Exicure, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited. Exicure is a clinical-stage biotechnology company developing therapeutics using its spherical nucleic acid (SNA) platform; it had no approved products or product sales.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Collaboration revenue | $9.183 million | $25,000; up $9.158 million |
| Research and development expense | $6.075 million | $3.395 million; up 79% |
| General and administrative expense | $2.574 million | $2.208 million; up 17% |
| Operating income (loss) | $534,000 | $(5.578) million |
| Net income (loss) | $1.150 million; $0.01 per share | $(5.286) million; $(0.12) per share |
| Net cash used in operating activities | $(7.847) million | $(4.012) million |
Revenue primarily reflected recognition of the $25 million Allergan upfront payment as services were performed: $9.116 million from that collaboration and $67,000 from Dermelix. The remaining Allergan deferred revenue was $15.713 million, classified as current and expected to be recognized over the following 12 months. Revenue is collaboration-based, not product sales; the reported profit should not be read as evidence of recurring commercial profitability. The filing does not report a conventional gross margin.
At March 31, cash and cash equivalents were $24.577 million and short-term investments were $74.223 million. A further $1.2 million was restricted cash securing a lease letter of credit, bringing cash, cash equivalents, investments and restricted cash to approximately $100.0 million. Total assets were $105.529 million, total liabilities $20.415 million, and stockholders’ equity $85.114 million. Operating cash burn increased from the prior-year quarter. Investing cash use was $12.503 million, chiefly net purchases of available-for-sale securities and $577,000 of capital expenditures. The $22.683 million decrease in cash, cash equivalents and restricted cash includes transfers into investments and is not equivalent to operating burn.
Exicure repaid its Hercules debt at maturity on March 2: $4.999 million principal and a $100,000 end-of-term fee. No debt remained at quarter-end. In January, the underwriters exercised an offering option for 1,081,184 shares, generating $2.766 million in net proceeds. Common shares outstanding were 87,150,447 at March 31.
Material changes and business developments
- Compared with Q1 2019, collaboration revenue rose sharply, while R&D spending increased 79%, reflecting greater platform and discovery activity, expanded staffing and clinical-trial costs. R&D headcount grew from 19 to 36 year over year.
- Management said operating expenses would increase in 2020 as it advances AST-008, XCUR-FXN and its SNA platform.
- Exicure’s Phase 1b AST-008 enrollment was complete: 20 patients had been dosed, with seven clinical sites open as of April 30. The company reported no treatment-related serious adverse events or dose-limiting toxicities to date; injection-site reactions were the most common adverse event. Preliminary results had shown potential anti-tumor activity in Merkel cell carcinoma.
- Management planned to begin Phase 2 dose expansion in Q2 2020, targeting up to 29 patients in each of two cancer cohorts, and expected IND-enabling studies for XCUR-FXN in late 2020. These are plans, not guaranteed outcomes.
- The Chicago office and laboratory lease, signed in February, covers approximately 30,000 square feet for an initial 10-year term. The lease had not commenced for accounting purposes at quarter-end; occupancy was expected in June 2020. A $1.2 million restricted deposit supports the lease letter of credit.
- After quarter-end, on May 8, 2020, AbbVie completed its acquisition of Allergan; the filing treats references to Allergan under the collaboration as references to AbbVie.
Outlook, risks and contingencies
Management estimated that available working capital would fund operations into early 2022, subject to assumptions and possible changes in the operating plan. The financial-statement note separately says working capital was sufficient for at least the next 12 months. The company expects continued losses and negative cash flows, does not expect product revenue for the foreseeable future, and may need further financing. Management cautioned that COVID-19 could make capital raising difficult and that additional equity could dilute shareholders.
COVID-19 measures included remote work for office staff and typically fewer than 50% of R&D staff on-site at a time. Exicure reported minor delays in receiving some chemicals, reagents and materials. It warned that prolonged disruption could affect clinical enrollment, trial-site operations, supply, preclinical timelines, regulatory interactions and collaborations. It was using remote approaches where possible to support trial continuity.
The Allergan agreement covers two hair-loss research programs and includes potential option fees, milestones and royalties if options are exercised and products succeed. Those contingent payments were excluded from the transaction price because they remained constrained. Dermelix’s agreement covers Netherton syndrome and options for additional rare skin indications; future milestone and royalty payments depend on development and sales. The filing reports no legal proceedings believed likely to have a material adverse effect.
Key facts for investors to verify
- Confirm the cash runway assumptions behind management’s early-2022 estimate, particularly in light of ongoing operating cash burn, COVID-19 uncertainty and the note’s more limited “at least 12 months” statement.
- Track AST-008 Phase 2 enrollment, safety and efficacy data, and whether COVID-19 changes trial timing or execution.
- Monitor progress and spending on XCUR-FXN and other pipeline programs, including whether IND-enabling studies begin as planned.
- Assess how much reported collaboration revenue reflects recognition of prior upfront payments, and whether collaborators exercise options or achieve milestones; these payments are not assured.
- Review the balance-sheet deficit figures: the balance sheet reports accumulated deficit of $80.147 million, while the liquidity note and MD&A cite approximately $99.0 million. The filing text does not reconcile this difference clearly.
- Consider the effects of further financing, potential shareholder dilution, the new long-term Chicago lease and restricted cash requirements.