What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-08 · 139 added, 107 removed, 371 unchanged (40% of the section changed)

27 unchanged sentences

30,000 shares authorized;

15,157 issued and

outstanding at March 31, 2020;

$0.001 par value;

30,000 shares authorized,

15,138 issued and outstanding at December 31, 2019

20,610 and 15,138 issued and outstanding at June 30, 2020 and December 31, 2019, respectively.

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Collaboration revenue

9 unchanged sentences

Comprehensive loss:

Unrealized gain on short-term investments

Comprehensive loss

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Stockholders’

BALANCE - December 31, 2019

Share-based compensation

BALANCE - March 31, 2020

Issuance of common stock, net of issuance costs

Issuance of common stock to Ultragenyx on option exercise

Issuance of common stock upon exercise of stock options

Share-based compensation

BALANCE – June 30, 2020

Three Months Ended June 30, 2019

Stockholders’

BALANCE - March 31, 2019

Three Months Ended March 31, 2019

Treasury Stock

Issuance of common stock upon exercise of stock options

Share-based compensation

Redomiciliation share exchange

Issuance of common stock to Ultragenyx and option, net of issuance costs

BALANCE – June 30, 2019

Six Months Ended June 30, 2020

Stockholders’

BALANCE - December 31, 2019

Issuance of common stock, net of issuance costs

Issuance of common stock to Ultragenyx on option exercise

Issuance of common stock upon exercise of stock options

Share-based compensation

BALANCE – June 30, 2020

Six Months Ended June 30, 2019

Stockholders’

BALANCE – December 31, 2018

Treasury Stock

Issuance of common stock upon exercise of stock options

Share-based compensation

Redomiciliation share exchange

Issuance of common stock to Ultragenyx and option, net of issuance costs

Effect of adoption of ASU 2014-09

BALANCE – March 31, 2019

BALANCE – June 30, 2019

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

OPERATING ACTIVITIES:

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

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

Depreciation and amortization

1 unchanged sentence

Loss from equity-method investment

Other non-cash expenses

Other non-cash interest expense

Changes in operating assets and liabilities

4 unchanged sentences

Deferred revenue

Net cash used in operating activities

Net cash (used in) provided by operating activities

INVESTING ACTIVITIES:

2 unchanged sentences

FINANCING ACTIVITIES:

Proceeds from issuance of common stock, net of issuance costs

Proceeds from the issuance of common stock to Ultragenyx on option exercise

Proceeds from exercise of stock options

Net cash provided by financing activities

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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

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

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental disclosure of cash flow information

10 unchanged sentences

Arcturus Therapeutics Holdings Inc.

(the “Company”) is a clinical-stage messenger RNA medicines company focused on the development of infectious disease vaccines utilizing our Self-Transcribing and Replicating RNA (“STARR”) technology and significant opportunities in liver and respiratory rare diseases.

In addition to the Company’s internal messenger RNA (“mRNA”) platform, its proprietary lipid nanoparticle delivery system, LUNAR, may enable multiple nucleic acid medicines.

(the “Company”) is a messenger RNA medicines company focused on significant opportunities within liver and respiratory rare diseases, and the development of infectious disease vaccines utilizing its Self-Transcribing and Replicating RNA (“STARR”) technology.

In addition to the Company’s internal messenger RNA (“mRNA”) platform, its proprietary lipid nanoparticle delivery system, LUNAR, has the potential to enable multiple nucleic acid medicines.

In April 2020, the Company became a clinical stage Company when it announced that its Investigational New Drug (“IND”) application for a Phase 1b study in patients with ornithine transcarbamylase (“OTC”) deficiency was deemed allowed to proceed by the U.S.

1 unchanged sentence

In March 2020, the Company was awarded a grant (the “Grant”) from the Singapore Economic Development Board to support the co-development of a potential COVID-19 vaccine with the Duke-NUS Medical School.

The grant provides for up to S$14.0 million (approximately US$10 million using the exchange rate on the date the grant was awarded) in grants to support the development of the vaccine.

The grant provides for up to S$14.0 million (approximately US$10 million using the exchange rate at the time the grant contract was entered into) in grants to support the development of the vaccine.

A portion of the Grant will be paid by the Economic Development Board in advance and the remainder of the Grant will be paid to the Company upon the achievement of certain milestones related to the progress of the development of the vaccine, as set forth in the award agreement.

The Company has agreed to pay Duke-NUS Medical School a royalty based on annual net sales of the vaccine in markets or jurisdictions outside of Singapore.

In July 2020, the Company and Duke-NUS Medical School announced that the CTA for COVID-19 vaccine candidate LUNAR-COV19 had been approved to proceed by the Singapore Health Sciences Authority ("HSA").

Basis of Presentation

The financial statements for periods prior to June 17, 2019 , the effective date of the Company’s Redomiciliation to the United States (as described in our annual report on Form 10-K for the year ended December 31, 2019), relate to our predecessor, Arcturus Therapeutics Ltd., and for the periods from and after June 17, 2019 relate to Arcturus Therapeutics Holdings Inc.

The financial statements for periods prior to June 17, 2019 , the effective date of the Company’s Redomiciliation to the United States (as described in our annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”)), relate to our predecessor, Arcturus Therapeutics Ltd., and for the periods from and after June 17, 2019 relate to Arcturus Therapeutics Holdings Inc.

Unless stated otherwise or the context otherwise requires, references to the “Company,” “Arcturus,” “we,” “our” and “us” mean Arcturus Therapeutics Holdings Inc.

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Historically, the Company’s primary sources of financing have been through the sale of its securities, through iss uance of debt and through collaboration agreements.

As mentioned above, the Company was recently awarded a grant from the Singapore Economic Development Board of up to $10.0 million to support the co-development of a potential COVID-19 vaccine with the Duke-NUS Medical School, approximately $5.0 million of which was awarded during the quarter ended March 31, 2020 and subsequently received in April 2020.

As mentioned above, the Company was recently awarded a grant from the Singapore Economic Development Board of up to approximately $10.0 million to support the co-development of a potential COVID-19 vaccine with the Duke-NUS Medical School, approximately $5.0 million of which was awarded during the quarter ended March 31, 2020 and subsequently received in April 2020.

Additionally, in April 2020 the Company completed an underwritten public offering of 4,735,297 shares of common stock (including the underwriters’ overallotment option) at a price of $17.00 per share.

The Company received net proceeds of approximately $75.5 million in the offering.

In March 2020, the Company entered into an at-the-market Sales Agreement with Stifel, Nicolaus & Company, Incorporated (the “ATM”).

The ATM was terminated simultaneously with the consummation of the underwritten public offering in April 2020.

In May 2020, Ultragenyx exercised its option to purchase 600,000 shares of the Company’s common stock at $16 per share.

The Company received proceeds of $9.6 million as a result of the option exercise.

In July 2020 the Company completed an additional underwritten public offering of 4,243,395 shares of common stock (including the underwriters’ overallotment option) at a price of $53.00 per share.

The Company received net proceeds of approximately $186.3 million in the offering.

Segment Information

31 unchanged sentences

(in thousands)

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

Cash and cash equivalents

Non-current restricted cash

Total cash, cash equivalents and restricted

cash shown in the statement of cash flows

Total cash, cash equivalents and restricted cash shown

in the statement of cash flows

Net Loss per Share

11 unchanged sentences

The Company cannot guarantee the achievement of these milestones due to risks associated with preclinical and clinical activities required for development of nucleic acid medicine-based therapeutics.

The following table presents changes during the three months ended March 31, 2020 in the balances of contract assets, including receivables from collaborative partners, and contract liabilities, including deferred revenue, as compared to what was disclosed in the Company’s Annual Report.

The following table presents changes during the six months ended June 30, 2020 in the balances of contract assets, including receivables from collaborative partners, and contract liabilities, including deferred revenue, as compared to what was disclosed in the Company’s 2019 Annual Report.

(in thousands)

3 unchanged sentences

Deductions for cash collections

BALANCE – March 31, 2020

BALANCE – June 30, 2020

(in thousands)

2 unchanged sentences

Additions for advanced billings

Deductions for promised goods/services provided in current period

BALANCE – March 31, 2020

Deductions for promised services provided in current period

BALANCE – June 30, 2020

The following table summarizes the Company’s collaboration revenues for the periods indicated (in thousands).

For the Three Months

Ended March 31,

Ended June 30,

For the Six Months

Ended June 30,

(Dollars in thousands)

2 unchanged sentences

Collaboration Partner – CureVac

Collaboration Partner – Takeda and other

Collaboration Partner – Other

Total collaboration revenue

14 unchanged sentences

The Company concluded that Janssen’s options to select additional collaboration targets and to license rights to selected targets are not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated.

As of March 31, 2020, the remaining transaction price, consisting of upfront consideration received and budgeted reimbursable out-of-pocket costs, is expected to be recognized using an input method over the remaining research period of 30 months.

As of June 30, 2020, the remaining transaction price, consisting of upfront consideration received and budgeted reimbursable out-of-pocket costs, is expected to be recognized using an input method over the remaining research period of 27 months.

None of the development and commercialization milestones were included in the transaction price, as all milestone amounts were not estimated to be met, are outside the control of the Company and contingent upon success in future clinical trials and the collaborator’s efforts.

Any consideration related to sales-based royalties will be recognized when the related sales occur, provided that the reported sales are reliably measurable, and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to Janssen and therefore have also been excluded from the transaction price.

Total deferred revenue as of March 31, 2020 and December 31, 2019 for Janssen was $5.9 million.

Total deferred revenue as of June 30, 2020 and December 31, 2019 for Janssen was $6.0 million and $5.9 million, respectively.

Collaboration Partner – Ultragenyx

6 unchanged sentences

As part of the Ultragenyx Agreement and related amendments, Ultragenyx has paid $27.9 million in upfront fees, exclusivity extension fees and additional consideration.

Ultragenyx also reimburses the Company for all internal and external development costs incurred, pursuant to the Ultragenyx Agreement, is required to make additional payments upon exercise of the Ultragenyx expansion option or exclusivity extension (if any) and if Ultragenyx achieves certain, clinical, regulatory and sales milestones, then the Company is eligible to receive royalty payments .

For each development target for which Ultragenyx exercises its option, Ultragenyx will pay the

Company a one-time option exercise fee that increases based upon the number of development targets selected by Ultragenyx from $0.5 million to $1.5 million.

The current potential development, regulatory and commercial milestone payments for the existing development targets as of March 31, 2020 are $138.0 million.

Ultragenyx also reimburses the Company for all internal and external development costs inc urred .

P ursuant to the Ultragenyx Agreement , Ultragenyx is required to make additional payments upon exercise of the Ultragenyx expansion option or exclusivity extension (if any) and if Ultragenyx achieves certain, clinical, regulatory and sales milestones , then the Company is eligible to receive royalty payments .

For each development target for which Ultragenyx exercises its option, Ultragenyx will pay the Company a one-time option exercise fee that increases based upon the number of development targets se lected by Ultragenyx from $0.5 million to $1.5 million.

The current potential development, regulatory and commercial milestone payments for the existing development targets as of June 30, 2020 are $138.0 million.

Ultragenyx will pay royalties as a single-digit percentage of net sales on a product-by-product and country-by-country basis during the applicable royalty term.

As of March 31, 2020, Ultragenyx has not yet reached the clinical phase of the contract.

As of June 30, 2020, Ultragenyx has not yet reached the clinical phase of the contract.

On June 18, 2019, Arcturus and Ultragenyx amended the collaboration agreement for a third time (“Amendment 3”).

1 unchanged sentence

An equity component was also added as part of Amendment 3 wherein Ultragenyx purchased 2.4 million shares of common stock at a premium price.

Along with the equity purchase, Ultragenyx received the option to purchase 0.6 million additional shares of common stock at $16 per share within two years of executing the amendment (Note 6).

Along with the equity purchase, Ultragenyx received an option to purchase 0.6 million additional shares of common stock at $16 per share (Note 6).

In May 2020, the option was exercised.

The consideration received from Ultragenyx as a result of Amendment 3 was equal to $30.0 million and was comprised of a $24.0 million common stock purchase and a $6.0 million upfront payment.

1 unchanged sentence

See further discussion below regarding determining the transaction price.

Management determined the fair value of the premium received by using the opening stock price subsequent to execution of Amendment 3 and applying a lack of marketability discount as the shares received by Ultragenyx are restricted for up to two years (subject to reduction upon the exercise of the option).

Pursuant to the terms of the equity purchase agreement between the Company and Ultragenyx, the transfer restrictions will terminate on November 20, 2020 as a result of the purchase of the 0.6 million option shares.

In evaluating the Ultragenyx agreement in accordance with ASC Topic 606, the Company concluded that the contract counterparty, Ultragenyx, is a customer.

4 unchanged sentences

The Company concluded that Ultragenyx’s options to extend exclusivity and options to select additional collaboration targets and to license rights to selected targets are not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated.

At March 31, 2020, the transaction price included the upfront consideration received, exclusivity extension payments and additional consideration received pursuant to Amendment 3.

At June 30, 2020, the transaction price included the upfront consideration received, exclusivity extension payments and additional consideration received pursuant to Amendment 3.

The Company recognizes the reimbursement of labor and expenses as costs are incurred and none of the development and commercialization milestones were included in the transaction price, as all milestone amounts were fully constrained.

4 unchanged sentences

The reserve target exclusivity period represents the timing over which promised goods/services will be provided.

Total deferred revenue as of March 31, 2020 and December 31, 2019 from Ultragenyx was $11.8 million and $12.7 million, respectively.

Total deferred revenue at June 30, 2020 and December 31, 2019 from Ultragenyx was $10.9 million and $12.7 million, respectively.

Collaboration Partner – CureVac

2 unchanged sentences

Subject to certain restrictions, the parties will have an undivided one-half interest in the patents and know-how developed jointly by the parties during the course of the Development and Option Agreement.

Pursuant to the terms of the Development and Option Agreement, CureVac will have a number of target options to co-develop from a reserved target list to enter into licenses under the Arcturus Delivery Technology with respect to the development, manufacture and commercialization of licensed products (which can include products identified for development by the Company, unless the Company is permitted by the terms of the Development and Option Agreement to place such products on a restricted list).

Pursuant to the terms of the Development and Option Agreement, CureVac will have a number of target options to co-develop from a reserved target

list to enter into licenses under the Arcturus Delivery Technology with respect to t he development, manufacture and commercialization of licensed products (which can include products identified for development by the Company, unless the Company is permitted by the terms of the Development and Option Agreement to place such products on a r estricted list).

A separate notice and fee will be required for each license agreement.

agreement will terminate as such programs will be covered under the Co-Development Agreement discussed below, and therefore CureVac will be given a credit for any exerci se fees, milestone payments already paid and all other payments made in relation to the license agreement towards future such payments incurred with respect to future licenses under the Arcturus D elivery Technology.

If the target to which the license agreement relates is chosen by the parties for co-development under the Co-Development Agreement (as defined below and discussed in t he following paragraph) the license agreement will terminate as such programs will be covered under the Co-Development Agreement discussed below, and therefore CureVac will be given a credit for any exercise fees, milestone payments already paid and all ot her payments made in relation to the license agreement towards future such payments incurred with respect to future licenses under the Arcturus Delivery Technology.

Prior to expiration of the initial term of 8 years (which was subsequently amended, as discussed below), the Agreement also includes an option to extend the term on an annual basis for up to 3 years, subject to payment by CureVac to Arcturus of a non-refundable annual extension fee.

The agreement included potential milestone payments for selected targets from CureVac to the Company.

The current potential milestone payments for the remaining targets as of March 31, 2020 is $14.0 million for rare disease targets and $23.0 million for non-rare disease targets.

The current potential milestone payments for the remaining targets as of June 30, 2020 are $14.0 million for rare disease targets and $23.0 million for non-rare disease targets.

CureVac will pay royalties as a percentage of net sales on a product-by-product and country-by-country basis during the applicable royalty term in the low single-digit range.

As of March 31, 2020, CureVac has not yet reached the clinical phase of the contract.

As of June 30, 2020, CureVac has not yet reached the clinical phase of the contract.

Pursuant to a May 2018 amendment to the Development and Option Agreement (as amended and restated on September 28, 2018), the Company increased the number of targets available to CureVac under the Development and Option Agreement and agreed upon the license forms to be executed upon selection of the targets by CureVac.

11 unchanged sentences

The Company concluded that CureVac’s options to extend the research term and options to select additional collaboration targets and to license rights to selected targets are not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated.

At March 31, 2020, the transaction price included the upfront consideration received.

At June 30, 2020, the transaction price included the upfront consideration received.

1 unchanged sentence

Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to CureVac and therefore have also been excluded from the transaction price.

For the three months ended March 31, 2020, no adjustments were made to the transaction price.

The upfront consideration of $5.0 million was recorded as deferred revenue in the Company’s balance sheet upon receipt and is currently being recognized as revenue on a straight-line basis using an input method over the amended forty-six month contractual term as of March 31, 2020.

For the three months ended June 30, 2020, no adjustments were made to the transaction price.

The upfront consideration of $5.0 million was recorded as deferred revenue in the Company’s balance sheet upon receipt and is currently being recognized as revenue on a straight-line basis using an input method over the remaining 37 month contractual term as of June 30, 2020.

As a result of Amendment 3, the Company recorded a cumulative catch up adjustment of $0.4 million on the modification date, July 26, 2019.

Total deferred revenue as of March 31, 2020 and December 31, 2019 for CureVac was $3.0 million and $3.2 million, respectively.

Total deferred revenue as of June 30, 2020 and December 31, 2019 for CureVac was $2.8 million and $3.2 million, respectively.

No adjustment was necessary upon adoption of Topic 606.

Other Collaborati on Revenue

The remaining revenue from smaller collaboration agreements relates to the agreement with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”).

Under the agreement with Takeda, the Company recognized $0.5 million related to amortization of an upfront payment during the first quarter of 2020 related to research and development activities.

The current agreement was entered into on March 18, 2019 and is expected to be completed by the end of 2020.

The remaining revenue from smaller collaboration agreements primarily relates to the agreements with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”) and Synthetic Genomics, Inc.

Under the agreement with Takeda, the Company recognized $0.5 million during the first two quarters of 2020 which relates to the amortization of an upfront payment for research and development activities.

The current agreement with Takeda was entered into on March 18, 2019 and is expected to be completed by the end of 2020.

Under the agreement with SGI, the Company recognized $0.3 million during the second quarter of 2020 related to sublicensed technology.

Fair Value Measurements

7 unchanged sentences

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

As of March 31, 2020 and December 31, 2019, all assets measured at fair value on a recurring basis consisted of cash equivalents and money market funds, which were classified within Level 1 of the fair value hierarchy.

As of June 30, 2020 and December 31, 2019, all assets measured at fair value on a recurring basis consisted of cash equivalents, money market funds, which were classified within Level 1 of the fair value hierarchy.

The fair value of these financial instruments was measured based on quoted prices.

Balance Sheet Details

Prepaid expenses and other current assets consisted of the following as of March 31, 2020 and December 31, 2019:

(in thousands)

March 31, 2020

December 31, 2019

Prepaid expenses

Other current assets

Property and equipment, net for the same periods consisted of the following:

Property and equipment, net consisted of the following:

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

5 unchanged sentences

Property and equipment, net

Depreciation and amortization expense was $0.2 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.

Accrued liabilities consisted of the following as of March 3 1 , 20 20 and December 31, 201 9 :

Depreciation and amortization expense was $0.2 million and $0.2 million for the three months ended June 30, 2020 and 2019, respectively, and $0.4 million and $0.3 million for the six months ended June 30, 2020 and 2019, respectively.

Accrued liabilities consisted of the following as of June 30, 2020 and December 31, 2019:

(in thousands)

March 31, 2020

June 30, 2020

December 31, 2019

Accrued compensation

Cystic Fibrosis Foundation Liability (Note 9)

Cystic Fibrosis Foundation Liability

Singapore Economic Development Board Liability

Current portion of operating lease liability

Clinical Accruals

Other accrued research and development expenses

21 unchanged sentences

Should an event of default occur, including the occurrence of a material adverse effect, the Company could be liable for immediate repayment of all obligations under the Loan Agreement.

As of March 31, 2020, the Company was in compliance with all covenants under the Loan Agreement.

As of June 30, 2020, the Company was in compliance with all covenants under the Loan Agreement.

Principal payments, including the final payment due at repayment, on the long-term debt for fiscal years 2021, 2022 and 2023 are $1.3 million, $7.5 million and $6.7 million, respectively, with no principal payments due in 2020.

The Company recognized interest expense related to its long-term debt of $0.3 million and $0.2 million during the three months ended March 31, 2020 and 2019, respectively.

Stock holders’ Equity

The Company recognized interest expense related to its long-term debt of $0.2 million and $0.5 million for the three and six months ended June 30, 2020, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2019, respectively.

Stockholders’ Equity

Restricted Common Shares

4 unchanged sentences

(2) 25% after in vivo proof-of-concept achieved;

(3) 25% after a regulatory agency new drug application (such as an Investigational New Drug application) is filed and the study is allowed to proceed by the applicable regulatory agency;

(3) 25% after a regulatory agency new drug application (such as an Investigational New Drug application) is filed and accepted by the applicable regulatory agency;

and (4) 25% after human biological proof-of-concept is achieved.

1 unchanged sentence

In 2017, the stock purchase agreements were amended to clarify vesting conditions and also to accelerate the vesting of 146,510 shares resulting in a modification expense of $1,495,000.

As of March 31, 2020 and 2019, there were 622,667 shares of common stock unvested and subject to the repurchase option.

The Company met the third milestone during April 2020, and as of May 1, 2020, there were 311,333 shares of common stock currently unvested that are subject to the final repurchase option.

As of June 30, 2019, there were 622,667 shares of common stock unvested and subject to the repurchase option.

The Company met the third milestone during April 2020, and as of June 30, 2020, there were 311,333 shares of common stock currently unvested that are subject to the final repurchase option.

Net Loss per Share

Dilutive securities that were not included in the calculation of diluted net loss per share for the three months ended March 31, 2020 and 2019 as they were anti-dilutive totaled 316,957 and 67,051, respectively.

For the quarters ended March 31, 2020 and 2019, the calculation of the weighted-average number of shares outstanding excludes unvested restricted shares of common stock of 622,667.

Dilutive securities that were not included in the calculation of diluted net loss per share for the three and six months ended June 30, 2020 as they were anti-dilutive totaled 1,505,244 and 903,949, respectively, and 93,407 and 80,585 for the three and six months ended June 30, 2019, respectively.

For the three and six months ended June 30, 2020 and 2019, the calculation of the weighted-average number of shares outstanding excludes unvested restricted shares of common stock of 311,333.

Share-Based Compensation

In August 2018, the Company adopted the 2018 Omnibus Equity Incentive Plan (“2018 Plan”).

Under the 2018 Plan, the Company was authorized to issue up to a maximum of 1,100,000 shares of common stock pursuant to the exercise of incentive stock options or other awards provided for therein.

In June 2019, the Company adopted the 2019 Omnibus Equity Incentive Plan (“2019 Plan”), which was ratified by stockholders at the Company’s 2019 annual meeting.

Under the 2019 Plan, the Company is authorized to issue up to a maximum of 2,600,000 shares of common stock pursuant to the exercise of incentive stock options or other awards provided for therein.

In connection with the Redomiciliation, all outstanding options to purchase shares in Arcturus Israel under the above described plans were exchanged for an option to purchase the same number of shares of the Company’s common stock under the 2019 Plan.

Accordingly, as of March 31, 2020, a total of 353,332 shares remain available for future issuance under the 2019 Plan, and no further shares will be issued under the 2018 Plan.

In June 2020, the stockholders of the Company approved an increase to the number of shares authorized for use in making awards under the 2019 Plan by 3,150,000 shares to 5,750,000.

Accordingly, as of June 30, 2020, a total of 2,616,340 shares remain available for future issuance under the 2019 Plan.

In June 2020, the stockholders of the Company approved the 2020 Employee Stock Purchase Plan (“2020 Plan”) which provides for 600,000 shares of Company common stock reserved for future issuance.

The first accumulation period under the 2020 Plan will commence in August 2020.

Stock Options

Share-based compensation expenses included in the Company’s condensed statements of operations and comprehensive loss for the three months ended March 31, 2020 and 2019 were:

Share-based compensation expenses included in the Company’s condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019 were:

For the Three Months

Ended March 31,

Ended June 30,

For the Six Months

Ended June 30,

(in thousands)

5 unchanged sentences

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

For the three months ended March 31, 2020, the Company recorded income tax expense of $0 million.

For the three and six months ended June 30, 2020, the Company recorded income tax expense of $0 million.

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

2 unchanged sentences

While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

As of the quarter ended March 31, 2020 the Company has estimated that the impact of the CARES Act will be immaterial to its tax position.

For the quarter ended March 31, 2020 the Company estimated that the impact of the CARES Act will be immaterial to its tax position.

Due to the recent enactment of the CARES Act, the Company will continue to analyze the impact that the CARES Act will have in subsequent quarters on its financial position, results of operations or cash flows .

5 unchanged sentences

The funds received will be recognized as contra research and development expense in proportion to the percentage covered by the Economic Development Board of the overall budget.

The Company is liable for certain expenses during the program period and any unused funds are required to be repaid upon completion of the program.

For the three months ended March 31, 2020, the Company recognized $0.5 million of contra expense.

The Company is liable for certain expenses during the program.

For the three and six months ended June 30, 2020, the Company recognized $3.8 million and $4.3 million of contra expense, respectively, with $0.7 million remaining in accrued expenses.

Cystic Fibrosis Foundation Agreement

3 unchanged sentences

The funds received from CFF will be recognized as contra research and development expense in proportion to the percentage covered by CFF of the overall budget.

For the three months ended March 31, 2020, the Company recognized $2.0 million of contra expense with $1.9 million remaining in accrued expenses.

For the three and six months ended June 30, 2020, the Company recognized $0.9 million and $2.9 million of contra expense, respectively, with $3.0 million remaining in accrued expenses.

No contra research and development expense was recognized during the six months ended June 30, 2019.

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

The commencement of the lease began in March 2018 and the lease extends for approximately 84 months fro m the commencement date with a remaining lease term through March 2025 .

The commencement of the lease began in March 2018 and the lease extends for approximately 84 months from the commencement date with a remaining lease term through March 2025.

Monthly rental payments are due under the lease and there are escalating rent payments during the term of the lease.

The Company is also responsible for its proportional share of opera ting expenses of the building and common areas.

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

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

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

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

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

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

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

The commencement of the lease began in February 2020 and the lease extends for 13 months from the commencement date.

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

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

The lease extends for 13 months from the commencement date.

In conjunction with the new lease, the Company received free rent for one month.

5 unchanged sentences

The Company uses its incremental borrowing rate to calculate the present value of the lease payments, as the implicit rate in the lease is not readily determinable.

As of March 31, 2020, the payments of the operating lease liability were as follows:

As of June 30, 2020 , the payments of the operating lease liabilit y w ere as follows:

(in thousands)

7 unchanged sentences

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

Operating lease costs were $0.4 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively.

Operating lease costs were $0.5 million and $0.9 million for the three and six months ended June 30, 2020, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2019, respectively.

Related Party Transactions

In June 2019, Arcturus and Ultragenyx executed Amendment 3 to the Ultragenyx Agreement.

In addition, as a result of the amended Ultragenyx Agreement, Ultragenyx owns 15.8% of the outstanding common stock of the Company as of March 31, 2020.

Pursuant to the amended Ultragenyx Agreement, the Company also granted Ultragenyx a two-year option (the “Option”) to purchase up to 600,000 additional shares of common stock at a price of $16.00 per share.

For the three months ended March 31, 2020 and 2019, the Company has recognized revenue of $0.9 million and $1.4 million.

As of March 31, 2020 and 2019, the Company held accounts receivable balances of negligible amounts.

On June 17, 2019, Arcturus and Ultragenyx executed Amendment 3 to the Ultragenyx Agreement.

Ultragenyx exercised the Option in May 2020 , and as a result, owns 14.6% of the outstanding common stock of the Company as of June 30, 2020 .

For the three and six months ended June 30, 2020, the Company has recognized revenue of $0.9 million and $1.8 million, respectively, and for the three and six months ended June 30, 2019, the Company recognized revenue of $2.5 million and $3.9 million, respectively.

As of June 30, 2020 and 2019, the Company holds accounts receivable balances of negligible amounts.

Equity-Method Investment

4 unchanged sentences

The gain has been offset by additional losses incurred by the equity-method investee and calculated on a lag.

For the three months ended March 31, 2020, the Company recorded a loss of $0.2 million.

For the three and six months ended June 30, 2020, the Company recorded losses of $0.1 million and $0.3 million, respectively.

Subsequent to the equity-method investee issuing shares of its common stock, the Company’s ownership was reduced to 19%.

1 unchanged sentence

Subsequent Events

Acceptance of Investigational New Drug Application for ARCT-810

In April 2020, the Company’s IND application for a Phase 1b study in patients with OTC deficiency was deemed allowed to proceed by the U.S.

Food and Drug Administration, and an additional Clinical Trial Application for a Phase 1 study in healthy volunteers was approved by the New Zealand Medicines and Medical Devices Safety Authority.

Agreement with Israeli Ministry of Health

On July 23, 2020, the Company announced a binding term sheet with the Israeli Ministry of Health to supply the Company’s COVID-19 vaccine candidate, LUNAR-COV19.

The parties intend to finalize a comprehensive supply agreement within 30 days of the announcement.

LUNAR-COV19 CTA acceptance

See discussion of the LUNAR-COV19 CTA acceptance at Note 1.

Underwritten Public Offering of Common Stock

See discussion of underwritten public offering of common stock at Note 1.

See discussion of underwritten public offering of common stock and full exercise of the underwriters’ overallotment option at Note 1.

Chief Legal Officer

On August 6, 2020, the Company announced the appointment of Lance Kurata as Chief Legal Officer, effective August 10, 2020.

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

What changed 10-Q

Item 1. Financial Statements