What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-08-10 · 159 added, 145 removed, 410 unchanged (43% of the section changed)

4 unchanged sentences

(in thousands, except par value information)

September 30,

Current assets:

23 unchanged sentences

26,349 issued and

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

outstanding at September 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

Nine Months Ended

September 30,

Operating expenses:

4 unchanged sentences

(Loss) gain from equity-method investment

(Loss) gain from foreign currency

Gain from foreign currency

Finance expense, net

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Stockholders’

BALANCE – March 31, 2021

BALANCE – June 30, 2021

Share-based compensation expense

Issuance of common stock upon exercise of stock options

BALANCE – June 30, 2021

Three Months Ended June 30, 2020

Issuance of common stock under equity plans

BALANCE – September 30, 2021

Three Months Ended September 30, 2020

Stockholders’

BALANCE – March 31, 2020

BALANCE – June 30, 2020

Issuance of common stock, net of issuance costs

Issuance of common stock to Ultragenyx on option exercise

Issuance of common stock upon exercise of stock options

Share-based compensation expense

BALANCE – June 30, 2020

Six Months Ended June 30, 2021

BALANCE – September 30, 2020

ARCTURUS THERAPEUTICS HOLDINGS INC.

AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2021

Stockholders’

3 unchanged sentences

Issuance of common stock upon exercise of stock options

BALANCE – June 30, 2021

Six Months Ended June 30, 2020

Issuance of common stock under equity plans

BALANCE – September 30, 2021

Nine Months Ended September 30, 2020

Stockholders’

4 unchanged sentences

Share-based compensation expense

BALANCE – June 30, 2020

BALANCE – September 30, 2020

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

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES:

21 unchanged sentences

Proceeds from exercise of stock options

Proceeds from the issuance of common stock under equity plans

Net cash provided by financing activities

2 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental disclosure of cash flow information

35 unchanged sentences

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 goal of the JV 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.

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The Company has incurred significant operating losses since its inception.

As of June 30, 2021 and December 31, 2020, the Company had an accumulated deficit of $ 254.7 million and $ 143.8 million, respectively.

As of September 30, 2021 and December 31, 2020, the Company had an accumulated deficit of $ 308.8 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 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.

From the Company’s inception through September 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 third quarter of 2021, the Company entered into an agreement with Vinbiotech Research and Manufacture Joint Stock Company (“Vinbiotech”) in which the Company received a nonrefundable upfront payment of $ 40.0 million to allow Vinbiotech to establish a manufacturing facility in Vietnam for the manufacture of Arcturus’ investigational COVID-19 vaccines, for sale and use within Vietnam.

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.

12 unchanged sentences

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

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

22 unchanged sentences

(in thousands)

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Cash and cash equivalents

7 unchanged sentences

No dividends were declared or paid during the reported periods.

Collaboration Revenue

The Company has entered into license agreements and collaborative research and development arrangements with pharmaceutical and biotechnology companies.

Under these arrangements, the Company is entitled to receive license fees, upfront payments, milestone payments if and when certain research and development milestones or technology transfer milestones are achieved, royalties on approved product sales and reimbursement for research and development activities.

The Company’s costs of performing these services are included within research and development expenses.

The Company has entered into license agreements and collaborative research and development arrangements with pharmaceutical and biotechnology companies, as well as consulting, related technology transfer and product revenue agreements.

Under these arrangements, the Company is entitled to receive license fees, consulting fees, product fees, technological transfer fees, upfront payments, milestone payments if and when certain research and development milestones or technology transfer milestones are achieved, royalties on approved product sales and reimbursement for research and development activities.

The Company’s costs of

performing these services are included within research and development expenses, and within cost of sales for expenses related to revenue that is earned as product sales that have regulatory approval or subsequent commercialization of an investigational product candidate is probable.

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

1 unchanged sentence

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 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.

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 and vaccines .

The following table presents changes during the nine months ended September 30, 2021 in the balances of contract assets, including receivables from collaborative partners, consulting and related technology transfer 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 – June 30, 2021

BALANCE – September 30, 2021

(in thousands)

3 unchanged sentences

Deductions for promised services provided in current period

BALANCE – June 30, 2021

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

BALANCE – September 30, 2021

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

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(Dollars in thousands)

Collaboration Partner – Janssen

Collaboration Partner – Ultragenyx

Collaboration Partner – CureVac

Collaboration Partner – Other

Total collaboration revenue

Total revenue

The following paragraphs provide information regarding the nature and purpose of the Company’s most significant collaboration arrangements.

Collaboration Partner – Janssen

From June 11, 2021 through August 2, 2021, the Company entered into a series of agreements with Vinbiotech, a member of Vingroup Joint Stock Company (collectively the “Vinbiotech Agreement”), whereby the Company will provide technical expertise and support services to Vinbiotech to assist in the build out of a manufacturing facility in Vietnam.

Such expertise shall include a specified level of access to the Company’s personnel and drug substance necessary to validate the successful set up of the facility.

Under the terms of the arrangements, the Company will also provide a specified number of doses of ARCT-154 for use by Vinbiotech in a phase 3 clinical study within Vietnam.

The Company received an upfront payment in aggregate of $ 40 million and subsequent to achieving emergency use authorization, the Company will receive low single digit payments per dose for drug substance and related royalties.

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

The Company identified all promised goods/services within the Vinbiotech Agreement, and when combining certain promised goods/services, the Company concluded that there are four distinct performance obligations.

The four performance obligations include (i) consulting to support the build out of the manufacturing facility and technical transfer, (ii) shipment of 80 grams of drug substance to validate the manufacturing facility, (iii) the sale of 2,500 vials of drug product to support the phase 3 clinical trial and (iv) consulting to support the phase 3 clinical trial.

For each performance obligation, the Company estimated the standalone selling price based on cost plus margin for drug substance and drug product as well

as estimated headcount and full-time equivalent (“FTE”) rates for consulting services to support the phase 3 clinical trial, the build out of the manufacturing facility and the technology transfer.

As of September 30, 2021, the transaction price consists of upfront consideration received and budgeted reimbursable out-of-pocket costs to support the build out of the manufacturing facility and technology transfer.

Using the estimated stand-alone selling price for each of the four performance obligations, the Company allocated the transaction price to the performance obligations in proportion to their standalone selling price, the relative standalone selling price basis.

The Company recognizes revenue when the performance obligation is transferred, meaning when Vinbiotech obtains control of the promised good or service.

The drug substance and drug product performance obligations are recognized at the point in time the goods are transferred.

The consulting performance obligations are recognized over a period of time based on the percentage of services rendered, meaning actual costs incurred divided by total costs budgeted to satisfy the performance obligation.

Any consideration related to sales-based royalties will be recognized when the drug product is manufactured as they are constrained.

Total deferred revenue as of September 30, 2021 for the Vinbiotech agreement was $ 39.4 million.

For Janssen Pharmaceuticals, Inc.

(“Janssen”), Ultragenyx Pharmaceutical Inc.

(“Ultragenyx”) and CureVac AG (“CureVac”), the Company evaluated the respective agreement in accordance with Accounting Standards Codification (“ASC”) Topic 606.

The Company concluded that the contract counterparty is a customer.

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

Accordingly, the promised goods/services within each agreement were determined to represent a single performance obligation.

Lastly, the Company concluded that any options to select additional collaboration targets and to license rights to selected targets were not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated.

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

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.

In October, the LUNAR-HBV program reached an incremental milestone based on demonstration of in vivo efficacy and safety for which Janssen will pay the Company $ 1.0 million.

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

1 unchanged sentence

In addition, the 2017 Agreement includes an exclusivity period.

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

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

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

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

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

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

As of June 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 .

As of September 30, 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 12 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.

The development milestone achieved in October 2021 will be included in the transaction price during the fourth quarter of 2021.

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

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

Collaboration Partner – Ultragenyx

Total deferred revenue as of September 30, 2021 and December 31, 2020 for Janssen was $ 5.7 million and $ 5.9 million, respectively.

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

9 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 June 30, 2021 are $ 138.0 million.

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

As of September 30, 2021, Ultragenyx is working to identify and enroll patients in a Phase 1/2 study.

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

8 unchanged sentences

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.

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

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

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

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

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

As of June 30, 2021, the transaction price included the upfront consideration received, option payments, exclusivity extension payments and additional consideration received pursuant to Amendment 3.

As of September 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.

4 unchanged sentences

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

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

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

Total deferred revenue at September 30, 2021 and December 31, 2020 from Ultragenyx was $ 6.5 million and $ 9.2 million, respectively.

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

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

1 unchanged sentence

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

As of September 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.

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.

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

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

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

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

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

The Company concluded that 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 June 30, 2021, the transaction price included the upfront consideration received.

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.

As of September 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.

As of June 30, 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 25 month contractual term as of June 30, 2021.

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

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

Total deferred revenue as of September 30, 2021 and December 31, 2020 for CureVac was $ 1.6 million and $ 2.3 million, respectively.

Other Agreements

Other Collaboration Revenue

Other Revenue

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 June 30, 2021 and December 31, 2020 for Takeda was $ 0.2 million and $ 0.4 million, respectively.

Total deferred revenue as of September 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 June 30, 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.

The payment is not refundable under any circumstance, including any termination of the Israel Supply Agreement.

Furthermore, the Israel Supply Agreement may be terminated immediately by the MOH upon written notice to Arcturus if the Company has not obtained the required regulatory approvals by December 31, 2021.

Fair Value Measurements

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

As of June 30, 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 September 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 June 30, 2021 and December 31, 2020 consisted of the following:

Property and equipment, net balances consisted of the following:

(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

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Leasehold improvements

Construction in progress

Less accumulated depreciation and amortization

Property and equipment, net

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:

Depreciation and amortization expense was $ 0.3 million and $ 0.2 million for the three months ended September 30, 2021 and 2020, respectively, and $ 0.9 million and $ 0.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Accrued liabilities consisted of the following:

(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

2 unchanged sentences

Singapore Economic Development Board liability

Vinbiocare deposit

Current portion of operating lease liability

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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 candidates (the “Singapore Loan”).

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 EDB has agreed to an extension of the reconciliation period to March 31, 2022 with unused funds as of such date to be subsequently returned within thirty days, subject to any further agreed upon extension of the reconciliation date.

The parties are in continued negotiations with respect to amendments of the Singapore Loan terms.

Under current terms, (i) the Company will provide a quarterly reconciliation report within forty-five days of each financial quarter end, (ii) the Company will provide a projection of expenditures through March 31, 2022 followed by an audited statement of actual expenditures through March 31, 2022 by June 30, 2022, (iii) the Company will 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, (iv) 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.

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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.

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”).

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

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”).

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.

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 Agreement”), 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 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.

As of September 30, 2021, the debt balance was adjusted to reflect the current exchange rate resulting in a debt balance of $ 45.7 million and a net foreign currency transaction gain of $ 0.9 million for the nine months ended September 30, 2021.

For the three and nine months ended September 30, 2021, the Company recorded interest expense and a corresponding liability of $ 0.5 million and $ 1.4 million, respectively.

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

Long-term debt with Western Alliance Bank

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On October 30, 2019, Arcturus Therapeutics, Inc.

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

and the Bank entered into a Third Amendment (the “Third Amendment”) to the Loan Agreement and on December 31, 2020 Arcturus Therapeutics, Inc.

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

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

6 unchanged sentences

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

The Fourth Amendment was executed in connection with the Singapore Loan.

In October of 2021, the Company and the Bank entered into a Fifth Amendment to Loan Agreement that provides for a six month extension to the interest only period which moves the first principal payment to May 1, 2022 .

Arcturus Therapeutics, Inc.

7 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 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.

As of September 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 September 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 September 30, 2021 and 2020, respectively, and $ 2.0 million and $ 0.6 million during the nine months ended September 30, 2021 and 2020, respectively.

Stockholders’ Equity

8 unchanged sentences

Net Loss per Share

Dilutive securities that were not included in the calculation of diluted net loss per share for the three and six months ended June 30, 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.

Dilutive securities that were not included in the calculation of diluted net loss per share for the three and nine months ended September 30, 2021 as they were anti-dilutive totaled 1,457,223 and 1,514,023 , respectively, and 1,405,378 and 1,129,949 for the three and nine months ended September 30, 2020, respectively.

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 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.

Accordingly, as of September 30, 2021, a total of 590,030 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan.

Subsequent to September 30, 2021, the Company adopted the 2021 Inducement Equity Incentive Plan which covers the award of up to 1,000,000 shared of common stock (the “2021 Plan”) effective as of October 15, 2021.

Approval of the Company’s stockholders will not be required as a condition to the effectiveness of the 2021 Plan for so long as the plan is in compliance with Nasdaq inducement plan rules.

On October 20, 2021, the Company filed a Form S-8 with the United States Securities and Exchange Commission to register 1,000,000 awards.

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.

In June 2020, the stockholders of the Company approved the 2020 Employee Stock Purchase Plan (the “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 and ended on the purchase date, August 13, 2021.

At which point 12,601 shares of common stock were purchased.

The next accumulation period commenced on August 16, 2021.

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 2020 Plan was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2021, respectively.

Share-based compensation expense recognized under the 2020 Plan was $ 0.1 million and $ 0.3 million for the three and nine months ended September 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 and six months ended June 30, 2021 and 2020 was:

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

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(in thousands)

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 and six months ended June 30, 2021 and 2020, the Company recorded no income tax expense.

For the three and nine months ended September 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.

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.

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 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.

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.

The parties are in continued negotiations with respect to amendments of Grant 1.

Currently, the Company is liable for certain expenses during the program and is also subject to certain conditions including the requirement 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 for the three months ended September 30, 2021 and $ 3.7 million was recognized for the three months ended September 30, 2020.

For the nine months ended September 30, 2021 and 2020, the Company recognized $ 1.3 million and $ 7.9 million, respectively, of contra expense for Grant 1.

At September 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 clinical development of a potential COVID-19 vaccine (ARCT-021).

The grant provides for up to S$ 9.3 million (approximately US$ 6.7 million) to support the clinical development of the vaccine candidate for costs incurred in Singapore subject to certain conditions.

The grant is 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.

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

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

The parties are in continued negotiations with respect to amendments of Grant 2 that could include initiation of a clinical trial for a next generation COVID-19 vaccine that has variant coverage.

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”).

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 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.

For the three months ended September 30, 2021 and 2020, the Company recognized contra expense of $ 1.6 million and $ 0.7 million, respectively, and for the nine months ended September 30, 2021 and 2020, the Company recognized contra expense of $ 3.1 million and $ 3.7 million, respectively.

As of September 30, 2021, $ 3.4 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.

11 unchanged sentences

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

During the third quarter of 2021, the Company opted to extend the lease for an additional 12 months .

In September 2021, the Company entered into a non-cancellable lease agreement for office, research and development, engineering and laboratory space near its current headquarters.

The initial term of the lease will extend ten years and eight months from the date of possession, and the Company will have the right to extend the term of the lease for an additional five-year period .

The lease has a monthly base rent ranging from $ 268,000 to $ 360,000 which escalates over the lease term.

The Company will gain access to the space in the first quarter of 2022.

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

2 unchanged sentences

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

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

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

(in thousands)

6 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 $ 0.5 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.

Operating lease costs were $ 0.5 million and $ 0.5 million for the three months ended September 30, 2021 and 2020, respectively, and $ 1.4 million and $ 1.3 million for the nine months ended September 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 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.

Ultragenyx exercised the option in May 2020 and sold an additional 800,000 shares of common stock in August 2021.

As a result, Ultragenyx owns 5.3 % of the outstanding common stock of the Company as of September 30, 2021 .

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

For the nine months ended September 30, 2021 and 2020, the Company recognized revenue of $ 2.8 million and $ 2.7 million, respectively.

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

Equity-Method Investment

5 unchanged sentences

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;

Based on the Company’s ownership and the Vallon board of directors seat held by an executive of Arcturus, 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.

1 unchanged sentence

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.

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

Using a three month lag, the gain has been offset by losses incurred by Vallon through June 30, 2021.

See “Note 2, Joint Ventures, Equity Method Investments and Variable Interest Entities” for specific details surrounding the Company’s agreement with Axcelead to form the joint venture entity, Arcalis, Inc.

Subsequent Events

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.

In October of 2021, the Company entered into a Fifth Amendment to the Loan Agreement with Western Alliance Bank to finalize the negotiation for a six month extension to the interest only period which moves the first principal payment to May 1, 2022 .

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