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 three and nine months ended September 30, 2019; financial amounts below are in millions of dollars unless stated otherwise.
The company has no approved products and reported collaboration revenue only. Its programs include AST-008 in immuno-oncology, XCUR17 and AST-005 in psoriasis, and early-stage research in neurological and other indications.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0.527 | $0.057 | $0.986 | $0.112 |
| Research and development | $4.245 | $4.001 | $11.073 | $11.111 |
| General and administrative | $2.228 | $1.919 | $6.421 | $5.952 |
| Operating loss | $(5.946) | $(5.863) | $(16.508) | $(16.951) |
| Net loss | $(5.816) | $(5.324) | $(16.322) | $(17.658) |
| Loss per share, basic and diluted | $(0.09) | $(0.13) | $(0.32) | $(0.44) |
Revenue was collaboration revenue; the filing reports no product sales. Gross margin is not clearly presented as a separate measure. Q3 revenue rose primarily because Exicure recognized Dermelix collaboration revenue; year-to-date R&D was nearly unchanged, while G&A increased. Q3 net loss widened year over year, while the nine-month net loss narrowed, partly reflecting a favorable change in warrant fair value.
At September 30, cash and cash equivalents were $70.392, total current assets $71.753, total current liabilities $8.273, and stockholders’ equity $64.952. Long-term debt, net, was $4.912, classified as current and due at the amended March 1, 2020 maturity; the loan’s stated interest rate was 11.45%. Cash used in operating activities was $14.013 for the first nine months, compared with $13.524 in 2018. Investing activities used $0.462; financing activities provided $58.599. Cash increased $44.124.
The August 2019 public offering issued 31.625 million shares at $2.00 per share, generating $63.250 gross and approximately $58.9 net proceeds. Shares outstanding were 75,994,790 at September 30 (75,994,790 reported as of November 5). Management said existing working capital was expected to fund operations for at least 12 months from September 30, subject to significant uncertainties.
Material changes versus the prior comparable period
- Q3 collaboration revenue increased $0.470 to $0.527; nine-month revenue increased $0.874 to $0.986. The 2019 revenue related to Dermelix, versus Purdue reimbursements in 2018.
- Q3 operating expenses rose 9% to $6.473; nine-month operating expenses rose 3% to $17.494. Q3 R&D rose 6%, while nine-month R&D was essentially flat as lower XCUR17 trial costs offset increased employee, platform and discovery spending.
- The nine-month net loss improved by $1.336 to $16.322. The Q3 net loss increased by $0.492 to $5.816.
- Cash rose from $26.268 at year-end 2018, largely following the August equity offering. Common shares outstanding increased from 44.358 million at December 31, 2018 to 75.995 million at September 30, 2019.
- The Hercules loan maturity was extended to March 1, 2020 and scheduled amortization was deferred to that maturity. The debt remained outstanding at quarter end.
Outlook, management commentary, risks and unusual items
- Management expects significant operating losses and negative cash flows to continue, with R&D spending expected to increase in 2019 and 2020. The company does not expect product revenue in the foreseeable future and gives no specific financial forecast.
- AST-008 Phase 1b/2 enrollment and dosing were underway. As of November 1, 2019, 13 patients had been dosed in the first four Phase 1b cohorts; management reported no treatment-related serious adverse events or dose-limiting toxicities to date. It planned preliminary Phase 1b results in late 2019 and the Phase 2 stage in 2020.
- Under the Dermelix agreement, Exicure received a $1.0 upfront payment, recognized $0.986 revenue through September, and reported $0.014 deferred revenue. The agreement provides potential development/regulatory and sales milestones and low double-digit royalties, contingent on future events; milestone amounts were excluded from recognized revenue because achievement was uncertain. Exicure plans early-stage work toward an IND for Netherton Syndrome in 2020.
- In April 2019, Purdue said it would not select collaboration targets. Exicure therefore expects no associated target milestones and considers milestones for anti-TNF candidates highly unlikely; no active development of a new anti-TNF candidate was underway.
- Key risks include clinical and regulatory failure, the unproven SNA platform, reliance on third-party manufacturers and trial providers, need for further financing, potential dilution, and the March 2020 debt maturity. The debt is secured by substantially all assets other than intellectual property, which is subject to a negative pledge.
- The company reported no material legal proceedings and no material changes to contractual commitments outside the ordinary course. Disclosure controls were deemed effective; no material internal-control changes were reported for the quarter.
Important facts for investors to verify
- Whether the AST-008 trial results, enrollment progress and planned Phase 2 timing met management’s stated expectations.
- Whether additional Dermelix indications, reimbursements, milestones or other collaboration funding materialized, and the status of the planned Netherton Syndrome IND.
- Cash use, financing needs and the company’s ability to repay or refinance the $4.912 million carrying value of Hercules debt at its March 1, 2020 maturity.
- The dilution and potential resale overhang following the 31.625 million-share offering and the shares registered for resale described in the risk factors.
- Reconcile accumulated-deficit disclosures: the balance sheet reports $71.316 million, while the notes and MD&A describe a $90.153 million deficit since inception. The filing text does not clearly explain this difference.