XCUR.NASDAQExicure, INC
10-Q: Exicure Inc. Reports Third Quarter 2023 Results Amid Strategic Shift and Financial Uncertainty
Sentiment:
Quarterly Report
Exicure Inc. reported its third quarter 2023 results, highlighting a significant strategic shift away from research and development and ongoing financial challenges.
Delay expectedThe company received a delinquency notification from Nasdaq for not filing its third quarter Form 10-Q on time.The company received a delinquency notification from Nasdaq for not filing its Annual Report Form 10-K on time.The company received a notification from Nasdaq for not holding an annual meeting in 2023 and was granted an extension to hold it by June 28, 2024.
Capital raiseThe company states that it will need to obtain substantial additional funding in the very near term to continue operations.The company expects to seek financing through equity offerings.The company acknowledges that it may be difficult to obtain financing given its current condition and uncertainty over its future direction.
Worse than expectedThe company's financial results are worse than expected due to the complete lack of revenue, significant operating losses, and critically low cash reserves.The company's decision to halt R&D and explore strategic alternatives outside of its core industry indicates a significant departure from its original business plan and a lack of confidence in its existing technology.The company's failure to maintain compliance with Nasdaq listing requirements and the identification of material weaknesses in internal control over financial reporting further highlight the severity of its financial and operational challenges.
Summary
- Exicure Inc. has transitioned from a biotechnology company focused on nucleic acid therapies to exploring strategic alternatives, including potential transactions in unrelated industries.
- The company reported no collaboration revenue for the three and nine months ended September 30, 2023, compared to $2.016 million and $7.052 million respectively in the same periods of 2022.
- Research and development expenses decreased to zero for the three months ended September 30, 2023, and $1.423 million for the nine months ended September 30, 2023, down from $4.805 million and $18.694 million respectively in the same periods of 2022, due to the suspension of R&D activities.
- The company incurred a net loss of $5.256 million for the three months ended September 30, 2023, and $15.427 million for the nine months ended September 30, 2023.
- As of September 30, 2023, Exicure had cash and cash equivalents of $922,000, which has decreased to approximately $200,000 as of April 30, 2024.
- The company has substantial doubt about its ability to continue as a going concern due to insufficient cash and the need for significant additional financing in the near term.
- Exicure is attempting to redeem $2 million in convertible bonds in the third quarter of 2024, but there is no guarantee this will be successful.
- The company has received multiple deficiency notices from Nasdaq regarding minimum bid price, stockholders' equity, corporate governance, and filing requirements.
- A material weakness in internal control over financial reporting was identified related to expense classification and accounting treatment of AFS debt securities.
Sentiment
Score: 2
Explanation: The document paints a very negative picture of the company's current situation, with significant financial challenges, operational uncertainties, and a high risk of failure. The shift in strategy and the numerous deficiency notices from Nasdaq further contribute to the negative sentiment.
Positives
- General and administrative expenses were essentially flat for the three months ended September 30, 2023, compared to the same period in 2022.
- The company has engaged in significant cost reductions, which has reduced cash burn.
- The company is actively exploring strategic alternatives to maximize stockholder value.
Negatives
- The company has no current source of revenue or committed financing.
- Exicure has a history of significant operating losses and expects to continue incurring losses.
- The company's cash reserves are critically low and insufficient to fund operations.
- There is substantial doubt about the company's ability to continue as a going concern.
- The company has received multiple deficiency notices from Nasdaq and faces the risk of delisting.
- A material weakness in internal control over financial reporting was identified.
- The company impaired the entire $2 million amount of its convertible securities.
Risks
- The company's exploration of strategic alternatives may not be successful.
- Exicure may not be able to obtain the substantial additional funding needed to continue operations.
- The company may not be able to redeem its convertible bonds.
- The company's controlling stockholders, executive officers, and board members have limited experience controlling or governing a public company in the United States.
- Turnover of the board and senior management could impair the company's ability to implement its business plan.
- The company may be delisted from Nasdaq, which could negatively impact the stock price and liquidity.
- The company's internal computer systems may fail or suffer security breaches.
- The company's operations are concentrated in one location, which poses a risk.
- The company's ability to use net operating loss carryforwards may be limited.
- The market price of the company's common stock is highly volatile.
Future Outlook
The company expects to continue to incur significant operating losses and will need to obtain substantial additional funding in the very near term to continue operations and explore strategic alternatives. There is no guarantee that the company will be able to obtain such funding or successfully execute a strategic transaction.
Management Comments
- Management believes that, given the Company's current cash position, operating plans and forecasted negative cash flows from operating activities over the next twelve months, there is substantial doubt about the Company's ability to continue as a going concern within one year after the date these financial statements are issued.
- Management believes that the Company's existing cash and cash equivalents are insufficient to continue to fund its operating expenses and additional funding is needed in the very near term.
- Management has identified material weaknesses in the Company's internal control over financial reporting related to expense classification and accounting treatment of AFS debt securities.
Industry Context
The company's shift away from biotechnology R&D and exploration of strategic alternatives in unrelated industries is unusual and reflects the significant financial challenges it faces. This move is likely driven by the need to preserve value for shareholders given the lack of revenue and the high cash burn rate associated with drug development.
Comparison to Industry Standards
- Exicure's decision to halt R&D and explore strategic alternatives outside of its core industry is highly unusual for a biotechnology company, as most companies in this sector focus on developing and commercializing their own technologies.
- The company's cash burn rate and lack of revenue are significantly worse than industry averages for companies at a similar stage of development.
- The company's financial position is significantly weaker than comparable publicly traded biotechnology companies, many of which have ongoing clinical trials and revenue streams.
- The company's failure to maintain compliance with Nasdaq listing requirements is also a significant deviation from industry standards for publicly traded companies.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Chief Executive Officer | na | Paul Kang | 2023-08-28 | na |
| Chief Financial Officer | na | Jiyoung Hwang | 2023-08-28 | na |
Legal Proceedings
- The company is involved in a putative securities class action lawsuit, Colwell v. Exicure, Inc. et al., which is currently stayed until May 22, 2024.
- The company is also involved in multiple shareholder derivative lawsuits, Puri v. Giljohann, et al., Sim v. Giljohann, et al., and Stourbridge Investments LLC v. Exicure, Inc. et al., which are stayed pending a decision on any motion to dismiss in the Colwell case.
- A former employee filed a complaint against the Company and its executives related to the former employee's separation from the Company.
Related Party Transactions
- The company paid Alta Companies LTD $218 on February 27, 2023, for a consulting fee related to the September 2022 PIPE closing. Paul Kang, a director and CEO of the company, is the President of Alta.
Stakeholder Impact
- Shareholders face significant risk of losing their investment due to the company's financial instability and potential bankruptcy.
- Employees face uncertainty about their job security due to the company's restructuring and financial challenges.
- Customers and suppliers may be impacted by the company's shift in strategy and potential cessation of operations.
- Creditors face the risk of not being repaid due to the company's financial difficulties.
Next Steps
- The company will continue to explore strategic alternatives, including potential transactions in unrelated industries.
- The company will attempt to redeem $2 million in convertible bonds in the third quarter of 2024.
- The company will attempt to regain compliance with Nasdaq listing requirements.
- The company will attempt to remediate the material weakness in internal control over financial reporting.
- The company must hold its annual meeting by June 28, 2024.
Key Dates
| Date | Description |
|---|---|
| 2020-07-01 | Commencement date of the Chicago office lease. |
| 2021-12-16 | Date of registered direct offering. |
| 2022-05-09 | Date of May 2022 PIPE securities purchase agreement. |
| 2022-05-18 | Closing date of May 2022 PIPE. |
| 2022-06-29 | Date of one-for-thirty reverse stock split. |
| 2022-09-26 | Date of securities purchase agreement with CBI USA, Inc. |
| 2023-02-24 | Closing date of the private placement with CBI USA, Inc. |
| 2023-05-04 | Date of sublease agreement with Cyclopure, Inc. |
| 2023-05-15 | Start date of the sublease agreement with Cyclopure, Inc. |
| 2023-05-31 | Date of convertible bond purchase agreements. |
| 2023-06-23 | DGP exercised its option and acquired shares from CBI USA. |
| 2023-08-28 | Effective date of employment agreements with Paul Kang and Jiyoung Hwang. |
| 2023-09-13 | Date of Nasdaq delinquency notification regarding minimum bid price. |
| 2023-09-30 | End of the third quarter of 2023. |
| 2023-11-22 | Date of Nasdaq delinquency notification for not filing the third quarter Form 10-Q. |
| 2024-01-11 | Date of Nasdaq notification for not holding an annual meeting in 2023. |
| 2024-02-29 | Date of closing of 10% of DGP's shares to a third party. |
| 2024-03-12 | Date of Nasdaq extension letter for minimum bid price and annual meeting. |
| 2024-04-17 | Date of Nasdaq delinquency notification for not filing the Annual Report Form 10-K. |
| 2024-05-03 | Date of promissory note execution and loan receipt. |
| 2024-05-16 | Date of this report. |
| 2024-05-22 | Date the Colwell case is stayed until. |
| 2024-06-28 | Deadline for holding the annual meeting per Nasdaq extension letter. |
| 2024-06-30 | Deadline for closing the remainder of DGP's shares to a third party. |
| 2024-09-09 | Deadline to cure the minimum bid price deficiency per Nasdaq extension letter. |
Keywords
strategic alternatives, going concern, financial uncertainty, Nasdaq delisting, convertible bonds, internal control, research and development, restructuring, capital raise, biotechnology
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