Exicure, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The report was signed and filed May 16, 2024, well after the period ended. Amounts below are in thousands of dollars unless otherwise noted.
Business context
Exicure had halted research and development and substantially reduced its workforce, shifting from biotechnology development to exploring strategic alternatives, including transactions with partners in industries unrelated to its former business. It reported no revenue in 2023 and said it did not expect its historical assets to generate significant value for stockholders.
Financial results and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2023: $0; 2022: $2,016 | 2023: $0; 2022: $7,052 |
| Operating expenses | 2023: $3,317; 2022: $7,221 | 2023: $13,498; 2022: $27,477 |
| Operating loss | 2023: $(3,317); 2022: $(5,205) | 2023: $(13,498); 2022: $(20,425) |
| Net loss | 2023: $(5,256); 2022: $(5,160) | 2023: $(15,427); 2022: $(20,978) |
| Basic and diluted loss per share | 2023: $(0.61); 2022: $(1.04) | 2023: $(1.98); 2022: $(4.66) |
- Cash flow: For the nine months, operating cash use was $9,541, investing cash use was $1,789, and financing provided $3,675. Cash, cash equivalents and restricted cash declined by $7,655 to $2,122, including $1,200 of restricted cash. Balance-sheet cash and cash equivalents were $922.
- Liquidity: Cash and cash equivalents fell from $8,577 at December 31, 2022 to $922 at September 30, 2023. Management reported approximately $200 of cash and cash equivalents as of April 30, 2024 and said available liquidity was insufficient to fund operations.
- Balance sheet: Total assets were $12,950, liabilities $8,452, and stockholders’ equity $4,498. Liabilities included $6,834 in lease liabilities, current and noncurrent combined; the filing reports no outstanding long-term debt at September 30. The company reported accumulated deficit of $188,076 on the balance sheet and an inception-to-date deficit of $206.9 million including a conversion-related reclassification.
- Margins: Not meaningful for the period because revenue was zero. No gross profit or gross margin was reported.
Changes versus the prior comparable period
- Revenue fell to zero following termination of the Ipsen and AbbVie collaboration agreements in December 2022; the prior-year periods included collaboration revenue.
- Research and development expense declined to zero in Q3 and to $1,423 for the nine months, from $4,805 and $18,694, respectively, as programs were suspended and the company reduced its workforce.
- Nine-month general and administrative expense rose 27% to $11,155, primarily reflecting about $1.5 million of costs reclassified from R&D, executive separation costs and related share-based compensation, and higher franchise taxes. Q3 G&A was essentially flat at $2,397.
- Nine-month net loss narrowed compared with 2022, but Q3 net loss increased slightly. Q3 included a $2,000 fair-value loss on convertible notes and a $920 loss on equipment sales.
- Operating cash use decreased to $9,541 from $28,382, principally due to suspended R&D and lower headcount.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt existed about the company’s ability to continue as a going concern for one year after issuance of the financial statements. It said substantial financing was needed in the very near term, with no assurance funding would be available. It warned that failure to raise capital could lead to bankruptcy protection or cessation of operations, potentially leaving stockholders with little or no value.
- Strategic alternatives: The company was pursuing potential transactions and financing, but said there was no assurance it could secure funding, complete a transaction, or create value for stockholders. It expected to seek financing, including equity offerings, which could substantially dilute existing holders.
- Convertible bonds: The company invested $2,000 in private-placement convertible bonds and recorded the investment at zero fair value at September 30, 2023, recognizing a $2,000 loss after concluding it was not recoverable. The company later sought redemption; the issuer disputed the timing, and the company said it would continue trying to redeem the bonds. The filing does not establish that recovery is assured.
- Subsequent financing: On May 3, 2024, the company received a $300 loan bearing 6% interest, due at the earlier of one year or an event of default.
- Assets and facilities: The company sold most of its scientific equipment in Q3, recognizing a $920 loss. It subleased approximately 57% of its Chicago office space beginning in August 2023.
- Licenses and litigation: Northwestern University alleged a lack of required development under its license agreements; the agreements were terminated in September and October 2023. The company also disclosed a securities class action, stayed derivative actions, and a former employee complaint filed October 3, 2023. Potential outcomes and financial exposure are uncertain.
- Nasdaq: The company disclosed multiple listing deficiencies, including bid-price, governance, meeting and filing matters, and warned that delisting remained possible.
- Controls: Disclosure controls were ineffective as of September 30, 2023. Management identified material weaknesses involving review of expense classification and accounting for the convertible-note investment. The company had also restated its first- and second-quarter 2023 interim statements.
Important facts for investors to verify
- Current cash, restricted cash availability, cash burn, and the status and terms of any new financing.
- Whether the convertible bonds can be redeemed or otherwise recovered, and the issuer’s position on redemption timing.
- Progress, funding and potential terms of strategic alternatives; any value expected from historical assets.
- Nasdaq listing compliance, including bid-price and filing requirements, and any subsequent listing decisions.
- Status and potential exposure from the securities, derivative and former-employee litigation, and the Northwestern University license dispute.
- Remediation of the disclosed material weaknesses and the accuracy of subsequently filed financial statements.