ARCA biopharma(ABIO) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited interim financial statements, management's discussion, market risk, and controls and procedures ITEM 1. FINANCIAL STATEMENTS (Unaudited) This section presents the unaudited interim financial statements, including balance sheets, statements of operations, equity, cash flows, and their accompanying notes BALANCE SHEETS This section provides a summary of the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $40,156 | $42,445 | | Total current assets | $40,755 | $42,699 | | Total assets | $41,083 | $43,085 | | Total current liabilities | $1,602 | $1,132 | | Total liabilities | $1,845 | $1,412 | | Total stockholders' equity | $39,238 | $41,673 | - Cash and cash equivalents decreased by $2.3 million from December 31, 2022, to June 30, 2023[7] STATEMENTS OF OPERATIONS This section details the Company's financial performance, showing revenues, expenses, and net loss over specific reporting periods Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General and administrative | $1,719 | $1,734 | $3,125 | $2,832 | | Research and development | $254 | $1,485 | $644 | $3,664 | | Total costs and expenses | $1,973 | $3,219 | $3,769 | $6,496 | | Loss from operations | $(1,973) | $(3,219) | $(3,769) | $(6,496) | | Interest and other income | $493 | $72 | $943 | $79 | | Net loss | $(1,480) | $(3,147) | $(2,826) | $(6,419) | | Net loss per share (Basic and diluted) | $(0.10) | $(0.22) | $(0.20) | $(0.45) | - Net loss decreased significantly for both the three-month period (53.0% YoY) and six-month period (56.0% YoY) ended June 30, 2023, primarily due to reduced R&D expenses and increased interest income[9] - Research and development expenses decreased by $1.2 million (79.0% YoY) for the three months and $3.0 million (81.0% YoY) for the six months ended June 30, 2023, mainly due to the completion of the rNAPc2 Phase 2b clinical trial and decreased headcount[9][56] - Interest and other income increased substantially to $493 thousand for the three months and $943 thousand for the six months ended June 30, 2023, compared to $72 thousand and $79 thousand respectively in the prior year, driven by higher interest rates[9][57] STATEMENTS OF STOCKHOLDERS' EQUITY This section outlines changes in the Company's stockholders' equity, reflecting capital transactions and accumulated earnings or losses Stockholders' Equity Changes (in thousands) | Metric | Balance, December 31, 2022 | Balance, June 30, 2023 | | :-------------------------- | :------------------------- | :--------------------- | | Common stock | $14 | $14 | | Additional paid-in capital | $225,061 | $225,452 | | Accumulated deficit | $(183,402) | $(186,228) | | Total stockholders' equity | $41,673 | $39,238 | - Total stockholders' equity decreased from $41,673 thousand at December 31, 2022, to $39,238 thousand at June 30, 2023, primarily due to the accumulated net loss[10] - Share-based compensation recognized was $391 thousand for the six months ended June 30, 2023, compared to $339 thousand for the same period in 2022[10][43] STATEMENTS OF CASH FLOWS This section summarizes the Company's cash inflows and outflows from operating, investing, and financing activities over specific periods Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :---------------------------- | :--------- | :--------- | | Net cash used in operating | $(2,289) | $(6,920) | | Net cash used in investing | $0 | $(2) | | Net cash provided by financing| $0 | $0 | | Net decrease in cash | $(2,289) | $(6,922) | | Cash and cash equivalents, end of year | $40,156 | $46,437 | - Net cash used in operating activities decreased by $4.6 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to a lower net loss and changes in operating assets and liabilities[12][62] NOTES TO FINANCIAL STATEMENTS This section provides detailed explanations and additional information supporting the financial statements, clarifying accounting policies and specific transactions (1) The Company and Summary of Significant Accounting Policies This section describes ARCA biopharma's business, its lead product candidate Gencaro, ongoing strategic review, and key accounting policies - ARCA biopharma, Inc. is a clinical-stage biopharmaceutical company focused on genetically targeted therapies for cardiovascular diseases, with Gencaro™ (bucindolol hydrochloride) as its lead product candidate for atrial fibrillation in chronic heart failure patients[14][50] - The Company's Board of Directors established a Special Committee in April 2022 to evaluate strategic options, including mergers, asset sales, or other alternatives to maximize stockholder value, with no defined timeline for the process[14][50] - The Company believes its current cash and cash equivalents of $40.2 million as of June 30, 2023, will fund operations through the end of fiscal year 2024, but acknowledges the need for additional capital for future clinical trials and the uncertainty of securing such financing[15][54] - The financial statements are unaudited interim statements prepared in accordance with GAAP for interim information, and the Company has not generated revenue to date, focusing on regulatory approval, R&D, and strategic alternatives[17] (2) Net Loss Per Share This section explains the calculation of net loss per share, including the exclusion of potentially dilutive securities due to net losses - Due to reported net losses for the three and six months ended June 30, 2023 and 2022, all potentially dilutive shares (stock options and restricted stock units) were excluded from the computation of diluted net loss per share[23] Potentially Dilutive Securities Excluded (Shares) | Security Type | June 30, 2023 | June 30, 2022 | | :---------------------------- | :------------ | :------------ | | Outstanding stock options | 619,782 | 880,515 | | Unvested restricted stock units | 91,000 | — | | Total | 710,782 | 880,515 | (3) Fair Value Disclosures This section provides information on the fair value measurements of financial instruments, specifically cash equivalents classified as Level 1 inputs - As of June 30, 2023, and December 31, 2022, the Company held $40.2 million and $42.4 million, respectively, in cash equivalents consisting of money market funds, classified as Level 1 inputs due to quoted market prices[27] (4) Property and Equipment This section details the Company's property and equipment, including asset categories, total cost, accumulated depreciation, and net book value Property and Equipment, Net (in thousands) | Asset Category | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Computer equipment | $39 | $39 | | Lab equipment | $130 | $130 | | Furniture and fixtures | $44 | $44 | | Computer software | $16 | $16 | | Total cost | $229 | $229 | | Accumulated depreciation and amortization | $(212) | $(204) | | Property and equipment, net | $17 | $25 | - Depreciation and amortization expense for the six months ended June 30, 2023, was $8,000, a decrease from $11,000 in the prior year[30] (5) Related Party Arrangements This section discloses the Company's research grant arrangements with its President and CEO's academic research laboratory - The Company has unrestricted research grants with its President and CEO's academic research laboratory, incurring $216,000 in expense for both the six months ended June 30, 2023, and 2022. An unpaid amount of $432,000 was included in accrued expenses as of June 30, 2023[31] (6) Commitments and Contingencies This section details the Company's various commitments and potential liabilities, including severance benefits, lease obligations, and patent-related milestones - The Company recorded $159,000 in severance benefits for the former Secretary, Senior Vice President, and General Counsel, Christopher D. Ozeroff, effective March 31, 2023, with $96,000 remaining unpaid as of June 30, 2023[33] - Future minimum lease commitments under operating lease agreements total $374,000, with a weighted-average remaining lease term of 3.6 years and a discount rate of 7% as of June 30, 2023[36][38] - The Company holds exclusive worldwide patent rights for rNAPc2 as a potential COVID-19 treatment, with potential milestone obligations of approximately €1.6 million and low single-digit royalty obligations to the University Medical Center of Johannes Gutenberg University Mainz[39] (7) Equity Financings This section describes the Company's 'at the market' equity financing agreement and the availability of common stock for future offerings - The Company has an 'at the market' equity financing agreement allowing the sale of common stock up to $54.0 million; however, no sales were made in 2023 or 2022[40] - As of July 20, 2023, approximately $7.3 million was available for offering under the prospectus supplement, subject to a limitation of not exceeding one-third of the public float in any 12-month period[40][54] (8) Share-based Compensation This section details the share-based compensation expense recognized and the activity of stock options and restricted stock units Share-based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $42 | $51 | $83 | $92 | | General and administrative | $145 | $121 | $308 | $247 | | Total | $187 | $172 | $391 | $339 | Stock Option and RSU Activity (Six Months Ended June 30, 2023) | Metric | Number of Options/RSUs | Weighted Average Exercise/Grant Price | | :----------------------------------- | :--------------------- | :------------------------------------ | | Stock Options Outstanding (Dec 31, 2022) | 704,960 | $5.62 | | Stock Options Cancelled | (85,178) | $5.80 | | Stock Options Outstanding (Jun 30, 2023) | 619,782 | $5.60 | | RSUs Outstanding (Dec 31, 2022) | 91,000 | $2.21 | | RSUs Outstanding (Jun 30, 2023) | 91,000 | $2.21 | (9) Income Taxes This section explains the Company's income tax position, including the full valuation allowance against net deferred tax assets - The Company has recorded a full valuation allowance against its net deferred tax assets due to the uncertainty of future profitable operations and taxable income[46] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides a narrative overview of the Company's financial condition, operations, strategic focus, and liquidity, including Gencaro development and strategic review Overview This section introduces ARCA biopharma as a clinical-stage biopharmaceutical company and its ongoing strategic review process - ARCA biopharma is a clinical-stage biopharmaceutical company utilizing a precision medicine approach for cardiovascular diseases, with Gencaro™ (bucindolol hydrochloride) as its lead product candidate for atrial fibrillation in chronic heart failure patients[50] - The Board of Directors initiated a strategic review in April 2022 to evaluate options like mergers, asset sales, or other alternatives to maximize stockholder value, with no defined timeline[50] Gencaro™ (bucindolol hydrochloride) for Atrial Fibrillation This section details Gencaro's development as a pharmacogenetically-targeted therapy for atrial fibrillation in heart failure patients, including its FDA SPA agreement and patent protection - Gencaro is a pharmacogenetically-targeted beta-adrenergic receptor antagonist being developed for atrial fibrillation (AF) in heart failure (HF) patients, particularly those with higher ejection fraction (EF ≥ 40%) and a specific genotypic variant (present in ~50% of North American and European populations)[51] - The Company has a Special Protocol Assessment (SPA) agreement with the FDA for a Phase 3 clinical trial, which will include secondary endpoints to capture new information like reduction in rhythm control interventions[52] - A U.S. patent issued in February 2021 extends Gencaro's patent protection into 2039 for its use in this patient population, with similar applications filed internationally[52] rNAPc2 (AB201) for treatment of COVID-19 This section provides an update on rNAPc2's clinical development for COVID-19, including Phase 2b trial results and safety profile - rNAPc2 (AB201) is a protein therapeutic in clinical development for COVID-19; a Phase 2b trial completed in Q4 2021 showed treatment benefit but did not achieve statistical significance for the primary efficacy endpoint (change in D-dimer level)[53] - Numerical imbalances in secondary endpoints (thrombotic events and time-to-recovery) favored rNAPc2 but were non-significant; the drug was well-tolerated with no serious treatment-related adverse events[53] Results of Operations This section analyzes the Company's financial performance, detailing changes in general and administrative, research and development expenses, and interest income General and Administrative Expenses This section details the changes in general and administrative expenses, including consulting costs and termination benefits General and Administrative Expenses (in thousands) | Period | 2023 | 2022 | Change (YoY) | | :----------------------------------- | :---- | :---- | :----------- | | Three months ended June 30 | $1,719| $1,734| $(15) | | Six months ended June 30 | $3,125| $2,832| $293 | - The increase for the six-month period was primarily due to increases in consulting costs and $159,000 for one-time termination benefits related to the former Secretary, Senior Vice President, and General Counsel[55] Research and Development Expenses This section explains the significant decrease in research and development expenses due to trial completion and workforce reduction Research and Development Expenses (in thousands) | Period | 2023 | 2022 | Change (YoY) | | :----------------------------------- | :--- | :--- | :----------- | | Three months ended June 30 | $254 | $1,485 | $(1,231) | | Six months ended June 30 | $644 | $3,664 | $(3,020) | - R&D expenses decreased significantly due to the completion of the rNAPc2 (AB201) international Phase 2b clinical trial and a strategic workforce reduction of approximately 67% (12 employees) in July 2022, primarily in R&D functions[56] Interest and Other Income This section highlights the substantial increase in interest and other income, primarily driven by higher interest rates Interest and Other Income (in thousands) | Period | 2023 | 2022 | | :----------------------------------- | :--- | :--- | | Three months ended June 30 | $493 | $72 | | Six months ended June 30 | $943 | $79 | - Interest income increased substantially in 2023 compared to 2022 due to higher interest rates[57] Other Expense This section notes that other expense was negligible for the reporting period and is expected to remain so - Other expense was negligible for the six months ended June 30, 2023, and is expected to remain so for the remainder of 2023[58] Liquidity and Capital Resources This section discusses the Company's cash position, funding runway, and the need for additional financing for future clinical trials and strategic options Cash and Cash Equivalents (in thousands) | Date | Amount | | :------------------ | :----- | | June 30, 2023 | $40,156| | December 31, 2022 | $42,445| - Cash and cash equivalents decreased by $2.3 million from December 31, 2022, to June 30, 2023, primarily reflecting cash used in operating activities[59] - The Company believes its current cash and cash equivalents will fund operations through the end of fiscal year 2024, but additional financing will be required for a Phase 3 PRECISION-AF trial or rNAPc2 clinical trial[54][63] - The Company continues to evaluate strategic options, including co-development and commercialization partnerships or strategic combinations, to secure necessary financing[54][63] Critical Accounting Policies and Estimates This section highlights critical accounting estimates, specifically accrued outsourcing expenses and contractual indemnification arrangements - Accrued outsourcing expenses are a critical estimate, involving identifying third-party services (e.g., contract manufacturing, clinical research organizations) and estimating associated costs based on judgment and known facts[65] - The Company enters into contractual indemnification arrangements in the ordinary course of business, including with directors, officers, and employees, which may not be subject to maximum loss clauses[66] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that there are no quantitative and qualitative disclosures about market risk applicable to the Company for the reporting period - The Company has no applicable quantitative and qualitative disclosures about market risk[67] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the most recent fiscal quarter Evaluation of Disclosure Controls and Procedures This section confirms management's conclusion on the effectiveness of the Company's disclosure controls and procedures - Management, including the principal executive officer and principal financial officer, concluded that the Company's disclosure controls and procedures were effective at a reasonable level of assurance as of the end of the quarter[68] Changes in Internal Control over Financial Reporting This section reports no material changes in the Company's internal control over financial reporting during the most recent fiscal quarter - There has been no change in the Company's internal control over financial reporting during the most recent fiscal quarter that would materially affect, or is reasonably likely to materially affect, its internal control over financial reporting[69] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and the report signature ITEM 1. LEGAL PROCEEDINGS This section indicates that there are no legal proceedings to report for the Company - The Company has no legal proceedings to report[70] ITEM 1A. RISK FACTORS This section outlines various risks, including strategic transaction uncertainty, product development challenges, financing needs, potential delisting, and intellectual property disputes Summary of Risk Factors This section summarizes the key risks associated with investing in the Company's securities, covering strategic, operational, and market factors - An investment in the Company's securities involves certain risks, including those related to strategic transactions, product development, financing, regulatory approvals, market conditions, and intellectual property[70][72][73] Risks Related to Our Strategic Evaluation Process This section discusses risks associated with the Company's strategic transaction process, including potential for no value increase, dilution, and operational strain - There is no guarantee that a strategic transaction, even if completed, will increase stockholder value, and such transactions may incur risks like dilution, substantial debt, operational strain, or reprioritization of development programs[74] - The Company may not be able to complete the strategic transaction process in a timely or successful manner, which could materially adversely affect its business[74] Risks Related to Our Business and Financial Condition This section details risks concerning product development, regulatory approval, financing needs, Nasdaq listing, going concern, third-party reliance, manufacturing, and market acceptance - Failure to successfully develop, obtain FDA approval for, and commercialize Gencaro or rNAPc2 in a timely manner could prevent the Company from continuing business operations[75] - The Company will need to raise substantial additional funds for Phase 3 clinical trials and commercialization, and inability to secure financing or complete strategic transactions could lead to discontinuation of development activities or operations[77] - The FDA's Special Protocol Assessment (SPA) for Gencaro's Phase 3 trial does not guarantee approval, and the FDA may revoke or alter the SPA, or interpret data differently, potentially delaying or preventing approval[78] - Failure to maintain Nasdaq Capital Market listing requirements could result in delisting, adversely affecting the Company's ability to raise funds and the liquidity of its common stock[78][79] - The Company's financial statements are prepared assuming a going concern, but management acknowledges substantial doubt about its ability to continue as a going concern without additional capital[79] - Reliance on contract research organizations (CROs) and third-party diagnostic service providers for clinical trials and genetic testing introduces risks related to control, timing, costs, and regulatory approvals[81][82][83] - The Company has no manufacturing capacity and relies on third-party manufacturers, exposing it to risks of delays, quality control issues, and supply chain disruptions[91] - The market acceptance of Gencaro may be negatively affected by the requirement for a genetic test, potential competition from existing therapies, and the need to demonstrate clear therapeutic benefit[84][92] Risks Related to Intellectual Property and Other Legal Matters This section covers risks related to product liability, loss of marketing rights, third-party patent infringement, and the enforceability of the Company's intellectual property - The Company faces product liability exposure from clinical trials and commercialization, with limited insurance coverage that may not be adequate[102] - Loss of rights to market key products, including Gencaro, due to license terminations or breaches, would significantly impair operating results[103] - Third-party patents or patent applications could require the Company to seek costly licenses or result in litigation, which would be expensive and time-consuming[103][104] - The Company's intellectual property rights may not prevent competitors from developing similar products, and patents may be challenged, invalidated, or circumvented, affecting its competitive position[104][105] Risks Related to Ownership of our Common Stock and Stock Price Volatility This section addresses risks concerning the Company's stock price volatility, potential dilution from future sales, lack of dividends, and anti-takeover provisions - The Company's stock price has been and is expected to be volatile due to factors such as regulatory status of product candidates, financing efforts, clinical trial progress, and general market conditions[106][107] - Future sales or the possibility of future sales of common stock, including from outstanding options and restricted stock units, may depress the market price and dilute current stockholders' equity interests[108] - The Company does not anticipate paying cash dividends, requiring stockholders to rely on stock appreciation for returns[108] - Anti-takeover provisions in the Company's charter, bylaws, and Delaware law could discourage or delay a takeover, even if beneficial to stockholders[110][111] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section states that there are no unregistered sales of equity securities or use of proceeds to report - This item is not applicable for the reporting period[113] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there are no defaults upon senior securities to report - This item is not applicable for the reporting period[113] ITEM 4. MINE SAFETY DISCLOSURES This section states that there are no mine safety disclosures to report - This item is not applicable for the reporting period[113] ITEM 5. OTHER INFORMATION This section indicates that there is no other information to report - There is no other information to report for the reporting period[113] ITEM 6. EXHIBITS This section provides an index of exhibits filed as part of the quarterly report on Form 10-Q, including certifications, XBRL documents, and previously incorporated documents - The exhibit index includes certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1) and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[115][116] SIGNATURE This section contains the signature of the Company's Chief Financial Officer, C. Jeffrey Dekker, certifying the report on behalf of ARCA biopharma, Inc - The report is signed by C. Jeffrey Dekker, Chief Financial Officer (Principal Financial and Accounting Officer) of ARCA biopharma, Inc., on July 21, 2023[118]