This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended and the Private Securities
Litigation Reform Act of 1995. These statements include, but are not limited to,
statements regarding the Company's anticipated timing for completion of its
clinical trials for any of its product candidates; the potential for Gencaro to
be an effective treatment for atrial fibrillation and, the Company's ability to
fund future operations. Such statements are based on management's current
expectations and involve risks and uncertainties. Actual results and performance
could differ materially from those projected in the forward-looking statements
as a result of many factors, including, without limitation, the risks and
uncertainties associated with: the Company's financial resources and whether
they will be sufficient to meet the Company's business objectives and
operational requirements; the Company's ability to obtain additional financing;
the Company's anticipated timing for completion of its clinical trials for any
of its product candidates; the Company's ability to identify, develop and
achieve commercial success for products and technologies; drug discovery and the
regulatory approval process; estimated timelines for regulatory filings and the
implications of interim or final results of the Company's clinical trials; the
extent to which the Company's issued and pending patents may protect its
products and technology; the potential of the Company's clinical development
program to lead to the approval of the Company's New Drug Application for
Gencaro; and, the impact of competitive products and technological changes.
Actual results and performance could differ materially from those projected in
the forward-looking statements as a result of many factors discussed herein and
elsewhere. These and other factors are identified and described in more detail
in ARCA's filings with the
The terms "ARCA," "we," "us," "our" and similar terms refer to
We are a biopharmaceutical company principally focused on developing genetically-targeted therapies for cardiovascular diseases. Our lead product candidate is Gencaro™ (bucindolol hydrochloride), a pharmacologically unique beta-blocker and mild vasodilator that we plan to evaluate in a clinical trial for the treatment of atrial fibrillation, or AF, in patients with heart failure and/or left ventricular dysfunction, or HFREF. We have identified common genetic variations in receptors in the cardiovascular system that we believe interact with Gencaro's pharmacology and may predict patient response to the drug.
AF, the most common sustained cardiac arrhythmia, is considered an epidemic cardiovascular disease and a major public health burden. The estimated number of individuals with AF globally in 2010 was 33.5 million. According to the 2014
AF is a disorder in which the normally regular and coordinated contraction pattern of the heart's two small upper chambers (the atria) becomes irregular and uncoordinated. The irregular contraction pattern associated with AF causes blood to pool in the atria, predisposing the formation of clots potentially resulting in stroke. AF increases the risk of mortality and morbidity due to stroke, congestive heart failure and impaired quality of life. The approved therapies for the treatment or prevention AF have certain disadvantages in HFREF patients, such as toxic or cardiovascular adverse effects, and most of the approved drugs for AF are contra indicated or have warnings in their prescribing information for such patients. We believe there is an unmet medical need for new AF treatments that have fewer side effects than currently available therapies and are more effective, particularly in HFREF patients.
Our GENETIC-AF clinical trial is a multi-center, randomized, double-blind clinical trial designed to compare the safety and efficacy of Gencaro to an active comparator, the beta-blocker Toprol XL (metoprolol succinate), in HFREF patients recently diagnosed with persistent AF and having beta-1 389 arginine homozygous genotype, the genotype we believe responds most favorably to Gencaro. The primary endpoint of GENETIC-AF, time to recurrent symptomatic AF/atrial flutter (AFL) or all-cause mortality, is being measured over a twenty-four week period after a patient has been electrically cardioverted to restore normal heart rhythm.
The AF indication for Gencaro was chosen based on clinical data from the previously conducted Phase 3 heart failure trial of 2,708 patients, or the BEST trial. We believe data from the BEST trial indicate that Gencaro may have a genetically regulated effect in reducing or preventing AF, whereas we believe the therapeutic benefit of Toprol XL does not appear to be enhanced in patients with this genotype. A retrospective analysis of data from the BEST trial shows that the entire cohort of patients in the BEST trial treated with Gencaro had a 41% reduction in the risk of new onset AF (time-to-event) compared to placebo (p = 0.0004). In the BEST DNA substudy, patients with the beta-1 389 arginine homozygous genotype experienced a 74% (p = 0.0003) reduction in risk of AF when receiving Gencaro, based on the same analysis. The beta-1 389 arginine homozygous genotype was present in about 47% of the patients in the BEST pharmacogenetic substudy, and we estimate it is present in about 50% of the US general population.
We have created an adaptive design for GENETIC-AF. We are enrolling patients in the Phase 2B portion of the study of approximately 200 HFREF patients with recent onset, persistent AF who have the beta-1 389 arginine homozygous genotype that we believe responds most favorably to Gencaro. In addition to measuring the primary endpoint of recurrent symptomatic AF/atrial flutter (AFL) or all-cause mortality, an additional efficacy measure in the Phase 2B portion of GENETIC-AF is AF burden, defined as a patient's percentage of time in AF per day, regardless of symptoms. Certain patients in the Phase 2B portion of the trial will have either a newly or previously implanted Medtronic device that measures and records AF burden. The GENETIC-AF Data Safety Monitoring Board (DSMB) will analyze certain data from the Phase 2B portion of the trial and recommend, based on a comparison to our pre-trial statistical assumptions, whether the trial should proceed to Phase 3 and seek to enroll an additional 420 patients. The DSMB will make their recommendation based on analysis of certain trial data after 200 patients have been enrolled and have completed 24 weeks of follow-up, the period for measuring the trial's primary end-point. The DSMB interim analysis will focus on available data regarding the trial's primary endpoint, AF event rates, AF burden, and safety. Should the DSMB interim analysis conclude that the interim data is consistent with pre-trial statistical assumptions, including the potential for achieving statistical significance for the Phase 3 endpoint, the DSMB may recommend the study proceed to Phase 3. The DSMB may also recommend changes to the study design before the trial proceeds to Phase 3, or it may recommend that the study not proceed to Phase 3. Based on the DSMB recommendation, and other factors, the Company, in consultation with the trial's clinical steering committee, will make the final determination on the trial's development steps. The full Phase 2B/3 trial is designed for 90 percent power at a p-value of less than 0.01 significance level to detect a 25 percent reduction in the risk of AF/AFL recurrence or death in patients in the Gencaro arm compared to patients in the Toprol XL arm.
We initiated screening of patients for GENETIC-AF in
Our GENETIC-AF clinical trial of Gencaro requires a companion diagnostic test to identify the patient's receptor genotype. Accordingly, the GENETIC-AF trial requires the use of a third party diagnostic service to perform the genetic testing. We have an agreement with Laboratory Corporation of America, or LabCorp, to provide the companion diagnostic test and services to support our GENETIC-AF trial. LabCorp has developed the genetic test and obtained an Investigational Device Exemption, or IDE, from the
Medtronic, Inc., a leader in medical technologies to improve the treatment of chronic diseases including cardiac rhythm disorders is collaborating with us on the GENETIC-AF trial. Under the collaboration with Medtronic, we plan to conduct a substudy that will include continuous monitoring of the cardiac rhythms of certain patients enrolled during the Phase 2B portion of the trial and approximately 100 additional patients in the Phase 3 portion of GENETIC-AF. The collaboration is being administered by a joint ARCA-Medtronic committee. Medtronic will use its proprietary CareLink System to collect and analyze the cardiac rhythm data from the implanted Medtronic devices and the data will be used by the DSMB as part of the interim analysis. Medtronic will support the reimbursement process for patients enrolled in the Phase 2B portion and has agreed to provide financial support of unreimbursed costs for a certain number of patients in the Phase 2B portion up to a certain maximum amount per patient. Alternatively, clinical sites may elect reimbursement for the cost of the Medtronic device and the associated costs for implantation directly from ARCA. For clinical sites that elect this option, we will provide the patient with the Medtronic device and will reimburse the site for implantation at a predetermined and fixed cost. If GENETIC-AF proceeds to Phase 3, we will seek to enroll an additional 100 patients with Medtronic devices for monitoring and recording AF burden. Medtronic will provide the agreed-on CareLink System cardiac rhythm data collection and analysis for the Phase 3 portion of the substudy and support the reimbursement process.
We have been granted patents in the U.S.,
To support the continued development of Gencaro, we completed a public equity offering in
Results of Operations
Research and Development Expenses
Research and development, or R&D, expense is comprised of clinical, regulatory, and manufacturing process development activities and costs. Our R&D expense continues to be almost entirely generated by our activities relating to the development of Gencaro.
R&D expense for the three months ended
Clinical expense increased approximately
Regulatory and manufacturing process costs increased
R&D expenses for the remainder of 2014 are expected to increase as we initiate more sites in the U.S, and
General and Administrative Expenses
General and administrative expenses, or G&A, primarily consist of personnel costs, consulting and professional fees, insurance, facilities and depreciation expenses, and various other administrative costs.
G&A expense was
The cost increases noted above were partially offset by decreases in consulting and legal fees. During the first half of 2013, we incurred additional costs for our special proxy and shareholder meeting. These activities and related costs were not recurring in the first half of 2014.
G&A expenses for the remainder of 2014 are expected to increase as we increase our activities to support our GENETIC-AF clinical trial.
Interest and Other Income
Interest and other income was
Interest and Other Expense
Interest and other expense was
Liquidity and Capital Resources
Cash and Cash Equivalents June 30, December 31, 2014 2013 Cash and cash equivalents
$ 19,377 $ 16,756
Cash Flows from Operating, Investing and Financing Activities
Six Months Ended June 30, 2014 2013 Net cash provided by (used in): Operating activities
$ (5,450 ) $ (1,740 )Investing activities (5 ) (17 ) Financing activities 8,076 19,211 Net increase in cash and cash equivalents $ 2,621 $ 17,454
Net cash used in operating activities for the six months ended
Net cash used in investing activities for the six months ended
Net cash provided by financing activities was
Sources and Uses of Capital
Our primary sources of liquidity to date have been capital raised from issuances of shares of our preferred and common stock and funds provided by the merger with Nuvelo. The primary uses of our capital resources to date have been to fund operating activities, including research, clinical development and drug manufacturing expenses, license payments, and spending on capital items.
The common stock and warrants were sold in combination consisting of one share of common stock and a warrant to purchase 0.25 shares of common stock. The warrants were exercisable upon issuance, expire five years from the date of issuance, and have an exercise price of
In addition to the cash compensation paid to the placement agent in conjunction with the transaction and pursuant to the placement agency agreement, we issued warrants to the placement agent to purchase 153,486 shares of our common stock, which have not been registered under the Securities Act of 1933, as amended. The warrants issued to the placement agent have substantially the same terms as the warrants issued to the purchasers in the offering, except that such warrants expire on
Our ability to execute our GENETIC-AF Phase 2B trial in accordance with our projected time line depends on a number of factors, including, but not limited to, the following:
- recruitment of sufficient clinical trial sites, enrollment of patients and enrollment at a rate consistent with our projected timeline; - our ability to control costs associated with the clinical trial and our operations; - our ability to retain the listing of our common stock on the
Nasdaq Capital Market; - the market price of our stock and the availability and cost of additional equity capital from existing and potential new investors; general economic and industry conditions affecting the availability and cost of capital; - the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and - the terms and conditions of our existing collaborative and licensing agreements.
The sale of additional equity or convertible debt securities will be necessary for us to complete both Phase 2B and Phase 3 of the GENETIC-AF clinical trial and submit for
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires our management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our significant accounting policies are described in Note 1 of "Notes to Consolidated Financial Statements" included within our 2013 Annual Report on Form 10-K filed with the
As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves identifying services that third parties have performed on our behalf and estimating the level of service performed and the associated cost incurred for these services as of the balance sheet date. Examples of estimated accrued expenses include contract service fees, such as fees payable to clinical research organizations and contract manufacturers in connection with the execution of our clinical trial program, and professional service fees, such as attorneys and consultants. We develop our estimates of liabilities using our judgment based upon the facts and circumstances known at the time.
Our share-based compensation cost recognized includes: (a) compensation costs for current period vesting of all share-based awards granted prior to
New Accounting Pronouncements
Off-Balance Sheet Arrangements
We have not participated in any transactions with unconsolidated entities, such as special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify certain parties from any losses incurred relating to the services they perform on our behalf or for losses arising from certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses. We have entered into indemnity agreements with each of our directors, officers and certain employees. Such indemnity agreements contain provisions, which are in some respects broader than the specific indemnification provisions contained in