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, or Quarterly Report, and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , which was filed with theSecurities and Exchange Commission , orSEC , onMarch 10, 2020 , or the Annual Report. This discussion and analysis contains forward-looking statements 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 and uncertainties, including, but not limited to, those set forth under the section titled "Risk Factors" in Part II, Item 1A. Such factors may be amplified by the COVID-19 pandemic and its current or future impact on our business and the global economy.
Overview
We are a clinical-stage biotechnology company developing therapeutics for immuno-oncology, genetic disorders and other indications based on 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. We are working to advance our SNA therapeutic candidates through multiple clinical trials, including the ongoing Phase 1b/2 clinical trial of cavrotolimod (AST-008) in cancer patients. We believe that one of the key strengths of our proprietary SNAs is that they have the potential to enter a number of different cells and organs. We have shown in clinical and preclinical studies that SNAs may have therapeutic potential in immunoncology and dermatology. In addition, we have shown in preclinical studies that SNAs may have therapeutic potential in neurology, ophthalmology, pulmonology, and gastroenterology. As a consequence, we have expanded our pipeline into neurology, and have conducted early stage research activities in ophthalmology, pulmonology, and gastroenterology. The table below sets forth the current status of development of our SNA therapeutic candidates: [[Image Removed: xcur-20200630_g1.jpg]] ___________ (1) In combination with checkpoint inhibitors. (2) OnMay 8, 2020 , AbbVie Inc. completed the previously announced acquisition of Allergan plc. 32
--------------------------------------------------------------------------------
Table of Contents
Immuno-oncology, Cavrotolimod (AST-008) Cavrotolimod (AST-008) is an SNA consisting of toll-like receptor 9, or TLR9, agonists designed for immuno-oncology applications. TLR9 agonists bind to and activate TLR9. We believe cavrotolimod (AST-008) may be used for immuno-oncology applications in combination with checkpoint inhibitors. We have observed that, in preclinical studies in a variety of tumor models, cavrotolimod (AST-008), applied in combination with certain checkpoint inhibitors, exhibited anti-tumor responses and survival rates that were greater than those demonstrated by checkpoint inhibitors alone. We have also demonstrated that cavrotolimod (AST-008) was active when administered subcutaneously, intratumorally or intravenously, in both prevention and established mouse tumor models. The administration of cavrotolimod (AST-008) also produced localized as well as abscopal anti-tumor activity in mouse cancer models. Additionally, the administration of cavrotolimod (AST-008) in combination with certain checkpoint inhibitors conferred adaptive immunity in breast and colon cancer mouse models. In mouse tumor models, administration of cavrotolimod (AST-008) with anti-PD-1 antibodies suppresses regulatory T-cells, or Tregs, and myeloid-derived suppressor cells, or MDSCs, and increases the levels of CD8 effector T-cells. We believe these important results suggest that the combination of immuno-oncology SNAs and checkpoint inhibitors could potentially treat a larger proportion of cancer patients than checkpoint inhibitors alone. During the first half of 2019, we opened five clinical trial sites and began dosing patients for the Phase 1b/2 clinical trial. As ofJuly 31, 2020 , we had 14 clinical trial sites open for enrollment and we expect to open up to 25 sites. As ofJuly 1, 2020 , we have, completed enrollment of the Phase 1b stage of the clinical trial and have dosed all 20 enrolled patients. The Phase 1b stage was an open-label, multi-center trial designed to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and preliminary efficacy of intratumoral cavrotolimod (AST-008) injections alone and in combination with intravenous pembrolizumab in patients with advanced solid tumors. The 20 patients from the Phase 1b stage included those with advanced or metastatic Merkel cell carcinoma, head and neck squamous cell carcinoma, cutaneous squamous cell carcinoma, melanoma and leiomyosarcoma. To date, we have not observed any treatment related serious adverse events, or SAEs, nor have we observed any dose-limiting toxicity, or DLT, among the treated subjects. The most common reported adverse event was injection site reactions. InDecember 2019 , we reported preliminary results from the Phase 1b stage of the clinical trial showing potential signs of anti-tumor activity in patients with Merkel cell carcinoma. InJune 2020 , at theAmerican Association of Cancer Research Virtual Annual Meeting, we reported additional safety and pharmacodynamic data from the 20 enrolled subjects We reported that we had observed cavrotolimod (AST-008) was well-tolerated, with a safety profile consisting primarily of injection site reactions and flu-like symptoms, which we believe reflects local and systemic immune activation. No cavrotolimod (AST-008)-related serious adverse events or dose limiting toxicity were reported or have been reported to date. In addition, gene expression analysis data from patient tumor biopsies demonstrated increases in leukocytes in injected tumors after intratumoral (IT) cavrotolimod (AST-008) alone and in combination with pembrolizumab versus baseline. Uninjected tumors also showed increased immune cell levels after subjects received cavrotolimod (AST-008) and pembrolizumab, suggesting immune cell trafficking. Dose-dependent activation of key immune cells, including cytotoxic T cells and natural killer cells, as well as increases in cytokine/chemokine levels were observed in subject blood after IT cavrotolimod (AST-008) treatment alone, and cavrotolimod (AST-008) plus pembrolizumab treatment. We believe that activation of these cell types and expression of immune system signaling proteins may help produce anti-tumor effects. Using these data, a recommended Phase 2 dose of 32 mg cavrotolimod (AST-008) has been identified for the Phase 2 portion of the clinical trial which is currently underway, whereby cavrotolimod (AST-008) will be given in combination with pembrolizumab or cemiplimab for the treatment of locally advanced or metastatic Merkel cell carcinoma, or cutaneous squamous cell carcinoma, respectively, in subjects with progression despite approved anti-PD-(L)1 therapy. We plan to enroll two separate cohorts of patients with advanced or metastatic Merkel cell carcinoma, or cutaneous squamous cell carcinoma. Each cohort is expected to enroll up to 29 patients who have failed anti-PD-1/PD-L1, or programmed cell death protein 1/programmed death-ligand 1, therapy. OnJune 16, 2020 , we reported that we dosed the first subject in the Merkel cell carcinoma cohort of the trial. 33
--------------------------------------------------------------------------------
Table of Contents
The diagram below illustrates our planned design of the Phase 2 portion of the trial: [[Image Removed: xcur-20200630_g2.jpg]] Cavro: Cavrotolimod (AST-008); RP2D: Recommended Phase 2 dose; Pembro: Pembrolizumab Neurology We are investigating the utility of our SNA technology for the treatment of neurological conditions and have ongoing research programs underway. In the fall of 2018, we completed a biodistribution study in rats comparing nusinersen to nusinersen in SNA format. Nusinersen, marketed by Biogen Inc. as Spinraza®, is a linear nucleic acid therapeutic approved by the FDA in late 2016 for the treatment of spinal muscular atrophy, or SMA. We found that more nusinersen in SNA format compared to nusinersen was retained in the rats' brain and spinal cord at 24, 72 and 168 hours. OnJune 26, 2019 , we announced data from a preclinical study we conducted evaluating the biodistribution of SNAs in the non-human primate central nervous system. In this study, 7 mg of radio-labeled SNAs were injected intrathecally into cynomolgus monkeys. The biodistribution of the SNAs was followed for 14 days by PET/CT scans. SNAs were observed throughout the entire brain and were found both in the brain stem as well as inside the brain. High content of SNA was observed in all 46 regions of the brain examined. These key data indicate that the SNA platform may be well-suited for development of new therapeutics directed towards diseases of the central nervous system. Friedreich's ataxia We are developing XCUR-FXN, an SNA-based therapeutic candidate for the treatment of Friedreich's ataxia, or FA. FA is an autosomal recessive, neurodegenerative disease characterized by progressively impaired muscle coordination caused by the degeneration of neurons in the cerebellum and dorsal root ganglia in the spinal cord. FA patients may also experience impairment of visual, auditory and speech functions. FA patients also commonly suffer from life-threatening heart conditions such as hypertrophic cardiomyopathy, myocardial fibrosis and heart failure. The typical age of onset for FA is between 5 and 15 years. An estimated 5,000 patients inthe United States and 15,000 patients worldwide are affected by FA. There are currently no FDA-approved treatments for FA. We have conducted extensive preclinical research evaluating the suitability of our SNA technology for genetically defined neurological diseases, including efficacy studies in animal models, and biodistribution in rodent 34
--------------------------------------------------------------------------------
Table of Contents
and non-human primates. Based on the results, we believe we can target FA at the genetic source and meet an important unmet medical need for FA patients. FA is driven by expansion of guanine-adenine-adenine bases of the DNA sequence, or GAA, triplet repeats in the first intron of frataxin, or FXN, gene. The expanded repeat of FXN forms an intramolecular triple-helix, which impairs transcription and reduces levels of frataxin protein. Our strategy will be to use a genetically-targeted SNA therapy to increase FXN protein. We are designing and developing our FA program, XCUR-FXN, with guidance from and in collaboration with the Friedreich'sAtaxia Research Alliance , or FARA, the non-profit, charitable organization dedicated to accelerating research leading to treatments and a cure for FA. We expect to initiate IND-enabling studies for XCUR-FXN in late 2020. Other neurological indications We are building on our proof-of-concept work with nusinersen and our therapeutic candidate XCUR-FXN to further explore new therapeutic applications of our SNA technology in neurology. We aim to address indications with great unmet medical need and where we believe the attributes of our SNA technology would lead to therapeutic and commercial advantages. In order to select new therapeutic indications, we expect to analyze a variety of attributes including: (i) indications where there is a known genetic basis for the disorder, (ii) disorders where we can target multiple genes, (iii) the existence of a patient registry or a patient advocacy group that can work with us for easier trial enrollment, (iv) the competitive therapeutic landscape including disorders not easily addressable by small molecules or antibodies, (v) indications with no approved therapies, and (vi) indications amenable to localized therapeutic administration. Based on these and other criteria, we are currently exploring additional neurological conditions, including spinocerebellar ataxia, Batten disease, amyotrophic lateral sclerosis (ALS), and Huntington's disease. Ophthalmology We believe that the eye may be an attractive organ for locally-applied SNAs because (i) it is a small and immune-privileged organ, (ii) there are established and non-invasive clinical assessment procedures, and (iii) effective trials can be designed by dosing one eye while using the contralateral eye as a control. We believe that the results of our preclinical studies of SNA technology in the eye may provide proof-of-concept for expansion of our research and development activities into ophthalmological genetic disorders. Our preclinical data indicated that SNAs distributed to both posterior (retinal) and anterior (cornea) ocular structures, exhibited higher distribution and persisted longer compared to linear oligonucleotides, and did not cause inflammation in the eye. We believe SNAs may possess key potential advantages over gene therapy in the eye. These key potential advantages include: (i) delivery via intravitreal injections which are safer and easier than subretinal injections, (ii) tunable and reversible control of target expression, and (iii) the ability to treat toxic gain-of-function diseases and target large genes. We believe, based on our internal analysis, that there are approximately 250 rare ophthalmological diseases with known genetic targets, such as CLN3 for Batten disease, BEST1 for vitelliform macular dystrophy, and USH2A for usher syndrome type 2A. As such, we intend to continue to evaluate expansion of our preclinical research and development activities in ophthalmology. Dermatology XCUR17 XCUR17 is an SNA that targets the mRNA that encodes interleukin 17 receptor alpha, or IL-17RA, a protein that is considered essential in the initiation and maintenance of psoriasis. Although the availability of inhibitors of TNF revolutionized the systemic treatment of severe psoriasis, studies of disease pathogenesis have shifted attention to the IL-17 pathway in which IL-17RA is a key driver of psoriasis. Our strategy is to reduce the levels of IL-17RA in the skin by topically applying XCUR17. In the fourth quarter of 2018, we reported results from our Phase 1 clinical trial of XCUR17. Of the 21 treated patients, we observed that the 11 patients treated with the highest strength of XCUR17 gel had a reduction in redness and improvement in healing as determined by blinded physician assessments. We also observed no adverse safety events and no relevant changes in mean psoriatic infiltrate thickness related to treatment with XCUR17. 35
--------------------------------------------------------------------------------
Table of Contents
InOctober 2019 , at the 15th Annual Meeting of theOligonucleotide Therapeutics Society , we disclosed biomarker results from the skin biopsies collected from the 21 patients treated in the Phase 1 clinical trial. Clinical observations in this Phase 1 trial correlated with psoriasis-related markers and histological changes from biopsies provided by the patients. In this trial, we observed clinically that XCUR17 had: •Resulted in a decrease in the levels of psoriasis and inflammation markers downstream of its target, IL-17RA; •Produced a statistically significant reduction in keratin 16 expression, a key marker of psoriasis (p=0.002); •Resulted in reductions in the major inflammatory markers beta defensin 4A, interleukin 19, and interleukin 36A versus psoriatic skin at baseline; and •Revealed clinical improvements that matched reductions in keratin 16 protein and epidermal thickness. We believe these findings suggest that SNA-based drugs, such as XCUR17, may address clinical symptoms in patients with inflammatory diseases, such as psoriasis. We currently are not conducting additional clinical activities for XCUR17 and we seek to out-license the XCUR17 program. Other 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 primarily all of our$30.9 million in revenue since inception throughJune 30, 2020 has been earned through our research collaboration license and option agreement with Allergan, our research collaboration, license, and option agreement withPurdue Pharma L.P. , or Purdue Collaboration Agreement, as a primary contractor or as a subcontractor on government grants, or through our research collaboration license and option agreement with Dermelix. Since our inception, we have primarily funded our operations through sales of our securities and collaborations. ThroughJune 30, 2020 , we have raised net proceeds of$190.1 million from the sale of common stock and preferred stock. We have also received$36.0 million in upfront payments under our current collaborations, including an upfront payment of$25.0 million we received inNovember 2019 in connection with the Allergan Collaboration Agreement and an upfront payment of$1.0 million we received inFebruary 2019 in connection with the Dermelix Collaboration Agreement. As ofJune 30, 2020 , our cash, cash equivalents, short-term investments, and restricted cash were$87.0 million . Since our inception, we have incurred significant operating losses. As ofJune 30, 2020 , we have generated an accumulated deficit of$103.3 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. We expect to continue to incur significant and increasing losses in 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: •continue to advance cavrotolimod (AST-008) through clinical development for immuno-oncology applications; •continue research and development of XCUR-FXN and other neurological therapeutic candidates; •advance our SNA platform in dermatological indications with 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; 36
--------------------------------------------------------------------------------
Table of Contents
•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 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 COVID-19 Business Update With the global spread of the COVID-19 pandemic in the first half of 2020, we continue to monitor closely the developments and continue to take active measures to protect the health of our employees and their families, our communities, as well as our clinical trial investigators, patients, and caregivers. OnMarch 21, 2020 ,Governor Pritzker ofIllinois announced a "stay-at-home" order restricting allIllinois residents to their homes, with few limited exceptions, which was extended throughMay 2020 . However, the Governor also designated certain businesses, such as biotechnology companies, as "essential" businesses, thereby permitting us to continue our R&D operations. As of the date of this filing,Illinois is under "Phase 4" of the Restore Illinois Plan, which is intended to permit the expansion of business and community operations based on their compliance with the safety guidelines described in the regulations. Business and R&D operations Under social distancing guidelines for COVID-19, we were typically operating with less than 50% of our R&D staff on-site at any one time throughJune 30, 2020 . As ofJuly 1, 2020 , we took occupancy of approximately 30,000 square feet of laboratory and office space in our new headquarters inChicago, Illinois . Since then, we have operated under COVID-19 social distancing guidelines and have generally operated with 100% of our R&D staff on-site. Our office and general and administrative team continues to work predominantly from home. Our preclinical development program in FA is ongoing and we continue to expect that IND-enabling studies for XCUR-FXN will begin in late 2020. We also continue to progress our collaborations with Allergan and Dermelix. However, if the COVID-19 pandemic continues to persist for an extended period of time, we could experience significant disruptions to our preclinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects. 37
--------------------------------------------------------------------------------
Table of Contents
Our principal accounting systems are cloud-based and have been fully operational during the stay at home order. We believe that all of our fundamental internal control disciplines are being maintained despite work being conducted from our employees' homes. Supply chain We are working closely with our third-party manufacturers and other partners to manage our supply chain activities and mitigate potential disruptions as a result of the COVID-19 pandemic. We have observed minor delays in receipt of key chemicals, reagents and materials as certain manufacturers have had supply disruptions, related to the COVID-19 pandemic. If the COVID-19 pandemic continues to persist for an extended period of time and impacts essential distribution systems such as FedEx and postal delivery, we could experience future disruptions to our supply chain and operations, and associated delays in the manufacturing and our clinical supply, which would adversely impact our preclinical and clinical development activities. Clinical operations We have one active clinical program, cavrotolimod (AST-008). We have completed enrollment for the Phase 1b stage of the clinical trial and have begun the Phase 2 dose expansion phase in patients with advanced or metastatic Merkel cell carcinoma, or cutaneous squamous cell carcinoma. At this time, and given the severity of both of these indications, we continue to believe that we will continue to enroll patients in the Phase 2 dose expansion phase of the trial as expected. We remain committed to maintaining our development plans for cavrotolimod (AST-008) and continue to monitor and manage the rapidly evolving situation. We have taken and continue to take measures to implement remote and virtual approaches, including remote patient monitoring where possible, to maintain patient safety and trial continuity and to preserve study integrity. Should the COVID-19 pandemic continue, our ability to maintain patient enrollment could be negatively impacted. We could also see an impact on our ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. If the COVID-19 pandemic continues to persist for an extended period of time, we could experience significant disruptions to our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects. Liquidity and capital resources As ofJune 30, 2020 , our cash, cash equivalents, short-term investments, and restricted cash were$87.0 million , which we believe provides operating cash to fund our current operations until early 2022. However, our operating plan may change as a result of many factors currently unknown to us including due to the effects of COVID-19, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. We have historically principally raised capital through the sale of our securities. However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. We believe raising capital in the current market could be very difficult for early stage biotech companies like us. If the disruption continues to persist and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. New Corporate Headquarters OnJuly 1, 2020 , we relocated our corporate headquarters fromSkokie, Illinois to our new facility inChicago, Illinois . 38
--------------------------------------------------------------------------------
Table of Contents
Chief Medical Officer appointment OnMay 19, 2020 , we announced the appointment ofDouglas E. Feltner , M.D. as our Chief Medical Officer. Segment Reporting We view our operations and manage our business as one segment, which is the discovery, research and development of treatments based on our SNA technology. Critical Accounting Policies and Significant Judgments 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, including uncertainty in the current economic environment due to the outbreak of COVID-19. 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. Recently adopted accounting pronouncements None. Recent accounting pronouncements not yet adopted Refer to Note 2 of the accompanying unaudited condensed consolidated financial statements for a description of recently accounting pronouncements not yet updated. 39
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Comparison of the Three Months Ended
Three Months Ended
June 30,
(dollars in thousands) 2020 2019 Change
Revenue:
Collaboration revenue $ 4,847 $ 434 $ 4,413 1,017 %
Total revenue 4,847 434 4,413 1,017 %
Operating expenses:Research and development expense 7,008 3,433 3,575
104 %
General and administrative expense 2,229 1,985 244 12 %
Total operating expenses 9,237 5,418 3,819 70 %
Operating loss (4,390) (4,984) 594 (12) %
Other income (expense), net:
Dividend income 4 82 (78) (95) %
Interest income 267 1 266 26,600 %
Interest expense - (203) 203 (100) %
Other income (expense), net (192) (116) (76) 66 %
Total other income (expense), net 79 (236)
315 (133) %
Net loss $ (4,311) $ (5,220) $ 909 (17) %
RevenueThe following table summarizes our revenue earned during the periods indicated:
Three Months Ended
June 30,
(dollars in thousands) 2020 2019 Change
Collaboration revenue:
Allergan Collaboration Agreement $ 4,833 $ - $ 4,833 n/m
Dermelix Collaboration Agreement 14 434 (420) (97) %
Total collaboration revenue $ 4,847 $ 434 $ 4,413 1,017 %
Total revenue $ 4,847 $ 434 $ 4,413 1,017 %
We recognized collaboration revenue in the amount of $4.8 million during the
three months ended June 30, 2020 , which is primarily related to activities
performed under the Allergan Collaboration Agreement. In November 2019 , we
received an upfront payment of $25.0 million in connection with the Allergan
Collaboration Agreement for which revenue has been deferred and will be
recognized as revenue in future periods as we satisfy our obligations under the
Allergan Collaboration Agreement. At June 30, 2020 , deferred revenue under the
Allergan Collaboration Agreement was $10.9 million and is expected to be
recognized as revenue over the next twelve months as we satisfy our obligations
under the Allergan Collaboration Agreement. Refer to Note 3 of the accompanying
unaudited condensed consolidated financial statements for more information
regarding revenue recognition for the Allergan Collaboration Agreement.
40--------------------------------------------------------------------------------
Table of Contents
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 Allergan Collaboration Agreement or the Dermelix License
Agreement 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) 2020 2019 Change
Platform and discovery-related expense
$ 1,694 142 % Employee-related expense 1,772 1,042 730 70 % Clinical development programs expense 1,728 922 806 87 % Facilities, depreciation, and other expenses 623 278 345 124 % Total research and development expense$ 7,008 $ 3,433 $ 3,575 104 % Full time employees 41 23 18 Research and development expense was$7.0 million for the three months endedJune 30, 2020 , reflecting an increase of$3.6 million , or 104%, from research and development expense of$3.4 million for the three months endedJune 30, 2019 . SinceJune 30, 2019 , we have increased our full-time employee staffing in research and development from 23 to 41 atJune 30, 2020 . The increase in research and development expense for the three months endedJune 30, 2020 of$3.6 million reflects this increased staffing level and the related increase in research and development activities, in addition to the growth in clinical trial activities. More specifically, the increase in research and development expense for the three months endedJune 30, 2020 of$3.6 million was primarily due to higher platform and discovery-related expense of$1.7 million , a net increase in costs related to our clinical development programs of$0.8 million , higher employee-related expenses of$0.7 million , and higher facilities, depreciation, and other expenses in the amount of$0.3 million . The increase in platform and discovery-related expense of$1.7 million is mostly due to higher costs for materials, reagents, lab supplies, and contract research organizations, all in connection with increased research and development activities related to the Allergan Collaboration Agreement, our FA program, XCUR-FXN, and our discovery efforts for other therapeutic candidates for neurology and ophthalmology. The net increase in clinical development programs expense for the three months endedJune 30, 2020 of$0.8 million was primarily due to manufacturing costs in connection with the initiation of the Phase 2 phase of our Phase 1b/2 clinical trial for cavrotolimod (AST-008) and other higher clinical trial expenses, partially offset by lower clinical trial expenses for XCUR17. The increase in employee-related expense for the three months endedJune 30, 2020 of$0.7 million was due to higher compensation and related costs in connection with the net increase in headcount during the period presented as well as certain salary increases in 2020 for existing employees and higher recruiting costs. The increase in facilities, depreciation, and other expenses for the three months endedJune 30, 2020 of$0.3 million was mostly due to the acceleration of amortization expense for ourSkokie lease asset which we no longer use effectiveJuly 1, 2020 due to the relocation of our corporate headquarters toChicago , as well as higher depreciation expense in connection with the acquisition of additional scientific equipment that was placed in service during the period. We expect our research and development expenses to increase in the second half of 2020 as we broaden our pipeline of SNA-based therapeutic candidates, continue spending on our clinical development programs, and further develop our SNA technology platform. 41
--------------------------------------------------------------------------------
Table of Contents
General and administrative expense
Three Months Ended
June 30,
(dollars in thousands) 2020 2019 Change
General and administrative expense
12 %
Full time employees 6 7 (1)
General and administrative expense was $2.2 million for the three months ended
June 30, 2020 , representing an increase of $0.2 million , or 12%, from $2.0
million for the three months ended June 30, 2019 . The increase for the three
months ended June 30, 2020 is mostly due to higher legal costs associated with
operating as a public company, higher franchise tax costs, and higher D&O
insurance expense, partially offset by lower travel and other costs,
Interest income
The increase in interest income of $0.3 million in the three months ended June
30, 2020 as compared to the same period in the prior year was the result of
higher average balances invested in available for sale securities as compared to
the prior-year period.
42--------------------------------------------------------------------------------
Table of Contents
Comparison of the Six Months Ended
Six Months Ended
June 30,
(dollars in thousands) 2020 2019 Change
Revenue:
Collaboration revenue $ 14,030 $ 459 $ 13,571 2,957 %
Total revenue 14,030 459 13,571 2,957 %
Operating expenses:
Research and development expense 13,083 6,828 6,255 92 %
General and administrative expense 4,803 4,193
610 15 %
Total operating expenses 17,886 11,021 6,865 62 %
Operating loss (3,856) (10,562) 6,706 (63) %Other income (expense), net:
Dividend income 43 187 (144) (77) %
Interest income 627 2 625 31,250 %
Interest expense (128) (386) 258 (67) %
Other income (expense), net 153 253 (100) (40) %
Total other income (expense), net 695 56
639 1,141 %
Net loss $ (3,161) $ (10,506) $ 7,345 (70) %
RevenueThe following table summarizes our revenue earned during the periods indicated:
Six Months Ended
June 30,
(dollars in thousands) 2020 2019 Change
Collaboration revenue:
Allergan Collaboration Agreement
n/m
Dermelix Collaboration Agreement 81 459 (378) (82) %
Total collaboration revenue $ 14,030 $ 459 $ 13,571 2,957 %
Total revenue $ 14,030 $ 459 $ 13,571 2,957 %
We recognized collaboration revenue in the amount of $14.0 million during the
six months ended June 30, 2020 , which is primarily related to activities
performed under the Allergan Collaboration Agreement. In November 2019 , we
received an upfront payment of $25.0 million in connection with the Allergan
Collaboration Agreement for which revenue has been deferred and will be
recognized as revenue in future periods as we satisfy our obligations under the
Allergan Collaboration Agreement. At June 30, 2020 , deferred revenue under the
Allergan Collaboration Agreement was $10.9 million and is expected to be
recognized as revenue over the next twelve months as we satisfy our obligations
under the Allergan Collaboration Agreement. Refer to Note 3 of the accompanying
unaudited condensed consolidated financial statements for more information
regarding revenue recognition for the Allergan Collaboration Agreement.
43--------------------------------------------------------------------------------
Table of Contents
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 Allergan Collaboration Agreement or the Dermelix License
Agreement 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) 2020 2019 Change
Platform and discovery-related expense
$ 3,236 139 % Employee-related expense 3,267 2,068 1,199 58 % Clinical development programs expense 3,265 1,856 1,409 76 % Facilities, depreciation, and other expenses 986 575 411 71 % Total research and development expense$ 13,083 $ 6,828 $ 6,255 92 % Full time employees 41 23 18 Research and development expense was$13.1 million for the six months endedJune 30, 2020 , reflecting an increase of$6.3 million , or 92%, from research and development expense of$6.8 million for the six months endedJune 30, 2019 . SinceJune 30, 2019 , we have increased our full-time employee staffing in research and development from 23 to 41 atJune 30, 2020 . The increase in research and development expense for the six months endedJune 30, 2020 of$6.3 million reflects this increased staffing level and the related increase in research and development activities, in addition to the growth in clinical trial activities. More specifically, the increase in research and development expense for the six months endedJune 30, 2020 of$6.3 million was primarily due to higher platform and discovery-related expense of$3.2 million , a net increase in costs related to our clinical development programs of$1.4 million , higher employee-related expenses of$1.2 million , and higher facilities, depreciation, and other expenses in the amount of$0.4 million . The increase in platform and discovery-related expense of$3.2 million is mostly due to higher costs for materials, reagents, lab supplies, and contract research organizations, all in connection with increased research and development activities related to the Allergan Collaboration Agreement, our FA program, XCUR-FXN, and our discovery efforts for other therapeutic candidates for neurology and ophthalmology, partially offset by lower intellectual property costs. The net increase in clinical development programs expense for the six months endedJune 30, 2020 of$1.4 million was primarily due to manufacturing costs in connection with the initiation of the upcoming Phase 2 phase of our Phase 1b/2 clinical trial for cavrotolimod (AST-008) and other higher clinical trial expenses, partially offset by lower clinical trial expenses for XCUR17. The increase in employee-related expense for the six months endedJune 30, 2020 of$1.2 million was due to higher compensation and related costs in connection with the net increase in headcount during the period presented as well as certain salary increases in 2020 for existing employees and higher recruiting costs. The increase in facilities, depreciation, and other expenses for the six months endedJune 30, 2020 of$0.4 million was mostly due to the acceleration of amortization expense for ourSkokie lease asset which we no longer use effectiveJuly 1, 2020 due to our move to ourChicago headquarters, as well as higher depreciation expense in connection with the acquisition of additional scientific equipment that was placed in service during the period. 44
--------------------------------------------------------------------------------
Table of Contents
We expect our research and development expenses to increase in 2020 as we
broaden our pipeline of SNA-based therapeutic candidates, continue spending on
our clinical development programs, and further develop our SNA technology
platform.
General and administrative expense
Six Months Ended
June 30,
(dollars in thousands) 2020 2019 Change
General and administrative expense
15 %
Full time employees 6 7 (1)
General and administrative expense was $4.8 million for the six months ended
June 30, 2020 , representing an increase of $0.6 million , or 15%, from $4.2
million for the six months ended June 30, 2019 . The increase for the six months
ended June 30, 2020 is mostly due to higher legal costs associated with
operating as a public company, higher franchise tax costs, and higher D&O
insurance expense, partially offset by lower travel costs and investor relations
costs.
Interest income
The increase in interest income of $0.6 million in the six months ended June 30,
2020 as compared to the same period in the prior year was the result of higher
average balances invested in available for sale securities as compared to the
prior-year period.
Liquidity and Capital Resources
As of June 30, 2020 , our cash, cash equivalents, short-term investments, and
restricted cash were $87.0 million , which we believe provides operating cash to
fund our current operations until early 2022. However, our operating plan may
change as a result of many factors currently unknown to us including due to the
effects of COVID-19, and we may need to seek additional funds sooner than
planned, through public or private equity or debt financings, third-party
funding, marketing and distribution arrangements, as well as other
collaborations, strategic alliances and licensing arrangements, or any
combination of these approaches. We have historically principally raised capital
through the sale of our securities. However, the COVID-19 pandemic continues to
rapidly evolve and has already resulted in a significant disruption of global
financial markets. We believe raising capital in the current market could be
very difficult for early stage biotech companies like us. If the disruption
continues to persist and deepens, we could experience an inability to access
additional capital, which could in the future negatively affect our operations.
In March 2019 , we filed a shelf registration statement on Form S-3 with the SEC ,
which was declared effective by the SEC on July 24, 2019 . The shelf registration
statement allows us to sell from time-to-time up to $125.0 million of common
stock, preferred stock, debt securities, warrants, or units comprised of any
combination of these securities, for our own account in one or more offerings;
the remaining amount available under this shelf registration is approximately
$31.3 million .
On January 6, 2020 , we sold 1,081,184 shares of our common stock at a price of
$2.75 per share pursuant to the exercise of the underwriters' option to purchase
additional shares at the public offering price in connection with the December
2019 Offering. We received gross proceeds of $3.0 million before deducting
underwriting discounts and commissions and offering expenses of $0.2 million in
January 2020 in connection with the December 2019 offering.
Similar to other development stage biotechnology companies, we have not
generated any revenue since inception. We have incurred losses and experienced
negative operating cash flows since our inception and anticipate that we will
continue to incur losses for at least the next several years. As of June 30,
2020 , we have generated an accumulated deficit of $103.3 million .
See "-Funding Requirements" below for additional information on our future
capital needs.
45--------------------------------------------------------------------------------
Table of Contents
Cash Flows The following table shows a summary of our cash flows for the six months endedJune 30, 2020 and 2019: Six Months Ended June 30, (in thousands) 2020 2019 (unaudited) Net cash used in operating activities$ (18,814) $ (8,996) Net cash used in investing activities (8,965) (62) Net cash used in financing activities (2,283) (35)
Net decrease in cash, cash equivalents, and restricted cash
Operating activities Net cash used in operating activities was$18.8 million and$9.0 million for the six months endedJune 30, 2020 and 2019, respectively. The increase in cash used in operating activities for the six months endedJune 30, 2020 of$9.8 million was primarily due to higher cash used for working capital and the absence of the$1.0 million upfront payment in connection with the Dermelix Collaboration Agreement, which was received during the same period in the prior year. Investing activities Net cash used in investing activities was$9.0 million and$0.1 million for the six months endedJune 30, 2020 and 2019, respectively. The increase in cash used in investing activities of$8.9 million was primarily due to the purchase, net of maturities, of available-for-sale securities of$6.0 million as well as the purchase of scientific equipment of$3.0 million . Financing activities Net cash used in financing activities of$2.3 million for the six months endedJune 30, 2020 is primarily due the repayment of the Hercules loan in the amount of$5.0 million upon the loan's maturity, partially offset by the net proceeds from the sale of shares of our common stock in the amount of$2.8 million pursuant to the partial exercise of the option to purchase additional shares by the underwriters from ourDecember 2019 financing.Hercules Loan and Security Agreement OnMarch 2, 2020 , pursuant to the terms of the loan agreement withHercules Technology Growth Capital , or Hercules, and subsequent amendments thereto, or Hercules Loan Agreement, we repaid all remaining outstanding obligations under the Hercules Loan Agreement, to include the outstanding principal balance of$5.0 million and a deferred end of term fee of$0.1 million . As a result, Hercules no longer has a security interest in any of our assets. Funding Requirements We expect that our primary uses of capital will continue to be third-party clinical and research and development services, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses and general overhead costs. Because of the numerous risks and uncertainties associated with research, development and commercialization of therapeutic candidates, we are unable to estimate the exact amount of our working capital requirements. 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; 46
--------------------------------------------------------------------------------
Table of Contents
•the effects of health epidemics, including the global COVID-19 pandemic, on our operations or the business or operations of our 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 and clinical trials; •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 continued 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. Based on our current operating plans, we believe that our existing working capital atJune 30, 2020 is sufficient to fund our operations into early 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect. 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, strategic alliances, and marketing, distribution or licensing arrangements with third parties. The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption continues to persist and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. To the extent that we raise additional capital through future equity financings, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. If we raise additional funds through collaborations, strategic alliances 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 through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development efforts or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Contractual Obligations and Commitments There have been no material changes to our contractual obligations from those described in our Annual Report, other than the following: 47
--------------------------------------------------------------------------------
Table of Contents
New Corporate Headquarters InFebruary 2020 , we entered into a new lease signed inFebruary 2020 to secure approximately 30,000 square feet of office and laboratory space at2430 N. Halsted St. ,Chicago, Illinois . The Chicago Lease commenced onJuly 1, 2020 , which is when the premises leased thereunder were ready for occupancy, and expires 10 years fromJuly 1, 2020 with an option to renew for two additional successive periods of five years each. 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 InApril 2012 , the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted by the federal government. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the 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. In addition, we are also a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended, or Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than$250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than$100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than$700.0 million measured on the last business day of our second fiscal quarter.
© Edgar Online, source
