What changed in this filing

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Item 1. Financial Statements

2021-08-10 compared with 2021-05-10 · 145 added, 103 removed, 410 unchanged (38% of the section changed)

29 unchanged sentences

26,327 issued and

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

outstanding at June 30, 2021 and 26,192 issued and outstanding at December 31, 2020

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Collaboration revenue

4 unchanged sentences

Loss from operations

Gain (loss) from equity-method investment

Gain from foreign currency

(Loss) gain from equity-method investment

(Loss) gain from foreign currency

Finance expense, net

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Stockholders’

BALANCE – March 31, 2021

Share-based compensation expense

Issuance of common stock upon exercise of stock options

BALANCE – June 30, 2021

Three Months Ended June 30, 2020

Stockholders’

BALANCE – March 31, 2020

Issuance of common stock, net of issuance costs

Issuance of common stock to Ultragenyx on option exercise

Issuance of common stock upon exercise of stock options

Share-based compensation expense

BALANCE – June 30, 2020

Six Months Ended June 30, 2021

Stockholders’

BALANCE – December 31, 2020

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

Share-based compensation

Share-based compensation expense

Issuance of common stock upon exercise of stock options

BALANCE – March 31, 2021

Three Months Ended March 31, 2020

BALANCE – June 30, 2021

Six Months Ended June 30, 2020

Stockholders’

BALANCE – December 31, 2019

Share-based compensation

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

BALANCE – March 31, 2020

Share-based compensation expense

BALANCE – June 30, 2020

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

OPERATING ACTIVITIES:

18 unchanged sentences

Proceeds from debt

Proceeds from issuance of common stock, net of issuance costs

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

Proceeds from exercise of stock options

Net cash provided by financing activities

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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

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

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental disclosure of cash flow information

24 unchanged sentences

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.

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 expense, 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.

Joint Ventures, Equity Method Investments and Variable Interest Entities

Investments for which the Company exercises significant influence but does not have control are accounted for under the equity method.

Equity method investment activity is related to a 49 % joint venture with Axcelead, Inc.

(see the following paragraph for further details) and a 12 % ownership in Vallon Pharmaceuticals, Inc.

(see “ Note 10, Related Party Transactions” for further details).

The Company’s share of the investees results is presented as either income or loss from equity method investees in the accompanying condensed consolidated statements of operations.

In April 2021, Arcturus 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 on 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.

As part of the joint venture, the Company entered into a License and Technology Transfer Agreement with the JV Entity, pursuant to which Arcturus grants to JV Entity a nonexclusive license to certain intellectual property for use at the JV Entity’s facilities, and obligates Arcturus to conduct certain technology transfer activities.

The Company consolidates variable interest entities (“VIEs”) where it has been determined that the Company is the primary beneficiary of those entities’ operations.

Management believes that power is shared between Arcturus and Axcelead, as unrelated parties.

The consent of each of the parties is substantive and is required to make the decisions about the JV Entity’s significant activities.

Management does not believe that Arcturus has the power to direct the activities of the JV Entity that most significantly impact the JV Entity’s economic performance.

Therefore, the Company concluded it is not required to consolidate the JV Entity under the VIE model.

The equity method of accounting is applicable for the JV Entity as the Company does not own more than 50 % of voting power, but has influence over the operation and financial policies of the investee.

The Company will account for its investment in the JV Entity using the equity method of accounting as specified in ASC 323 , Investments — Equity Method and Joint Ventures .

Under ASC 323, equity method investments are recorded initially at cost.

The Company’s initial investment in the JV Entity totaled $ 9.2 million.

However, Arcalis paid the Company back the initial investment of $ 9.2 million as an upfront fee/consideration for the License and Technology Transfer Agreement.

In substance, there was no cash consideration paid by the Company for its 49 % equity interest in the JV Entity.

After this initial measurement, an equity method investment is adjusted at each reporting period to recognize the investor’s share of the earnings, losses and/or changes in capital of the investee after the date of acquisition.

Losses are only recognized to the extent the value of the investment is greater than zero.

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.

As of June 30, 2021 and December 31, 2020, the Company had an accumulated deficit of $ 254.7 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.

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.

From the Company’s inception through June 30, 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.

22 unchanged sentences

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

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

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

Research and Development, Net

12 unchanged sentences

(in thousands)

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Cash and cash equivalents

15 unchanged sentences

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

The following table presents changes during the three months ended March 31, 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.

The following table presents changes during the six months ended June 30, 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)

3 unchanged sentences

Deductions for cash collections

BALANCE – March 31, 2021

BALANCE – June 30, 2021

(in thousands)

3 unchanged sentences

Deductions for promised services provided in current period

BALANCE – March 31, 2021

BALANCE – June 30, 2021

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

For the Three Months

Ended March 31,

Ended June 30,

For the Six Months

Ended June 30,

(Dollars in thousands)

2 unchanged sentences

Collaboration Partner – CureVac

Collaboration Partner – Takeda and other

Collaboration Partner – Other

Total collaboration revenue

14 unchanged sentences

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

As of March 31, 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.

As of June 3 0 , 202 1 , 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 15 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 each of March 31, 2021 and December 31, 2020 for Janssen was $ 5.9 million.

Total deferred revenue as of June 30, 2021 and December 31, 2020 for Janssen was $ 5.8 million and $ 5.9 million, respectively.

Collaboration Partner – Ultragenyx

10 unchanged sentences

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.

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

As of June 30, 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”).

14 unchanged sentences

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.

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.

As of June 30, 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.

1 unchanged sentence

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

Amendment 3 was deemed a contract modification and accounted for as part of the original Ultragenyx Agreement.

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

Total deferred revenue at June 30, 2021 and December 31, 2020 from Ultragenyx was $ 7.4 million and $ 9.2 million, respectively.

Collaboration Partner - CureVac

1 unchanged sentence

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 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 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 March 31, 2021 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 June 30, 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 March 31, 2021, CureVac has not yet reached the clinical phase of the contract.

As of June 30, 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.

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 mRNA drug to treat OTC 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 that may be reserved and licensed.

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.

Pursuant to the Termination Agreement, CureVac agreed to make a one-time payment to Arcturus in the amount of $ 4.0 million, which was made in July 2019.

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.

4 unchanged sentences

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

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

As of June 30, 2021, the transaction price included the upfront consideration received.

1 unchanged sentence

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

For the three months ended March 31, 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 March 31, 2021 and December 31, 2020 for CureVac was $ 2.1 million and $ 2.3 million, respectively.

As of June 30, 2021, no adjustments were made to the transaction price.

Total deferred revenue as of June 30, 2021 and December 31, 2020 for CureVac was $ 1.9 million and $ 2.3 million, respectively.

Other Agreements

1 unchanged sentence

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.

Total deferred revenue as of June 30, 2021 and December 31, 2020 for Takeda was $ 0.2 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.

1 unchanged sentence

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 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.

9 unchanged sentences

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

As of March 31, 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.

As of June 30, 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 balances as of March 31, 2021 and December 31, 2020 consisted of the following:

Property and equipment, net balances as of June 30, 2021 and December 31, 2020 consisted of the following:

(in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

5 unchanged sentences

Property and equipment, net

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:

Depreciation and amortization expense was $ 0.3 million and $ 0.2 million for the three months ended June 30, 2021 and 2020, respectively, and $ 0.6 million and $ 0.4 million for the six months ended June 30, 2021 and 2020, respectively.

Accrued liabilities consisted of the following as of June 30, 2021 and December 31, 2020:

(in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

2 unchanged sentences

Singapore Economic Development Board liability

Vinbiocare deposit

Current portion of operating lease liability

4 unchanged sentences

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.

In June 2021, the EDB agreed to amend the Singapore Loan.

The amendment includes certain loan covenants requiring (i) unused funds as of March 31, 2022 to be subsequently returned within thirty days, subject to any further 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 of expenses paid through June 30, 2021 to be completed by September 30, 2021, and a projection of expenditures through March 31, 2022 followed by an audited statement of actual expenditures through March 31, 2022 by June 30, 2022, (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, 2022 and a remaining shipment by September 30, 2022, (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 ($ 46.6 million) on January 29, 2021.

The Singapore Loan accrues interest at a rate of 4.5 % per annum 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.

7 unchanged sentences

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.

As of June 30, 2021, the debt balance was adjusted to reflect the current exchange rate resulting in a debt balance of $ 46.2 million and a net foreign currency transaction gain of $ 0.4 million for the six months ended June 30, 2021.

For the three and six months ended June 30, 2021, the Company recorded interest expense and a corresponding liability of $ 0.5 million and $ 0.9 million, respectively.

As of June 30, 2021, the Company was in compliance with all covenants under the Singapore Loan and related commitments.

Long-term debt with Western Alliance Bank

12 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.

9 unchanged sentences

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

As of March 31, 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

As of June 30, 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 June 30, 2021:

The Company recognized interest expense related to its long-term debt of $ 0.7 million and $ 0.2 million during the three months ended June 30, 2021 and 2020, respectively, and $ 1.3 million and $ 0.5 million during the six months ended June 30, 2021 and 2020, respectively.

Stockholders’ Equity

6 unchanged sentences

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 .

This non-cash charge was recorded as acquired in-process research and development expense in the statements of operations and comprehensive loss .

Net Loss per Share

Dilutive securities that were not included in the calculation of diluted net loss per share for the three months ended March 31, 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

Dilutive securities that were not included in the calculation of diluted net loss per share for the three and six months ended June 30, 2021 as they were anti-dilutive totaled 1,011,031 and 1,242,987 , respectively, and 1,505,244 and 903,949 for the three and six months ended June 30, 2020, respectively.

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

There were no unvested restricted shares for the six months ended June 30, 2021.

Share-Based Compensation Expense

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.

Accordingly, as of June 30, 2021, a total of 665,535 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan.

Employee Stock Purchase Plan

3 unchanged sentences

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.

Share-based compensation expense recognized under the 2020 Plan was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2021, respectively.

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:

Share-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020 was:

For the Three Months

Ended March 31,

Ended June 30,

For the Six Months

Ended June 30,

(in thousands)

4 unchanged sentences

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.

For the three months ended March 31, 2021, the Company recorded no income tax expense.

For the three and six months ended June 30, 2021 and 2020, 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.

3 unchanged sentences

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.

On June 29, 2021 the EDB agreed to amend Grant 1 to update certain delivery and milestone timelines.

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.

The funds received have been recognized as contra research and development expense.

grams of LUNAR-COV19 vaccine candidate suitable for use in a phase 3 variant trial in two shipments with a partial shipment by June 30, 2022 and a remaining shipment by September 30, 2022.

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 developed with Duke-NUS in markets or jurisdictions outside of Singapore.

No contra research and development expense was recognized f or the three months ended June 30, 2021 and $ 3.8 million was recognized for the three months ended June 30, 2020.

F or the six months ended June 30, 2021 and 2020, the Company recognized $ 1.3 million and $ 4.3 million, respectively, of contra expense for Grant 1.

At June 30, 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.

On June 29, 2021 the EDB agreed to amend Grant 2 to update certain delivery and milestone timelines.

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 variant trial in two shipments with a partial shipment by June 30, 2022 and a remaining shipment by September 30, 2022 and (iii) creating an entity in Singapore which was completed during the fourth quarter of 2020, and (iv) initiating a clinical trial for a variant COVID-19 vaccine by March 31, 2022.

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.

1 unchanged sentence

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

As of June 30, 2021, the Company recognized the remaining amount of the first installment as contra expense for Grant 2.

Cystic Fibrosis Foundation Agreement

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”).

2 unchanged sentences

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

For the three months ended March 31, 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.

For the three months ended June 30, 2021 and 2020, the Company recognized contra expense of $ 0.9 million and $ 0.9 million, respectively, and for the six months ended June 30, 2021 and 2020, the Company recognized contra expense of $ 1.5 million and $ 2.9 million, respectively.

As of June 30, 2021, $ 5.0 million remained 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.

15 unchanged sentences

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

As of March 31, 2021, the payments of the operating lease liability were as follows:

As of June 30, 2021, the remaining payments of the operating lease liability were as follows:

(in thousands)

Remaining Lease Payments

2021 (remaining)

Total remaining lease payments

4 unchanged sentences

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

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

Operating lease costs were $ 0.5 million and $ 0.5 million for the three months ended June 30, 2021 and 2020, respectively, and $ 0.9 million and $ 0.9 million for the six months ended June 30, 2021 and 2020, respectively.

Related Party Transactions

1 unchanged sentence

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.

Ultragenyx exercised the option in May 2020 and owns 8.4 % of the outstanding common stock of the Company as of June 30, 2021 .

For the three months ended June 30, 2021 and 2020, the Company recognized revenue of $ 0.9 million related to the Ultragenyx Agreement.

For the six months ended June 30, 2021 and 2020, the Company recognized revenue of $ 1.8 million.

As of June 30, 2021, the Company holds an accounts receivable balance of a negligible amount related to the Ultragenyx Agreement.

Equity-Method Investment

9 unchanged sentences

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.

Using a three month lag, the gain has been offset by losses incurred by Vallon through March 31, 2021.

Subsequent Events

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.

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.

Vingroup Agreement

On August 2, 2021, the Company announced an agreement with Vinbiocare Biotechnology Joint Stock Company (“Vinbiocare”), a member of Vingroup Joint Stock Company, regarding a collaboration to establish a manufacturing facility in Vietnam for the manufacture of Arcturus’ investigational COVID-19 vaccines, for sale and use within Vietnam.

Under the terms of the arrangement, Vinbiocare will build out a manufacturing facility in Vietnam, and the Company will provide to Vinbiocare access to proprietary technologies and processes for the manufacture of Arcturus’ investigational COVID-19 vaccines.

The Company will also provide Vinbiocare with an exclusive license to manufacture the vaccines in Vietnam at the facility solely for distribution in Vietnam.

The license and technology transfer applies toward drug product manufacturing but not toward mRNA drug substance manufacturing.

Vinbiocare will make an upfront payment of $ 40 million and be responsible for costs associated with the technology transfer.

Vinbiocare will also pay for mRNA drug substance supplied by the Company and royalties on vaccines produced at the manufacturing facility.

On June 11, 2021, the Company and Vinbiocare executed a deposit agreement whereby Vinbiocare paid the Company a $ 10 million deposit prior to June 30, 2021 to demonstrate its commitment to reach a mutual agreement on a technology transfer of Arcturus’ vaccine manufacturing technology (“Definitive Agreement”).

In the event a Definitive Agreement was not signed, $ 500,000 of the deposit was non-refundable.

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