EXICURE, INC. The following information should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , which was filed with theSecurities and Exchange Commission , orSEC , onMarch 25, 2022 . This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve significant risks and uncertainties. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks, uncertainties, assumptions and other factors including, but not limited to, those identified in this Quarterly Report on Form 10-Q and those set forth under the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our otherSEC filings. Overview We are an early-stage biotechnology company developing nucleic acid therapies targeting ribonucleic acid against validated targets to neurological disorders and hair loss. Our team includes a diverse scientific group with expertise in nucleic acid chemistry, drug development and neuroscience. Headquartered inChicago, Illinois , we conduct our discovery and development efforts in-house with a dedicated 30,000 square foot facility, including rapid and automated high throughput nucleic acid synthesis and screening. Our therapeutic discovery and development efforts are supported by our proprietary Spherical Nucleic Acid, or SNA, technology. SNAs are nanoscale constructs consisting of densely packed synthetic nucleic acid sequences that are radially arranged in three dimensions. We believe the design of our SNAs gives rise to distinct chemical and biological properties that may provide advantages over other nucleic acid therapeutics and enable therapeutic activity outside of the liver. Our platform for therapeutic nucleic acids has demonstrated potential high potency, broad uptake, and prolonged efficacy in both in vitro and in vivo neurological models. The basis of our discovery approach harnesses our expertise in oligonucleotide chemistry for use against validated targets where we can screen thousands of oligonucleotides efficiently and identify top candidates in the appropriate cell and live animal models. We are currently conducting preclinical studies for a non-opioid analgesic directed against SCN9A (the gene that encodes the protein Nav1.7); undisclosed targets in Huntington's disease and Angelman syndrome as part of our collaboration with Ipsen; and undisclosed targets in hair loss disorders as part of our collaboration with AbbVie.
The table below sets forth the current status of development of our SNA therapeutic candidates.
[[Image Removed: xcur-20220630_g1.jpg]]Operating, financing, and cash flow considerations
Since our inception in 2011, we have devoted substantial resources to the research and development of SNAs and the protection and enhancement of our intellectual property. We have no products approved for sale and have primarily funded our operations through sales of our securities and collaborations. ThroughJune 30, 2022 , we have raised gross proceeds of$206.6 million from the sale of common stock and preferred stock. We have also received 32
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$56.0 million in upfront payments from collaborations, including an upfront payment of$20.0 million we received inAugust 2021 in connection with our research collaboration, license, and option agreement with Ipsen, or the Ipsen Collaboration Agreement, and an upfront payment of$25.0 million we received inNovember 2019 in connection with our research collaboration license and option agreement with AbbVie, or the AbbVie Collaboration Agreement. As ofJune 30, 2022 , our cash, cash equivalents, short-term investments, and restricted cash were$23.4 million . Since our inception, we have incurred significant operating losses. As ofJune 30, 2022 , we have generated an accumulated deficit of$204.7 million . Substantially all of our operating losses resulted from expenses incurred in connection with our research programs and from general and administrative costs associated with our operations. Based on our current operating plans and existing working capital atJune 30, 2022 , it is uncertain whether our current liquidity is sufficient to fund operations over the next twelve months from the date of the issuance of the accompanying unaudited condensed consolidated financial statements. As a result, there is substantial doubt about our ability to continue as a going concern. Substantial additional financing will be needed by us to fund our operations. If we are unable to raise capital, we may be required to delay, reduce the scope of or eliminate research and development programs, obtain funds through arrangements with collaborators or others that may require us to relinquish rights to assets or preclinical programs that we might otherwise seek to develop independently; or we may need to consider other various strategic alternatives, including a merger or sale, or be unable to continue operations.
We expect to continue to incur losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially as we:
•advance preclinical development targeting SCN9A in pain to drug candidate selection and IND-enabling studies;
•advance our SNA platform with our current and prospective suitable collaboration partners;
•initiate research and development, preclinical studies and clinical trials for any additional therapeutic candidates that we may pursue in the future;
•advance other therapeutic candidates through preclinical and clinical development;
•increase our research and development activities to enhance our technology platform;
•continue to manufacture increasing quantities of drug substance and drug product material for use in preclinical studies and clinical trials;
•seek regulatory approval for our therapeutic candidates that successfully complete clinical trials;
•maintain, expand and protect our intellectual property portfolio;
•acquire or in-license other approved drugs, drug candidates or technologies;
•hire additional operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and
•incur additional costs associated with operating as a public company.
We have not generated any revenue from commercial drug sales nor do we expect to
generate substantial revenue from product sales unless or until we successfully
complete development and obtain regulatory approval of and commercialize one or
more of our therapeutic candidates. We do not anticipate generating revenue from
drug sales for the next several years, if ever. If we obtain regulatory approval
for any of our therapeutic candidates, we expect to incur significant
commercialization expenses related to product sales, marketing, manufacturing
and distribution. Other sources of revenue could include a combination of
research and development payments, license fees and other upfront payments,
milestone payments, and royalties in connection with our current and any future
collaborations and licenses. Until such time, if ever, that we generate revenue
from whatever source, we expect to finance our cash needs through a combination
of public or private equity offerings, debt financings and research
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collaboration and license agreements. We may be unable to raise capital or enter into such other arrangements when needed or on favorable terms. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our therapeutic candidates. Recent Developments
Nasdaq Listing Requirements Compliance Notice
As previously disclosed on our Current Report on Form 8-K datedJune 29, 2022 , onJune 29, 2022 , we received a notice letter fromThe Nasdaq Stock Market LLC , or Nasdaq, stating that we had not regained compliance with the$1.00 per share minimum bid price requirement pursuant to Nasdaq Listing Rule 5450(a)(1), or the Bid Price Requirement, during the compliance period and were subject to delisting. We timely requested an appeal hearing which stayed delisting pending the decision of aNasdaq Hearings Panel , or the Panel. OnJuly 19, 2022 , we received a letter, or the Compliance Notice, from theOffice of General Counsel of Nasdaq , informing us that we had regained compliance with the Bid Price Requirement and that we were in compliance with all applicable listing standards, and therefore the schedule hearing before the Panel had been cancelled. Pursuant to the Compliance Notice, the scheduled hearing before the Panel onAugust 11, 2022 was cancelled and our common stock will continue to be listed and traded on The Nasdaq Capital Market.
Reverse-Stock Split
OnJune 28, 2022 , we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation, or the Amendment, with the Secretary of State of theState of Delaware to effect a one-for-thirty (1-for-30) reverse stock split of our outstanding common stock. The Amendment became effective at5:00 p.m. Eastern Time onJune 29, 2022 . The Amendment provides that, at the effective time of the Amendment, every thirty (30) shares of our issued and outstanding common stock will automatically be combined into one issued and outstanding share of common stock, without any change in par value per share. The reverse stock split effected all shares of our common stock outstanding immediately prior to the effective time of the Amendment. As a result of the reverse stock split, proportionate adjustments have been made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted share unit award and performance unit award issued by us and outstanding immediately prior to the effective time of the Amendment, which resulted in a proportionate decrease in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options, restricted share unit award and performance unit award, and, in the case of stock options, a proportionate increase in the exercise price of all such stock options. In addition, the number of shares reserved for issuance under our equity compensation plans immediately prior to the effective time of the Amendment was reduced proportionately. No fractional shares were issued as a result of the reverse stock split. Stockholders of record who would otherwise be entitled to receive a fractional share received a cash payment in lieu thereof. The reverse stock split affected all stockholders proportionately and did not affect any stockholder's percentage ownership of our common stock (except to the extent that the reverse stock split results in any stockholder owning only a fractional share). Our common stock began trading on The Nasdaq Capital Market on a split-adjusted basis when the market opened onThursday, June 30, 2022 . The new CUSIP number for our common stock following the reverse stock split is 30205M 200. 34
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All information presented in this Quarterly Report on Form 10-Q, unless otherwise indicated herein, assumes a 1-for-30 reverse stock split of our outstanding shares of Common Stock, and unless otherwise indicated, all such amounts and corresponding conversion price or exercise price data set forth herein have been adjusted to give effect to such assumed reverse stock split.
Private Placement
OnMay 9, 2022 , we entered into a securities purchase agreement, or the Securities Purchase Agreement, with certain accredited investors, or the Investors, pursuant to which we agreed to issue and sell to the Investors in a private placement an aggregate of 867,369 shares, or the Shares, of our common stock, par value$0.0001 per share, or Common Stock, at a purchase price of$5.81 per share, or the Private Placement. The Private Placement closed onMay 18, 2022 , or the Closing Date. We received aggregate gross proceeds from the Private Placement of approximately$5.0 million , before deducting estimated offering expenses payable by us. We expect the net proceeds from the Private Placement to be used to support the development of the advancement of our preclinical program, including the development of its SCN9A product candidate, as well as other working capital and general corporate purposes. Pursuant to the Securities Purchase Agreement, in connection with the Private Placement, the lead investor,CBI USA, Inc. , orCBI USA , has the right to nominate a member to the Board provided such nominee qualifies as an "independent" director under Nasdaq Listing Rule 5605(a)(2), effective as of the closing date.CBI USA also has the right, as of the Closing Date, to designate one individual to attend all meetings of the Board in a nonvoting observer capacity. Also, onMay 9, 2022 , we entered into a registration rights agreement, or the Registration Rights Agreement, with the Investors, pursuant to which we agreed to register the Shares for resale. Under the Registration Rights Agreement, we agreed to file a registration statement covering the resale of the Shares by no later thanJuly 18, 2022 . OnJuly 11, 2022 , we filed a registration statement on Form S-3 with theSEC for the resale of the Shares and caused the registration statement to become effective onJuly 20, 2022 .
COVID-19 Business Update
As the global spread of the COVID-19 pandemic continues to affect our economy and our industry, we continue to monitor closely the developments and continue to take active measures to protect the health of our employees and their families, and our communities. Our on-site activities continue with protocols for safely accessing and working within our facilities. While we continue to conduct research and development activities, the COVID-19 pandemic has impacted, and may continue to impact, certain of our early-stage discovery efforts. Given the global risks and uncertainties associated with COVID-19, our business, results of operations, and prospects could be materially adversely affected. For additional information, see "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies require the most significant judgments and estimates in the preparation of our consolidated financial statements. There have been no significant changes to our critical accounting policies from those which were discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 35
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Recently adopted accounting pronouncements
None.
Recent accounting pronouncements not yet adopted
Refer to Note 2, Significant Accounting Policies, of the accompanying unaudited condensed consolidated financial statements for a description of recent accounting pronouncements not yet adopted.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes the results of our operations for the three
months ended
Three Months Ended
June 30,
(dollars in thousands) 2022 2021 Change
Revenue:
Collaboration revenue $ 2,471 $ 79 $ 2,392 3,028 %
Total revenue 2,471 79 2,392 3,028 %
Operating expenses:
Research and development expense 6,749 10,843 (4,094) (38) %
General and administrative expense 3,205 3,098 107 3 %
Total operating expenses 9,954 13,941 (3,987) (29) %
Operating loss (7,483) (13,862) 6,379 (46) %
Other income (expense), net:
Dividend income 16 2 14 700 %
Interest income 1 43 (42) (98) %
Interest expense - (450) 450 (100) %
Other expense, net (4) (2) (2) 100 %
Total other income (expense), net 13 (407) 420 (103) %
Net loss before provision for income taxes (7,470) (14,269) 6,799 (48) %
Provision for income taxes - - - - %
Net loss $ (7,470) $ (14,269) $ 6,799 (48) %
Revenue
The following table summarizes our revenue earned during the periods indicated:
Three Months Ended
June 30,
(dollars in thousands) 2022 2021 Change
Collaboration revenue:
Ipsen Collaboration Agreement $ 1,775 $ - $ 1,775 n/m
AbbVie Collaboration Agreement 696 79 617 781 %
Total collaboration revenue $ 2,471 $ 79 $
2,392 3,028 %
Total revenue $ 2,471 $ 79 $ 2,392 3,028 %
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Collaboration revenue was$2.5 million during the three months endedJune 30, 2022 , reflecting an increase of$2.4 million , or 3,028%, from collaboration revenue of$0.1 million for the three months endedJune 30, 2021 . The increase in collaboration revenue of$2.4 million is mostly due to revenue related to the Ipsen Collaboration Agreement of$1.8 million , as well as an increase in revenue related to the AbbVie Collaboration Agreement of$0.6 million .
Refer to Note 3,
We do not expect to generate any product revenue for the foreseeable future. However, future revenue may include amounts attributable to partnership activities including, a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties, and reimbursement of certain research and development expenses, in connection with the Ipsen Collaboration Agreement, AbbVie Collaboration Agreement, the collaboration agreement withDermelix LLC , or any future collaboration and licenses.
Research and development expense
The following table summarizes our research and development expenses incurred during the periods indicated:
Three Months Ended
June 30,
(dollars in thousands) 2022 2021 Change
Platform and discovery-related expense
$ (142) (6) % Employee-related expense 1,997 3,197 (1,200) (38) % Clinical development programs expense 1,229 4,202 (2,973) (71) % Facilities, depreciation, and other expenses 1,184 963 221 23 % Total research and development expense$ 6,749 $ 10,843 $ (4,094) (38) % Full time employees 31 66 (35) Research and development expense was$6.7 million for the three months endedJune 30, 2022 , reflecting a decrease of$4.1 million , or 38%, from research and development expense of$10.8 million for three months endedJune 30, 2021 . The decrease in research and development expense for the three months endedJune 30, 2022 of$4.1 million reflects a reduction in headcount and fewer discovery, preclinical, and clinical program activities resulting from the restructuring activities that were announced inDecember 2021 . More specifically, the decrease in research and development expense for the three months endedJune 30, 2022 of$4.1 million was primarily due to a decrease in costs related to our clinical development programs of$3.0 million , lower employee-related expense of$1.2 million , and lower platform and discovery-related expense of$0.1 million . The decrease in clinical development programs expense for the three months endedJune 30, 2022 of$3.0 million was primarily due to lower manufacturing and toxicology study costs in connection with IND-enabling and Phase 1 clinical trial preparation activities for the XCUR-FXN program, which we indefinitely suspended inDecember 2021 . In addition, lower clinical trial costs in connection with our Phase 1b/2 clinical trial for cavrotolimod (AST-008), which we began to wind down inDecember 2021 , contributed to the decrease in clinical development program expense as compared to the prior-year period. The decrease in employee-related expense for the three months endedJune 30, 2022 of$1.2 million was due to lower compensation and related costs in connection with a lower average headcount during the period resulting from the restructuring activities that were announced inDecember 2021 . These lower costs in the three months endedJune 30, 2022 were partially offset by retention award expense for current employees. 37
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The decrease in platform and discovery-related expense for the three months endedJune 30, 2022 of$0.1 million was mostly due to lower costs for materials, reagents, and supplies in connection with a reduction in headcount and fewer discovery and preclinical program activities as compared to the prior-year period, partially offset by an increase in costs for in vivo study activities with contract research organizations related to our SCN9A pain program.
The increase in facilities, depreciation, and other expenses for the three
months ended
In connection with the restructuring activities announced in
General and administrative expense
Three Months Ended
June 30,
(dollars in thousands) 2022 2021 Change
General and administrative expense
8 12 (4)
General and administrative expense was $3.2 million for the three months ended
June 30, 2022 , representing an increase of $0.1 million , or 3%, from $3.1
million for the three months ended June 30, 2021 . The increase for the three
months ended June 30, 2022 was mostly due to higher legal costs and retention
award expense for current employees, partially offset by lower compensation and
related costs in connection with a lower average headcount during the period
resulting from the restructuring activities that were announced in December
2021 , as well as lower costs for consulting, investor relations, and board fees.
Interest expense
The decrease in interest expense of$0.5 million for the three months endedJune 30, 2022 is in connection with the repayment in full of all outstanding indebtedness and other obligations under the MidCap Credit Agreement (as defined below) onMarch 15, 2022 . 38
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Comparison of the Six Months Ended
The following table summarizes the results of our operations for the six months
ended
Six Months Ended
June 30,
(dollars in thousands) 2022 2021 Change
Revenue:
Collaboration revenue $ 5,036 $ 1,076 $ 3,960 368 %
Total revenue 5,036 1,076 3,960 368 %
Operating expenses:
Research and development expense 13,889 21,105 (7,216) (34) %
General and administrative expense 6,367 5,990 377 6 %
Total operating expenses 20,256 27,095 (6,839) (25) %
Operating loss (15,220) (26,019) 10,799 (42) %
Other (expense) income, net:
Dividend income 18 3 15 500 %
Interest income 3 131 (128) (98) %
Interest expense (595) (859) 264 (31) %
Other expense, net (24) (2) (22) 1,100 %
Total other expense, net (598) (727) 129 (18) %
Net loss before provision for income taxes (15,818) (26,746) 10,928 (41) %
Provision for income taxes - - - - %
Net loss $ (15,818) $ (26,746) $ 10,928 (41) %
Revenue
The following table summarizes our revenue earned during the periods indicated:
Six Months Ended
June 30,
(dollars in thousands) 2022 2021 Change
Collaboration revenue:
Ipsen Collaboration Agreement $ 3,854 $ - $ 3,854 n/m
AbbVie Collaboration Agreement 1,182 1,076 106 10 %
Total collaboration revenue $ 5,036 $ 1,076 $ 3,960 368 %
Total revenue $ 5,036 $ 1,076 $ 3,960 368 %
Collaboration revenue was $5.0 million during the six months ended June 30,
2022 , reflecting an increase of $4.0 million , or 368%, from collaboration
revenue of $1.1 million for the six months ended June 30, 2021 . The increase in
collaboration revenue of $4.0 million is mostly due to revenue related to the
Ipsen Collaboration Agreement of $3.9 million , as well as an increase in revenue
related to the AbbVie Collaboration Agreement of $0.1 million .
Refer to Note 3,
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We do not expect to generate any product revenue for the foreseeable future. However, future revenue may include amounts attributable to partnership activities including, a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties, and reimbursement of certain research and development expenses, in connection with the Ipsen Collaboration Agreement, AbbVie Collaboration Agreement, the collaboration agreement withDermelix LLC , or any future collaboration and licenses.
Research and development expense
The following table summarizes our research and development expenses incurred during the periods indicated:
Six Months Ended
June 30,
(dollars in thousands) 2022 2021 Change
Platform and discovery-related expense
4,300 5,960 (1,660) (28) %
Clinical development programs expense 2,855 6,805 (3,950) (58) %
Facilities, depreciation, and other expenses 2,250 2,054
196 10 %
Total research and development expense
Full time employees 31 66 (35) Research and development expense was$13.9 million for the six months endedJune 30, 2022 , reflecting a decrease of$7.2 million , or 34%, from research and development expense of$21.1 million for six months endedJune 30, 2021 . The decrease in research and development expense for the six months endedJune 30, 2022 of$7.2 million reflects a reduction in headcount and fewer discovery, preclinical, and clinical program activities resulting from the restructuring activities that were announced inDecember 2021 . More specifically, the decrease in research and development expense for the six months endedJune 30, 2022 of$7.2 million was primarily due to a decrease in costs related to our clinical development programs of$4.0 million , lower platform and discovery-related expense of$1.8 million , and lower employee-related expense of$1.7 million . The decrease in clinical development programs expense for the six months endedJune 30, 2022 of$4.0 million was primarily due to lower manufacturing and toxicology study costs in connection with IND-enabling and Phase 1 clinical trial preparation activities for the XCUR-FXN program which we indefinitely suspended inDecember 2021 . In addition, lower clinical trial costs in connection with our Phase 1b/2 clinical trial for cavrotolimod (AST-008), which we began to wind down inDecember 2021 , contributed to the decrease in clinical development program expense as compared to the prior-year period. The decrease in platform and discovery-related expense for the six months endedJune 30, 2022 of$1.8 million was mostly due to lower costs for materials, reagents, and supplies in connection with a reduction in headcount and fewer discovery and preclinical program activities, as well as lower intellectual property costs, as compared to the prior-year period. This decrease was partially offset by an increase in costs for in vivo study activities with contract research organizations related to our SCN9A pain program. The decrease in employee-related expense for the six months endedJune 30, 2022 of$1.7 million was due to lower compensation and related costs in connection with a lower average headcount during the period resulting from the restructuring activities that were announced inDecember 2021 . These lower costs in the six months endedJune 30, 2022 were partially offset by retention award expense for current employees. The increase in facilities, depreciation, and other expenses for the six months endedJune 30, 2022 of$0.2 million was primarily due to higher variable lease costs in the current-year period. 40
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In connection with the restructuring activities announced in
General and administrative expense
Six Months Ended
June 30,
(dollars in thousands) 2022 2021 Change
General and administrative expense
6 % Full time employees 8 12 (4) General and administrative expense was$6.4 million for the six months endedJune 30, 2022 , representing an increase of$0.4 million , or 6%, from$6.0 million for the six months endedJune 30, 2021 . The increase for the six months endedJune 30, 2022 was mostly due to higher legal costs and retention award expense for current employees, partially offset by lower compensation and related costs in connection with a lower average headcount during the period resulting from the restructuring activities that were announced inDecember 2021 , as well as lower costs for investor relations, board fees, and consulting costs. Interest expense The decrease in interest expense of$0.3 million for the six months endedJune 30, 2022 was due to the effects of a lower average debt balance during the six months endedJune 30, 2022 as compared to the prior-year period, partially offset by the acceleration of unamortized debt discount and issuance costs in the current year period in connection with the repayment in full of all outstanding indebtedness and other obligations under the MidCap Credit Agreement (as defined below) onMarch 15, 2022 .
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from our collaboration agreements. We have not yet commercialized any of our product candidates, which are in various phases of preclinical development and clinical trials; and we do not expect to generate revenue from sales of any product for several years, if at all. We have funded our operations to date with proceeds received from equity financings and payments received in connection with collaboration agreements. As ofJune 30, 2022 , our cash, cash equivalents, short-term investments, and restricted cash were$23.4 million as compared to$48.3 million as ofDecember 31, 2021 . To date, we have funded our operations primarily with proceeds received from equity financings and to a lesser extent, payments received in connection with collaboration agreements. We have generated limited revenue to date from our collaboration agreements. We have no products approved for commercial sale and have not generated any product revenues from product sales to date, and we do not expect to generate revenue from sales of any product for several years, if at all. We have incurred significant operating losses since inception. We incurred net losses of approximately$15.8 million and$26.7 million for the six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 , we have generated an accumulated deficit of$204.7 million since inception and expect to incur significant expenses and negative cash flows for the foreseeable future. Based on our current operating plans and existing working capital atJune 30, 2022 , it is uncertain whether our current liquidity is sufficient to fund operations over the next twelve months from the date of the issuance of the accompanying unaudited condensed consolidated financial statements. As a result, there is substantial doubt about our ability to continue as a going concern. Substantial additional financing will be needed by us to fund our operations. If we are unable to raise capital, we may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to assets or preclinical programs that we might otherwise seek to develop independently.
See "-Funding Requirements" below for additional information on our future capital needs.
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Table of Contents MidCap Facility OnMarch 15, 2022 , we repaid in full all outstanding indebtedness and other obligations under our Credit and Security Agreement, dated as ofSeptember 25, 2020 , as amended onOctober 21, 2020 ,July 30, 2021 ,September 30, 2021 , andDecember 10, 2021 , withMidCap Financial Trust , as agent, and the lenders party thereto from time to time, or the MidCap Credit Agreement, and the other Financing Documents (as defined in the MidCap Credit Agreement), including but not limited to the outstanding principal balance of$7.5 million and an exit fee of approximately$0.5 million , and terminated all obligations thereunder (other than with respect to any obligations that are expressly specified to survive the termination). Private Placement InMay 2022 , we entered into a securities purchase agreement with several accredited investors, pursuant to which we issued and sold shares of common stock for estimated gross proceeds of approximately$5 million , before deducting transaction-related expenses payable by us. We intend to use the net proceeds from this offering to support the development of the advancement of our preclinical program, including the development of its SCN9A product candidate, as well as other working capital and general corporate purposes.
Cash Flows
The following table shows a summary of our cash flows for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, (in thousands) 2022 2021 (unaudited) Net cash used in operating activities$ (21,834) $ (25,885) Net cash provided by investing activities 3,491 34,533 Net cash (used in) provided by financing activities (3,103) 677 Net (decrease) increase in cash, cash equivalents, and restricted cash$ (21,446) $ 9,325 Operating activities Net cash used in operating activities was$21.8 million and$25.9 million for the six months endedJune 30, 2022 and 2021, respectively. The decrease in cash used in operating activities for the six months endedJune 30, 2022 of$4.1 million was primarily due to a decrease in cash used for working capital.
Investing activities
Net cash provided by investing activities was$3.5 million and$34.5 million for the six months endedJune 30, 2022 and 2021, respectively. The decrease in cash provided by investing activities of$31.0 million was primarily due to a decrease in proceeds from the maturity, net of purchases, of available-for-sale securities. Financing activities Net cash used in financing activities of$3.1 million for six months endedJune 30, 2022 is due to the repayment in full of all outstanding indebtedness and other obligations under the MidCap Credit Agreement, partially offset by net proceeds of approximately$4.9 million received in connection with theMay 2022 private placement transaction.
Net cash provided by financing activities of
Funding Requirements
We expect our expenses to increase as we continue our ongoing activities,
particularly as we continue our research and development, initiate preclinical
studies or clinical trials, and seek marketing approval for our current and any
of our future product candidates. In addition, if we obtain marketing approval
for any of our current or our
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future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing and expenditures of our preclinical studies and our research and development activities. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts; consider other various strategic alternatives, including a merger or sale; or cease operations. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements early into the first quarter of 2023. However, we have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements are difficult to forecast and will depend on many factors, including:
•the terms and timing of any other collaboration, licensing and other arrangements that we may establish;
•the initiation, progress, timing and completion of preclinical studies and clinical trials for our potential therapeutic candidates;
•the effects of health epidemics, including the ongoing COVID-19 pandemic, on our operations or the business or operations of our contract research organizations, or CROs, or other third parties with whom we conduct business;
•the number and characteristics of therapeutic candidates that we pursue;
•the progress, costs and results of our preclinical studies;
•the outcome, timing and cost of regulatory approvals;
•delays that may be caused by changing regulatory requirements;
•the cost and timing of hiring new employees to support our growth;
•unknown legal, administrative, regulatory, accounting, and information technology costs as well as additional costs associated with operating as a public company;
•the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
•the costs of filing and prosecuting intellectual property rights and enforcing and defending any intellectual property-related claims;
•the costs and timing of procuring clinical and commercial supplies of our therapeutic candidates;
•the extent to which we acquire or in-license other therapeutic candidates and technologies; and
•the extent to which we acquire or invest in other businesses, therapeutic candidates or technologies.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, collaborations, and distribution or licensing arrangements with
third parties. To the extent that we raise additional capital through the sale
of equity or convertible debt securities, the ownership interest of our
stockholders may be materially diluted, and the terms of such securities could
include liquidation or other preferences that adversely affect the rights of our
stockholders. Debt financing and preferred equity financing, if available, may
involve agreements that include restrictive
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covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. Further, the global financial markets have experienced significant disruptions over the past couple years due to the COVID-19 pandemic and the ongoing conflict betweenRussia andUkraine . Any further disruption or slowdown in the global financial markets and economy may negatively affect our ability to raise funding through equity or debt financings on attractive terms or at all, which could in the future negatively affect our operations. If we raise funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our research and development programs, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Going Concern In accordance with Accounting Standards Codification 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. In the absence of a significant source of recurring revenue, our continued viability is dependent on our ability to continue to raise additional capital to finance our operations. Substantial additional financing will be needed by us to fund our operations. Changes in our business strategy, our operating plans, our existing and anticipated working capital needs, increased expenses, or other events will also affect our ability to continue as a going concern. If we are unable to obtain additional funding, we may be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations and
commitments from those described in our Annual Report on Form 10-K for the year
ended
Off-balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC . JOBS Act We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, as an emerging growth company, we will not be required to provide an auditor's attestation report on our internal control over financial reporting in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. 44
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