EXICURE, INC. quarterly report, Q3 FY2021

Business context and reporting period

Exicure, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The clinical-stage biotechnology company develops spherical nucleic acid (SNA) therapeutics; it has no products approved for sale. Its pipeline includes cavrotolimod (AST-008), in a Phase 1b/2 trial for advanced solid tumors, and preclinical XCUR-FXN for Friedreich’s ataxia.

Financial performance and position

Amounts below are in millions, except per-share data. The filing reports no product-sales revenue, so product margins are not applicable; it does not provide a meaningful gross-margin measure.

At September 30, cash and cash equivalents were $51.9 million, short-term investments $9.0 million, and restricted cash $1.2 million—about $62.0 million combined. Nine-month operating cash use was $21.0 million, compared with $27.5 million in 2020. Investing activities provided $39.0 million, primarily reflecting net maturities of available-for-sale securities; financing activities provided $0.7 million. Long-term debt had $17.5 million principal outstanding and a $16.8 million carrying value. Total liabilities were $63.9 million and stockholders’ equity $14.0 million.

Material changes versus the prior comparable period

• Revenue fell sharply, including to negative amounts, primarily because a revised AbbVie workplan required significantly more estimated effort. Exicure recorded a $4.48 million cumulative revenue reduction in Q3; the nine-month AbbVie revenue reduction was $3.404 million.
• Q3 R&D expense rose 80% and nine-month R&D expense rose 69%, reflecting increased clinical and preclinical activity, higher staffing, and a $3.0 million Northwestern University license fee associated with the Ipsen upfront payment.
• Losses increased substantially, while interest expense rose with the MidCap borrowing and interest income declined with lower investment balances.
• Exicure entered its Ipsen collaboration in July 2021 and received a $20.0 million upfront payment. It recognized $0.803 million in revenue through September 30; the remaining $19.197 million was deferred. The Ipsen agreement covers Huntington’s disease and Angelman syndrome programs and includes potential option fees, milestones, and royalties.
• Cash and short-term investments declined from $82.1 million at December 31, 2020 to $60.8 million at September 30, 2021, although the Ipsen upfront payment supported operating cash flow.

Outlook, management commentary, risks and unusual items

• Going concern: Management said available liquidity may not fund operations for the 12 months after issuance and disclosed substantial doubt about the company’s ability to continue as a going concern. No additional capital source was committed; further financing is needed, with no assurance it will be available on acceptable terms.
• Clinical outlook: Because of enrollment and site-startup delays, which management attributed partly to COVID-19, Exicure moved expected cavrotolimod overall response rate results from the first half of 2022 to the second half of 2022. As of November 4, 2021, 43 patients had received the 32 mg dose; four of 57 patients treated across doses had experienced treatment-related serious adverse events.
• XCUR-FXN investigation: On November 9, 2021, the Audit Committee was notified of a former senior researcher’s claim concerning alleged improprieties in the preclinical program. External counsel was retained to investigate; timing, outcome, and effects on the program were unknown.
• Supply and pandemic risks: The company reported minor delays in key materials and delays in components for GMP drug product for cavrotolimod and XCUR-FXN. Further supply, clinical enrollment, site, or regulatory delays could affect development timelines.
• Management expected R&D expenses to continue increasing in 2021 as it advances its pipeline and platform. It does not expect product revenue for the foreseeable future.
• MidCap’s additional $7.5 million loan tranche was available only through December 31, 2021 and was subject to conditions, including at least $20.0 million of unrestricted net equity proceeds. The existing $17.5 million facility is secured by substantially all assets other than intellectual property and includes restrictive covenants.
• Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.

Key facts investors should verify

• Whether Exicure obtained sufficient financing after the filing to address the stated going-concern uncertainty, and the resulting dilution or debt terms.
• Progress and enrollment in the cavrotolimod trial, updated safety findings, and whether the second-half 2022 results timeline remained achievable.
• The outcome and any operational, scientific, or legal consequences of the XCUR-FXN investigation.
• Further revisions to AbbVie project-hour estimates and their effects on collaboration revenue; also, execution and revenue recognition under the Ipsen agreement.
• The filing contains inconsistent accumulated-deficit disclosures: the balance sheet reports $156.242 million at September 30, 2021, while the notes and MD&A cite $175.1 million. Verify the correct figure against the underlying filing and subsequent disclosures.
• Availability of the MidCap second tranche, its funding conditions, and compliance with the facility’s covenants.