What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-05 · 90 added, 69 removed, 599 unchanged (21% of the section changed)

3 unchanged sentences

(In thousands, except share and par value)

June 30, December 31,

September 30, December 31,

Current assets:

20 unchanged sentences

Preferred stock, $ 0.0001 par value;

10,000,000 shares authorized at June 30, 2021 and December 31, 2020;

no shares issued and outstanding at June 30, 2021 and December 31, 2020;

10,000,000 shares authorized at September 30, 2021 and December 31, 2020;

no shares issued and outstanding at September 30, 2021 and December 31, 2020;

Common stock, $ 0.0001 par value;

300,000,000 shares authorized at June 30, 2021 and December 31, 2020;

50,231,433 and 43,677,817 shares issued at June 30, 2021 and December 31, 2020, respectively;

50,045,602 and 43,338,438 shares outstanding at June 30, 2021 and December 31, 2020, respectively

300,000,000 shares authorized at September 30, 2021 and December 31, 2020;

50,266,730 and 43,677,817 shares issued at September 30, 2021 and December 31, 2020, respectively;

50,134,813 and 43,338,438 shares outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 699,988 472,569

7 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

11 unchanged sentences

Other comprehensive income (loss):

Unrealized gains on marketable securities ( 78 ) ( 19 ) ( 34 ) 1

Unrealized gain (loss) on marketable securities 18 4 ( 16 ) 5

Comprehensive loss $ ( 56,962 ) $ ( 38,200 ) $ ( 135,046 ) $ ( 101,624 )

29 unchanged sentences

Balance—June 30, 2020 — $ — 37,690,058 $ 3 $ 338,617 $ — $ ( 129,697 ) $ 208,923

Issuance of common stock upon the exercise of stock options — — 28,908 — 34 — — 34

Lapse of repurchase rights related to common stock issued pursuant to early exercises — — 79,923 1 52 — — 53

Stock-based compensation expense — — — — 2,261 — — 2,261

Unrealized gain on marketable securities — — — — — 4 — 4

Net loss — — — — — — ( 38,204 ) ( 38,204 )

Balance—September 30, 2020 — $ — 37,798,889 $ 4 $ 340,964 $ 4 $ ( 167,901 ) $ 173,071

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

9 unchanged sentences

— — 6,325,000 1 207,489 — — 207,490

Issuance of shares of common stock upon the exercise of stock options — — 111,282 — 325 — — 325

Issuance of restricted stock units — — 32,362 — — — — —

Issuance of common stock upon the exercise of stock options — — 111,282 — 325 — — 325

Issuance of common stock upon the vesting of restricted stock units — — 32,362 — — — — —

Lapse of repurchase rights related to common stock issued pursuant to early exercises — — 79,925 — 53 — — 53

10 unchanged sentences

Balance—June 30, 2021 — $ — 50,045,602 $ 5 $ 694,519 $ ( 36 ) $ ( 280,000 ) $ 414,488

Issuance of common stock upon the exercise of stock options — — 30,297 — 63 — — 63

Issuance of common stock upon the vesting of restricted stock units — — 5,000 — — — — —

Lapse of repurchase rights related to common stock issued pursuant to early exercises — — 53,914 — 43 — — 43

Stock-based compensation expense — — — — 5,363 — — 5,363

Unrealized gain on marketable securities — — — — — 18 — 18

Net Loss — — — — — — ( 56,980 ) ( 56,980 )

Balance—September 30, 2021 — $ — 50,134,813 $ 5 $ 699,988 $ ( 18 ) $ ( 336,980 ) $ 362,995

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

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

21 unchanged sentences

Proceeds from issuance of common stock pursuant to employee stock purchase plan 478 287

Payment of financing costs — ( 471 )

Net cash provided by financing activities 209,066 168,765

Net increase in cash, cash equivalents, and restricted cash 24,046 108,210

Net decrease in cash, cash equivalents, and restricted cash ( 13,304 ) ( 17,629 )

Cash, cash equivalents, and restricted cash at beginning of period 66,624 63,336

7 unchanged sentences

Organization and Description of Business

Arcutis Biotherapeutics, Inc., or the Company, is a late-stage biopharmaceutical company focused on developing meaningful innovations to address the urgent needs of patients living with immune-mediated dermatological diseases and conditions, or immuno-dermatology.

Arcutis Biotherapeutics, Inc., or the Company, is a late-stage biopharmaceutical company focused on developing meaningful innovations in immuno-dermatology to address the urgent needs of patients living with immune-mediated dermatological diseases and conditions.

The Company’s current portfolio is comprised of highly differentiated topical treatments with significant promise to treat immune-mediated dermatological diseases and conditions.

20 unchanged sentences

Notes to Condensed Financial Statements

The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $ 280.0 million and $ 202.0 million as of June 30, 2021 and December 31, 2020, respectively.

The Company had cash, cash equivalents, restricted cash, and marketable securities of $ 410.9 million and $ 286.0 million as of June 30, 2021 and December 31, 2020, respectively.

The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $ 337.0 million and $ 202.0 million as of September 30, 2021 and December 31, 2020, respectively.

The Company had cash, cash equivalents, restricted cash, and marketable securities of $ 368.8 million and $ 286.0 million as of September 30, 2021 and December 31, 2020, respectively.

Prior to selling common stock in its IPO and follow-on financings, the Company had historically financed its operations primarily through the sale of its convertible preferred stock.

7 unchanged sentences

In March 2020, the World Health Organization declared a pandemic related to the global novel coronavirus disease 2019 (COVID-19) outbreak.

As of August 5, 2021, the Company’s operations have not been significantly impacted by the COVID-19 pandemic.

As of November 4, 2021, the Company’s operations have not been significantly impacted by the COVID-19 pandemic.

The Company is monitoring the impact COVID-19 may have on the clinical development of its product candidates, including potential delays or modifications to its ongoing and planned trials.

13 unchanged sentences

Unaudited Interim Condensed Financial Statements

The interim condensed balance sheet as of June 30, 2021, the interim condensed statements of operations and comprehensive loss, and the condensed changes in convertible preferred stock and stockholders’ equity (deficit) and cash flows for the three and six months ended June 30, 2021 and 2020 are unaudited.

The interim condensed balance sheet as of September 30, 2021, the interim condensed statements of operations and comprehensive loss, and the condensed changes in convertible preferred stock and stockholders’ equity (deficit) and cash flows for the three and nine months ended September 30, 2021 and 2020 are unaudited.

These unaudited interim condensed financial statements have been prepared on the same basis as the Company’s audited annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial information.

The financial data and the other financial information disclosed in these notes to the condensed financial statements related to the three- and six-month periods are also unaudited.

The financial data and the other financial information disclosed in these notes to the condensed financial statements related to the three- and nine-month periods are also unaudited.

The condensed results of operations for the three

1 unchanged sentence

Notes to Condensed Financial Statements

and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period.

and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period.

The condensed balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date.

7 unchanged sentences

Restricted Cash

As of June 30, 2021 and December 31, 2020, the Company held $ 1.5 million of restricted cash as collateral for a letter of credit related to our amended office space lease.

As of September 30, 2021 and December 31, 2020, the Company held $ 1.5 million of restricted cash as collateral for a letter of credit related to our amended office space lease.

Marketable Securities

33 unchanged sentences

The Company reviews the carrying values of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

There were no impairments recognized during the three and six months ended June 30, 2021 and 2020.

There were no impairments recognized during the three and nine months ended September 30, 2021 and 2020.

The Company determines if an arrangement is or contains a lease at inception.

18 unchanged sentences

As actual costs become known, the Company adjusts its accrued liabilities.

For the three and six months ended June 30, 2021 and 2020, the Company has not experienced any material differences between accrued costs and actual costs incurred.

For the three and nine months ended September 30, 2021 and 2020, the Company has not experienced any material differences between accrued costs and actual costs incurred.

Convertible Preferred Stock

59 unchanged sentences

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

June 30, 2021

September 30, 2021

Level 1 Level 2 Level 3 Total

26 unchanged sentences

The following table summarizes the estimated value of the Company’s cash, cash equivalents and marketable securities, and the gross unrealized holding gains and losses (in thousands):

June 30, 2021

September 30, 2021

cost Unrealized

26 unchanged sentences

(1) This balance includes cash requirements settled on a nightly basis.

Realized gains or losses on investments for the three and six months ended June 30, 2021 were no t material.

There were no realized gains or losses on investments for the three and six months ended June 30, 2020.

As of June 30, 2021 and December 31, 2020, unrealized losses on marketable securities were no t material, and accordingly, no allowance for credit losses were recorded.

As of June 30, 2021 and December 31, 2020, all securities have a maturity of 18 months or less and all securities with gross unrealized losses have been in a continuous loss position for less than one year.

Realized gains or losses on investments for the three and nine months ended September 30, 2021 were no t material.

There were no realized gains or losses on investments for the three and nine months ended September 30, 2020.

As of September 30, 2021 and December 31, 2020, unrealized losses on marketable securities were no t material, and accordingly, no allowance for credit losses were recorded.

As of September 30, 2021 and December 31, 2020, all securities have a maturity of 18 months or less and all securities with gross unrealized losses have been in a continuous loss position for less than one year.

ARCUTIS BIOTHERAPEUTICS, INC.

3 unchanged sentences

Prepaid expenses and other current assets consist of the following (in thousands):

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Prepaid clinical trial costs $ 4,356 $ 4,865

5 unchanged sentences

Accrued liabilities consist of the following (in thousands):

June 30, 2021 December 31, 2020

Clinical trial accruals $ 5,534 $ 9,754

September 30, 2021 December 31, 2020

Accrued compensation $ 6,771 $ 4,434

Clinical trial accruals 4,076 9,754

Early exercise liability, current

4 unchanged sentences

Property and equipment, net consists of the following (in thousands):

Useful life (in years) June 30, 2021 December 31, 2020

Useful life (in years) September 30, 2021 December 31, 2020

Computer hardware 3 $ 555 $ 286

7 unchanged sentences

Leasehold improvements are depreciated over the term of the lease.

Depreciation expense was $ 104,000 and $ 202,000 for the three and six months ended June 30, 2021, respectively, and $ 30,000 and $ 57,000 for the three and six months ended June 30, 2020, respectively.

Depreciation expense was $ 116,000 and $ 318,000 for the three and nine months ended September 30, 2021, respectively, and $ 30,000 and $ 87,000 for the three and nine months ended September 30, 2020, respectively.

ARCUTIS BIOTHERAPEUTICS, INC.

9 unchanged sentences

With respect to any AZ-Licensed Products the Company commercializes under the AstraZeneca License Agreement, it will pay AstraZeneca a low to high single-digit percentage royalty rate on the Company’s, its affiliates’ and its sublicensees’ net sales of such AZ-Licensed Products, subject to specified reductions, until, as determined on an AZ-Licensed Product-by-AZ-Licensed Product and country-by-country basis, the later of the date of the expiration of the last-to-expire AstraZeneca-licensed patent right containing a valid claim in such country and ten years from the first commercial sale of such AZ-Licensed Product in such country.

There were no payments made or due in connection with AZ-Licensed Products for the three and six months ended June 30, 2021 and 2020.

There were no payments made or due in connection with AZ-Licensed Products for the three and nine months ended September 30, 2021 and 2020.

Hengrui Exclusive Option and License Agreement

9 unchanged sentences

Additionally, the Company is obligated to pay Hengrui a specified percentage, ranging from the low-thirties to the sub-teens, of certain non-royalty sublicensing income it receives from sublicensees of its rights to the licensed products, such percentage decreasing as the development stage of the licensed products advance.

There were no payments made or due in connection with Hengrui for the three and six months ended June 30, 2021 and 2020.

There were no payments made or due in connection with Hengrui for the three and nine months ended September 30, 2021 and 2020.

Hawkeye Collaboration Agreement

31 unchanged sentences

All leasehold improvements will be depreciated over the remaining term of the lease.

The minimum annual rental payments of the Company’s operating lease liability as of June 30, 2021 are as follows (in thousands):

2021 (July through December) $ 114

The minimum annual rental payments of the Company’s operating lease liability as of September 30, 2021 are as follows (in thousands):

2021 (October through December) $ 114

Thereafter 2,794

5 unchanged sentences

Total operating lease liability $ 5,230

Straight-line rent expense recognized for operating leases was $ 170,000 and $ 345,000 for the three and six months ended June 30, 2021, respectively, and $ 150,000 and $ 193,000 for the three and six months ended June 30, 2020, respectively.

There were no significant variable lease payments, including non-lease components such as common area maintenance fees, recognized as rent expense for operating leases for the three and six months ended June 30, 2021 and 2020.

Straight-line rent expense recognized for operating leases was $ 171,000 and $ 516,000 for the three and nine months ended September 30, 2021, respectively, and $ 202,000 and $ 395,000 for the three and nine months ended September 30, 2020, respectively.

ARCUTIS BIOTHERAPEUTICS, INC.

1 unchanged sentence

The following information represents supplemental disclosure for the condensed statements of cash flows related to the Company’s operating lease (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

1 unchanged sentence

The following summarizes additional information related to the operating lease:

June 30, 2021

September 30, 2021

Weighted-average remaining lease term (in years) 6.8

Weighted-average discount rate 7.0 %

Manufacturing Agreements

The Company has entered into manufacturing supply agreements for the commercial supply of topical roflumilast cream which include certain minimum purchase commitments.

Firm future purchase commitments under these agreements are approximately $ 5.4 million within the next 3 months and then approximately $ 0.6 million per year for the following 4 years.

This amount does not represent all of the Company’s anticipated purchases, but instead represents only the contractually obligated minimum purchases or firm commitments of non-cancelable minimum amounts.

Indemnification

8 unchanged sentences

The Company believes any potential loss exposure under these indemnification agreements in excess of applicable insurance coverage is minimal.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

Convertible Preferred Stock and Stockholders’ Equity

4 unchanged sentences

The holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.

As of June 30, 2021, no dividends had been declared by the board of directors.

As of September 30, 2021, no dividends had been declared by the board of directors.

The Company reserved the following shares of common stock for issuance as follows:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Options issued and outstanding 5,715,147 3,655,945

4 unchanged sentences

On February 4, 2020, the Company’s certificate of incorporation was amended and restated to provide for 300,000,000 authorized shares of common stock with a par value of $ 0.0001 per share and 10,000,000 authorized shares of preferred stock with a par value of $ 0.0001 per share.

There were no shares of preferred stock outstanding as of June 30, 2021 and December 31, 2020.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

There were no shares of preferred stock outstanding as of September 30, 2021 and December 31, 2020.

Stock-Based Compensation

4 unchanged sentences

Accordingly, on January 1, 2021, the plan reserve increased by 1,747,112 shares.

As of June 30, 2021, the Company had 2,156,766 shares available for future grant under the 2020 Plan.

As of September 30, 2021, the Company had 1,456,234 shares available for future grant under the 2020 Plan.

The 2020 Plan provides for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of directors, and consultants of the Company under terms and provisions established by the board of directors.

4 unchanged sentences

However, all outstanding awards under the 2017 Plan will continue to be governed by their existing terms.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

Stock Option Activity

4 unchanged sentences

Forfeited ( 199,416 ) $ 22.32

Balance—June 30, 2021 5,073,312 $ 18.38 8.59 $ 51,625

Exercisable—June 30, 2021 (1)

Expired ( 27,660 ) $ 28.42

Balance—September 30, 2021 5,715,147 $ 18.84 8.57 $ 44,093

Exercisable—September 30, 2021 (1)

2,363,828 $ 10.28 7.66 $ 34,790

1 unchanged sentence

(1) Options exercisable includes early exercisable options.

The aggregate intrinsic value is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of June 30, 2021.

As of December 31, 2020, prior to the Company's IPO, the estimated fair value of the Company's common stock was determined by the board of directors.

The intrinsic value of options exercised for the six months ended June 30, 2021 was $ 4.3 million.

The total grant-date fair value of the options vested during the six months ended June 30, 2021 was $ 7.4 million.

The weighted-average grant-date fair value of employee options granted during the six months ended June 30, 2021 was $ 21.17 .

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

The aggregate intrinsic value is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of September 30, 2021.

Prior to the Company's IPO in January 2020, the estimated fair value of the Company's common stock was determined by the board of directors.

The intrinsic value of options exercised for the nine months ended September 30, 2021 was $ 4.8 million.

The total grant-date fair value of the options vested during the nine months ended September 30, 2021 was $ 11.7 million.

The weighted-average grant-date fair value of employee options granted during the nine months ended September 30, 2021 was $ 19.48 .

Restricted Stock Unit Activity

6 unchanged sentences

Forfeited ( 13,600 ) $ 31.37

Unvested Balance—June 30, 2021 314,468 $ 29.83

Unvested Balance—September 30, 2021 337,868 $ 29.27

The grant date fair value of an RSU equals the closing price of our common stock on the grant date.

RSUs generally vest equally over four years .

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

Stock-Based Compensation Expense

Stock-based compensation expense included in the condensed statements of operations and comprehensive loss was as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

5 unchanged sentences

$ 5,363 $ 2,261 $ 18,206 $ 5,300

As of June 30, 2021, there was $ 50.7 million of total unrecognized compensation cost related to unvested options that are expected to vest, which is expected to be recognized over a weighted-average period of 3.3 years.

As of June 30, 2021, there was $ 7.9 million of total unrecognized compensation cost related to RSUs that is expected to vest, which is expected to be recognized over a weighted-average period of 3.4 years.

As of September 30, 2021, there was $ 56.7 million of total unrecognized compensation cost related to unvested options that are expected to vest, which is expected to be recognized over a weighted-average period of 3.2 years.

As of September 30, 2021, there was $ 7.9 million of total unrecognized compensation cost related to RSUs that is expected to vest, which is expected to be recognized over a weighted-average period of 3.2 years.

In March 2021, in connection with the retirement of the former Chief Financial Officer, the Company modified the terms of this individual’s historical stock awards.

16 unchanged sentences

The Company used the simplified method (based on the mid-point between the vesting date and the end of the contractual term) to determine the expected term.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

Expected Volatility —The Company does not yet have sufficient trading history for its common stock to solely use its own historical volatility.

6 unchanged sentences

Therefore, the Company used an expected dividend yield of zero .

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

The fair value of stock option awards granted was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

Six Months Ended June 30, 2021 Year Ended

Nine Months Ended September 30, 2021 Year Ended

December 31, 2020

12 unchanged sentences

The liability is reclassified into common stock and additional paid-in capital as the shares vest and the repurchase right lapses.

Accordingly, the Company has recorded the unvested portion of the exercise proceeds of $ 155,000 and $ 258,000 as a liability from the early exercise in the accompanying condensed balance sheets as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021 and December 31, 2020, there were $ 130,000 and $ 176,000 recorded in accrued liabilities, respectively, and $ 25,000 and $ 82,000 recorded in other long-term liabilities, respectively related to shares that were subject to repurchase.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

Accordingly, the Company has recorded the unvested portion of the exercise proceeds of $ 110,000 and $ 258,000 as a liability from the early exercise in the accompanying condensed balance sheets as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, there were $ 79,000 and $ 176,000 recorded in accrued liabilities, respectively, and $ 31,000 and $ 82,000 recorded in other long-term liabilities, respectively related to shares that were subject to repurchase.

Founder Awards

9 unchanged sentences

The option purchase price will be the lower of 85 % of the closing trading price per share of the Company’s common stock on the first trading date of an offering period in which a participant is enrolled or 85 % of the closing trading price per share on the purchase date, which will occur on the last trading day of each offering period.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Condensed Financial Statements

The ESPP is intended to qualify under Section 423 of the U.S.

6 unchanged sentences

In addition, the Company commenced an offering period on December 1, 2020, which ended on May 31, 2021, and resulted in 22,658 shares of stock being issued under the ESPP.

Stock-based compensation expense related to the ESPP was $ 99,000 and $ 216,000 for the three and six months ended June 30, 2021, respectively, and $ 94,000 and $ 161,000 for the three and six months ended June 30, 2020, respectively.

Stock-based compensation expense related to the ESPP was $ 88,000 and $ 304,000 for the three and nine months ended September 30, 2021, respectively, and $ 88,000 and $ 249,000 for the three and nine months ended September 30, 2020, respectively.

Net Loss Per Share

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

As of June 30,

As of September 30,

Stock options to purchase common stock 5,715,147 3,604,363

4 unchanged sentences

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