamylase (OTC) deficiency, a rare, life-threatening, genetic disease caused by mutations in the OTC gene that lead to dysfunctional or deficient OTC. We continue to enroll participants in the open-label multiple ascending dose Phase 2 study of ARCT-810. The study evaluates safety and pharmacodynamics in adult and adolescent patients requiring clinical management for OTC-deficiency. In March 2026, we held a type C meeting with the FDA to discuss our plans for a proposed future pediatric study. The FDA provided a path forward toward a pivotal pediatric study that would require us to collect additional exploratory data to establish the optimal dose and therapeutic effect. The FDA also advised scheduling an End-of-Phase 2 (EOP2) meeting to discuss the pivotal study design, including the use of biomarkers. 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 other infectious diseases and global non-exclusive rights to pandemic pathogens. Meiji has launched in Japan the two-dose vial of KOSTAIVE updated for the JN.1 variant XEC in August 2025, following approval from Japan’s Pharmaceuticals and Medical Devices Agency (PMDA). Marketing Authorization Application filing of KOSTAIVE in United Kingdom In January 2026, the UK Medicines and Healthcare products Regulatory Agency (MHRA) under the International Recognition Procedure (IRP) granted marketing authorization for KOSTAIVE for individuals 18 years and older. In CSL Limited’s half-year results presented on February 11, 2026, CSL Limited reported an accounting write-down of approximately $430 million attributable to our collaboration agreement with CSL Seqirus, citing declining COVID-19 disease burden and more onerous U.S. regulatory requirements. 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, 2025. 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. 14 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 and royalties on future sales. The following table summarizes our total revenues for the periods indicated: Three Months Ended March 31, Change 2026 vs 2025 (in thousands) 2026 2025 Change % Collaboration revenue $ 610 $ 25,477 $ (24,867 ) -98 % Grant revenue 1,451 3,905 (2,454 ) -63 % Total $ 2,061 $ 29,382 $ (27,321 ) -93 % Revenue decreased by $27.3 million during the three months ended March 31, 2026, as compared to the three months ended March 31, 2025. The decline was primarily driven by lower revenue recognized under the CSL collaboration, reflecting reduced supply agreement revenue and decreased amortization of deferred revenue as KOSTAIVE transitions from development to the commercial phase. Revenue also decreased due to lower grant revenue, primarily related to our agreement with BARDA, partially offset by increased grant revenue from the Gates Foundation. Operating Expenses Our operating expenses consist of research and development and general and administrative expenses. Three Months Ended March 31, Change 2026 vs 2025 (in thousands) 2026 2025 $ change % change Operating expenses: Research and development, net $ 21,527 $ 34,893 $ (13,366 ) -38 % General and administrative 9,465 11,315 (1,850 ) -16 % Total $ 30,992 $ 46,208 $ (15,216 ) -33 % Research and Development Expenses, net The following table presents our total research and development expenses by category: Three Months Ended March 31, Change 2026 vs 2025 (in thousands) 2026 2025 $ change % change LUNAR-COVID $ 602 $ 5,809 $ (5,207 ) -90 % LUNAR-OTC 2,718 1,576 1,142 72 % BARDA 324 2,481 (2,157 ) -87 % LUNAR-CF, net 6,531 7,148 (617 ) -9 % Early-stage programs 243 - 243 * Discovery technologies 1,754 2,187 (433 ) -20 % Payroll and benefits 7,619 13,043 (5,424 ) -42 % Facilities and equipment 1,736 2,649 (913 ) -34 % Total research and development expenses, net $ 21,527 $ 34,893 $ (13,366 ) -38 % 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 $21.5 million for the three months ended March 31, 2026, compared with $34.9 million for the three months ended March 31, 2025. The decrease was primarily driven by lower manufacturing costs expenses related to LUNAR-COVID and BARDA, as well as reduced clinical trial expenses associated with the LUNAR-COVID program. Additional decreases were attributable to lower payroll and benefits costs associated with lower stock‑based compensation expense and a reduction in headcount. These reductions were partially offset by higher manufacturing costs related to LUNAR-OTC. Early-stage programs represent programs that are in the pre-clinical or Phase 1 clinical stage and may be partnered or unpartnered, and primarily includes the LUNAR-FLU program which is partnered with CSL Seqirus. Discovery technologies represent our efforts to expand our product pipeline and are primarily related to pre-partnered studies and new capabilities assessment. 15 A few of our programs are part of our collaborative relationships. The related expenses may be partially offset with funds that have been reimbursed or awarded to us and consist of external manufacturing costs, lab supplies, equipment, and consulting and professional fees. Expenses for both early-stage programs and discovery technologies are expected to decrease as we shift our focus to later-stage programs. Payroll and benefits primarily consists of employee salaries and benefits, share-based compensation and consultant costs. We expect that payroll and benefits costs will not increase over the next twelve months. Facilities and equipment expenses include rent, common area maintenance (“CAM”) costs, depreciation, shipping costs and various other costs related to the operation of our two office and laboratory locations. We expect that facilities and equipment expenses will not increase over the next twelve months. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related benefits for our executive, administrative 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 $9.5 million for the three months ended March 31, 2026, compared with $11.3 million for the three months ended March 31, 2025. The decrease was primarily due to reduced share-based compensation expense as well as reduced payroll and benefits associated with reductions in headcount. Finance income, net Three Months Ended March 31, Change 2026 vs 2025 (in thousands) 2026 2025 $ change % change Interest income $ 1,932 $ 2,771 $ (839 ) -30 % Interest income is generated on the Company’s cash and cash equivalents. The decrease in interest income for the three months ended March 31, 2026, compared to the same period in 2025, was primarily due to lower interest rates and a reduced cash balance. Off-balance sheet arrangements Through March 31, 2026, we have not entered into and did not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Liquidity and Capital Resources From the Company’s inception through the quarter ended March 31, 2026, the Company has funded its operations principally with the proceeds from revenues earned through collaboration agreements and government contracts, the sale of capital stock and long-term debt. Through the first quarter of 2026, we have achieved a total of approximately $514.1 million in upfront payments and milestones from CSL Seqirus. As of March 31, 2026, the Company’s balance of cash and cash equivalents, including restricted cash, was $213.4 million. CSL Seqirus, Inc. Collaboration and License Agreement In 2022, 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 other 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 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. 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. 16 On May 30, 2025, we initiated an arbitration against CSL Seqirus before the International Chamber of Commerce, seeking payment of a milestone under the CSL Collaboration Agreement based on the European Commission’s grant of marketing authorization for a presentation of KOSTAIVE ® in the European Union. 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 March 31, 2026, the remaining available funding net of revenue earned was $25.8 million. Wells Fargo Credit Agreement In December 2025, the Company terminated its revolving credit agreement with Wells Fargo. No amounts were outstanding at termination. Accordingly, the Company had no debt outstanding as of March 31, 2026, and cash previously pledged as collateral is no longer classified as restricted cash. General Financial Resources A portion of our current cash balance is expected to be utilized during fiscal year 2026 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 agreement and (iv) continued exploratory activities related to our platform and other general administrative activities. Our future capital requirements are difficult to forecast and will depend on many factors that are out of our control. 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 raise additional debt or equity financing or enter into additional partnerships to fund development. Our ability to transition to profitability is dependent on regulatory approvals and subsequent sales of KOSTAIVE, and identifying and developing other 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. Overview The following table shows a summary of our cash flows: Three Months Ended March 31, (in thousands) 2026 2025 Cash provided by (used in): Operating activities $ (19,441 ) $ (35,138 ) Investing activities 34 (137 ) Financing activities 16 15,195 Net decrease in cash and restricted cash $ (19,391 ) $ (20,080 ) Operating Activities Net cash used in operating activities was $19.4 million for the three months ended March 31, 2026, compared to $35.1 million for the three months ended March 31, 2025. The decrease in cash outflows was primarily driven by improved collections in accounts receivable. It was also impacted by more favorable changes in deferred revenue. These factors were partially offset by a higher net loss and a reduction in non-cash stock-based compensation. Investing Activities Net cash provided by investing activities was nominal for the three months ended March 31, 2026, compared with net cash used of $0.1 million for the three months ended March 31, 2025. Activity in both periods primarily reflected the purchase and sale of property and equipment. Financing Activities 17 Net cash provided by financing activities was nominal for the three months ended March 31, 2026, compared to $15.2 million for the three months ended March 31, 2025. The decrease in cash inflows was primarily driven by borrowings under the Company’s line of credit in the prior year period, with no comparable activity in the current year period. 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 when and as needed. 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, including payments related to completion of milestones under our arrangements with any of these parties; • the initiation, progress, timing and completion of preclinical studies and clinical trials for our product candidates; • the number and characteristics of product candidates that we pursue; • the outcome, timing and cost of regulatory approvals; • delays that may be caused by changing regulatory requirements; • the cost and timing of hiring new employees to support our continued growth; • the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims; • the costs and timing of procuring clinical and commercial supplies of our product candidates; • the costs and timing of establishing sales, marketing and distribution capabilities; • the costs associated with legal proceedings; • the 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, 2025 included in the 2025 Annual Report. 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 2025 Annual Report. 18 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 maintain an immaterial amount of foreign currency, which we do not consider to pose a material risk. We do not use derivative financial instruments.