10-Q: Exicure Reports Q1 Net Income Driven by Lease Termination Gain Amid Strategic Pivot and Going Concern Doubts

Exicure, Inc. reported a net income of $3.010 million for the first quarter of 2025, primarily due to a significant gain from early lease termination, as the company continues its strategic shift into new business areas while facing substantial doubt about its ability to continue as a going concern.

Summary

• Exicure, Inc. acquired GPCR Therapeutics USA Inc. (GPCR USA) on January 19, 2025, for a total purchase price of $7.881 million, including $1.635 million in cash, $0.5 million in cash per a license agreement, $0.5 million in equity, and $5.246 million in contingent consideration.
• GPCR USA is conducting an ongoing Phase 2 clinical trial (NCT05561751) focused on blood cancer patients, specifically for stem cell mobilization in Multiple Myeloma patients using GPC-100 and propranolol.
• The company plans to complete GPC-100 administration to 20 patients in Q2 2025 and aims to announce clinical trial results during Q4 2025.
• On March 26, 2025, Exicure formed KC Creation Co., Ltd., a wholly-owned South Korean subsidiary, to pursue future growth strategies including collaboration with Korean bio-platform companies, ESG trends (eco-friendly renewable energy infrastructure), and diversification into Korean entertainment content.
• Exicure reported a net income of $3.010 million for the three months ended March 31, 2025, a significant improvement from a net loss of $(0.829) million for the same period in 2024.
• This net income was largely driven by a $5.974 million gain on the early termination of the Chicago office lease, effective January 31, 2025.
• Cash and cash equivalents decreased to $10.420 million as of March 31, 2025, from $12.508 million as of December 31, 2024.
• The company used $1.598 million in cash from operating activities during Q1 2025, an increase from $0.450 million used in Q1 2024.
• Research and development expenses increased to $0.808 million in Q1 2025 (from $0 in Q1 2024) due to the GPCR USA acquisition and resumption of R&D activities.
• General and administrative expenses increased by 66% to $2.217 million in Q1 2025 from $1.336 million in Q1 2024, attributed to GPCR USA acquisition expenses and increased professional services.
• Exicure has identified material weaknesses in its internal control over financial reporting related to management's review of non-routine activities and the design/implementation of controls around accounting and IT processes.
• The company regained compliance with Nasdaq listing requirements as of December 17, 2024, but is subject to a one-year mandatory panel monitor, with a risk of delisting if non-compliance recurs.
• A securities class action lawsuit was settled for $5.625 million, fully covered by insurance, but the company accrued $1.1 million for its self-insured retainer.
• The company received $1.6 million from common stock purchase agreements in February 2025 and previously raised significant capital in late 2024 through similar agreements.

Sentiment

Score: 3

Explanation: The company's financial health is precarious, marked by a 'going concern' warning and reliance on a one-time gain for net income. While strategic pivots are underway, they are broad and unproven, and Nasdaq listing remains under close scrutiny. Significant operational cash burn continues, and future funding is uncertain, indicating high risk.

Positives

• Reported a net income of $3.010 million for the three months ended March 31, 2025, a substantial improvement from a net loss in the prior year.
• Achieved a significant gain of $5.974 million from the early termination of its Chicago office lease, reducing future liabilities.
• Successfully acquired GPCR Therapeutics USA Inc., gaining an ongoing Phase 2 clinical trial for GPC-100 in blood cancer, which represents a new strategic direction in biotechnology.
• Formed KC Creation Co., Ltd. in South Korea, signaling diversification into potentially high-growth areas like eco-friendly renewable energy and Korean entertainment content.
• Regained compliance with Nasdaq listing requirements as of December 17, 2024, ensuring continued listing on the exchange, at least for the monitoring period.
• Received a waiver for a $191,000 penalty amount from DGP related to registration rights delays, positively impacting other income.

Negatives

• Management has expressed substantial doubt about the company's ability to continue as a going concern for the next 12 months due to insufficient cash to fund operations.
• The reported net income is primarily due to a one-time gain on lease termination, masking underlying operational losses and negative cash flows.
• Net cash used in operating activities increased to $1.598 million in Q1 2025, indicating continued cash burn from operations.
• The company lacks a consistent, material revenue source, relying heavily on capital raises and one-time events.
• Despite regaining Nasdaq compliance, the company remains under a one-year mandatory panel monitor, with a heightened risk of delisting if any non-compliance with the $2.5 million equity rule recurs.
• Material weaknesses in internal control over financial reporting were identified, indicating deficiencies in financial oversight and processes.
• Increased research and development expenses ($0.808 million) and general and administrative expenses ($2.217 million) reflect higher operational costs post-acquisition.
• The company accrued $1.1 million for the unsatisfied portion of its self-insured retainer related to a $5.625 million securities class action settlement.
• Uncertainty persists regarding the ability to raise additional capital on favorable terms or at all, which could lead to bankruptcy or cessation of operations.

Risks

• Substantial uncertainties regarding the exploration of strategic alternatives, including the ability to identify potential partners, consummate transactions, obtain sufficient funding, and generate value for stockholders.
• Inability to raise additional capital needed to fund ongoing operations and strategic alternatives, particularly given the current lack of a revenue source and substantial doubt about the ability to continue as a going concern.
• Risk of not remaining listed on The Nasdaq Capital Market, including maintaining minimum stockholders' equity, stock price, and complying with applicable governance requirements.
• Any strategic plan or alternative pursued may involve unexpected costs, liabilities, and/or delays and may not deliver anticipated benefits to stockholders.
• Estimates of expenses, use of cash, timing of future cash needs, ongoing losses, and capital requirements may prove to be inaccurate.
• Uncertainty about reaction from investors and potential business partners to recent changes of control, board of directors, and management composition, and the ability of new leadership to earn confidence despite limited U.S. public company experience.
• Potential turnover of senior management in the near term, and any inability to attract and retain qualified management and other key personnel, could create significant continuity risk and impair capital raising and strategic execution.
• Challenges in complying with all applicable laws, particularly given recent turnover in Board and management, significant reductions in force, limited resources, and potential entry into new business areas with no past experience.
• Difficulty for investors to assess operations, which are primarily within subsidiaries whose performance is consolidated.
• Ability to obtain and maintain intellectual property protection for technologies and operate without infringing the intellectual property rights of others.
• Impact of macroeconomic conditions, including global inflation, actions by central banks, capital market and bank instability, exchange rate fluctuations, supply chain disruptions, and energy and fuel prices.
• Impact of government laws and regulations, including taxes and tariffs.
• Results of any future or pending litigation against the company.
• Increased costs as a result of global and macroeconomic conditions, including rising inflation and interest rates, supply chain disruptions, fluctuating exchange rates, and increases in commodity, energy, and fuel prices.
• Unknown legal, administrative, regulatory, accounting, and information technology costs, as well as additional costs associated with operating as a public company.

Future Outlook

The company expects to incur significant expenses and negative cash flows for the foreseeable future, and management believes existing cash and cash equivalents are insufficient to fund operations for the next 12 months, raising substantial doubt about its ability to continue as a going concern. Additional financing, likely through equity offerings, will be needed, but obtaining it may be difficult given the company's current condition and uncertain future direction. GPCR USA plans to complete administration of GPC-100 to 20 patients in the second quarter of 2025 and aims to announce clinical trial results during the fourth quarter of 2025. Exicure is committed to initiating the next clinical study and starting the first dosing of the first patient in any new Clinical Trial by the end of 2026.

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."
• "If we are unable to raise capital, the Company may seek bankruptcy protection and/or cease operations in the near term, which may result in the Company’s stockholders receiving no or very little value in respect of their shares of the Company’s common stock."
• "We expect to seek financing through equity offerings. However, it may be difficult to obtain financing given the Company’s current condition and uncertainty over its future direction."

Industry Context

Exicure is undergoing a significant strategic transformation, moving away from its historical focus as an early-stage nucleic acid therapy biotechnology company. The acquisition of GPCR USA marks a pivot into a new area of biotechnology, specifically blood cancer and stem cell mobilization, while the formation of KC Creation Co., Ltd. indicates a radical diversification into non-biotech sectors such as eco-friendly renewable energy infrastructure and Korean entertainment content. This broad strategic exploration suggests the company is seeking new avenues for value creation beyond its original, now largely divested, core, reflecting a trend among some smaller biotech firms to pivot or diversify when original pipelines face challenges or capital constraints.

Management Changes

Corporate Governance

Legal Proceedings

• **Securities Class Action (Colwell v. Exicure, Inc. et al., Case No. 1:21-cv-06637)**: Final judgment approving a $5.625 million settlement was entered on January 13, 2025. The settlement is fully covered by insurance, but the company recorded an accrual of approximately $1.1 million for the unsatisfied portion of its self-insured retainer.
• **Stockholder Derivative Lawsuits (Puri v. Giljohann, et al.; Sim v. Giljohann, et al.; Stourbridge Investments LLC v. Exicure, Inc. et al.)**: Three related lawsuits filed in March and April 2022 are currently stayed, and the company is engaged in settlement discussions with plaintiffs' counsel.
• **Former Employee Complaint**: A complaint filed on October 3, 2023, by a former employee against the company and its executives related to separation. The matter did not settle at a conference on July 17, 2024, and is currently in the discovery phase, with parties working through alleged discovery deficiencies.

Related Party Transactions

• **DGP Co., Ltd. (DGP)**: On June 3, 2024, the company received a $700,000 loan from DGP, which was converted into common stock on September 12, 2024. On February 19, 2025, DGP waived a $191,000 penalty amount owed by the company related to registration rights delays.
• **Alta Companies Ltd. (Alta) / Paul Kang**: A Consulting Agreement was executed on February 27, 2025, with Alta Companies Ltd., whose President, Paul Kang, was a former director and CEO of Exicure. Under the agreement, Mr. Kang provides transitional consulting services for 12 months, with an initial payment of $99,000 and monthly payments of $12,500 starting February 2025.

Stakeholder Impact

• **Shareholders**: Face significant potential dilution from future equity offerings. There is substantial doubt about the company's ability to continue as a going concern, which could result in shareholders receiving 'no or very little value' for their shares. Share price may remain volatile due to ongoing Nasdaq monitoring and the unproven nature of new strategic ventures.
• **Employees**: The acquisition of GPCR USA has led to increased headcount and R&D activities. Key management (CEO, CFO) received salary increases and enhanced severance packages. However, the company's 'going concern' status introduces job insecurity.
• **Customers/Partners**: The acquisition of GPCR USA and its ongoing Phase 2 clinical trial offers potential for new product development in blood cancer. The formation of KC Creation opens doors for collaborations in Korean bio-platform, ESG, and entertainment content, potentially expanding the company's reach and offerings.
• **Creditors**: Past promissory notes from related parties have been converted to equity, reducing debt. Legal settlements are largely covered by insurance, but the self-insured retention accrual represents a direct financial impact.

Next Steps

• GPCR USA plans to complete the administration of GPC-100 to 20 patients in the second quarter of 2025.
• GPCR USA aims to announce the clinical trial results during the fourth quarter of 2025.
• EXICURE shall start the first dosing of the first patient in any new Clinical Trial by the end of 2026.
• The company is evaluating and developing a remediation plan to strengthen the effectiveness of its internal control environment, including enhancing review procedures and potentially adding personnel.
• The parties in the former employee litigation are working through alleged discovery deficiencies and anticipate deposing the plaintiff and witnesses in the coming months.
• The company will be compliant with Nasdaq upon filing this Form 10-Q.
• The company plans to adopt ASU 2024-03, Income Statement Reporting Comprehensive Income -Expense Disaggregation Disclosures, when it becomes effective in its fiscal year 2027 annual financial statements.
• The company is currently evaluating the impact of ASU 2023-09, Income Taxes, which is effective for fiscal years beginning after December 15, 2024.

Key Dates

Recommendation

Keywords

Biotechnology, SEC filing, 10-Q, Financial report, Strategic alternatives, GPCR Therapeutics, GPC-100, Clinical trial, Blood cancer, Stem cell mobilization, KC Creation, South Korea, ESG, Renewable energy, Entertainment content, Nasdaq listing, Going concern, Capital raise, Lease termination, Internal controls, Legal proceedings, Corporate governance, Reverse stock split