EXICURE, INC. annual report, FY2019

Business context and reporting period

Exicure, Inc. filed this Form 10-K for the fiscal year ended December 31, 2019. It is a clinical-stage biotechnology company developing Spherical Nucleic Acid (SNA)-based therapeutics. It has no approved products and generated no product sales. Its lead clinical program is AST-008, an immuno-oncology candidate; it is also advancing early neurology research, including XCUR-FXN for Friedreich’s ataxia.

Financial performance and position

Revenue remains small and collaboration-based. R&D expense rose 37% to $19.340 million, mainly reflecting a $3.750 million Northwestern University license fee tied to Allergan’s upfront payment, increased platform and discovery work, and higher personnel costs. Net loss widened 17%. The company reported no meaningful product margins because it has no product revenue.

At year-end, cash and cash equivalents were $48.460 million and short-term investments were $62.326 million, totaling $110.786 million. Current assets were $112.776 million; current liabilities were $31.087 million, including $21.873 million of deferred revenue. Total liabilities were $34.516 million and stockholders’ equity was $80.747 million. Debt carrying value was $4.965 million, classified as current; the company repaid the remaining $5.0 million principal and $0.1 million end-of-term fee on March 2, 2020.

Operating cash flow turned positive largely because the $25 million Allergan upfront payment was collected and recorded as deferred revenue, not because operations were self-funding. Investing cash use was $63.432 million, mainly purchases of available-for-sale securities; financing cash inflow was $84.307 million, primarily from 2019 stock offerings. Shares outstanding increased from 44.358 million at year-end 2018 to 86.069 million at year-end 2019.

Fourth-quarter 2019 snapshot

Q4 revenue was $310,000; net loss was $9.981 million; and basic and diluted loss per share was $0.13. The quarterly loss included $3.750 million of Northwestern University license expense associated with the Allergan upfront payment.

Material changes and notable developments

• Revenue increased to $1.296 million from $118,000, including $1.125 million from Dermelix and $171,000 recognized under Allergan; Purdue revenue was zero.
• The November 2019 Allergan agreement provided a $25 million upfront payment for two hair-loss research programs. Most remained deferred at year-end; additional option, milestone, and royalty payments depend on future events.
• Exicure raised gross proceeds of $63.3 million in its August offering and $27.5 million in its December offering. The offerings materially increased the share count.
• AST-008’s Phase 1b/2 trial had early biomarker findings and preliminary tumor responses in Merkel cell carcinoma. As of January 31, 2020, 17 patients had been dosed; the filing also reports 14 patients in the December preliminary-results description, reflecting a different cutoff. No treatment-related serious adverse events or dose-limiting toxicities had been observed to those dates.
• XCUR17’s Phase 1 psoriasis study showed selected clinical and biomarker signals, but Exicure was conducting no further clinical work and was seeking to out-license the program. Purdue declined to select collaboration targets, and the company considered future Purdue milestones highly unlikely.

Outlook, risks and contingencies

Management estimated that year-end working capital would fund current plans into early 2022. It expects losses and R&D spending to continue increasing and does not expect product revenue in the foreseeable future. Planned priorities include advancing AST-008, developing the neurology pipeline, and expanding early research; the company expected to begin XCUR-FXN IND-enabling studies in late 2020 and planned an AST-008 Phase 2 dose expansion in Q2 2020. These are forward-looking plans, not assurances.

Key risks include clinical and regulatory failure, the unproven SNA platform, dependence on collaborators and third-party manufacturers and trial providers, uncertain future financing needs, competition, and patent or licensing challenges. The company relies on Northwestern University intellectual property and owes it a share of certain collaboration proceeds. It reported no legal proceedings expected to have a material adverse effect. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not provide an internal-control attestation because Exicure qualified for reporting exemptions.

A significant post-year-end commitment is a 10-year Chicago headquarters and laboratory lease signed February 28, 2020, with occupancy expected in Q3 2020. First-year base rent is approximately $1.113 million, subject to additional operating expenses and taxes; the stated aggregate base rent over the original term is $12.761 million. The filing also reports an initial $1.2 million letter of credit requirement.

Important facts for investors to verify

• Track AST-008 trial enrollment, response durability, safety, and the distinction between preliminary results and controlled clinical evidence.
• Confirm the timing and terms of Allergan option decisions, future cost obligations, deferred-revenue recognition, and any Northwestern University payments.
• Assess whether the stated early-2022 cash runway remains achievable as research, clinical, lease, and other costs develop, and whether additional financing is needed.
• Review dilution from the 2019 offerings and subsequent share issuances; the filing reported 87,150,447 shares outstanding as of March 5, 2020.
• Monitor the new Chicago lease’s total occupancy costs, the letter of credit, and the transition from the existing Skokie facility.