# Arcturus Therapeutics Holdings Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Arcturus Therapeutics Holdings Inc.](/companies/arct.md) (CIK 1768224)
- Form: 10-Q
- Filed: 2023-08-07
- Accepted by EDGAR: Aug 7, 2023, 17:02 ET
- Period: 2023-06-30
- Accession: 0000950170-23-039149
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1768224/000095017023039149/arct-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1768224/000095017023039149/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $10.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $90.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $52.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $104.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$55.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$40.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $577.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $680.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$52.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$1.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$1.98 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$1.98 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 26,563 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 26,557 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $14.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $1.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $323.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $385.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $430.6m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $90.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $145.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $285.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,396 characters.

*The following is a discussion of the financial condition and results of operations of Arcturus Therapeutics Holdings Inc. for the three and six month periods ended June 30, 2023. 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, 2022 (the “2022 Annual Report”), which was filed with the U.S. Securities and Exchange Commission (the “Commission”) on March 29, 2023. Unless otherwise defined herein, capitalized words and expressions used herein shall have the same meanings ascribed to them in the 2022 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

We are a global late-stage clinical messenger RNA medicines company focused on the development of infectious disease vaccines and opportunities within liver and respiratory rare diseases. In addition to our messenger RNA (“mRNA”) platform, our proprietary lipid nanoparticle (“LNP”) delivery system, LUNAR®, has the potential to enable multiple nucleic acid medicines, and our proprietary self-amplifying mRNA technology (Self-Transcribing and Replicating RNA, or STARR™, technology) has the potential to provide longer-lasting RNA and sustained protein expression at lower dose levels as compared to conventional mRNA.

We are leveraging our proprietary LUNAR platform and our nucleic acid technologies to develop and advance a pipeline of mRNA-based vaccines and therapeutics for infectious diseases and rare genetic disorders with significant unmet medical needs. We continue to expand this platform by adding new innovative delivery solutions that allow us to expand our discovery efforts. Our proprietary LUNAR technology is intended to address the major hurdles in RNA drug development, namely the effective and safe delivery of RNA therapeutics to disease-relevant target tissues. We believe the versatility of our platform to target multiple tissues, its compatibility with various nucleic acid therapeutics, and our expertise in developing scalable manufacturing processes can allow us to deliver on the next generation of nucleic acid medicines.

### Business Updates

### Updates on Vaccine Program

In November 2022, we entered into a Collaboration and License Agreement (the “CSL Collaboration Agreement”) with Seqirus, Inc. (“CSL Seqirus”), a part of CSL Limited, and one of the world’s leading influenza vaccine providers, for the global exclusive rights to research, develop, manufacture and commercialize self-amplifying mRNA vaccines against COVID-19, influenza and three other respiratory infectious diseases with non-exclusive rights to pandemic pathogens. The CSL Collaboration Agreement became effective on December 8, 2022. The collaboration combines CSL Seqirus’ established global vaccine commercial and manufacturing infrastructure with Arcturus’ manufacturing expertise and innovative STARR® self-amplifying mRNA vaccine and LUNAR® delivery platform technologies. Under the framework of our collaboration with CSL Seqirus, we are evaluating in preclinical studies the efficacy and safety of a seasonal influenza vaccine (our LUNAR-FLU mRNA vaccine candidate). Pursuant to a third party study agreement executed in December 2022 with Meiji Seika Pharma Co., Ltd., a subsidiary of Meiji Holdings Co., Ltd. (“Meiji”), a Japanese leader in the area of infectious disease, a Phase 3 clinical trial of ARCT-154 was initiated in Japan by Meiji to evaluate safety and immunogenicity of a booster shot of ARCT-154, and to evaluate non-inferiority of ARCT-154 as a booster. The trial targeted a total of 780 adult participants, with half in the ARCT-154 group and half in a comparator group (Comirnaty®, Pfizer-BioNTech), and completed enrollment with 828 participants in February 2023.

On April 11, 2023, Meiji announced that it entered into an agreement with CSL Seqirus for the distribution and sales of ARCT-154, our self-amplifying mRNA vaccine candidate against COVID-19, in Japan.

On April 28, 2023, Meiji announced that it submitted to the Japanese Pharmaceuticals and Medical Devices Agency (PMDA) a New Drug Application (NDA) to manufacture and market ARCT-154 for primary immunization to prevent COVID-19 in adults in Japan.

In April 2023, we received an advance payment of $23.6 million for the manufacturing and supply of ARCT-154 from CSL Seqirus. The advance payment is for specified manufacturing runs of ARCT-154 which includes the drug substance utilized, as well as the reservation fees and related manufacturing requirements.

On June 30, 2023, Meiji announced that it submitted an additional application to the PMDA for a booster dose of ARCT-154 to prevent COVID-19 in adults in Japan.

On July 13, 2023, an article titled “Booster dose of self-amplifying SARS-CoV-2 RNA vaccine vs. mRNA vaccine: a phase 3 comparison of ARCT-154 with Comirnaty” posted on medRxiv.org at https://www.medrxiv.org/content/10.1101/2023.07.13.23292597v1. The article is based on interim results of the Phase 3 clinical trial of ARCT-154 conducted in Japan by Meiji evaluating the safety and immunogenicity of ARCT-154 compared to Comirnaty as a booster against COVID-19. The article is a preprint and has not been certified by peer review.

On August 7, 2023, we announced that Phase1/2 clinical trial data demonstrated one-year durability of immune response following ARCT-154 booster vaccine administration as measured using validated microneutralization (MNT) assays. The Phase 1/2 study data is from 12 participants in the United States and Singapore. The geometric mean fold rise (GMFR) in neutralizing antibodies remained greater than 10-fold above baseline for one year across a panel of SARS-CoV-2 variants, including ancestral strain with the D614G mutation, Beta (B.1.351), Delta (B.1.617.2), and Omicron (BA.1), for participants receiving ARCT-154 booster. Participants who received any non-study COVID-19 vaccines or had a positive SARS-CoV-2 PCR result were excluded from the analysis after the event. Additional exploratory assays demonstrated similar trends.

Geometric mean fold rise (GMFR) of neutralizing antibodies against SARS-CoV-2 variants (versus pre-booster levels) after ARCT-154 booster vaccination measured by validated psuedoviral microneutralization assays (N=12). Error bars represent the 95% CI. GMFR values are included in white. Participants who received any COVID-19 vaccines or had laboratory-confirmed SARS-CoV-2 infection during the follow-up period were excluded from immunogenicity analysis at sampling times after the event.

### Key Updates on Arcturus-Owned mRNA Therapeutic Development Candidates

The following chart represents our current pipeline of Arcturus-Owned mRNA Therapeutic Candidates:

- LUNAR-OTC/ARCT-810 - Our rare disease program for ornithine transcarbamylase (OTC) deficiency is continuing to advance.
- A Phase 1b study in stable OTC-deficient adults is being conducted in the United States. The trial is designed to assess safety, tolerability and pharmacokinetics of a single dose of ARCT-810, as well as various exploratory biomarkers of drug activity. The study has completed enrollment and dosing of all four cohorts (N = 16 subjects).
- A Phase 2 multiple-dose study of ARCT-810 in OTC-deficient adolescents and adults initiated dosing in December 2022 and plans to enroll approximately 24 participants in 2 dose cohorts. The study has been approved by the regulatory authorities in the UK and several other countries in Europe.
- In June 2023, the US Food and Drug Administration (the “FDA”) granted Fast Track Designation to ARCT-810. Fast Track Designation is designed to facilitate development and expedite review of new therapeutics intended to treat serious or life-threatening conditions that demonstrate the potential to address important unmet medical needs.
- In June 2023, we received Rare Pediatric Disease Designation from the FDA. Rare Pediatric Disease Designation is designed to recognize rare pediatric diseases in which the serious or life-threatening manifestations primarily affect patients from birth to 18 years of age. Due to such designation, if ARCT-810 achieves approval for a pediatric indication in the original rare pediatric disease product application in the United States, Arcturus (or the sponsor of ARCT-810) will receive a voucher for priority review of a subsequent marketing application for a different product.
- LUNAR-CF/ARCT-032 – Our program for cystic fibrosis is being supported in part by the Cystic Fibrosis Foundation.
- Results from preclinical studies demonstrate robust protein expression in respiratory epithelium treated with LUNAR-mRNA in vitro and in vivo. Further, CF human bronchial epithelial cells treated with ARCT-032 in vitro demonstrate restoration of CFTR activity.
- A CTA was filed in December 2022 for the first-in-human study, and we completed dosing of the Phase 1 single ascending dosing study in 32 healthy participants (eight subjects in each of four cohorts).
- In August 2023 we received regulatory approval of a protocol amendment to allow the transition to a Phase 1b clinical study of ARCT-032 in up to eight adults with CF.

### Updates on Collaboration Agreements

#### Ultragenyx

On October 26, 2015, we entered into a Research Collaboration and License Agreement with Ultragenyx, which was later amended in 2017, 2018 and during the second quarter of 2019 (as amended, the “Ultragenyx Agreement”). On December 1, 2021, Ultragenyx announced that the first patient had been dosed in its Phase 1/2 study of UX053, an investigational messenger RNA therapy in development under the collaboration for the treatment of Glycogen Storage Disease Type III, and thus the first milestone under the collaboration agreement had been met. Ultragenyx has completed dosing in the single ascending dose, or SAD, stage of the Phase 1/2 study of UX053 with no safety issues observed. Ultragenyx has disclosed that it will not enroll patients in the multiple ascending dose cohorts at this time to allow greater focus on its other late-stage and larger indication clinical programs. Ultragenyx has announced that the data from the SAD cohort are being analyzed and expected in the second quarter of 2023. On June 18, 2023, the exclusivity period for reserved targets expired. Prior to this expiration, Ultragenyx exercised its option with respect to some of its reserved targets thereby converting them to development targets under the agreement.

#### CureVac

On January 1, 2018, we entered into a Development and Option Agreement with CureVac, which was amended on May 3, 2018, restated on September 28, 2018 and amended on July 24, 2019 (as amended and restated, the “Development and Option Agreement”). Under the terms of the Development and Option Agreement, CureVac and Arcturus agreed to conduct joint preclinical development programs and we granted CureVac a license to develop and commercialize certain products incorporating certain of our technology (the “Arcturus LMD Technology”) and CureVac technology. CureVac did not exercise its option to extend the term prior to its expiration, and the Development and Option Agreement expired as of July 24, 2023.

### Updates on Research and Platform Activities

We continue to conduct exploratory platform development activities, including the evaluation of genome editing, and new targeting approaches, where our LUNAR® and STARR® platforms could potentially be useful for identification and development of additional products for our portfolio.

### Updates on Supply and Manufacturing

We have built a global manufacturing footprint with our partners, including Aldevron, Catalent, Recipharm, Polymun and Arcalis. With such collaborations we have established an Integrated Global Supply Chain Network with our primary and secondary sourcing contract development & manufacturing organizations (CDMOs) based in the United States, EU and Asia for producing critical raw materials, drug substance, and packaged finished product. As the market for COVID vaccines shifts from multi-dose vial formats to lower and single-dose vial formats, we continue, with our collaborator CSL Seqirus, to evaluate and advance manufacturing process and capabilities and technology transfers, and prepare for stockpiling and commercialization of COVID vaccines.

### 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, 2022. 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.

### 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 June 30, 2023 | 2022 | 2022 to 2023 $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $10,519 | $27,093 | $(16,574) | -61.2% |

Revenue decreased by $16.6 million during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. The decrease was primarily attributable to a decrease in revenue of $12.7 million related to the termination of the agreement with Vinbiocare and a decrease in revenue of $12.5 million related to the agreement with the Israeli Ministry of Health. The decrease was primarily offset by an increase in revenue of $8.6 million related to the collaboration agreement with CSL Seqirus and the grant agreement with BARDA which were both executed in the second half of 2022.

*(in thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change |
| --- | ---: | ---: | ---: | --- |
| Revenue | $90,804 | $32,337 | $58,467 | \* |

#### \* Greater than 100%

Revenue increased by $58.5 million during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The increase was attributable to an increase in revenue of $87.6 million primarily related to the collaboration agreement with CSL Seqirus and the grant agreement with BARDA which were both executed in the second half of 2022. The increase was primarily offset by decreases in revenue of the following: (i) $15.6 million related to the termination of the agreement with Vinbiocare, (ii) $12.5 million related to the agreement with the Israeli Ministry of Health and (iii) $1.0 million related to the termination of the agreement with Janssen.

Our operating expenses consist of research and development and general and administrative expenses.

*(in thousands)*

| Operating expenses: | Three Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change | Six Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development, net | $52,668 | $38,189 | $14,479 | 37.9% | $104,436 | $83,082 | $21,354 | 25.7% |
| General and administrative | 13,225 | 10,993 | 2,232 | 20.3% | 26,987 | 21,723 | 5,264 | 24.2% |
| Total | $65,893 | $49,182 | $16,711 | 34.0% | $131,423 | $104,805 | $26,618 | 25.4% |

### Research and Development Expenses, net

The following table presents our total research and development expenses by category:

*(in thousands)*

| External pipeline development expenses: | Three Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change | Six Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| LUNAR-COVID, net | $19,688 | $16,939 | $2,749 | 16.2% | $42,516 | $44,755 | $(2,239) | -5.0% |
| LUNAR-OTC, net | 2,200 | 2,764 | (564) | -20.4% | 5,519 | 4,408 | 1,111 | 25.2% |
| Early-stage programs | 7,563 | 2,323 | 5,240 | \* | 12,432 | 4,230 | 8,202 | \* |
| Discovery technologies | 6,853 | 3,242 | 3,611 | \* | 11,604 | 4,607 | 6,997 | \* |
| External platform development expenses: |  |  |  |  |  |  |  |  |
| Personnel related expenses | 13,458 | 10,533 | 2,925 | 27.8% | 26,728 | 20,850 | 5,878 | 28.2% |
| Facilities and equipment expenses | 2,906 | 2,388 | 518 | 21.7% | 5,637 | 4,232 | 1,405 | 33.2% |
| Total research and development expenses, net | $52,668 | $38,189 | $14,479 | 37.9% | $104,436 | $83,082 | $21,354 | 25.7% |

#### \* Greater than 100%

Our research and development expenses consist primarily of external manufacturing costs, in-vivo research studies and clinical trials performed by contract research organizations, clinical and regulatory consultants, personnel related expenses, facility related expenses and laboratory supplies related to conducting research and development activities. Research and development expenses were $52.7 million for the three months ended June 30, 2023, compared with $38.2 million in the comparable period last year, primarily reflecting increased clinical research and manufacturing costs of $11.4 million and an increase of $2.9 million in personnel related costs. Research and development expenses were $104.4 million for the six months ended June 30, 2023, compared with $83.1 million in the comparable period last year, primarily reflecting increased manufacturing costs of $11.1 million, an increase of $5.9 million in personnel related costs, an increase in consulting expenses of $1.8 million, an increase of $1.3 million in facilities expense and a decrease of contra research and development expenses recognized of $2.7 million. The increase was primarily offset by a decrease of clinical-related expenses of $1.2 million. We expect that our research and development efforts and associated costs will increase and continue to be substantial over the next several years as our pipeline progresses.

Early-stage programs represent programs that are in the pre-clinical or Phase 1 clinical stage and may be partnered or unpartnered, including the LUNAR-CF and LUNAR-FLU programs. Discovery technologies represent our efforts to expand our product pipeline and are primarily related to pre-partnered studies and new capabilities assessment. For some of our programs, the activities are part of our collaborative and other relationships and the expenses may be partially offset with funds that have been awarded to the Company. The expenses primarily consist of external manufacturing costs, lab supplies, equipment, and consulting and professional fees. Both early stage programs and discovery technologies expenses are expected to steadily increase over the coming years.

Personnel related expenses primarily consist of employee salaries and benefits, share-based compensation and consultants and are expected to continue to increase in the near future as we continue increase headcount to meet the needs of our external pipeline, platform and clinical trial efforts. Additionally, personnel related expenses will continue to rise as we increase salaries in line with increases in the market rates in order to retain our employees.

Facilities and equipment expenses continue to increase as we expand. The six months ended June 30, 2023 includes increased rent and associated costs related to a new facility we took possession of in April 2022. Facilities and equipment expenses are expected to increase in the near term due to increased rent expense related to our three facilities.

### General and Administrative Expenses

General and administrative expenses primarily consist of salaries and related benefits for our executive, administrative, legal and accounting functions and professional service fees for legal and accounting services as well as other general and administrative expenses.

General and administrative expenses were $13.2 million and $27.0 million for the three and six months ended June 30, 2023, respectively, compared with $11.0 million and $21.7 million in the comparable periods last year. The increases resulted primarily from increased personnel expenses due to increased headcount and salaries, increased travel and consulting expenses as well as increased rent expense associated with the new facility.

### Finance (expense) income, net

*(in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change | Six Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | --- |
| Interest income | $3,252 | $168 | $3,084 | \* | $6,472 | $322 | $6,150 | \* |
| Interest expense | — | (728) | 728 | \* | (743) | (1,446) | 703 | -48.6% |
| Total | $3,252 | $(560) | $3,812 | \* | $5,729 | $(1,124) | $6,853 | \* |

#### \* Greater than 100%

Interest income is generated on cash and cash equivalents. The increase in interest income for the three and six month periods ended June 30, 2023 as compared to the comparable periods last year was primarily the result of increased interest rates and an increased cash balance as a result of amounts received under the CSL Seqirus agreement. Interest expense decreased as no interest expense was incurred during the second quarter of 2023 due to the extinguishment of the Western Alliance Agreement and the forgiveness of the Singapore Loan during the first quarter of 2023.

### Other income and expense

*(in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change | Six Months Ended June 30, 2023 | 2022 | 2022 to 2023 $ change | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Loss from equity-method investment | $— | $(131) | $131 | -100.0% | $— | $(516) | $516 | -100.0% |
| Gain (loss) from foreign currency | 149 | 1,217 | (1,068) | -87.8% | (179) | 1,376 | (1,555) | \* |
| Gain on debt extinguishment | — | — | — | 0.0% | 33,953 | — | 33,953 | 100.0% |
| Total | $149 | $1,086 | $(937) | -86.3% | $(179) | $860 | $(1,039) | \* |

#### \* Greater than 100%

Other income and expense items primarily relate to gains and losses from equity-method investments and foreign currency transactions. Additionally, we recorded a gain on debt extinguishment related to the Singapore Loan of $34.0 million during the six months ended June 30, 2023 as a result of the Singapore Loan being forgiven during the first quarter of 2023.

We recorded no gain or loss in the three and six months ended June 30, 2023, compared with $0.1 million and $0.5 million losses in the three and six months ended June 30, 2022, respectively, in connection with our investment in GRI Bio, Inc. (formerly Vallon Pharmaceuticals, Inc.)

The changes in gain (loss) from foreign currency for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 were primarily attributable to the Singapore Loan being forgiven during the first quarter of 2023. The remaining amounts recorded as gain (loss) from foreign currency relate to transactions made in foreign currencies.

### Off-balance sheet arrangements

Through June 30, 2023, 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 June 30, 2023, 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 and government contracts. We received a $200.0 million upfront payment from CSL Seqirus during the fourth quarter of 2022. Additionally, in the three months ended June 30, 2023, we received $90.0 million in milestone payments and $23.6 million for the manufacturing and supply of ARCT-154 from CSL Seqirus. We expect to receive future payments from CSL Seqirus primarily by meeting future milestones related to the CSL Collaboration Agreement. At June 30, 2023, we had $323.5 million in unrestricted cash and cash equivalents.

#### CSL Seqirus, Inc. Collaboration and License Agreement

We entered into the CSL Collaboration Agreement with CSL Seqirus, a part of CSL Limited, one of the world’s leading influenza vaccine providers, for the global exclusive rights to research, develop, manufacture and commercialize of self-amplifying mRNA vaccines.

CSL Seqirus received exclusive global rights to our technology for vaccines against SARS-CoV-2 (COVID-19), influenza and three other respiratory infectious diseases with non-exclusive rights to pandemic pathogens. We received an up-front payment of $200.0 million during the fourth quarter of 2022. We will be eligible to potentially receive development milestones totaling more than $1.3 billion if all products are registered in the licensed fields. We will also be entitled to potentially receive up to $3.0 billion in commercial milestones based on “net sales” of vaccines in the various fields.

In addition, we are entitled to receive a 40% share of net profits from COVID-19 vaccine sales and up to low double-digit royalties of annual net sales for vaccines against influenza and the other three specified infectious disease pathogens, as well as royalties on revenues from vaccines that may be developed for pandemic preparedness.

The CSL Collaboration Agreement sets forth how CSL Seqirus and us shall collaborate to research and develop vaccine candidates. In the COVID-19 field, we will lead activities for certain regulatory filings for ARCT-154 in the US and Europe and for research and development activities of a next-generation COVID vaccine candidate. CSL Seqirus will lead and be responsible for all other research and development in COVID-19, influenza and the other fields.

#### Wells Fargo Credit Agreement

On April 21, 2023, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc. entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”) whereby Wells Fargo will make a $50.0 million revolving credit line available to the Company (the “Wells Fargo Loan”) and each Wells Fargo Loan evidenced by a revolving line of credit note (the “Note”).

Borrowings under the agreement will bear interest at a rate of 1.00% above either the Daily Simple SOFR or Term SOFR (as such terms are defined in the Wells Fargo Note), with “SOFR” being the rate per annum equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York. If an Event of Default (as defined in the credit agreement) occurs, then all Wells Fargo Loans shall bear interest at a rate equal to 2.00% above the interest rate applicable immediately prior to the occurrence of the Event of Default.

The term of the agreement is two years, with an option for one-year renewals subject to Wells Fargo approval and the Company furnishing to Wells Fargo a non-refundable commitment fee equal to 0.25% of the Wells Fargo Loan amount for each such renewal. There is no penalty for terminating the agreement. There is no penalty for terminating the facility prior to the maturity date of the Wells Fargo Note. As collateral, the Company has agreed to pledge $55.0 million in cash to be held at the Company’s securities accounts with Wells Fargo Securities, LLC, an affiliate of Wells Fargo, pursuant to a security agreement.

#### Grant from the Biomedical Advanced Research and Development Authority

On August 31, 2022, we entered into a cost reimbursement contract (the “BARDA Contract”) with the Biomedical Advanced Research and Development Authority (“BARDA”), a division of the Office of the Assistant Secretary for Preparedness and Response (ASPR) within the U.S. Department of Health and Human Services (HHS) to support the development of a low-dose pandemic influenza candidate based on our proprietary self-amplifying messenger RNA-based vaccine platform. The BARDA Contract is to support our non-clinical and pre-clinical development, early-stage clinical development through Phase 1, and associated drug product manufacturing, regulatory and quality-assurance activities over a period of three years. It provides for reimbursement by BARDA of our permitted costs up to $63.2 million.

#### Vinbiocare Agreement

During 2021, we entered into a technology license and technical support agreement and the framework drug substance supply agreement with Vinbiocare, a member of Vingroup Joint Stock Company (collectively, the “Vinbiocare License & Supply Agreements”), whereby we would provide technical expertise and support services to Vinbiocare to assist in the build out of an mRNA drug product manufacturing facility in Vietnam. We received an upfront payment in aggregate of $40.0 million as part of the Vinbiocare License and Supply Agreements. In October 2022, in association with the termination of the Vinbiocare License and Supply Agreements, we signed the Vinbiocare Support Agreement with Vinbiocare which continues Vinbiocare’s clinical obligations and reserved a portion of the original $40.0 million upfront payment received from the License and Supply Agreements to be paid over the future periods.

The Vinbiocare Support Agreement requires us to pay to Vinbiocare certain limited payments, including upon the occurrence of specified events through the first quarter of 2025. Vinbiocare is also eligible to receive a single digit percentage of amounts received by Arcturus on net sales, if any, of ARCT-154 (or next-generation COVID vaccine) up to a capped amount.

#### General Financial Resources

A portion of our current cash balance is expected to be utilized during fiscal year 2023 to fund (i) the continued Phase 2 trial of ARCT-810, our LUNAR-OTC candidate, (ii) advances to our LUNAR-CF program in clinical trials, (iii) expenses incurred prior to customer payments under the CSL Collaboration Agreement and BARDA agreement and (iv) continued exploratory activities related to our platform and other general administrative activities.

Our future capital requirements are difficult to forecast and will depend on many factors that are out of our control. 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.

We expect to continue to incur additional losses in the long term, and we will need to execute on milestones within the CSL Collaboration Agreement, raise additional debt or equity financing or enter into additional partnerships to fund development. Our ability to transition to profitability is dependent on executing on milestones within the CSL Collaboration Agreement and identifying and developing successful mRNA drug and vaccine candidates. If we are not able to achieve planned milestones or incur costs in excess of our forecasts, we will need to reduce discretionary spending, discontinue the development of some or all of our programs, 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.

### Funding Requirements

We anticipate that we will continue to generate 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. We believe that our current cash position will be sufficient to meet our anticipated cash requirements through at least the next twelve months, assuming, among other things, no significant unforeseen expenses and continued funding from partners at anticipated levels. We intend to seek additional capital through equity and/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, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.

Our future funding requirements are difficult to forecast and will depend on many factors, including the following:

- the development of our LUNAR-COV19 and LUNAR-FLU vaccine candidates;
- the achievement of milestones under our strategic alliance agreements;
- maintaining and/or expanding our manufacturing network and capabilities;
- the terms and timing of any other strategic alliance, licensing and other arrangements that we may establish, including those with CSL Seqirus and CSL Seqirus’ arrangement with Meiji, and any related payments thereunder;
- 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 costs associated with potential litigation related to collaboration agreements; and
- the extent to which we acquire or invest in businesses, products or technologies.

### Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in conformity with GAAP. As such, we make certain estimates, judgments and assumptions that we believe are reasonable, based upon information available to us. These judgments 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, 2022.

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 the 2022 Annual Report.

## Market risk

As filed, 361 characters.

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates in the United States. Due to the nature of our cash and cash equivalents, we believe that we are not subject to any material market risk exposure. We do not have any foreign currency or other derivative financial instruments.

## Controls and procedures

As filed, 1,962 characters.

### Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer, our principal financial officer and our principal accounting officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management has concluded that as of June 30, 2023, the Company’s disclosure controls and procedures were effective at the reasonable assurance level, and we believe the condensed consolidated financial statements included in this Form 10-Q for the quarterly periods ended June 30, 2023 fairly present, in all material respects, our financial position, results of operations, comprehensive loss, statements of stockholders’ equity and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.

### Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act, our management, including our principal executive officer, our principal financial officer and our principal accounting officer, conducted an evaluation of the internal control over financial reporting to determine whether any other changes occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer, principal financial officer and principal accounting officer concluded that there were no changes in our internal controls over financial reporting during the periods covered by this Quarterly Report on Form 10-Q that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 503 characters.

Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which we strongly encourage you to review. There have been no material changes from the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Commission on March 29, 2023 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed with the Commission on May 9, 2023.

Filed Aug 7, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-039149. Last ingested by Listed: Oct 29, 2026, 06:06 ET. No prices; not investment advice.