Exicure, Inc. — Q2 2023 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. Unaudited; amounts below are in U.S. dollars unless otherwise noted.
Business context
Exicure had halted research and development and reduced its workforce in 2022. It is now pursuing strategic alternatives, including transactions in industries unrelated to its former biotechnology business. The company reported no current revenue source or committed financing and said proceeds from potential sales or licensing of historical assets are not expected to generate significant near-term value.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $2.471 million | $0 | $5.036 million |
| Research and development expense | $0.921 million | $6.749 million | $2.902 million | $13.889 million |
| General and administrative expense | $4.721 million | $3.205 million | $7.279 million | $6.367 million |
| Net loss | $5.764 million | $7.470 million | $10.171 million | $15.818 million |
| Loss per share | $0.68 | $1.66 | $1.38 | $3.71 |
| Operating cash used | Not stated separately | Not stated separately | $8.129 million | $21.834 million |
With no revenue, gross margin is not meaningful. Lower R&D spending drove much of the reduced operating loss; G&A increased due mainly to executive separation costs, stock-based compensation, and legal and consulting fees. Q2 other expense included a $0.150 million net expense.
At June 30, cash and cash equivalents were $2.335 million; restricted cash was $1.200 million, making cash, cash equivalents and restricted cash $3.535 million. Current assets were $3.664 million and current liabilities $1.431 million. Total assets were $17.555 million, total liabilities $7.850 million, and stockholders’ equity $9.705 million. The balance sheet reports no long-term borrowings; it includes lease liabilities of $6.999 million in total, including $0.580 million current and $6.419 million noncurrent. The company also held $2.000 million of corporate bonds classified as held to maturity, separate from cash.
Six-month investing cash outflow was $1.789 million, including a $2.000 million purchase of held-to-maturity securities, partly offset by proceeds from asset sales. Financing provided $3.676 million, principally from the February private placement, offset in part by $0.843 million of financing costs and an $0.800 million warrant payout. Cash, cash equivalents and restricted cash declined $6.242 million during the six months.
Changes versus prior period and notable items
- Collaboration revenue fell to zero after the Ipsen and AbbVie agreements were terminated in December 2022; their remaining deferred revenue had been recognized in Q4 2022.
- Six-month R&D expense declined 79%, reflecting suspended programs and reduced headcount. Reported R&D staffing was one full-time employee, versus 31 a year earlier.
- Six-month net loss improved by $5.647 million year over year; the prior-year period included $0.595 million of interest expense.
- The February 2023 private placement to CBI USA raised $5.440 million gross and $4.597 million net. CBI USA owned approximately 50.4% of shares after closing; common shares outstanding rose to 8,648,307 from 4,965,901 at year-end 2022.
- The company paid $0.800 million to settle 526,151 warrants following the change of control. It also paid $0.027 million in Q2 liquidated damages for a late resale-registration filing.
- In May 2023, Exicure purchased two non-guaranteed convertible bonds for $1.000 million each. They mature in May 2026, yield 4.5%, and include a company put option beginning one year after issuance.
- A sublease for approximately 57% of the Chicago office space began May 15, 2023; rent is payable beginning August 15, subject to the agreement’s terms.
Outlook, risks and contingencies
Management concluded there is substantial doubt about Exicure’s ability to continue as a going concern. It estimated existing cash would fund operating expenses into the fourth quarter of 2023, but said the estimate is uncertain and additional financing is needed within months. The company planned to seek financing in Q3 2023 to fund operations through 2024; there is no assurance financing will be available on acceptable terms. It warned that failure to raise capital could lead to bankruptcy protection and little or no value for common stockholders. No specific financial guidance was provided.
- Strategic execution and funding: A transaction may not be identified or completed in time, or may not benefit stockholders. Further cost reductions are limited; new equity could dilute existing holders.
- Nasdaq listing: The company reported multiple listing deficiencies. As of August 4, 2023, its audit committee had only one independent director; Nasdaq required a plan to regain compliance. The stock closed at $0.86 on August 9, below the $1 minimum bid-price threshold. Delisting could impair liquidity and access to capital.
- Legal matters: A securities class action alleges misleading statements concerning clinical programs; Exicure intends to seek dismissal. Related derivative suits are stayed pending the class-action motion. A CBI-designated director also requested books and records.
- Northwestern University license: On August 3, 2023, after quarter-end, the university alleged breach for insufficient development under the license agreements. Exicure was evaluating the allegations and could not determine the outcome.
- Governance and management: CBI USA controls the company, which relies on Nasdaq controlled-company exemptions. The filing cites potential management turnover, limited U.S. public-company governance experience among new leadership, and continuity risks.
- Financial statement inconsistency: The balance sheet lists accumulated deficit of $182.820 million, while the notes and MD&A state $201.657 million or approximately $201.7 million since inception. The filing text does not reconcile these values.
Management stated that disclosure controls were effective at a reasonable-assurance level as of June 30, 2023, notwithstanding a late Q1 2023 filing attributed to an auditor change. No material change in internal control over financial reporting was reported for Q2.
Investor verification priorities
- Confirm the company’s cash runway, restricted-cash availability, current burn rate, and status and terms of financing raised or pursued after the filing.
- Reconcile the accumulated-deficit amounts of $182.820 million and $201.657 million with the company’s filed financial statements.
- Check Nasdaq’s determination on the audit-committee compliance plan, bid-price status, and any subsequent listing notices.
- Review progress and terms of any strategic transaction, asset sale, or licensing arrangement, including potential dilution and effects on minority stockholders.
- Monitor the Northwestern University license dispute, securities litigation, and any related financial exposure or effect on licensed intellectual property.