Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties as described under the heading “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K. You should review the disclosure under the heading “Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
In addition, this section discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 are not included in this Annual Report and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 25, 2022.
Overview
Historically, we have been an early-stage biotechnology company focused on developing nucleic acid therapies targeting ribonucleic acid against validated targets. In September 2022, we announced a significant reduction in force, suspension of preclinical activities and halting of all research and development, and that we were exploring strategic alternatives to maximize stockholder value. With respect to our historical assets, this includes continuing to explore out-licensing opportunities for cavrotolimod, our clinical-stage asset in immuno-oncology, as well as for our preclinical candidate associated with the SCN9A program for neuropathic pain.
While the foregoing efforts are continuing, we do not expect they will generate significant value for stockholders, at least in the near term. Therefore, we are engaging in a broader exploration of strategic alternatives. This effort involves exploring growth through transactions with potential partners that see opportunity in joining an existing, publicly-traded organization. We are exploring transactions both within our historical biotechnology and life science industry and in other industries unrelated to our historical operations.
Because we currently have no source of revenue or committed financing, we will require substantial additional funding within the next few months in order to continue our exploration of strategic alternatives and consummate any transactions that we may identify.
Operating, financing, and cash flow considerations
Since our inception in 2011, we have primarily funded our operations through sales of our securities, loans and collaborations. As of December 31, 2022, our cash, cash equivalents, and restricted cash were $9.8 million. Subsequent to December 31, 2022, we raised gross proceeds of $5.4 million on the closing of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expect to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.
Our current liquidity is not sufficient to fund operations over the next twelve months from the date of the issuance of the accompanying consolidated financial statements. As a result, there is substantial doubt about our ability to continue as a going concern. Substantial additional financing will be needed by us within the next few months to fund our operations and ongoing exploration of strategic alternatives and pursue any alternatives that we identify. If we are unable to raise capital, the Company could seek bankruptcy protection in the near term, which may result in the Company’s stockholders receiving no or very little value in respect of their shares of the Company’s common stock.
We expect to seek financing through a combination of equity offerings, and debt financings. However, it may be difficult to obtain financing given the Company’s current condition and uncertainty over its future direction.
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Therefore, we may be unable to raise capital when needed or on favorable terms. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue operations.
Recent Developments
Restructuring
On September 26, 2022, we announced our commitment to a plan to wind down our existing preclinical programs, including the development of our SCN9A program, to suspend all of our research and development (“R&D”) activities, including suspension of all partnered programs, and to implement a reduction in force whereby we reduced approximately 66% of our then-existing workforce, as well as other cost-cutting measures (collectively, the “Plan”). The purpose of the Plan was to decrease expenses, thereby, extending our cash runway, and enable us to maintain a streamlined organization to support key corporate functions.
Change of Control
On February 24, 2023, following the satisfaction of closing conditions, including the approval by our stockholders at a Special Meeting of Stockholders held on December 15, 2022, we closed our private placement (the “Private Placement”) to CBI USA. Exicure received gross proceeds of approximately $5.4 million in connection with the close of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expects to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.
Following the closing of the Private Placement, CBI USA is the beneficial owner of approximately 50.4% of the Company’s outstanding shares, resulting in a "change of control" of Exicure under the applicable rules of Nasdaq. At closing, CBI USA designated three members to the Company’s board of directors effective as of February 24, 2023. Additional directors were subsequently appointed by the board, and our board of directors currently includes 6 members, only one of which (Matthias Schroff, our Chief Executive Officer) was a director prior to the closing of the Private Placement. We are currently relying on Nasdaq’s “controlled company” exception to the requirements that a majority of our board be independent and that we have an independent compensation committee and independent nominating committee or function.
Termination of Collaboration Agreements
On December 12, 2022 (the “Ipsen Termination Agreement Effective Date”), the Company and Ipsen entered into a Mutual Termination Agreement (the “Ipsen Termination Agreement”), pursuant to which the parties mutually agreed to terminate the Ipsen Collaboration Agreement. Following such termination, the parties will jointly own R&D Term IP (as defined in the Ipsen Collaboration Agreement) and Patents Covering the R&D Term IP (as defined in the Ipsen Collaboration Agreement), with each party owning an equal, undivided interest in and to such R&D Term IP and patents. As a result of the termination of the Ipsen Collaboration Agreement, the Company regained the ability to independently develop medicines targeting Angelman syndrome and Huntington’s disease while Ipsen retains the right to re-enter into the collaboration with the Company in Huntington’s Disease and Angelman’s Syndrome.
On December 13, 2022 (the “AbbVie Termination Agreement Effective Date”), the Company and Allergan entered into a letter agreement (the “AbbVie Termination Agreement”), pursuant to which the parties mutually agreed to terminate the AbbVie Collaboration Agreement. Following such termination, the Company transferred to Allergan all data, information, and reports made or generated by the Company in the course of performing activities under the Development Plan (as defined in the AbbVie Collaboration Agreement), and granted to Allergan all rights to transfer, publish, present, or otherwise publicly disclose any Collaboration Technology (as defined in the AbbVie Collaboration Agreement) and data made or generated by the Company in the course of performing activities under the Development Plan. As a result of the termination of the AbbVie Collaboration Agreement, the Company regained the ability to independently develop medicines targeting hair loss disorders.
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Nasdaq Listing Requirements Deficiency Notices
As previously disclosed, the Company has received numerous deficiency notes with respect to various Nasdaq listing requirements in the past year. These related to:
• Compliance with Nasdaq’s minimum bid price rule due to the Company’s stock trading below $1.00 for a sustained period of time. The Company effected a one-for-thirty reverse stock split on June 29, 2022 in order to attempt to raise the stock price. As of March 23, 2023, the Company’s stock price closed at $0.9761.
• Compliance with Nasdaq’s rule requiring stockholders’ equity of at least $2,500,000 based on the Company’s balance sheet as of June 30, 2022. The Company believes it is in compliance with this requirement based on its December 31, 2022 balance sheet, but there can be no assurance it will remain in compliance.
• Compliance with Nasdaq’s corporate governance requirements with respect to board and committee composition due to (i) the lack of a majority independent board, (ii) the lack of an audit committee comprised of three independent directors and (iii) the lack of a compensation committee comprised of at least two independent directors. With respect to the majority independence and the audit committee requirements, Nasdaq informed the Company that it was not entitled to a cure period and must submit a plan to regain compliance no later than April 10, 2023. Following the closing of the Private Placement, the Company qualifies for Nasdaq’s controlled company exemptions from the requirements to have a majority independent board and independent compensation committee. The Company still must have an audit committee comprised of three independent directors, which it believes it currently does following the additional board appointments after the closing of the Private Placement, and intends to reply to Nasdaq promptly.
Even if the Company regains compliance with Nasdaq’s listing requirements and addresses the outstanding deficiency notices to Nasdaq’s satisfaction, there can be no assurance that the Company will remain in compliance with Nasdaq’s requirements and will not be delisted.
Basis of Presentation
The audited financial statements of Exicure, Inc. for the fiscal years ended December 31, 2022 and 2021, contained herein, include a summary of our significant accounting policies and should be read in conjunction with the discussion below.
Segment Reporting
We view our operations and manage our business as one segment, which for the periods presented was the discovery, research and development of treatments based on our SNA technology.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.
Our significant judgments and estimates are detailed below, and our significant accounting policies are more fully described in Note 2 of the accompanying consolidated financial statements.
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Revenue recognition
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, revenue recognized under the AbbVie Collaboration Agreement for the year ended December 31, 2021 was $(2.8) million 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 (see Note 3 to the accompanying consolidated financial statements).
Recent accounting pronouncements not yet adopted
Refer to Note 2 of the accompanying consolidated financial statements for a description of recent accounting pronouncements not yet adopted.
Components of Statements of Operations
Revenue
For the year ended December 31, 2022, the Company’s revenue was generated from its collaborations with Ipsen and AbbVie, which were terminated in the fourth quarter. Following the termination of the AbbVie and Ipsen agreements in the fourth quarter of 2022, as discussed above, we have no current source of revenue. We have never generated any commercial product revenue and do not expect to generate any product revenue.
Research and development expense
Research and development expense consists of costs associated with our research activities, including basic research on our SNA platform, discovery and development of novel SNAs as prospective therapeutic candidates, preclinical and clinical development activities for SNAs we have nominated for clinical development as well as maintaining and protecting our intellectual property. Our research and development expenses in the periods presented include:
• employee-related expenses, including salaries, bonuses, benefits and equity-based compensation expense;
• early research and development expenses incurred under arrangements with third parties, such as contract research organizations, contract manufacturing organizations, and consultants;
• preclinical and clinical development expenses with third parties such as contract research organizations, contract manufacturing organizations, and consultants;
• costs of maintaining and protecting our intellectual property portfolio, including legal advisory fees, license fees, sublicense fees, patent maintenance and other similar fees;
• laboratory materials and supplies;
• facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.
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We expense research and development costs as they are incurred. A significant portion of our research and development costs were not tracked by project as they benefit multiple projects or our technology. As previously announced, we halted all research and development activities in 2022.
General and administrative expense
General and administrative expense consists primarily of salaries and related benefits, including equity-based compensation, related to our executive, finance, legal, business development and support functions. Other general and administrative expenses include travel expenses, professional fees for auditing, tax and legal services and allocated facility-related costs not otherwise included in research and development expenses.
Dividend income
Dividend income consists of income earned on our money market funds that are recorded as cash equivalents on our consolidated balance sheets.
Interest income
Interest income consists of income earned on our available for sale securities that are recorded as short-term investments on our consolidated balance sheets, as well as income earned on our cash balances.
Interest expense
Interest expense includes amounts pursuant to the MidCap Credit Agreement (as defined below). All outstanding indebtedness and other obligations under the MidCap Credit Agreement (as defined below) was repaid in full on March 15, 2022.
Other expense, net
Other expense, net mostly consists of gains and losses on foreign currency transactions and gains and losses on the sale of capital assets.
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Results of Operations
Comparison of the Year Ended December 31, 2022 and 2021
The following table summarizes the results of our operations for the years ended December 31, 2022 and 2021:
Year Ended
December 31,
(dollars in thousands) 2022 2021 Change
Revenue:
Collaboration revenue $ 28,826 $ (483) $ 29,309 6,068 %
Total revenue 28,826 (483) 29,309 6,068 %
Operating expenses:
Research and development expense 19,767 48,979 (29,212) (60) %
General and administrative expense 10,890 13,087 (2,197) (17) %
Total operating expenses 30,657 62,066 (31,409) (51) %
Operating loss (1,831) (62,549) 60,718 (97) %
Other (expense) income, net:
Dividend income 78 8 70 875 %
Interest income 15 141 (126) (89) %
Interest expense (595) (1,691) 1,096 (65) %
Other expense, net (40) (11) (29) 264 %
Total other expense, net (542) (1,553) 1,011 (65) %
Net loss before provision for income taxes (2,373) (64,102) 61,729 (96) %
Provision for income taxes 209 — 209 n/m
Net loss $ (2,582) $ (64,102) $ 61,520 (96) %
Revenue
The following table summarizes our revenue earned during the periods indicated:
Year Ended
December 31,
(dollars in thousands) 2022 2021 Change
Collaboration revenue:
AbbVie Collaboration Agreement $ 11,135 $ (2,792) $ 13,927 499 %
Ipsen Collaboration Agreement
17,691 2,309 15,382 666 %
Total collaboration revenue $ 28,826 $ (483) $ 29,309 6,068 %
Total revenue $ 28,826 $ (483) $ 29,309 6,068 %
Collaboration revenue was $28.8 million during the year ended December 31, 2022, reflecting an increase of $29.3 million, or 6,068%, from collaboration revenue of $(0.5) million for the year ended December 31, 2021. The increase in collaboration revenue of $29.3 million is due to the recognition of the remaining deferred revenue related to the AbbVie Collaboration Agreement of $13.9 million and the Ipsen Collaboration Agreement of $15.4 million in connection with the terminations of those collaboration agreements in December 2022. This revenue resulted from an accounting adjustment, did not reflect any new cash proceeds to the Company and will not recur. Following these terminations, we currently have no source of revenues.
Refer to Note 3, Collaborative Research and License Agreements , of the accompanying consolidated financial statements for more information regarding revenue recognition for the AbbVie Collaboration Agreement and Ipsen Collaboration Agreement.
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Our ability to generate revenues in the future is dependent on our ability to successfully explore and execute strategic alternatives. Therefore, there is substantial uncertainty as to how, when or if we might be able to generate revenues in the future.
Research and development expense
The following table summarizes our research and development expenses incurred during the periods indicated:
Year Ended
December 31,
(dollars in thousands) 2022 2021 Change
Employee-related expense $ 6,661 $ 12,362 $ (5,701) (46) %
Platform and discovery-related expense 6,177 13,650 (7,473) (55) %
Facilities, depreciation, and other expenses 4,119 4,068 51 1 %
Clinical development programs expense 2,810 18,899 (16,089) (85) %
Total research and development expense $ 19,767 $ 48,979 $ (29,212) (60) %
Full time employees 5 37 (32)
Research and development expense was $19.8 million for the year ended December 31, 2022, reflecting a decrease of $29.2 million, or 60%, from research and development expense of $49.0 million for the year ended December 31, 2021. The decrease in research and development expense for the year ended December 31, 2022 of $29.2 million reflects fewer clinical, preclinical, and discovery program activities and a reduction in headcount resulting from the restructuring activities that were announced in December 2021 and September 2022. More specifically, the decrease in research and development expense for the year ended December 31, 2022 of $29.2 million was due to a decrease in costs related to our clinical development programs of $16.1 million, lower platform and discovery-related expense of $7.5 million, and lower employee-related expenses of $5.7 million.
The decrease in clinical development programs expense for the year ended December 31, 2022 of $16.1 million was primarily due to lower manufacturing and toxicology study costs in connection with IND-enabling and Phase 1 clinical trial preparation activities for the XCUR-FXN program, which we indefinitely suspended in December 2021. In addition, lower clinical trial costs in connection with our Phase 1b/2 clinical trial for cavrotolimod (AST-008), which we began to wind down in December 2021, contributed to the decrease in clinical development program expense as compared to the prior-year period.
The decrease in platform and discovery-related expense for the year ended December 31, 2022 of $7.5 million was mostly due to lower costs for materials, reagents, and supplies in connection with a reduction in headcount and fewer discovery and preclinical program activities, the absence of the license fee paid to Northwestern University of $3.0 million in the prior year period in connection with the receipt of the upfront payment of $20.0 million from Ipsen, and lower intellectual property costs, as compared to the prior-year period.
The decrease in employee-related expense for the year ended December 31, 2022 of $5.7 million was due to lower compensation and related costs in connection with a lower headcount during the period resulting from the restructuring activities that were announced in December 2021 and September 2022, partially offset by retention award expense.
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General and administrative expense
Year Ended
December 31,
(dollars in thousands) 2022 2021 Change
General and administrative expense $ 10,890 $ 13,087 $ (2,197) (17) %
Full time employees 8 9 (1)
General and administrative expense was $10.9 million for the year ended December 31, 2022, representing a decrease of $2.2 million, or 17%, from $13.1 million for the year ended December 31, 2021. The decrease for the year ended December 31, 2022 is mostly due to lower compensation and related costs in connection with a lower headcount during the period resulting from the restructuring activities that were announced in December 2021, as well as lower costs for accounting, director fees, and investor relations. These lower costs in the current year period were partially offset by higher retention award expense, as well as higher consultant and advisory costs.
Interest expense
The decrease in interest expense of $1.1 million for the year ended December 31, 2022 is in connection with the repayment in full of all outstanding indebtedness and other obligations under the MidCap Credit Agreement (as defined below) on March 15, 2022.
Provision for income taxes
The effective tax rate for the year ended December 31, 2022 of (8.8)% is attributable to the fact that the Company is subject to the IRC Section 174 regulations requiring companies to capitalize certain research and experimental expenditures and IRC Section 382 loss limitation rules on our ability to utilize net operating losses to offset the capitalization requirement. The effective income tax rate for the year ended December 31, 2021 was 0% because the Company generated tax losses and provided a full valuation allowance against its deferred tax assets to an amount that is more likely than not to be realized.
We completed a review of our changes in ownership through December 31, 2022 and determined that we experienced an "ownership change" within the meaning of Section 382(g) during the fourth quarter of 2022. This ownership change has and will continue to subject our net operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset our taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.
Liquidity and Capital Resources
As of December 31, 2022, our cash, cash equivalents, and restricted cash were $9.8 million. We have no current source of revenues or committed financing. Subsequent to December 31, 2022, we received gross proceeds of approximately $5.4 million in connection with the close of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expect to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.
Our current liquidity is not sufficient to fund operations over the next twelve months from the date of the issuance of the accompanying consolidated financial statements. As a result, there is substantial doubt about our ability to continue as a going concern.
We believe that our existing cash and cash equivalents (including the proceeds received in February 2023 in connection with the closing of the Private Placement) could enable us to fund our operating expenses into the beginning of the fourth quarter of 2023. However, this estimate is based on assumptions about how we can limit spending that may prove to be wrong and it is very difficult to project our current cash burn rate given the transitional status of the Company as we explore strategic alternatives and this estimate may prove inaccurate and we may expend our limited resources sooner. Depending on the direction of our review of strategic alternatives, we
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may use our available resources sooner than we currently expect. The Company has already engaged in significant cost reductions, so our ability to further cut costs and extend our operating runway is limited. As a result, substantial additional financing will be needed by us within the next few months to pay our expenses, fund our ongoing exploration of strategic alternatives and pursue any alternatives that we identify. If we are unable to raise sufficient capital, the Company could seek bankruptcy protection in the near term, which may result in the Company’s stockholders receiving no or very little value in respect of their shares of the Company’s common stock.
We expect to seek financing through a combination of equity offerings and debt financings. However, it may be difficult to obtain financing given the Company’s current financial condition and lack of sources of revenues and uncertainty over its future direction. Traditional capital markets sources of funding may not be available to us in these circumstances. Therefore, we may be unable to raise capital at all, when needed or on favorable terms.
To the extent that we do raise additional capital, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions that otherwise might be in our best interests. Further, the global financial markets have experienced significant disruptions over the past couple years due to the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, worsening global macroeconomic conditions, including actions taken by central banks to counter inflation, volatility in the capital markets, instability in the banking industry and related market uncertainty, may impact our ability to obtain additional financing when needed on favorable terms or at all.
Private Placements
In May 2022, we entered into a securities purchase agreement with certain accredited investors, pursuant to which we issued and sold 867,369 shares of common stock, par value $0.0001 per share, at a purchase price of $5.81 per share for net proceeds of approximately $4.9 million.
In September 2022, we entered into a securities purchase agreement with CBI USA with respect to the Private Placement, which subsequently closed in February 2023.
MidCap Facility
On March 15, 2022, we repaid in full all outstanding indebtedness and other obligations under our Credit and Security Agreement, dated as of September 25, 2020, as amended on October 21, 2020, July 30, 2021, September 30, 2021, and December 10, 2021, with MidCap Financial Trust, as agent, and the lenders party thereto from time to time, or the MidCap Credit Agreement, and the other Financing Documents (as defined in the MidCap Credit Agreement), including but not limited to the outstanding principal balance of $7.5 million and an exit fee of approximately $0.5 million, and terminated all obligations thereunder (other than with respect to any obligations that are expressly specified to survive the termination).
Cash Flows
The following table shows a summary of our cash flows for the years ended December 31, 2022 and 2021:
Years Ended
December 31,
(in thousands) 2022 2021
Net cash used in operating activities $ (35,658) $ (34,819)
Net cash provided by investing activities 4,696 43,085
Net cash (used in) provided by financing activities (3,105) 1,116
Net (decrease) increase in cash, cash equivalents, and restricted cash $ (34,067) $ 9,382
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Operating activities
Net cash used in operating activities was $35.7 million and $34.8 million for the years ended December 31, 2022 and 2021, respectively. The slight increase in cash used in operating activities for the year ended December 31, 2022 of $0.8 million was primarily due to the absence of the prior-year period receipt of the upfront payment of $20.0 million from Ipsen in connection with the Ipsen Collaboration Agreement (net of $3.0 million license fee paid to Northwestern as a result) and the prepayment of the premium for directors and officers run-off insurance policy coverage in the fourth quarter of 2022 in anticipation of the Private Placement closing, mostly offset by lower cash used for working capital.
Investing activities
Net cash provided by investing activities was $4.7 million and $43.1 million for the years ended December 31, 2022 and 2021, respectively. The decrease in cash provided by investing activities of $38.4 million was primarily due to a decrease in proceeds from the maturity, net of purchases, of available-for-sale securities.
Financing activities
Net cash used in financing activities of $3.1 million for year ended December 31, 2022 is primarily due to the repayment in full of all outstanding indebtedness and other obligations under the MidCap Credit Agreement, partially offset by net proceeds of approximately $4.9 million received in connection with the May 2022 private placement transaction.
Net cash provided by financing activities of $1.1 million for the year ended December 31, 2021 is primarily due to the net proceeds we received of $10.4 million in connection with the sale of common stock and warrants in a registered direct offering in December 2021, as well as proceeds received from the exercise of stock options and the issuance of common stock in connection with our employee stock purchase plan, mostly offset by the prepayment of $10 million of the outstanding principal balance associated with our MidCap Credit Agreement in December 2021.
Going Concern
In accordance with Accounting Standards Codification 205-40, Going Concern , we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. In the absence of a significant source of recurring revenue, our continued viability is dependent on our ability to continue to raise additional capital to finance our operations. As discussed above, there are substantial uncertainties about our ability to raise such financing.
Contractual Obligations and Commitments
Chicago Lease
In February 2020, we entered into a new lease signed in February 2020 to secure approximately 30,000 square feet of office and laboratory space at 2430 N. Halsted St., Chicago, Illinois, or the Chicago Lease. The Chicago Lease commenced on July 1, 2020, which is when the premises leased thereunder were ready for occupancy, and expires 10 years from July 1, 2020 with an option to renew for two additional successive periods of five years each.
The initial annual base rent during the original term of the Chicago Lease is approximately $1.1 million for the first 12-month period of the original term, payable in monthly installments beginning on the lease commencement. Base rent thereafter is subject to annual increases of 3%, for an aggregate amount of $12.8 million over the initial term. We must also pay our proportionate share of certain operating expenses and taxes for each calendar year during the term. During the first 12 months, the base rent and our proportionate share of operating expenses and taxes are subject to certain abatements.
In connection with the Chicago Lease, we will maintain a letter of credit for the benefit of the landlord in an initial amount of $1.2 million, which amount is subject to reduction over time, which is secured by a restricted certificate of deposit account and presented within other noncurrent assets on our consolidated balance sheet at
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December 31, 2022.
Warrants
Following the closing of the Private Placement, a holder of warrants to purchase 526,151 shares of common stock at a price of $8.1031 per share that were acquired in the December 2021 registered-direct offering transaction exercised their put option within 30 days of the closing of the Private Placement (February 24, 2023), to receive a cash payout for the outstanding warrants in the amount of the Black-Scholes value of each warrant as prescribed in the warrant agreement (or $0.8 million in the aggregate). This obligation remains outstanding as of the date of the filing of this Annual Report of Form 10-K.
Other
We also have obligations to make future payments to Northwestern that become due and payable on the achievement of certain commercial milestones. Based on the terminations of our collaborations with Ipsen and AbbVie, we currently do not anticipate any such milestone payments becoming due.
JOBS Act
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
In addition, as an emerging growth company, we will not be required to provide an auditor’s attestation report on our internal control over financial reporting in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act.
Item 7A. RESERVED
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