Arcturus Therapeutics Holdings Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following is a discussion of the financial condition and results of operations of Arcturus Therapeutics Holdings Inc. for the three and nine-month periods ended September 30, 2021. Unless otherwise specified herein, references to the “Company,” “Arcturus,” “we,” “our” and “us” mean Arcturus Therapeutics Holdings Inc. and its consolidated subsidiaries. You should read the following discussion and analysis together with the interim condensed consolidated financial statements and related notes included elsewhere herein. For additional information relating to our management’s discussion and analysis of financial conditions and results of operations, please see our Annual Report on Form 10‑K for the year ended December 31, 2020 (the “2020 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “Commission”) on March 1, 2021. Unless otherwise defined herein, capitalized words and expressions used herein shall have the same meanings ascribed to them in the 2020 Annual Report. This report includes forward-looking statements which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those currently anticipated and expressed or implied by such forward-looking statements. You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. You should also review the factors and risks we describe in the reports we will file or submit from time to time with the Commission after the date of this report. Overview Arcturus is a global clinical-stage messenger RNA medicines company focused on the development of infectious disease vaccines and significant opportunities within liver and respiratory rare diseases. In addition to our mRNA platform, our proprietary lipid nanoparticle delivery system, LUNAR, has the potential to enable multiple nucleic acid medicines, and our proprietary STARR technology has the potential to provide longer-lasting RNA and sustained protein expression, resulting in a six to twenty times lower dose than is needed for other mRNA vaccines. Our platform may provide a lower overall manufacturing cost compared to our competitors. Our key proprietary technology has the potential to address the major hurdles in RNA development, namely the effective and safe delivery of RNA therapeutics to disease-relevant target tissues. We believe that the versatility of our platform to target multiple tissues, its compatibility with various nucleic acid therapeutics, and our expertise in developing scalable manufacturing processes put us in a good position to deliver on the next generation of nucleic medicines. In January 2021, we announced completion of the Phase 1 clinical study of our lead LUNAR-COV19 vaccine candidate (“ARCT-021”). The study was conducted with CTI Clinical Trial and Consulting Services, a global CRO, and in collaboration with Duke-NUS Medical School in Singapore. In January 2021, we commenced a Phase 2 clinical study of ARCT-021 in the United States and Singapore. In March 2021, we completed enrollment of the Phase 2 study, with 579 subjects randomized and dosed. We have completed three interim analyses of the Phase 2 safety data, which have been reviewed by the Data and Safety Monitoring Board and support continuation of the Phase 2 trial without amendment. The data demonstrate immunogenicity and an acceptable safety profile after both one and two doses. These favorable safety and single-dose immunogenicity data of ARCT-021 support the rationale to initiate a Phase 3 efficacy study. ARCT-021 has been selected by a global entity for inclusion in a multinational Phase 3 vaccine trial against COVID-19. The placebo-controlled study plans to enroll tens of thousands of participants and may evaluate a 5-µg dose of ARCT-021 administered as a single injection regimen. The Phase 3 study, upon commencement, will be sponsored and funded by the entity. However, the entity may determine at any time not to proceed with ARCT-021, or to delay or halt, the Phase 3 clinical trial. In August 2021, our strategic partner, Vinbiotech Research and Manufacture Joint Stock Company (“Vinbiotech”) received approval for a Clinical Trial Application (CTA) from the Vietnam Ministry of Health to advance ARCT-154, a next generation self-replicating LUNAR-COV19 vaccine candidate targeting the SARS-CoV-2 delta variant and other variants of concern, into a Phase 1/2/3 clinical study. The trial is a randomized, observer-blind, placebo and active-controlled design with a target enrollment of approximately 19,000 adults, and is being funded by Vinbiotech, a subsidiary of Vingroup Joint Stock Company, the largest private industry conglomerate in Vietnam. The study is to assess the safety, immunogenicity and efficacy of the SARS-CoV-2 self-amplifying mRNA vaccine. Preclinical data demonstrate strong neutralizing immunogenicity in non-human primates to SARS-CoV-2 Alpha, Beta, Gamma, and Delta variants. ARCT-154 elicits 14.4 to 25.9-fold higher neutralizing antibody titers than ARCT-021 in non-human primates, including an observed increase of 17.8-fold higher neutralizing antibody titers against the Delta variant. In October 2021, the Vietnam Ministry of Health approved initiation of the Phase 3b part (randomized, placebo-controlled trial) of the Phase 1/2/3 clinical trial of ARCT-154. In November, the Phase 3b part of the study was modified to approximately 16,120 participants (from 20,000 participants) with a Phase 3c sub-study of approximately 2,000 participants added to evaluate immunogenicity non-inferiority against AstraZeneca COVID-19 vaccine. The Phase 1/2/3a/3b parts of the study have achieved full enrollment and we expect the Phase 3c part of the study to achieve full enrollment imminently. The total study enrollment is expected to reach over 19,000 participants with approximately half of the participants receiving ARCT-154 under a two-dose regimen with injections 28 days apart, while the other half will receive placebo or, in the sub-study, the active comparator vaccine. The Phase 1 part of the trial has 19 completed the priming vaccination series with two administrations in 100 participants (75 in ARCT-154 arm). The Phase 2, Phase 3a, and Phase 3b parts of the trial are ongoing with 300 (225 in ARCT-154 arm), 600 (450 in ARCT-154 arm), and approximately 16,000 (8,000 in ARCT-154) participants, respectively. Depending on the outcome of the study, w e expect to file an Emergency Use Authorization (EUA) application for ARCT-154 in Vietnam in December 2021. ARCT-154 utilizes an optimized STARR™ mRNA with multiple improvements, including modifications for stability and translation, increased immunogenicity of the spike protein antigen via amino acid substitution, expressing the spike protein in a pre-fusion state, and inactivating the furin cleavage site. Neutralizing Titers (Geo Mean NT50) Against Variants of Concern in Cynomolgus Macaques One Month Post Dose 2 STARR™ Vaccine Ancestral Alpha Beta Gamma Delta ARCT-021 (7.5 mcg x 2) 1,438 603 54 50 386 ARCT-154 (7.5 mcg x 2) 20,773 9,080 874 1,297 6,876 Fold Improvement 14.4 15.1 16.2 25.9 17.8 Non-Human Primate (NHP) data collected one month after second dose of 7.5 mcg; analysis of NHP serum was performed using non-replicating vesicular stomatitis virus pseudo-typed with the spike protein of the SARS-CoV-2 variants of concern indicated. Titers were determined by calculating the dilution that resulted in 50% inhibition of cells expressing GFP encoded by the pseudovirus, a surrogate of virus infection. No assurances can be given that non-human primate data will be replicated in human subjects, that ARTC-154 will prove to be effective or if effective, will receive regulatory approval in any jurisdiction or be manufactured and commercialized effectively. 20 T-cell responses for ARCT-021 and ARCT-154 are robust and similar in non-human primates. Notably, STARR™ mRNA vaccines elicit T-cell responses consistent against all variants of concern tested. The robust T-cell responses are attributed to the self-amplifying mRNA mechanism of antigen expression. T-cell responses from non-human primates assessed one month after second dose of 7.5 mcg; SARS-CoV-2 spike specific T-cell responses were analyzed by ELISpot assay using overlapping 15-mer peptides spanning the entire spike antigen from the ancestral SARS-CoV-2 strains or the Alpha, Beta, and Gamma variants of concern. Spot Forming Units (SFU) were determined after background subtraction of unstimulated controls. On August 3, 2021, we announced the approval for a Clinical Trial Application (CTA) from the Singapore Health Sciences Authority (HSA) to enable the advancement of ARCT-154 and ARCT-165 into a Phase ½ clinical trial to evaluate the vaccines both as a primary vaccination series and as a booster following initial vaccination with Comirnaty®. The Comirnaty booster cohorts (with ARCT-021, ARCT-154, ARCT-165) in this study are now fully enrolled. In November 2020, we completed our Phase 1 dose escalation study in healthy subjects, at doses up to 0.4 mg/kg for ARCT-810, a novel mRNA-based therapeutic candidate for Ornithine Transcarbamylase (“OTC”) Deficiency. On July 28, 2021, we announced that we received approval from the UK Health Research Authority to initiate a Phase 2 clinical study for ARCT-810. The ARCT-810 Phase 2 study is a randomized, double-blind, placebo-controlled, nested single and multiple ascending dose study designed to enroll 12 adolescents and adults with OTC deficiency. We anticipate filing a Clinical Trial Application (CTA) for ARCT-032, our mRNA therapeutic candidate for cystic fibrosis, in the first half of 2022. We anticipate filing a CTA for LUNAR-FLU, our mRNA vaccine candidate targeting influenza, in the second half of 2022. Our activities since inception have consisted principally of performing research and development activities, conducting clinical trials, manufacturing drug substance and drug product, general and administrative activities and raising capital to fund those efforts. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before we achieve sustainable revenues and profit from operations. As of September 30, 2021, we had cash of $413.9 million and an accumulated deficit of $308.8 million. Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Report and our audited financial statements and related notes for the year ended December 31, 2020. Our historical results of operations and the year-to-year comparisons of our results of operations that follow are not necessarily indicative of future results. 21 Revenue We enter into arrangements with pharmaceutical and biotechnology partners and government agencies that may contain upfront payments, license fees for research and development arrangements, research and development funding, milestone payments, option exercise and exclusivity fees, royalties on future sales, consulting fees and payments for technology transfers. The following table summarizes our total revenues for the periods indicated (in thousands): Three Months Ended September 30, 2020 to 2021 (Dollars in thousands) 2021 2020 $ change % change Revenue $ 2,437 $ 2,333 $ 104 4.5 % Nine Months Ended September 30, 2020 to 2021 (Dollars in thousands) 2021 2020 $ change % change Revenue $ 6,565 $ 7,301 $ (736 ) -10.1 % Revenue increased by $0.1 million during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The increase in revenue primarily relates to $0.6 million revenue from the new agreement with Vinbiotech. The increase was offset by an overall decrease in revenue of $0.5 million from our existing collaboration partners. Revenue decreased by $0.7 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The decrease in revenue primarily relates to (i) a decrease in collaboration revenue from Janssen of $0.2 million due to fewer hours incurred during the first nine months of 2021 as compared to 2020 (ii) a decrease in collaboration revenue from Takeda of $0.5 million due to a slowdown in the program (iii) a decrease in sublicense revenue of approximately $0.3 million that was received during the first nine months of 2020 that did not reoccur in 2021 and (iv) a $0.3 million decrease in revenue from material transfer agreements as we have shifted more resources into the COVID-19 vaccine program. The decrease in revenue was partly offset by $0.6 million of revenue from the new agreements with Vinbiotech. Our operating expenses consist of research and development and general and administrative expenses. Three Months Ended September 30, 2020 to 2021 Nine Months Ended September 30, 2020 to 2021 (Dollars in thousands) 2021 2020 $ change % change 2021 2020 $ change % change Operating expenses: Research and development, net $ 45,398 $ 17,699 $ 27,699 * $ 141,127 $ 33,560 $ 107,567 * General and administrative 10,860 5,572 5,288 * 30,645 14,183 16,462 * Total $ 56,258 $ 23,271 $ 32,987 * $ 171,772 $ 47,743 $ 124,029 * * Greater than 100% The following table presents our total research and development expenses by category: Three Months Ended September 30, 2020 to 2021 Nine Months Ended September 30, 2020 to 2021 (Dollars in thousands) 2021 2020 $ change % change 2021 2020 $ change % change External pipeline development expenses: LUNAR-COVID, net $ 29,392 $ 6,247 $ 23,145 * $ 85,790 $ 8,806 $ 76,984 * LUNAR-CF, net 644 837 (193 ) -23.1 % 2,883 2,141 742 34.7 % LUNAR-OTC 1,478 5,444 (3,966 ) -72.9 % 6,631 10,318 (3,687 ) -35.7 % Discovery technologies 3,708 816 2,892 * 17,259 1,051 16,208 * External platform development expenses: Partnered discovery technologies 83 470 (387 ) * 718 1,250 (532 ) * Total development expenses $ 35,305 $ 13,814 $ 21,491 * $ 113,281 $ 23,566 $ 89,715 * Personnel related expenses $ 8,719 $ 3,025 $ 5,694 * $ 24,191 $ 7,402 $ 16,789 * Facilities and equipment expenses 1,374 860 514 59.8 % 3,655 2,592 1,063 41.0 % Total research and development expenses, net $ 45,398 $ 17,699 $ 27,699 * $ 141,127 $ 33,560 $ 107,567 * * Greater than 100% 22 Research and Development Expenses, net Our research and development expenses consist primarily of external manufacturing costs, in-vivo research studies performed by contract research organizations, clinical and regulatory consultants, personnel related expenses and laboratory supplies related to conducting research and development activities. Costs to acquire and manufacture pre-launch inventory, mRNA supply for preclinical studies and clinical trials are recognized and included in external pipeline development expenses for the specific program. LUNAR-COVID expenses increased by $23.1 million and $77.0 million during the three and nine months ended September 30, 2021, respectively, as compared to 2020. The increase is due to the fact that the LUNAR-COV19 program did not commence until late in the first quarter of 2020 and is now in clinical trials. Expenses related to pre-launch inventory represent $17.3 million and $43.6 million of the increase for the three and nine months ended September 30, 2021, respectively, with no expense incurred during the 2020 periods. We expect that the program costs and pre-launch inventory costs will continue to increase as clinical trials progress and we advance program development. LUNAR-CF expenses were relatively consistent during the three months ended September 30, 2021 when compared to the three months ended September 30, 2020, decreasing by $0.2 million. LUNAR-CF expenses increased by $0.7 million during the nine months ended September 30, 2021 when compared to the nine months ended September 30, 2020. Expenses incurred were partially offset with funds awarded by the CFF. The increase in LUNAR-CF expenses was due primarily to increased research and development cost incurred in association with the amendment to the CFF Agreement executed in July 2019, and we expect that our development efforts and associated costs will increase over the next several years as the LUNAR-CF program moves toward expected CTA submission in the first half of 2022. LUNAR- OTC expenses decreased by $4.0 million and $3.7 million during the three and nine months ended September 30, 2021, respectively, as compared to 2020. The decrease is related to slower than expected recruiting for the ARCT-810 clinical trial caused in part by the ongoing Covid environment. Discovery technologies represents our efforts to expand our product pipeline and are expected to continually increase in the near future. Partnered discovery technologies increased by $2.9 million and $16.2 million during the three and nine months ended September 30, 2021, respectively, as compared to 2020 . The increase is primarily due to the addition of several new development programs during 2020. Further, in the first quarter of 2021 we acquired an exclusive license from Alexion Pharmaceuticals to certain intellectual property for approximately $5.0 million of our common stock, which we expensed in 2021. Within our platform development expenses, our partnered discovery expenses with our current partners are expected to fluctuate based on the needs of our collaboration partners. Platform development expenses decreased by $0.4 million and $0.5 million during the three and nine months ended September 30, 2021 primarily due to the completion and termination of a collaboration agreement with a former collaborator. Personnel related expenses, net of funds received from CFF and the Singapore EDB, increased by $5.7 million and $16.8 million during the three and nine months ended September 30, 2021, respectively, as compared to 2020. T he increases were associated with increased headcount costs necessary to advance our external pipeline, platform and clinical trial efforts as well as increased share-based compensation expense. Facilities and equipment expenses increased by $0.5 million and $1.1 million during the three and nine months ended September 30, 2021, respectively, as compared to 2020 . The increases resulted primarily from higher rent and related costs associated with an additional lease that we entered into in February 2020. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related benefits for our executive, administrative and accounting functions and professional service fees for legal and accounting services as well as other general and administrative expenses. General and administrative expenses increased by $5.3 million and $16.5 million during the three and nine months ended September 30, 2021, respectively, as compared to 2020. The increases resulted primarily from personnel expense due to increased headcount and increased share-based compensation expense. 23 Finance (expense) income, net Three Months Ended September 30, 2020 to 2021 Nine Months Ended September 30, (Dollars in thousands) 2021 2020 $ change % change 2021 2020 $ change % change Interest income $ 192 $ 124 $ 68 54.8 % $ 569 $ 301 $ 268 89.0 % Interest expense (711 ) (190 ) (521 ) * (1,966 ) (640 ) (1,326 ) * Total $ (519 ) $ (66 ) $ (453 ) * $ (1,397 ) $ (339 ) $ (1,058 ) * * Greater than 100% Interest income is generated on cash and cash equivalents. The increase in interest income for the three and nine months ended September 30, 2021 as compared to the prior year period was a result of increased cash and cash equivalents balances. Interest expense was incurred in conjunction with our Loan and Security Agreement with Western Alliance Bank and the Singapore Loan. The increase in interest expense for the three and nine months ended September 30, 2021 as compared to the prior year period was primarily a result of additional accrued interest expense related to the Singapore Loan that was funded in January 2021. Other income and expense Other income and expense items relate to gains and losses from foreign currency transactions and from equity-method investments. During the three months ended September 30, 2021 we recorded a loss of $0.2 million in connection with our equity-method investment in Vallon Pharmaceuticals, Inc., of which we hold approximately 12%. However, during the first nine months of 2021 we recorded a total net gain of $0.7 million due to the gain recorded as a result of the Vallon Pharmaceuticals, Inc. initial public offering. Off-balance sheet arrangements Through September 30, 2021, we have not entered into and did not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Liquidity and Capital Resources From the Company’s inception through the quarter ended September 30, 2021, the Company has funded its operations principally with the proceeds from the sale of capital stock, long-term debt and revenues earned through collaboration agreements. At September 30, 2021, we had $413.9 million in unrestricted cash and cash equivalents. Loan and Security Agreement On October 12, 2018, we entered into a Loan and Security Agreement with Western Alliance Bank whereby we received gross proceeds of $10.0 million under a long-term debt agreement (the “Loan Agreement”). On October 30, 2019, we 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”). The Fourth Amendment was executed in connection with the Singapore Loan. Pursuant to the Third Amendment, the Bank agreed to make a term loan to us on October 30, 2019, in the amount of $15.0 million (the “Term Loan”). The resulting net increase in the indebtedness of us was $5.0 million. The Term Loan bears interest at a floating rate ranging from 1.25% to 2.75% above the prime rate. The amendment further provides that the Term Loan has a maturity date of October 30, 2023. We shall make monthly payments of interest only until the interest-only end date of October 1, 2021. However, in October of 2021, we entered into a Fifth Amendment to Loan Agreement which provided for a six month extension to the interest only period which moves the first principal payment to May 1, 2022. Grants from the Economic Development Board of the Republic of Singapore On March 4, 2020, we were awarded a grant (“Grant 1”) from the Economic Development Board of the Republic of Singapore (the “EDB”) to support the co-development of a potential COVID-19 vaccine program with the Duke-NUS Medical School. The Grant provides for up to S$14.0 million (approximately US$10.0 million using the exchange rate at the time the grant contract was entered into) in grants to support the development of the vaccine. The 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 parties are in continued negotiations with respect to amendments of Grant 1. Currently, are liable for certain expenses during the program and is also subject to certain 24 conditions including the require ment 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. On October 2, 2020, we were 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. We 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 September 30, 2021, we 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 variant COVID-19 vaccine. Manufacturing Support Agreement On November 7, 2020, we entered into a Manufacturing Support Agreement (the “Support Agreement”) with the EDB. Pursuant to the Support Agreement, the EDB agreed to make a term loan of S$62.1 million, subject to the satisfaction of customary deliveries, to support the manufacture of the LUNAR-COV19 vaccine candidate (the “Singapore Loan”). 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) we are to provide a quarterly reconciliation report within forty-five days of each financial quarter end, (ii) we 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) we are 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, (iv) and the obligation to repay the Singapore Loan will be secured by an interest in the raw materials and manufacturing equipment purchased by us with the funds from the Singapore Loan in form and substance satisfactory to the EDB in its sole discretion. We 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 anum calculated on a daily basis. Subject to certain exceptions, the Singapore Loan is intended to be a limited recourse loan that will be repaid solely through a royalty payment of 10% of net sales proceeds of the LUNAR-COV19 vaccine candidate, up to the amount of the outstanding principal and interest under the Singapore Loan. However, all unpaid principal and interest under the Singapore Loan will be due and payable five years after draw date, if net sales of the LUNAR-COV19 vaccine exceed a certain minimum threshold during this five year period or we obtain clearance to sell the vaccine in specified jurisdictions. Unpaid principal and interest under the Singapore Loan will also become due and payable upon an event of default under the Support Agreement. The first vaccine sales, including the amount of net sales, shall be reported to EDB within 10 days of delivery and quarterly reports of aggregate vaccine sales, including net sales proceeds shall be provided within 30 days after quarter end. The Singapore Loan is forgivable if we have 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 us with proceeds of the Singapore Loan (the “Specified Assets”). We 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, we 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, to exclude the Specified Assets from Western Alliance Bank’s lien on certain assets. Vinbiotech Agreement On August 2, 2021, we announced an agreement with Vinbiotech, a member of Vingroup Joint Stock Company, to establish a manufacturing facility in Vietnam for the manufacture of our investigational COVID-19 vaccine program, for sale and use within Vietnam. Under the terms of the arrangement, Vinbiotech is building out a manufacturing facility in Vietnam, and we have provided to Vinbiotech access to proprietary technologies and processes for the manufacture of our investigational COVID-19 vaccine program. We also provided Vinbiotech 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. Vinbiotech made an upfront payment of $40 million and is responsible for costs associated with the technology transfer. Vinbiotech will also pay for mRNA drug substance supplied by us and royalties on vaccines produced at the manufacturing facility. 25 General Financial Resources A significant portion of our current unrestricted cash and cash equivalents balance of $413.9 million is expected to be utilized during fiscal year 2021 and into 2022 to fund (i) clinical and manufacturing costs related to ARCT-154 global activities (ii) the continued Phase 1 trial and anticipated Phase 2 trial of ARCT-810, our LUNAR-OTC candidate, (iii) advancing our new LUNAR-FLU program toward submission of an IND, (iv) and other programs and administrative costs. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. There can be no assurance that we will be able to obtain additional needed financing on acceptable terms or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of our existing shareholders. Our future capital requirements are difficult to forecast and will depend on many factors. We expect to continue to incur additional losses for the foreseeable future, and we will need to raise additional debt or equity financing or enter into additional partnerships to fund development. The ability of our Company to transition to profitability is dependent on identifying and developing successful mRNA drug candidates. If we are not able to achieve planned milestones, incur costs in excess of our forecasts, or do not meet covenant requirements of our debt, we will need to reduce discretionary spending, discontinue the development of some or all of our products, which will delay part of our development programs, all of which will have a material adverse effect on our ability to achieve our intended business objectives. Overview The following table shows a summary of our cash flows for the nine months ended September 30, 2021 and 2020 (in thousands): Nine Months Ended September 30, (Dollars in thousands) 2021 2020 Cash provided by (used in): Operating activities $ (92,546 ) $ (36,229 ) Investing activities (2,288 ) (1,045 ) Financing activities 47,786 272,944 Net (decrease) increase in cash, cash equivalents and restricted cash $ (47,048 ) $ 235,670 Operating Activities Our primary use of cash is to fund operating expenses, which consist mainly of research and development, clinical studies, manufacturing drug substance and drug product and general and administrative expenditures. We have incurred significant expenses which have been partially offset by cash collected through our collaboration agreements. Cash collections under the collaboration agreements can vary from year to year depending on the terms of the agreement and work performed. These changes in cash flows primarily relate to the timing of cash receipts for upfront payments, reimbursable expenses and achievement of milestones under these collaborative agreements. Net cash used in operating activities was $92.5 million on a net loss of $165.0 million for the nine months ended September 30, 2021, compared to net cash used of $36.2 million on a net loss of $41.0 million for the nine months ended September 30, 2020. Adjustments for non-cash charges were $28.2 million and $5.8 million for the nine months ended September 30, 2021 and 2020, respectively. Changes in working capital resulted in adjustments to operating net cash inflows of $44.3 million and outflows of $1.0 million for the nine months ended September 30, 2021 and 2020, respectively. Changes in working capital for the nine months ended September 30, 2021 were primarily driven by increases in deferred revenue and accrued liabilities due to the new agreement with Vinbiotech, partly offset by decreases in accounts payable, prepaid expenses and accounts receivable. Changes in working capital for the nine months ended September 30, 2020 were primarily driven by decreases in deferred revenue, prepaid expenses and accounts receivable and was partly offset by an increase to accrued liabilities and accounts payable. Investing Activities Net cash used in investing activities of $2.3 million and $0.1 million for the nine months ended September 30, 2021 and 2020, respectively, reflects cash used to purchase property and equipment. Financing Activities Net cash provided by financing activities of $47.8 million for the nine months ended September 30, 2021 consisted of net proceeds from the Singapore Loan of $46.6 million, proceeds from the exercise of stock options of $0.7 million and proceeds from the issuance of common stock related to our employee stock purchase plan of $0.5 million. Net cash provided by financing activities for 26 the nine months ended September 30, 2020 reflects proceeds of $9.6 million from the issuance of common stock to Ultragenyx, proceeds from the issuance of common stock of $261.9 million, and proceeds from the exercise of stock options of $1.5 million. Funding Requirements We anticipate that we will continue to generate net losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin commercialization of our products. As a result, we will require additional capital to fund our operations in order to support our long-term plans. The Company intends to seek additional capital through equity or debt financings, collaborative or other funding arrangements with partners or through other sources of financing. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount or merge with another entity. Our future funding requirements are difficult to forecast and will depend on many factors, including the following: • the demonstration of safety and efficacy of our product candidates, particularly ARCT-154 and ARCT-021, in ongoing clinical trials; • the achievement of milestones under our strategic alliance agreements; • the terms and timing of any other strategic alliance, licensing and other arrangements that we may establish; • the initiation, progress, timing and completion of preclinical studies and clinical trials for our product candidates; • the number and characteristics of product candidates that we pursue; • the outcome, timing and cost of regulatory approvals; • delays that may be caused by changing regulatory requirements; • the cost and timing of hiring new employees to support our continued growth; • the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims; • the costs and timing of procuring clinical and commercial supplies of our product candidates; • the costs and timing of establishing sales, marketing and distribution capabilities; • the costs associated with legal proceedings; • the extent to which we acquire or invest in businesses, products or technologies; and • the identification and consummation of funding arrangements with third parties, including foreign governments and United States government agencies. Critical Accounting Policies and Estimates We prepare our condensed consolidated financial statements in conformity with GAAP. As such, we make certain estimates, judgements and assumptions that we believe are reasonable, based upon information available to us. These judgements involve making estimates about the effect of matters that are inherently uncertain and may significantly impact our reported results of operations and financial condition. We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements for the year ended December 31, 2020. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2020. 27