Business context and reporting period
Exicure, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The clinical-stage biotechnology company is developing therapeutics using its spherical nucleic acid (SNA) platform and has no approved products or product-sales revenue. Its lead clinical program is cavrotolimod (AST-008), being studied in combination with checkpoint inhibitors.
Financial results and liquidity
Unless otherwise stated, amounts are in millions of dollars.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $2.443 | $0.527 | $16.473 | $0.986 |
| Research and development expense | $9.139 | $4.245 | $22.222 | $11.073 |
| General and administrative expense | $2.424 | $2.228 | $7.227 | $6.421 |
| Operating loss | $(9.120) | $(5.946) | $(12.976) | $(16.508) |
| Net loss | $(8.822) | $(5.816) | $(11.983) | $(16.322) |
| Basic and diluted loss per share | $(0.10) | $(0.09) | $(0.14) | $(0.32) |
Q3 revenue was principally AbbVie collaboration revenue ($2.402 million); nine-month AbbVie revenue was $16.351 million. The company recognized no product revenue. At September 30, deferred AbbVie revenue was $8.479 million, expected to be recognized over the following 12 months as services are performed. No collaboration milestones were included in the transaction price because they remained constrained.
For the nine months, operating cash outflow was $27.463 million, investing cash outflow $3.330 million, and financing cash inflow $14.992 million. Cash, cash equivalents, and restricted cash declined $15.801 million to $32.659 million; short-term investments were $62.621 million. Together, these balances totaled approximately $95.3 million. Capital expenditures were $3.074 million. Management said existing working capital, including amounts borrowed and available under the MidCap facility, was expected to fund operations into 2022, while noting that assumptions could change and further financing might be needed.
At September 30, the balance sheet reported total assets of $111.280 million, total liabilities of $37.852 million, and stockholders’ equity of $73.428 million. MidCap debt had $17.5 million principal outstanding and a $16.5 million net carrying value; principal payments begin in October 2022 and mature in October 2025. The facility carries a floating rate of 6.25% plus the greater of 1.50% or one-month LIBOR. A further $7.5 million tranche is conditionally available in 2021. The loan is secured by substantially all assets, with intellectual property excluded but subject to a negative pledge. The company also reported $8.264 million of lease liabilities, primarily related to its new Chicago headquarters.
Material changes versus the prior comparable period
- Q3 collaboration revenue increased $1.916 million year over year, driven by the AbbVie agreement; nine-month revenue increased $15.487 million.
- Q3 R&D expense rose 115% and nine-month R&D expense doubled, reflecting expanded research activity, higher staffing (48 R&D employees versus 26 a year earlier), clinical-trial work, and platform and discovery spending.
- Q3 net loss widened 52%, despite higher collaboration revenue, as operating expenses increased. Nine-month net loss narrowed 27%, primarily reflecting higher AbbVie revenue and lower interest expense after repayment of the Hercules loan.
- Operating cash use increased to $27.463 million from $14.013 million, including working-capital effects and the absence of the prior-year Dermelix upfront payment. The company borrowed $17.5 million from MidCap and repaid approximately $5.0 million of Hercules principal in 2020.
- The company moved into approximately 30,000 square feet of new Chicago laboratory and office space on July 1, 2020, under a 10-year lease. It recorded a $1.2 million restricted deposit supporting a landlord letter of credit.
Outlook, management commentary, and risks
- COVID-19-related enrollment delays in the Phase 2 cavrotolimod trial pushed expected overall response rate results to the first half of 2022, from year-end 2021 previously. Management reported 14 sites open and seven pending activation as of October 31, 2020, and had dosed seven Phase 2 patients at the 32 mg dose by that date.
- Phase 1b results included a confirmed 21% response rate among 19 evaluable patients and a 33% rate in the highest-dose cohort (2 of 6). The filing describes these as preliminary clinical findings, not evidence of approval or established efficacy. As of October 31, one of 27 patients treated had experienced a treatment-related serious adverse event, which resolved.
- Management expected R&D spending to increase in Q4 2020 and 2021 as clinical development and pipeline research continue. IND-enabling studies for the Friedreich’s ataxia candidate XCUR-FXN were expected to begin in late 2020.
- COVID-19 risks include further trial-enrollment and development delays, supply-chain interruptions, and reduced access to capital. The company noted minor delays in receiving certain materials and relies on third parties for clinical research and manufacturing.
- The company expects significant losses and negative cash flows for the foreseeable future and does not anticipate product revenue for several years, if ever. Additional funding may be required; equity financing could dilute shareholders, and debt or collaboration financing may impose restrictions or require surrender of rights.
- Other key risks include uncertain clinical and regulatory outcomes, dependence on collaborators and third-party suppliers, competition, intellectual-property protection, and MidCap covenant and default risks. The company reported no legal proceedings it believed would have a material adverse effect and no off-balance-sheet arrangements.
- After quarter-end, director Helen S. Kim resigned effective November 10, 2020; the filing said the resignation was not due to a disagreement with the company.
Important facts for investors to verify
- Confirm the actual cash runway and burn rate against the company’s “into 2022” estimate, including whether the conditional MidCap tranche is available and covenant-compliant.
- Track Phase 2 enrollment, site activation, safety findings, and whether the ORR results remain on schedule for the first half of 2022.
- Assess the sustainability of collaboration revenue: the reported revenue mainly reflects recognition of the AbbVie upfront payment, and future milestones and royalties are uncertain.
- Reconcile accumulated deficit disclosures: the balance sheet reports $93.280 million at September 30, while narrative sections state $112.1 million since inception. The filing text does not explain this difference clearly.
- Review the MidCap loan’s floating-rate cost, security package, fees, covenants, and repayment schedule, alongside the long-term Chicago lease obligations.