Business context and reporting period
Exicure, Inc. is a clinical-stage biotechnology company developing gene-regulatory and immuno-oncology therapeutics using its spherical nucleic acid (SNA) technology. This unaudited Form 10-Q covers the three months ended March 31, 2018, compared with the three months ended March 31, 2017. The company has no approved products and reported one operating segment.
Key financial metrics
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $0.036 | $2.432 |
| Research and development expense | $3.275 | $3.488 |
| General and administrative expense | $2.045 | $1.426 |
| Operating loss | $(5.284) | $(2.482) |
| Net loss | $(5.509) | $(2.652) |
| Basic and diluted loss per share | $(0.14) | $(15.62) |
| Operating cash used | $(4.647) | $(6.997) |
| Cash and cash equivalents | $21.124 at March 31, 2018 | $25.764 at December 31, 2017 |
| Current assets / current liabilities | $23.047 / $3.015 | $27.638 / $3.356 at December 31, 2017 |
| Long-term debt, carrying value | $4.879 total: $0.776 current and $4.103 noncurrent | $4.855 at December 31, 2017 |
Operating margin is not a useful measure for this development-stage company given its minimal collaboration revenue and lack of product sales. The filing reports no dividends and no material off-balance-sheet arrangements.
Changes versus the prior comparable period
- Revenue fell by $2.396 million, reflecting lower Purdue collaboration revenue. Q1 2017 included deferred-revenue amortization and reimbursed research and development activity; Q1 2018 revenue was $36,000, all reimbursable Purdue research and development activity.
- Operating expenses rose 8% to $5.320 million. R&D declined 6%, mainly with lower AST-005 and XCUR17 costs, partly offset by greater AST-008 activity. G&A increased 43%, reflecting legal, compensation, public-company, insurance, and investor-relations costs.
- Net loss more than doubled to $5.509 million. Loss per share is not directly comparable because weighted-average shares increased from 169,794 to 39.4 million following the 2017 merger and financing.
- Operating cash use improved by $2.350 million, largely because Q1 2017 included a $1.5 million payment related to Northwestern University license agreements and had higher working-capital use.
- Cash declined $4.640 million during the quarter. The company issued 145,466 common shares for professional services, recorded at $436,000, and had 39,454,821 shares outstanding at March 31, 2018.
Outlook, commentary, risks, and unusual items
- Liquidity and going concern: Management says existing working capital is not sufficient to fund operations beyond March 31, 2019 and expects to seek financing through equity, partnerships, licensing, or other arrangements. The filing states that substantial doubt exists about the company’s ability to continue as a going concern; additional funding is not assured.
- Development outlook: Management expected the AST-008 Phase 1 trial to finish in Q3 2018 and anticipated preparing and starting an AST-008 Phase 1b/2 trial late in 2018. It expected the XCUR17 Phase 1 trial, which began dosing in April 2018, to finish in Q3 2018. R&D spending was expected to increase in 2018. No product revenue was expected for the foreseeable future; management noted successful development and regulatory approval could take at least five years.
- Purdue collaboration: In April 2018, Purdue declined its option to develop AST-005 at that time but retained TNF-target rights and exclusivity and reserved the right to continue joint development. The Phase 1b trial showed safety and tolerability at higher doses, but did not produce a statistically significant decrease in a key psoriasis efficacy measure. The company remains eligible for contingent milestones and royalties, but achievement is uncertain.
- Debt: A January 2018 amendment deferred scheduled amortization payments through December 2018. Repayment is scheduled to resume in January 2019, with remaining obligations due at the September 1, 2019 maturity. The loan is secured by substantially all assets other than intellectual property, which is subject to a negative pledge.
- Accounting and controls: The company adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption reduced opening accumulated deficit and deferred revenue by $1.034 million and lowered reported Q1 2018 revenue, operating loss, and net loss by that amount; it did not affect Q1 cash flows or the March 31 balance sheet. The filing also revises prior-period figures for immaterial R&D expense timing errors. Management identified a material weakness in controls over review of certain CRO research contracts, concluded disclosure controls were not effective, and expected remediation by year-end 2018.
- Other risks: The company relies on third parties for trials and manufacturing, has early-stage programs with uncertain clinical and regulatory outcomes, and may need substantial additional capital. The common stock was not yet trading; the company was addressing steps toward OTCQB trading. The filing reports no material legal proceedings.
Important facts for investors to verify
- Whether Exicure can obtain financing on acceptable terms and sustain operations beyond the stated March 31, 2019 runway.
- Progress, timing, safety, and efficacy results for AST-008 and XCUR17, and any further development plans for AST-005.
- The practical implications of Purdue retaining TNF and AST-005 rights despite declining its development option, including any impact on Exicure’s rights and revenue prospects.
- Debt repayment capacity and the September 2019 maturity, including the effect of resumed amortization and loan covenants.
- Whether the CRO-contract control weakness is remediated and whether future reporting reflects reliable expense cut-off.
- Potential dilution and market liquidity, including resale of registered shares and progress toward OTC trading.