What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 206 added, 185 removed, 325 unchanged (55% of the section changed)

4 unchanged sentences

(in thousands, except par value information)

September 30,

Current assets:

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30,000 shares authorized;

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

24,473 and 15,138 issued

and outstanding at September 30, 2020 and December 31, 2019, respectively.

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Collaboration revenue

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Stockholders’

BALANCE - March 31, 2020

BALANCE - June 30, 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

BALANCE – September 30, 2020

Three Months Ended September 30, 2019

Stockholders’

BALANCE - 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

Share-based compensation

Issuance of common stock, net of issuance costs

Issuance of common stock upon exercise of stock options

BALANCE – September 30, 2019

Nine Months Ended September 30, 2020

Stockholders’

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Share-based compensation

BALANCE – June 30, 2020

Six Months Ended June 30, 2019

BALANCE – September 30, 2020

Nine Months Ended September 30, 2019

Stockholders’

1 unchanged sentence

Treasury Stock

Issuance of common stock upon exercise of stock options

Share-based compensation

1 unchanged sentence

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

Issuance of common stock, net of issuance costs

Issuance of common stock upon exercise of stock options

Effect of adoption of ASU 2014-09

BALANCE – June 30, 2019

BALANCE – September 30, 2019

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES:

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Share-based compensation expense

Loss from equity-method investment

Loss (gain) from equity-method investment

Other non-cash interest expense

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Proceeds from issuance of common stock, net of issuance costs

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

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

Proceeds from exercise of stock options

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

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental disclosure of cash flow information

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Arcturus Therapeutics Holdings Inc.

(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.

(the “Company”) is a clinical-stage 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.

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The grant provides for up to S$14.0 million (approximately US$10.1 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 entered into an amendment to the Grant on September 24, 2020 to update certain delivery and milestone timelines.

The Grant has been paid in full by the Economic Development Board as a result of 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").

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

On October 2, 2020, the Company was awarded another grant from the Singapore Economic Development Board to support the further development of the LUNAR-COV19 vaccine candidate.

The grant provides for up to S$9.3 million (approximately US$6.7 million using the exchange rate at the time the grant contract was entered into) to support the development of the LUNAR-COV19 vaccine candidate.

On August 17, 2020, the Company entered into an agreement with the Israeli Ministry of Health (“MOH”) to supply the Company’s COVID-19 vaccine candidate to Israel (the “Israel Supply Agreement”) subject to certain conditions, including applicable regulatory approvals.

In October 2020, and in association with the Israel Supply Agreement, the Company received a non-refundable payment of $12.5 million from the MOH.

This payment of $12.5 million is associated with a specified clinical trial milestone and serves as an initial reserve payment for a specified number of doses of the LUNAR-COV19 vaccine candidate pursuant to the Israel Supply Agreement.

As a result of the making of this payment, the MOH has become bound to purchase an initial quantity of reserved vaccine doses, as set forth in and subject to the terms and conditions of the Israel Supply Agreement.

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 (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.

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 the Company’s annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”)), relate to its 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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The accompanying condensed consolidated financial statements include the accounts of Arcturus Therapeutics Holdings Inc.

and its subsidiaries and are unaudited.

and its subsidiaries and, for the three and nine months ended September 30, 2020 and 2019, are unaudited.

All intercompany accounts and transactions have been eliminated in consolidation.

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Interim financial results are not necessarily indicative of results anticipated for the full year.

These condensed consolidated financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

These condensed consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions regarding the valuation of certain debt and equity instruments, the equity-method investment, share-based compensation, accruals for liabilities, deferred revenue, expense accruals, and other matters that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Although these estimates are based on management’s knowledge of current events and actions the Company may undertake in the future, actual results may ultimately differ from these estimates and assumptions.

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

These condensed consolidated financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s 2019 Annual Report.

These condensed consolidated financial statements are prepared in accordance with GAAP, which requires ma nagement to make estimates and assumptions regarding the valuation of certain debt and equity instruments, share-based compensation, accruals for liabilities, deferred revenue, and other matters that affect the reported amounts of assets and liabilities an d disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Although these estimates are based on management’s knowledge of current events and act ions the Company may undertake in the future, actual results may ultimately differ from these estimates and assumptions.

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

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

The Company is a clinical-stage bioscience company that is dependent on obtaining external equity and debt financings to fund its operations.

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 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.

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

As mentioned above, the Company was recently awarded grants from the Singapore Economic Development Board of up to approximately $16.8 million in the aggregate to support the co-development and Phase 1/2 clinical trials of the LUNAR-COV19 vaccine candidate, part of which is being conducted with the Duke-NUS Medical School.

Approximately $10.0 million of these grants were funded as of September 30, 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 May 2020, Ultragenyx exercised its option to purchase 600,000 shares of the Company’s common stock at $16 per share.

In May 2020, Ultragenyx Pharmaceutical Inc.

(“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.

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The Company determines revenue recognition for arrangements within the scope of Topic 606 by performing the following five steps:

(i) identify the contract;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

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

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

The terms of the Company’s collaborative research and development agreements include license fees, upfront payments, milestone payments, and reimbursement for research and development activities, option exercise fees, and royalties on sales of commercialized products.

Arrangements that include upfront payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs obligations under these arrangements.

The event-based milestone payments represent variable consideration, and the Company uses the most likely amount method to estimate this variable consideration because the Company will either receive the milestone payment or will not, which makes the potential milestone payment a binary event.

(i) identify the contract, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when, or as, the Company satisfies a performance obligation.

The terms of the Company’s collaborative research and development agreements include license fees, upfront payments, milestone payments, reimbursement for research and development activities, option exercise fees, and royalties on sales of commercialized products.

The event-based milestone payments represent variable consideration, and the Company uses the most likely amount method to estimate this variable consideration because the potential milestone payment is a binary event, as the Company will either receive the milestone payment or it will not.

The most likely amount method requires the Company to determine the likelihood of earning the milestone payment.

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The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.

A performance obligation is a promise in a contract to transfer a distinct good or service to the collaborative partner and is the unit of account in Topic 606.

A contract’s transaction price is allocated to each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied.

A performance obligation is a promise in a contract to transfer a distinct good or service to the c ounterparty and is the unit of account under Topic 606.

See “Note 2, Collaboration Revenue” for specific details surrounding the Company’s collaboration arrangements.

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See “Note 8, Commitments and Contingences” for specific details surrounding the Company’s leases.

Research and Development, N et

Research and Development, Net

Research and development costs are expensed as incurred.

These expenses result from the Company’s independent research and development efforts as well as efforts associated with collaboration arrangements.

Research and development costs include salaries and personnel-related costs, consulting fees, fees paid for contract research and manufacturing services, the costs of laboratory supplies, equipment and facilities, preclinical studies and other external costs are shown net of any grants.

Pre-Launch Inventory

Prior to obtaining initial regulatory approval for an investigational product candidate, the Company expenses costs relating to production of inventory as research and development expense in its condensed consolidated statements of operations, in the period incurred.

When the Company believes regulatory approval and subsequent commercialization of an investigational product candidate is probable, and the Company also expects future economic benefit from the sales of the investigational product candidate to be realized, it will then capitalize the costs of production as inventory.

Statement of Cash Flows

1 unchanged sentence

(in thousands)

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Cash and cash equivalents

3 unchanged sentences

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for common stock equivalents.

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration of common stock equivalents.

Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treas ury-stock method.

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The Company’s milestone payments are typically defined by achievement of certain preclinical, clinical, and commercial success criteria.

Preclinical milestones may include in vivo proof of concept in disease animal models, lead candidate identification, and completion of IND-enabling toxicology studies.

Clinical milestones may, for example, include successful enrollment of the first patient in or completion of Phase I, II, and III clinical trials, and commercial milestones are often tiered based on net or aggregate sale amounts.

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 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.

Preclinical milestones may, for example, include in vivo proof of concept in disease animal models, lead candidate identification, and completion of IND-enabling toxicology

Clinical milestones may , for example, include successful enrollment of the first patient in or completion of Phase 1 , 2 and 3 clinical tr ials, and commercial milestones are often tiered based on net or aggregate sale amounts.

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

The following table presents changes during the nine months ended September 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 on Form 10-K.

(in thousands)

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Deductions for cash collections

BALANCE – June 30, 2020

BALANCE – September 30, 2020

(in thousands)

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Deductions for promised services provided in current period

BALANCE – June 30, 2020

BALANCE – September 30, 2020

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

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(Dollars in thousands)

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

The Company received an upfront payment of $7.7 million and may receive preclinical, development and sales milestone payments of $56.5 million, as well as royalty payments on any future licensed product sales.

The Company received an upfront payment of $7.7 million and may receive preclinical, development and sales milestone payments of up to $56.5 million, as well as royalty payments on any future licensed product sales.

Janssen began reimbursing the Company for research costs during the first quarter of 2019 upon the completion of the first of three research periods.

Janssen may also pay option exercise fees within the $1.0 million to $5.0 million range per target.

Janssen will pay royalties on annual net sales of licensed products in the low to mid-single digits range, subject to reduction on a country-by-country and licensed-product-by-licensed-product basis and subject to certain events, such as expiration of program patents.

Janssen will pay royalties as a low to mid-single digit percentage of net sales of licensed products, subject to reduction on a country-by-country and licensed-product-by-licensed-product basis and subject to certain events, such as expiration of program patents.

In addition, the 2017 Agreement includes an exclusivity period.

In evaluating the 2017 Agreement in accordance with ASC Topic 606, the Company concluded that the contract counterparty, Janssen, is a customer.

In evaluating the 2017 Agreement in accordance with Accounting Standards Codification (“ASC”) Topic 606, the Company concluded that the contract counterparty, Janssen, is a customer.

The Company identified the following promised goods/services as of the inception of the 2017 Agreement:

(i) research services, (ii) license to use Arcturus technology and (iii) participation in the Joint Research Committee.

(i) research services, (ii) license to use Arcturus technology and (iii) participation in a joint research committee.

The Company concluded that the promised goods/services are incapable of being distinct and consequently do not have any value on a standalone basis.

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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 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.

As of September 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 remaini ng research period of 2 4 months.

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 June 30, 2020 and December 31, 2019 for Janssen was $6.0 million and $5.9 million, respectively.

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

Collaboration Partner – Ultragenyx

In October 2015 the Company entered into a research collaboration and license agreement with Ultragenyx (the “Ultragenyx Agreement”), whereby Arcturus granted to Ultragenyx a co-exclusive license under Arcturus technology and shall be in effect only during the reserve target exclusivity term as discussed in the following paragraphs.

In October 2015 the Company entered into a research collaboration and license agreement with Ultragenyx (the “Ultragenyx Agreement”), whereby Arcturus granted to Ultragenyx a co-exclusive license to certain Arcturus technology, which is in effect only during the reserve target exclusivity term as discussed in the following paragraphs.

This collaboration agreement was amended in 2017, 2018 and during the second quarter of 2019.

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Additionally, during the collaborative development period, the Company will participate with Ultragenyx in a joint steering committee.

The Ultragenyx Agreement also includes an initial exclusivity period with an option to extend this period.

The Ultragenyx Agreement also includes an initial exclusivity period with an option to extend such period.

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 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 also reimburses the Company for all internal and external development costs incurred.

Pursuant 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 selected by Ultragenyx and ranges from $0.5 million to $1.5 million.

The current potential development, regulatory and commercial milestone payments for the existing development targets as of September 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 June 30, 2020, Ultragenyx has not yet reached the clinical phase of the contract.

As of September 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”).

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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 an option to purchase 0.6 million additional shares of common stock at $16 per share (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.

In May 2020, the option was exercised.

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The Company has identified the following promised goods/services as part of the initial agreement and subsequent amendments:

(i) research services, (ii) license to use Arcturus technology, (iii) exclusivity and (iv) participation in the Joint Steering Committee.

(i) research services, (ii) license to use Arcturus technology, (iii) exclusivity and (iv) participation in a joint steering committee.

The Company concluded that the promised goods/services are incapable of being distinct and consequently do not have any value on a standalone basis.

Accordingly, they are determined to represent a single performance obligation.

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 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.

As part of its evaluation of the constraint, the Company considered numerous factors, including that the consideration is outside the control of the Company and contingent upon success in future clinical trials, approval from the Food and Drug Administration and the collaborator’s efforts.

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 Ultragenyx and therefore have also been excluded from the transaction price.

The Company concluded that Ultragenyx’s options to extend exclusivity and 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.

A s of September 3 0 , 2020, the transaction price included the upfront considera tion 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 w ere included in the transaction price, as all milestone amounts were fully constrained.

As part of its evaluation of the constraint, the Company considered numerous factors, including that the consideration is outside the control of the Company and conting ent upon success in future clinical trials, approval from the F DA and the collaborator’s efforts.

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

Amendment 3 was deemed a contract modification and accounted for as part of the original Ultragenyx Agreement and the Company recorded a cumulative catch-up adjustment of $1.1 million on the modification date.

The transaction price will be recognized to revenue on a straight-line basis using an input method over the 4-year reserve target exclusivity period.

The transaction price is recognized to revenue on a straight-line basis using an input method over the 4-year reserve target exclusivity period.

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

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

Total deferred revenue at September 30, 2020 and December 31, 2019 from Ultragenyx was $10.0 million and $12.7 million, respectively.

Collaboration Partner – CureVac

In January 2018, the Company entered into a Development and Option Agreement with CureVac, (the “Development and Option Agreement”).

Under the terms of the Development and Option Agreement, the parties agreed to conduct joint preclinical development programs once CureVac makes a payment to pull down a target on the basis of which CureVac is granted options for taking a license on pre-agreed license terms to develop and commercialize certain products incorporating the Company’s patents and know-how related to delivery technology (the LUNAR platform) (the “Arcturus Delivery Technology”), and CureVac patents and know-how related to mRNA technology.

In January 2018, the Company entered into a Development and Option Agreement (the “Development and Option Agreement”) with CureVac AG (“CureVac”).

Under the terms of the Development and Option Agreement, the parties agreed to conduct joint preclinical development programs once CureVac makes a payment to pull down a target on the basis of which CureVac is granted options for taking a license on pre-agreed license terms to develop and commercialize certain products incorporating the Company’s patents and know-how related to LUNAR delivery technology (the “Arcturus Delivery Technology”), and CureVac patents and know-how related to mRNA technology.

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 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).

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).

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

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 June 30, 2020 are $14.0 million for rare disease targets and $23.0 million for non-rare disease targets.

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 the 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 other 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 eight years (which was subsequently amended, as discussed below), the Development and Option Agreement also includes an option to extend the term on an annual basis for up to three years, subject to payment by CureVac to Arcturus of a non-refundable annual extension fee.

The Development and Option Agreement includes potential milestone payments from CureVac to the Company for selected targets.

The current potential milestone payments for the remaining targets as of September 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 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.

As of September 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 (and 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.

Concurrently with the Development and Option Agreement, the Company entered into a Co-Development and Co-Commercialization Agreement (the “Co-Development Agreement”) which the Company considered a combined contract with the Development and Option Agreement for purposes of revenue recognition.

However, on February 11, 2019, the Company announced the termination of the obligations of CureVac for the preclinical development of ARCT-810, effective as of August 4, 2019, and the re-assumption by the Company of the worldwide rights thereto.

As a result, Arcturus reassumed 100% global rights for clinical development candidate ARCT-810, a messenger RNA (mRNA) drug to treat ornithine transcarbamylase deficiency.

On July 26, 2019, the Company entered into an amendment (“CureVac Amendment”) to its Development and Option Agreement with CureVac (as amended, the “Development and Option Agreement”), pursuant to which the Company and CureVac agreed to shorten the time period during which CureVac may select potential targets to be licensed from the Company from eight years to four years, and to reduce the overall number of maximum targets to be reserved and licensed.

As a result, Arcturus reassumed 100% global rights for clinical development candidate ARCT-810, a mRNA drug to treat OTC deficiency.

In connection with the July 2019 CureVac Amendment, the Company and CureVac also entered into a Termination Agreement (the “Termination Agreement”) terminating the January 1, 2018 Co-Development Agreement between the Company and CureVac.

1 unchanged sentence

In evaluating the CureVac Development and Option Agreement and Co-Development Agreement in accordance with ASC Topic 606, the Company concluded that the contract counterparty, CureVac, is a customer.

The Company has identified the following promised goods/services as part of the initial agreement with CureVac and subsequent amendments:

(i) research services, (ii) license to use Arcturus technology, (iii) exclusivity and (iv) participation in the Joint Steering Committee.

The Company has identified the following pro mised goods/services as part of the initial agreement with CureVac and subsequent amendments :

(i) research services, (ii) license to use Arcturus technology, (iii) exclusivity and (iv) participation in a j oint s teering c ommittee.

The Company concluded that the promised goods/services are incapable of being distinct and consequently do not have any value on a standalone basis.

1 unchanged sentence

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

As of September 30, 2020, the transaction price included the upfront consideration received.

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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 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.

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

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 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

Total deferred revenue as of September 30, 2020 and December 31, 2019 for CureVac was $2.5 million and $3.2 million, respectively.

Other Collaboration Revenue

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.

Under the agreement with Takeda, the Company recognized $0.8 million during the first three 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 in the second quarter of 2021.

Under the agreement with SGI, the Company recognized $0.3 million during the first three quarters of 2020 related to sublicensed technology.

Fair Value Measurements

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Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Unobservable inputs in which little or no market data exists and are therefore determined using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

The carrying value of cash, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values due to their relative short maturities.

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 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.

Unobservable inputs for which little or no market data exists and are therefore determined using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

The carrying value of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate their respective fair values due to their relative short maturities.

The carrying amount 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 September 30, 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.

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

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(in thousands)

June 30, 2020

September 30, 2020

December 31, 2019

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Property and equipment, net

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:

Depreciation and amortization expense was $0.2 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and $0.6 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively.

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

(in thousands)

June 30, 2020

September 30, 2020

December 31, 2019

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Long-term debt with Western Alliance Bank

On October 12, 2018, the Company entered into a Loan and Security Agreement with Western Alliance Bank (the “Bank”), whereby the Company received $10.0 million under a long-term debt agreement (the “Loan”).

The Loan is collateralized by all of the assets of the Company, excluding intellectual property, which is subject to a negative pledge.

The Loan contains customary conditions of borrowing, events of default and covenants, including covenants that restrict the Company’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of the Company’s capital stock.

In addition, the Company is required to maintain at least 100% of its consolidated, unrestricted cash, or $15.0 million, whichever is lower, with the Bank.

On October 30, 2019, the Company and the Bank entered into a Third Amendment (the “Third Amendment”) to the Loan and Security Agreement dated as of October 12, 2018 (as amended, the “Loan Agreement”).

Pursuant to the amendment, the Bank agreed to make a term loan to the Company on October 30, 2019, in the amount of $15.0 million (the “Term Loan”).

The resulting net increase in the indebtedness of the Company was $5.0 million.

On October 12, 2018, Arcturus Therapeutics, Inc.

entered into a Loan and Security Agreement with Western Alliance Bank (the “Bank”), whereby it received $10.0 million under a long-term debt agreement (the “Loan”).

The Loan is collateralized by all of the assets of Arcturus Therapeutics, Inc., excluding intellectual property, which is subject to a negative pledge.

The Loan contains customary conditions of borrowing, events of default and covenants, including covenants that restrict Arcturus Therapeutics, Inc.’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of its capital stock.

In addition, Arcturus Therapeutics, Inc.

is required to maintain at least 100% of its consolidated, unrestricted cash, or $15.0 million, whichever is lower, with the Bank.

On October 30, 2019, Arcturus Therapeutics, Inc.

and the Bank entered into a Third Amendment (the “Third Amendment”) to the Loan (as amended, the “Loan Agreement”).

Pursuant to the amendment, the Bank agreed to make a term loan to Arcturus Therapeutics, Inc.

on October 30, 2019, in the amount of $15.0 million (the “Term Loan”).

The resulting net increase in the indebtedness of Arcturus Therapeutics, Inc.

was $5.0 million.

The Term Loan bears interest at a floating rate ranging from 1.25% to 2.75% above the prime rate.

The amendment further provides that the Term Loan has a maturity date of October 30, 2023.

The Company shall make monthly payments of interest only until the interest-only end date of October 1, 2021.

The Company paid a loan origination fee of $54,000 which was recorded as a debt discount along with the remaining loan origination fee from the Loan and is being accreted over the term of the Term Loan.

In addition, the Company is required to pay a fee of $525,000 upon certain change of control events.

The Term Loan may be prepaid in full at any time, provided that a prepayment fee is required to be paid by the Company upon prepayment.

The prepayment fee ranges from 0.50% to 2.00% of the prepaid principal amount depending upon the date on which the prepayment is made.

Arcturus Therapeutics, Inc.

will make monthly payments of interest only until October 1, 2021.

Arcturus Therapeutics, Inc.

paid a loan origination fee of $54,000 which was recorded as a debt discount along with the remaining loan origination fee from the Loan and is being accreted over the term of the Term Loan.

In addition, Arcturus Therapeutics, Inc.

is required to pay a fee of $525,000 upon certain change of control events.

The Term Loan may be prepaid in full at any time, subject to a prepayment fee ranging from 0.50% to 2.00% of the prepaid principal amount depending upon the date of the prepayment.

In connection with the Third Amendment, the Company guaranteed the obligations under the Loan Agreement and pledged substantially all of its assets as security under the Loan Agreement.

The Term Loan also includes covenants which includes the Company’s submission of a clinical candidate for IND application made to the U.S.

Food and Drug Administration by May 31, 2020 and have it accepted by June 30, 2020.

This covenant has been satisfied.

Upon maturity or prepayment (as previously discussed), the Company will be required to pay a 2% fee as a result of the FDA’s approval to proceed with the Company’s the LUNAR-OTC (ARCT-810) program based on its IND submission.

Such fee is accreted to the debt balance using the effective interest method over the term of the Loan Agreement.

Upon maturity or prepayment (as previously discussed), Arcturus Therapeutics, Inc.

will be required to pay a 2% fee as a result of the FDA’s approval to proceed with the Company’s LUNAR-OTC (ARCT-810) program based on its IND submission.

Such fee is accreted to the long-term debt balance using the effective interest method over the term of the Loan Agreement.

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 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 $0.2 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.

As of September 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 .

5 million, respectively, with no principal payments due in 2020 .

The Company recognized interest expense related to its long-term debt of $0.2 million and $0.7 million for the three and nine months ended September 30, 2020, respectively, and $0.2 million and $0.6 million for the three and nine months ended September 30, 2019, respectively.

Stockholders’ Equity

The Company is currently authorized to issue 30,000,000 shares of common stock under its Certificate of Incorporation.

As of September 30, 2020, the Company has issued 24,473,002 shares of common stock and has approximately 5,526,998 shares of common stock reserved for issuance, resulting in no authorized shares of common stock available for issuance.

As a result, the Company will hold a special meeting of stockholders on November 10, 2020 to vote to increase the number of shares of common stock it is authorized to issue from 30,000,000 shares to 60,000,000 shares.

Restricted Common Shares

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Of the shares purchased, 1,538,353 were subject to a repurchase option whereby the Company has an option for two months after date of termination of service to repurchase any or all of the unvested shares at the original purchase price per share.

The repurchase option shall be deemed to be automatically exercised by the Company as of the end of the two-month period unless the Company notifies the purchaser that it does not intend to exercise its option.

The repurchase option will be deemed to be automatically exercised by the Company as of the end of the two-month period unless the Company notifies the purchaser that it does not intend to exercise its option.

The shares will be vested (1) 25% after obtaining suitable siRNA license;

(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 accepted by the applicable regulatory agency;

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

(3) 25% after a regulatory agency new drug application (such as an IND 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 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.

The third and fourth milestones were achieved during the second and third quarters of 2020, respectively, and therefore, as of September 30, 2020, all shares of common stock were fully vested.

Net Loss per Share

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.

Dilutive securities that were not included in the calculation of diluted net loss per share for the three and nine months ended September 30, 2020 as they were anti-dilutive totaled 1,405,378 and 1,129,949, respectively, and 166,921 and 96,615 for the three and nine months ended September 30, 2019, respectively.

Share-Based Compensation

2 unchanged sentences

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 2,400,000 shares to 5,000,000.

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

Accordingly, as of September 30, 2020, a total of 2,388,340 shares remain available for future issuance under the 2019 Plan, subject to the terms of 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 and six months ended June 30, 2020 and 2019 were:

The first accumulation period under the 2020 Plan commenced on August 17, 2020.

S tock Options

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

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(in thousands)

2 unchanged sentences

The Company is subject to taxation in the United States and various states.

The Company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter.

The primary difference between the effective tax rate and the federal statutory tax rate relates to the valuation allowances on the Company’s net operating losses.

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

For the three and nine months ended September 30, 2020, the Company did not record any income tax expense.

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

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19.

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.

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 .

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 removing 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.

For the nine months ended September 30, 2020, the Company estimated that the impact of the CARES Act will be immaterial to its tax position.

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 .

Commitments and Contingencies

1 unchanged sentence

On March 4, 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$10.0 million using the March 2, 2020 exchange rate) in grants to support the development of the vaccine.

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 Grant provides for up to S$14.0 million (approximately US$10.1 million using the exchange rate at the time the grant contract was entered into) in grants to support the development of the vaccine.

The Company entered into an amendment to the Grant on September 24, 2020 to update certain delivery and milestone timelines.

The funds received have been 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.

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

For the three and nine months ended September 30, 2020, the Company recognized $3.7 million and $7.9 million of contra expense, respectively, with $2.1 million remaining in accrued expenses.

On October 2, 2020, the Company was awarded another grant from the Singapore Economic Development Board to support the further development of a potential COVID-19 vaccine.

The grant provides for up to S$9.3 million (approximately US$6.7 million) to support the development of the vaccine candidate.

The grant will be paid in two installments upon the achievement of certain milestones related to the progress of the development of the vaccine candidate.

Cystic Fibrosis Foundation A greement

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

Pursuant to the amendment, (i) CFF increased the amount it will award to advance LUNAR-CF to $15.0 million from approximately $3.2 million, (ii) the Company will provide $5.0 million in matching funds for remaining budgeted costs and (iii) the related disbursement schedule from CFF to Arcturus was modified such that (a) $4.0 million was disbursed upon execution of the CFF Amendment, (b) $2.0 million will be disbursed within 30 days of the first day of each of January, April, July and October 2020 upon Arcturus invoicing CFF to meet project goals, and (c) the last payment of $3.0 million less the prior award previously paid out, equaling approximately $2.3 million, will be disbursed upon Arcturus Therapeutics, Inc.

invoicing CFF to meet good manufacturing practices and opening an Investigational New Drug (“IND”) application.

Pursuant to the amendment, (i) CFF increased the amount it will award to advance LUNAR-CF to $15.0 million from approximately $3.2 million, (ii) the Company will provide $5.0 million in matching funds for remaining budgeted costs and (iii) the related disbursement schedule from CFF to Arcturus was modified such that (a) $4.0 million was disbursed upon execution of the CFF Amendment, (b) $2.0 million was disbursed within 30 days of the first day of each of January, April, July and October 2020 upon Arcturus invoicing CFF to meet project goals, and (c) the last payment of $3.0 million less the prior award previously paid out, equaling approximately $2.3 million, will be disbursed upon Arcturus Therapeutics, Inc.

(i) invoicing CFF in order to allow it to meet good manufacturing practices and (ii) opening an IND application.

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 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.

For the three and nine months ended September 30, 2020, the Company recognized $0.7 million and $3.7 million of contra expense, respectively, with $4.2 million remaining in accrued expenses.

For the three and nine months ended September 30, 2019, the Company recognized $0.7 million of contra expense.

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

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.

8 unchanged sentences

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

The lease may be extended for one twelve-month period;

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

The lease may be extended for one twelve-month period, and in November 2020 the Company deemed the extension option reasonably certain to be exercised and will include the option in the lease terms beginning in October 2020.

Operating lease right-of-use asset and liability on the condensed consolidated balance sheets represent the present value of remaining lease payments over the remaining lease terms.

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

As of September 30, 2020, the payments of the operating lease liability were as follows:

(in thousands)

6 unchanged sentences

Weighted-average discount rate

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 $0.5 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.

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 term.

Operating lease costs were $0.5 million and $1.3 million for the three and nine months ended September 30, 2020, respectively, and $0.3 million and $0.9 million for the three and nine months ended September 30, 2019, respectively.

Related Party Transactions

1 unchanged sentence

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 (the “Additional Shares”).

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.

Ultragenyx exercised the Option in May 2020 , and as a result, owns 12.3% of the outstanding common stock of the Company as of September 30, 2020 .

For the three and nine months ended September 30, 2020, the Company has recognized revenue of $0.9 million and $2.7 million, respectively, and for the three and nine months ended September 30, 2019, the Company recognized revenue of $0.9 million and $4.9 million, respectively.

As of September 30, 2020 and 2019, the Company holds accounts receivable balances of negligible amounts related to the Ultragenyx Agreement.

Equity-Method Investment

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

Pursuant to the asset purchase agreement for ADAIR, the Company received a 30% ownership interest in the common stock of a privately held company in consideration for the sale of the ADAIR technology.

The Company has no requirement to invest further in this private company.

During the third quarter of 2019, the equity-method investee issued shares of its common stock at a share price greater than the initial investment which resulted in the Company recording a gain in its equity-method investment.

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

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%.

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

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

The Company has no requirement to invest further in Vallon.

During the third quarter of 2019, Vallon issued shares of its common stock at a share price greater than the initial investment which resulted in the Company recording a gain in its equity-method investment.

The gain has been offset by additional losses incurred by Vallon.

On October 23, 2020, Vallon filed with the Securities and Exchange Commission a registration statement on Form S-1 for an initial public offering of shares of common stock.

For the nine months ended September 30, 2020, the Company recorded losses of $0.3 million.

Subsequent to Vallon issuing shares of its common stock, the Company’s ownership was reduced to 19%.

As the Company continues to have the ability to exercise significant influence over the operating and financial policies of the investee, the Company will continue to account for the investment as an equity-method investment.

Subsequent Events

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 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.

On November 7, 2020, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc., entered into a Manufacturing Support Agreement (the “Support Agreement”) with the Economic Development Board of the Republic of Singapore (the “EDB”).

Pursuant to the Support Agreement, the EDB has agreed to make a term loan of up to $45.0 million (the “Singapore Loan”) to the Company, subject to the entry into an agreed upon security agreement (described below) and satisfaction of other customary deliveries, to support the development of the LUNAR-COV19 vaccine candidate.

Outstanding balances on the Singapore Loan will earn interest, compounding annually, and the Company may prepay all or part of the Singapore Loan without penalty upon advance notice.

Subject to certain exceptions, the Singapore Loan is intended to be a limited recourse loan that is intended to be repaid solely through a royalty payment on sales of the LUNAR-COV19 vaccine candidate, with a portion of the proceeds on all such vaccine sales being applied on a quarterly basis to prepay outstanding principal and interest under the Singapore Loan.

However, all unpaid principal and interest under the Singapore Loan will be due and payable five years after draw date, if net sales of the LUNAR-COV19 vaccine exceed a certain minimum threshold during this five year period or the Company obtains clearance to sell the vaccine in specified jurisdictions.

Unpaid principal and interest under the Singapore Loan will also become due and payable upon an event of default under the Support Agreement.

If, any portion of the Singapore Loan is required to be forgiven pursuant to the terms of the Support Agreement, the EDB has the right to take ownership of certain raw materials and equipment that were purchased by the Company with proceeds of the Singapore Loan (the “Specified Assets”) and the Company is required to enter into a security agreement (the “Security Agreement”) for the benefit of the EDB before the Singapore Loan is drawn to provide that repayment of the Singapore Loan and related obligations are secured by a lien on the Specified Assets.

In connection with the entry into the Support Agreement, the Company entered into a consent agreement with Western Alliance Bank which provides Western Alliance Bank’s consent to enter into the Singapore Loan and its commitment to amend the Loan and Security Agreement, dated as of October 12, 2018, between Western Alliance Bank and the Company, concurrently with the entry into the Security Agreement to exclude the Specified Assets from Western Alliance Bank’s lien on certain assets of the Company.

The foregoing description of the Support Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Support Agreement, which is filed as an exhibit to this Quarterly Report on Form 10-Q.

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