Exicure, Inc. — FY 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018; filed March 8, 2019. Exicure is a clinical-stage biotechnology company developing therapeutics using its spherical nucleic acid (SNA) platform. It had no approved products or product sales.
Financial performance
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $0.1 million | $9.7 million |
| Research and development expense | $14.1 million | $13.1 million |
| General and administrative expense | $7.8 million | $7.0 million |
| Operating loss | $21.8 million | $10.4 million |
| Net loss | $22.4 million | $11.0 million |
| Basic and diluted loss per share | $0.54 | $1.09 |
| Net cash used in operating activities | $19.5 million | $19.8 million |
FY 2018 revenue was entirely collaboration revenue. The filing attributes the 99% decline primarily to the prior-year recognition of deferred upfront Purdue collaboration revenue and the completion of reimbursable AST-005 research activities. The company adopted ASC 606 in 2018; adoption reduced reported 2018 revenue and net loss by $1.034 million, with no impact on year-end balance-sheet totals or cash flows.
Fourth-quarter snapshot: Revenue was $6,000, net loss was $4.755 million, and basic and diluted loss per share was $0.11. Quarterly figures are unaudited.
Research and development spending rose 8%, primarily from higher employee and platform/discovery costs, partly offset by lower clinical-program costs. General and administrative expense increased 11%, reflecting public-company and compensation costs, partly offset by lower legal and accounting costs. No meaningful gross margin metric is reported because Exicure had no product sales.
Cash, debt, and liquidity
- At December 31, 2018, cash and cash equivalents were $26.268 million, versus $25.764 million a year earlier; total assets were $28.756 million.
- Current assets were $27.663 million and current liabilities were $2.043 million, or working capital of approximately $25.620 million.
- Operating cash use was $19.487 million; investing cash use was $0.094 million; financing provided $20.085 million, principally from the August 2018 equity placement. Cash increased $0.504 million for the year.
- Long-term debt was $4.925 million net of discounts and issuance costs; principal outstanding was approximately $4.999 million. The Hercules loan is secured by substantially all tangible assets, bears a floating rate with a 9.95% floor, and is subject to covenants.
- After year-end, on March 8, 2019, Hercules extended the loan maturity to March 1, 2020 and deferred amortization payments to that maturity. This is a subsequent event, not a December 31, 2018 balance-sheet change.
- Management estimated year-end working capital would fund current operating plans into January 2020, but the auditor’s report and management identify substantial doubt about the company’s ability to continue as a going concern without additional financing.
Programs, developments, and outlook
- AST-008: The FDA cleared the IND in Q4 2018 for a proposed Phase 1b/2 study in advanced solid tumors, alone and with pembrolizumab. Sites opened and dosing/recruitment began in early 2019. The earlier Phase 1 healthy-volunteer study showed no serious adverse events or dose-limiting toxicity; results included cytokine and immune-cell activation. Efficacy claims remain preliminary and largely preclinical.
- XCUR17: In a 21-patient Phase 1 psoriasis trial, 11 patients receiving the highest-strength gel had observed improvement in redness and healing, and symptoms improved statistically versus vehicle. No treatment-related adverse safety events were observed. No relevant change in mean lesion infiltrate thickness was seen, and biopsy IL-17RA results had not yet been correlated with clinical outcomes.
- AST-005/Purdue: Purdue declined in April 2018 to exercise its option to develop AST-005. Its Phase 1b study was safe and tolerable but did not show a statistically significant decrease in a key psoriasis efficacy measure. Purdue retained certain TNF-target and AST-005 rights; no active therapeutic candidate was then being developed under the collaboration.
- Neurology research: Preclinical studies reported improved SMA-related measures for nusinersen in SNA format, including longer survival in mice and greater retention in rat brain and spinal cord. The company was still shaping its neurological development strategy; these are not clinical efficacy results.
- Dermelix agreement, February 2019: Exicure licensed worldwide rights for Netherton Syndrome and options for up to five additional rare skin indications. It received a $1 million upfront payment, applied against early-stage development costs, and may receive option fees, development/regulatory and sales milestones, and low double-digit royalties. These potential payments are contingent and not assured.
- Management expects research and development expense to increase in 2019 and does not expect product revenue for the foreseeable future. No specific earnings or revenue guidance was provided. The company expects to fund operations through a mix of equity, debt, partnerships, and licensing, but availability and terms are uncertain.
Material risks and unusual items
- Exicure has recurring losses, substantial future development costs, no product revenue, and substantial doubt about its ability to continue as a going concern. The stated cash runway depends on assumptions and may be shorter than estimated.
- Clinical and regulatory outcomes are uncertain; SNA therapeutics are based on a novel platform with limited human data. Early-stage or preclinical results may not predict later trial outcomes.
- The company relies on third parties for clinical work and manufacturing, has no owned manufacturing facilities or long-term supply agreements, and depends on collaborators for parts of development and commercialization.
- Additional financing may dilute shareholders or impose restrictive terms. The OTCQB-traded shares may have limited liquidity; the filing also notes significant resale-eligible shares and concentrated ownership.
- The material weakness in controls over review of certain R&D contracts, which had caused an immaterial prior-period error, was reported as remediated by December 31, 2018. Management judged disclosure controls effective; the auditor did not provide an internal-control attestation.
- The audited financial statements received an unqualified opinion, with a going-concern explanatory paragraph. No material legal proceedings were reported.
Key facts investors should verify
- Current cash burn and financing runway versus management’s January 2020 estimate, including subsequent financing or spending changes.
- Hercules loan balance, interest terms, maturity and repayment status following the March 2019 amendment.
- AST-008 trial enrollment, safety, dose selection, and emerging efficacy data; distinguish human evidence from preclinical findings.
- Full XCUR17 trial data, particularly biopsy target engagement and the discrepancy between observed clinical improvements and unchanged infiltrate thickness.
- Whether Dermelix advances Netherton Syndrome or exercises additional options, and which payments are received versus merely contingent.
- Any change in Purdue’s rights or plans for AST-005, and the potential impact of the ASC 606 adoption and prior-period correction when comparing reported results.