xcur-20201231

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

(Mark One)

For the fiscal year ended December 31, 2020

For the transition period from to

Commission file number 001-39011

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EXICURE, INC.

(Exact name of registrant as specified in its charter)

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2430 N. Halsted St.

Chicago, IL60614

(Address of principal executive offices and Zip Code)

(847) 673-1700

(Registrant’s telephone number, including area code)

______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.0001 per share XCUR The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ̈Nox

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No ̈

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesx No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer ̈ Accelerated filer ̈

Non-accelerated filer x Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2020 was approximately $128.1 million, based on a closing price of $2.44 per share of the registrant's common stock as reported on The Nasdaq Capital Market. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant.

As of March 5, 2021, the registrant had 87,960,327 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K, are incorporated by reference in Part III, Items 10-14 of this Form 10-K.

EXICURE, INC.

ANNUAL REPORT ON FORM 10-K

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PART I

Item 1. Business 9

Item 1A. Risk Factors 46

Item 1B. Unresolved Staff Comments 88

Item 2. Properties 88

Item 3. Legal Proceedings 88

Item 4. Mine Safety Disclosures 88

PART II

Item 6. Selected Financial Data 90

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 107

Item 8. Financial Statements and Supplementary Data 108

Item 9A. Controls and Procedures 145

Item 9B. Other Information 146

PART III

Item 10. Directors, Executive Officers and Corporate Governance 147

Item 11. Executive Compensation 147

Item 14. Principal Accounting Fees and Services 147

PART IV

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including the sections titled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Annual Report on Form 10-K are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “will,” “would,” “should,” “expect,” “plan,”, “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “contemplate,” “project,” “continue,” “potential,” “ongoing” or the negative of these terms or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to such statements.

Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, such expectations or any of the forward-looking statements may prove to be incorrect and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including, but not limited to, the risk factors described in the “Risk Factor Summary” below and set forth in Part I, Item 1A “Risk Factors” below and for the reasons described elsewhere in this Annual Report on Form 10-K. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof and we do not intend to update any forward-looking statements except as required by law or applicable regulations. These forward-looking statements include, but are not limited to, statements concerning the following:

•our expectations regarding the impact of the ongoing COVID-19 pandemic including the expected duration of disruption and immediate and long-term delays, interruptions or other adverse effects to clinical trials, patient enrollment and clinical activation, delays in regulatory review, preclinical research and development, or R&D, collaboration and partnership programs, manufacturing and supply chain interruptions, adverse effects on healthcare systems and disruption of the global economy overall, and the overall impact of the COVID-19 pandemic on our business, financial condition and results of operations;

•our estimates of expenses, ongoing losses, future revenue and capital requirements, including our expectations relating to our needs for additional financing;

•the initiation, timing, progress and results of our current and future preclinical studies, clinical trials, collaboration and partnership programs, including our ongoing clinical trials and any planned clinical trials for cavrotolimod (AST-008) or any of our product candidates, and the research and development programs we pursue;

•our ability to advance our product candidates into, and successfully complete, clinical trials;

•the timing and likelihood of regulatory filings for our current and future product candidates including any Investigational New Drug, or IND, application, Investigational Medicinal Product Dossier, or IMPD, Clinical Trial Application, or CTA, New Drug Application, or NDA, or other regulatory submissions;

•our ability to obtain and maintain regulatory approval of our product candidates in the indications for which we plan to develop them, and any related restrictions, limitations or warnings in the label of an approved drug or therapy;

•the size and growth potential of the markets for our product candidates, if approved, and the rate and degree of market acceptance of our product candidates, including reimbursement that may be received from payors;

•the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

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•the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others or voluntarily adopted in connection with the ongoing COVID-19 pandemic;

•our dependence on current and future collaborators for advancement of therapeutic candidates pursuant to the terms of such collaborations, including ability to obtain and maintain regulatory approval and commercialization, if approved;

•the status of clinical trials, development timelines and discussions with regulatory authorities related to product candidates under development by us and our collaborators;

•our receipt and timing of any milestone payments or royalties under any current or future research collaboration and license agreements or arrangements;

•our ability to identify and develop therapeutic candidates for treatment of additional disease indications;

•the rate and degree of market acceptance of any approved therapeutic candidates;

•the commercialization of any approved therapeutic candidates;

•the implementation of our business model and strategic plans for our business, technologies and therapeutic candidates;

•our ability to obtain additional funds for our operations;

•our ability to obtain and maintain intellectual property protection for our technologies and therapeutic candidates and our ability to operate our business without infringing the intellectual property rights of others;

•our reliance on third parties to conduct our preclinical studies and clinical trials;

•our reliance on third party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and development, preclinical and clinical trial supplies;

•our expectations regarding our ability to attract and retain qualified key management and technical personnel;

•our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

•the impact of government laws and regulations as well as developments relating to our competitors or our industry; and

•other factors that may impact our financial and clinical results.

These statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in Part I, Item 1A of this Annual Report on Form 10-K under the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Any forward-looking statement in this Annual Report on Form 10-K reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our business, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed with the SEC as exhibits thereto completely and with the understanding that our actual future results may be materially different from

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any future results expressed or implied by these forward-looking statements. Except as required by law, we assume no, and specifically decline any, obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Annual Report on Form 10-K also contains or may contain estimates, projections and other information concerning our industry, our business and the markets for certain therapeutics, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.

Except where the context otherwise requires, in this Annual Report on Form 10-K, the “Company,” “Exicure,” “we,” “us” and “our” refers to Exicure, Inc., a Delaware corporation, and, where appropriate, its subsidiary.

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SUMMARY RISK FACTORS

Investing in common stock involves numerous risks, including the risks described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations and prospects.

•We are a clinical-stage biotechnology company with a history of losses. We expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability, which could result in a decline in the market value of our common stock.

•Our approach to the discovery and development of innovative therapeutic treatments based on our technology is unproven and may not result in marketable products.

•Our therapeutic candidates are in early stages of development and may fail in development or suffer delays that materially and adversely affect their commercial viability.

•Product development involves a lengthy and expensive process with an uncertain outcome, and results of earlier preclinical studies and clinical trials may not be predictive of future clinical trial results.

•We will need substantial additional funds to advance the development of our therapeutic candidates, and we cannot guarantee that we will have sufficient funds available in the future to develop and commercialize our current or future therapeutic candidates.

•Our business could be adversely affected by the effects of health epidemics, including the global COVID‐19 pandemic, in regions where we or third parties on which we rely have business operations and at our clinical trial sites, as well as the business or operations of our CROs or other third parties with whom we conduct business.

•If we continue to experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be further delayed or prevented.

•Our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.

•We may not successfully engage in strategic transactions, including any additional collaborations we seek, which could adversely affect our ability to develop and commercialize product candidates, impact our cash position, increase our expense and present significant distractions to our management.

•If third parties on which we depend to conduct our preclinical studies and clinical trials do not perform as contractually required, fail to satisfy regulatory or legal requirements, or miss expected deadlines, our development program could be delayed with materially adverse effects on our business, financial condition, results of operations and prospects.

•Because we rely on third-party manufacturing and supply partners, our supply of research and development, preclinical studies and clinical trial materials may become limited or interrupted or may not be of satisfactory quantity or quality.

•We face competition from entities that have developed or may develop therapeutic candidates for our target disease indications, including companies developing novel treatments and technology platforms based on modalities and technology similar to ours. If these companies develop technologies, including delivery technologies, or therapeutic candidates more rapidly than we do or their technologies are more effective, our ability to develop and successfully commercialize therapeutic candidates may be adversely affected.

•The market may not be receptive to our therapeutic candidates based on a novel therapeutic modality, and we may not generate any future revenue from the sale or licensing of therapeutic candidates.

•Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.

•We will continue to increase the size of our organization, and we may experience difficulties in managing growth.

•We currently license patent rights from Northwestern University and may in the future license patent rights from third-party owners or licensees. If Northwestern University or such other owners or licensees do not properly or successfully obtain, maintain or enforce the patents underlying such licenses, or if they retain or license to others any competing rights, our competitive position and business prospects may be adversely affected.

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•Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

TRADEMARKS

All trademarks, service marks and trade names appearing in this Annual Report on Form 10-K are the property of their respective holders. Use or display by us of other parties’ trademarks, trade dress, or products in this prospectus is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owners.

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PART I

Unless otherwise stated or the context otherwise indicates, references to “Exicure,” the “Company,” “we,” “our,” “us,” or similar terms refer to Exicure, Inc. and our wholly-owned subsidiary, Exicure Operating Company. Exicure Operating Company, which we refer to as “Exicure OpCo,” holds all material assets and conducts all business activities and operations of the Company.

Item 1. Business.

Overview

We are a clinical-stage biotechnology company developing therapeutics for immuno-oncology, genetic disorders and other indications based on our proprietary Spherical Nucleic Acid, or SNA, technology. SNAs are nanoscale constructs consisting of densely packed synthetic nucleic acid sequences that are radially arranged in three dimensions. We believe the design of our SNAs gives rise to distinct chemical and biological properties that may provide advantages over other nucleic acid therapeutics and enable therapeutic activity outside of the liver. We are conducting IND-enabling studies for 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. We are also working to advance our SNA–based therapeutic candidate cavrotolimod (AST-008) in an ongoing Phase 1b/2 clinical trial in cancer patients.

We believe that one of the key strengths of our 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. We have shown in clinical and preclinical studies that SNAs may have therapeutic potential in neurology, immuno-oncology and dermatology. In addition, we have shown in preclinical studies that SNAs may have therapeutic potential in ophthalmology, pulmonology, and gastroenterology. As a consequence, we have expanded our pipeline into neurology, and are conducting early stage research activities in ophthalmology, pulmonology, and gastroenterology.

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In June 2020, we reported that we dosed the first patient in the metastatic Merkel cell carcinoma (MCC) cohort of the Phase 2 portion of the clinical trial of cavrotolimod (AST-008). As of February 23, 2021, we had 16 clinical trial sites open for enrollment and 7 additional sites pending activation. We expect to open up to 30 sites for the Phase 2 stage of the clinical trial. We anticipate all sites will be activated by the end of 2021. As of February 23, 2021, we had dosed 16 patients with 32 mg of cavrotolimod (AST-008) in the Phase 2 portion of the clinical trial, including the primary and exploratory cohorts. Including the six patients dosed with 32 mg of cavrotolimod (AST-008) in the Phase 1b portion of the clinical trial, a total of 22 patients have been dosed with 32 mg of cavrotolimod (AST-008).

The table below sets forth the current status of development of our SNA therapeutic candidates. We are also conducting early stage research activities in ophthalmology, respiratory and gastrointestinal applications. These early stage research activities are described in more detail in the section titled “Our Therapeutic Development Programs–Preclinical research programs.”

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(1) In combination with checkpoint inhibitors.

Impact of Covid-19

With the global spread of the coronavirus disease 2019, or COVID-19, pandemic during 2020, we continue to monitor closely the developments and continue to take active measures to protect the health of our employees and their families, our communities, as well as our clinical trial investigators, patients, and caregivers. In response to the evolving COVID-19 pandemic and related public health directives, orders and guidance, and to ensure the safety and wellbeing of our employees and support community efforts to reduce transmission of COVID-19, we have implemented work-from-home policies in accordance with guidance from federal, state/provincial or municipal government and health authorities. We implemented a number of measures to ensure employee safety and business continuity. Under social distancing guidelines for COVID-19, we were typically operating with less than 50% of our R&D staff on-site at any one time through June 30, 2020. As of July 1, 2020, we took occupancy of approximately 30,000 square feet of laboratory and office space in our new headquarters in Chicago, Illinois. Since then, we have operated under COVID-19 social distancing guidelines and have generally operated with 100% of our R&D staff on-site. Our office and general and administrative team continues to work predominantly from home. We are managing laboratory staffing and taking other appropriate managerial actions to maintain progress on our preclinical and collaboration programs. Business travel has been suspended, and online and teleconference technology is used to meet virtually rather than in person. We have taken measures to secure our research and development project activities, while work in laboratories and facilities has been organized to reduce risk of COVID-19 transmission. For employees working in our laboratories and facilities, we have also taken additional

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safety measures, including implementing social distancing, providing and requiring the use of personal protective equipment, temperature screening, restricting business travel, and under certain circumstances, requiring COVID-19 testing to access our workplace.

R&D operations

Our preclinical development program in FA is ongoing and we began IND-enabling studies for XCUR-FXN in late 2020. We also continue to progress our collaborations with AbbVie and Dermelix. However, if the COVID-19 pandemic or its impact or effects continues to persist for an extended period of time, we could experience additional delays in our enrollment of patients for the Phase 2 trial of cavrotolimod (AST-008) and significant disruptions to our preclinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Supply chain

We are working closely with our third-party manufacturers and other partners to manage our supply chain activities and mitigate potential disruptions as a result of the COVID-19 pandemic. We have observed minor delays in receipt of key chemicals, reagents and materials as certain manufacturers have had supply disruptions, related to the COVID-19 pandemic. If the COVID-19 pandemic continues to persist for an extended period of time and impacts essential distribution systems such as FedEx and postal delivery, we could experience future disruptions to our supply chain and operations, and associated delays in the manufacturing and our clinical supply, which would adversely impact our preclinical and clinical development activities.

Clinical operations

We have one active clinical program, cavrotolimod (AST-008). We have completed enrollment for the Phase 1b stage of the clinical trial and have begun the Phase 2 dose expansion phase in patients with advanced or metastatic Merkel cell carcinoma, or cutaneous squamous cell carcinoma. During the third quarter of 2020 and through December 31, 2020, we observed delays in our enrollment plans and clinical trial site start-ups for the Phase 2 dose expansion phase of the trial. We believe the effects of the COVID-19 pandemic or its impact contributed to such delays. As a result, we have taken additional measures to increase the enrollment of patients, including frequent interaction with our clinical trial sites currently open as well as increasing the number of clinical trial sites that potentially are activated for this trial so that we may continue to enroll patients as initially planned, in accordance with related directives, orders and guidance from relevant health and safety authorities. However, these delays have caused us to lengthen our clinical development timeline for cavrotolimod (AST-008), and we now expect to report overall response rate, or ORR, results in the first half of 2022 rather than by year end 2021 as previously guided in September 2020.

We remain committed to maintaining our development plans for cavrotolimod (AST-008) and continue to monitor and manage the rapidly evolving situation. We have taken and continue to take measures to implement remote and virtual approaches, including remote patient monitoring where possible, to maintain patient safety and trial continuity and to preserve study integrity. Should the COVID-19 pandemic or its impact or effects continue, our ability to maintain patient enrollment and our clinical development timeline could continue to be negatively impacted. We could also see an impact on our ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. As the COVID-19 pandemic persists for an extended period of time, we continue to be impacted and could experience additional delays in patient enrollment for our Phase 2 clinical trial of cavrotolimod (AST-008). Any significant disruptions to our clinical development timelines would further delay our anticipated timeline for results and adversely affect our business, financial condition, results of operations and growth prospects.

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Our Strategy

We intend to build a leading nucleic acid therapeutics company based on our proprietary SNA technology. The key elements of our strategy are:

•Advance XCUR-FXN to clinical proof-of-concept and approval to offer meaningful benefit to Friedreich’s ataxia (FA) patients. We designed and optimized XCUR-FXN, our bi-specific FA therapeutic candidate, to increase frataxin protein levels via two distinct mechanisms and, in in vitro experiments, have observed synergistic upregulation of FXN mRNA in cells treated with XCUR-FXN compared to its mono-targeting components alone at the same total oligonucleotide dose. In FA patient-derived induced neurons, XCUR-FXN has shown potent, dose-dependent upregulation of frataxin protein. In isolated mitochondria from the same induced neurons, XCUR-FXN normalized frataxin protein levels at low concentrations, resulting in substantial improvements in mitochondrial respiration, as measured by succinate dehydrogenase (SDH) activity. We are working in collaboration with Friedreich’s Ataxia Research Alliance (FARA), to develop XCUR-FXN. We commenced IND-enabling studies for XCUR-FXN in late 2020 and expect to initiate a first-in-patient Phase 1b clinical trial in 2022.

•Expand our pipeline of therapeutic candidates for neurological disorders to fully exploit the potential of our SNA technology. We have identified multiple SNA compounds that modulate SCN9A and CLN3 mRNA, for potential treatment of neuropathic pain and CLN3 Batten disease, respectively. We are also evaluating the application of our SNA technology in additional neurological conditions with unmet medical needs, including multiple forms of spinocerebellar ataxia, amyotrophic lateral sclerosis (ALS), Angelman syndrome, and Huntington’s disease.

•Rapidly advance cavrotolimod (AST-008) through clinical development for select cancer indications. AST-008 is our most advanced therapeutic candidate. Using data from the completed Phase 1b stage of our Phase 1b/2 clinical trial, a recommended Phase 2 dose of 32 mg cavrotolimod (AST-008) was identified for the Phase 2 portion of the clinical trial which is currently underway, where cavrotolimod (AST-008) is being given in combination with pembrolizumab or cemiplimab for the treatment of locally advanced or metastatic Merkel cell carcinoma, or cutaneous squamous cell carcinoma, respectively, in patients with progression despite anti-PD-(L)1 therapy. We are enrolling two separate cohorts of patients with advanced or metastatic MCC or CSCC. Each cohort is expected to enroll up to 29 patients who have failed anti-PD-1/PD-L1, or programmed cell death protein 1/programmed death-ligand 1, therapy. In addition, we have added an exploratory cohort to include patients with melanoma who have progressed on PD-(L)-1 therapy and MCC patients who do not qualify for the primary MCC cohort. In June 2020, we reported that we dosed the first patient in the MCC cohort of the trial. As of February 23, 2021, we had 16 clinical trial sites open for enrollment and 7 additional sites pending activation. We expect to open up to 30 sites for the Phase 2 stage of the clinical trial. We anticipate all sites will be activated by the end of 2021. As of February 23, 2021, we had dosed 16 patients with 32 mg of cavrotolimod (AST-008) in the Phase 2 portion of the clinical trial, including the primary and exploratory cohorts. Including the six patients dosed with 32 mg of cavrotolimod (AST-008) in the Phase 1b portion of the clinical trial, a total of 22 patients have been dosed with 32 mg of cavrotolimod (AST-008). In January 2021, we announced that the U.S. Food and Drug Administration, or the FDA, has granted Fast Track designations for cavrotolimod (AST-008), for two development programs: (i) cavrotolimod in combination with anti-programmed death-1 (PD-1) therapy for the treatment of patients with locally advanced or metastatic MCC refractory to prior anti-PD-1/anti-PD-ligand 1 (anti-PD-(L)1) blockade and (ii) cavrotolimod in combination with anti-PD-1 therapy for the treatment of patients with locally advanced or metastatic cutaneous squamous cell carcinoma (CSCC) refractory to prior anti-PD-1 blockade. In March 2021, we announced that the FDA has granted Orphan Drug Designation for cavrotolimod (AST-008) for the treatment of patients with MCC.

•Use our proprietary SNA technology to develop additional therapeutic candidates. We have demonstrated in preclinical studies that in certain applications, SNAs exhibit superior biodistribution properties compared to linear oligonucleotides being both more persistent and more stable in the tissue or organ of interest. As a consequence, SNAs may have potential applications in a variety of additional organs, including the eye, gastrointestinal tract and lungs. We believe that we have the opportunity to enhance the therapeutic potential of known oligonucleotides of clinical utility by incorporating them in our SNA platform. In addition, we may be

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able to develop novel therapeutic candidates targeting validated therapeutic targets. We are conducting early stage research activities in ophthalmology, pulmonology, and gastroenterology.

•Advance SNA platform in dermatological indications with suitable partners. In February 2019, we entered into a License and Development Agreement with Dermelix. Under the terms of agreement, Dermelixlicensed worldwide rights to research, develop, and commercialize Exicure’s technology for the treatment of Netherton syndrome and up to five additional rare skin indications. Additionally, in November 2019, we entered into the AbbVie Collaboration Agreement, pursuant to which we, in collaboration with AbbVie, are developing SNA-based treatments for hair loss disorders.

•Enter into additional partnerships to accelerate development and commercialization of our SNA therapeutic candidates. We believe our proprietary SNA technology lends itself to license agreements or development partnerships with pharmaceutical companies that have development or commercial expertise in a particular therapeutic area of interest where it would be uneconomical or impractical for us to develop SNA therapeutics independently.

•Continue to expand our core capabilities in high throughput screening and automated analyses. We believe there may be a number of therapeutic areas where our SNA technology can be applied to bring first-in-class or best-in-class medicines to patients. Our goal is to identify and advance to clinical development therapeutic candidates for multiple different genetically-defined disorders in parallel, either on our own or with strategic collaborators. We continue to invest in critical infrastructure and know-how to execute on this goal.

•Build, enhance and protect our proprietary SNA intellectual property. We believe the three-dimensional structure of our SNAs provides novel technological and commercial opportunities. We have licensed IP from Northwestern University and have also filed patents independently to protect our IP. Our license from Northwestern University is for exclusive worldwide rights to the use of SNA technology for therapeutic applications. We will continue to protect our IP and innovations arising from our research and development efforts, and prudently in-license technologies where appropriate for protection of our therapeutic pipeline and the broader SNA technology.Any patents arising from applications covering cavrotolimod (AST-008) would expire between 2034 and 2040. Our patent arising from an application covering XCUR-FXN would expire by 2041. Patents arising from applications covering XCUR17 and AST-005 would expire by 2037 and 2035, respectively.

Our Proprietary Technology: Spherical Nucleic Acids

Our therapeutic discovery and development efforts rely on our proprietary SNA technology. SNAs are nanoscale constructs consisting of densely packed synthetic nucleic acid molecules that are radially arranged in three dimensions. We refer to these synthetic nucleic acid molecules in our SNAs as oligonucleotides and the radial orientation of the oligonucleotides without lipid or polymer encapsulation as our “inside out” or “3-D” approach. Our SNAs, unlike many other nucleic acid therapeutics, do not require lipid or polymer encapsulation or complexation in order to be delivered. Encapsulation is the process of confining the nucleic acids inside the cavities of larger structures, typically liposomes, whereas complexation is the process of creating an assembly of nucleic acids bound together with other molecules, typically lipids or polymers.

This arrangement of oligonucleotides allows our proprietary SNAs to enter cells through class A scavenger receptors. Class A scavenger receptors are commonly found on the surface of cells throughout the body, which we believe provides a ubiquitous mechanism of cellular entry for the local administration of our SNA therapeutic candidates. This mechanism of cellular entry is different from many other nucleic acid therapeutics that typically bind to receptors found only in the liver.

The broad tissue penetration and biodistribution properties of SNAs potentially enable three distinct therapeutic approaches. SNAs may be designed to reduce target protein levels by reducing corresponding mRNA levels in cytoplasm. SNAs may also be designed to modulate splicing of pre-mRNA in the nucleus to enhance or alter the product of a target protein and mitigate a genetic defect. Finally, SNAs may be designed to potentially elicit an anti-tumor immune response by agonizing toll like receptors in the endosomes.

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Examples of our proprietary SNA constructs

All of our SNAs contain oligonucleotides that are densely packed and radially oriented.

We believe the key advantages of our proprietary SNAs include:

•SNAs cross certain biological barriers to deliver nucleic acid therapeutics. Local delivery of nucleic acid therapeutics through biological barriers, such as the skin, has been a significant technical challenge. In a Phase 1 clinical trial of XCUR17 in patients with mild to moderate psoriasis, eleven of the twenty-one patients treated with the highest strength XCUR17 gel were observed to have a reduction in redness and improvement in healing as determined by blinded physician assessments. Further, in preclinical studies, we have demonstrated delivery and activity of our SNAs in the central nervous system, eye, lung, and gastrointestinal tract.

•SNAs potentially exhibit superior biodistribution properties compared to linear oligonucleotides. In the fall of 2018, we completed a biodistribution study in rats comparing nusinersen to nusinersen in SNA format. We found that more nusinersen in SNA format was retained in the rats’ brain and spinal cord compared to nusinersen retained in the rats’ brain and spinal cord at 24, 72 and 168 hours. We believe that we have the opportunity to enhance the therapeutic potential of known oligonucleotides of clinical utility by incorporating them in our SNA platform. In addition, we may be able to develop novel therapeutic candidates using our SNA platform.

•SNAs can potentially target multiple genes with a single therapeutic candidate. Our development candidate for Friedreich’s ataxia, XCUR-FXN, is employing a bi-specific approach to upregulate frataxin mRNA levels via two distinct mechanisms, employing an SNA carrying two distinct oligonucleotides. Furthermore, in collaboration with Dr. Amy Paller, one of our scientific advisors, at the 2019 meeting of the Society for Investigative Dermatology, we presented data demonstrating the application of our SNA technology for concurrently targeting two different genes in a single SNA compound. We believe we can concurrently target three or more genes with a single SNA compound. This feature potentially allows us to identify novel therapeutic candidates to treat multiple variants of a given genetic disorder or multiple genetic targets for a single disorder with one therapeutic candidate. We believe multi-targeting might be particularly beneficial for complex genetic diseases with more than one underlying genetic driver.

•SNAs we have administered to date have been well-tolerated. There are three key elements to our safety strategy. First, by administering SNAs locally, we expect to minimize systemic exposure thereby decreasing safety risk. Second, because SNAs enter cells and tissues without lipid or polymer encapsulation or complexation, we expect to avoid the toxicity risks associated with these delivery systems. Finally, due to the nuclease resistance attributable to the architecture of the SNA, we use fewer chemical modifications than are customary in nucleic acid therapeutic development. In each of the Phase 1 clinical trials of AST-005 and

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XCUR17, we observed no drug associated adverse events when the SNA therapeutic candidate was applied topically to the skin of patients with mild to moderate psoriasis. As of February 23, 2021, 1 of the 22 patients dosed with 32 mg of cavrotolimod (AST-008) has experienced a treatment-related SAE as determined by the clinical trial investigator. This patient, enrolled in the Phase 2 stage of the clinical trial, reported a treatment-related serious adverse event, or SAE, of hypotension, flu-like symptoms which subsequently resolved. None of the 14 patients dosed in the Phase 1b portion of the clinical trial with doses of cavrotolimod (AST-008) less than 32 mg experienced a treatment related SAE. Thus, as of February 23, 2021, in total, 1 of 36 patients treated with cavrotolimod (AST-008) have experienced a treatment related SAE.

•SNAs can be administered locally into a number of different cell and tissue types. SNAs enter cells through class A scavenger receptors, which are present on the surface of many cell types. We believe that by accessing this mechanism, our SNAs could have therapeutic applications in organs beyond the liver, such as the brain, eye, gastrointestinal tract, lung, and skin. In preclinical studies, more than 50 cell lines and primary cells have been shown to internalize SNAs.

•Immuno-oncology SNAs may produce a powerful immune response against tumors. In its Phase 1 trial, cavrotolimod (AST-008) was shown to elicit high levels of certain cytokines as well as activate important effector cells of the immune system, including T cells and natural killer cells which are the main drivers of an anti-tumor response. In preclinical studies, SNAs localized to endosomes and stimulated the immune system via TLRs. We have also observed in preclinical studies that SNAs can generate a cancer-specific adaptive immune response. In addition, in preclinical studies in a variety of cancer models, SNAs, in combination with certain checkpoint inhibitors, exhibited a greater anti-tumor response and increased survival than did such checkpoint inhibitors alone. Moreover, when administered as a monotherapy, cavrotolimod (AST-008) exhibited anti-tumor activity in mouse cancer models.

•SNAs have shown greater resistance to nuclease degradation. Nucleases are proteins that degrade oligonucleotides. In preclinical studies, SNAs have been shown to have an increased nuclease resistance compared to linear oligonucleotides. We believe this is a result of our 3-D approach, and as a consequence, we believe that smaller amounts of SNAs may be required to achieve therapeutic efficacy compared to linear oligonucleotides.

•SNAs can be manufactured at commercial scale. Based on our manufacturing work to date, we believeSNAs can be made in a low cost, high-throughput, scalable, and reproducible manner using current Good Manufacturing Practices, or cGMPs.

Our Therapeutic Development Programs

Neurology

We are investigating the utility of our SNA technology for the treatment of neurological conditions and have ongoing research programs underway. See below “Neurology–Proof-Of-Concept Work with Nusinersen” for more information on our initial studies and resulting data that indicate that the SNA platform may be well-suited for development of new therapeutics directed towards diseases of the central nervous system.

XCUR-FXN, Friedreich’s ataxia

We are developing XCUR-FXN, an SNA-based therapeutic candidate for the treatment of Friedreich’s ataxia, or FA. FA is an autosomal recessive, neurodegenerative disease characterized by progressively impaired muscle coordination caused by the degeneration of neurons in the cerebellum and dorsal root ganglia in the spinal cord. FA patients may also experience impairment of visual, auditory and speech functions. FA patients also commonly suffer from life-threatening heart conditions such as hypertrophic cardiomyopathy, myocardial fibrosis and heart failure. The typical age of onset for FA is between 5 and 15 years. We estimate that approximately 13,000 patients across the United States, Europe, Canada and Australia are affected by FA. There are currently no FDA-approved treatments for FA.

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We have conducted extensive preclinical research evaluating the suitability of our SNA technology for genetically defined neurological diseases, including efficacy studies in animal models, and biodistribution in rodent and non-human primates. Based on the results, we believe we can target FA at the genetic source and meet an important unmet medical need for FA patients. FA is driven by expansion of guanine-adenine-adenine bases of the DNA sequence, or GAA, triplet repeats in the first intron of frataxin, or FXN, gene. The expanded repeat of FXN forms an intramolecular triple-helix, which impairs transcription and reduces levels of frataxin protein. Our strategy is to use a genetically-targeted SNA therapy to increase FXN protein.

We have designed XCUR-FXN to take advantage of a key attribute of our SNA technology, the ability to incorporate more than one active oligonucleotides in a single SNA molecule. We designed and optimized XCUR-FXN, our bi-specific FA therapeutic candidate, to increase frataxin protein levels via two distinct mechanisms and, in in vitro experiments, have observed synergistic upregulation of FXN mRNA in cells treated with XCUR-FXN compared to its mono-targeting components alone at the same total oligonucleotide dose. These two mechanisms are addressed by two different oligonucleotides, both of which are incorporated at a specific ratio in XCUR-FXN. As discussed during our R&D day presentation in January 2021, in preclinical experiments, we observed that XCUR-FXN increased frataxin protein levels in fibroblasts and neurons derived from FA patients to near normal levels. Importantly, we observed near normal levels of frataxin protein in mitochondrion, the target cellular compartment, and 70-80% of near normal mitochondrial activity in neurons derived from FA patients.

We initiated IND-enabling studies for XCUR-FXN in late 2020 and expect to initiate a first-in-patient Phase 1b clinical trial for XCUR-FXN in 2022. We are collaborating closely with the Friedreich’s Ataxia Research Alliance (FARA), the non-profit, charitable organization dedicated to accelerating research leading to treatments and a cure for FA, in the design and site selection of the Phase 1b clinical trial. The Phase 1b clinical trial is designed to demonstrate safety and characterize pharmacokinetic properties of multiple ascending doses of XCUR-FXN in FA patients and inform Phase 2/3 dose selection. We are also planning to examine multiple biomarkers, including brain imaging and measurements of frataxin levels in patient cerebrospinal fluid (CSF), to provide rapid read-out for target engagement and pharmacodynamic (PD) effects. We may include one or more exploratory endpoints, such as modified Friedreich’s Ataxia Rating Scale (mFARS), to prepare for a subsequent pivotal clinical trial.

Other neurological indications

We are building on our proof-of-concept work with nusinersen (see below) and our therapeutic candidate XCUR-FXN to further explore new therapeutic applications of our SNA technology in neurology. We aim to address indications with great unmet medical need and where we believe the attributes of our SNA technology would lead to therapeutic and commercial advantages. In order to select new therapeutic indications, we expect to analyze a variety of attributes including: (i) indications where there is a known genetic basis for the disorder, (ii) disorders where we can target multiple genes, (iii) the existence of a patient registry or a patient advocacy group that can work with us for easier trial enrollment, (iv) the competitive therapeutic landscape including disorders not easily addressable by small molecules or antibodies, (v) indications with no approved therapies, and (vi) indications amenable to localized therapeutic administration. Based on these and other criteria, we are currently exploring additional neurological conditions, including spinocerebellar ataxia, Batten disease, amyotrophic lateral sclerosis (ALS), and Huntington’s disease. Preclinical development activities are underway for SCN9A for neuropathic pain and CLN3 for Batten disease.

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Neurology–Proof-Of-Concept Work with Nusinersen

Despite delivery challenges, nucleic-acid based therapy has been successfully developed to treat a central nervous system, or CNS, disorder. Nusinersen, by Ionis Pharmaceuticals and Biogen Inc., was approved by the FDA in late 2016 for the treatment of spinal muscular atrophy, or SMA. SMA is a genetic disorder characterized by progressive muscle wasting and loss of muscle function due to motor neuron dysfunction. SMA is characterized by reduced amount of survival of motor neuron 1, or SMN1, protein. The severity of the disease depends on the amount of a related protein, SMN2, where lesser quantities of SMN2 are correlated to more severe disease. SMN2 is similar to SMN1, but leads to production of truncated protein, which is normally rapidly degraded.

Nusinersen is an antisense oligonucleotide designed to modulate splicing of SMN2 pre-mRNA in the nucleus to generate an alternative version of SMN2 mRNA that leads to production of a functional SMN protein. Nusinersen is designed to enhance the production of the full-length, more stable variant of SMN2, increasing the level of SMN2 protein, and thus improving motor function. In clinical trials, SMA patients treated with nusinersen achieved and sustained meaningful improvement in motor function and survival compared to untreated patients.

To evaluate the potential superiority of the SNA over linear oligonucleotides in directing the production of a more stable variant of the SMN2 protein, we compared the effects of nusinersen in linear format with nusinersen in SNA format in cells derived from SMA patients. The data showed that treatment with SNA format of nusinersen resulted in greater levels of the more stable variant of SMN2 mRNA compared with linear format. SNA format of nusinersen resulted in up to 45-fold increase in the more stable SMN2 mRNA variant versus controls, while a much smaller 2.5-fold increase was observed using nusinersen in the linear format.

We collaborated with The Ohio State University Wexner Medical Center to further study the pharmacology of our nusinersen SNA in mouse models. We tested nusinersen SNA in Δ7 SMA mouse model in which the untreated SMA-bearing mice have mean survival of approximately 15 days. Newborn Δ7 SMA mice were treated with a single dose of nusinersen SNA or nusinersen at 10, 20 or 30 μg by via intracerebroventricular injection on day 0. Following administration of compounds, mouse survival and body weights were recorded.

Nusinersen in SNA format prolonged survival compared to linear nusinersen in Δ7 SMA mice. The 20 μg treatment group is shown below.

In June 2018, we and researchers from The Ohio State University Wexner Medical Center presented a poster at the Cure SMA Annual Conference titled: “Nusinersen in spherical nucleic acid (SNA) format improves efficacy both in vitro in SMA patient fibroblasts and in Δ7 SMA mice and reduces toxicity in mice.” It was observed in a preclinical study that nusinersen in SNA format prolonged survival by four-fold (maximal survival of 115 days compared to 28 days for nusinersen-treated mice) as well as doubled the levels of healthy full-length SMN2 mRNA

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and protein in SMA patient fibroblasts when compared to nusinersen. Based on the results of this preclinical study, we intend to further pursue our early stage research activities in neurological applications.

In June 2019, we announced data from a preclinical study evaluating the biodistribution of SNAs in the non-human primate central nervous system. In our study, 7 mg of radio-labeled SNAs were injected intrathecally into cynomolgus monkeys. The biodistribution of the SNAs was followed for 14 days by PET/CT scans. SNAs were observed throughout the entire brain and were found both in the brain stem as well as inside the brain. High content of SNA was observed in all 46 regions of the brain examined. These key data indicate that the SNA platform may be well-suited for development of new therapeutics directed towards diseases of the central nervous system.

Immuno-oncology, cavrotolimod (AST-008)

Cavrotolimod (AST-008) is a toll-like receptor 9, or TLR9, agonist designed for immuno-oncology applications utilizing the key strengths of our SNA technology. TLR9 agonists bind to and activate TLR9. We believe cavrotolimod (AST-008) may be used for immuno-oncology applications in combination with checkpoint inhibitors. We have observed that, in preclinical studies in a variety of tumor models, cavrotolimod (AST-008), applied in combination with certain checkpoint inhibitors, exhibited anti-tumor responses and survival rates that were greater than those demonstrated by checkpoint inhibitors alone. We have also demonstrated that cavrotolimod (AST-008) was active when administered subcutaneously, intratumorally or intravenously, in both prevention and established mouse tumor models. The administration of cavrotolimod (AST-008) also produced localized as well as abscopal anti-tumor activity in mouse cancer models. Additionally, the administration of cavrotolimod (AST-008) in combination with certain checkpoint inhibitors conferred adaptive immunity in breast and colon cancer mouse models. In mouse tumor models, administration of cavrotolimod (AST-008) with anti-PD-1 antibodies suppresses regulatory T-cells, or Tregs, and myeloid-derived suppressor cells, or MDSCs, and increases the levels of CD8 effector T-cells. We believe these important results suggest that the combination of immuno-oncology SNAs and checkpoint inhibitors could potentially treat a larger proportion of cancer patients than checkpoint inhibitors alone.

Phase 2 clinical development of cavrotolimod (AST-008)

Using data from the completed Phase 1b stage of our Phase 1b/2 clinical trial, a recommended Phase 2 dose of 32 mg cavrotolimod (AST-008) was identified for the Phase 2 portion of the clinical trial which is currently underway, whereby cavrotolimod (AST-008) is being given in combination with pembrolizumab or cemiplimab for the treatment of locally advanced or metastatic Merkel cell carcinoma, or cutaneous squamous cell carcinoma, respectively, in patients with progression despite approved anti-PD-(L)1 therapy. We are enrolling two separate cohorts of patients with advanced or metastatic MCC or CSCC. Each cohort is expected to enroll up to 29 patients who have failed anti-PD-1/PD-L1, or programmed cell death protein 1/programmed death-ligand 1, therapy. In addition, we have added an exploratory cohort to include patients with melanoma who have progressed on PD-(L)-1 therapy and MCC patients who do not qualify for the primary MCC cohort. In June 2020, we reported that we dosed the first patient in the MCC cohort of the trial.

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The diagram below illustrates our planned design of the Phase 2 portion of the trial (not including the exploratory cohort):Cavro: cavrotolimod (AST-008); RP2D: Recommended Phase 2 dose; Pembro: pembrolizumab

As of February 23, 2021, we had 16 clinical trial sites open for enrollment and 7 additional sites pending activation. We expect to open up to 30 sites for the Phase 2 stage of the clinical trial. We anticipate all sites will be activated by the end of 2021. As of February 23, 2021, we had dosed 16 patients with 32 mg of cavrotolimod (AST-008) in the Phase 2 portion of the clinical trial, including the primary and exploratory cohorts. Including the six patients dosed with 32 mg of cavrotolimod (AST-008) in the Phase 1b portion of the clinical trial, a total of 22 patients have been dosed with 32 mg of cavrotolimod (AST-008). As of February 23, 2021, 1 of the 22 patients dosed with 32 mg of cavrotolimod (AST-008) has experienced a treatment-related SAE as determined by the clinical trial investigator. This patient, enrolled in the Phase 2 stage of the clinical trial, reported a treatment-related SAE of hypotension, flu-like symptoms which subsequently resolved. None of the 14 patients dosed in the Phase 1b portion of the clinical trial with doses of cavrotolimod (AST-008) less than 32 mg experienced a treatment related SAE. Thus, as of February 23, 2021, in total, 1 of 36 patients treated with cavrotolimod (AST-008) have experienced a treatment related SAE.

In January 2021, we announced that the FDA has granted Fast Track designations for cavrotolimod (AST-008), for two development programs: (i) cavrotolimod in combination with anti-programmed death-1 (PD-1) therapy for the treatment of patients with locally advanced or metastatic Merkel cell carcinoma (MCC) refractory to prior anti-PD-1 blockade and (ii) cavrotolimod in combination with anti-PD-1 therapy for the treatment of patients with locally advanced or metastatic cutaneous squamous cell carcinoma (CSCC) refractory to prior anti-PD-(L)1 blockade.

In March 2021, we announced that the FDA has granted Orphan Drug Designation for cavrotolimod (AST-008) for the treatment of patients with MCC.

Phase 1b/2 clinical development of cavrotolimod (AST-008)

We commenced a Phase 1b/2 clinical trial of cavrotolimod (AST-008) in patients with advanced solid tumors in late 2018. The Phase 1b stage was an open-label, multi-center trial designed to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and preliminary efficacy of intratumoral cavrotolimod (AST-008) injections alone and in combination with intravenous pembrolizumab in patients with advanced solid tumors. We have completed the enrollment of the Phase 1b stage of the clinical trial. The 20 patients from the Phase 1b stage included those with advanced or metastatic Merkel cell carcinoma, or MCC, head and neck squamous cell carcinoma,

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cutaneous squamous cell carcinoma, or CSCC, melanoma and leiomyosarcoma. At the time of enrollment, 85% of patients were experiencing progressive disease despite treatment with PD-1 blockade and 65% of patients had been treated with 2 or more lines of systemic therapy. We have presented our findings from the Phase 1b stage in multiple public disclosures, including at numerous scientific meetings, in December 2019 when we reported preliminary results showing potential signs of anti-tumor activity in patients with MCC, and at a virtual meeting we hosted in September 2020. The key results from the Phase 1b stage include:

•No observed treatment-related SAEs or dose limiting toxicity, or DLT;

•Cavrotolimod (AST-008) was well tolerated with 98% of all treatment-emergent adverse events, or AEs, assessed as Grade 1 or 2 in severity; the most common adverse events were flu-like symptoms and injection site reactions, which we believe reflects local and systemic immune activation and are commonly expected effects from TLR9 activation;

•Confirmed overall response rate, or ORR, of 21% (4/19 evaluable patients) in the Phase 1b dose-escalation stage across all doses, with 1 complete response and 3 partial responses;

•Confirmed ORR 33% (2/6 patients) in the highest dose cohort (32 mg), which was selected as the Phase 2 recommended dose;

•Overall responses occurred in two patients with advanced MCC and two patients with melanoma;

•Three of four responders were progressing on anti-PD-1 therapy at the time of enrollment;

•Durable and ongoing responses, with progression-free survival exceeding six months in all four responders and 16 months in two responders;

•In addition to the four confirmed responses, target tumor shrinkage occurred in one CSCC patient and two melanoma patients, thus 37% of evaluable patients experienced target tumor shrinkage;

•Systemic or abscopal effects were observed, with regression in noninjected tumors distant from injected lesions;

•Increases in leukocytes in injected tumors after cavrotolimod (AST-008) alone and in combination with pembrolizumab versus baseline. Uninjected tumors also showed increased immune cell levels after patients received cavrotolimod (AST-008) plus pembrolizumab;

•Dose-dependent activation of key immune cells, including cytotoxic T cells and natural killer cells, as well as increases in cytokine/chemokine levels in patient blood after cavrotolimod (AST-008) treatment alone, and cavrotolimod (AST-008) plus pembrolizumab treatment; and

•The cavrotolimod pharmacodynamic profile corroborated the efficacy data, as increased serum cytokines/chemokines, activated immune cells, and tumor infiltration by immune cells were observed.

Phase 1 clinical development of cavrotolimod (AST-008)

The Phase 1 clinical trial was a first-in-human clinical trial of cavrotolimod (AST-008) evaluating the safety, tolerability, pharmacokinetics, and pharmacodynamics of cavrotolimod (AST-008) in healthy volunteers. The trial was a randomized, single ascending dose, or SAD, trial. Sixteen healthy subjects were recruited and organized into four SAD cohorts. We began subject dosing in the fourth quarter of 2017 and announced our initial analyses of the results of the trial on September 20, 2018.

Based on our initial analyses of the Phase 1 clinical trial results, cavrotolimod (AST-008) was shown to be safe and tolerable in all subjects, with no serious adverse events and no dose limiting toxicity. Cavrotolimod (AST-008) was well tolerated and all cavrotolimod (AST-008)-related adverse events were of short duration, reversible and consistent with TLR9 activation. Such adverse events included flu-like symptoms, injections site reactions, and non-clinically significant lymphopenia and neutropenia.

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In addition to the principal safety and tolerability endpoint, the trial screened for levels of select cytokines and markers of immune cell activation. Cavrotolimod (AST-008) was shown to elicit high levels of certain cytokines as well as activate important effector cells of the immune system including T cells and natural killer cells.

For the four subjects receiving the trial’s top dose of about 20 μg/kg of cavrotolimod (AST-008), initial analyses suggest that the average fold-increase above baseline for these cytokines is approximately as follows: IFN-gamma: 3 fold; IL-6: 57 fold; IL-12: 2 fold; IP-10: 32 fold; and MCP-1: 4 fold.

We believe that such cytokine induction has clinical importance because these cytokines play an important role in immune system activity. IL-12, is an important T cell-stimulating factor, involved in the differentiation of naive T cells into Th1 cells. IP-10, also known as CXCL10, acts as a chemo-attractant for macrophages, T cells, NK cells, and dendritic cells and in antitumor activity. IL-6 is a key player in the activation, proliferation and survival of lymphocytes during active immune responses and supports shifting the immune system from a suppressive to a responsive state that can effectively act against tumors. MCP-1, or CCL2, is a small cytokine which helps recruiting monocytes, memory T cells, and dendritic cells.

In addition to the cytokine response, cavrotolimod (AST-008) was shown to activate important effector cells of the immune system, including natural killer cells or NK cells which are cytotoxic lymphocytes critical to the innate immune system, and T cells which are key effector cells of the adaptive immune system. At the trial’s top dose of about 20 μg/kg, cavrotolimod (AST-008) elicited 9.5 fold and 3.5 fold increases in the fraction of activated T cells and natural killer cells, respectively, compared to baseline. NK cells continually scan the body for abnormal cells to attack. T cells form the basis of a targeted and durable immune response and immunological memory. We believe that activation by cavrotolimod (AST-008) of the key effectors cells of both the innate and adaptive immune system makes cavrotolimod (AST-008) suitable for combination with checkpoint inhibitors.

Dermatology

XCUR17

XCUR17 is an SNA that targets the mRNA that encodes interleukin 17 receptor alpha, or IL-17RA, a protein that is considered essential in the initiation and maintenance of psoriasis. Although the availability of inhibitors of TNF revolutionized the systemic treatment of severe psoriasis, studies of disease pathogenesis have shifted attention to the IL-17 pathway in which IL-17RA is a key driver of psoriasis. Our strategy is to reduce the levels of IL-17RA in the skin by topically applying XCUR17.

In the fourth quarter of 2018, we reported results from our Phase 1 clinical trial of XCUR17. Of the 21 treated patients, we observed that the 11 patients treated with the highest strength of XCUR17 gel had a reduction in redness and improvement in healing as determined by blinded physician assessments. We also observed no adverse safety events and no relevant changes in mean psoriatic infiltrate thickness related to treatment with XCUR17.

In October 2019, at the 15th Annual Meeting of the Oligonucleotide Therapeutics Society, we disclosed biomarker results from the skin biopsies collected from the 21 patients treated in the Phase 1 clinical trial. Clinical observations in this Phase 1 trial correlated with psoriasis-related markers and histological changes from biopsies provided by the patients. In this trial, we observed clinically that XCUR17 had:

•Resulted in a decrease in the levels of psoriasis and inflammation markers downstream of its target, IL-17RA;

•Produced a statistically significant reduction in keratin 16 expression, a key marker of psoriasis (p=0.002);

•Resulted in reductions in the major inflammatory markers beta defensin 4A, interleukin 19, and interleukin 36A versus psoriatic skin at baseline; and

•Revealed clinical improvements that matched reductions in keratin 16 protein and epidermal thickness.

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We believe these findings suggest that SNA-based drugs, such as XCUR17, may address clinical symptoms in patients with inflammatory diseases, such as psoriasis. We currently are not conducting additional clinical activities for XCUR17 and we seek to out-license the XCUR17 program.

Preclinical research programs

In addition to our named pipeline programs, a variety of early stage research efforts are ongoing in areas we believe will best leverage the properties of the SNA. Potential applications of the SNA include those in neurology, ophthalmology, pulmonology, and the gastroenterology.

Ophthalmology

Ophthalmic therapies, such as antibodies, peptides or aptamers, are typically injected into the eye to reach their target tissues and achieve therapeutic effects. We believe that the penetration properties of the SNA may result in the delivery of therapeutically relevant concentrations of oligonucleotides to certain tissues in the eye. We have observed in preclinical studies the delivery of SNAs into the eye either through eyedrops or intravitreal injections.

We believe that the eye may be an attractive organ for locally-applied SNAs because (i) it is a small and immune-privileged organ, (ii) there are established and non-invasive clinical assessment procedures, and (iii) effective trials can be designed by using a contralateral control eye. We believe that our preclinical data using SNA technology may provide proof-of-concept for expansion of our research and development activities into ophthalmological genetic disorders. Our preclinical data indicated that SNAs distributed to both posterior (retinal) and anterior (cornea) ocular structures, exhibited higher distribution and persisted longer compared to linear oligonucleotides, and did not cause inflammation in the eye.

In one study, to assess penetration into the eye, Dutch belted rabbits were given either eyedrops containing no SNAs, referred to as vehicle, or an SNA in a formulation targeting an ocular gene of interest. The eyedrops were administered to the animals 18 times over the course of five days. On the fifth day, the rabbit eyes were analyzed for SNA content. The results indicate that SNAs were detected in tissues at the surface of the eye, where the application occurred, but also in the retina and vitreous humor, indicating that the SNA had penetrated into the eye.

We believe SNAs may possess key potential advantages over gene therapy in the eye. These key potential advantages include: (i) delivery via intravitreal injections which are safer and easier than subretinal injections, (ii) tunable and reversible control of target expression, and (iii) the ability to treat toxic gain-of-function diseases and target large genes. We believe, based on our internal analysis, that there are approximately 250 rare ophthalmological diseases with known genetic targets, such as CLN3 for Batten disease, BEST1 for vitelliform macular dystrophy, and USH2A for usher syndrome type 2A. As such, we intend to continue to evaluate expansion of our preclinical research and development activities in ophthalmology.

Gastroenterology

A variety of gastrointestinal disorders, including ulcerative colitis and Crohn’s disease, collectively referred to as irritable bowel disease, or IBD, are inadequately treated with existing therapies such as immunosuppressive steroids and anti-TNF antibodies.

We believe that orally applied SNAs may provide the opportunity to treat diseases such as IBD by taking advantage of the local tissue penetration of the SNA technology. Accordingly, the effect of oral SNA treatment was assessed in an induced IBD mouse model. After the induction of colitis, the mice were treated with anti-TNF SNAs on day 1, 2, 3 and 4, for a total four doses, at 200 or 1000 μg/dose/mouse by oral gavage. Control mice were treated with vehicle only. The mice were monitored for mortality and scored clinically for seven days. On day 7, the surviving animals were sacrificed. Gross pathology assessment was performed on the proximal colon.

Clinical scores for the mice during the course of the study were assigned by considering the body weight, stool consistency, bleeding and any abnormalities observed in fur coat and abdomen. Gross pathology scores were assigned on the last day of study from the colons removed from the animals after euthanization. Gross pathology

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scores ranging from 0 to 5, indicating no abnormalities and multiple ulcers, respectively, were assigned based on the severity of the inflammation and ulceration in the colon.

The results showed statistically significant improvement in clinical score and gross pathology for animals treated with 1000 μg/dose of anti-TNF SNAs compared to those treated with vehicle only. Overall, the results suggest that oral administration of SNA had a positive effect on disease symptoms as reflected by lower clinical and pathology scores.

Pulmonology

Altering the immunological state of the lung has promising therapeutic implications for the treatment of allergic diseases, such as asthma. In a preliminary assessment, we demonstrated an alteration of the immunological state both locally in the lung and systemically in mice after the inhalation of SNAs. An intranasal dose of PBS or nebulized formulation of cavrotolimod (AST-008) was administered to mice at 7.5 mg/kg to assess the pharmacodynamic effects of SNA delivery to the lungs. Four mice per group were used. At 4, 10, 16, or 24 hours following administration, serum was collected from the animals and bronchoalveolar lavage, or BAL, was performed to produce fluid from the lung surface. Finally, lung tissue was also collected from the animals. The fluids and tissue were subjected to cytokine concentration analysis. The results show that nebulized SNAs can produce a cytokine response in the lung tissue and BAL fluid, as well as systemically, as measured in the mouse serum. We believe these results have implications for the potential treatment of allergic diseases of the lung.

Our Collaboration Programs

AbbVie Collaboration Agreement

On November 13, 2019, we entered into a Collaboration, Option and License Agreement, or 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, we 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. Under each such license, we grant to AbbVie exclusive, royalty-bearing, sublicenseable, nontransferable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics.

Under the terms of the AbbVie Collaboration Agreement, we received an upfront payment of $25 million, and, if AbbVie exercises any of its option rights under the agreement, AbbVie will pay us an option exercise fee equal to $10 million for each exercised option, if such option is exercised during the initial option exercise period. AbbVie may extend an option exercise period beyond the applicable initial exercise period for a particular program for an additional fee.

If AbbVie exercises an option for a program, we are eligible to receive up to an aggregate of $55 million for development milestone payments and $132.5 million for product approval and launch milestones, per program. We are also eligible to receive up to $175 million in sales milestone payments, on a program by program basis, associated with aggregate worldwide sales. In the event a therapeutic candidate subject to the collaboration results in commercial sales, we are 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, or Northwestern, upon receipt, pursuant to our existing license agreements with Northwestern.

Dermelix Collaboration Agreement

On February 17, 2019, we entered into a License and Development Agreement, or the Dermelix License Agreement, with DERMELIX, LLC, d/b/a Dermelix Biotherapeutics. Under the terms of agreement, Dermelix licensed worldwide rights to research, develop, and commercialize Exicure’s technology for the treatment of Netherton Syndrome, or NS, and, at Dermelix’s option, up to five additional rare skin indications.

Dermelix will initially develop a targeted therapy for the treatment of NS. NS is a rare and severe autosomal

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recessive disorder caused by loss-of-function mutations in the SPINK5 gene, which encodes the serine protease inhibitor LEKTI involved in skin barrier function. NS affects approximately one in 200,000 children born each year, and is characterized by severely inflamed, red, scaled, itchy skin, and patients are at increased risk of mortality in the first year of life due to recurrent infections and dehydration as a result of the impaired skin barrier. Currently, there are no approved treatments for NS patients and off-label use of standard of care treatments are of limited utility.

Under the terms of the Dermelix License Agreement, Exicure received an upfront payment of $1 million at closing of the transaction and is eligible to receive up to an additional $1 million upon the exercise of each of the five options granted to Dermelix. Exicure 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 License Agreement, including our expenses incurred in connection with development activities and in accordance with the development budget. For each of NS as well as any additional licensed product for which Dermelix exercises one of its options, Exicure is eligible to receive potential payments totaling up to $13.5 million upon achievement of certain development and regulatory milestones and up to $152.5 million upon achievement of certain sales milestones per indication in each of six indications. In addition, Exicure will receive low double-digit royalties on annual net sales for SNA therapeutics developed.

Purdue Collaboration Agreement

AST-005

AST-005 is an SNA targeting TNF for the treatment of mild to moderate psoriasis. In a completed Phase 1 clinical trial, AST-005, when topically administered, resulted in no drug associated adverse events, and demonstrated a reduction of TNF mRNA. The TNF mRNA reduction elicited by the highest strength of AST-005 gel was statistically significant when compared to the effects of the vehicle.

In 2016, we entered into a research collaboration, option and license agreement with Purdue Pharma L.P., under which a Phase 1b clinical trial evaluated the effect of AST-005 gel in patients with chronic plaque psoriasis. The trial demonstrated that AST-005 is safe and tolerable in patients at higher doses than previously studied, but did not result in a statistically significant decrease in echo lucent band thickness, one of the key indicators of efficacy. In 2018, Purdue declined to exercise its option to develop AST-005 at that time, but indicated its intent to retain rights relating to the TNF target and reserved its right to continue joint development, with Exicure, of new anti-TNF drug candidates and to retain its exclusivity and other rights in AST-005.

In 2019, Purdue, while re-asserting its right to develop new anti-TNF therapeutic candidates, indicated it will not select any collaboration targets. As a result, we will not receive any research, regulatory and commercial sales milestones contingent upon successful development of such collaboration targets. At this time, there are no active development activities underway for a new anti-TNF therapeutic candidate. As a consequence, we also believe that it is highly unlikely that we will receive any research, regulatory and commercial sales milestones from Purdue for any anti-TNF therapeutic candidates.

Our Intellectual Property

Proprietary Protection

Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our therapeutic candidates, manufacturing and process discoveries and other know-how, to operate without infringing the proprietary rights of others, and to prevent others from infringing on our proprietary rights. We have been building and continue to build our intellectual property portfolio relating to cavrotolimod (AST-008), XCUR-FXN, XCUR17, and AST-005 therapeutic candidates and our SNA technology platform. Our policy is to seek to protect our proprietary position by, among other methods, filing and licensing U.S. and certain foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also intend to rely on trade secrets, know-how, and technological innovation to develop and maintain our proprietary position. We cannot be sure that patents will be granted with respect to any of

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our owned or licensed pending patent applications or with respect to any patent applications filed or licensed by us in the future, nor can we be sure that any of our existing owned or licensed patents or any patents that may be granted or licensed to us in the future will be commercially useful in protecting our technology.

Patent Rights

Our patent portfolio includes pending patent applications and issued patents in the United States and in foreign countries. As of December 31, 2020, our patent portfolio consists of over 80 issued patents and allowed patent applications and over 110 pending patent applications. Our general practice is to seek patent protection in major markets worldwide, including the U.S., Canada, China, Japan, Australia, certain members of the European Union, among others. Majority of the issued patents and allowed patent applications are licensed from Northwestern University. Among the pending patent applications, we license 29 from NU, we exclusively own 73, we jointly own 2 with Dermelix, and we jointly own 8 with Northwestern University.

Our license from Northwestern University is for royalty bearing worldwide exclusive rights to the use of SNAs for therapeutic applications. Pursuant to the license, we are allowed to manufacture, use, offer for sale, sell and import products covered by the licensed patent rights.

Our cavrotolimod (AST-008) patent portfolio includes 31 issued and 31 pending U.S. nonprovisional and foreign patent applications. Foreign jurisdictions where we are seeking patent protection for our cavrotolimod (AST-008) patent portfolio include Canada, China, Japan, Australia, the European Union, India, South Korea and Mexico. Each of these applications is a composition of matter and method of use type application. The claims of these applications are directed to certain nanoscale constructs, liposomal particles, and multivalent nanostructures, and their methods of use for treating cancer and other disorders. Any patents that may issue from these applications would expire between 2034 and 2040. The expiration dates do not take into consideration any potential patent term adjustment that may be applied by the U.S. Patent Office upon issuance of the patent, any terminal disclaimers that may be filed in the future or any regulatory extensions that may be obtained.

Our XCUR-FXN patent portfolio includes one pending U.S. provisional patent application. We intend to protect the composition of matter and methods of use of XCUR-FXN. Any patent that may issue from this application would expire by 2041. The expiration date does not take into consideration any potential patent term adjustment that may be applied by the U.S. Patent Office upon issuance of the patent, any terminal disclaimers that may be filed in the future or any regulatory extensions that may be obtained.

Our XCUR17 patent portfolio includes four issued and eleven pending U.S. nonprovisional and foreign patent applications. The pending applications are composition of matter and method of use type applications and include claims to one or more oligonucleotides that are 18 nucleotides in length, and methods of use for treating dermal and other disorders. Any patents that may issue from this application would expire by 2037. The expiration date does not take into consideration any potential patent term adjustment that may be applied by the U.S. Patent Office upon issuance of the patent, any terminal disclaimers that may be filed in the future or any regulatory extensions that may be obtained.

Our AST-005 patent portfolio includes three issued and seven pending U.S. nonprovisional and foreign patent applications. The applications are composition of matter and method of use type applications and include claims to an oligonucleotide that is 18 nucleotides in length, and methods of use for treating dermal and other disorders. Any patents that may issue from these applications would expire by 2035. The expiration dates do not take into consideration any potential patent term adjustment that may be applied by the U.S. Patent Office upon issuance of the patent, any terminal disclaimers that may be filed in the future or any regulatory extensions that may be obtained.

Upon receiving FDA approval for cavrotolimod (AST-008), XCUR-FXN, XCUR17, or AST-005, we intend to list applicable patents in the FDA’s Orange Book.

Patent life determination depends on the date of filing of the application and other factors as promulgated under the patent laws. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country.

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Trade Secret and Other Protection

In addition to patented intellectual property, we also rely on trade secrets and proprietary know-how to protect our technology, especially when we do not believe that patent protection is appropriate or can be obtained. It is our policy to require our employees and consultants, outside scientific collaborators, sponsored researchers and other advisors who receive confidential information from us to execute confidentiality agreements upon the commencement of employment or consulting relationships. These agreements provide that all confidential information developed or made known to these individuals during the course of the individual’s relationship with the company is to be kept confidential and is not to be disclosed to third parties except in specific circumstances. The agreements provide that all inventions conceived by an employee shall be the property of our Company. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.

Other Intellectual Property Rights

We seek trademark protection in the United States when appropriate. We have filed for trademark protection for the following marks: LIFE HAPPENS IN 3D, LIFE IN 3D, and EXICURE. We currently have one registered trademark, EXICURE.

From time to time, we may find it necessary or prudent to obtain licenses from third party intellectual property holders.

Northwestern University License Agreements

In September 2009, Northwestern University and AuraSense LLC, or ASLLC, our former parent, entered into a license agreement under which Northwestern University granted ASLLC an exclusive, worldwide license under certain Northwestern University patents and patent applications to exploit products and processes in the field of the use of nanoparticles, nanotechnology, microtechnology or nanomaterial-based constructs as or accompanying therapeutics or theradiagonostics and in or for intracellular diagnostic applications and intracellular research. On December 12, 2011, ASLLC assigned to us all of its worldwide rights and interests under the Northwestern University-ASLLC license in the field of the use of nanoparticles, nanotechnology, microtechnology or nanomaterial-based constructs as therapeutics or accompanying therapeutics as a means of delivery, but expressly excluding diagnostics, or assigned field. In accordance with the terms and conditions of this assignment, we assumed all liabilities and obligations of ASLLC to Northwestern University as set forth Northwestern University its license agreement in the assigned field and in August 2015 we entered into a restated license agreement with Northwestern University, or Restated License Agreement. In February 2016, we obtained exclusive license as to Northwestern University’s rights in certain SNA technology we jointly own with Northwestern University, or Co-owned Technology License. The Company’s license to Northwestern University’s rights is limited to the assigned field, however we have no such limitation as to our own rights in this jointly owned technology. In June 2016, we entered into an exclusive license with Northwestern University to obtain worldwide rights to certain inhibitors of glucosylceramide synthase and their use in wound healing in diabetes, or Wound Healing License. Our 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, or 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. For purposes of the assigned field, therapeutic uses means the use of products and processes that are covered by the patents and patent applications licensed from Northwestern University for the purpose of providing a therapy or course of medical treatment to address a medical condition or disease. The Northwestern University License Agreements provide to us the exclusive, worldwide right to make, have made, use, modify, sell, offer for sale and import any product or process that is covered by any claim in the licensed Northwestern University patents and patent applications. We have the right to sublicense these rights to third parties. The Northwestern University License Agreements require us to use commercially reasonable efforts, consistent with demand in the marketplace, regulatory procedures and industry conditions and development timelines, to research, develop, market and manufacture the licensed products.

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Our rights under the Northwestern University License Agreements are subject to a variety of material limitations. First, the license specifically excludes use of the licensed patent rights to perform qualitative or quantitative in vitro analysis, testing, or measurement as well as detection of a variety of combinations of biodiagnostics field subsets and targets. Second, the license specifically prohibits us from using the licensed patent rights with regard to diagnostics, including without limitation, theradiagnostics. Third, though the license is otherwise exclusive in the assigned field, Northwestern University retains the right to use the licensed patent rights for research, teaching, and other educational purposes, including the right to distribute and publish materials related to the licensed patent rights. Fourth, the license is subject to the rights of the U.S. government under any and all applicable laws including substantially manufacturing all licensed products in the U.S. unless such requirement is waived by the U.S. government. Fifth, other than in certain circumstances, the Northwestern University License Agreements are non-transferable without the consent of Northwestern University. Under the terms of the Northwestern University License Agreements, depending on the circumstances, either we or Northwestern University can sue to enforce the patent rights against third party infringers.

In order to secure the assignment of the Northwestern University-ASLLC license in the field, we assumed the obligation to pay Northwestern University an annual license fee, which may be credited against any royalties based on sales of licensed products that are due to Northwestern University in the same year, and to reimburse Northwestern University for expenses associated with the prosecution and maintenance of the licensed patent rights. In addition, we assumed the obligation to pay Northwestern University royalties at a low single-digit percentage of any net revenue generated by our sale or transfer of any licensed product. In the event we grant a sublicense under the licensed patent rights, we also assumed the obligation to pay Northwestern University, on a quarterly basis, a percentage of all sublicense payments we receive, and the greater of a mid-teen percentage of all sublicensee royalties or a low single-digit percent of any net revenue generated by a sublicensee’s sale or transfer of any licensed product.

We may terminate the Northwestern University License Agreements at any time by providing 90 days written notice to Northwestern University. Northwestern University may terminate the agreements or, alternatively, convert our exclusive rights to non-exclusive rights if we fail to comply with certain prescribed timelines for research, development, marketing and manufacturing milestones for the licensed products. Northwestern University may also terminate the agreements if we sue, or do not terminate all agreements with a sublicensee who sues Northwestern University, in a matter not arising from the agreements themselves. Either party may terminate the agreements in the event of a material breach by the other that remains uncured for a period of 30 days after the non-breaching party provides notice to the breaching party. The agreements will automatically terminate if we reach specified thresholds of financial distress. In the event of termination, all rights immediately revert to Northwestern University. The agreements will automatically expire upon the expiration of the last to expire patent rights. In the event of expiration, the license automatically becomes a non-exclusive, irrevocable, fully-paid license to use or sublicense the use of know-how to make and sell products in each country where the license had previously been in effect.

Our intellectual property strategy

Our strategy around protection of our proprietary technology, including any innovations and improvements, is to obtain worldwide patent coverage with a focus on jurisdictions that represent significant global pharmaceutical markets. Generally, patent term is 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country, assuming that all maintenance fees are paid and the patent has not been invalidated. In certain jurisdictions, and in certain circumstances, patent terms can be extended, for example, by patent term adjustment or extension, or shortened, for example, by terminal disclaimer. We are pursuing patent protection in jurisdictions that represent significant global pharmaceutical market for at least novel molecules, compositions of matter, pharmaceutical formulations, methods of use, including treatment of disease, methods of manufacture and other novel uses for the inventive molecules originating from our research and development efforts. We continuously assess whether it is strategically more favorable to maintain confidentiality for the “know-how” regarding a novel invention rather than pursue patent protection. For each patent application that is filed we strategically tailor our claims in accordance with the existing patent landscape around a particular technology.

There can be no assurance that an issued patent will remain valid and enforceable in a court of law through the entire patent term. Should the validity of a patent be challenged, the legal process associated with defending the

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patent can be costly and time consuming. Issued patents can be subject to oppositions, interferences and other third party challenges that can result in the revocation of the patent or limit patent claims such that patent coverage lacks sufficient breadth to protect subject matter that is commercially relevant. Competitors may be able to circumvent our patents. Development and commercialization of pharmaceutical products can be subject to substantial delays and it is possible that at the time of commercialization any patent covering the product has expired or will be in force for only a short period of time following commercialization. We cannot predict with any certainty if any third party U.S. or foreign patent rights, or other proprietary rights, will be deemed infringed by the use of our technology. Nor can we predict with certainty which, if any, of these rights will or may be asserted against us by third parties. Should we need to defend ourselves and our partners against any such claims, substantial costs may be incurred. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability to develop or commercialize some or all of our products in the U.S. and abroad, and could result in the award of substantial damages. In the event of a claim of infringement, we or our partners may be required to obtain one or more licenses from a third party. There can be no assurance that we can obtain a license on a reasonable basis should we deem it necessary to obtain rights to an alternative technology that meets our needs. The failure to obtain a license may have a material adverse effect on our business, results of operations and financial condition.

We may also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that we can meaningfully protect our trade secrets on a continuing basis. Others may independently develop substantially equivalent confidential and proprietary information or otherwise gain access to our trade secrets.

It is our policy to require our employees and consultants, outside scientific collaborators, sponsored researchers and other advisors who receive confidential information from us to execute confidentiality agreements upon the commencement of employment or consulting relationships. These agreements provide that all confidential information developed or made known to these individuals during the course of the individual’s relationship with the company is to be kept confidential and is not to be disclosed to third parties except in specific circumstances. The agreements provide that all inventions conceived by an employee shall be the property of the company. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.

Our success will depend in part on our ability to obtain and maintain patent protection, preserve trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others, both in the U.S. and other territories worldwide.

Manufacturing and Supply

We do not currently own or operate manufacturing facilities for the production of preclinical, clinical or commercial quantities of any of our therapeutic candidates. We currently contract with two therapeutic substance and two drug product manufacturers for the supply of SNAs and we expect to continue to do so to meet the preclinical and any clinical requirements of our therapeutic candidates. We do not have a long-term agreement with these third parties.

We have agreements for the supply of such therapeutic materials with manufacturers or suppliers that we believe have sufficient capacity to meet our demands. In addition, we believe that adequate alternative sources for such supplies exist. However, there is a risk that, if supplies are interrupted, it would materially harm our business. We typically order raw materials and services on a purchase order basis and do not enter into long-term dedicated capacity or minimum supply arrangements.

Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements, which govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. Our contract manufacturing organizations manufacture our therapeutic candidates subject to cGMP conditions. cGMPs are regulatory requirements for the production of therapeutics that will be used in humans.

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Competition

We believe that our scientific knowledge and expertise in SNA-based therapies provide us with competitive advantages over the various companies and other entities that are attempting to develop oligonucleotide based-therapeutics. However, we face competition at the technology and therapeutic indication levels from both large and small biotechnology companies, academic institutions, government agencies and public and private research institutions. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Our success will be based in part upon our ability to identify, develop and manage a portfolio of therapeutics that are safer and more effective than competing products in the treatment of our targeted patients. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects, are more convenient or are less expensive than any therapeutics we may develop.

Competition in oligonucleotide-based therapeutics

There is intense and rapidly evolving competition in the biotechnology, pharmaceutical and oligonucleotide therapeutics fields. We believe that while our SNA technology, its associated intellectual property and our scientific and technical know-how gives us a competitive advantage in this space, competition from many sources remains. Our competition includes larger and better funded pharmaceutical, biotechnological and oligonucleotide therapeutic firms. Moreover, we not only compete with other firms, but also with current and future therapeutics.

We are aware of several companies that are developing oligonucleotide delivery platforms and oligonucleotide based therapeutics. These competitors include Ionis Pharmaceuticals, Inc., Alnylam Pharmaceuticals, Inc., Dicerna Pharmaceuticals, Inc., Arbutus Biopharma Corp., Wave Life Sciences Ltd., Arrowhead Pharmaceuticals, Inc., ProQR Therapeutics N.V., Stoke Therapeutics, Inc., Neubase Therapeutics, Inc., Idera Pharmaceuticals, Inc., Avidity Biosciences, Checkmate Pharmaceuticals, Inc., Dyne Therapeutics, Inc., Atalanta Therapeutics, Inc., and others. These and other competitors compete with us in recruiting scientific and managerial talent, and for the finite funding available from biotechnology and pharmaceutical companies.

Our success will partially depend on our ability to develop and protect therapeutics that are safer and more effective than competing products. Our commercial opportunity and success will be reduced or eliminated if competing products are safer, more effective, or less expensive than the therapeutics we develop.

If our lead therapeutic candidates are approved for the indications for which we undertake clinical trials, they will compete with therapies that are either in development or currently marketed, such as the following:

Competition in immuno-oncology

In oncology, we face significant competition from pharmaceutical and biotechnology companies as well as universities and private and public research institutions. For application in conjunction with immune checkpoint inhibitors, there are several immuno-oncology competitors to cavrotolimod both in development and on the market. Cavroltolimod, a TLR9 agonist, is among several other agents in this class being studied in clinical trials for different tumor types, including melanoma and head and neck squamous cell carcinoma. Currently, the checkpoint inhibitors avelumab and pembrolizumab are approved by the FDA for patients with advanced MCC and cemiplimab is approve for the treatment of advanced CSCC. We are aware of many ongoing clinical trials where these and other checkpoint inhibitors are being tested in combination with experimental therapies to potentially treat MCC and CSCC, such as Replimune’s oncolytic virus-based RP1 which is in development for solid tumors, including melanoma and cutaneous squamous cell carcinoma, and experimental therapies by NantKWest, Kartos Therapeutics, 4SC, and others for potential treatment of MCC. Furthermore, adoptive cell therapies such as CAR-T cells, that demonstrate efficacy for the treatment of B-cell malignancies, are being evaluated for solid tumors.

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Competition in Friedreich’s ataxia

We consider the following therapeutics to be competitors and potential future competitors to XCUR-FXN for the treatment of Friedreich’s ataxia:

Therapeutic Company Description of therapeutic Development Phase

CTI-1601 Larimar Therapeutics Recombinant human frataxin fusion protein Phase 1

In addition, there are ongoing programs and gene therapy approaches using adeno-associated virus (AAV) vectors that, if approved, may compete with XCUR-FXN for the treatment of FA.

Government Regulation and Product Approval

Governmental authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing, sales, and export and import of products such as those we are developing. Our therapeutic candidates must be approved by the FDA through the NDA process before they may be legally marketed in the U.S. and will be subject to similar requirements in other countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

U.S. government regulation

NDA approval processes. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and implementing regulations. If we fail to comply with applicable FDA or other requirements at any time during the product development or approval process, or after approval, we may become

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subject to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:

•refusal to approve pending applications;

•license suspension or revocation;

•withdrawal of an approval;

•imposition of a clinical hold;

•warning or untitled letters;

•seizures or administrative detention of product;

•product recalls;

•total or partial suspension of production or distribution; or

•injunctions, fines, disgorgement, or civil or criminal penalties.

The process required by the FDA before a therapeutic candidate may be marketed in the U.S. generally involves the following:

•completion of nonclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices, or GLPs, and other applicable regulations;

•submission to the FDA of an IND, which must become effective before human clinical trials may begin;

•performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCPs, to establish the safety and efficacy of the therapeutic candidate for its intended use;

•submission to the FDA of an NDA;

•satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the therapeutic candidate is produced to assess readiness for commercial manufacturing and conformance to the manufacturing-related elements of the application, to conduct a data integrity audit, and to assess compliance with cGMPs to assure that the facilities, methods and controls are adequate to preserve the therapeutic candidate’s identity, strength, quality and purity; and

•FDA review and approval of the NDA.

The testing and approval process requires substantial time, effort, and financial resources, and we cannot be certain any approvals for our therapeutic candidates will be granted on a timely basis, if at all.

Once a therapeutic candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical tests include laboratory evaluations of product chemistry, toxicity, formulation and stability, as well as animal studies. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. A separate submission to an existing IND must also be made for each successive clinical trial conducted during drug development, and the FDA must grant permission, either explicitly or implicitly by not objecting, before each clinical trial can begin.

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All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol, and any subsequent material amendment to the protocol, must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must report to the FDA serious and unexpected adverse reactions in a timely manner, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the therapeutic. An IRB at each institution participating in the clinical trial must review and approve the protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the trial until completed and otherwise comply with IRB regulations. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trials results to public registries.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined.

•Phase 1-The therapeutic candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and elimination. In the case of some therapeutic candidates for severe or life-threatening diseases, such as cancer, especially when the therapeutic candidate may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.

•Phase 2-Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

•Phase 3-Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product labeling.

The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the therapeutic candidate has been associated with unexpected serious harm to patients.

During the development of a new therapeutic candidate, sponsors are given opportunities to meet with the FDA at certain points; specifically, prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of the new therapeutic.

Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about the chemistry and physical characteristics of the therapeutic candidate and finalize a process for manufacturing commercial quantities of the therapeutic candidate in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the therapeutic candidate and the manufacturer must develop methods for testing the quality, purity and potency of the therapeutic candidate. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the therapeutic candidate does not undergo unacceptable deterioration over its proposed shelf-life.

The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must be accompanied by a significant user fee.

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The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual program fee for approved products. Application fee waivers or reductions are available in certain circumstances, such as where a waiver is necessary to protect the public health, where the fee would present a significant barrier to innovation, or where the applicant is a small business submitting its first human therapeutic application for review. Within 60 days following submission of the application, the FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. It may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.

Once the submission is accepted for filing, the FDA begins an in-depth substantive review. NDAs receive either standard or priority review. A therapeutic representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND trial requirements and GCP requirements. To assure cGMP and GCP compliance, an applicant must incur significant expenditures of time, money and effort in the areas of training, record keeping, production and quality control.

During the product approval process, the FDA also will determine whether a REMS plan is necessary to assure the safe use of the product. If the FDA concludes a REMS plan is needed, the sponsor of the NDA must submit a proposed REMS plan. The FDA will not approve an NDA without a REMS plan, if required. In determining whether a REMS plan is necessary, the FDA must consider the size of the population likely to use the therapeutic, the seriousness of the disease or condition to be treated, the expected benefit of the therapeutic, the duration of treatment, the seriousness of known or potential adverse events, and whether the therapeutic is a new molecular entity. A REMS plan may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the risks, limitations on who may prescribe or dispense the therapeutic, or other measures that the FDA deems necessary to assure the safe use of the therapeutic. In addition, the REMS plan must include a timetable to assess the strategy at 18 months, three years, and seven years after the strategy’s approval.

The FDA may also require a REMS plan for a therapeutic that is already on the market if it determines, based on new safety information, that a REMS plan is necessary to ensure that the product’s benefits outweigh its risks.

If the agency decides not to approve the NDA in its present form, the FDA will issue a complete response letter that describes all of the specific deficiencies in the NDA identified by the FDA. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if the NDA is resubmitted, FDA may again decide that the resubmitted NDA does not satisfy the criteria for approval.

Even if a product receives regulatory approval, the approval may be significantly limited to specific indications and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as “Phase 4” clinical trials, designed to further assess a product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

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Companion Diagnostics. The FDA has issued a final guidance document addressing the agency’s policy in relation to in vitro companion diagnostic tests. The guidance explains that for some therapeutics, the use of a companion diagnostic test is essential for the safe and effective use of the product, such as when the use of a product is limited to a specific patient subpopulation that can be identified by using the test. According to the guidance, the FDA generally will not approve such a product if the companion diagnostic is not also approved or cleared for the appropriate indication, and accordingly the therapeutic product and the companion diagnostic should be developed and approved or cleared contemporaneously. However, the FDA may decide that it is appropriate to approve such a product without an approved or cleared in vitro companion diagnostic device when the therapeutic is intended to treat a serious or life-threatening condition for which no satisfactory alternative treatment exists and the FDA determines that the benefits from the use of a product with an unapproved or uncleared in vitro companion diagnostic device are so pronounced as to outweigh the risks from the lack of an approved or cleared in vitro companion diagnostic device.

Expedited review and approval.The FDA has various programs, including Fast Track, priority review, accelerated approval and breakthrough therapy, which are intended to expedite or simplify the process for reviewing therapeutic candidates, or provide for the approval of a therapeutic candidate on the basis of a surrogate endpoint. Even if a therapeutic candidate qualifies for one or more of these programs, the FDA may later decide that the therapeutic candidate no longer meets the conditions for qualification or that the time period for FDA review or approval will be lengthened. Generally, therapeutic candidates that are eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate the development and expedite the review of therapeutic candidates to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Priority review is designed to give a therapeutic candidate that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness, an initial review within eight months as compared to a standard review time of twelve months.

Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated therapeutic candidate and expedite review of the application for a therapeutic candidate designated for priority review. Accelerated approval, which is described in Subpart H of 21 CFR Part 314, provides for an earlier approval for a new therapeutic candidate that is intended to treat a serious or life-threatening disease or condition, generally provides a meaningful advantage over available therapies and demonstrates an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. A surrogate endpoint is a laboratory measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome. As a condition of approval, the FDA may require that a sponsor of a therapeutic candidate receiving accelerated approval perform post-marketing clinical trials to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the product may be subject to accelerated withdrawal procedures.

In addition to the Fast Track, accelerated approval and priority review programs discussed above, a sponsor may seek FDA designation of a therapeutic candidate as a “breakthrough therapy” if the therapeutic is intended, alone or in combination with one or more other therapeutics, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the therapeutic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A request for Breakthrough Therapy designation should be submitted concurrently with, or as an amendment to, an IND, but ideally no later than the end of the Phase 2 meeting.

Similar to FDASIA, the Cures Act, which was signed into law in December 2016, includes numerous provisions intended to accelerate the development of new products regulated by the FDA. As an example, the Cures Act provides that the FDA may allow the sponsor of an NDA for a genetically targeted drug or variant protein targeted drug to rely upon data and information previously developed by the same sponsor (or another sponsor that has provided the sponsor with a contractual right of reference to such data and information) and submitted by the sponsor in support of one or more previously approved applications submitted to the FDA for a drug that incorporates or utilizes the same or similar genetically targeted technology or the same variant protein targeted drug.

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Patent term restoration and marketing exclusivity.Depending upon the timing, duration and specifics of FDA approval of the use of our therapeutic candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the therapeutic candidate’s approval date. The patent term restoration period is generally one half of the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved therapeutic candidate is eligible for the extension and the application for extension must be made prior to expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the U.S. to the first applicant to gain approval of an NDA for a new chemical entity. A therapeutic candidate is a new chemical entity if the FDA has not previously approved any other new therapeutic candidate containing the same active moiety, which is the molecule or ion responsible for the action of the therapeutic candidate substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such therapeutic candidate where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing therapeutic candidate. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for therapeutic candidates containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Orphan drug designation.Under the Orphan Drug Act, the FDA may grant orphan drug designation to therapeutic candidates intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the U.S. or more than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a therapeutic candidate for this type of disease or condition will be recovered from sales in the U.S. for that therapeutic candidate. Orphan drug designation must be requested before submitting a marketing application for the therapeutic for that particular disease or condition. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. The FDA may revoke orphan drug designation, and if it does, it will publicize the drug is no longer designated as an orphan drug.

If a therapeutic candidate with orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the therapeutic candidate is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same therapeutic candidate for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity, however, could also block the approval of one of our therapeutic candidates for seven years if a competitor obtains approval of the same therapeutic candidate as defined by the FDA or if our therapeutic candidate is determined to be contained within the competitor’s therapeutic candidate for the same indication or disease.

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Pediatric exclusivity and pediatric use.Under the Best Pharmaceuticals for Children Act, or BPCA, certain therapeutic candidates may obtain an additional six months of exclusivity if the sponsor submits information requested in writing by the FDA, referred to as a Written Request, relating to the use of the active moiety of the therapeutic candidate in children. The FDA may not issue a Written Request for studies on unapproved or approved indications where it determines that information relating to the use of a therapeutic candidate in a pediatric population, or part of the pediatric population, may not produce health benefits in that population.

In addition, the Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric studies for most therapeutic candidates and biologics, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs, BLAs and supplements thereto must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must assess the safety and effectiveness of the therapeutic candidate for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the therapeutic candidate is safe and effective. The sponsor or the FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug or biologic is ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collected before the pediatric studies begin. The FDA must send a noncompliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation. The FDA also must post the PREA noncompliance letter and sponsor’s response.

Post-approval requirements.Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the therapeutic candidate reaches the market. Later discovery of previously unknown problems with a therapeutic candidate may result in restrictions on the therapeutic candidate or even complete withdrawal of the therapeutic candidate from the market. After approval, some types of changes to the approved therapeutic candidate, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may under some circumstances require testing and surveillance programs to monitor the effect of approved therapeutic candidates that have been commercialized, and the FDA under some circumstances has the power to prevent or limit further marketing of a therapeutic candidate based on the results of these post-marketing programs.

Any therapeutic candidates manufactured or distributed by us or our collaborators pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:

•record-keeping requirements;

•reporting of adverse experiences associated with the therapeutic candidate;

•providing the FDA with updated safety and efficacy information;

•therapeutic sampling and distribution requirements;

•notifying the FDA and gaining its approval of specified manufacturing or labeling changes; and

•complying with FDA promotion and advertising requirements, which include, among other things, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved labeling, limitations on industry-sponsored scientific and educational activities and requirements for promotional activities involving the internet. Although physicians may in their independent medical judgment prescribe legally available products for off-label uses, manufacturers may not market or promote such uses. Manufacturers may only share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including civil and criminal actions.

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Therapeutic manufacturers, their subcontractors, and other entities involved in the manufacture and distribution of approved therapeutic candidates are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMPs and other laws. The FDA periodically inspects manufacturing facilities to assess compliance with ongoing regulatory requirements, including cGMPs, which impose extensive procedural, substantive and record-keeping requirements upon us and any third-party manufacturers that we may decide to use if our therapeutic candidates are approved. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require FDA approval before being implemented. FDA regulations would also require investigation and correction of any deviations from cGMPs and impose reporting and documentation requirements upon us and the third-party manufacturers. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory actions, such as warning letters, suspension of manufacturing, seizures of products, injunctive actions or other civil penalties. We cannot be certain we or our present or future third-party manufacturers or suppliers will be able to comply with the cGMP regulations and other ongoing FDA regulatory requirements. If we or our present or future third-party manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our clinical trials or require us to recall a product from distribution.

New Legislation and Regulations. From time to time, legislation is drafted, introduced and passed in the U.S. Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations will be changed or what the effect of such changes, if any, may be.

Regulation outside of the U.S.

In addition to regulations in the U.S., we will be subject to regulations of other countries governing any clinical trials and commercial sales and distribution of our therapeutic candidates. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the U.S. before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

The currently applicable Clinical Trials Directive 2001/20/EC and Commission Directive 2005/28/EC on GCP setting out the system for the approval of clinical trials in the European Union, or EU, have been implemented through national legislation in the EU Member States. Under this system, an applicant must obtain approval from the national competent authorities in all EU Member States in which the clinical trials are to be conducted. Furthermore, the applicant may only start a clinical trial at a specific study site once approved by the competent ethics committee.

In 2014, a new Clinical Trials Regulation 536/2014, replacing the current Clinical Trials Directive, was adopted. The new Regulation will become directly applicable in all EU Member States (without national implementation) once the EU Portal and Database are fully functional. The new Regulation seeks to simplify and streamline the approval of clinical trials in the EU. For example, the sponsor shall submit a single application for approval of a clinical trial via the EU Portal. As part of the application process, the sponsor shall propose a reporting Member State, who will coordinate the validation and evaluation of the application. The reporting Member State shall consult and coordinate with the other concerned Member States. If an application is rejected, it can be amended and resubmitted through the EU Portal. If an approval is issued, the sponsor can start the clinical trial in all concerned Member States. However, a concerned Member State can in limited circumstances declare an “opt-out” from an approval. In such a case, the clinical trial cannot be conducted in that Member State. The Regulation also aims to streamline and simplify the rules on safety reporting, and introduces enhanced transparency requirements such as mandatory submission of a summary of the clinical trial results to the EU Database.

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In the EU, a company may submit a marketing authorization application either: (i) at the national level with the national competent authorities in one EU Member State, referred to as the national procedure; (ii) via mutual recognition of a national authorization in other EU Member States, referred to as the mutual recognition procedure; (iii) at the national level in several EU Member States, or the decentralized procedure; or (iv) at centralized level with the European Medicines Agency, or EMA, referred to as the centralized procedure. The national procedure allows the applicant to choose the EU Member State in which they wish to first submit an application. The mutual recognition procedure allows a marketing authorization granted in one EU Member State via the national procedure to be recognized in other EU Member States. The decentralized procedure allows a medicine that has not yet been authorized in the EU to be authorized in several EU Member States. The centralized procedure, whereby a medicine receives marketing authorization in all EU Member States, is compulsory for certain medicines and is optional for other types of medicines if the applicant can show eligibility.

As in the U.S., we may apply for designation of a therapeutic candidate as an orphan drug for the treatment of a specific indication in the EU before the application for marketing authorization is made. Regulation (EC) No. 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated as an orphan drug by the European Commission if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that the marketing of the product in the European Union would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must also demonstrate that there exists no satisfactory method of diagnosis, prevention, or treatment of the condition in question that has been authorized in the European Union or, if such method exists, the product has to be of significant benefit compared to products available for the condition.

An orphan drug designation provides a number of benefits, including fee reductions, regulatory assistance and the possibility to apply for a centralized European Union marketing authorization. The grant of a marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. During this market exclusivity period, neither the EMA nor the European Commission or the Member States can accept an application or grant a marketing authorization for the same therapeutic indication in respect of a “similar medicinal product”. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation because, for example, the product is sufficiently profitable not to justify market exclusivity. There are a number of derogations from the ten-year period of market exclusivity pursuant to which the European Commission may grant a marketing authorization for a similar medicinal product in the same therapeutic indication, including where the second applicant can establish that although their product is similar to the orphan medicinal product already authorized, the second product is safer, more effective or otherwise clinically superior.

Healthcare Reform

In March 2010, Congress passed the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of health spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional policy reforms. The ACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes, and fraud and abuse, impacting existing government healthcare programs and resulting in the development of new programs, including Medicare payment for performance initiatives, and improvements to the physician quality reporting system and feedback program. Other aspects of the ACA include, but are not limited to:

•Increases in pharmaceutical manufacturer rebate liability under the Medicaid Drug Rebate Program due to an increase in the minimum basic Medicaid rebate on most branded prescription drugs, and the application of Medicaid rebate liability to drugs used in risk-based Medicaid managed care plans.

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•Expansion of the 340B Drug Pricing Program to require discounts for “covered outpatient drugs” sold to certain children’s hospitals, critical access hospitals, freestanding cancer hospitals, rural referral centers, and sole community hospital.

•Requirements on pharmaceutical companies to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the “Donut Hole.”

•Requirements on manufacturers to participate in a coverage gap discount program, under which they must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

•Requirements on pharmaceutical companies to pay an annual non-tax-deductible fee to the federal government based on each company’s market share of prior year total sales of branded drugs to certain federal healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs, and Department of Defense.

•Establishment of the Patient-Centered Outcomes Research Institute to identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.

•Establishment the Center for Medicare and Medicaid Innovation within the Centers for Medicare and Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

From time to time, legislation is drafted, introduced, and passed in Congress that could significantly change the statutory provisions governing the sale, marketing, coverage, and reimbursement of products regulated by CMS or other government agencies. In addition to new legislation, CMS regulations and policies are often revised or interpreted by the agency in ways significantly affecting our business and our products.

Since its enactment, there have been judicial, administrative, executive and Congressional legislative challenges to certain aspects of the ACA. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate,” or the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017, or the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is unknown when a decision will be made. It is unclear how the Supreme Court ruling, other such litigation, and the healthcare reform measures of the Biden administration will impact the ACA.

Third-Party Payor Coverage and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. In the U.S., sales of any products for which we may receive regulatory marketing approval will depend, in part, on the availability of coverage and reimbursement from third-party payors. Third-party payors include government authorities such as Medicare, Medicaid, TRICARE, and the Veterans Administration, managed care providers, private health insurers, and other organizations.

XCUR US Equity

XCUR · 10-K · period ended 2020-12-31

Item 1. Business.

XCUR US Equity☆

XCUR · 10-K · period ended 2020-12-31

Item 1. Business.

XCUR US Equity