Business Context and Reporting Period
This Form 8-K, dated September 26, 2017, reports the completion of a reverse merger between Max-1 Acquisition Corporation (a shell company) and Exicure, Inc. (Exicure OpCo). Following the merger, Exicure OpCo became the surviving entity and a wholly-owned subsidiary of the public company, which adopted the name "Exicure, Inc." The transaction is accounted for as a reverse acquisition, meaning Exicure OpCo is the accounting acquirer, and its historical financial statements replace those of Max-1. The company also changed its fiscal year-end from February 28 to December 31.
Key Financial Metrics
Revenue and Profitability: Exicure is a clinical-stage biotechnology company with no commercial product revenue. Total revenue through June 30, 2017, was $10.9 million, derived entirely from a collaboration agreement with Purdue Pharma and government grants. The company has an accumulated deficit of $48.1 million as of June 30, 2017. Net losses were $16.9 million for the year ended December 31, 2016, and $6.6 million for the six months ended June 30, 2017.
Cash Flow and Liquidity: As of June 30, 2017, cash and cash equivalents totaled $8.8 million. Net cash used in operating activities was $10.4 million for the six months ended June 30, 2017.
Debt: The company has a loan agreement with Hercules Technology Growth Capital for up to $10 million. As of the filing date, $6.0 million had been drawn. The loan bears interest at a floating rate (greater of 9.95% or Prime minus 3.50%) and matures on September 1, 2019.
Capital Raise: In connection with the merger, the company completed the initial closing of a private placement offering, selling 6,767,360 shares of common stock at $3.00 per share, generating gross proceeds of approximately $20.3 million.
Material Changes vs. Prior Period
- Corporate Structure: Transitioned from a private operating company (Exicure OpCo) to a publicly traded entity via a reverse merger with a shell company.
- Revenue Recognition: Revenue increased significantly in the six months ended June 30, 2017 ($5.1 million) compared to the same period in 2016 ($0.3 million), driven by the recognition of the $10 million upfront fee from the Purdue Collaboration.
- Operating Expenses: General and administrative expenses increased 87% year-over-year for the six months ended June 30, 2017, primarily due to legal and accounting fees related to a potential public offering that was abandoned in Q2 2017.
- Ownership: Pre-merger Exicure OpCo stockholders now hold approximately 86.9% of the combined company's outstanding common stock.
Guidance, Outlook, and Risks
Outlook and Use of Proceeds: Management believes the net proceeds from the initial private placement, combined with existing cash, will fund operations through September 30, 2018. The company expects to continue incurring significant losses as it advances clinical trials for its therapeutic candidates.
Pipeline Status:
- AST-005: Lead candidate for psoriasis. Phase 1 trial showed gene regulation but no antipsoriatic effect (attributed to short duration). A Phase 1b trial is underway in Germany.
- XCUR17: Candidate for psoriasis targeting IL-17RA. Phase 1 trial expected to commence in Q4 2017.
- AST-008: Immuno-oncology candidate. Phase 1 trial authorized in the UK, expected to commence in Q4 2017.
Risks and Contingencies:
- Going Concern: The filing notes substantial doubt about the company's ability to continue as a going concern without additional financing, though the recent capital raise extends the runway.
- Collaboration Dependency: Significant reliance on Purdue Pharma for the development and commercialization of AST-005. Future revenue depends on achieving milestones totaling up to $770 million, which are not guaranteed.
- Regulatory and Clinical Risk: As a clinical-stage company, there is a high risk of failure in clinical trials or inability to obtain regulatory approval.
- Liquidity of Stock: The common stock is not yet listed on a national exchange; the company intends to seek quotation on the OTC Markets QB tier.
Investor Verification Checklist
- Verify the effectiveness of the registration statement for the resale of shares issued in the merger and offering (required within 60 days of closing).
- Confirm the timeline and results of the Phase 1b clinical trial for AST-005 in Germany (expected late 2017).
- Monitor the status of the remaining shares in the private placement offering (up to 13.3 million shares total authorized).
- Review the terms of the Purdue Collaboration agreement regarding milestone payments and termination rights.
- Assess the company's cash burn rate relative to the projected runway through September 2018.
- Check for the filing of the definitive Schedule 14C information statement regarding the amended certificate of incorporation.