What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-09 · 202 added, 220 removed, 311 unchanged (58% of the section changed)

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(in thousands, except par value information)

September 30,

Current assets:

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Deferred revenue, net of current portion

Long-term debt

Long-term debt, net of current portion

Operating lease liability, net of current portion

Other long-term liabilities

Total liabilities

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60,000 shares authorized;

24,473 and 15,138 issued

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

26,319 issued and

outstanding at March 31, 2021 and 26,192 issued and outstanding at December 31, 2020

Additional paid-in capital

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Three Months Ended

Nine Months Ended

September 30,

Collaboration revenue

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Loss from operations

Loss from equity-method investment

Gain (loss) from equity-method investment

Gain from foreign currency

Finance expense, net

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended September 30, 2020

Stockholders’

BALANCE - June 30, 2020

Issuance of common stock, net of issuance costs

Issuance of common stock upon exercise of stock options

Share-based compensation

BALANCE – September 30, 2020

Three Months Ended September 30, 2019

Stockholders’

BALANCE - June 30, 2019

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

Three Months Ended March 31, 2021

Stockholders’

BALANCE - December 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

Issuance of common stock related to acquired in-process research and development

Share-based compensation

BALANCE – September 30, 2020

Nine Months Ended September 30, 2019

Issuance of common stock upon exercise of stock options

BALANCE – March 31, 2021

Three Months Ended March 31, 2020

Stockholders’

BALANCE - December 31, 2019

Treasury Stock

Share-based compensation

Redomiciliation share exchange

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 – September 30, 2019

BALANCE – March 31, 2020

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES:

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

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

Depreciation and amortization

Share-based compensation expense

Loss (gain) from equity-method investment

Other non-cash interest expense

Acquired in-process research and development expense

(Gain) Loss from equity-method investment

Foreign currency transaction gain

Other non-cash expenses

Changes in operating assets and liabilities

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Deferred revenue

Net cash (used in) provided by operating activities

Net cash used in operating activities

INVESTING ACTIVITIES:

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FINANCING ACTIVITIES:

Proceeds from issuance of common stock, net of issuance costs

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

Proceeds from debt

Proceeds from exercise of stock options

Net cash provided by financing activities

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

NET INCREASE (DECREASE) 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

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental disclosure of cash flow information

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Right-of-use asset obtained in exchange for lease liabilities

Acquisition of in-process research and development through issuance of common stock

Purchase of property and equipment in accounts payable

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Arcturus Therapeutics Holdings Inc.

(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.

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.

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

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$10.1 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 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 (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.

(the “Company”) is a global clinical-stage messenger RNA medicines company focused on development of infectious disease vaccines and significant opportunities within liver and respiratory rare diseases.

The Company became a clinical stage company during 2020 when it announced that its Investigational New Drug (“IND”) application for ornithine transcarbamylase (“OTC”) deficiency was deemed allowed to proceed by the U.S.

Food and Drug Administration (“FDA”), and its Clinical Trial Application (“CTA”) candidate LUNAR-COV19 was approved to proceed by the Singapore Health Sciences Authority.

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 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.

and its consolidated subsidiaries from and after the effective time of the Redomiciliation and, prior to that time Arcturus Therapeutics Ltd .

The accompanying condensed consolidated financial statements include the accounts of Arcturus Therapeutics Holdings Inc.

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

and its subsidiaries and 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 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.

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, 2020.

These condensed consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates and assumptions regarding the valuation of debt instruments, the equity-method investment, share-based compensation, accruals for liabilities, income taxes, revenue and deferred revenue, leases, 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 has incurred significant operating losses since its inception.

As of March 31, 2021 and December 31, 2020, the Company had an accumulated deficit of $ 200.2 million and $ 143.8 million, respectively.

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

In July 2020 the Company completed an additional underwritten public offering of 3,753,773 shares of common stock (including the underwriters’ overallotment option) at a price of $53.00 per share.

The Company received net proceeds of approximately $186.6 million in the offering.

From the Company’s inception through the three months ended March 31, 2021, the Company has funded its operations principally with the sale of capital stock, revenues earned through collaboration agreements, and proceeds from long-term debt.

During the first quarter of 2021, the Company elected to borrow and the Economic Development Board of the Republic of Singapore (the “EDB”) agreed to make a term loan of S$ 62.1 million (approximately USD$ 46.6 million) to support the manufacture of the LUNAR-COV19 vaccine candidate.

Additionally, through underwritten public offerings during fiscal year 2020, the Company raised net proceeds of $ 423.8 million, after deducting underwriting discounts, commissions, and offering expenses.

Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these condensed consolidated financial statements were available to be issued.

There can be no assurance that the Company will be successful in securing additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Segment Information

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Revenue Recognition

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), using the modified retrospective transition method.

Topic 606 provides a unified model to determine how revenue is recognized and the Company applied the standard to collaborative research and technology agreements that were in progress as of the effective date, January 1, 2019.

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, 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 its 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 potential milestone payment is a binary event, as the Company will either receive the milestone payment or it will not.

(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.

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.

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 c ounterparty and is the unit of account under 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 sati sfied.

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.

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

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets and to disclose key information about leasing arrangements.

The Company adopted Topic 842 on its effective date in the first quarter of 2019 using a modified retrospective approach.

The Company elected the available package of practical expedients upon adoption, which allowed it to carry forward historical assessments of whether existing agreements contained a lease and the classification of existing operating leases.

See “Note 9, Commitments and Contingences” for specific details surrounding the Company’s leases.

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, net of any grants.

All research and development costs are expensed as incurred.

Research and development costs consist primarily of salaries, employee benefits, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services), in process research and development expenses and license agreement expenses, net of any grants and prelaunch inventory.

Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

The Company records accruals for estimated research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites, and others.

Some of these contractors bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones.

For the latter, the Company accrues the expenses as goods or services are used or rendered.

Clinical trial site costs related to patient enrollment are accrued as patients enter and progress through the trial.

Pre-Launch Inventory

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(in thousands)

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

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

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.

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.

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, 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.

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 1, 2 and 3 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 three months ended March 31, 2021 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.

(in thousands)

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Deductions for cash collections

BALANCE – September 30, 2020

BALANCE – March 31, 2021

(in thousands)

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Deductions for promised services provided in current period

BALANCE – September 30, 2020

BALANCE – March 31, 2021

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

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(Dollars in thousands)

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Collaboration Partner – CureVac

Collaboration Partner – Other

Collaboration Partner – Takeda and other

Total collaboration revenue

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Collaboration Partner – Janssen

In October 2017, the Company entered into a research collaboration and license agreement with Janssen (the “2017 Agreement”).

In October 2017, the Company entered into a research collaboration and license agreement with Janssen (the “2017 Agreement”) to collaborate on developing candidates for treating HBV with RNA therapeutics.

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 up to $ 56.5 million, as well as royalty payments on any future licensed product sales.

The next potential milestone to be achieved relates to demonstrating in vivo efficacy and safety.

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 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.

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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 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.

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 f uture clinical trials and Janssen ’s efforts.

As of March 31, 2021, 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 18 months.

None of the development and commercialization milestones were included in the transaction price as they 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 September 30, 2020 and December 31, 2019 for Janssen was $5.9 million.

Total deferred revenue as of each of March 31, 2021 and December 31, 2020 for Janssen was $ 5.9 million.

Collaboration Partner – Ultragenyx

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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.

During the fourth quarter of 2020, Ultragenyx exercised its option to move forward with Preclinical Candidate Designation for its development target, Glycogen Storage Disease III, and paid an option fee to the Company of $ 0.5 million.

The current potential development, regulatory and commercial milestone payments for the existing development targets as of March 31, 2021 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 September 30, 2020, Ultragenyx has not yet reached the clinical phase of the contract.

As of March 31, 2021, 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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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 were initially restricted for up to two years .

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.

These restrictions have since expired.

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

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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.

As of March 31, 2021, the transaction price included the upfront consideration received, option payments, 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 FDA 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.

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.

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

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

Total deferred revenue at March 31, 2021 and December 31, 2020 from Ultragenyx was $ 8.3 million and $ 9.2 million, respectively.

Collaboration Partner - CureVac

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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.

The current potential milestone payments for the remaining targets as of March 31, 2021 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 September 30, 2020, CureVac has not yet reached the clinical phase of the contract.

As of March 31, 2021, 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.

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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 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 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 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.

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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.

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

As of March 31, 2021, the transaction price included the upfront consideration received.

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.

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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 September 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 34 month contractual term as of September 30, 2020.

For the three months ended March 31, 2021, 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 28 month contractual term as of March 31, 2021.

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 September 30, 2020 and December 31, 2019 for CureVac was $2.5 million and $3.2 million, respectively.

Total deferred revenue as of March 31, 2021 and December 31, 2020 for CureVac was $ 2.1 million and $ 2.3 million, respectively.

Other Agreements

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 $0.8 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.

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

Total deferred revenue as of March 31, 2021 and December 31, 2020 for Takeda was $ 0.3 million and $ 0.4 million, respectively.

The current agreement was entered into on March 18, 2019 and is expected to be completed during fiscal year 2021.

Israeli Ministry of Health

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 which is included in deferred revenue as of March 31, 2021.

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 became bound to purchase an initial quantity of 500,000 reserved vaccine doses, as set forth in and subject to the terms and conditions of the Israel Supply Agreement.

Fair Value Measurements

4 unchanged sentences

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

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.

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 March 31, 2021 and December 31, 2020, 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.

Balance Sheet Details

Property and equipment, net consisted of the following:

Property and equipment, net balances as of March 31, 2021 and December 31, 2020 consisted of the following:

(in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

5 unchanged sentences

Property and equipment, net

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:

Depreciation and amortization expense was $ 0.3 million and $ 0.2 million for the three months ended March 31, 2021 and 2020, respectively.

Accrued liabilities consisted of the following as of March 31, 2021 and December 31, 2020:

(in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

Accrued compensation

Cystic Fibrosis Foundation Liability

Cystic Fibrosis Foundation Liability (Note 9)

Singapore Economic Development Board liability

Current portion of operating lease liability

Current portion of long-term debt

Clinical accruals

Other accrued research and development expenses

Manufacturing Supply Agreement

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 agreed to make a term loan of S$ 62.1 million to the Company, subject to the satisfaction of customary deliveries, to support the manufacture of the LUNAR-COV19 vaccine candidate (the “Singapore Loan”).

The Singapore Loan and the related side letter includes certain loan covenants requiring (i) unused funds as of June 30, 2021 to be subsequently returned within thirty days, subject to the agreed upon extension of the reconciliation date, (ii) the Company to provide a quarterly reconciliation report within forty-five days of each financial quarter end, (iii) an external audit to be completed by September 26, 2021, (iv) the Company to deliver 10 grams of LUNAR-COV19 vaccine candidate suitable for use in a phase 3 trial in two shipments with a partial shipment by June 30, 2021 and a remaining shipment by September 30, 2021, (v) the Company to provide EDB with a right of first refusal on GMP manufacturing slots of the LUNAR-COV19 vaccine candidate up to an agreed-upon maximum amount, (vi) and the obligation to repay the Singapore Loan will be secured by an interest in the raw materials and manufacturing equipment purchased by the Company with the funds from the Singapore Loan in form and substance satisfactory to the EDB in its sole discretion.

The Company elected to borrow the full amount available under the Support Agreement of S$ 62.1 million on January 29, 2021.

The Singapore Loan accrues interest at a rate of 4.5 % per anum calculated on a daily basis.

Subject to certain exceptions, the Singapore Loan is intended to be a limited recourse loan that will be repaid solely through a royalty payment of 10 % of net sales proceeds of the LUNAR-COV19 vaccine candidate, up to the amount of the 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.

The first vaccine sales, including the amount of net sales, shall be reported to EDB within 10 days of delivery and quarterly reports of aggregate vaccine sales, including net sales proceeds shall be provided within 30 days after quarter end.

The Singapore Loan is forgivable if the Company has not obtained regulatory approval by the final repayment date and net sales of LUNAR-COV19 are less than $ 100 million.

The Company entered into a security agreement (the “Security Agreement”) for the benefit of the EDB 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 (the “Bank”) and an amendment to the Loan and Security Agreement, dated as of October 12, 2018, between Western Alliance Bank and the Company (the “Loan”), to exclude the Specified Assets from Western Alliance Bank’s lien on certain assets of the Company.

The Singapore Loan was initially recorded as long-term debt at $ 46.6 million, the amount of cash proceeds at the time the Company received the funding.

As of March 31, 2021, the debt balance was adjusted to reflect the current exchange rate resulting in a decreased debt balance of $ 46.2 million and a foreign currency transaction gain of $ 0.4 million.

For the three months ended March 31, 2021, the Company recorded interest expense and a corresponding liability of $ 0.4 million.

As of March 31, 2021, the Company was in compliance with all covenants under the Singapore Loan.

Long-term debt with Western Alliance Bank

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”).

entered into the Loan with the Bank, whereby it received $ 10.0 million.

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

9 unchanged sentences

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 amendment further

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

Arcturus Therapeutics, Inc.

5 unchanged sentences

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.

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.

will be required to pay a 2 % fee as a result of the FDA’s approval to proceed with the Company’s LUNAR-OTC 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 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.

As of March 31, 2021, 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 are as follows as of March 31, 2020:

The Company recognized interest expense related to its long-term debt of $ 0.2 million and $ 0.3 million during the quarters ended March 31, 2021 and 2020, 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

In March 2013, the founders of the Company purchased 2,783,686 shares of common stock for $0.0068 per share.

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 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 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.

The Company met the first two milestones during 2013 and 2014 leaving an unvested balance of 769,176 shares.

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.

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.

Alexion Pharmaceuticals License Agreement

On February 17, 2021, the Company entered into an exclusive license agreement with Alexion Pharmaceuticals, Inc.

(“ Alexion ”) pursuant to which Alexion granted to the Company an exclusive, worldwide license to exploit certain specified Alexion patent applications.

In accordance with the terms of the license agreement, and in exchange for the license, the Company issued 74,713 shares of its common stock to Alexion on February 19, 2021 valued at approximately $ 5.0 million.

The number of shares issued under the agreement was calculated by dividing (i) five million dollars ($5.0 million) by (ii) the volume-weighted average price per share of the Company’s common stock on the Nasdaq Global Market for the thirty (30) trading days immediately preceding the Effective Date (rounded to the nearest whole share).

The Company recorded the transaction as an asset purchase as management concluded that all of the value received was related to a single identifiable asset.

Further, the Company concluded that there was no alternative future use for the asset and recorded a charge at the closing of the transaction for the full $ 5.0 million value assigned to the shares issued in connection with the license agreement.

This non-cash charge was recorded as acquired in-process research and development expense in the statements of operations and comprehensive loss for the quarter ended March 31, 2021 .

Net Loss per Share

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.

Dilutive securities that were not included in the calculation of diluted net loss per share for the three months ended March 31, 2021 and 2020 as they were anti-dilutive totaled 1,320,390 and 316,957 , respectively.

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

There were no unvested restricted shares for the three months ended March 31, 2021.

Share-Based Compensation

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 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 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 an increase to the number of shares authorized for use in making awards under the 2019 Omnibus Equity Incentive Plan (the “2019 Plan”) by 2,400,000 shares to 5,000,000 .

Accordingly, as of March 31, 2021, a total of 968,095 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan.

Employee Stock Purchase 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 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:

Under the 2020 Plan, eligible employees may purchase shares of the Company’s common stock at a discount annually, subject to a maximum of $ 25,000 per year.

The discounted purchase price is equal to the lower of 85 % of (i) the market value per share of the common stock on the first day of the accumulation period or (ii) the market value per share of common stock on the purchase date.

Share-based compensation expense recognized under the ESPP was $ 0.1 million for the three months ended March 31, 2021.

Stock Options

Share-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020 were:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

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

For the three months ended March 31, 2021, the Company recorded no 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 (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 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

COVID-19 Vaccine Development

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.

On March 4, 2020, the Company was awarded a grant (“Grant 1”) from the Singapore EDB 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 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 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 has been paid in full by the EDB 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 funds received have been recognized as contra research and development expense in proportion to the percentage covered by the EDB of the overall budget.

The Company is liable for certain expenses during the program and is also subject to certain conditions including the completion of an external audit within 183 days of the conclusion of the claim period on February 20, 2021, or August 22, 2021, and delivery of 10 grams of LUNAR-COV19 vaccine candidate suitable for use in a phase 3 trial in two shipments with a partial shipment by June 30, 2021 and a remaining shipment by September 30, 2021 .

Additionally, the Company is required to pay an agreed upon royalty rate to Duke-NUS on future net sales of the LUNAR-COV19 vaccine candidate in markets or jurisdictions outside of Singapore .

For the three months ended March 31, 2021 and 2020, the Company recognized $ 1.3 million and $ 0.5 million, respectively, of contra expense for Grant 1.

At March 31, 2021, no amount remained in accrued expenses.

On October 2, 2020, the Company was awarded another grant (“Grant 2”) from the Singapore EDB 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 for costs incurred in Singapore subject to certain conditions including (i) completing an external audit within 183 days from March 31, 2021, or September 30, 2021, (ii) delivering 10 grams of LUNAR-COV19 vaccine candidate suitable for use in a phase 3 trial in two shipments with a partial shipment by June 30, 2021 and a remaining shipment by September 30, 2021 and (iii) creating an entity in Singapore which was completed during the fourth quarter of 2020.

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.

The Company received the first installment of $ 3.6 million in the fourth quarter of 2020.

The funds received are recognized as contra research and development expense as costs are incurred.

For the three months ended March 31, 2021, the Company recognized $ 0.5 million, the remaining amount of the first installment, as contra expense for Grant 2.

The Company is currently in the process of negotiating amendments to Grant 1 and Grant 2 with the Singapore EDB.

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 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.

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.

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 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.

For the three months ended March 31, 2021 and 2020, the Company recognized $ 0.6 million and $ 2.0 million, respectively, of contra expense with $ 6.0 million remaining in accrued expenses.

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 from the commencement date with a remaining lease term through March 2025.

6 unchanged sentences

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.

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.

The lease extended for 13 months from the commencement date and included a right to extend the lease for one twelve-month period.

In February 2021, the Company opted to extend the lease through March 2025 to coincide with the lease term of the Company’s headquarters .

In February 2021, the Company entered into a third non-cancellable operating lease agreement for office space near its current headquarters.

The lease extends for 12 months from the commencement date with monthly base rent of approximately $ 11,000 .

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

As of March 31, 2021, 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 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.

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 $ 0.4 million for the three months ended March 31, 2021 and 2020, respectively.

Related Party Transactions

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

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 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.

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

Ultragenyx exercised the option in May 2020, and as a result, owns 8.4 % of the outstanding common stock of the Company as of March 31, 2021 .

For both quarters ended March 31, 2021 and 2020, the Company recognized revenue of $ 0.9 million related to the Ultragenyx Agreement.

As of March 31, 2021 and 2020, the Company holds accounts receivable balances of negligible amounts related to the Ultragenyx Agreement.

Equity-Method Investment

3 unchanged sentences

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.

Vallon completed an initial public offering and began trading on The Nasdaq Stock Market under the ticker “VLON” in February 2021.

Immediately after this offering, Arcturus owned 843,750 shares of Vallon, or approximately 12 %.

Based on the Company’s ownership and the Vallon board of directors seat held by an executive of the Company, the Company has the ability to exercise significant influence over the operating and financial policies of Vallon;

therefore, the Company accounts for this investment as an equity-method investment.

The Company accounts for its share of the earnings or losses of the investee with a reporting lag of three months, as the financial statements of the investee are not completed on a basis that is sufficient for the Company to apply the equity method on a current basis.

The offering was at a share price of $ 8.00 , greater than the initial investment which resulted in the Company recording a gain in its equity-method investment.

The gain has been offset by losses incurred by Vallon through December 31, 2020.

For the three months ended March 31, 2021, the gain recorded by the Company was $ 1.2 million.

Subsequent Events

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.

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.

In April 2021, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc., and Axcelead, Inc., a company existing under the laws of Japan (“Axcelead”), formed a joint venture entity, named Arcalis, Inc.

(“JV Entity”), which operates as a corporation under the laws of Japan.

Axcelead is an integrated drug discovery solutions provider to the pharmaceutical industry in Japan, having succeeded to a portion of the drug discovery research department of Takeda Pharmaceutical Company Limited in July 1, 2017.

The goal of the joint venture entity is to be a contract development and manufacturing organization focused on mRNA manufacturing that would provide manufacturing services to the Company and also to third parties.

The joint venture includes a shareholders agreement setting forth initial funding of the JV Entity and rights of the shareholders, including certain approval rights of Arcturus Therapeutics, Inc.

As part of the joint venture Arcturus Therapeutics, Inc.

entered into a License and Technology Transfer Agreement with the JV Entity, pursuant to which Arcturus Therapeutics, Inc.

grants to JV Entity a nonexclusive license to certain intellectual property for use at the JV Entity’s facilities, and obligates Arcturus Therapeutics, Inc.

to conduct certain technology transfer activities.

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