EXICURE, INC. quarterly report, Q2 FY2019

Business context and reporting period

Exicure, Inc. is a clinical-stage biotechnology company developing therapeutics based on its spherical nucleic acid (SNA) technology. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2019. The company had no approved products and generated collaboration revenue rather than product sales.

Key financial metrics

Amounts below are in millions of dollars, except per-share data. Revenue and expenses are not presented with a gross-profit measure, so a gross margin is not available.

Cash and cash equivalents were $17.175 million at June 30, 2019, down from $26.268 million at December 31, 2018. First-half operating cash use was $8.996 million, investing cash use was $0.062 million, and financing cash use was $0.035 million; cash decreased by $9.093 million. The company reported total current assets of $18.760 million and current liabilities of $8.098 million. Debt carrying value was $4.859 million, classified as current, with approximately $4.999 million principal outstanding and a March 1, 2020 maturity. The loan is secured by substantially all assets other than intellectual property, which is subject to a negative pledge.

Material changes versus prior comparable periods

• First-half collaboration revenue rose to $0.459 million from $0.055 million, primarily reflecting Dermelix revenue recognition; Q2 revenue was $0.434 million versus $0.019 million.
• First-half operating expenses declined slightly to $11.021 million from $11.143 million. Lower clinical-program costs, particularly for XCUR17, were partly offset by higher platform, employee, and administrative costs.
• Net loss narrowed to $10.506 million from $12.334 million for the first half. The improvement included a $0.256 million noncash gain from warrant-liability remeasurement, compared with a $1.042 million noncash loss in the prior-year period.
• In March 2019, Hercules debt maturity was extended to March 1, 2020 and principal amortization was deferred to maturity. Interest expense increased to $0.386 million for the first half from $0.327 million.

Outlook, developments, and risks

• On August 2, 2019, after quarter-end, Exicure sold 31.625 million shares at $2.00 per share, receiving $63.250 million gross and approximately $58.811 million net proceeds after estimated discounts, commissions, and expenses. Management said cash on hand plus these net proceeds should fund current plans for at least 12 months. The offering substantially increased the share count and diluted existing holders.
• Management expects significant losses and negative cash flows for the foreseeable future, no substantial product revenue in the near term, and research and development expense to increase in 2019. Future capital needs depend on clinical progress, trial costs, and other factors; additional financing may be needed and may not be available on acceptable terms.
• AST-008 Phase 1b/2 enrollment and dosing began in the first half. As of July 28, nine patients had been dosed in the first three cohorts, with no treatment-related serious adverse events or dose-limiting toxicities reported. The company was proceeding to cohort four, planned to report Phase 1b results in late 2019, and intended to initiate Phase 2 in 2020. These are forward-looking plans, not guaranteed outcomes.
• Under the Dermelix collaboration, Exicure received a $1.0 million upfront payment to offset early development costs for Netherton Syndrome; $0.541 million remained deferred at June 30 and was expected to be recognized in the second half of 2019 as services were performed. Exicure may earn future option fees, development and sales milestones, and low-double-digit royalties, all contingent on specified events.
• Purdue notified Exicure in April 2019 that it would not select collaboration targets. Exicure therefore expects no related target-dependent milestones; Purdue retained rights relating to development of new anti-TNF candidates, for which no active development was underway.
• Key risks include early-stage clinical and scientific uncertainty, reliance on third-party trial and manufacturing providers, limited collaboration revenue, ongoing funding needs, intellectual-property and regulatory risks, and possible dilution. The filing reports no legal proceedings believed likely to have a material adverse effect. Management concluded disclosure controls were effective as of June 30, 2019.

Important facts for investors to verify

• Confirm the net proceeds, final post-offering share count, and dilution from the August 2019 offering; the filing reported 75,994,790 shares outstanding as of August 6.
• Track actual cash burn against management’s at-least-12-month funding estimate, and confirm the status and repayment terms of the Hercules loan due March 1, 2020.
• Monitor AST-008 safety, enrollment, cohort progression, and whether the planned late-2019 results and 2020 Phase 2 start occur.
• Check Dermelix development progress and whether any additional option, milestone, or royalty payments become probable; separately monitor the status of Purdue’s retained anti-TNF rights.
• Reconcile the filing’s equity-balance-sheet accumulated deficit of $65.500 million with its narrative disclosure of $84.3 million accumulated deficit since inception; the text does not explain the difference clearly.