Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties as described under the heading “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K. You should review the disclosure under the heading “Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

In addition, this section discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 are not included in this Annual Report and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 11, 2021.

Overview

We are an early-stage biotechnology company developing nucleic acid therapies targeting ribonucleic acid against validated targets to neurological disorders and hair loss. Our team includes a diverse scientific group with expertise in nucleic acid chemistry, drug development and neuroscience. Headquartered in Chicago, Illinois, we conduct our discovery and development efforts in-house with a dedicated 30,000 square foot facility, including rapid and automated high throughput nucleic acid synthesis and screening.

Our therapeutic discovery and development efforts are supported by our proprietary Spherical Nucleic Acid, or SNA, technology. SNAs are nanoscale constructs consisting of densely packed synthetic nucleic acid sequences that are radially arranged in three dimensions. We believe the design of our SNAs gives rise to distinct chemical and biological properties that may provide advantages over other nucleic acid therapeutics and enable therapeutic activity outside of the liver. Our platform for therapeutic nucleic acids has demonstrated potential high potency, broad uptake, and prolonged efficacy in both in vitro and in vivo neurological models. The basis of our discovery approach harnesses our expertise in oligonucleotide chemistry for use against validated targets where we can screen thousands of oligonucleotides efficiently and identify top candidates in the appropriate cell and live animal models. We are conducting preclinical studies for a non-opioid analgesic directed against SCN9A (Nav1.7); undisclosed targets in Huntington’s disease and Angelman syndrome as part of our collaboration with Ipsen; and undisclosed targets in hair loss disorders as part of our collaboration with AbbVie.

Operating, financing, and cash flow considerations

Since our inception in 2011, we have devoted substantial resources to the research and development of SNAs and the protection and enhancement of our intellectual property. We have no products approved for sale and have primarily funded our operations through sales of our securities and collaborations. Through December 31, 2021, we have raised gross proceeds of $201.6 million from the sale of common stock and preferred stock. We have also received $56.0 million in upfront payments from collaborations, including an upfront payment of $20.0 million we received in August 2021 in connection with our research collaboration, license, and option agreement with Ipsen, or the Ipsen Collaboration Agreement and an upfront payment of $25.0 million we received in November 2019 in connection with our research collaboration license and option agreement with AbbVie, or the AbbVie Collaboration Agreement. On September 25, 2020, we also borrowed $17.5 million under the terms of a credit and security agreement with MidCap Financial Trust (as described further below). As of December 31, 2021, our cash, cash equivalents, short-term investments, and restricted cash were $48.3 million.

Since our inception, we have incurred significant operating losses. As of December 31, 2021, we have generated an accumulated deficit of $188.9 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research programs and from general and administrative costs associated with our operations.

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We expect to continue to incur losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially as we:

•advance preclinical development targeting SCN9A in pain to drug candidate selection and IND-enabling studies;

•advance our SNA platform with our current and prospective suitable collaboration partners;

•initiate research and development, preclinical studies and clinical trials for any additional therapeutic candidates that we may pursue in the future;

•advance other therapeutic candidates through preclinical and clinical development;

•increase our research and development activities to enhance our technology platform;

•continue to manufacture increasing quantities of drug substance and drug product material for use in preclinical studies and clinical trials;

•seek regulatory approval for our therapeutic candidates that successfully complete clinical trials;

•maintain, expand and protect our intellectual property portfolio;

•acquire or in-license other approved drugs, drug candidates or technologies;

•hire additional operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and

•incur additional costs associated with operating as a public company.

We have not generated any revenue from commercial drug sales nor do we expect to generate substantial revenue from product sales unless or until we successfully complete development and obtain regulatory approval of and commercialize one or more of our therapeutic candidates. We do not anticipate generating revenue from drug sales for the next several years, if ever. If we obtain regulatory approval for any of our therapeutic candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Other sources of revenue could include a combination of research and development payments, license fees and other upfront payments, milestone payments, and royalties in connection with our current and any future collaborations and licenses. Until such time, if ever, that we generate revenue from whatever source, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings and research collaboration and license agreements. We may be unable to raise capital or enter into such other arrangements when needed or on favorable terms. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our therapeutic candidates.

COVID-19 Business Update

As the global spread of the COVID-19 pandemic continues to affect our economy and our industry, we continue to monitor closely the developments and continue to take active measures to protect the health of our employees and their families, and our communities. Our on-site activities continue with protocols for safely accessing and working within our facilities. While we continue to conduct research and development activities, the COVID-19 pandemic has impacted, and may continue to impact, certain of our early-stage discovery efforts.

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.

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Given the global risks and uncertainties associated with COVID-19, our business, results of operations, and prospects could be materially adversely affected. For additional information, see “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Recent Developments

Restructuring

On December 10, 2021, we announced our commitment to a plan to wind down our immuno-oncology program for cavrotolimod (AST-008) and our XCUR-FXN preclinical program for the treatment of Friedreich’s ataxia. We intend to realign our research and development resources to support (i) the development of our preclinical program targeting SCN9A for neuropathic pain, (ii) the continued advancement of our partnered programs with Ipsen to develop SNA-based treatments in neuroscience targeting Huntington’s disease and Angelman syndrome, (iii) our continued advancement of our partnered program with AbbVie to develop SNA-based treatments for hair loss disorders, as well as (iv) the continued research and development of other undisclosed therapeutic product candidates. This plan resulted in a reduction in force where we eliminated approximately 50% of our existing workforce on a staggered basis through January 2022 as well as other cost-cutting measures. At December 31, 2021, the accrued liability balance associated with the strategic reduction in force announced in the fourth quarter of 2021 is $1.2 million, presented within accrued expense and other current liabilities on the accompanying consolidated balance sheet.

As previously reported in our Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission, or SEC, on November 19, 2021, on November 9, 2021, the Audit Committee of the Board was notified of a claim regarding alleged improprieties that a former senior researcher of us claimed to have committed with respect to our XCUR-FXN preclinical program for the treatment of Friedreich’s ataxia. The senior researcher had voluntarily resigned from the Company on November 8, 2021. The Audit Committee retained outside counsel to conduct an internal investigation of the claims. Based on the results of outside counsel’s investigation, the Audit Committee and we concluded that the subject matters under investigation did not have a material adverse impact on our financial condition or results of operations, and did not require any change in our financial statements.

The Audit Committee and we investigated statements made by Dr. Grant Corbett, our former Group Leader of Neuroscience. As a part of his resignation from the Company on November 8, 2021, Dr. Corbett claimed that when he was employed by us, he intentionally misreported certain raw data related to the research and development of XCUR-FXN. The investigation began promptly after the receipt of Dr. Corbett’s resignation and allegations and was substantially completed in early December 2021. The Audit Committee provided outside counsel with significant resources, without imposing limitations on the investigation’s scope, timing or access to information. The investigation involved collection and review of a significant number of documents. communications and data, and interviews of numerous witnesses. Dr. Corbett was also interviewed during the investigation.

The investigation revealed that: (1) beginning in the autumn of 2020, Dr. Corbett misreported raw data from certain research and development experiments related to XCUR-FXN; (2) Dr. Corbett misreported the results of at least three different experiments that were conducted through at least February 2021; (3) the misreported data related solely to efficacy rather than safety of XCUR-FXN; (4) the misreported data was included in various public presentations and SEC filings from as early as January 7, 2021 through as late as August 12, 2021; (5) Dr. Corbett acted alone in misreporting the data, without the assistance or knowledge of anyone else at the Company, including our management and other research and development employees and did not inform anyone at the Company of his actions until his resignation in November 2021; (6) our management reasonably relied on Dr. Corbett’s analysis when making public statements that included Dr. Corbett’s misreported data; and (7) none of our other programs were impacted by Dr. Corbett’s misreporting of the XCUR-FXN data.

The Board and the Audit Committee began a process with the assistance of counsel to address the results of the investigation and intend to continue to enhance our policies and procedures regarding data management and integrity.

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Registered Direct Offering

On December 16, 2021, we completed a securities purchase agreement, or Purchase Agreement, with certain institutional purchasers, or Purchasers, entered into on December 14, 2021, pursuant to which we offered to the Purchasers, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market, or the Registered Direct Offering, (i) an aggregate of 13,006,614 shares of our common stock, $0.0001 par value per share, (ii) pre-funded warrants to purchase up to an aggregate of 21,569,454 shares of our common stock Pre-Funded Warrants, and (iii) warrants to purchase up to 17,288,034 shares of common stock, Warrants. The combined purchase price of each share of common stock and accompanying Warrant is $0.3326 per share. The combined purchase price of each Pre-Funded Warrant and accompanying Warrant is $0.3316 (equal to the combined purchase price per share of common stock and accompanying Warrant, minus $0.001). The per share exercise price for the Warrants is $0.2701, the closing bid price of our common stock on December 13, 2021. The Warrants will be exercisable immediately from the closing on December 16, 2021, and will expire on the five-year anniversary of the date of issuance, or December 16, 2026.

The gross proceeds to us from the Registered Direct Offering were $11.5 million and net proceeds after deducting the placement agent’s fees and other offering expenses payable by us were $10.2 million. The securities were offered by us pursuant to an effective shelf registration statement on Form S-3 (File No. 333-251555) previously filed with the SEC on December 21, 2020, and which was declared effective by the SEC on January 7, 2021.

MidCap Credit Agreement

On March 15, 2022, pursuant to the terms of the MidCap Credit Agreement, we repaid in full all outstanding indebtedness and other obligations under the MidCap Credit Agreement and the other Financial Documents (as defined in the MidCap Credit Agreement), including but not limited to the outstanding principal balance of $7.5 million and an exit fee of approximately $0.5 million, and terminated all obligations thereunder.

Changes in Board of Directors

On February 4, 2022, we announced that Andrew Sassine, a member of the Board and a member of the Audit Committee, resigned from the Board and the Audit Committee of the Board, effective February 3, 2022.

On February 4, 2022, we announced that Timothy P. Walbert, our then chair of the Board, resigned from the Board, effective February 4, 2022 and Bosun Hau, a member of the Board and chair of the Board’s Compensation Committee, resigned from the Board and the Compensation Committee of the Board, effective February 4, 2022.

Upon recommendation of the Nominating and Corporate Governance Committee of the Board, the Board appointed Elizabeth (“Betsy”) Garofalo, M.D. to serve as chair of the Board to succeed Mr. Walbert and to serve on the Compensation Committee to fill the vacancy on the Compensation Committee resulting from Mr. Hau’s resignation from the Board, effective February 4, 2022.

Nasdaq Listing Requirements Deficiency Notice

On December 30, 2021, we received a letter from the staff of The Nasdaq Stock Market LLC, or Nasdaq, notifying us that, for the previous 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Global Select Market under Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A) we have been provided an initial period of 180 calendar days, or until June 28, 2022, to regain compliance with Nasdaq’s bid price requirement. If, at any time before June 28, 2022, the bid price for our common stock closes at $1.00 or more for a

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minimum of 10 consecutive business days, we will regain compliance with the bid price requirement, unless the Nasdaq staff exercises its discretion to extend this 10-day period pursuant to Nasdaq rules. We have not regained compliance with Nasdaq Listing Rules as of the filing date of this Annual Report.

If we do not regain compliance with Nasdaq Listing Rule 5550(a)(2) by June 28, 2022, we may be eligible for additional time to comply. To qualify, we will be required to meet certain continued listing requirements for market value of publicly held shares and all other initial listing standards for Nasdaq. If we meet these requirements, Nasdaq may grant us an additional 180 calendar days to regain compliance with the bid price requirement.

If we do not regain compliance with the bid price requirement and are not eligible for an additional compliance period our common stock may be delisted.

Basis of Presentation

The audited financial statements of Exicure, Inc. for the fiscal years ended December 31, 2021 and 2020, contained herein, include a summary of our significant accounting policies and should be read in conjunction with the discussion below.

Segment Reporting

We view our operations and manage our business as one segment, which is the discovery, research and development of treatments based on our SNA technology.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the notes to our financial statements appearing in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Revenue recognition

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

Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, we perform the following five steps:

1.Identify the contract with the customer. A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights and obligations regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. We apply judgment in determining the customer’s intent and ability to pay, which is based on a variety of

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factors including the customer’s historical payment experience, or in the case of a new customer, published credit and financial information pertaining to the customer.

2.Identify the performance obligations in the contract. Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, we must apply judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

3.Determine the transaction price. The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment.

4.Allocate the transaction price to performance obligations in the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, we must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices.

5.Recognize revenue when or as the Company satisfies a performance obligation. We satisfy performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer. Examples of control are using the asset to produce goods or services, enhance the value of other assets, or settle liabilities, and holding or selling the asset.

Revenue allocated to performance obligations relating to provision of research and development activities is recognized as the performance obligations are satisfied using an input method to measure progress, based on an estimate of the percentage of completion of the project based on the actual hours incurred on the project as a percentage of the total expected project hours. The determination of the percentage of completion requires management to estimate the total expected project hours. A detailed estimate of the total expected project hours is re-assessed every reporting period based on the latest project plan and discussions with project teams. If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate. The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs. Determining the estimate of total project hours requires significant judgment and may have a significant impact on the amount and timing of revenue recognition. For example, revenue recognized

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under the AbbVie Collaboration Agreement for the year ended December 31, 2021 was $(2.8) million due primarily to the cumulative catchup adjustment (reduction) of revenue recorded in connection with a change in estimate that occurred during the third quarter of 2021(see Note 3 to the accompanying consolidated financial statements). A 10% increase in the estimate of total projected hours for the AbbVie Collaboration Agreement at December 31, 2021 would decrease collaboration revenue by approximately $1.3 million. A 10% decrease in the estimate of total projected hours for the AbbVie Collaboration Agreement at December 31, 2021 would increase collaboration revenue by approximately $1.5 million. A 10% increase or decrease in the estimate of total projected hours for the Ipsen Collaboration Agreement at December 31, 2021 would decrease or increase, respectively, the collaboration revenue by less than $0.3 million.

Licenses of intellectual property: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the licenses. For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone payments: At the inception of each arrangement that includes development milestone payments, we evaluate the probability of reaching the milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment. To date, we have not recognized any milestone payment revenue from any of its collaboration agreements.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on levels of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from any of its collaboration agreements.

Recent accounting pronouncements not yet adopted

Refer to Note 2 of the accompanying consolidated financial statements for a description of recent accounting pronouncements not yet adopted.

Components of Statements of Operations

Revenue

We have earned all of our revenue through December 31, 2021 through the AbbVie Collaboration Agreement, the Ipsen Collaboration Agreement, our research collaboration, license, and option agreement with Purdue Pharma L.P., or the Purdue Collaboration Agreement, or through our research collaboration license and option agreement with Dermelix. We have also earned revenue as a primary contractor or as a subcontractor on government grants. We do not intend for government grants to be a principal commercial or strategic focus, but will evaluate opportunities when consistent with our strategic priorities. We have not generated any commercial product revenue and do not expect to generate any product revenue for the foreseeable future.

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In the future, we may generate revenue from partnership activities including a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties, and reimbursement of certain research and development expenses, in connection with the AbbVie Collaboration Agreement, the Ipsen Collaboration Agreement, the Dermelix Collaboration Agreement, or any future collaborations and licenses. We expect that any such revenue we generate will fluctuate in future periods as a result of the timing of achievement, if at all, of preclinical, clinical, regulatory and commercialization milestones, the timing and amount of any payments to us relating to such milestones and the extent to which any of our therapeutic candidates are approved and successfully commercialized by us or potential development partners. If we, or any potential development partner fails to develop therapeutic candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially and adversely affected.

Research and development expense

Research and development expense consists of costs associated with our research activities, including basic research on our SNA platform, discovery and development of novel SNAs as prospective therapeutic candidates, preclinical and clinical development activities for SNAs we have nominated for clinical development as well as maintaining and protecting our intellectual property. Our research and development expenses include:

•employee-related expenses, including salaries, bonuses, benefits and equity-based compensation expense;

•early research and development expenses incurred under arrangements with third parties, such as contract research organizations, contract manufacturing organizations, and consultants;

•preclinical and clinical development expenses with third parties such as contract research organizations, contract manufacturing organizations, and consultants;

•costs of maintaining and protecting our intellectual property portfolio, including legal advisory fees, license fees, sublicense fees, patent maintenance and other similar fees;

•laboratory materials and supplies;

•facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.

We expense research and development costs as they are incurred. A significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology.

We expect our research and development expenses to increase for the foreseeable future as we advance our therapeutic candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. We or future development partners may never succeed in obtaining marketing approval for any of our therapeutic candidates. The probability of success for each therapeutic candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.

All of our research and development programs are at an early stage and successful development of future therapeutic candidates from these programs is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future therapeutic candidate and are difficult to predict. We anticipate we will make determinations as to which therapeutic candidates to pursue and how much funding to direct to each therapeutic candidate on an ongoing basis in response to the early scientific, preclinical and clinical success of each therapeutic candidate, our ability to maintain or enter into development partnerships with respect to a given therapeutic candidate, as well as ongoing assessments of the commercial potential of therapeutic candidates.

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We will need to raise additional capital to fund our research and development activities. We have entered into, and may in the future seek, collaborations, licensing or other commercial relationships with other companies in order to advance our various therapeutic candidates. Such collaborations may provide near-term cash payments from the collaborators to us in exchange for license rights or for expense reimbursement, but may also materially reduce the long-term economic benefits that could otherwise be realized from a therapeutic candidate subject to a collaboration in the event that such therapeutic candidate becomes commercially viable. Additional private or public financings may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.

General and administrative expense

General and administrative expense consists primarily of salaries and related benefits, including equity-based compensation, related to our executive, finance, legal, business development and support functions. Other general and administrative expenses include travel expenses, professional fees for auditing, tax and legal services and allocated facility-related costs not otherwise included in research and development expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Dividend income

Dividend income consists of income earned on our money market funds that are recorded as cash equivalents on our consolidated balance sheets.

Interest income

Interest income consists of income earned on our available for sale securities that are recorded as short-term investments on our consolidated balance sheets, as well as income earned on our cash balances.

Interest expense

Interest expense includes amounts pursuant to the MidCap Credit Agreement and also the loan and security agreement with Hercules Technology Growth Capital, or Hercules, for which we repaid all remaining outstanding obligations under the Hercules loan agreement at its maturity on March 1, 2020.

Other income (loss), net

Other income (loss), net consists of fair value adjustments of our common stock warrant liabilities and gains and losses on foreign currency transactions.

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Results of Operations

Comparison of the Year Ended December 31, 2021 and 2020

The following table summarizes the results of our operations for the years ended December 31, 2021 and 2020:

Year EndedDecember 31,

Revenue:

Operating expenses:

Other income, net:

Provision for income taxes — — — — %

Revenue

The following table summarizes our revenue earned during the periods indicated:

Year EndedDecember 31,

Collaboration revenue:

Ipsen Collaboration Agreement 2,309 — 2,309 n/m

Dermelix Collaboration Agreement — 127 (127) (100) %

Collaboration revenue was $(0.5) million during the year ended December 31, 2021, reflecting a decrease of $17.1 million, or 103%, from collaboration revenue of $16.6 million for the year ended December 31, 2020. The decrease in collaboration revenue of $17.1 million is mostly due to a decrease in revenue related to the AbbVie Collaboration Agreement of $19.3 million partially offset by revenue related to the Ipsen Collaboration Agreement of $2.3 million.

As discussed further in Note 3, Collaborative Research and License Agreements, of the accompanying consolidated financial statements, revenue recognized under the AbbVie Collaboration Agreement for the year ended December 31, 2021 reflects the cumulative catchup adjustment (reduction) of revenue in connection with the change in estimate that resulted from a change in workplan during the third quarter of 2021. We currently estimate

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significant additional efforts will be required to satisfy the performance obligation under the AbbVie Collaboration Agreement. These increased estimated efforts in connection with the change in workplan resulted in less progress occurring relative to the increased estimate of total project hours to complete the research services during the year ended December 31, 2021 as compared to the amount of revenue recognized at December 31, 2020, which led to a full year revenue reversal of $(2.8) million in the current year As of December 31, 2021, deferred revenue under the AbbVie Collaboration Agreement was $11.1 million and is expected to be recognized as revenue over the next 21 to 24 months as we satisfy our obligations under the AbbVie Collaboration Agreement. In August 2021, we received an upfront payment of $20.0 million in connection with the Ipsen Collaboration Agreement for which revenue has been deferred and will be recognized as revenue in future periods as we satisfy our obligations under the Ipsen Collaboration Agreement. At December 31, 2021, deferred revenue under the Ipsen Collaboration Agreement was $17.7 million and is expected to be recognized as revenue over the next 30 to 39 months as we satisfy our obligations under the Ipsen Collaboration Agreement.

Refer to Note 3, Collaborative Research and License Agreements, of the accompanying consolidated financial statements for more information regarding revenue recognition for the AbbVie Collaboration Agreement and Ipsen Collaboration Agreement.

We do not expect to generate any product revenue for the foreseeable future. However, future revenue may include amounts attributable to partnership activities including, a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties, and reimbursement of certain research and development expenses, in connection with the AbbVie Collaboration Agreement, the Ipsen Collaboration Agreement, the Dermelix Collaboration Agreement or any future collaboration and licenses.

Research and development expense

The following table summarizes our research and development expenses incurred during the periods indicated:

Year EndedDecember 31,

Research and development expense was $49.0 million for the year ended December 31, 2021, reflecting an increase of $16.9 million, or 53%, from research and development expense of $32.1 million for the year ended December 31, 2020. The increase in research and development expense for the year ended December 31, 2021 of $16.9 million reflects an increase in clinical trial activities during the year as well as the impact of higher average headcount during 2021 as compared to the prior year period. More specifically, the increase in research and development expense for the year ended December 31, 2021 of $16.9 million was primarily due to a net increase in costs related to our clinical development programs of $10.6 million, higher employee-related expenses of $4.6 million, higher facilities, depreciation, and other expenses of $1.3 million, and higher platform and discovery-related expense of $0.3 million.

The net increase in clinical development programs expense for the year ended December 31, 2021 of $10.6 million was primarily due to manufacturing and toxicology study costs in connection with IND-enabling and Phase 1 clinical trial preparation activities for XCUR-FXN, in addition to higher clinical trial costs in connection with our Phase 1b/2 clinical trial for cavrotolimod (AST-008), partially offset by lower manufacturing costs for cavrotolimod

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(AST-008). In December 2021, we began the winding down of the cavrotolimod (AST-008) and XCUR-FXN programs.

The increase in employee-related expense for the year ended December 31, 2021 of $4.6 million was due to higher compensation and related costs in connection with a higher average headcount during the period as well as certain salary increases in 2021 for existing employees, in addition to one-time severance costs of approximately $0.6 million associated with the December 2021 restructuring. These higher costs in 2021 were partially offset by lower bonus expense of $0.5 million in 2021 resulting from the reduction of the 2021 bonus liability to zero at December 31, 2021.

The increase in platform and discovery-related expense of $0.3 million was mostly due to the license fee paid to Northwestern University of $3.0 million in connection with the receipt of the upfront payment of $20.0 million from Ipsen, mostly offset by lower costs for materials and reagents, as well as lower intellectual property costs.

The increase in facilities, depreciation, and other expenses for the year ended December 31, 2021 of $1.3 million was mostly due to higher lease costs related to our Chicago lease that commenced on July 1, 2020 as well as higher depreciation expense in connection with the acquisition of additional scientific equipment that were placed in service since the prior-year period.

In connection with the restructuring activities discussed further above in “Recent Developments – Restructuring” and based on our current operating plan, we expect our research and development expenses to decrease by approximately 30-35% during 2022 as compared to 2021.

General and administrative expense

Year EndedDecember 31,

Full time employees 10 9 1

General and administrative expense was $13.1 million for the year ended December 31, 2021, representing an increase of $3.1 million, or 31%, from $10.0 million for the year ended December 31, 2020. The increase for the year ended December 31, 2021 is mostly due to higher compensation and related costs mostly due to salary increases in 2021 and an increase in headcount, in addition to one-time severance costs of approximately $0.6 million associated with the December 2021 restructuring, higher legal and consulting costs, higher D&O insurance premium costs, and higher recruiting costs. This increase was partially offset by lower bonus expense of $0.5 million in 2021 resulting from the reduction of the 2021 bonus liability to zero at December 31, 2021, as well as lower investor relations and franchise tax costs.

Interest income

The decrease in interest income of $0.8 million for the year ended December 31, 2021 was primarily the result of lower average balances invested in available for sale securities during the year ended December 31, 2021 as compared to the prior-year period.

Interest expense

The increase in interest expense of $1.1 million for the year ended December 31, 2021 was the result of a higher average debt balance during the year ended December 31, 2021 as compared to the prior-year period.

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Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from our collaboration agreements. We have not yet commercialized any of our product candidates, which are in various phases of preclinical development and clinical trials; and we do not expect to generate revenue from sales of any product for several years, if at all. We have funded our operations to date with proceeds received from equity financings and payments received in connection with collaboration agreements.

As of December 31, 2021, our cash, cash equivalents, short-term investments, and restricted cash were $48.3 million as compared to $83.3 million as of December 31, 2020. To date, we have funded our operations primarily with proceeds received from equity financings and to a lesser extent, payments received in connection with collaboration agreements. We have generated limited revenue to date from our collaboration agreements. We have no products approved for commercial sale and have not generated any product revenues from product sales to date, and we do not expect to generate revenue from sales of any product for several years, if at all.

In December 2021, we closed a registered direct offering with certain institutional investors where we sold (i) an aggregate of 13,006,614 shares of our common stock, (ii) pre-funded warrants to purchase up to an aggregate of 21,569,454 shares of common stock, and (iii) warrants to purchase up to 17,288,034 shares of common stock, for net proceeds of $10.4 million, after deducting placement agent fees and other offering expenses payable by us.

We have incurred significant operating losses since inception. We incurred net losses of approximately $64.1 million and $24.7 million for the year ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we have generated an accumulated deficit of $188.9 million since inception and expect to incur significant expenses and negative cash flows for the foreseeable future.

Based on our current operating plans and existing working capital at December 31, 2021, it is uncertain whether our current liquidity is sufficient to fund operations over the next twelve months from the date of the issuance of the accompanying consolidated financial statements. As a result, there is substantial doubt about our ability to continue as a going concern. We have no committed sources of additional capital at this time and substantial additional financing will be needed by us to fund our operations. If we are unable to raise capital, we may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to assets or preclinical programs that we might otherwise seek to develop independently.

See “—Funding Requirements” below for additional information on our future capital needs.

MidCap Credit Facility

On December 10, 2021, we entered into Amendment No. 4 to our Credit and Security Agreement, dated as of September 25, 2020, as amended on October 21, 2020, July 30, 2021 and September 30, 2021, with MidCap Financial Trust, as agent, or MidCap, and the lenders party thereto from time to time, or the MidCap Credit Agreement), to prepay $10.0 million of our outstanding loans under the MidCap Credit Agreement. Additionally, in connection with Amendment No. 4, we are required to maintain a balance of $20.0 million in accounts at Silicon Valley Bank, including $8.0 million in a blocked account at Silicon Valley Bank. The balance of $8.0 million in the blocked account at Silicon Valley Bank is restricted cash and is presented within other noncurrent assets on the accompanying consolidated balance sheet.

The MidCap Credit Agreement provides for a secured term loan facility in an aggregate principal amount of up to $25.0 million, or the MidCap Credit Facility. We borrowed the first advance of $17.5 million, or Tranche 1, on September 25, 2020, or the Closing Date. Amendment No. 4 terminated the availability of the second advance of $7.5 million, or Tranche 2, effective as of December 9, 2021, that was previously available under the MidCap Credit Agreement subject to certain conditions.

Tranche 1 bears interest at a floating rate equal to 6.25% per annum, plus the greater of (i) 1.50% or (ii) one-month LIBOR. Interest on each loan advance is due and payable monthly in arrears. Principal on each loan advance is payable in 36 equal monthly installments beginning October 1, 2022 until paid in full on October 1, 2025, or the

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Maturity Date. Prepayments of the loans under the MidCap Credit Agreement, in whole or in part, will be subject to early termination fees in an amount equal to 3.0% of principal prepaid if prepayment occurs on or prior to the first anniversary of the Closing Date and 1.0% of principal prepaid if prepayment occurs after the first anniversary of the Closing Date and prior to the maturity date. In connection with Amendment No. 4, the early termination fee associated with the prepayment of $10.0 million made in December 2021 was waived and if the remaining principal amount is repaid on or prior to March 31, 2022, the associated early termination fee for that prepayment will be waived. In connection with execution of the MidCap Credit Agreement, the Company paid MidCap a $0.1 million origination fee.

At the Maturity Date or on any earlier date on which all amounts advanced to us become due and payable in full, or are otherwise paid in full, we are required to pay an exit fee equal to 3.75% of the principal amount of all loans advanced to us under the MidCap Credit Agreement. Upon the advance of Tranche 1, we accrued $0.7 million for the related exit fee. In connection with Amendment No. 4, if the remaining principal amount is repaid on or prior to March 31, 2022, a portion of the related exit fee that has not been earned by MidCap will be waived.

Our obligations under the MidCap Credit Agreement are secured by a security interest in substantially all of its assets, excluding intellectual property (which is subject to a negative pledge). Additionally, the Company’s future subsidiaries, if any, may be required to become co-borrowers or guarantors under the MidCap Credit Agreement.

The MidCap Credit Agreement contains customary affirmative covenants and customary negative covenants limiting our ability and the ability of our subsidiaries, if any, to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions.

The MidCap Credit Agreement also contains customary events of default relating to, among other things, payment defaults, breaches of covenants, a material adverse change, delisting of our common stock, bankruptcy and insolvency, cross defaults with certain material indebtedness and certain material contracts, judgments, and inaccuracies of representations and warranties. Upon an event of default, the agent and the lenders may declare all or a portion of our outstanding obligations to be immediately due and payable and exercise other rights and remedies provided for under the agreement. During the existence of an event of default, interest on the obligations could be increased by 2.0%.

On March 15, 2022, we repaid in full all outstanding indebtedness and other obligations under the MidCap Credit Agreement and the other Financing Documents (as defined in the MidCap Credit Agreement), including but not limited to the outstanding principal balance of $7.5 million and an exit fee of approximately $0.5 million, and terminated all obligations thereunder.

At-the-Market Facility Program

On December 21, 2020, we entered into an equity distribution agreement, or the Sales Agreement, with BMO Capital Markets Corp., a Delaware corporation, or BMO, with respect to an “at-the-market offering” program under which we could offer and sell, from time to time at its sole discretion, shares of our common stock, par value $0.0001 per share, having aggregate gross proceeds of up to $50.0 million through BMO as its sales agent.

On January 4, 2022, BMO delivered written notice to us, effective as of such date, to terminate the Sales Agreement pursuant to Section 6(b) thereof. We and BMO agreed to terminate the Sales Agreement, effective as of such date. Through the date of termination of the Sales Agreement, we have not sold any shares under the Sales Agreement.

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Cash Flows

The following table shows a summary of our cash flows for the years ended December 31, 2021 and 2020:

Years EndedDecember 31,

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

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

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

Operating activities

Net cash used in operating activities was $34.8 million and $39.3 million for the years ended December 31, 2021 and 2020, respectively. The decrease in cash used in operating activities for the years ended December 31, 2021 of $4.5 million was primarily due to the receipt of the upfront payment of $20.0 million from Ipsen in connection with the Ipsen Collaboration Agreement, partially offset by higher cash used for working capital and the license fee paid to Northwestern University of $3.0 million in connection with receipt of the Ipsen Upfront Payment.

Investing activities

Net cash provided by investing activities was $43.1 million and $10.1 million for the years ended December 31, 2021 and 2020, respectively. The increase in cash provided by investing activities of $32.9 million was primarily due to higher proceeds from the maturity, net of purchases, of available-for-sale securities, as well as a decrease in the purchase of scientific equipment of $2.2 million.

Financing activities

Net cash provided by financing activities of $1.1 million for year ended December 31, 2021 is due primarily due to the net proceeds we received of $10.4 million in connection with the sale of common stock and warrants in the registered direct offering in December 2021, as well as proceeds received from the exercise of stock options and the issuance of common stock in connection with our employee stock purchase plan, mostly offset by the prepayment of $10 million of the outstanding principal balance associated with our MidCap Credit Agreement (as discussed above) in December 2021.

Net cash provided by financing activities of $15.1 million for the year ended December 31, 2020 is primarily due to the net proceeds we received of $17.3 million during the period in connection with the MidCap Credit Agreement, as well as the net proceeds received from the sale of shares of our common stock in the amount of $2.8 million pursuant to the partial exercise of the option to purchase additional shares by the underwriters from our December 2019 financing, partially offset by the repayment of the Hercules loan in the amount of $5.0 million upon the loan’s maturity.

Funding Requirements

We expect our expenses to increase as we continue our ongoing activities, particularly as we continue our research and development, initiate preclinical studies or clinical trials, and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing and expenditures of our preclinical studies and our research and development activities. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

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We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022. However, we have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements are difficult to forecast and will depend on many factors, including:

•the terms and timing of any other collaboration, licensing and other arrangements that we may establish;

•the initiation, progress, timing and completion of preclinical studies and clinical trials for our potential therapeutic candidates;

•the effects of health epidemics, including the ongoing COVID-19 pandemic, on our operations or the business or operations of our contract research organizations, or CROs, or other third parties with whom we conduct business;

•the number and characteristics of therapeutic candidates that we pursue;

•the progress, costs and results of our preclinical studies;

•the outcome, timing and cost of regulatory approvals;

•delays that may be caused by changing regulatory requirements;

•the cost and timing of hiring new employees to support our growth;

•unknown legal, administrative, regulatory, accounting, and information technology costs as well as additional costs associated with operating as a public company;

•the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;

•the costs of filing and prosecuting intellectual property rights and enforcing and defending any intellectual property-related claims;

•the costs and timing of procuring clinical and commercial supplies of our therapeutic candidates;

•the extent to which we acquire or in-license other therapeutic candidates and technologies; and

•the extent to which we acquire or invest in other businesses, therapeutic candidates or technologies.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. Further, the global financial markets have experienced significant disruptions over the past couple years due to the COVID-19 pandemic and most recently, the conflict between Russia and Ukraine. Any further disruption or slowdown in the global financial markets and economy may negatively affect our ability to raise funding through equity or debt financings on attractive terms or at all, which could in the future negatively affect our operations.

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If we raise funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our research and development programs, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Going Concern

In accordance with Accounting Standards Codification 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. In the absence of a significant source of recurring revenue, our continued viability is dependent on our ability to continue to raise additional capital to finance our operations. We have no committed sources of additional capital at this time and substantial additional financing will be needed by us to fund our operations. Changes in our business strategy, our operating plans, our existing and anticipated working capital needs, increased expenses, or other events will also affect our ability to continue as a going concern. If we are unable to obtain additional funding, we may be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.

Contractual Obligations and Commitments

Chicago Lease

In February 2020, we entered into a new lease signed in February 2020 to secure approximately 30,000 square feet of office and laboratory space at 2430 N. Halsted St., Chicago, Illinois, or the Chicago Lease. The Chicago Lease commenced on July 1, 2020, which is when the premises leased thereunder were ready for occupancy, and expires 10 years from July 1, 2020 with an option to renew for two additional successive periods of five years each.

The initial annual base rent during the original term of the Chicago Lease is approximately $1.1 million for the first 12-month period of the original term, payable in monthly installments beginning on the lease commencement. Base rent thereafter is subject to annual increases of 3%, for an aggregate amount of $12.8 million over the initial term. We must also pay our proportionate share of certain operating expenses and taxes for each calendar year during the term. During the first 12 months, the base rent and our proportionate share of operating expenses and taxes are subject to certain abatements.

In connection with the Chicago Lease, we will maintain a letter of credit for the benefit of the landlord in an initial amount of $1.2 million, which amount is subject to reduction over time, which is secured by a restricted certificate of deposit account and presented within other noncurrent assets on our consolidated balance sheet at December 31, 2021.

MidCap Credit and Security Agreement

On December 10, 2021, we entered into Amendment No. 4 to the MidCap Credit Agreement to prepay $10.0 million of our outstanding loans under the MidCap Credit Agreement. Additionally, in connection with Amendment No. 4, we are required to maintain a balance of $20.0 million in accounts at Silicon Valley Bank, including $8.0 million in a blocked account at Silicon Valley Bank. The balance of $8.0 million in the blocked account at Silicon Valley Bank is restricted cash and is presented within other noncurrent assets on the accompanying consolidated balance sheet.

The MidCap Credit Agreement provides for a secured term loan facility in an aggregate principal amount of up to $25.0 million. We borrowed the first advance of $17.5 million on September 25, 2020. Amendment No. 4 terminated the availability of the second advance of $7.5 million effective as of December 9, 2021, that was previously available under the MidCap Credit Agreement subject to certain conditions.

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Other

We enter into agreements in the normal course of business with contract research organizations and vendors for clinical trials, preclinical studies, and other services and products for operating purposes which are cancelable at any time by us, generally upon 30 days prior written notice. We also have obligations to make future payments to Northwestern that become due and payable on the achievement of certain commercial milestones. These payments are not included in this table of contractual obligations.

JOBS Act

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

In addition, as an emerging growth company, we will not be required to provide an auditor’s attestation report on our internal control over financial reporting in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

The primary objectives of our investment activities are to ensure liquidity and to preserve principal while at the same time maximizing the income we receive from our marketable securities without significantly increasing risk. Some of the securities that we invest in may have market risk related to changes in interest rates. As of December 31, 2021, we had cash and cash equivalents of $34.6 million, primarily held in money market funds, consisting of U.S. government-backed securities, and interest-bearing money market accounts. As of December 31, 2021, we had short-term investments of $4.5 million consisting of debt instruments of corporations, the U.S. Treasury, financial institutions, and U.S. government agencies with strong credit ratings and an investment grade rating at or above a long-term rating of Aa3/AA- and a short-term rating of P1/A1. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities and corporate obligations.

We are subject to interest rate risk in connection with our borrowings under the MidCap Credit Agreement. The remaining principal balance outstanding of $7.5 million as of December 31, 2021 under the MidCap Credit Agreement bears interest at a floating rate equal to 6.25% per annum, plus the greater of (i) 1.50% or (ii) one-month LIBOR. We currently do not engage in any interest rate hedging activity and we have no intention to do so in the foreseeable future. Based on the current interest rate of the term loan with Hercules and the scheduled payments thereunder, we believe a 100 basis point increase in interest rates would not have a material impact on our financial condition or results of operations.

While we contract with certain vendors internationally, substantially all of our total liabilities as of December 31, 2021 were denominated in U.S dollars and we believe that we do not have any material exposure to foreign currency exchange rate risk.

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Item 8. Financial Statements and Supplementary Data.

EXICURE, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE

Notes to Consolidated Financial Statements 114

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Exicure, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Exicure, Inc. and subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant expenses and negative cash flows since inception and its current liquidity is not sufficient to fund operations over the next twelve months, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

(signed) KPMG LLP

We have served as the Company’s auditor since 2014.

Chicago, Illinois

March 25, 2022

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EXICURE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

December 31,

ASSETS

Current assets:

Accounts receivable — 11

Prepaid expenses and other assets 4,525 4,231

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt $ 6,873 $ —

Accrued expenses and other current liabilities 6,464 3,525

Long-term debt, net — 16,589

Deferred revenue, noncurrent 11,509 —

Other noncurrent liabilities 656 656

Stockholders’ equity:

Accumulated other comprehensive (loss) income (2) 83

Total liabilities and stockholders’ equity $ 64,868 $ 100,444

See Accompanying Notes to Consolidated Financial Statements.

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EXICURE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

Year EndedDecember 31,

Revenue:

Operating expenses:

General and administrative expense 13,087 9,955

Other (expense) income, net:

Dividend income 8 47

Other (expense) income, net (11) 322

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

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

Provision for income taxes — —

Basic and diluted loss per common share $ (0.72) $ (0.28)

See Accompanying Notes to Consolidated Financial Statements.

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EXICURE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except share and per share data)

Year EndedDecember 31,

Other comprehensive (loss) income, net of taxes

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

Other comprehensive (loss) income (85) 110

See Accompanying Notes to Consolidated Financial Statements.

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EXICURE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except shares)

Common Stock

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

Other comprehensive income, net — — — — 110 110

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

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

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

See Accompanying Notes to Consolidated Financial Statements.

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EXICURE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation and amortization 1,123 766

Amortization of right-of-use asset 656 681

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

Amortization of investments 184 319

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

Changes in operating assets and liabilities:

Accounts receivable 11 24

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

Other noncurrent assets 68 (161)

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

Cash flows from investing activities:

Purchase of available for sale securities (6,497) (56,640)

Proceeds from sale or maturity of available for sale securities 50,550 69,953

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

Cash flows from financing activities:

Proceeds from common stock offering 11,486 2,973

Payment of common stock financing costs (1,111) (207)

Proceeds from long-term borrowing — 17,500

Payment of long-term debt fees and issuance costs — (504)

Proceeds from issuance of employee stock purchase plan 209 —

Proceeds from exercise of common stock options 546 367

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

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

Cash, cash equivalents, and restricted cash - end of period $ 43,844 $ 34,462

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EXICURE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

Supplemental disclosure of cash flow information

Non-cash operating activities:

Right-of-use asset acquired through operating leases $ — $ 8,147

Non-cash investing activities:

Capital expenditures (accounts payable and accrued expenses) 9 43

Non-cash financing activities:

Debt fees (accrued expense and other noncurrent liabilities) — 656

Common stock issuance costs (accounts payable and accrued expenses) 142 —

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statements of cash flows:

Year Ended December 31,

Restricted cash included in other noncurrent assets 9,200 1,200

See Accompanying Notes to Consolidated Financial Statements.

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EXICURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

1. Description of Business and Basis of Presentation

Description of Business

Exicure, Inc. is an early-stage biotechnology company developing nucleic acid therapies targeting ribonucleic acid against validated targets to neurological disorders and hair loss. The team includes a diverse scientific group with expertise in nucleic acid chemistry, drug development and neuroscience. Headquartered in Chicago, Illinois, the Company conducts its discovery and development efforts in-house with a dedicated 30,000 square foot facility, including rapid and automated high throughput nucleic acid synthesis and screening.

The Company’s therapeutic discovery and development efforts are supported by its proprietary Spherical Nucleic Acid, or SNA, technology. SNAs are nanoscale constructs consisting of densely packed synthetic nucleic acid sequences that are radially arranged in three dimensions. The Company believes the design of SNAs gives rise to distinct chemical and biological properties that may provide advantages over other nucleic acid therapeutics and enable therapeutic activity outside of the liver. The Company’s platform for therapeutic nucleic acids has demonstrated potential high potency, broad uptake, and prolonged efficacy in both in vitro and in vivo neurological models. The basis of the Company’s discovery approach harnesses our expertise in oligonucleotide chemistry for use against validated targets where we can screen thousands of oligonucleotides efficiently and identify top candidates in the appropriate cell and live animal models. The Company is conducting preclinical studies for a non-opioid analgesic directed against SCN9A (Nav1.7); undisclosed targets in Huntington’s disease and Angelman syndrome as part of our collaboration with Ipsen Biopharm Limited, or Ipsen; and undisclosed targets in hair loss disorders as part of our collaboration with AbbVie Inc., or AbbVie.

Throughout these consolidated financial statements, the terms the “Company,” and “Exicure” refer to Exicure, Inc. and where appropriate, its wholly owned subsidiary, Exicure Operating Company. Exicure Operating Company holds all material assets and conducts all business activities and operations of Exicure, Inc.

Basis of Presentation

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Exicure, Inc. and its wholly owned subsidiary, Exicure Operating Company. All intercompany transactions and accounts are eliminated in consolidation.

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Significant Risks and Uncertainties

As discussed in Note 3, Collaborative Research and License Agreements, revenue recognized under the AbbVie Collaboration Agreement (as defined in Note 3, Collaborative Research and License Agreements) for the year ended December 31, 2021 reflects the cumulative catchup adjustment (reduction) of revenue of recorded in connection with a change in estimate that occurred during the third quarter of 2021. The Company currently estimates significant additional efforts will be required to satisfy the performance obligation under the AbbVie Collaboration Agreement. These increased estimated efforts in connection with the change in workplan resulted in less progress occurring relative to the increased estimate of total project hours to complete the research services during the year ended December 31, 2021 as compared to the amount of revenue recognized at December 31, 2020, which led to a full year revenue reversal of $(2,792) in the current year. Due to uncertainties inherent in the estimation process, it is at least reasonably possible that estimated efforts required to complete the research services under the AbbVie Collaboration Agreement will be further revised in the near-term which may result in additional adjustments (reductions of revenue) in future periods. As discussed in Note 2, Significant Accounting Policies — Revenue Recognition, determining the estimate of total project hours used to recognize revenue for the Company’s collaboration agreements requires significant judgment and any changes to those estimates may have a significant impact on the amount and timing of revenue recognition for the Ipsen Collaboration Agreement or the AbbVie Collaboration Agreement (each, as defined in Note 3, Collaborative Research and License Agreements) in future periods.

COVID-19 Risks and Uncertainties

In response to the ongoing COVID-19 pandemic, the Company has taken and continues to take active measures designed to address and mitigate the impact of the COVID-19 pandemic on its business. The Company continues to monitor closely the developments and continue to take active measures to protect the health of its employees and their families, and its communities. Its on-site activities continue with protocols for safely accessing and working within its facilities. While the Company continues to conduct research and development activities, the COVID-19 pandemic has impacted, and may continue to impact, certain of its early-stage discovery efforts.

The Company is working closely with its third-party manufacturers and other partners to manage its supply chain activities and mitigate potential disruptions as a result of the COVID-19 pandemic. The Company has observed minor delays in receipt of key chemicals, reagents and materials as certain manufacturers have had supply disruptions related to the COVID-19 pandemic. If the COVID-19 pandemic continues to persist for an extended period of time and impacts essential distribution systems such as FedEx and postal delivery, the Company could experience future disruptions to its supply chain and operations and associated delays in the manufacturing and its clinical supply, which would adversely impact its preclinical and clinical development activities. However, if the COVID-19 pandemic continues to persist for an extended period of time, the Company could experience further significant disruptions to its clinical and preclinical development timelines, which would adversely affect its business, financial condition, results of operations and growth prospects.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the biotechnology industry with research and development operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidates; delays or problems in obtaining clinical supply, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing its intellectual property rights; and the challenges of complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties..

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Going Concern

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern for a period of one year after the date that the financial statements are issued. As of December 31, 2021, the Company has generated an accumulated deficit of $188,904 since inception and expects to incur significant expenses and negative cash flows for the foreseeable future. As of December 31, 2021, the Company’s cash, cash equivalents, short-term investments, and restricted cash were $48,341. Management believes that given the Company’s current cash position, operating plans and forecasted negative cash flows from operating activities over the next twelve months, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued. The Company has no committed sources of additional capital at this time and substantial additional financing will be needed by the Company to fund its operations.

Management believes that it will be able to obtain additional funding through equity or debt financings, collaboration agreements, strategic partnerships and licensing arrangements, or other arrangements to fund its current operations and business strategy. However, there can be no assurance that such additional financing will be available and, if available, can be obtained on terms acceptable to the Company. If the Company is unable to raise additional capital, the Company could be forced to delay, reduce the scope of or eliminate its research and development programs or the Company may be required to relinquish rights to assets or preclinical programs that it might otherwise seek to develop independently, any of which could adversely affect its business prospects, or the Company may be unable to continue operations.

The accompanying consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on certain assumptions which it believes are reasonable in the circumstances and while actual results could differ from those estimates, management does not believe that any change in those assumptions in the near term would have a significant effect on the Company’s financial position, results of operations or cash flows. Actual results in future periods could differ from those estimates.

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2. Significant Accounting Policies

Cash, cash equivalents, and short-term investments

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s short-term investments have initial maturities of greater than three months from date of purchase. The Company classifies its marketable debt security investments as “available-for-sale” and carries them at fair market value based upon prices on the last day of the fiscal period for identical or similar items. The Company records unrealized gains and losses on marketable debt securities in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or interest expense over the life of the of the underlying security. Realized gains and losses are included in other income, net. The Company uses the specific identification method to determine the cost of securities sold.

Restricted cash

As of December 31, 2021, the Company was required to maintain a balance of $8,000 in a blocked account in connection with Amendment No. 4 to the MidCap Credit Agreement (see Note 6); this amount is considered restricted cash and is presented within other noncurrent assets on the accompanying consolidated balance sheet at December 31, 2021. The Company also secures a standby letter of credit with a restricted certificate of deposit account as part of its Chicago lease agreement. The Company considers the restricted certificate of deposit account in the amount of $1,200 to be restricted cash because its use to the Company is contractually limited and presents the balance within other noncurrent assets on the accompanying consolidated balance sheet at December 31, 2021.

Fair value of financial instruments

The Company has estimated the fair value of its financial instruments. The carrying amounts for cash, cash equivalents, accounts receivable, and accounts payable approximate their fair value due to the relatively short-term nature of these instruments. The Company records short-term investments at their estimated fair value based on quoted market prices for identical or similar instruments. The Company believes that its long-term debt bears interest at the prevailing market rate for instruments with similar characteristics and, accordingly, the carrying value of long-term debt also approximates its fair value.

Concentrations of credit risk and other risks and uncertainties

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, and accounts receivable. The Company places its cash, cash equivalents, and short-term investments with reputable financial institutions. The Company primarily invests its excess cash in debt instruments of corporations, the U.S. Treasury, financial institutions, and U.S. government agencies with strong credit ratings and an investment grade rating at or above a long-term rating of Aa3/AA- and a short-term rating of P1/A1. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. The Company periodically reviews and modifies these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no financial instruments with off-balance sheet risk of loss.

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

The Company is currently not profitable and no assurance can be provided that it will ever be profitable. The Company’s research and development activities have required significant investment since inception and operations are expected to continue to require cash investment in excess of its revenues. See also Note 1, Going Concern, for more information.

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The Company is subject to risks common in therapeutic development including, but not limited to, therapeutic candidates that appear promising in the early phases of development often fail because they prove to be inefficacious or unsafe, clinical trial results are unsuccessful, regulatory bodies may not approve the therapeutic or the therapeutic may not be economical in production or distribution. The Company is also subject to risks common to biotechnology firms including, but not limited to new and disruptive technological innovations, dependence on key personnel, protection of proprietary technology, the validity of and continued access to its owned and licensed intellectual property, limitations on the supply of critical materials, compliance with governmental regulations and market acceptance.

Property and equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the various classes of property and equipment, which range from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining terms of the respective leases or the estimated lives of the assets. Depreciation begins at the time the asset is placed in service.

Property and equipment are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.No impairment losses were recorded from inception in December 2011 through December 31, 2021.

Warrants

The Company accounts for freestanding warrants within stockholder’s equity or as liabilities based on the characteristics and provisions of each instrument. The Company evaluates outstanding warrants in accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. If none of the criteria in the evaluation in these standards are met, the warrants are classified as a component of stockholders’ equity and initially recorded at their grant date fair value without subsequent remeasurement. Warrants that meet the criteria are classified as liabilities and remeasured to their fair value, estimated using the Black-Scholes option-pricing model, at the end of each reporting period with changes in the fair value of the liability recorded in other income (expense), net in the consolidated statements of operations.

Revenue recognition

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

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, the Company performs the following five steps:

1.Identify the contract with the customer. A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights and obligations regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s intent and ability to pay, which is based on a variety of factors including the customer’s historical payment experience, or in the case of a new customer, published credit and financial information pertaining to the customer.

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service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, the Company must apply judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

3.Determine the transaction price. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment.

4.Allocate the transaction price to performance obligations in the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices.

5.Recognize revenue when or as the Company satisfies a performance obligation. The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer. Examples of control are using the asset to produce goods or services, enhance the value of other assets, or settle liabilities, and holding or selling the asset.

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

Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the licenses. For licenses that are combined with other promises, the Company utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone payments: At the inception of each arrangement that includes development milestone payments, the Company evaluates the probability of reaching the milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment. To date, the Company has not recognized any milestone payment revenue from any of its collaboration agreements.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on levels of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its collaboration agreements.

Equity-based compensation

The Company measures the cost of equity-based awards at fair value and records the cost of the awards, net of estimated forfeitures, on a straight-line basis over the requisite service period. The Company measures fair value for all common stock options using the Black-Scholes option-pricing model. The fair value of common stock option awards is affected by the valuation assumptions, including the expected volatility based on comparable market participants, expected term of the common stock option, risk-free interest rate, and expected dividends. For all equity-based awards, the fair value measurement date is the date of grant and the requisite service period is the period over which the recipient is required to provide service in exchange for the equity-based awards, which is generally the vesting period.

Segments and geographic information

The Company has determined it has one reporting segment. Disaggregating the Company’s operations is impracticable because the Company’s research and development activities and its assets overlap and management reviews its business as a single operating segment. Thus, discrete financial information is not available by more than one operating segment. All long-lived assets of the Company are located in the United States.

Leases

The Company determines if an arrangement is a lease at contract inception. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s

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obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized on the balance sheet at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or to terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses the implicit interest rate when readily determinable and uses the Company’s incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments.

The lease payments used to determine the Company’s operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable. In addition, the Company’s lease arrangements may contain lease and non-lease components. The Company combines lease and non-lease components, which are accounted for together as a single lease component. Variable lease payments, such as real estate taxes and facility maintenance costs that are allocated by the lessor to the lessee and are not based on an index or a rate, are excluded from the measurement of the lease liability.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of twelve months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Costs for variable lease payments that are not included in the lease liability are recognized as expense as incurred.

Research and development expense

Research and development expenses are charged to expense as incurred in performing research and development activities in accordance with ASC 730, Research and Development. The costs include employee‐related expenses including salaries, benefits, and stock‐based compensation expense, costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on the Company’s behalf, the cost of purchasing lab supplies and non‐capital equipment used in preclinical and clinical activities and in manufacturing preclinical and clinical study materials, consultant fees, facility costs including rent, depreciation and maintenance expenses, fees for acquiring and maintaining licenses under third party licensing agreements, including any sublicensing or success payments made to the Company’s licensors, and overhead and other expenses directly related to research and development operations. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the accrual or prepaid is adjusted accordingly. The Company defers and capitalizes non-refundable advance payments made by the Company for research and development activities until the related goods are received or the related services are performed. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense.

Income taxes

The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities and the expected benefits of net operating loss carryforwards. The impact of changes in tax rates and laws on deferred taxes, if any, is applied during the years in which temporary differences are expected to be settled and is reflected in the financial statements in the period of enactment. The measurement of deferred tax assets is reduced, if necessary, if, based on weight of the evidence, it is more likely than not that some, or all, of the deferred tax assets will not be realized. At December 31, 2021 and 2020, the Company established a full valuation allowance against its deferred tax assets to an amount that is more likely than not to be realized.

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Recent Accounting Pronouncements Not Yet Adopted

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13). ASU 2016-13 is a new standard intended to improve reporting requirements specific to loans, receivables and other financial instruments. ASU 2016-13 requires that credit losses on financial assets measured at amortized cost be determined using an expected loss model, instead of the current incurred loss model, and requires that credit losses related to available-for-sale debt securities be recorded through an allowance for credit losses and limited to the amount by which carrying value exceeds fair value. ASU 2016-13 also requires enhanced disclosure of credit risk associated with financial assets. The effective date of ASU 2016-13 was deferred by ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)—Effective Dates to the annual period beginning after December 15, 2022 for companies that (i) meet the definition of an SEC filer and (ii) are eligible as “smaller reporting companies” as such term is defined by the SEC, with early adoption permitted. The Company is currently assessing the impact of adoption of ASU 2016-13 to its consolidated financial statements.

3. Collaborative Research and License Agreements

Ipsen Collaboration Agreement

Summary of Agreement

On July 30, 2021 (the “Ipsen Effective Date”), the Company entered into a Collaboration, Option and License Agreement with Ipsen (the “Ipsen Collaboration Agreement”). Pursuant to the Ipsen Collaboration Agreement, the Company granted to Ipsen exclusive access and options to license SNA-based therapeutics arising from two collaboration programs related to the treatment of Huntington’s disease and Angelman syndrome (each, an “Ipsen Collaboration Program”), respectively. Each such license (obtained in connection with the exercise of an Ipsen Option, as defined and discussed further below) would grant to Ipsen exclusive, royalty-bearing, sublicensable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics. Upon written notice to the Company, Ipsen may exercise its option during the corresponding collaboration program’s applicable option exercise period, (each, an “Ipsen Option Exercise Period”).

As of the Ipsen Effective Date, the Company and Ipsen have agreed upon a development plan for each Ipsen Collaboration Program that describes the development activities and timelines required to advance each such Ipsen Collaboration Program through its first IND filing (each, an “Ipsen Development Plan”). The activities described in the Ipsen Development Plans are conducted under the supervision of the Ipsen Joint Steering Committee (the “Ipsen JSC”) consisting of three members from each of the Company and Ipsen. Under the terms of the Ipsen Collaboration Agreement, the Company will use commercially reasonable efforts to conduct discovery and development in two collaboration programs for Huntington’s disease (the “HD Program”) and Angelman syndrome (the “AS Program”) (the “Ipsen Development Activities”) respectively. The Company shall be solely responsible for all costs and expenses of conducting each Ipsen Collaboration Program through the selection of SNA therapeutic candidates for further development (“Ipsen Selection”), and Ipsen shall be responsible for all costs and expenses of all activities that are necessary to enable the first filing of an IND for each proposed product candidate. In the event that Ipsen exercises an option, Ipsen will be responsible for further development from the license effective date and commercialization of the corresponding licensed product.

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

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

In the event Ipsen (i) does not exercise the First Ipsen Option with respect to an Ipsen Collaboration Program, (ii) the Ipsen Collaboration Agreement has not expired or been terminated with respect to such Ipsen Collaboration Program, and (iii) Ipsen agrees to fully fund additional research activities for an Ipsen Collaboration Program through IND filing, the Company will be responsible for research and development activities for such Ipsen Collaboration Program through IND filing (the “Ipsen Second R&D Term Activities”). Following the completion of the Ipsen Second R&D Term Activities, the Company is required to deliver to Ipsen a report that describes the results of the Ipsen Second R&D Term Activities (the “Ipsen Second Option Data Package”). Following the delivery of the Ipsen Second Option Data Package for an Ipsen Collaboration Program, Ipsen will have the ability for a defined period of time (the “Ipsen Second Option Exercise Period”) to exercise an option (each a “Second Ipsen Option” and together with the First Ipsen Option, the “Ipsen Options”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any Ipsen Licensed Product” that results from such Ipsen Collaboration Program during the term of the Ipsen Collaboration Agreement.

After Ipsen’s exercise of an Ipsen Option for an Ipsen Collaboration Program, the Company shall supply to Ipsen the licensed SNAs under current Good Manufacturing Practice, at the Company’s manufacturing cost pursuant to a clinical supply agreement to be negotiated by the Company and Ipsen in good faith following the Ipsen Effective Date and executed within twelve (12) months after the Ipsen Effective Date (the “Ipsen Supply Agreement”). The Ipsen Supply Agreement will provide for the transfer by the Company to Ipsen of all documents and information, and the provision by the Company of technical assistance and support, for Ipsen to manufacture or have manufactured by a third party contractor engaged by Ipsen the applicable licensed SNA to the extent it is intended to be actually used in the development and manufacture of the applicable licensed products.

Under the terms of the Ipsen Collaboration Agreement, the Company received an upfront payment of $20,000 (the “Ipsen Upfront Payment”). If Ipsen exercises a First Ipsen Option, Ipsen is required to pay the Company the First Ipsen Option exercise fee of $10,000 for each Ipsen Collaboration Program. If Ipsen exercises a Second Ipsen Option, Ipsen is required to pay the Company the Second Ipsen Option exercise fee of $25,000 for each Ipsen Collaboration Program.

Ipsen will pay a pre-clinical milestone payment of $5,000 for each Ipsen Collaboration Program upon achievement of such milestone regardless of whether an Ipsen Option is exercised. In addition to the option exercise fees and the pre-clinical milestones described above, if Ipsen exercises an Ipsen Option for an Ipsen Collaboration Program, development and regulatory milestones will be payable for that program upon the initiation of certain clinical trials and the filing for processing by the United States Food and Drug Administration (“FDA”) in the United States and by two additional regulators outside the United States of a marketing application for review, per the Ipsen Collaboration Program, with an aggregate total of up to $180,000 if both Ipsen Options are exercised. Commercial milestones will be payable for that Ipsen Collaboration Program upon first commercial sale of a licensed product in certain jurisdictions and the achievement of specified aggregate sales thresholds for all licensed products from that program, with an aggregate total of up to $762,000 if both Ipsen Options are exercised. In the event a therapeutic candidate subject to the Ipsen Collaboration Agreement results in commercial sales, the Company is eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net product sales of such commercialized therapeutic candidates. A percentage of the aforementioned payments will be due to Northwestern University upon receipt, pursuant to the terms of the Company’s existing license agreements with Northwestern University (see Note 15, Commitment and Contingencies, for more information on the Northwestern University License Agreements (as defined below)). In connection with the receipt of the Ipsen Upfront Payment, the Company paid a $3,000 license fee to Northwestern University under the terms of the Northwestern License Agreements.

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

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

The Ipsen Collaboration Agreement includes customary representations and warranties on behalf of both the Company and Ipsen. The Ipsen Collaboration Agreement also provides for customary mutual indemnities. In addition, the Ipsen Collaboration Agreement imposes certain exclusivity obligations on Ipsen and the Company, respectively, with respect to the development, use, manufacture and commercialization of oligonucleotide-based therapeutic targeting the same targets in the collaboration programs and/or certain other specific targets.

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

Accounting Analysis

The Company concluded that Ipsen is a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance. Under the Ipsen Collaboration Agreement, the Company has identified two performance obligations, as follows: (1) the performance obligation related to the HD Program that includes (i) the Ipsen First R&D Term Activities related to the HD Program (the “Ipsen HD Program R&D Services”), (ii) Ipsen JSC services related to the HD Program during the Ipsen First Term (the “Ipsen HD Program JSC Services”), and (iii) activities related to the negotiation of the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date; and (2) the performance obligation related to the AS Program that includes (i) the Ipsen First R&D Term Activities related to the AS Program (the “Ipsen AS Program R&D Services”), (ii) Ipsen JSC services related to the AS Program during the Ipsen First Term (the “Ipsen AS Program JSC Services”), (iii) and activities related to the negotiation of the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date. The Company has concluded that the Ipsen HD Program R&D Services and the Ipsen AS Program R&D Services are not distinct from the Ipsen HD Program JSC Services and the Ipsen AS Program JSC Services, respectively. The Company has also concluded that the Ipsen HD Program JSC Services and the Ipsen AS Program JSC Services are not distinct from the activities related to entering the Ipsen Supply Agreements for each respective program. The Ipsen JSC provides oversight and management of the overall Ipsen Collaboration Agreement, and the members of the Ipsen JSC from the Company have specialized industry knowledge, particularly as it relates to SNA technology. The Ipsen JSC is meant to facilitate the early stage research being performed and coordinate the activities of both the Company and Ipsen. Further, the Ipsen JSC services are critical to the ongoing evaluation of the Ipsen Collaboration Programs and the drafting and evaluation of the Ipsen First Option Data Package. The Ipsen JSC will also provide oversight and management of the activities to enter into the Ipsen Supply Agreement. Accordingly, the Company’s participation on the Ipsen JSC is essential to Ipsen receiving value from the Ipsen HD Program R&D Services and the Ipsen AS Program R&D Services, and as such, (i) the Ipsen HD Program JSC Services, along with the Ipsen HD Program R&D Services and the activities related to entering the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date for that program are considered a single performance obligation (the “Ipsen HD Program Services”) and (ii) the Ipsen AS Program JSC Services along with the Ipsen AS Program R&D Services and the

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

As of the Ipsen Effective Date, the total transaction price was determined to be $20,000, consisting solely of the Ipsen Upfront Payment. The Company also utilized the most likely amount method to estimate any development and regulatory milestone payments to be received. As of the Ipsen Effective Date, there were no milestones included in the transaction price. The pre-clinical, development, regulatory, and commercial milestones were fully constrained due to the significant uncertainties surrounding such payments. The Company considered the stage of development and the risks associated with the remaining development required to achieve the milestone, as well as whether the achievement of the milestone is outside the control of the Company or Ipsen. The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and therefore, they have also been excluded from the transaction price. The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. As of December 31, 2021, the Company determined that any pre-clinical, development, regulatory, or commercial milestones continue to be constrained and therefore the related milestone payments continue to be excluded from the transaction price at December 31, 2021.

The Company allocated the total transaction price to each of the two identified performance obligations under the Ipsen Collaboration Agreement based on an expected cost plus a margin approach, as follows: $10,793 of the transaction price allocated to the Ipsen HD Program Services and $9,207 of the transaction price allocated to the Ipsen AS Program Services.

The Company will recognize revenue related to each of Ipsen HD Program Services and the Ipsen AS Program Services as those performance obligations are satisfied using an input method to measure progress for each of those performance obligations. The Company believes the input method that most accurately depicts the measure of progress is the actual hours incurred to date relative to projected hours to complete the activities for the Ipsen HD Program Services and the Ipsen AS Program Services.

During the year ended December 31, 2021, the Company recognized revenue under the Ipsen Collaboration Agreement of approximately $2,309. As of December 31, 2021 , there was $17,691 of deferred revenue related to the Ipsen Collaboration Agreement, of which is $8,757 is classified as current and $8,934 is classified as noncurrent on the consolidated balance sheet. Deferred revenue under the Ipsen Collaboration Agreement will be recognized as revenue in future periods as the Company satisfies its obligations under the Ipsen Collaboration Agreement, which the Company currently estimates to be over the next 30 to 39 months.

AbbVie Collaboration Agreement

Summary of Agreement

On November 13, 2019 (the “AbbVie Effective Date”), the Company entered into a Collaboration, Option and License Agreement (the “AbbVie Collaboration Agreement”), with a wholly-owned subsidiary of Allergan plc, Allergan. On May 8, 2020, Allergan plc, including Allergan was acquired by AbbVie. Pursuant to the AbbVie Collaboration Agreement, the Company granted to AbbVie exclusive access and options to license SNA-based therapeutics arising from two collaboration programs related to the treatment of hair loss disorders (each, an “AbbVie Collaboration Program”). Under each such license (obtained in connection with the exercise of an AbbVie Option, as defined and discussed further below), the Company would grant to AbbVie exclusive, royalty-bearing, sublicensable, nontransferable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics. Under the AbbVie Collaboration Agreement, the Company will use commercially reasonable efforts to conduct the AbbVie Collaboration Programs, each focused on one or more hair loss disorders to discover one or more SNA products that are directed to, bind to or inhibit one or more specific AbbVie Collaboration Program targets.

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As of the AbbVie Effective Date, the Company and AbbVie have agreed upon a development plan for each AbbVie Collaboration Program that describes the development activities and timelines required to advance such AbbVie Collaboration Program through its first IND filing (each, an “AbbVie Development Plan”). The activities described in the AbbVie Development Plan are conducted under the supervision of the AbbVie Joint Development Committee (the “AbbVie JDC”) consisting of three members from each of the Company and AbbVie. The Company is primarily responsible for performing early-stage discovery and preclinical activities (the “AbbVie Collaboration Program Initial Development Activities”) set forth in the AbbVie Development Plan for each AbbVie Collaboration Program and will be solely responsible for all costs and expenses related to the AbbVie Collaboration Program Initial Development Activities. AbbVie may elect, in its sole discretion and at its sole cost and expense, to conduct formulation assessment and in vivo testing as set forth in an AbbVie Development Plan.

During the third quarter of 2021, the AbbVie JDC revised the AbbVie Initial Development Plan for each AbbVie Collaboration Program. In connection with the revised workplan for each AbbVie Collaboration Program, the Company expects to perform additional early stage discovery and preclinical activities to those set forth in the AbbVie Development Plan. As such, the Company currently estimates significant additional efforts will be required to satisfy the performance obligation under the AbbVie Collaboration Agreement due to the revised workplan for each AbbVie Collaboration Program. Further changes to estimated additional efforts may be required in future periods should there be further revisions to the workplan for each AbbVie Collaboration Program.

Following the completion of all AbbVie Initial Development Activities, the Company is required to deliver to AbbVie a report that describes the results of the AbbVie Initial Development Activities and identifies at least one SNA-based compound that satisfies certain criteria for such AbbVie Collaboration Program as determined by the AbbVie JDC (the “AbbVie Initial Development Report”). Following the delivery of the AbbVie Initial Development Report for an AbbVie Collaboration Program, AbbVie will have the ability for a defined period of time (the “AbbVie Initial Option Exercise Period”) to exercise an option (each an “AbbVie Option”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any product (each an “AbbVie Licensed Product”) that results from such AbbVie Collaboration Program during the term of the AbbVie Collaboration Agreement.

At AbbVie’s sole option, AbbVie may extend the AbbVie Initial Option Exercise Period (the “AbbVie Option Extension”) and require the Company to perform IND-enabling activities described in the AbbVie Development Plan (the “AbbVie IND-Enabling Activities”), subject to the payment of additional consideration (“AbbVie Extension Exercise”). If AbbVie exercises the AbbVie Option Extension, the Company would be responsible for conducting the AbbVie IND-Enabling Activities and would be solely responsible for all costs and expenses associated with such activities. Upon completion of the AbbVie IND-Enabling Activities, the Company is required to deliver a report that describes the results of the AbbVie IND-Enabling Activities (the “AbbVie IND-Enabling Activities Data Package”) to AbbVie. Following the delivery of AbbVie IND-Enabling Activities Data Package, AbbVie will have the ability for a defined period of time (the “AbbVie Extended Option Exercise Period”) to exercise an AbbVie Option with respect to such AbbVie Collaboration Program. After the exercise of an AbbVie Option with respect to an AbbVie Collaboration Program, AbbVie will be responsible for all development, manufacturing and commercialization activities, and costs and expense associated with such activities in connection with AbbVie Licensed Products arising from such AbbVie Collaboration Program.

The Company’s obligation to conduct the activities defined in the AbbVie Development Plan under the AbbVie Collaboration Agreement commenced on November 13, 2019 and continues until the earlier of (i) the date AbbVie exercises an AbbVie Option, (ii) the date AbbVie abandons an AbbVie Collaboration Program and foregoes its AbbVie Option to that AbbVie Collaboration Program, or (iii) the fifth anniversary of the AbbVie Effective Date (the “AbbVie Research Term”). If the AbbVie Initial Option Exercise Period or AbbVie Extended Option Exercise Period is still in effect for an AbbVie Collaboration Program or if the Company has not delivered a complete AbbVie Initial Development Report or, if AbbVie made an AbbVie Extension Exercise for an AbbVie Collaboration Program, a complete AbbVie IND-Enabling Activities Data Package for such AbbVie Collaboration Program, as

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

Under the terms of the AbbVie Collaboration Agreement, the Company received a $25,000 upfront, non-refundable, non-creditable cash payment (the “AbbVie Upfront Payment”) related to the Company’s research and development costs for conducting the AbbVie Development Plan for two AbbVie Collaboration Programs, each focused on one or more targets, and certain options to obtain exclusive, worldwide licenses under certain intellectual property rights owned or controlled by the Company to develop, manufacture and commercialize certain products resulting from each such AbbVie Collaboration Programs. The option exercise fee during the AbbVie Initial Option Exercise Period is $10,000 per AbbVie Collaboration Program. If AbbVie elects to extend the AbbVie Initial Option Exercise Period, AbbVie is required to pay an additional fee of $10,000. If AbbVie elects to exercise its option during the AbbVie Extended Option Exercise Period, AbbVie must pay the Company the option exercise fee of $15,000.

Following the exercise by AbbVie of an AbbVie Option with respect to an AbbVie Collaboration Program, AbbVie would be required to make certain milestone payments to the Company upon the achievement of specified development, product approval and launch, and commercial events, on an AbbVie Licensed Product by AbbVie Licensed Product basis. On an AbbVie Licensed Product by AbbVie Licensed Product basis, for the first AbbVie Licensed Product to achieve the associated milestone event, the Company is eligible to receive up to an aggregate of $55,000 for development milestone payments and $132,500 for product approval and launch milestone payments. The Company is also eligible for up to $175,000 in sales milestone payments on an AbbVie Collaboration Program by AbbVie Collaboration Program basis, associated with aggregate worldwide sales. Certain product approval milestones are subject to certain reductions under specified circumstances, including for payments required to be made by AbbVie to obtain certain third-party intellectual property rights.

In addition, to the extent there is any AbbVie Licensed Product, the Company would be entitled to receive tiered royalty payments of mid-single digits to the mid-teens percentage on future net worldwide product sales of such AbbVie Licensed Products, subject to certain reductions under specified circumstances. Royalties are due on a AbbVie Licensed Product by AbbVie Licensed Product and country by country basis from the date of the first commercial sale of each AbbVie Licensed Product in a country until the latest to occur of: (i) the expiration date in such country of the last to expire valid claim within the licensed intellectual property covering the manufacture, use or sale of such AbbVie Licensed Product in such country, (ii) the tenth anniversary of the first commercial sale of such AbbVie Licensed Product in such country, and (iii) the expiration of regulatory exclusivity for such AbbVie Licensed Product in such country.

AbbVie may terminate the AbbVie Collaboration Agreement for any reason or no reason, either in its entirety or on an AbbVie Collaboration Program by AbbVie Collaboration Program basis, at any time on 90 days’ prior written notice to the Company. Unless earlier terminated, the term of the AbbVie Collaboration Agreement shall continue until (i) if both AbbVie Option Exercise Periods expire without AbbVie exercising either AbbVie Option, the expiration of the later to expire AbbVie Option Exercise Period, and (ii) if either or both AbbVie Options are exercised on an AbbVie Licensed Product by AbbVie Licensed Product and country-by-country basis, the expiration of the royalty term for such AbbVie Licensed Product in such country. Either party may terminate the AbbVie Collaboration Agreement if the other party has materially breached or defaulted in the performance of any of its material obligations and such breach or default continues after the specified cure period.

Termination of the AbbVie Collaboration Agreement for any reason will not release either party from any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination. In addition, termination of the AbbVie Collaboration Agreement will not preclude either party from pursuing any rights and remedies it may have under the agreement or at law or in equity with respect to any breach of the AbbVie Collaboration Agreement. If either party terminates the AbbVie Collaboration Agreement, the license and rights granted to AbbVie with respect to the terminated AbbVie Collaboration Program or AbbVie License Product shall terminate.

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Accounting Analysis

The Company concluded that AbbVie is a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance. Under the AbbVie Collaboration Agreement, the Company has identified a single performance obligation that includes (i) the research and development activities during the AbbVie Research Term (the “AbbVie R&D Services”), and (ii) AbbVie Joint Development Committee services during the AbbVie Research Term (the “AbbVie JDC Services”). The Company has concluded that the AbbVie R&D Services is not distinct from the AbbVie JDC Services during the AbbVie Research Term. The AbbVie JDC provides oversight and management of the overall AbbVie Collaboration Agreement, and the members of the AbbVie JDC from the Company have specialized industry knowledge, particularly as it relates to SNA technology. The AbbVie JDC is meant to facilitate the early-stage research being performed and coordinate the activities of both the Company and AbbVie. Further, the AbbVie JDC services are critical to the ongoing evaluation of an AbbVie Collaboration Program and the drafting and evaluation of the AbbVie Initial Development Report and the AbbVie IND-Enabling Data Package. Accordingly, the Company’s participation on the AbbVie JDC is essential to AbbVie receiving value from the AbbVie R&D Services and as such, the AbbVie JDC Services along with the AbbVie R&D Services are considered one performance obligation (the “AbbVie Collaboration Program Services”). In addition, the Company has concluded that the option to purchase two development and commercialization licenses is considered a marketing offer as the options did not provide any discounts or other rights that would be considered a material right in the arrangement, and thus, not a performance obligation at the onset of the agreement. The consideration for these options will be accounted for when they are exercised.

As of the AbbVie Effective Date, the total transaction price was determined to be $25,000, consisting solely of the AbbVie Upfront Payment. The Company also utilized the most likely amount method to estimate any development and regulatory milestone payments to be received. As of the AbbVie Effective Date, there were no milestones included in the transaction price. The milestones were fully constrained due to the significant uncertainties surrounding such payments. The Company considered the stage of development and the risks associated with the remaining development required to achieve the milestone, as well as whether the achievement of the milestone is outside the control of the Company or AbbVie. The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and therefore they have also been excluded from the transaction price. The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. As of December 31, 2021, the Company determined that any development, regulatory or commercial milestones continue to be constrained and therefore the related milestone payments continue to be excluded from the transaction price at December 31, 2021.

The Company will recognize revenue related to the AbbVie Collaboration Program Services as the performance obligation is satisfied using an input method to measure progress. The Company believes the input method that most accurately depicts the measure of progress is the actual hours incurred to date relative to projected hours to complete the research service.

As discussed above, during the third quarter of 2021, the AbbVie JDC revised the AbbVie Initial Development Plan for each AbbVie Collaboration Program. As a result, the Company has increased its estimate of total hours to complete the research services, requiring an adjustment to cumulative revenue recognized (considered a change in estimate pursuant to ASC 606), which led to a full year revenue reversal of $(2,792) in the current year.

During the year ended December 31, 2021, the Company recognized revenue under the AbbVie Collaboration Agreement of approximately $(2,792), reflecting the cumulative catchup adjustment (reduction) of revenue discussed above due to a change in estimate. The Company currently estimates significant additional efforts will be required to satisfy the performance obligation under the AbbVie Collaboration Agreement due to the revised workplan for each AbbVie Collaboration Program. These increased estimated efforts in connection with the change in workplan resulted in less progress occurring relative to the increased estimate of total project hours to complete the research services during the year ended December 31, 2021 as compared to the amount of revenue recognized at December 31, 2020, which led to revenue reversal in the current year period. During the year ended December 31,

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2020, the Company recognized revenue under the AbbVie Collaboration Agreement of approximately $16,486. As of December 31, 2021, there was $11,135 of deferred revenue related to the AbbVie Collaboration Agreement, of which $8,560 is classified as current and $2,575 is classified as noncurrent on the consolidated balance sheet. Deferred revenue under the AbbVie Collaboration Agreement will be recognized as revenue in future periods as the Company satisfies its obligations under the AbbVie Collaboration Agreement, which the Company currently estimates to be over the next 21 to 24 months. As of December 31, 2020, there was $8,343 of deferred revenue related to the AbbVie Collaboration Agreement, which was classified as current on the consolidated balance sheet based on the estimated contract completion date at that time.

Dermelix Collaboration Agreement

On February 17, 2019, Exicure entered into a License and Development Agreement (the “Dermelix Collaboration Agreement”) with Dermelix, LLC d/b/a Dermelix Biotherapeutics (“Dermelix”). Under the terms of the Dermelix Collaboration Agreement, Exicure received an upfront payment of $1,000, to be applied against the initial $1,000 of the Company’s development expenses.

The Company initially recorded the upfront payment of $1,000 as deferred revenue related to its wholly unsatisfied performance obligation and reduced this balance to zero during 2019 by recognizing revenue as services were provided. The Company recognized no revenue under the Dermelix Collaboration Agreement during the year ended December 31, 2021. The Company recognized $127 of revenue during the year ended December 31, 2020 which reflected reimbursement by Dermelix for additional costs incurred by Exicure for early-stage development costs beyond the initial $1,000 upfront payment.

Summary of Contract Liabilities

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

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

4. Supplemental Balance Sheet Information

Prepaid expenses and other current assets

December 31,

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

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

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Other noncurrent assets

December 31,

Property and equipment, net

December 31,

Leasehold improvements — 192

Computers and software 60 46

Furniture and fixtures 30 30

Construction in process 33 119

XCUR US Equity

XCUR · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Item 8. Financial Statements and Supplementary Data.

XCUR US Equity☆

XCUR · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Item 8. Financial Statements and Supplementary Data.

XCUR US Equity