Exicure, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are with December 31, 2018. Exicure is a clinical-stage biotechnology company developing therapeutics based on its spherical nucleic acid (SNA) technology. It reported no product sales; revenue came from collaborations.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 or prior date |
|---|---|---|
| Revenue | $25,000 | $36,000; down 31% |
| Research and development expense | $3.395 million | $3.275 million; up 4% |
| General and administrative expense | $2.208 million | $2.045 million; up 8% |
| Total operating expenses | $5.603 million | $5.320 million; up 5% |
| Operating loss | $5.578 million | $5.284 million |
| Net loss | $5.286 million | $5.509 million |
| Loss per share, basic and diluted | $0.12 | $0.14 |
| Net cash used in operating activities | $4.012 million | $4.647 million |
| Cash and cash equivalents | $22.196 million | $26.268 million at Dec. 31, 2018 |
The smaller net loss year over year largely reflected a $475,000 net other-income contribution, including a $369,000 noncash gain from revaluing warrant liabilities, compared with a $64,000 other loss in Q1 2018. Operating loss increased as expenses rose while revenue declined. The company has no commercial product revenue, so conventional gross-margin comparisons are not applicable.
At March 31, total assets were $25.184 million, total liabilities $9.029 million, and stockholders’ equity $16.155 million. The $4.999 million Hercules principal balance, net of discounts and issuance costs, was classified as current debt ($4.807 million carrying value). The loan was amended in March 2019: maturity and deferred amortization payments were extended to March 1, 2020. The debt bears a floating rate subject to a 9.95% minimum and is secured by substantially all assets other than intellectual property, which is subject to a negative pledge.
Material changes and business developments
- In February 2019, Exicure entered a license and development agreement with Dermelix for Netherton Syndrome and, at Dermelix’s option, up to five additional specified orphan skin diseases. Exicure received a $1 million upfront payment, applied against its early-development costs; $975,000 remained deferred at quarter-end. The company expected to recognize that balance over Q2–Q4 2019 as services were performed. Potential payments include up to $13.5 million in development and regulatory milestones and $152.5 million in sales milestones per licensed indication, plus low double-digit royalties; these amounts are contingent, not assured.
- In April 2019, Purdue notified Exicure it would not select targets under their collaboration. Exicure therefore does not expect associated target-based research, regulatory, or sales milestones. Purdue retained rights to develop new anti-TNF candidates, but Exicure said no such development was active and related milestones were highly unlikely.
- Cash used in operating activities improved by $635,000 year over year, primarily due to the Dermelix upfront payment, partly offset by higher working-capital use.
- Exicure adopted lease accounting standard ASC 842 on January 1, 2019, recognizing an operating lease asset and liabilities of approximately $613,000 and $623,000, respectively; adoption had no reported impact on operating expense or net loss.
Programs, outlook and principal risks
Exicure began dosing and recruiting patients early in 2019 at four sites for its Phase 1b/2 AST-008 trial in advanced solid tumors, evaluating the candidate alone and with pembrolizumab. The Phase 1 XCUR17 psoriasis trial had completed final patient visits in Q4 2018; the company reported a statistically significant symptom improvement at the highest gel strength versus vehicle, but no relevant change in mean infiltrate thickness and no correlation yet between biopsy IL-17RA measurements and clinical assessments. The filing describes research programs in neurological and other disease areas but provides no quantified clinical or financial guidance.
Management said Q1 cash and working capital were expected to fund current operating plans into January 2020. The company expects significant ongoing losses and increasing R&D spending, and anticipates no substantial product revenue unless candidates are successfully developed and approved. Management expects to seek additional funding through equity, partnerships, licensing, debt, or other arrangements, but availability and terms are uncertain. The filing states there is substantial doubt about Exicure’s ability to continue as a going concern.
- Development and regulatory risk: Candidates are early-stage; clinical outcomes, safety, enrollment, manufacturing, and regulatory approvals are uncertain. SNA therapeutics are a novel modality with limited human evidence.
- Financing and debt risk: Operations depend on additional capital; equity financing could dilute shareholders, while the Hercules debt is due in 2020 and includes covenants and repayment charges.
- Collaboration risk: Purdue’s decision removes potential milestones, while Dermelix payments beyond the upfront amount depend on future development, options, milestones, or sales.
- Other disclosed risks: Dependence on third-party clinical and manufacturing providers, intellectual-property protection and licensing, competition, and the OTCQB’s limited liquidity and potential share-price volatility.
Management concluded disclosure controls and procedures were effective as of March 31, 2019. The filing also says a previously identified material weakness in internal control over financial reporting was remediated at December 31, 2018. No material legal proceedings were reported.
Most important facts for investors to verify
- Whether cash burn, clinical spending, and financing plans support the stated runway into January 2020, and whether going-concern risks change.
- Progress, enrollment, safety, and efficacy updates for AST-008 and follow-up interpretation of XCUR17 trial and biopsy results.
- Dermelix development activity, spending reimbursements, option decisions, and the timing and collectability of contingent milestones and royalties.
- Hercules loan repayment capacity and any further amendments, given the March 1, 2020 maturity and secured status.
- The effects of Purdue’s decision and any future activity or rights relating to anti-TNF candidates.
- Share dilution and trading liquidity: 44,358,000 shares were outstanding at March 31, 2019; the filing reports 44,369,790 outstanding as of May 6, 2019, and the stock traded on OTCQB.