What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-25 compared with 2021-03-11 · 476 added, 319 removed, 645 unchanged (55% of the section changed)

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( KPMG LLP , Chicago, IL , PCAOB ID 185 )

Consolidated Balance Sheets as of December 31, 2021 and 2020

C onsolidated Statements of Operations for the years ended December 31, 2020 and 2019

Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020

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generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant expenses and negative cash flows since inception and its current liquidity is not sufficient to fund operations over the next twelve months, which raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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Accounts receivable — 11

Unbilled revenue receivable — 19

Prepaid expenses and other assets 4,525 4,231

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Long-term debt, net — 16,589

Common stock warrant liability, noncurrent — 414

Deferred revenue, noncurrent 11,509 —

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Additional paid-in capital 181,290 167,379

Accumulated other comprehensive income (loss) 83 ( 27 )

Accumulated other comprehensive (loss) income ( 2 ) 83

Accumulated deficit ( 170,067 ) ( 105,965 )

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Operating loss ( 62,549 ) ( 25,436 )

Other income, net:

Other (expense) income, net:

Dividend income 8 47

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Interest expense ( 1,691 ) ( 573 )

Other income, net 322 379

Total other income, net 768 314

Other (expense) income, net ( 11 ) 322

Total other (expense) income, net ( 1,553 ) 768

Net loss before provision for income taxes ( 64,102 ) ( 24,668 )

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Net loss $ ( 64,102 ) $ ( 24,668 )

Other comprehensive income (loss), net of taxes

Unrealized gains (losses) on available for sale securities, net of tax 110 ( 27 )

Other comprehensive income (loss) 110 ( 27 )

Other comprehensive (loss) income, net of taxes

Unrealized (losses) gains on available for sale securities, net of tax ( 85 ) 110

Other comprehensive (loss) income ( 85 ) 110

Comprehensive loss $ ( 64,187 ) $ ( 24,558 )

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Equity-based compensation — — 2,184 — — 2,184

Issuance of common stock in August 2019 Offering, net 31,625,000 4 58,862 — — 58,866

Issuance of common stock in December 2019 Offering, net 10,000,000 1 25,343 — — 25,344

Other comprehensive loss, net — — — — ( 27 ) ( 27 )

Issuance of common stock 1,081,184 — 2,766 — — 2,766

Other comprehensive income, net — — — — 110 110

Net loss — — — ( 24,668 ) — ( 24,668 )

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Equity-based compensation — — 2,939 — — 2,939

Issuance of common stock 1,081,184 — 2,766 — — 2,766

Vesting of restricted stock units and related repurchases 24,257 — ( 14 ) — — ( 14 )

Issuance of common stock-ESPP 189,221 — 209 — — 209

Issuance of common stock and warrants 20,576,068 2 10,231 — — 10,233

Other comprehensive income, net — — — — ( 85 ) ( 85 )

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Amortization of long-term debt issuance costs and fees 284 111

Amortization (accretion) of investments 319 ( 3 )

Amortization of investments 184 319

Change in fair value of warrant liabilities ( 15 ) ( 399 )

Changes in operating assets and liabilities:

Unbilled revenue receivable and accounts receivable 24 ( 32 )

Accounts receivable 11 24

Prepaid expenses and other current assets ( 295 ) ( 3,000 )

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Other liabilities ( 555 ) ( 247 )

Net cash (used in) provided by operating activities ( 39,270 ) 1,317

Net cash used in operating activities ( 34,819 ) ( 39,270 )

Cash flows from investing activities:

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Capital expenditures ( 968 ) ( 3,171 )

Net cash provided by (used in) investing activities 10,142 ( 63,432 )

Net cash provided by investing activities 43,085 10,142

Cash flows from financing activities:

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Repayment of long-term debt ( 10,000 ) ( 4,999 )

Proceeds from issuance of employee stock purchase plan 209 —

Proceeds from exercise of common stock options 546 367

Payments for minimum statutory tax withholding related to net share settlement of equity awards ( 14 ) —

Net cash provided by financing activities 1,116 15,130

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 13,998 ) 22,192

Net increase (decrease) in cash, cash equivalents, and restricted cash 9,382 ( 13,998 )

Cash, cash equivalents, and restricted cash - beginning of period 34,462 48,460

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Exicure, Inc.

(the “Company”) is a clinical-stage biotechnology company developing therapeutics for immuno-oncology, genetic disorders and other indications based on its proprietary Spherical Nucleic Acid (“SNA”), technology.

is an early-stage biotechnology company developing nucleic acid therapies targeting ribonucleic acid against validated targets to neurological disorders and hair loss.

The team includes a diverse scientific group with expertise in nucleic acid chemistry, drug development and neuroscience.

Headquartered in Chicago, Illinois, the Company conducts its 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.

The Company’s therapeutic discovery and development efforts are supported by its 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.

The Company believes the design of its 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.

The Company is in IND-enabling development of XCUR-FXN, an SNA–based therapeutic candidate, for the treatment of Friedreich’s ataxia (FA) and expect to initiate a first-in-patient Phase 1b clinical trial in 2022.

The Company is also working to advance its SNA–based therapeutic candidate cavrotolimod (AST-008) in an ongoing Phase 1b/2 clinical trial in cancer patients.

The Company believes that one of the key strengths of its proprietary SNAs is that they have the potential for increased cellular uptake compared to conventional linear oligonucleotides and as a result the potential to achieve higher efficacy at the same doses of oligonucleotide administered.

The Company has shown in clinical and preclinical studies that SNAs may have therapeutic potential in immuno-oncology and dermatology.

In addition, the Company has shown in preclinical studies that SNAs may have therapeutic potential in neurology, ophthalmology, pulmonology, and gastroenterology.

Accordingly, the Company has expanded its pipeline into neurology, and is conducting early stage research activities in ophthalmology, pulmonology, and gastroenterology.

The Company believes the design of 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.

The Company’s 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 the Company’s 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.

The Company is conducting preclinical studies for a non-opioid analgesic directed against SCN9A (Nav1.7);

undisclosed targets in Huntington’s disease and Angelman syndrome as part of our collaboration with Ipsen Biopharm Limited, or Ipsen;

and undisclosed targets in hair loss disorders as part of our collaboration with AbbVie Inc., or AbbVie.

Throughout these consolidated financial statements, the terms the “Company,” and “Exicure” refer to Exicure, Inc.

and its wholly owned subsidiary, Exicure Operating Company.

and where appropriate, its wholly owned subsidiary, Exicure Operating Company.

Exicure Operating Company holds all material assets and conducts all business activities and operations of Exicure, Inc.

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The accompanying consolidated financial statements as of December 31, 2021 and 2020, and for the years then ended, have been presented in conformity with generally accepted accounting principles in the United States (“GAAP”).

Certain amounts from the prior period have been reclassified to conform to the current year presentation.

Specifically, in the accompanying consolidated balance sheet, right-of-use assets and non-current lease liabilities are presented separately and, in the accompanying consolidated statement of cash flows, amortization of investments is presented separately.

Principles of Consolidation

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Significant Risks and Uncertainties

In response to the ongoing COVID-19 pandemic, the Company has taken and continues to take active measures designed to address and mitigate the impact of the COVID-19 pandemic on its business, such as remote working policies, facilitating management’s routine communication to address employee and business concerns and providing frequent updates to the Company’s board of directors (the “Board”).

As of July 1, 2020, the Company took occupancy of approximately 30,000 square feet of laboratory and office space in its new headquarters in Chicago, Illinois.

Since then, the Company has operated under COVID-19 social distancing guidelines and has generally operated with 100 % of its R&D staff on-site.

The Company’s office and general and administrative team continues to work predominantly from home.

The Company’s preclinical development program in Friedreich’s ataxia (“FA”) is ongoing and it began IND-enabling studies for XCUR-FXN in late 2020.

The Company also continues to progress its collaborations with AbbVie Inc.

(“AbbVie”) and DERMELIX, LLC, d/b/a Dermelix Biotherapeutics (“Dermelix”).

However, if the COVID-19 pandemic continues to persist for an extended period of time, the Company could experience further significant disruptions to its preclinical development timelines, which would adversely affect its business, financial condition, results of operations and growth prospects.

The Company believes that the effects of the COVID-19 pandemic or its impact contributed to delays in its enrollment plans and clinical trial site start-ups for the Phase 2 dose expansion phase of the trial for its cavrotolimod (AST-008) clinical program.

The Company now anticipates to report overall response rate (“ORR”) results for cavrotolimod (AST-008) in the first half of 2022 rather than by year end 2021 as previously guided in September 2020.

The extent to which the COVID-19 pandemic or its impact or effects may continue to impact the Company’s business, its clinical development and regulatory efforts, its corporate development objectives and the value of and market for its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration or spread of the pandemic, its impact and effects, the possibility of additional periods of increases or spikes in the number of COVID-19 cases, travel restrictions, quarantines, social distancing, phased re-openings and business closure requirements in the United States and other countries, and the effectiveness of actions taken globally to contain and treat the disease, including, without limitation, the effectiveness and timing of vaccination initiatives in the United States and worldwide.

The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

As discussed in Note 3, Collaborative Research and License Agreements , revenue recognized under the AbbVie Collaboration Agreement (as defined in Note 3, Collaborative Research and License Agreements ) for the year ended December 31, 2021 reflects the cumulative catchup adjustment (reduction) of revenue of recorded in connection with a change in estimate that occurred during the third quarter of 2021.

The Company currently estimates significant additional efforts will be required to satisfy the performance obligation under the AbbVie Collaboration Agreement.

These increased estimated efforts in connection with the change in workplan resulted in less progress occurring relative to the increased estimate of total project hours to complete the research services during the year ended December 31, 2021 as compared to the amount of revenue recognized at December 31, 2020, which led to a full year revenue reversal of $( 2,792 ) in the current year.

Due to uncertainties inherent in the estimation process, it is at least reasonably possible that estimated efforts required to complete the research services under the AbbVie Collaboration Agreement will be further revised in the near-term which may result in additional adjustments (reductions of revenue) in future periods.

As discussed in Note 2, Significant Accounting Policies — Revenue Recognition , determining the estimate of total project hours used to recognize revenue for the Company’s collaboration agreements requires significant judgment and any changes to those estimates may have a significant impact on the amount and timing of revenue recognition for the Ipsen Collaboration Agreement or the AbbVie Collaboration Agreement (each, as defined in Note 3, Collaborative Research and License Agreements ) in future periods.

COVID-19 Risks and Uncertainties

In response to the ongoing COVID-19 pandemic, the Company has taken and continues to take active measures designed to address and mitigate the impact of the COVID-19 pandemic on its business.

The Company continues to monitor closely the developments and continue to take active measures to protect the health of its employees and their families, and its communities.

Its on-site activities continue with protocols for safely accessing and working within its facilities.

While the Company continues to conduct research and development activities, the COVID-19 pandemic has impacted, and may continue to impact, certain of its early-stage discovery efforts.

The Company is working closely with its third-party manufacturers and other partners to manage its supply chain activities and mitigate potential disruptions as a result of the COVID-19 pandemic.

The Company has 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, the Company could experience future disruptions to its supply chain and operations and associated delays in the manufacturing and its clinical supply, which would adversely impact its preclinical and clinical development activities.

However, if the COVID-19 pandemic continues to persist for an extended period of time, the Company could experience further significant disruptions to its clinical and preclinical development timelines, which would adversely affect its business, financial condition, results of operations and growth prospects.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the biotechnology industry with research and development operations, including, without limitation, risks and uncertainties associated with:

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In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties..

Liquidity Risk

As of December 31, 2020, the Company has generated an accumulated deficit of $ 124,802 since inception and expects to incur significant expenses and negative cash flows for the foreseeable future.

Based on the Company’s current operating plans, it believes that existing working capital at December 31, 2020, including amounts borrowed and available under the MidCap Credit Facility (see Note 6), is sufficient to fund the Company’s current plans for at least the next 12 months from the date of this report.

Management believes that it will be able to obtain additional working capital through equity financings, partnerships and licensing, or other arrangements, such as its “at the market offering” program pursuant to its equity distribution agreement with BMO Capital Markets Corp., to fund operations.

However, there can be no assurance that such additional financing will be available and, if available, can

EXICURE, INC.

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be obtained on terms acceptable to the Company.

The Company has historically principally raised capital through the sale of its securities.

However, 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, the Company could experience an inability to access additional capital, which could in the future negatively affect its operations.

Going Concern

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued.

The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern for a period of one year after the date that the financial statements are issued.

As of December 31, 2021, the Company has generated an accumulated deficit of $ 188,904 since inception and expects to incur significant expenses and negative cash flows for the foreseeable future.

As of December 31, 2021, the Company’s cash, cash equivalents, short-term investments, and restricted cash were $ 48,341 .

Management believes that given the Company’s current cash position, operating plans and forecasted negative cash flows from operating activities over the next twelve months, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued.

The Company has no committed sources of additional capital at this time and substantial additional financing will be needed by the Company to fund its operations.

Management believes that it will be able to obtain additional funding through equity or debt financings, collaboration agreements, strategic partnerships and licensing arrangements, or other arrangements to fund its current operations and business strategy.

However, there can be no assurance that such additional financing will be available and, if available, can be obtained on terms acceptable to the Company.

If the Company is unable to raise additional capital, the Company could be forced to delay, reduce the scope of or eliminate its research and development programs or the Company may be required to relinquish rights to assets or preclinical programs that it might otherwise seek to develop independently, any of which could adversely affect its business prospects, or the Company may be unable to continue operations.

The accompanying consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Use of Estimates

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The Company uses the specific identification method to determine the cost of securities sold.

The Company secures a standby letter of credit with a restricted certificate of deposit account as part of its Chicago lease agreement.

The Company considers the restricted certificate of deposit account to be restricted cash because its use to the Company is contractually limited and presents the balance within other noncurrent assets on the Company’s consolidated balance sheet at December 31, 2020.

Accounts receivable and unbilled revenue receivable

The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for receivables when collection becomes doubtful.

The Company's receivables as of December 31, 2020 and December 31, 2019 relate to amounts reimbursed under its collaboration agreement with Dermelix.

The Company believes that credit risks associated with its collaboration partner are not significant and that these receivables are fully collectible.

To date, the Company has not had any write-offs of uncollectible receivables, and the Company did not have an allowance for doubtful accounts as of December 31, 2020 and 2019.

Restricted cash

As of December 31, 2021, the Company was required to maintain a balance of $ 8,000 in a blocked account in connection with Amendment No.

4 to the MidCap Credit Agreement (see Note 6);

this amount is considered restricted cash and is presented within other noncurrent assets on the accompanying consolidated balance sheet at December 31, 2021.

The Company also secures a standby letter of credit with a restricted certificate of deposit account as part of its Chicago lease agreement.

The Company considers the restricted certificate of deposit account in the amount of $ 1,200 to be restricted cash because its use to the Company is contractually limited and presents the balance within other noncurrent assets on the accompanying consolidated balance sheet at December 31, 2021.

Fair value of financial instruments

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The Company records short-term investments at their estimated fair value based on quoted market prices for identical or similar instruments.

The Company believes that the its long-term debt bears interest at the prevailing market rate for instruments with similar characteristics and, accordingly, the carrying value of long-term debt also approximates its fair value.

The Company believes that its long-term debt bears interest at the prevailing market rate for instruments with similar characteristics and, accordingly, the carrying value of long-term debt also approximates its fair value.

Concentrations of credit risk and other risks and uncertainties

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The Company has no financial instruments with off-balance sheet risk of loss.

As of December 31, 2020, the Company's receivables primarily relate to amounts reimbursed under its collaboration agreement with Dermelix.

For the year ended December 31, 2020, the Company’s revenue was generated from its collaborations with AbbVie and Dermelix.

For the year ended December 31, 2021, the Company’s revenue was generated from its collaborations with Ipsen and AbbVie.

The Company is currently not profitable and no assurance can be provided that it will ever be profitable.

The Company’s research and development activities have required significant investment since inception and operations are expected to continue to require cash investment in excess of its revenues.

See also Note 1, Going Concern , for more information.

EXICURE, INC.

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The Company is currently not profitable and no assurance can be provided that it will ever be profitable.

The Company’s research and development activities have required significant investment since inception and operations are expected to continue to require cash investment in excess of its revenues.

See also Note 1, Liquidity Risk , for more information.

The Company is subject to risks common in therapeutic development including, but not limited to, therapeutic candidates that appear promising in the early phases of development often fail because they prove to be inefficacious or unsafe, clinical trial results are unsuccessful, regulatory bodies may not approve the therapeutic or the therapeutic may not be economical in production or distribution.

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No impairment losses were recorded from inception in December 2011 through December 31, 2021.

Common stock warrant liability

Freestanding warrants related to shares that are redeemable, contingently redeemable, or for purchases of common stock that are not indexed to the Company’s own stock are classified as a liability on the Company’s balance sheet.

The common stock warrants are recorded at fair value, estimated using the Black-Scholes option-pricing model, and marked to market at each balance sheet date with changes in the fair value of the liability recorded in other income (expense), net in the consolidated statements of operations.

The Company accounts for freestanding warrants within stockholder’s equity or as liabilities based on the characteristics and provisions of each instrument.

The Company evaluates outstanding warrants in accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity , and ASC 815, Derivatives and Hedging .

If none of the criteria in the evaluation in these standards are met, the warrants are classified as a component of stockholders’ equity and initially recorded at their grant date fair value without subsequent remeasurement.

Warrants that meet the criteria are classified as liabilities and remeasured to their fair value, estimated using the Black-Scholes option-pricing model, at the end of each reporting period with changes in the fair value of the liability recorded in other income (expense), net in the consolidated statements of operations.

Revenue recognition

The Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that are within the scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), the Company performs the following five steps:

Effective January 1, 2018, the Company adopted the provisions of ASC 606, Revenue from Contracts with Customers using the modified retrospective method for all contracts not completed as of the date of adoption.

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that are within the scope of ASC 606, the Company performs the following five steps:

Identify the contract with the customer.

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Examples of control are using the asset to produce goods or services, enhance the value of other assets, or settle liabilities, and holding or selling the asset.

Revenue allocated to performance obligations relating to provision of research and development activities is recognized as the performance obligations are satisfied using an input method to measure progress, based on an estimate of the percentage of completion of the project based on the actual hours incurred on the project as a percentage of the total expected project hours.

The determination of the percentage of completion requires management to estimate the total expected project hours.

A detailed estimate of the total expected project hours is re-assessed every reporting period based on the latest project plan and discussions with project teams.

If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate.

The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs.

Determining the estimate of total project hours requires significant judgment and may have a significant impact on the amount and timing of revenue recognition.

For example, as discussed in Note 3, Collaborative Research and License Agreements , revenue recognized under the AbbVie Collaboration Agreement (as defined in Note 3, Collaborative Research and License Agreements ) for the year ended

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

December 31, 2021 was $( 2,792 ) due primarily to the cumulative catchup adjustment (reduction) of revenue recorded in connection with a change in estimate that occurred during the third quarter of 2021.

Licenses of intellectual property :

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the licenses.

For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

For licenses that are combined with other promises, the Company utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

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Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible.

The transaction price is then allocated to each

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

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To date, the Company has not recognized any royalty revenue resulting from any of its collaboration agreements.

During the years ended December 31, 2020 and 2019, the Company has primarily earned revenue under the collaboration agreements with AbbVie and Dermelix (see Note 3 for more information).

Equity-based compensation

The Company measures the cost of common stock option awards at fair value and records the cost of the awards, net of estimated forfeitures, on a straight-line basis over the requisite service period.

The Company measures the cost of equity-based awards at fair value and records the cost of the awards, net of estimated forfeitures, on a straight-line basis over the requisite service period.

The Company measures fair value for all common stock options using the Black-Scholes option-pricing model.

For all common stock option awards, the fair value measurement date is the date of grant and the requisite service period is the period over which the option recipient is required to provide service in exchange for the common stock option awards, which is generally the vesting period.

The fair value of common stock option awards is affected by the valuation assumptions, including the expected volatility based on comparable market participants, expected term of the common stock option, risk-free interest rate, and expected dividends.

For all equity-based awards, the fair value measurement date is the date of grant and the requisite service period is the period over which the recipient is required to provide service in exchange for the equity-based awards, which is generally the vesting period.

Segments and geographic information

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The Company determines if an arrangement is a lease at contract inception.

Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

obligation to make lease payments arising from the lease.

Operating lease assets and liabilities are recognized on the balance sheet at the commencement date of the lease based upon the present value of lease payments over the lease term.

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Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Short-term leases, defined as leases that have a lease term of twelve months or less at the commencement date, are

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

excluded from this treatment and are recognized on a straight-line basis over the term of the lease.

Short-term leases, defined as leases that have a lease term of twelve months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease.

Costs for variable lease payments that are not included in the lease liability are recognized as expense as incurred.

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At December 31, 2021 and 2020, the Company established a full valuation allowance against its deferred tax assets to an amount that is more likely than not to be realized.

Recently Adopted Accounting Pronouncements

Equity-based compensation

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-07, Compensation-Stock Compensation:

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns the measurement and classification guidance for share-based payment to non-employees with the guidance for share-based payments to employees.

Under the new guidance, the measurement period for equity-classified non-employee awards will be fixed at the grant date.

Prior to the adoption of ASU 2018-07, the Company remeasured fair value of stock option awards to nonemployees at each financial statement reporting date.

The Company adopted the guidance of ASU 2018-07 in the first quarter of 2019 on a modified retrospective basis.

The adoption of ASU 2018-07 did not have a material impact on the Company’s financial statements.

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842) (or “ASC 842), which replaces the guidance in ASC 840, Leases (“ASC 840”) and requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet.

The Company adopted ASC 842 on the required effective date of January 1, 2019 utilizing the modified retrospective transition method with no restatement of prior periods or cumulative adjustment to accumulated deficit.

The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease

EXICURE, INC.

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classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date.

The Company elected to combine lease and non-lease components, elected not to record leases with an initial term of twelve months or less on the balance sheet and will recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets.

The adoption of ASC 842 on January 1, 2019 resulted in the recognition of an operating lease asset of approximately $ 613 and operating lease liabilities of approximately $ 623 , with no impact to operating expense, net loss, or basic and diluted loss per common share for the year ended December 31, 2019.

The impact to the consolidated balance sheet upon adoption of ASC 842 is as follows:

As Previously Reported

December 31, 2018

ASC 842 Adoption Adjustment As Reported Under ASC 842 January 1, 2019

Prepaid expenses and other current assets $ 1,392 $ ( 28 ) $ 1,364

Right-of-use asset — 613 613

Accrued expenses and other current liabilities 1,543 243 1,786

Lease liability, noncurrent — 342 342

See Note 7, Leases , for more information on leases.

Recent Accounting Pronouncements Not Yet Adopted

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The Company is currently assessing the impact of adoption of ASU 2016-13 to its consolidated financial statements.

Collaborative Research and License Agreements

Ipsen Collaboration Agreement

Summary of Agreement

On July 30, 2021 (the “Ipsen Effective Date”), the Company entered into a Collaboration, Option and License Agreement with Ipsen (the “Ipsen Collaboration Agreement”).

Pursuant to the Ipsen Collaboration Agreement, the Company granted to Ipsen exclusive access and options to license SNA-based therapeutics arising from two collaboration programs related to the treatment of Huntington’s disease and Angelman syndrome (each, an “Ipsen Collaboration Program”), respectively.

Each such license (obtained in connection with the exercise of an Ipsen Option, as defined and discussed further below) would grant to Ipsen exclusive, royalty-bearing, sublicensable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics.

Upon written notice to the Company, Ipsen may exercise its option during the corresponding collaboration program’s applicable option exercise period, (each, an “Ipsen Option Exercise Period”).

As of the Ipsen Effective Date, the Company and Ipsen have agreed upon a development plan for each Ipsen Collaboration Program that describes the development activities and timelines required to advance each such Ipsen Collaboration Program through its first IND filing (each, an “Ipsen Development Plan”).

The activities described in the Ipsen Development Plans are conducted under the supervision of the Ipsen Joint Steering Committee (the “Ipsen JSC”) consisting of three members from each of the Company and Ipsen.

Under the terms of the Ipsen Collaboration Agreement, the Company will use commercially reasonable efforts to conduct discovery and development in two collaboration programs for Huntington’s disease (the “HD Program”) and Angelman syndrome (the “AS Program”) (the “Ipsen Development Activities”) respectively.

The Company shall be solely responsible for all costs and expenses of conducting each Ipsen Collaboration Program through the selection of SNA therapeutic candidates for further development (“Ipsen Selection”), and Ipsen shall be responsible for all costs and expenses of all activities that are necessary to enable the first filing of an IND for each proposed product candidate.

In the event that Ipsen exercises an option, Ipsen will be responsible for further development from the license effective date and commercialization of the corresponding licensed product.

Following the completion of all Ipsen Development Activities for the Ipsen Selection (the “Ipsen First R&D Term Activities”), the Company is required to deliver to Ipsen a report that describes the results of the Ipsen First R&D Term Activities and identifies at least one SNA-based compound that satisfies certain criteria for such Ipsen Collaboration Program as determined by the Ipsen JSC (the “Ipsen First Option Data Package”).

Following the delivery of the Ipsen First Option Data Package for an Ipsen Collaboration Program, Ipsen will have the ability for a defined period of time (the “Ipsen First Option Exercise Period”) to exercise an option (each a “First Ipsen Option”)

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Collaborative Research and License Agreements

to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any product (each an “Ipsen Licensed Product”) that results from such Ipsen Collaboration Program during the term of the Ipsen Collaboration Agreement.

In the event Ipsen (i) does not exercise the First Ipsen Option with respect to an Ipsen Collaboration Program, (ii) the Ipsen Collaboration Agreement has not expired or been terminated with respect to such Ipsen Collaboration Program, and (iii) Ipsen agrees to fully fund additional research activities for an Ipsen Collaboration Program through IND filing, the Company will be responsible for research and development activities for such Ipsen Collaboration Program through IND filing (the “Ipsen Second R&D Term Activities”).

Following the completion of the Ipsen Second R&D Term Activities, the Company is required to deliver to Ipsen a report that describes the results of the Ipsen Second R&D Term Activities (the “Ipsen Second Option Data Package”).

Following the delivery of the Ipsen Second Option Data Package for an Ipsen Collaboration Program, Ipsen will have the ability for a defined period of time (the “Ipsen Second Option Exercise Period”) to exercise an option (each a “Second Ipsen Option” and together with the First Ipsen Option, the “Ipsen Options”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any Ipsen Licensed Product” that results from such Ipsen Collaboration Program during the term of the Ipsen Collaboration Agreement.

After Ipsen’s exercise of an Ipsen Option for an Ipsen Collaboration Program, the Company shall supply to Ipsen the licensed SNAs under current Good Manufacturing Practice, at the Company’s manufacturing cost pursuant to a clinical supply agreement to be negotiated by the Company and Ipsen in good faith following the Ipsen Effective Date and executed within twelve (12) months after the Ipsen Effective Date (the “Ipsen Supply Agreement”).

The Ipsen Supply Agreement will provide for the transfer by the Company to Ipsen of all documents and information, and the provision by the Company of technical assistance and support, for Ipsen to manufacture or have manufactured by a third party contractor engaged by Ipsen the applicable licensed SNA to the extent it is intended to be actually used in the development and manufacture of the applicable licensed products.

Under the terms of the Ipsen Collaboration Agreement, the Company received an upfront payment of $ 20,000 (the “Ipsen Upfront Payment”).

If Ipsen exercises a First Ipsen Option, Ipsen is required to pay the Company the First Ipsen Option exercise fee of $ 10,000 for each Ipsen Collaboration Program.

If Ipsen exercises a Second Ipsen Option, Ipsen is required to pay the Company the Second Ipsen Option exercise fee of $ 25,000 for each Ipsen Collaboration Program.

Ipsen will pay a pre-clinical milestone payment of $ 5,000 for each Ipsen Collaboration Program upon achievement of such milestone regardless of whether an Ipsen Option is exercised.

In addition to the option exercise fees and the pre-clinical milestones described above, if Ipsen exercises an Ipsen Option for an Ipsen Collaboration Program, development and regulatory milestones will be payable for that program upon the initiation of certain clinical trials and the filing for processing by the United States Food and Drug Administration (“FDA”) in the United States and by two additional regulators outside the United States of a marketing application for review, per the Ipsen Collaboration Program, with an aggregate total of up to $ 180,000 if both Ipsen Options are exercised.

Commercial milestones will be payable for that Ipsen Collaboration Program upon first commercial sale of a licensed product in certain jurisdictions and the achievement of specified aggregate sales thresholds for all licensed products from that program, with an aggregate total of up to $ 762,000 if both Ipsen Options are exercised.

In the event a therapeutic candidate subject to the Ipsen Collaboration Agreement results in commercial sales, the Company is eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net product sales of such commercialized therapeutic candidates.

A percentage of the aforementioned payments will be due to Northwestern University upon receipt, pursuant to the terms of the Company’s existing license agreements with Northwestern University (see Note 15, Commitment and Contingencies, for more information on the Northwestern University License Agreements (as defined below)).

In connection with the receipt of the Ipsen Upfront Payment, the Company paid a $ 3,000 license fee to Northwestern University under the terms of the Northwestern License Agreements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The Company’s obligations to conduct activities defined in the Ipsen Development Plan under the Ipsen Collaboration Agreement commenced on July 30, 2021 and continues, unless earlier terminated, until (a) the expiration of the later-to-expire Ipsen Option Exercise Period, if Ipsen does not exercise either Ipsen Option, or (b) the expiration of the last-to-expire royalty term for any licensed product in such country on a licensed product-by-licensed product and country-by-country basis, if Ipsen exercises one or both Ipsen Options.

Upon expiration of the royalty term with respect to a particular licensed product in a country, the license for such product in such country will convert to a fully-paid, irrevocable and perpetual license.

The Ipsen Collaboration Agreement also contains customary provisions for termination by either party, including by Ipsen for any or no reason in its entirety upon ( 90 ) days prior written notice and including in the event of breach of the Ipsen Collaboration Agreement, subject to cure, and by the Company upon a challenge of the licensed patents, subject, in certain cases, to customary reversion rights.

Upon termination of the Ipsen Collaboration Agreement by the Company for Ipsen’s breach or bankruptcy, all licenses granted by the Company to Ipsen will terminate.

The Ipsen Collaboration Agreement includes customary representations and warranties on behalf of both the Company and Ipsen.

The Ipsen Collaboration Agreement also provides for customary mutual indemnities.

In addition, the Ipsen Collaboration Agreement imposes certain exclusivity obligations on Ipsen and the Company, respectively, with respect to the development, use, manufacture and commercialization of oligonucleotide-based therapeutic targeting the same targets in the collaboration programs and/or certain other specific targets.

Either party may assign the Ipsen Collaboration Agreement or delegate its obligations to an affiliate or to a successor to substantially all of the business to which the Ipsen Collaboration Agreement relates without the consent of the other party.

Accounting Analysis

The Company concluded that Ipsen is a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance.

Under the Ipsen Collaboration Agreement, the Company has identified two performance obligations, as follows:

(1) the performance obligation related to the HD Program that includes (i) the Ipsen First R&D Term Activities related to the HD Program (the “Ipsen HD Program R&D Services”), (ii) Ipsen JSC services related to the HD Program during the Ipsen First Term (the “Ipsen HD Program JSC Services”), and (iii) activities related to the negotiation of the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date;

and (2) the performance obligation related to the AS Program that includes (i) the Ipsen First R&D Term Activities related to the AS Program (the “Ipsen AS Program R&D Services”), (ii) Ipsen JSC services related to the AS Program during the Ipsen First Term (the “Ipsen AS Program JSC Services”), (iii) and activities related to the negotiation of the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date.

The Company has concluded that the Ipsen HD Program R&D Services and the Ipsen AS Program R&D Services are not distinct from the Ipsen HD Program JSC Services and the Ipsen AS Program JSC Services, respectively.

The Company has also concluded that the Ipsen HD Program JSC Services and the Ipsen AS Program JSC Services are not distinct from the activities related to entering the Ipsen Supply Agreements for each respective program.

The Ipsen JSC provides oversight and management of the overall Ipsen Collaboration Agreement, and the members of the Ipsen JSC from the Company have specialized industry knowledge, particularly as it relates to SNA technology.

The Ipsen JSC is meant to facilitate the early stage research being performed and coordinate the activities of both the Company and Ipsen.

Further, the Ipsen JSC services are critical to the ongoing evaluation of the Ipsen Collaboration Programs and the drafting and evaluation of the Ipsen First Option Data Package.

The Ipsen JSC will also provide oversight and management of the activities to enter into the Ipsen Supply Agreement.

Accordingly, the Company’s participation on the Ipsen JSC is essential to Ipsen receiving value from the Ipsen HD Program R&D Services and the Ipsen AS Program R&D Services, and as such, (i) the Ipsen HD Program JSC Services, along with the Ipsen HD Program R&D Services and the activities related to entering the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date for that program are considered a single performance obligation (the “Ipsen HD Program Services”) and (ii) the Ipsen AS Program JSC Services along with the Ipsen AS Program R&D Services and the

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activities related to entering the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date for that program are considered a single performance obligation (the “Ipsen AS Program Services”).

As of the Ipsen Effective Date, the total transaction price was determined to be $ 20,000 , consisting solely of the Ipsen Upfront Payment.

The Company also utilized the most likely amount method to estimate any development and regulatory milestone payments to be received.

As of the Ipsen Effective Date, there were no milestones included in the transaction price.

The pre-clinical, development, regulatory, and commercial milestones were fully constrained due to the significant uncertainties surrounding such payments.

The Company considered the stage of development and the risks associated with the remaining development required to achieve the milestone, as well as whether the achievement of the milestone is outside the control of the Company or Ipsen.

The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and therefore, they have also been excluded from the transaction price.

The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur.

As of December 31, 2021, the Company determined that any pre-clinical, development, regulatory, or commercial milestones continue to be constrained and therefore the related milestone payments continue to be excluded from the transaction price at December 31, 2021.

The Company allocated the total transaction price to each of the two identified performance obligations under the Ipsen Collaboration Agreement based on an expected cost plus a margin approach, as follows:

$ 10,793 of the transaction price allocated to the Ipsen HD Program Services and $ 9,207 of the transaction price allocated to the Ipsen AS Program Services.

The Company will recognize revenue related to each of Ipsen HD Program Services and the Ipsen AS Program Services as those performance obligations are satisfied using an input method to measure progress for each of those performance obligations.

The Company believes the input method that most accurately depicts the measure of progress is the actual hours incurred to date relative to projected hours to complete the activities for the Ipsen HD Program Services and the Ipsen AS Program Services.

During the year ended December 31, 2021, the Company recognized revenue under the Ipsen Collaboration Agreement of approximately $ 2,309 .

As of December 31, 2021 , there was $ 17,691 of deferred revenue related to the Ipsen Collaboration Agreement, of which is $ 8,757 is classified as current and $ 8,934 is classified as noncurrent on the consolidated balance sheet.

Deferred revenue under the Ipsen Collaboration Agreement will be recognized as revenue in future periods as the Company satisfies its obligations under the Ipsen Collaboration Agreement, which the Company currently estimates to be over the next 30 to 39 months.

AbbVie Collaboration Agreement

Summary of Agreement

On November 13, 2019 (the “Effective Date”), the Company entered into a Collaboration, Option and License Agreement (the “AbbVie Collaboration Agreement”), with a wholly-owned subsidiary of Allergan plc, Allergan.

On November 13, 2019 (the “AbbVie Effective Date”), the Company entered into a Collaboration, Option and License Agreement (the “AbbVie Collaboration Agreement”), with a wholly-owned subsidiary of Allergan plc, Allergan.

On May 8, 2020, Allergan plc, including Allergan was acquired by AbbVie.

Pursuant to the AbbVie Collaboration Agreement, the Company granted to AbbVie exclusive access and options to license SNA based therapeutics arising from two collaboration programs related to the treatment of hair loss disorders (each, a “Collaboration Program”).

Under each such license (obtained in connection with the exercise of an Option, as defined and discussed further below), the Company would grant to AbbVie exclusive, royalty-bearing, sublicenseable, nontransferable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics.

Under the AbbVie Collaboration Agreement, the Company will use commercially reasonable efforts to conduct two Collaboration Programs, each focused on one or more hair loss disorders to discover one or more SNA products that are directed to, bind to or inhibit one or more specific Collaboration Program targets (each, a “Program Target”).

As of the Effective Date, the Company and AbbVie have agreed upon a development plan for each Collaboration Program that describes the development activities and timelines required to advance such Collaboration Program through first IND filing (each, a “Development Plan”).

The activities described in the Development Plan are conducted under the supervision of the Joint Development Committee (the “JDC”) consisting of three members from each of the Company and AbbVie.

The Company is primarily responsible for performing early stage discovery and preclinical activities (the “Initial Development Activities”) set forth in the Development Plan for each Collaboration Program and will be solely responsible for all costs and expenses related to the Initial Development Activities.

AbbVie may elect, in its sole discretion and at its sole cost and expense, to conduct formulation assessment and in vivo testing as set forth in a Development Plan.

Following the completion of all Initial Development Activities, the Company is required to deliver to AbbVie a report that describes the results of the Initial Development Activities and identifies at least one SNA-based compound that satisfies certain criteria for such Collaboration Program as determined by the JDC (the “Initial Development Report”).

Following the delivery of the Initial Development Report for a Collaboration Program, AbbVie will have the ability for a defined period of time (the “Initial Option Exercise Period”) to exercise an option (each an “Option”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any product (each a “Licensed Product”) that results from such Collaboration Program during the term of the AbbVie Collaboration Agreement.

At AbbVie’s sole option, AbbVie may extend the Initial Option Exercise Period (the “Option Extension”) and require the Company to perform IND-enabling activities described in the Development Plan (the “IND-Enabling Activities”), subject to the payment of additional consideration (“Extension Exercise”).

If AbbVie exercises the Option Extension, the Company would be responsible for conducting the IND-Enabling Activities and would be solely responsible for all costs and expenses associated with such activities.

Upon completion of the IND-Enabling Activities, the Company is required to deliver a report that describes the results of the IND-Enabling Activities (the “IND-Enabling Activities Data Package”) to AbbVie.

Following the delivery of IND-Enabling Activities Data Package, AbbVie will have the ability for a defined period of time (the “Extended Option Exercise Period”) to exercise an Option with respect to such Collaboration Program.

After the exercise of an Option with respect to a Collaboration Program, AbbVie will be responsible for all development, manufacturing, and commercialization activities, and costs and expense associated with such activities in connection with Licensed Products arising from such Collaboration Program.

The Company’s obligation to conduct the activities defined in the Development Plan under the AbbVie Collaboration Agreement commenced on November 13, 2019 and continues until the earlier of (i) the date AbbVie

Pursuant to the AbbVie Collaboration Agreement, the Company granted to AbbVie exclusive access and options to license SNA-based therapeutics arising from two collaboration programs related to the treatment of hair loss disorders (each, an “AbbVie Collaboration Program”).

Under each such license (obtained in connection with the exercise of an AbbVie Option, as defined and discussed further below), the Company would grant to AbbVie exclusive, royalty-bearing, sublicensable, nontransferable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics.

Under the AbbVie Collaboration Agreement, the Company will use commercially reasonable efforts to conduct the AbbVie Collaboration Programs, each focused on one or more hair loss disorders to discover one or more SNA products that are directed to, bind to or inhibit one or more specific AbbVie Collaboration Program targets.

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exercises an Option, (ii) the date AbbVie abandons a Collaboration Program and foregoes its Option to that Collaboration Program, or (iii) the fifth anniversary of the Effective Date (the “Research Term”).

If the Initial Option Exercise Period or Extended Option Exercise Period is still in effect for a Collaboration Program or if the Company has not delivered a complete Initial Development Report or, if AbbVie made an Extension Exercise for a Collaboration Program, a complete IND-Enabling Activities Data Package for such Collaboration Program, as determined by the JDC, then the Research Term will automatically extend by one-year increments until such obligation is satisfied, but in no event past the seventh anniversary of the Effective Date.

Under the terms of the AbbVie Collaboration Agreement, the Company received a $ 25,000 upfront, non-refundable, non-creditable cash payment (the “AbbVie Upfront Payment”) related to the Company’s research and development costs for conducting the Development Plan for two Collaboration Programs, each focused on one or more targets, and certain options to obtain exclusive, worldwide licenses under certain intellectual property rights owned or controlled by the Company to develop, manufacture and commercialize certain products resulting from each such Collaboration Programs.

The option exercise fee during the Initial Option Exercise Period is $ 10,000 per Collaboration Program.

If AbbVie elects to extend the Initial Option Exercise Period, AbbVie is required to pay an additional fee of $ 10,000 .

If AbbVie elects to exercise its option during the Extended Option Exercise Period, AbbVie must pay the Company the option exercise fee of $ 15,000 .

Following the exercise by AbbVie of an Option with respect to a Collaboration Program, AbbVie would be required to make certain milestone payments to the Company upon the achievement of specified development, product approval and launch, and commercial events, on a Licensed Product by Licensed Product basis.

On a Licensed Product by Licensed Product basis, for the first Licensed Product to achieve the associated milestone event, the Company is eligible to receive up to an aggregate of $ 55,000 for development milestone payments and $ 132,500 for product approval and launch milestone payments.

The Company is also eligible for up to $ 175,000 in sales milestone payments on a Collaboration Program by Collaboration Program basis, associated with aggregate worldwide sales.

As of the AbbVie Effective Date, the Company and AbbVie have agreed upon a development plan for each AbbVie Collaboration Program that describes the development activities and timelines required to advance such AbbVie Collaboration Program through its first IND filing (each, an “AbbVie Development Plan”).

The activities described in the AbbVie Development Plan are conducted under the supervision of the AbbVie Joint Development Committee (the “AbbVie JDC”) consisting of three members from each of the Company and AbbVie.

The Company is primarily responsible for performing early-stage discovery and preclinical activities (the “AbbVie Collaboration Program Initial Development Activities”) set forth in the AbbVie Development Plan for each AbbVie Collaboration Program and will be solely responsible for all costs and expenses related to the AbbVie Collaboration Program Initial Development Activities.

AbbVie may elect, in its sole discretion and at its sole cost and expense, to conduct formulation assessment and in vivo testing as set forth in an AbbVie Development Plan.

During the third quarter of 2021, the AbbVie JDC revised the AbbVie Initial Development Plan for each AbbVie Collaboration Program.

In connection with the revised workplan for each AbbVie Collaboration Program, the Company expects to perform additional early stage discovery and preclinical activities to those set forth in the AbbVie Development Plan.

As such, the Company currently estimates significant additional efforts will be required to satisfy the performance obligation under the AbbVie Collaboration Agreement due to the revised workplan for each AbbVie Collaboration Program.

Further changes to estimated additional efforts may be required in future periods should there be further revisions to the workplan for each AbbVie Collaboration Program.

Following the completion of all AbbVie Initial Development Activities, the Company is required to deliver to AbbVie a report that describes the results of the AbbVie Initial Development Activities and identifies at least one SNA-based compound that satisfies certain criteria for such AbbVie Collaboration Program as determined by the AbbVie JDC (the “AbbVie Initial Development Report”).

Following the delivery of the AbbVie Initial Development Report for an AbbVie Collaboration Program, AbbVie will have the ability for a defined period of time (the “AbbVie Initial Option Exercise Period”) to exercise an option (each an “AbbVie Option”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any product (each an “AbbVie Licensed Product”) that results from such AbbVie Collaboration Program during the term of the AbbVie Collaboration Agreement.

At AbbVie’s sole option, AbbVie may extend the AbbVie Initial Option Exercise Period (the “AbbVie Option Extension”) and require the Company to perform IND-enabling activities described in the AbbVie Development Plan (the “AbbVie IND-Enabling Activities”), subject to the payment of additional consideration (“AbbVie Extension Exercise”).

If AbbVie exercises the AbbVie Option Extension, the Company would be responsible for conducting the AbbVie IND-Enabling Activities and would be solely responsible for all costs and expenses associated with such activities.

Upon completion of the AbbVie IND-Enabling Activities, the Company is required to deliver a report that describes the results of the AbbVie IND-Enabling Activities (the “AbbVie IND-Enabling Activities Data Package”) to AbbVie.

Following the delivery of AbbVie IND-Enabling Activities Data Package, AbbVie will have the ability for a defined period of time (the “AbbVie Extended Option Exercise Period”) to exercise an AbbVie Option with respect to such AbbVie Collaboration Program.

After the exercise of an AbbVie Option with respect to an AbbVie Collaboration Program, AbbVie will be responsible for all development, manufacturing and commercialization activities, and costs and expense associated with such activities in connection with AbbVie Licensed Products arising from such AbbVie Collaboration Program.

The Company’s obligation to conduct the activities defined in the AbbVie Development Plan under the AbbVie Collaboration Agreement commenced on November 13, 2019 and continues until the earlier of (i) the date AbbVie exercises an AbbVie Option, (ii) the date AbbVie abandons an AbbVie Collaboration Program and foregoes its AbbVie Option to that AbbVie Collaboration Program, or (iii) the fifth anniversary of the AbbVie Effective Date (the “AbbVie Research Term”).

If the AbbVie Initial Option Exercise Period or AbbVie Extended Option Exercise Period is still in effect for an AbbVie Collaboration Program or if the Company has not delivered a complete AbbVie Initial Development Report or, if AbbVie made an AbbVie Extension Exercise for an AbbVie Collaboration Program, a complete AbbVie IND-Enabling Activities Data Package for such AbbVie Collaboration Program, as

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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determined by the AbbVie JDC, then the AbbVie Research Term will automatically extend by one-year increments until such obligation is satisfied, but in no event past the seventh anniversary of the AbbVie Effective Date.

Under the terms of the AbbVie Collaboration Agreement, the Company received a $ 25,000 upfront, non-refundable, non-creditable cash payment (the “AbbVie Upfront Payment”) related to the Company’s research and development costs for conducting the AbbVie Development Plan for two AbbVie Collaboration Programs, each focused on one or more targets, and certain options to obtain exclusive, worldwide licenses under certain intellectual property rights owned or controlled by the Company to develop, manufacture and commercialize certain products resulting from each such AbbVie Collaboration Programs.

The option exercise fee during the AbbVie Initial Option Exercise Period is $ 10,000 per AbbVie Collaboration Program.

If AbbVie elects to extend the AbbVie Initial Option Exercise Period, AbbVie is required to pay an additional fee of $ 10,000 .

If AbbVie elects to exercise its option during the AbbVie Extended Option Exercise Period, AbbVie must pay the Company the option exercise fee of $ 15,000 .

Following the exercise by AbbVie of an AbbVie Option with respect to an AbbVie Collaboration Program, AbbVie would be required to make certain milestone payments to the Company upon the achievement of specified development, product approval and launch, and commercial events, on an AbbVie Licensed Product by AbbVie Licensed Product basis.

On an AbbVie Licensed Product by AbbVie Licensed Product basis, for the first AbbVie Licensed Product to achieve the associated milestone event, the Company is eligible to receive up to an aggregate of $ 55,000 for development milestone payments and $ 132,500 for product approval and launch milestone payments.

The Company is also eligible for up to $ 175,000 in sales milestone payments on an AbbVie Collaboration Program by AbbVie Collaboration Program basis, associated with aggregate worldwide sales.

Certain product approval milestones are subject to certain reductions under specified circumstances, including for payments required to be made by AbbVie to obtain certain third-party intellectual property rights.

In addition, to the extent there is any Licensed Product, the Company would be entitled to receive tiered royalty payments of mid-single digits to the mid-teens percentage on future net worldwide product sales of such Licensed Products, subject to certain reductions under specified circumstances.

Royalties are due on a Licensed Product by Licensed Product and country by country basis from the date of the first commercial sale of each Licensed Product in a country until the latest to occur of:

(i) the expiration date in such country of the last to expire valid claim within the licensed intellectual property covering the manufacture, use or sale of such Licensed Product in such country, (ii) the tenth anniversary of the first commercial sale of such Licensed Product in such country, and (iii) the expiration of regulatory exclusivity for such Licensed Product in such country.

AbbVie may terminate the AbbVie Collaboration Agreement for any reason or no reason, either in its entirety or on a Collaboration Program by Collaboration Program basis, at any time on 90 days’ prior written notice to the Company.

Unless earlier terminated, the term of the AbbVie Collaboration Agreement shall continue until (i) if both Option Exercise Periods expire without AbbVie exercising either Option, the expiration of the later to expire Option Exercise Period, and (ii) if either or both Options are exercised on a Licensed Product-by-Licensed Product and country-by-country basis, the expiration of the royalty term for such Licensed Product in such country.

In addition, to the extent there is any AbbVie Licensed Product, the Company would be entitled to receive tiered royalty payments of mid-single digits to the mid-teens percentage on future net worldwide product sales of such AbbVie Licensed Products, subject to certain reductions under specified circumstances.

Royalties are due on a AbbVie Licensed Product by AbbVie Licensed Product and country by country basis from the date of the first commercial sale of each AbbVie Licensed Product in a country until the latest to occur of:

(i) the expiration date in such country of the last to expire valid claim within the licensed intellectual property covering the manufacture, use or sale of such AbbVie Licensed Product in such country, (ii) the tenth anniversary of the first commercial sale of such AbbVie Licensed Product in such country, and (iii) the expiration of regulatory exclusivity for such AbbVie Licensed Product in such country.

AbbVie may terminate the AbbVie Collaboration Agreement for any reason or no reason, either in its entirety or on an AbbVie Collaboration Program by AbbVie Collaboration Program basis, at any time on 90 days’ prior written notice to the Company.

Unless earlier terminated, the term of the AbbVie Collaboration Agreement shall continue until (i) if both AbbVie Option Exercise Periods expire without AbbVie exercising either AbbVie Option, the expiration of the later to expire AbbVie Option Exercise Period, and (ii) if either or both AbbVie Options are exercised on an AbbVie Licensed Product by AbbVie Licensed Product and country-by-country basis, the expiration of the royalty term for such AbbVie Licensed Product in such country.

Either party may terminate the AbbVie Collaboration Agreement if the other party has materially breached or defaulted in the performance of any of its material obligations and such breach or default continues after the specified cure period.

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In addition, termination of the AbbVie Collaboration Agreement will not preclude either party from pursuing any rights and remedies it may have under the agreement or at law or in equity with respect to any breach of the AbbVie Collaboration Agreement.

If either party terminates the AbbVie Collaboration

If either party terminates the AbbVie Collaboration Agreement, the license and rights granted to AbbVie with respect to the terminated AbbVie Collaboration Program or AbbVie License Product shall terminate.

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Agreement, the license and rights granted to AbbVie with respect to the terminated Collaboration Program or License Product shall terminate.

Accounting Analysis

The Company concluded that AbbVie is a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance.

Under the AbbVie Collaboration Agreement, the Company has identified a single performance obligation that includes (i) the research and development activities during the Research Term (the “AbbVie R&D Services”), and (ii) Joint Development Committee services during the Research Term (the “AbbVie JDC Services”).

The Company has concluded that the AbbVie R&D Services is not distinct from the AbbVie JDC Services during the Research Term.

The JDC provides oversight and management of the overall AbbVie Collaboration Agreement, and the members of the JDC from the Company have specialized industry knowledge, particularly as it relates to SNA technology.

The JDC is meant to facilitate the early stage research being performed and coordinate the activities of both the Company and AbbVie.

Further, the JDC services are critical to the ongoing evaluation of a Collaboration Program and the drafting and evaluation of the Initial Development Report and the IND-Enabling Data Package.

Accordingly, the Company’s participation on the JDC is essential to AbbVie receiving value from the AbbVie R&D Services and as such, the AbbVie JDC Services along with the AbbVie R&D Services are considered one performance obligation (the “Collaboration Program Services”).

Under the AbbVie Collaboration Agreement, the Company has identified a single performance obligation that includes (i) the research and development activities during the AbbVie Research Term (the “AbbVie R&D Services”), and (ii) AbbVie Joint Development Committee services during the AbbVie Research Term (the “AbbVie JDC Services”).

The Company has concluded that the AbbVie R&D Services is not distinct from the AbbVie JDC Services during the AbbVie Research Term.

The AbbVie JDC provides oversight and management of the overall AbbVie Collaboration Agreement, and the members of the AbbVie JDC from the Company have specialized industry knowledge, particularly as it relates to SNA technology.

The AbbVie JDC is meant to facilitate the early-stage research being performed and coordinate the activities of both the Company and AbbVie.

Further, the AbbVie JDC services are critical to the ongoing evaluation of an AbbVie Collaboration Program and the drafting and evaluation of the AbbVie Initial Development Report and the AbbVie IND-Enabling Data Package.

Accordingly, the Company’s participation on the AbbVie JDC is essential to AbbVie receiving value from the AbbVie R&D Services and as such, the AbbVie JDC Services along with the AbbVie R&D Services are considered one performance obligation (the “AbbVie Collaboration Program Services”).

In addition, the Company has concluded that the option to purchase two development and commercialization licenses is considered a marketing offer as the options did not provide any discounts or other rights that would be considered a material right in the arrangement, and thus, not a performance obligation at the onset of the agreement.

The consideration for these options will be accounted for when they are exercised.

As of the Effective Date of the AbbVie Collaboration Agreement, the total transaction price was determined to be $ 25,000 , consisting solely of the AbbVie Upfront Payment.

As of the AbbVie Effective Date, the total transaction price was determined to be $ 25,000 , consisting solely of the AbbVie Upfront Payment.

The Company also utilized the most likely amount method to estimate any development and regulatory milestone payments to be received.

As of the Effective Date of the AbbVie Collaboration Agreement, there were no milestones included in the transaction price.

As of the AbbVie Effective Date, there were no milestones included in the transaction price.

The milestones were fully constrained due to the significant uncertainties surrounding such payments.

The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and therefore have also been excluded from the transaction price.

The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and therefore they have also been excluded from the transaction price.

The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur.

As of December 31, 2021, the Company determined that any development, regulatory or commercial milestones continue to be constrained and therefore the related milestone payments continue to be excluded from the transaction price at December 31, 2021.

The Company will recognize revenue related to the Collaboration Program Services as the performance obligation is satisfied using an input method to measure progress.

The Company will recognize revenue related to the AbbVie Collaboration Program Services as the performance obligation is satisfied using an input method to measure progress.

The Company believes the input method that most accurately depicts the measure of progress is the actual hours incurred to date relative to projected hours to complete the research service.

During the years ended December 31, 2020 and December 31, 2019, the Company recognized revenue under the AbbVie Collaboration Agreement of approximately $ 16,486 and $ 171 , respectively.

As of December 31, 2020, there was $ 8,343 of deferred revenue related to the AbbVie Collaboration Agreement, which is classified as current on the consolidated balance sheet.

As of December 31, 2019, there was $ 24,829 of deferred revenue related to the AbbVie Collaboration Agreement, of which $ 21,873 is classified as current and $ 2,956 is classified as noncurrent on the consolidated balance sheet.

During the three months ended December 31, 2019, the Company incurred $ 3,750 in license fees owed to Northwestern University in connection with the receipt of the AbbVie Upfront Payment, which the Company recorded as research and development expenses during such period.

As discussed above, during the third quarter of 2021, the AbbVie JDC revised the AbbVie Initial Development Plan for each AbbVie Collaboration Program.

As a result, the Company has increased its estimate of total hours to complete the research services, requiring an adjustment to cumulative revenue recognized (considered a change in estimate pursuant to ASC 606), which led to a full year revenue reversal of $( 2,792 ) in the current year.

During the year ended December 31, 2021, the Company recognized revenue under the AbbVie Collaboration Agreement of approximately $( 2,792 ), reflecting the cumulative catchup adjustment (reduction) of revenue discussed above due to a change in estimate.

The Company currently estimates significant additional efforts will be required to satisfy the performance obligation under the AbbVie Collaboration Agreement due to the revised workplan for each AbbVie Collaboration Program.

During the year ended December 31,

EXICURE, INC.

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(in thousands, except share and per share data)

2020, the Company recognized revenue under the AbbVie Collaboration Agreement of approximately $ 16,486 .

As of December 31, 2021, there was $ 11,135 of deferred revenue related to the AbbVie Collaboration Agreement, of which $ 8,560 is classified as current and $ 2,575 is classified as noncurrent on the consolidated balance sheet.

Deferred revenue under the AbbVie Collaboration Agreement will be recognized as revenue in future periods as the Company satisfies its obligations under the AbbVie Collaboration Agreement, which the Company currently estimates to be over the next 21 to 24 months.

As of December 31, 2020, there was $ 8,343 of deferred revenue related to the AbbVie Collaboration Agreement, which was classified as current on the consolidated balance sheet based on the estimated contract completion date at that time.

Dermelix Collaboration Agreement

Summary of Agreement

On February 17, 2019, Exicure entered into a License and Development Agreement with Dermelix (the “Dermelix Collaboration Agreement.”) Pursuant to the Dermelix Collaboration Agreement, the Company granted to Dermelix exclusive, worldwide royalty-bearing license rights to, develop, manufacture, have manufactured, use and commercialize the Company’s SNA technology for the treatment of Netherton Syndrome (“NS”) and, at Dermelix’s option, up to five additional specified orphan diseases that are within the dermatology field.

Upon written notice to the Company, Dermelix may exercise its option at any time following the effective date of the Dermelix Collaboration Agreement until the date that is six ( 6 ) years from the date that the first collaboration SNA therapeutic achieves first dosing in humans in a Phase 1 clinical trial for NS.

Dermelix will initially seek to develop a targeted therapy for the treatment of NS.

Under the terms of the Dermelix Collaboration Agreement, the Company will be responsible for conducting the early stage development for each indication up to IND enabling toxicology studies.

Dermelix will assume subsequent development, commercial activities and financial responsibility for such indications.

Dermelix will pay the costs and expenses of development and commercialization of any licensed products under the Dermelix Collaboration Agreement, including the Company’s expenses incurred in connection with development activities and in accordance with the development budget.

On February 17, 2019, Exicure entered into a License and Development Agreement (the “Dermelix Collaboration Agreement”) with Dermelix, LLC d/b/a Dermelix Biotherapeutics (“Dermelix”).

Under the terms of the Dermelix Collaboration Agreement, Exicure received an upfront payment of $ 1,000 , to be applied against the initial $ 1,000 of the Company’s development expenses.

If Dermelix exercises any of its option rights for additional indications, Dermelix will pay an option exercise fee equal to $ 1,000 for each exercised option (each, an “Option Exercise Fee”).

Any Option Exercise Fee will be applied against the Company’s development expenses with respect to the particular indication for which the option was exercised.

Pursuant to the Dermelix Collaboration Agreement, the Company shall have the right to pursue the development and commercialization of SNA technology for the treatment of orphan diseases which are neither NS nor one of the additional specified orphan diseases selected by Dermelix pursuant to its option rights.

If the Company commences development activities of SNA technology for the treatment of such an orphan disease, the Company will notify Dermelix in writing of such development and Dermelix will have thirty ( 30 ) days following receipt of such notice to use one of its remaining option rights on such orphan disease.

If Dermelix does not use one of its remaining option rights on such orphan disease, or has no option rights remaining, then the Company will have no further obligations to Dermelix with respect to the development of SNA therapeutics for such orphan disease and shall be free to continue commercialization and development activities with respect thereto.

For each of NS as well as any additional licensed product for which Dermelix exercises one of its options, the Company is eligible to receive additional cash payments totaling up to $ 13,500 upon achievement of certain development and regulatory milestones and up to $ 152,500 upon achievement of certain sales milestones.

The regulatory milestones are payable upon the initiation or completion of clinical trials, and regulatory approval in the United States and outside the United States, per program.

The commercial sales milestones are payable upon achievement of specified aggregate annual product sales thresholds.

In the event a therapeutic candidate subject to the collaboration results in commercial sales, the Company will receive low double-digit royalties on annual net sales for such licensed products.

Accounting Analysis

The Company concluded that Dermelix is a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance.

The Company identified performance obligations under the Dermelix Collaboration Agreement for the license of intellectual property for the NS therapeutic candidate and associated research and development services for the NS therapeutic candidate.

The Company determined that the performance obligations were not separately identifiable and were not distinct or distinct within the context of the contract due to the specialized nature of the services to be provided by Exicure, specifically with respect to the

The Company initially recorded the upfront payment of $ 1,000 as deferred revenue related to its wholly unsatisfied performance obligation and reduced this balance to zero during 2019 by recognizing revenue as services were provided.

The Company recognized no revenue under the Dermelix Collaboration Agreement during the year ended December 31, 2021.

The Company recognized $ 127 of revenue during the year ended December 31, 2020 which reflected reimbursement by Dermelix for additional costs incurred by Exicure for early-stage development costs beyond the initial $ 1,000 upfront payment.

Summary of Contract Liabilities

Up-front payments are recorded as deferred revenue upon receipt or when due until such time as the Company satisfies its performance obligations under these arrangements.

The following table presents changes in the balances of the Company’s contract liabilities (in thousands):

Deferred Revenue Balance at January 1, 2021 Additions Revenue

(Recognized) Reversed Deferred Revenue Balance at December 31, 2021

Ipsen Collaboration Agreement $ — $ 20,000 $ ( 2,309 ) $ 17,691

AbbVie Collaboration Agreement $ 8,343 $ — $ 2,792 $ 11,135

Total $ 8,343 $ 20,000 $ 483 $ 28,826

Supplemental Balance Sheet Information

Prepaid expenses and other current assets

Prepaid clinical, contract research and manufacturing costs $ 2,484 $ 2,336

Prepaid insurance 763 694

Other 1,278 1,201

Prepaid expenses and other current assets $ 4,525 $ 4,231

EXICURE, INC.

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(in thousands, except share and per share data)

Company’s expertise related to SNA technology, and the interdependent relationship between the performance obligations.

As such, the Company concluded that there is a single identified performance obligation.

The Company used the most likely amount method to estimate variable consideration and estimated that the most likely amount for each potential development and regulatory milestone, which is considered variable consideration, was zero, as the achievement of those milestones is uncertain and highly susceptible to factors outside of the Company’s control.

Accordingly, all such milestones were excluded from the transaction price.

Management will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur and adjust the transaction price as necessary.

Sales-based royalties, including commercial sales milestone payments based on the level of sales, were also excluded from the transaction price, as the license is deemed to be the predominant item to which the royalties relate.

The Company will recognize such revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Revenue associated with the performance obligation will be recognized as services are provided using a cost-to-cost measure of progress method.

The transfer of control occurs over time and, in management’s judgment, this input method is the best measure of progress towards satisfying the performance obligation under the Dermelix Collaboration Agreement and reflects a faithful depiction of the transfer of goods and services.

The Company recognized $ 127 and $ 1,125 of revenue under the Dermelix Collaboration Agreement during the years ended December 31, 2020 and December 31, 2019, respectively, which reflects full recognition of the upfront payment as revenue as well as reimbursement by Dermelix for additional costs incurred by Exicure for early stage development costs beyond the initial $ 1,000 upfront payment.

Supplemental Balance Sheet Information

Other noncurrent assets

Restricted cash $ 9,200 $ 1,200

Other 125 193

Other noncurrent assets $ 9,325 $ 1,393

Property and equipment, net

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Depreciation and amortization expense was $ 1,123 and $ 766 , for the years ended December 31, 2021 and 2020, respectively.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Accrued expenses and other current liabilities

Accrued clinical, contract research and manufacturing costs $ 3,689 $ 1,372

Accrued payroll-related expenses 1,158 920

Accrued restructuring costs 1,191 —

Lease liability, current 459 223

Accrued payroll-related expenses 167 1,158

Accrued other expenses 958 772

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The Company periodically reviews and modifies these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity.

The following table summarizes the contract maturity of the available-for-sale securities the Company held as of December 31, 2020:

One year or less 100 %

After one year but within two years — %

EXICURE, INC.

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(in thousands, except share and per share data)

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of cash equivalents and available-for-sale securities by type of security at December 31,2020 and December 31, 2019 were as follows:

The following table summarizes the contract maturity of the available-for-sale securities the Company held as of December 31, 2021:

One year or less 100 %

After one year but within two years — %

All of the Company’s available-for-sale securities are available to the Company for use in its current operations.

As a result, the Company categorizes all of these securities as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date.

December 31, 2021

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Commercial paper $ 10,498 $ — $ ( 2 ) $ 10,496

Corporate notes/bonds 29,227 72 ( 3 ) 29,296

Treasuries 2,251 2 — 2,253

Government agency securities 1,265 13 — 1,278

$ 10,498 $ — $ ( 2 ) $ 10,496

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$ 48,735 $ 89 $ ( 6 ) $ 48,818

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

MidCap Credit Agreement

On September 25, 2020, the Company entered into a Credit and Security Agreement, as amended on October 21, 2020, (the “MidCap Credit Agreement”), with MidCap Financial Trust (“MidCap”), as agent, and the lenders party thereto from time to time.

On December 10, 2021, the Company entered into an amendment (“Amendment No.

4”) to the Company’s Credit and Security Agreement, dated as of September 25, 2020, as amended on October 21, 2020, July 30, 2021 and September 30, 2021, with MidCap Financial Trust, as agent (“MidCap”), and the lenders party thereto from time to time (as amended, the “MidCap Credit Agreement”), to prepay $ 10,000 of the Company’s outstanding loans under the MidCap Credit Agreement.

Additionally, in connection with Amendment No.

4, the Company is required to maintain a balance of $ 20,000 in all accounts at Silicon Valley Bank, including $ 8,000 in a blocked account at Silicon Valley Bank.

The balance of $ 8,000 in the blocked account at Silicon Valley Bank is restricted cash and is presented within other noncurrent assets on the accompanying consolidated balance sheet.

The MidCap Credit Agreement provides for a secured term loan facility in an aggregate principal amount of up to $ 25,000 (the “MidCap Credit Facility”).

The Company borrowed the first advance of $ 17,500 (“Tranche 1”) on September 25, 2020 (the “Closing Date”).

Under the terms of the MidCap Credit Agreement, the second advance of $ 7,500 (“Tranche 2”) will be available to the Company from April 1, 2021 to September 30, 2021, subject to the Company’s satisfaction of certain conditions described in the MidCap Credit Agreement.

The proceeds from the MidCap Credit Facility are expected to be used for working capital and general corporate purposes.

Tranche 1, and if borrowed Tranche 2, each bear interest at a floating rate equal to 6.25 % per annum, plus the greater of (i) 1.50 % or (ii) one-month LIBOR.

Amendment No.

4 terminated the availability of the second advance of $ 7,500 (“Tranche 2”), effective as of December 9, 2021, that was previously available under the MidCap Credit Agreement subject to certain conditions.

Tranche 1 bears interest at a floating rate equal to 6.25 % per annum, plus the greater of (i) 1.50 % or (ii) one-month LIBOR.

Interest on each loan advance is due and payable monthly in arrears.

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Prepayments of the loans under the MidCap Credit Agreement, in whole or in part, will be subject to early termination fees in an amount equal to 3.0 % of principal prepaid if prepayment occurs on or prior to the first anniversary of the Closing Date and 1.0 % of principal prepaid if prepayment occurs after the first anniversary of the Closing Date and prior to the maturity date.

In connection with Amendment No.

4, the early termination fee associated with the prepayment of $ 10,000 made in December 2021 was waived and if the remaining principal amount is repaid on or prior to March 31, 2022, the associated early termination fee for that prepayment will be waived.

In connection with execution of the MidCap Credit Agreement, the Company paid MidCap a $ 125 origination fee.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

At the Maturity Date or on any earlier date on which all amounts advanced to the Company become due and payable in full, or are otherwise paid in full, the Company is required to pay an exit fee equal to 3.75 % of the principal amount of all loans advanced to the Company under the MidCap Credit Agreement.

Upon the advance of Tranche 1, the Company accrued $ 656 for the related exit fee.

In connection with Amendment No.

4, if the remaining principal amount is repaid on or prior to March 31, 2022, a portion of the related exit fee that has not been earned by MidCap will be waived.

The Company’s obligations under the MidCap Credit Agreement are secured by a security interest in substantially all of its assets, excluding intellectual property (which is subject to a negative pledge).

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The MidCap Credit Agreement also contains customary events of default relating to, among other things, payment defaults, breaches of covenants, a material adverse change, delisting of the Company’s common stock, bankruptcy and insolvency, cross defaults with certain material indebtedness and certain material contracts, judgments, and inaccuracies of representations and warranties.

Upon an event of default, the agent and the lenders may declare all or a portion of the Company’s outstanding obligations to be immediately due and payable and exercise other rights and remedies provided for under the agreement.

During the existence of an event of default, interest on the obligations could be increased by 2.0 %.

Total proceeds, net of fees and issuance costs, borrowed under Tranche 1 were $ 16,512 .

Fees and issuance costs of $ 332 , as well as fees of $ 656 that are payable to MidCap at maturity of Tranche 1, are recorded as a reduction to the carrying amount of long-term debt on the Company’s balance sheet and will be amortized to interest expense through the maturity date of October 1, 2025 using the effective interest method.

Fees and issuance costs of $ 73 attributed to the amount available to be borrowed under Tranche 2 were paid or accrued and recorded as deferred financing costs (other assets) and will be recorded as a reduction in the carrying amount of long-term debt in future periods if amounts are borrowed under Tranche 2.

Hercules Loan Agreement

On March 2, 2020, pursuant to the terms of the loan agreement with Hercules Technology Growth Capital (“Hercules”) and subsequent amendments thereto (the “Hercules Loan Agreement”), the Company repaid all remaining outstanding obligations under the Hercules Loan Agreement as of the maturity date, including the outstanding principal balance of $ 4,999 and the end of term fee of $ 100 .

Upon an event of default, the agent and the lenders may declare all or a portion of the Company’s outstanding obligations to be immediately due and payable and

EXICURE, INC.

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(in thousands, except share and per share data)

exercise other rights and remedies provided for under the agreement.

During the existence of an event of default, interest on the obligations could be increased by 2.0 %.

Total proceeds, net of fees and issuance costs, borrowed under Tranche 1 were $ 16,512 .

Fees and issuance costs of $ 73 attributed to the amount available to be borrowed under Tranche 2 were paid and recorded as deferred financing costs (other assets) and were amortized and recorded to interest expense in 2021 when it was determined that amounts under Tranche 2 would not be borrowed.

As of December 31, 2021, deferred financing costs attributed to Tranche 2 are zero.

As of December 31, 2021, the aggregate carrying value of the Company’s long-term debt is $ 6,873 .

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Noncurrent portion $ —

The Company paid interest on debt of $ 394 and $ 597 during the years ended December 31, 2020 and 2019, respectively.

The Company’s lease arrangements consist of (i) a lease for office and laboratory space at its headquarters in Chicago, Illinois that commenced in July 2021 (the “Chicago Lease”), (ii) a lease for office and laboratory space at its former headquarters in Skokie, Illinois that commenced in March 2012 and is scheduled to end in February 2021 (the “Skokie Lease”), (iii) a lease for office space at a multi-tenant facility in Cambridge, MA that commenced in March 2019 and is cancelable at any time (the “Cambridge Lease”), and (iv) leases for office equipment (the “Office Equipment Leases”).

The Company paid interest on the MidCap Credit Agreement of $ 1,375 and $ 252 during the years ended December 31, 2021 and 2020, respectively.

The Company paid interest on the Hercules Loan Agreement (as discussed below) of $ 0 and $ 142 during the years ended December 31, 2021 and 2020, respectively.

On March 15, 2022 the Company repaid all remaining outstanding obligations under the MidCap Credit Agreement.

Refer to Note 17, Subsequent Events for more information.

Hercules Loan Agreement

The Company’s lease arrangements at December 31, 2021 consist of (i) a lease for office and laboratory space at its headquarters in Chicago, Illinois that commenced in July 2020 (the “Chicago Lease”), (ii) a lease for office space at a multi-tenant facility in Cambridge, Massachusetts that commenced in March 2019 and is cancelable at any time (the “Cambridge Lease”), and (iii) leases for office equipment (the “Office Equipment Leases”).

Each of these leases are classified as operating leases.

The Skokie Lease includes a renewal option which the Company concluded is not reasonably certain to be exercised.

Lease payments for the Skokie Lease include a fixed payment amount as well as variable payments related to a proportionate share of operating and real estate expenses.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Due to the nature of the Cambridge Lease, the Company determined that this lease represented a short-term lease with an initial term of less than twelve months and, as such, the Cambridge Lease is not recorded on the balance sheet and related lease costs are recognized in the statement of operations as they are incurred.

1 unchanged sentence

Lease costs for the Office Equipment Leases are recognized in the statement of operations on a straight-line basis over the lease term.

The Company’s lease arrangement for office and laboratory space at its former headquarters in Skokie, Illinois ended in February 2021 in accordance with the terms of that lease arrangement.

Chicago Lease

4 unchanged sentences

Base rent thereafter is subject to annual increases of 3 %, for an aggregate amount of $ 12,761 over the Original Term.

The Company must

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

also pay its proportionate share of certain operating expenses and taxes for each calendar year during the term.

The Company must also pay its proportionate share of certain operating expenses and taxes for each calendar year during the term.

During the first 12-month period of the Original Term, the base rent and the Company's proportionate share of operating expenses and taxes are subject to certain abatements.

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In connection with the Company’s relocation of its headquarters from Skokie, Illinois to its new facility in Chicago, Illinois on July 1, 2020, the Company determined that the remaining useful life of the right of use asset underlying the Skokie Lease at June 30, 2020 was zero and therefore recognized remaining amortization expense related to the Skokie Lease of $ 211 during the three month period then ended.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Information related to the Company’s operating lease asset and related operating lease liabilities were as follows:

December 31, 2020 December 31, 2019

Weighted-average remaining lease term 8.5 years 9.5 years

2 unchanged sentences

Operating lease costs $ 1,306 $ 1,042

Short term lease costs 127 100

Variable lease costs 1,070 521

Short term lease costs 130 127

Total lease costs $ 2,506 $ 1,690

The Company made cash payments for operating leases of $ 2,134 and $ 2,244 during the years ended December 31, 2021 and 2020, respectively.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Maturities of the Company’s lease liability as of December 31, 2021 were as follows:

7 unchanged sentences

Total lease liability $ 7,863

Restructuring

On December 10, 2021, the Company announced its commitment to a plan to wind down the Company’s immuno-oncology program for cavrotolimod (AST-008) and the Company’s XCUR-FXN preclinical program for the treatment of Friedreich’s ataxia.

The Company intends to realign its research and development resources to support (i) the development of its preclinical program targeting SCN9A for neuropathic pain, (ii) the continued advancement of its partnered programs with Ipsen Biopharm Limited to develop SNA-based treatments in neuroscience targeting Huntington’s disease and Angelman syndrome, (iii) its continued advancement of its partnered program with AbbVie to develop SNA-based treatments for hair loss disorders, as well as (iv) the continued research and development of other undisclosed therapeutic product candidates.

This plan resulted in a

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

reduction in force where the Company eliminated approximately 50% of the Company’s existing workforce on a staggered basis through January 2022 as well as other cost-cutting measures.

Notified employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance.

In most cases, the separation benefits were paid as a lump sum in January 2022.

Certain of the notified employees had employment agreements which provided for separation benefits in the form of salary continuation;

these benefits will be paid between February 2022 and January 2023.

All of the severance costs represent cash expenditures.

The Company expensed the following costs associated with these future termination benefit payments resulting from the strategic reduction in force:

Year Ended December 31,

Research and development expense $ 623

General and administrative expense 575

At December 31, 2021, the accrued liability balance associated with the strategic reduction in force announced in the fourth quarter of 2021 is $ 1,191 , presented within accrued expense and other current liabilities on the accompanying consolidated balance sheet.

Stockholders’ Equity

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The holders of shares of the Company’s common stock are entitled to one vote per share on all matters to be voted upon by the Company’s stockholders and there are no cumulative rights.

Subject to preferences that may be applicable to any outstanding preferred stock, the holders of shares of the Company’s common stock are entitled to receive ratably any dividends that may be declared from time to time by the Company’s Board out of funds legally available for that purpose.

Subject to preferences that may be applicable to any outstanding preferred stock, the holders of shares of the Company’s common stock are entitled to receive ratably any dividends that may be declared from time to time by the Board out of funds legally available for that purpose.

In the event of the Company’s liquidation, dissolution or winding up, the holders of shares of the Company’s common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock then outstanding.

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The outstanding shares of the Company’s common stock are fully paid and non-assessable.

Registered Direct Offering

On December 16, 2021, the Company completed a securities purchase agreement (the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”) entered into on December 14, 2021, pursuant to which the Company offered to the Purchasers, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “Registered Direct Offering”), (i) an aggregate of 13,006,614 shares (the “Shares”) of the Company’s common stock, $ 0.0001 par value per share, (ii) pre-funded warrants to purchase up to an aggregate

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

of 21,569,454 shares of Common Stock (the “Pre-Funded Warrants”), and (iii) warrants to purchase up to 17,288,034 shares of Common Stock (the “Warrants”).

The combined purchase price of each share of Common Stock and accompanying Warrant is $ 0.3326 per share.

The combined purchase price of each Pre-Funded Warrant and accompanying Warrant is $ 0.3316 (equal to the combined purchase price per share of Common Stock and accompanying Warrant, minus $ 0.001 ).

The per share exercise price for the Warrants is $ 0.2701 , the closing bid price of the Company’s Common Stock on December 13, 2021.

The Warrants will be exercisable immediately from the closing December 16, 2021, and will expire on the five-year anniversary of the date of issuance, or December 16, 2026.

The Pre-Funded Warrants and Warrants, which met equity classification, were recognized as a component of permanent stockholders’ equity within additional paid-in-capital together with the net proceeds from the Registered Direct Offering.

The gross proceeds to the Company from the Registered Direct Offering (excluding effect of subsequent exercises of pre-funded warrants) were $ 11,478 and net proceeds after deducting the placement agent’s fees and other offering expenses paid or payable by the Company were $ 10,226 .

The securities were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No.

333-251555) previously filed with the Securities and Exchange Commission (the “SEC”) on December 21, 2020, and which was declared effective by the SEC on January 7, 2021 (the “Registration Statement”).

Each Warrant is exercisable for one share of Common Stock at an exercise price of $ 0.2701 per share.

The Warrants are immediately exercisable as of the date of issuance of December 16, 2021 and will expire on the five-year anniversary of the date of issuance, or December 16, 2026.

The Pre-Funded Warrants were offered in lieu of shares of Common Stock to one of the Purchasers whose purchase of shares of Common Stock in the Registered Direct Offering would otherwise result in said Purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99 % (or, at the election of the Purchaser, 9.99 %) of the Company’s outstanding Common Stock immediately following the consummation of the Registered Direct Offering.

Each Pre-Funded Warrant is exercisable for one share of Common Stock at an exercise price of $ 0.001 per share.

The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.

A holder (together with its affiliates) of the Warrant or Pre-Funded Warrant may not exercise any portion of the Warrant or Pre-Funded Warrant, as applicable, to the extent that the holder would own more than 4.99 % (or, at the holder’s option upon issuance, 9.99 %) of the Company’s outstanding Common Stock immediately after exercise, as such percentage ownership is determined in accordance with the terms of the Warrant or Pre-Funded Warrant, as applicable.

In lieu of making the cash payment otherwise contemplated to be made to the Company upon exercise of a Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined according to a formula set forth in the Warrants, provided that such cashless exercise shall only be permitted if the Registration Statement is not effective at the time of such exercise or if the prospectus to which the Registration Statement is a part is not available for the issuance of shares of Common Stock to the Warrant holder.

In lieu of making the cash payment otherwise contemplated to be made to the Company upon exercise of a Pre-Funded Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined according to a formula set forth in the Pre-Funded Warrants.

Refer to Note 17, Subsequent Events for more information on Pre-Funded Warrants.

December 2019 Offering

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The shares sold in the December 2019 Offering were sold pursuant to a registration statement on Form S-3 that was declared effective by the SEC on July 24, 2019.

August 2019 Offering

On August 2, 2019, the Company completed the sale of 31,625,000 shares of its common stock at a public offering price of $ 2.00 per share in an underwritten public offering, which included the exercise in full of the underwriters’ option to purchase an additional 4,125,000 shares at the public offering price (the “August 2019 Offering”).

The Company received gross proceeds of $ 63,250 in the August 2019 Offering before deducting underwriting discounts and commissions and offering expenses of $ 4,384 .

The shares sold in the August 2019 Offering were sold pursuant to a shelf-registration the Company filed on Form S-3 with the SEC which was declared effective by the SEC on July 24, 2019.

Common Stock Warrants

As of December 31, 2020, warrants to purchase 413,320 shares of common stock at a price of $ 3.00 per share remain outstanding.

The warrants expire as follows:

163,174 warrants expire on March 27, 2021;

132,884 expire on April 28, 2021;

and 117,262 expire on May 3, 2021.

The warrants are classified as a liability which is remeasured each period at fair value.

In December 2021, 7,569,454 Pre-Funded Warrants were exercised for a total exercise price of $ 8 , resulting in the issuance of 7,569,454 shares of common stock.

As of December 31, 2021, Pre-Funded Warrants to purchase 14,000,000 shares of common stock at a price of $ 0.001 per share remain outstanding and Warrants to purchase 17,288,034 shares of common stock at a price of $ 0.2701 per share remain outstanding.

The warrants are classified as equity.

As of December 31, 2020, warrants to purchase 413,320 shares of common stock at a price of $ 3.00 per share that were issued in connection with a private placement offering of common stock in 2017 remained outstanding.

These warrants expired unexercised as follows:

163,174 warrants expired on March 27, 2021, 132,884 expired on April 28, 2021, and 117,262 expired on May 3, 2021.

These warrants were classified as a liability which was remeasured each period at fair value.

See Note 13, Fair Value Measurements for more information on the fair value of the common stock warrant liability.

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Balance at December 31, 2020 $ 83 $ 83

Other comprehensive loss before reclassifications ( 84 ) ( 84 )

Net gains reclassified from accumulated other comprehensive loss ( 1 ) ( 1 )

Net current period other comprehensive loss ( 85 ) ( 85 )

Balance at December 31, 2021 $ ( 2 ) $ ( 2 )

The net gain reclassified from accumulated other comprehensive loss during the year ended December 31, 2021 resulted from available-for-sale securities that were called prior to maturity.

The basis on which the cost of the securities was determined was specific identification.

Proceeds related to these sales were $ 4,000 .

The following table summarizes the changes in each component of accumulated other comprehensive loss, net of tax, for 2020:

Unrealized gains (losses) on short-term investments Total

Balance at December 31, 2019 $ ( 27 ) $ ( 27 )

Other comprehensive income (loss) before reclassifications 107 107

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Balance at December 31, 2020 $ 83 $ 83

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The net loss reclassified from accumulated other comprehensive loss during the year ended December 31, 2020 resulted from sales of available-for-sale securities prior to maturity.

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Equity-Based Compensation

2017 Equity Incentive Plan

On September 22, 2017, the Company’s stockholders approved the Exicure, Inc.

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The 2017 Plan provides for the issuance of incentive awards of up to 5,842,525 shares of Exicure common stock, which includes 2,169,905 shares of Exicure common stock to be issued to officers, employees, consultants and directors, plus a number of shares not to exceed 3,683,817 that are subject to issued and outstanding awards under the Exicure OpCo 2015 Equity Incentive Plan (the “2015 Plan”) and were assumed in the merger transaction on September 26, 2017.

Awards that may be awarded under the 2017 Plan include non-qualified and incentive stock options, stock appreciation rights, bonus shares, restricted stock, restricted stock units, performance units and cash-based awards.

The 2017 Plan also provides that

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

the number of shares reserved for issuance thereunder will be increased annually on the first day of each year beginning in 2020 by the least of 4,600,000 shares, five percent ( 5 %) of the shares of Exicure common stock outstanding on the last day of the immediately preceding year, or a lesser number of shares as determined by the Company’s compensation committee.

Awards that may be awarded under the 2017 Equity Incentive Plan include non-qualified and incentive stock options, stock appreciation rights, bonus shares, restricted stock, restricted stock units, performance units and cash-based awards.

The number of shares of common stock reserved for issuance under the 2017 Equity Incentive Plan automatically increases on January 1 of each year, beginning on January 1, 2020, by the lesser of (i) 4,600,000 shares, (ii) 5 % of the total number of shares of its capital stock outstanding on December 31 of the preceding calendar year, or (iii) a lesser number of shares determined by the Compensation Committee of the Board (the “Compensation Committee”).

No future awards will be made under the 2015 Plan upon the effectiveness of the 2017 Plan.

As of December 31, 2020, the aggregate number of common stock options available for grant under the 2017 Plan was 2,309,030 .

As of December 31, 2021, the aggregate number of awards available for grant under the 2017 Plan was 3,904,367 .

On January 1, 2022, pursuant to the terms of the 2017 Plan, the number of awards that are reserved and may be awarded under the 2017 Plan was automatically increased by 4,600,000 awards.

The common stock options are contingent on the participants’ continued employment or provision of non-employee services and are subject to forfeiture if employment or continued service terminates for any reason.

The initial stock option grant to an employee or consultant generally vests 25 % on the first 12-month anniversary of the grant date and vests 1/48th monthly thereafter until fully vested at the end of 48 months.

Subsequent stock option grants to employees or consultants generally vest 1/48th monthly until fully vested at the end of 48 months.

Awards granted under the 2017 Plan are contingent on the participants’ continued employment or provision of non-employee services and are subject to forfeiture if employment or continued service terminates for any reason.

The initial award granted to an employee or consultant generally vests 25 % on the first 12-month anniversary of the grant date and vests 1/48th monthly thereafter until fully vested at the end of 48 months.

Subsequent awards granted to employees or consultants generally vest 1/48th monthly until fully vested at the end of 48 months.

The initial stock option grant to a non-employee director vests 1/36th monthly until fully vested at the end of 36 months.

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The term of common stock option grants is 10 years unless terminated earlier as described above.

Inducement Grant

In May 2021, the Company granted stock options to purchase up to 600,000 shares of common stock as a material inducement to Brian C.

Bock to enter into employment with the Company as the Company’s Chief Financial Officer (the “Inducement Grant”).

The Inducement Grant, which was made pursuant to a stand-alone nonstatutory stock option agreement (the “Inducement Award Agreement”), was approved by the Compensation Committee, was awarded in accordance with Nasdaq Listing Rule 5635(c)(4) and outside of the Company’s 2017 Equity Incentive Plan and is subject to the terms and conditions of the Inducement Award Agreement.

As such, any shares underlying the Inducement Grant are not, upon forfeiture, cancellation or expiration, returned to a pool of shares reserved for future issuance.

As of December 31, 2021, stock options to purchase up to 600,000 shares of common stock remained outstanding under the Inducement Grant.

In connection with Mr.

Bock’s resignation from the Company on February 4, 2022, the stock options underlying the Inducement Grant were forfeited.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Employee Stock Purchase Plan

The 2017 Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board in September 2017 and approved by the Company’s stockholders in September 2017.

Through the ESPP, eligible employees may authorize payroll deductions of up to 15 % of their compensation to purchase common stock.

The maximum number of shares that an employee may purchase on any exercise date in an offer period will be the smaller of (i) 7,500 shares or (ii) such number of shares as has a fair market value (determined as of the offering date for such offer period) equal to $ 25,000 within one calendar year minus the fair market value of any other shares of common stock that are attributed to such calendar year.

The purchase price per share at each purchase date is equal to 85 % of the lower of (i) the closing market price per share of Exicure common stock on the employee’s offering date or (ii) the closing market price per share of Exicure common stock on the exercise date.

Each offering period is approximately six-months in duration and the first offering period began on November 16, 2020 and ended on May 14, 2021.

During 2021, the Company issued 189,221 shares of common stock that were purchased under the ESPP.

The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2018 and each January 1 thereafter through January 1, 2027, by the least of (i) 300,000 shares;

(ii) 0.3 % of the outstanding shares of common stock on the last day of the immediately preceding calendar year;

or (iii) a lesser number of shares determined by the Board.

As of December 31, 2021, there were 1,014,666 shares available for issuance under the ESPP.

On January 1, 2022, the number of shares of common stock available for issuance under the ESPP increased by 300,000 shares.

Equity-based compensation expense is classified in the statements of operations as follows:

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Expected dividend yield — % — %

The expected term is based upon the “simplified method” as described in Staff Accounting Bulletin Topic 14.D.2.

Currently, the Company does not have sufficient experience to provide a reasonable estimate of an expected

EXICURE, INC.

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(in thousands, except share and per share data)

term of its common stock options.

The expected term is based upon the “simplified method” as described in Staff Accounting Bulletin Topic 14.D.2.

Currently, the Company does not have sufficient experience to provide a reasonable estimate of an expected term of its common stock options.

The Company will continue to use the “simplified method” until there is sufficient experience to provide a more reasonable estimate in conformance with ASC 718-10-30-25 through 30-26.

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The aggregate intrinsic value of common stock options exercised during the years ended December 31, 2021 and 2020 was $ 243 and $ 526 , respectively.

Pretax loss before income taxes was $ 24,668 and $ 26,303 for the years ended December 31, 2020 and 2019, respectively, which consists entirely of losses in the U.S.

and resulted in no provision for income tax expense during the years then ended.

EXICURE, INC.

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(in thousands, except share and per share data)

A summary of restricted stock unit activity of the periods indicated is as follows:

Restricted Stock Units Weighted-Average Grant Date Fair Value

Unvested balance - December 31, 2020 — $ —

Granted 734,000 1.49

Vested ( 35,750 ) 1.90

Forfeited ( 395,000 ) 1.31

Unvested balance - December 31, 2021 303,250 $ 1.67

The grant date fair value of restricted stock units is based on the Company’s closing stock price at the date of grant.

At vesting, each outstanding restricted stock unit will be exchanged for one share of the Company’s common stock.

The restricted stock units granted during the 2021 period generally vest evenly on a quarterly basis over a period of 4 years in exchange for continued service provided by the restricted stock unit recipient during that vesting period.

Pre-tax loss before income taxes was $ 64,102 and $ 24,668 for the years ended December 31, 2021 and 2020, respectively, which consists entirely of losses in the U.S.

and resulted in no provision for income tax expense during the years then ended.

The differences between income taxes computed using the U.S.

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Permanent differences 245 ( 0.4 ) 142 ( 0.6 )

Other ( 32 ) — — —

Change in valuation allowance 18,064 ( 28.1 ) 6,839 ( 27.7 )

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The Company’s effective income tax rate for the years ended December 31, 2021 and 2020 is 0 % because the Company has generated tax losses and has provided a full valuation allowance against its deferred tax assets to an amount that is more likely than not to be realized.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The significant components of the Company’s net deferred tax assets are as follows:

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Net operating losses $ 42,769 $ 26,346

Tax credits 3,922 —

Intangibles 134 152

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Projections of future pre-tax book loss and taxable losses based on the Company's recent actual performance and current industry data indicate it is more likely than not that the benefits will not be recognized.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

At December 31, 2021, the Company had a federal net operating loss carryforward of $ 150,329 , of which $ 31,809 will begin to expire in 2035 and $ 118,520 which do not expire and may be carried forward indefinitely.

At December 31, 2021, the Company had $ 149,789 of state net operating loss carryforwards which will begin to expire in 2027.

As provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”), and similar state provisions, utilization of net operating losses and tax credit carryforwards may be subject to substantial annual limitations due to ownership change limitations that have previously occurred or that could occur in the future.

Ownership changes may limit the amount of net operating losses and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of five percent stockholders in the stock of a corporation by more than 50 percent in the aggregate over a three-year period.

For the year ended December 31, 2019, the Company completed a review of its changes in ownership and determined that the August 2019 Offering resulted in an ownership change during the year then ended, as defined by Section 382.

However, the Company does not expect that the Section 382 limitation resulting from the August 2019 ownership change will place a material restriction on the Company’s ability to utilize its net operating losses and tax credit carryforwards.

For the year ended December 31, 2020, the Company completed a review of its changes in ownership and determined that no additional ownership changes have occurred.

There could be additional ownership changes after December 31, 2020 that could limit the amount of net operating losses and tax credit carryforwards that the Company can utilize in the future.

At December 31, 2021 and 2020, the Company had no unrecognized tax benefits.

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There are no pending examinations in any jurisdiction.

On March 27, 2020 and December 27, 2020, the President of the United States signed and enacted into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Consolidated Appropriations Act, 2021 (CAA).

Among other provisions, the CARES Act and the CAA provide relief to U.S.

federal corporate taxpayers through temporary adjustments to net operating loss rules, changes to limitations on interest expense deductibility, and the acceleration of available refunds for minimum tax credit carryforwards.

The CARES Act and the CAA did not have a material effect on the Company’s consolidated financial statements.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Loss Per Common Share

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Diluted loss per common share is calculated using the treasury share method by giving effect to all potentially dilutive securities that were outstanding.

Potentially dilutive options and warrants to purchase common stock that were outstanding during the periods presented were excluded from the diluted loss per share calculation for the periods presented because such shares had an anti-dilutive effect due to the net loss reported in those periods.

Potentially dilutive options, restricted stock units and warrants to purchase common stock that were outstanding during the periods presented were excluded from the diluted loss per share calculation for the periods presented because such shares had an anti-dilutive effect due to the net loss reported in those periods.

Therefore, basic and diluted loss per common share is the same for each of the years ended December 31, 2021 and 2020.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The following is the computation of loss per common share for the years ended December 31, 2021 and 2020:

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Options to purchase common stock 9,944,773 7,227,296

Restricted stock units 303,250 —

Warrants to purchase common stock 31,288,034 413,320

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and Level 3 Inputs - unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 are as follows:

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Assets measured at fair value on a recurring basis as of December 31, 2021 are as follows:

Total Level 1 Level 2 Level 3

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Money market funds $ 21,125 $ 21,125 $ — $ —

Commercial paper 5,999 — 5,999 —

Short-term investments:

Commercial paper 4,497 — 4,497 —

Corporate notes/bonds 29,296 — 29,296 —

Treasuries 2,253 — 2,253 —

Government agency securities 1,278 — 1,278 —

Total financial assets $ 31,621 $ 21,125 $ 10,496 $ —

Common stock warrant liability $ 15 $ — $ — $ 15

Total financial liabilities $ 15 $ — $ — $ 15

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 are as follows:

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Money market funds $ 24,586 $ 24,586 $ — $ —

Commercial paper 2,498 — 2,498 —

Short-term investments:

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Total financial liabilities $ 15 $ — $ — $ 15

The Company uses the market approach and Level 1 and Level 2 inputs to value its cash equivalents and Level 2 inputs to value its short-term investments.

The Company’s long-term debt bore interest at the prevailing market rates for instruments with similar characteristics and, accordingly, the carrying value for this instrument also approximates its fair value and the financial measurement is also classified within Level 2 of the fair value hierarchy.

The Company’s common stock warrant liability (refer to Note 8, Stockholders’ Equity , for more information) is classified within Level 3 of the fair value hierarchy.

The fair value of the common stock warrant liability was determined using the Black-Scholes option-pricing model.

The fair value of the common stock warrant liability is based significantly on the fair value of the Company’s common stock.

At the date of issuance, the common stock warrant liability was determined using the following weighted-average assumptions:

expected term of 2.0 years, risk-free interest rate of 1.53 %, expected volatility of 78.97 %, and no expected dividends.

The following weighted-average assumptions were used to estimate the fair value of the common stock warrant liability at December 31, 2020:

December 31, 2020

Expected term 0.3

Risk-free interest rate 0.10 %

Expected volatility 68.91 %

Expected dividend yield — %

A 10% change in the estimate of expected volatility at December 31, 2020 would increase or decrease the fair value of the common stock warrant liability in the amount of $ 6 .

A 10% change in the estimate of fair value of the common stock at December 31, 2020 would increase or decrease the fair value of the common stock warrant liability in the amount of $ 10 .

EXICURE, INC.

1 unchanged sentence

(in thousands, except share and per share data)

The Company uses the market approach and Level 1 and Level 2 inputs to value its cash equivalents and Level 2 inputs to value its short-term investments.

As of December 31, 2021, the Company’s common stock warrant liability was $ 0 and no warrants were outstanding underlying the common stock warrant liability (refer to Note 9, Stockholders’ Equity , for more information).

The following is a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) for the years ended December 31, 2021 and 2020:

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Commitments and Contingencies

Legal Proceedings

On December 13, 2021, Mark Colwell filed a putative securities class action lawsuit against the Company, David A.

Giljohann and Brian C.

Bock in the United States District Court for the Northern District of Illinois, captioned Colwell v.

Exicure, Inc.

1:21-cv-0663.

On February 4, 2021, Plaintiff filed an amended putative securities class action complaint.

The amended complaint alleges that Messrs.

Giljohann and Bock made materially false and/or misleading statements related to the Company’s clinical programs purportedly causing losses to investors who acquired Company securities between January 7, 2021 and December 10, 2021.

The amended complaint does not quantify any alleged damages but, in addition to attorneys’ fees and costs, plaintiff seeks to recover damages on behalf of himself and others who acquired the Company’s stock during the putative class period at allegedly inflated prices and purportedly suffered financial harm as a result.

On February 11, 2022, four members of the putative class moved the Court for appointment as lead plaintiff in the action pursuant to the Private Securities Litigation Reform Act of 1995.

Two of those motions were withdrawn on February 25, 2022, and two remain pending.

On February 16, 2022, the Court entered an order stating that defendants need not answer, or otherwise respond, until the Court enters an order appointing lead plaintiff and lead counsel, and the parties then submit a schedule to the Court for the filing of a further amended complaint and the timing of defendants’ answer or response.

On March 1, 2022, Kapil Puri filed a shareholder derivative lawsuit on behalf of the Company in the United States District Court for the Northern District of Illinois, against Messrs.

Giljohann and Bock, Jeffrey L.

Cleland, Elizabeth Garofalo, Bosun Hau, Bali Muralidhar, Andrew Sassine, Matthias Schroff, James Sulat and Timothy Walbert, captioned Puri v.

Giljohann, et al.

1:22-cv-01083.

On March 8, 2022, Yixin Sim filed a similar shareholder derivative lawsuit in the same court against the same individuals, captioned Sim v.

Giljohann, et al.

EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

1:22-cv-01217.

Based on similar factual allegations presented in the Colwell complaint, described above, the Puri and Sim complaints (the “Derivative Complaints”) allege that the defendants caused the Company to issue false and/or misleading statements in its 2021 proxy statement regarding risk oversight, code of conduct, clinical program and compensation matters, among other things, in violation of federal securities law, and committed breaches of fiduciary duties owed under state law.

The Derivative Complaints also assert that Messrs.

Giljohann and Bock are liable for contribution under the federal securities laws.

The Puri complaint further asserts state law claims for unjust enrichment, abuse of control, gross mismanagement and corporate waste.

The plaintiffs do not quantify any alleged damages in the Derivative Complaints, but seeks restitution for damages to the Company, attorneys’ fees, costs, and expenses, as well as an order directing that certain proposals for strengthening board oversight be put to a vote of the Company’s shareholders.

Refer to Note 7, Leases , for a discussion of the commitments associated with the Company’s lease agreements.

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The Company’s license to NU’s rights is limited to the assigned field, however the Company has no such limitation as to its own rights in this jointly owned technology.

In June 2016, the Company entered into an exclusive license with NU to obtain worldwide rights to certain inhibitors of glucosylceramide synthase and their use in wound healing in diabetes (the “Wound Healing License”).

The Company’s rights and obligations in the Co-owned Technology License and the Wound Healing License agreements are substantially the same as in the Restated License Agreement from August 2015 (collectively referred to as “the Northwestern University License Agreements”).

As of December 31, 2019, all pending patent applications under the Wound Healing License have been abandoned.

The Company’s rights and obligations in the Co-owned Technology License agreement is substantially the same as in the Restated License Agreement from August 2015 (collectively referred to as “the Northwestern University License Agreements”).

As of December 31, 2021, the Company has paid to NU an aggregate of $ 11,413 in consideration of each of the obligations described above.

Related-Party Transactions

The Company received consulting services from, and paid fees to, one of its co-founders who is not an employee but, through April 30, 2021, served as a member of the Board.

The Company recognized expense of $ 75 and $ 100 for the years ended December 31, 2021 and 2020 in connection with these consulting services in the accompanying consolidated statement of operations.

The consulting agreement with this co-founder and former Board member expired on September 30, 2021 under the terms of the agreement and was not renewed.

EXICURE, INC.

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(in thousands, except share and per share data)

Related-Party Transactions

The Company received consulting services from, and paid fees to, one of its co-founders who is not an employee but serves as a member of the Board.

The Company paid $ 100 in each of the years ended December 31, 2020 and 2019 in connection with these consulting services and these amounts are recognized as an expense in the accompanying consolidated statement of operations.

Quarterly Financial Data (Unaudited)

Selected quarterly financial data for the years ended December 31, 2020 and 2019 are as follows:

Revenue $ 9,183 $ 4,847 $ 2,443 $ 140

Net income (loss) (1)

1,150 ( 4,311 ) ( 8,822 ) ( 12,685 )

Basic earnings (loss) per common share $ 0.01 $ ( 0.05 ) $ ( 0.10 ) $ ( 0.15 )

Diluted earnings (loss) per common share $ 0.01 $ ( 0.05 ) $ ( 0.10 ) $ ( 0.15 )

Revenue $ 25 $ 434 $ 527 $ 310

Net loss (1) (2)

( 5,286 ) ( 5,220 ) ( 5,816 ) ( 9,981 )

Basic and diluted loss per common share $ ( 0.12 ) $ ( 0.12 ) $ ( 0.09 ) $ ( 0.13 )

(1) - Net income (loss) includes a non-cash unrealized gain (loss) related to the fair value adjustment of the common stock warrant liability of $ 346 , $( 189 ), $ 186 , $ 56 in the three months ended March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020 and $ 370 , $( 113 ), $ 103 , and $ 24 in the three months ended March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019, respectively.

(2) - Net loss in the three months ended December 31, 2019 includes $ 3,750 of research and development expense related to license fees owed to Northwestern University in connection with the receipt of the AbbVie Upfront Payment during that period.

Refer to Note 3, Collaborative Research and License Agreements for more information on the AbbVie Upfront Payment and Note 14, Commitments and Contingencies for more information on the Northwestern University License Agreements.

(3) - Revenue for the three months ended December 31, 2020 reflects events and conditions that occurred during the period that increased the estimated hours to complete the services under the AbbVie Collaboration Agreement.

These increased estimated efforts resulted in less progress occurring relative to the increased estimate of total projected hours to complete the research services (and thus limited revenue recognized) during the three months ended December 31, 2020.

Subsequent Events

MidCap Credit Agreement

On March 15, 2022, pursuant to the terms of the MidCap Credit Agreement, the Company repaid all remaining outstanding obligations under the MidCap Credit Agreement, including the outstanding principal balance of $ 7,500 and an exit fee of $ 506 .

Exercise of Pre-Funded Warrants

On January 4, 2022 and January 21, 2022, the holder of the Pre-Funded Warrants exercised the right to purchase 7,500,000 shares and 6,500,000 shares, respectively, of the Company’s common stock.

As a result, 14,000,000 aggregate shares of the Company’s common stock were issued upon such exercises with aggregate proceeds from totaling $ 14 such exercises.

There are no remaining unexercised Pre-Funded Warrants as a result of such exercises in January 2022.

Repricing of Outstanding and Unexercised Options

On March 24, 2022, the Board unanimously approved the repricing of all outstanding and unexercised stock options granted under the 2015 Plan and 2017 Plan (the “Plans”) and held by current employees, executive officers, and directors of the Company (the “Eligible Stock Options”).

The exercise price of the Eligible Stock Options will be reduced to the closing price of the Company’s common stock on April 1, 2022.

Except for the modification to the exercise price of the Eligible Stock Options, all other terms and conditions of each of the Eligible Stock Options will remain in full force and effect.

Pursuant to the Plans, the Board, as the administrator of the Plans, has discretionary authority, exercisable on such terms and conditions that it deems appropriate under the circumstances, to reduce the exercise price in effect for outstanding options under the Plans.

In approving the repricing, the Board considered the impact of the current exercise prices of outstanding stock options on the incentives provided to employees and directors, the lack of retention value provided by the outstanding stock options to employees and directors, and the impact of such options on the capital structure of the Company.

As of March 24, 2022, there are currently 6,996,741 stock options outstanding under the Plans, and all of the Company’s outstanding stock options have exercise prices in excess of the current fair market value of the Company’s common stock, which is why the Board made the determination to deem all outstanding and unexercised stock options held by current employees, executive officers, and directors as Eligible Stock Options.

Matthias Schroff, the Company’s Chief Executive Officer, and Elias Papadimas, the Company’s Chief Financial Officer, hold Eligible Stock Options exercisable into an aggregate of 881,200 and 375,417 shares of the Company’s common stock, respectively.

Non-employee directors Jeffrey Cleland, Elizabeth Garofalo, Bali Muralidhar and James Sulat hold Eligible Stock Options exercisable into an aggregate of 115,079 , 150,000 , 115,079 and 93,386 shares of the Company’s common stock, respectively.

The Company expects to record the impact of the option repricing in the quarter ending June 30, 2022.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data