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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31,
2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number
001-38787
CYCLERION THERAPEUTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Massachusetts 83-1895370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 First Street 02142
, (Zip Code)
18
th
Floor
,
Cambridge
,
Massachusetts
(Address of principal executive offices)
(
857
)
327-8778
Registrants Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, no par value CYCN The
Nasdaq
Capital Market LLC
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T ((s) 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit such
files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of large accelerated filer,
accelerated filer, smaller reporting company, and emerging growth company in
Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes
No
As of May 1, 2023
, the registrant had
43,524,894
shares of common stock, no par value, outstanding.
-------------------------------------------------------------------------------
CYCLERION PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2022
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 5
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 5
Condensed Consolidated Statements of Operations and Comprehensive Loss for Three Months Ended March 31, 2023 and 2022 6
Condensed Consolidated Statements of Stockholders Equity for Three Months Ended March 31, 2023 and 2022 7
Condensed Consolidated Statements of Cash Flows for Three Months Ended March 31, 2023 and 2022 9
Notes to the Condensed Consolidated Financial Statements 10
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
Item 4. Controls and Procedures 30
PART II OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 1A. Risk Factors 31
Item 5. Other Information 31
Item 6. Exhibits 31
Signatures 33
-------------------------------------------------------------------------------
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the federal securities laws, which statements involve
substantial risks and uncertainties. All statements in this report, other than
statements of historical facts, including statements about future events,
financing plans, financial position, business strategy, budgets, projected
costs, plans and objectives of management for future operations, are
forward-looking statements that involve certain risks and uncertainties. Use
of the words may, might, will, would, could, should, believes, estimates,
projects, potential, expects, plans, seeks, intends, evaluates, pursues,
anticipates, continues, designs, impacts, affects, forecasts, target, outlook,
initiative, objective, designed, priorities, goal or the negative of those
words or other similar expressions may identify forward-looking statements
that represent our current judgment about possible future events, but the
absence of these words does not necessarily mean that a statement is not
forward-looking.
Forward-looking statements are based on our current expectations and
assumptions regarding our business, the economy and other future conditions.
Because forward-looking statements relate to the future, by their nature, they
are subject to inherent uncertainties, risks and changes in circumstances that
are difficult to predict. As a result, our actual results may differ
materially from those contemplated by the forward-looking statements.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements include regional, national, or global
political, economic, business, competitive, market and regulatory conditions
and the following:
"
we could be delisted from Nasdaq;
"
there is substantial doubt regarding our ability to continue as a going concern;
"
the timing, investment and associated activities involved in developing,
obtaining regulatory approval for, launching and commercializing our product
candidates, including zagociguat and CY3018;
"
our relationships with third parties, collaborators and our employees;
"
our ability to execute our strategic priorities;
"
our ability to finance our operations and business initiatives;
"
the success of collaboration or license agreements of our product candidates;
"
our ability to access capital, capabilities, and transactions necessary to
advance the development of our assets;
"
our ability to pursue a transaction or that any transaction, if pursued, will
be completed on attractive terms, including in particaular whether the Asset
Purchase Agreement (as defined below in Note 1 to the Condensed Consolidated
Financial Statements) will be consummated in accordance with its terms;
"
whether the praliciguat out-license will result in the creation of any
therapies;
"
whether any development, regulatory, and commercialization milestones or
royalty payments provided for in the agreement with Akebia (as defined below
in Note 1 to the Condensed Consolidated Financial Statements) will be achieved;
"
the impact on our business of workforce and expense reduction initiatives;
"
our plans with respect to the development, manufacture or sale of our product
candidates and the associated timing thereof, including the design and results
of pre-clinical and clinical studies;
"
the safety profile and related adverse events of our product candidates;
"
the efficacy and perceived therapeutic benefits of our product candidates,
their potential indications and their market potential;
"
U.S. and non-U.S. regulatory requirements for our product candidates,
including any post-approval development and regulatory requirements, and the
ability of our product candidates to meet such requirements;
3
-------------------------------------------------------------------------------
"
our ability to attract and retain employees needed to execute our business
plans and strategies and our ability to manage the impact of any loss of key
employees;
"
our ability to obtain and maintain intellectual property protection for our
product candidates and the strength thereof;
"
our future financial performance, revenues, expense levels, payments, cash
flows, profitability, tax obligations, capital raising and liquidity sources,
real estate needs and concentration of voting control, as well as the timing
and drivers thereof, and internal control over financial reporting;
"
our ability to compete with other companies that are or may be developing or
selling products that are competitive with our product candidates;
"
the impact of government regulation in the life sciences industry,
particularly with respect to healthcare reform;
"
the coronavirus ("COVID-19") pandemic may continue to disrupt our business,
including our development activities; and
"
trends and challenges in the markets for our potential products.
See the Risk Factors section in Part I, Item 1A of our Annual Report on Form
10-K for the fiscal year ended December 31, 2022, and elsewhere in this
Quarterly Report on Form 10-Q for a further description of these and other
factors. We caution you that the risks, uncertainties, and other factors
referenced above may not contain all of the risks, uncertainties and other
factors that are important to you. In addition, we cannot assure you that we
will realize the results, benefits, or developments that we expect or
anticipate or, even if substantially realized, that they will result in the
consequences or affect us or our business in the way expected. There can be no
assurance that (i) we have correctly measured or identified all of the factors
affecting our business or the extent of these factors likely impact, (ii) the
available information with respect to these factors on which such analysis is
based is complete or accurate, (iii) such analysis is correct or (iv) our
strategy, which is based in part on this analysis, will be successful. All
forward-looking statements in this report apply only as of the date of this
report or as of the date they were made and, except as required by applicable
law, we undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future developments or
otherwise.
4
-------------------------------------------------------------------------------
Cyclerion Therapeutics, Inc.
Condensed Consolida
ted Balance Sheets
(In thousands except share and per share data)
(Unaudited)
March 31, December 31,
2023 2022
ASSETS
Current assets:
Cash and cash equivalents $ 7,169 $ 13,382
Accounts receivable 96 96
Prepaid expenses 567 805
Other current assets 503 537
Total current assets 8,335 14,820
Operating lease right-of-use asset 1,171 1,218
Other assets 1,950 2,041
Total assets $ 11,456 $ 18,079
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable $ 3,925 $ 2,970
Accrued research and development costs 1,605 2,275
Accrued expenses and other current liabilities 2,001 2,382
Total current liabilities 7,531 7,627
Commitments and contingencies (Note 6)
Stockholders' equity
Common stock,
no
par value,
400,000,000
shares authorized and
43,524,894
issued and outstanding at March 31, 2023 and
400,000,000
shares authorized and
43,518,724
issued and outstanding at December 31, 2022
Paid-in capital 270,052 269,626
Accumulated deficit ( ) ( )
266,108 259,154
Accumulated other comprehensive loss ( ) ( )
19 20
Total stockholders' equity 3,925 10,452
Total liabilities and stockholders' equity $ 11,456 $ 18,079
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
-------------------------------------------------------------------------------
Cyclerion Therapeutics, Inc.
Condensed Consolidated Statem
ents of Operations and Comprehensive Loss
(In thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
2023 2022
Revenues:
Revenue from development agreement 225
Revenue from grants 486
Total revenues 711
Cost and expenses:
Research and development 3,773 9,743
General and administrative 3,269 3,952
Total cost and expenses 7,042 13,695
Loss from operations ( ) ( )
7,042 12,984
Interest and other income (expenses), net 88 6
Net loss $ ( ) $ ( )
6,954 12,978
Net loss per share:
Basic and diluted net loss per share $ ( ) $ ( )
0.16 0.30
Weighted average shares used in calculating:
Basic and diluted net loss per share 43,521 43,425
Other comprehensive loss:
Net loss $ ( ) $ ( )
6,954 12,978
Other comprehensive loss:
Foreign currency translation adjustment gain 1
Comprehensive loss $ ( ) $ ( )
6,953 12,978
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
-------------------------------------------------------------------------------
Cyclerion Therapeutics, Inc.
Condensed Consolidated State
ments of Stockholders Equity
(In thousands except share data)
(Unaudited)
Common Paid-in Accumulated Accumulated Total
Stock other Stockholders
comprehensive
Shares Amount capital deficit loss equity
Balance 43,410,185 $ $ 263,345 $ ( ) $ ( ) $ 48,246
at 215,076 23
December
31, 2021
Net ( ) ( )
loss 12,978 12,978
Issuance of common stock 38,175
upon exercise of stock
options, RSUs and employee
stock purchase plan
Share-based compensation expense 1,476 1,476
related to issuance of stock
options and RSUs to employees and
employee stock purchase plan
Sharebased compensation 291 291
expense related to
issuance of stock options
to non-employees
Foreign ( ) ( )
currency 1 1
translation
adjustment
Balance 43,448,360 $ $ 265,112 $ ( ) $ ( ) $ 37,034
at 228,054 24
March 31,
2022
7
-------------------------------------------------------------------------------
Cyclerion Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders Equity
(In thousands except share data)
(Unaudited)
Common Paid-in Accumulated Accumulated Total
Stock other Stockholders
comprehensive
Shares Amount capital deficit loss equity
Balance 43,518,724 $ $ 269,626 $ ( ) $ ( ) $ 10,452
at 259,154 20
December
31, 2022
Net ( ) ( )
loss 6,954 6,954
Issuance of common stock 6,170
upon exercise of stock
options, RSUs and employee
stock purchase plan
Share-based compensation expense 416 416
related to issuance of stock
options and RSUs to employees and
employee stock purchase plan
Sharebased compensation 10 10
expense related to
issuance of stock options
to non-employees
Foreign 1 1
currency
translation
adjustment
Balance 43,524,894 $ $ 270,052 $ ( ) $ ( ) $ 3,925
at 266,108 19
March 31,
2023
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
-------------------------------------------------------------------------------
Cyclerion Therapeutics, Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ ( ) $ ( )
6,954 12,978
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization 48
Share-based compensation expense 426 1,767
Changes in operating assets and liabilities:
Accounts receivable ( )
127
Prepaid expenses 238 ( )
79
Other current assets 34 ( )
9
Operating lease assets 47 46
Other assets 91 91
Accounts payable 955 691
Accrued research and development costs ( ) ( )
670 1,815
Accrued expenses and other current liabilities ( ) ( )
381 470
Net cash (used in) operating activities ( ) ( )
6,214 12,835
Effect of exchange rate changes on cash and cash equivalents 1 ( )
1
Net decrease in cash, cash equivalents and restricted cash ( ) ( )
6,213 12,836
Cash, cash equivalents and restricted cash, beginning of period 13,382 53,961
Cash, cash equivalents and restricted cash, end of period $ 7,169 $ 41,125
The accompanying notes are an integral part of these condensed consolidated
financial statements.
9
-------------------------------------------------------------------------------
Cyclerion Therapeutics, Inc.
Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
1. Nature of Business
Nature of Operations
Cyclerion Therapeutics, Inc. (Cyclerion, the Company or we) is a biopharmaceutic
al company on a mission to develop treatments for serious diseases. Our
portfolio includes novel soluble guanylate cyclase ("sGC") stimulators that
modulate a key node in a fundamental signaling network in both the central
nervous system ("CNS") and the periphery. The nitric oxide ("NO") soluble
guanylate cyclase ("sGC") cyclic guanosine monophosphate ("cGMP") signaling
pathway is a fundamental mechanism that precisely controls key aspects of
physiology throughout the body. The NO-sGC-cGMP pathway, regulates diverse and
critical biological functions including mitochondrial function, neuronal
function, inflammation, and hemodynamics. Although this pathway has been
successfully targeted with several drugs in the periphery, this mechanism has
yet to be fully leveraged therapeutically, particularly in the CNS, where
impaired NO-sGC-cGMP signaling is believed to play an important role in the
pathogenesis of many neurodegenerative and neuropsychiatric diseases.
Zagociguat is a clinical-stage CNS-penetrant sGC stimulator that has shown
rapid improvement in cerebral blood flow, functional brain connectivity, brain
response to visual stimulus, cognitive performance, and biomarkers associated
mitochondrial function and inflammation in clinical studies. CY 3018 is a
CNS-targeted sGC stimulator that preferentially localizes to the brain and has
a pharmacology profile that suggests its potential for the treatment of
neuropsychiatric diseases and disorders. Praliciguat is a systemic sGC
stimulator that is licensed to Akebia Therapeutics, Inc. ("Akebia") and being
advanced in rare kidney disease. Olinciguat is a clinical-stage vascular sGC
stimulator that the Company intends to out-license for cardiovascular
diseases. Cyclerion is actively evaluating the best combination of capital,
capabilities, and transactions available to it to advance the development of
zagociguat and its other clinical development candidates and to maximize
shareholder value.
Cyclerion GmbH, a wholly owned subsidiary, was incorporated in Zug,
Switzerland on May 3, 2019. The functional currency is the Swiss franc.
Cyclerion Securities Corporation, a wholly owned subsidiary, was incorporated
in Massachusetts on November 15, 2019 and was granted securities corporation
status in Massachusetts for the 2019 tax year. Cyclerion Securities
Corporation has
no
employees.
Company Overview
The Companys mission is to develop treatments for serious CNS diseases.
Zagociguat is an orally administered CNS-penetrant sGC stimulator. As an sGC
stimulator, zagociguat amplifies endogenous NO signaling by acting as a
positive allosteric modulator to sensitize the sGC enzyme to NO and increase
the production of cGMP, and thereby amplify endogenous NO signaling. By
compensating for deficient NO-sGC-cGMP signaling zagociguat may have broad
therapeutic potential as a treatment for people with serious diseases.
On January 13, 2020, we announced positive results from our Phase 1
first-in-human study that provided the foundation for continued development of
zagociguat. The results from this study indicate that zagociguat was well
tolerated. Pharmacokinetic data, obtained from both blood and cerebral spinal
fluid ("CSF"), support once-daily dosing, with or without food, and
demonstrated zagociguat penetration of the blood-brain-barrier with CSF
concentrations expected to be pharmacologically active.
On October 14, 2020, we announced positive topline results from our zagociguat
Phase 1 translational pharmacology study in healthy elderly participants.
Treatment with zagociguat for 15-days in this 24-subject study confirmed and
extended results seen in the earlier first-in-human Phase 1 study: once daily
oral treatment demonstrated blood-brain barrier penetration with expected CNS
exposure and target engagement. Results also showed significant improvements
in neurophysiological and objective performance measures as well as decreases
in
10
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inflammatory biomarkers associated with aging and neurodegenerative diseases.
Zagociguat was safe and generally well tolerated in the study. These results,
together with nonclinical data, supported the continued development of
zagociguat as a potential new medicine for serious diseases involving the CNS.
On June 10, 2022, we announced positive topline clinical data for zagociguat
in our signal-seeking clinical study for the potential treatment of
Mitochondrial Encephalomyopathy, Lactic Acidosis and Stroke-like episodes
("MELAS"). In this open-label, single-arm study of the oral, once-daily sGC
stimulator in eight adults aged 18 or older with MELAS, improvements were seen
across a range of endpoints reflecting multiple domains of disease activity,
including mitochondrial disease-associated biomarkers such as lactate and
GDF-15, a broad panel of inflammatory biomarkers, cerebral blood flow, and
functional connectivity between neural networks. These positive effects after
29 days of dosing were supported by correlations among several endpoints with
each other and with zagociguat plasma concentrations. Zagociguat was well
tolerated with no serious or severe adverse events and no events leading to
discontinuation. Pharmacokinetics were consistent with the Phase 1 studies in
healthy volunteers. The positive data from this study support the potential of
zagociguat to provide therapeutic benefit to people living with mitochondrial
diseases, including MELAS.
On July 28, 2022, we announced positive topline data from our signal-seeking
clinical study of zagociguat for the potential treatment of Cognitive
Impairment Associated with Schizophrenia ("CIAS"). Data from the 14-day,
double blind, randomized, placebo-controlled, multiple-ascending-dose study in
48 adults aged 18-50 with stable schizophrenia on a stable, single atypical
antipsychotic regimen demonstrated that once-daily zagociguat was safe and
well tolerated, with no reports of serious adverse events, severe adverse
events, or treatment discontinuation due to adverse events. We further
announced that study data demonstrated a strong effect on cognitive
performance after two weeks of 15mg once-daily dosing and that positive
movements on inflammatory biomarkers were also observed. These signals on
exploratory endpoints are consistent with pro-cognitive and anti-inflammatory
effects of zagociguat observed in preclinical studies and prior clinical
trials and support the further development of oral, once-daily zagociguat.
In October 2022, the WHO International Nonproprietary Names committee and the
United States Adopted Name council selected zagociguat as a nonproprietary
name for CY6463.
On March 22, 2023, we announced that given the significant capital and
capabilities necessary to ensure that the MELAS Phase 2b study is executed
efficiently and with the highest quality, and the currently unfavorable
capital market conditions, we are actively evaluating the best combination of
capital, capabilities, and transactions available to us to advance the
development of zagociguat and our other clinical development candidates and to
maximize shareholder value.
On March 31, 2023, we entered into a stock purchase agreement with the
Company's Chief Executive Officer (the "CEO") pursuant to which the CEO will
make an equity investment in the Company of $
5
million in cash for common stock or nonvoting convertible preferred stock of
the Company, the purchase price, consistent with Nasdaq rules, to be at or
above the market price at the time of signing that agreement. The closing of
the equity investment will take place six business days after the signing of
the Asset Purchase Agreement (as defined below), or May 11, 2023.
On May 11, 2023, the Company entered into an Asset Purchase Agreement (the
"Asset Purchase Agreement) with an investor group which includes Peter Hecht,
the Company's Chief Executive Officer ("CEO"), JW Celtics Investment Corp.
(Buyer Parent) and JW Cycler Inc. (Buyer). Pursuant to the terms of the Asset
Purchase Agreement and subject to the approval by the Company's shareholders,
the Company will receive proceeds of $
8
million as cash consideration, reimbursement for certain operating expenses
related to zagociguat and CY3018 for the period between signing and closing of
the transaction and
10
% of all of Buyer Parent's outstanding equity securities upon the successful
closing of the transaction.
On
May 11, 2023, we announced topline data from our signal- seeking clinical
study of zagociguat for the potential treatment of Alzheimer's disease with
vascular pathology ("ADv"), which study was supported in part by a $2 million
grant from the Alzheimer's Association's Part the Cloud-Gates Partnership
Grant Program (the "PTC Grant") . This exploratory, randomized, placebo-controll
ed, study of oral once-daily zagociguat was designed to evaluate safety,
tolerability, and pharmacokinetics as well as explore the impact of zagociguat
on biomarkers and
11
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cognitive
performance over a twelve-week dosing period. The total number of enrolled
participants was capped at 12 participants due to challenges associated with
enrollment. Data from this study show that the safety and tolerability of
profile once-daily zagociguat was consistent with prior studies. Given the
small number of participants we are unable to draw any conclusions from the
data generated in the study.
CY3018 is a CNS-targeted sGC stimulator in preclinical development that
preferentially localizes to the brain and has a pharmacology profile that
suggests its potential for the treatment of neuropsychiatric diseases and
disorders.
Praliciguat is an orally administered, once-daily systemic sGC stimulator. On
June 3, 2021, we entered into a license agreement with Akebia relating to the
exclusive worldwide license to Akebia of our rights to the development,
manufacture, medical affairs and commercialization of pharmaceutical products
containing praliciguat and other related products and forms thereof enumerated
in such agreement. Cyclerion is eligible to receive up to $
585
million in total potential future development, regulatory, and commercialization
milestone payments. Cyclerion is also eligible to receive tiered, sales-based
royalties ranging from single-digit to high-teen percentages.
Olinciguat
is an orally administered, once-daily, vascular sGC stimulator that was
evaluated in a Phase 2 study of participants with sickle cell disease. We
released topline results from this study in October 2020. We intend to
out-license olinciguat to an entity with strong cardiovascular and/or
cardiopulmonary capabilities.
At-the-Market Offering
On July 24, 2020, the Company filed a Registration Statement on Form S-3 (the
"Shelf") with the Securities and Exchange Commission (the SEC) in relation to
the registration of common stock, preferred stock, debt securities, warrants
and units of any combination thereof for an aggregate initial offering price
not to exceed $
150.0
million. The Shelf was declared effective as of July 31, 2020. On September 3,
2020, the Company entered into a Sales Agreement (the Sales Agreement) with
Jefferies LLC (Jefferies) with respect to an at-the-market offering (the ATM
Offering) under the Shelf. Under the ATM Offering, the Company may offer and
sell, from time to time at its sole discretion, shares of its common stock,
having an aggregate offering price of up to $
50.0
million through Jefferies as its sales agent. The Company will pay Jefferies
cash commissions of
3.0
percent of the gross proceeds of sales of common stock under the Sales
Agreement. The Company has sold
3,353,059
shares of its common stock for net proceeds of $
12.5
million under the ATM Offering since entering into the Sales Agreement.
No
shares of common stock have been issued or sold under the ATM Offering during
the
three months ended March 31, 2023.
Basis of Presentation
The condensed consolidated financial statements and the related disclosures
are unaudited and have been prepared in accordance with accounting principles
generally accepted in the U.S. Additionally, certain information and footnote
disclosures normally included in the Companys annual financial statements have
been condensed or omitted. Accordingly, these interim condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2022, which was filed with
the Securities and Exchange Commission on March 22, 2023.
In the opinion of management, the unaudited interim condensed consolidated
financial statements reflect all normal recurring adjustments considered
necessary for a fair presentation of the Companys financial position and the
results of its operations for the interim periods presented. The results of
operations for the three months ended March 31, 2023 and 2022 are not
necessarily indicative of the results that may be expected for the full year
or any other subsequent interim period.
12
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The condensed consolidated financial statements include the financial
statements of the Company and its wholly owned subsidiaries, Cyclerion GmbH,
and Cyclerion Securities Corporation. All significant intercompany accounts
and transactions have been eliminated in the preparation of the accompanying
condensed consolidated financial statements.
Going Concern
At each reporting period, in accordance with Accounting Standards Codification
("ASC") 205-40, Going Concern, the Company evaluates whether there are
conditions or events that raise substantial doubt about the Companys ability
to continue as a going concern within one year after the date that the
financial statements are issued. The Companys evaluation entails analyzing
prospective operating budgets and forecasts for expectations of the Companys
cash needs and comparing those needs to the current cash and cash equivalent
balances. The Company is required to make certain additional disclosures if it
concludes substantial doubt exists and it is not alleviated by the Companys
plans or when its plans alleviate substantial doubt about the Companys ability
to continue as a going concern.
This evaluation initially does not take into consideration the potential
mitigating effect of managements plans that have not been fully implemented as
of the date the financial statements are issued. When substantial doubt exists
under this methodology, management evaluates whether the mitigating effect of
its plans sufficiently alleviates substantial doubt about the Companys ability
to continue as a going concern. The mitigating effect of managements plans,
however, is only considered if both (1) it is probable that the plans will be
effectively implemented within one year after the date that the financial
statements are issued, and (2) it is probable that the plans, when
implemented, will mitigate the relevant conditions or events that raise
substantial doubt about the entitys ability to continue as a going concern
within one year after the date that these consolidated financial statements
are issued. In performing its analysis, management excluded certain elements
of its operating plan that cannot be considered probable. Under ASC 205-40,
the future receipt of potential funding from future partnerships, equity or
debt issuances and the potential milestones from the Akebia agreement cannot
be considered probable at this time because these plans are not entirely
within the Companys control and/or have not been approved by the Board of
Directors as of the date of these consolidated financial statements.
The Companys expectation to generate negative operating cash flows in the
future and the need for additional funding to support its planned operations,
raise substantial doubt regarding the Companys ability to continue as a going
concern for a period of one year after the date that these consolidated
financial statements are issued. Management's plans to alleviate the
conditions that raise substantial doubt include reduced spending, and the
pursuit of additional capital. Management has concluded the likelihood that
its plan to successfully obtain sufficient funding from one or more of these
sources, or adequately reduce expenditures, while reasonably possible, is less
than probable. Accordingly, the Company has concluded that substantial doubt
exists about the Company's ability to continue as a going concern for a period
of at least 12 months from the date of issuance of these consolidated
financial statements.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the ordinary 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 result from the outcome of the uncertainties described above.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard
On June 1, 2022, the Company received a notice from the Nasdaq Stock Market
("Nasdaq") notifying the Company that, for the last
30
consecutive business days, the closing bid price for the Company's common
stock listed on Nasdaq has been below the minimum $
1.00
per share required for continued listing on the Nasdaq Global Select Market
pursuant to Nasdaq Listing Rule 5450(a)(1) (the "Bid Price Requirement").
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided
a period of
180
calendar days, or until November 28, 2022, to regain compliance with the Bid
Price Requirement. The Company did not regain compliance with the Bid Price
Requirement by the initial compliance date. On November 29, 2022, Nasdaq
notified the Company that it is eligible for an additional
180
calendar
day period, or until May 29, 2023 (the "Extended Compliance Date"), to regain
compliance with the Bid Price Requirement. Nasdaqs determination was
13
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based
on the Company meeting the continued listing requirement for market value of
publicly held shares and all other applicable requirements for initial listing
on the Nasdaq Capital Market with the exception of the Bid Price Requirement,
and the Companys written notice of its intention to cure the deficiency during
the second compliance period by effecting a reverse stock split, if necessary.
Effective November 25, 2022, the Company transferred its listing of the
Companys common stock from the Nasdaq Global Market to the Nasdaq Capital
Market, a continuous trading market that operates in substantially the same
manner as the Nasdaq Global Market. The Companys common stock continues to
trade under the symbol CYCN.
To date, the Company has not regained compliance with the Bid Price
Requirement. If at any time before May 29, 2023, the bid price of the
Company's common stock closes at a $
1.00
per share or more for a minimum of
10
consecutive business days, Nasdaq will provide written notification to the
Company that it has regained compliance with the Bid Price Requirement. If the
Company does not regain compliance with the Bid Price Requirement by the end
of the second compliance period, the Company's stock will be subject to
delisting.
On April 3, 2023, the Company filed with the SEC a definitive proxy statement
for its annual meeting of stockholders to be held on May 15, 2023, at which
meeting the Company is seeking stockholder approval of a reverse stock split
with the primary intent of increasing the price of its common stock to meet
the price criteria for continued listing on Nasdaq. The Company intends to
monitor the closing bid price of its common stock and may, if appropriate,
consider available options to regain compliance with the Bid Price
Requirement, including initiating a reverse stock split. However, there can be
no assurance on how stockholders will vote on such proposal or that the
Company will be able to regain compliance with the Bid Price Requirement or
will otherwise be in compliance with other Nasdaq Listing Rules.
2. Summary of Significant Accounting Policies
The accounting policies of the Company are set forth in Note 2.
Summary of Significant Accounting Policies
to the consolidated financial statements contained in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2022.
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S.
generally accepted accounting principles ("GAAP") requires the Companys
management to make estimates and judgments that may affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
amounts of expenses during the reported periods. On an ongoing basis, the
Companys management evaluates its estimates, judgments, and methodologies.
Significant estimates and assumptions in the consolidated financial statements
include those related to revenue, impairment of long-lived assets, valuation
procedures for right-of-use ("ROU") assets and operating lease liabilities,
income taxes, including the valuation allowance for deferred tax assets,
research and development expenses, contingencies, share-based compensation and
going concern. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities. Actual results may differ materially from these estimates
under different assumptions or conditions. Changes in estimates are reflected
in reported results in the period in which they become known.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial
Accounting Standards Board (FASB) or other standard setting bodies that are
adopted by the Company as of the specified effective date. Except as discussed
elsewhere in the notes to the consolidated financial statements, the Company
did not adopt any new accounting pronouncements during the three months ended
March 31, 2023 that had a material effect on its condensed consolidated
financial statements.
In June 2016 the FASB issued ASU 2016-13, Financial Instruments-Credit Losses.
This standard requires entities to measure all expected credit losses for
financial assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts. As a smaller
reporting company, ASU 2016-13 will become effective for the Company for
fiscal years beginning after December 15, 2022, and early
14
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adoption is permitted. The Company adopted ASU 2016-13 in the first quarter of
2023, and the adoption of this standard did not have any impact on the
Company's financial position or results of operations
No other accounting standards known by the Company to be applicable to it that
have been issued by the FASB or other standard-setting bodies and that do not
require adoption until a future date are expected to have a material impact on
the Companys condensed consolidated financial statements upon adoption.
3. Fair Value of Financial Instruments
The Companys cash equivalents are generally classified within Level 1 of the
fair value hierarchy. The following tables present information about the
Companys financial assets measured at fair value on a recurring basis and
indicate the level of the fair value hierarchy used to determine such fair
values as of
March 31, 2023 and December 31, 2022 (in thousands):
Fair Value Measurements as of March 31, 2023:
Level 1 Level 2 Level 3 Total
Cash equivalents:
Money market funds $ 6,079 $ $ $ 6,079
Cash equivalents $ 6,079 $ $ $ 6,079
Fair Value Measurements as of December 31, 2022:
Level 1 Level 2 Level 3 Total
Cash equivalents:
Money market funds $ 12,357 $ $ $ 12,357
Cash equivalents $ 12,357 $ $ $ 12,357
During the three months ended March 31, 2023 and 2022, there were no transfers
between levels. The fair value of the Companys cash equivalents, consisting of
money market funds, is based on quoted market prices in active markets with no
valuation adjustment.
The Company believes the carrying amounts of its prepaid expenses and other
current assets, restricted cash, accounts receivable, accounts payable, and
accrued expenses approximate their fair value due to the short-term nature of
these amounts.
4. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
March 31, December 31,
2023 2022
Software 2,174 $ 2,174
Computer equipment 7
Leasehold improvements
Property and equipment, gross 2,174 2,181
Less: accumulated depreciation and amortization ( ) ( )
2,174 2,181
Property and equipment, net $ $
As of March 31, 2023, and December 31, 2022, the Companys property and
equipment was primarily located in Boston, Massachusetts.
During the three months ended March 31, 2023
, the Company did
not
record depreciation and amortization expenses. The company recorded
approximately $
0.1
million of depreciation and amortization expenses for the
three months ended March 31, 2022
.
15
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5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in
thousands):
March 31, December 31,
2023 2022
Accrued incentive compensation $ 362 $ 238
Salaries 248 246
Accrued vacation 186 186
Professional fees 924 835
Accrued severance and benefit costs 141 809
Other 140 68
Accrued expenses and other current liabilities $ 2,001 $ 2,382
6. Commitments and Contingencies
Other Funding Commitments
In the normal course of business, the Company enters into contracts with
clinical research organizations and other third parties for clinical and
preclinical research studies and other services and products for operating
purposes. These contracts are generally cancellable, with notice, at the
Companys option and do not have any significant cancellation penalties.
Guarantees
On September 6, 2018, Cyclerion was incorporated in Massachusetts and its
officers and directors are indemnified for certain events or occurrences while
they are serving in such capacity.
The Company enters into certain agreements with other parties in the ordinary
course of business that contain indemnification provisions. These typically
include agreements with directors and officers, business partners,
contractors, clinical sites and customers. Under these provisions, the Company
generally indemnifies and holds harmless the indemnified party for losses
suffered or incurred by the indemnified party as a result of the Companys
activities. These indemnification provisions generally survive termination of
the underlying agreements. The maximum potential amount of future payments the
Company could be required to make under these indemnification provisions is
unlimited. However, to date the Company has not incurred material costs to
defend lawsuits or settle claims related to these indemnification provisions.
As a result, the estimated fair value of these obligations is minimal.
Accordingly, the Company did not have any liabilities recorded for these
obligations as of March 31, 2023 and December 31, 2022
.
7. Leases
In May 2021, the Company signed a
12-month
membership agreement to lease space with WeWork at 501 Boylston Street,
Boston, Massachusetts, commencing on August 1, 2021. The agreement was
extended for six months on August 1, 2022. The
12-month
agreement and
6-month
extension are accounted for as short-term leases. The Company recorded a de
minimis amount and approximately $
0.1
million, in lease expense associated with the membership agreement during the
three months ended March 31, 2023 and 2022, respectively.
On September 15, 2020, the Company entered into a Sublease Termination
Agreement (the "Sublease Termination Agreement") to terminate its sublease of
15,700
rentable square feet of its leased premises under the Head Lease. Under the
terms of the Sublease Termination Agreement, the subtenant was relieved of its
obligation to provide future cash rental payments to the Company. The
agreements requiring the former subtenant to provide licensed rooms and
services to the Company free of charge through the original sublease term
survived the sublease termination. The Company gained access to the licensed
rooms and services beginning in the third quarter of 2021. The letter of
credit security deposit related to the sublease was released.
The
Company determined that the Sublease Termination Agreement constituted a
non-monetary exchange under ASC 845 Nonmonetary Transactions ("ASC 845")
where, in return for the free rooms and the services, the
16
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Company
agreed to terminate its rights and obligations under the sublease agreement.
In accordance with ASC 845, the Company determined that the accounting for the
transaction should be based on the fair value of assets or services involved.
The Company estimated the fair value of the rooms and services to be
approximately $
1.5
million and $
2.9
million, respectively.
The Company determined that the licensed rooms represent a lease under ASC
Topic 842, Leases. The Company obtained control of the rooms in the third
quarter of 2021 and the prepaid rooms balance of approximately $
1.4
million was reclassified from other assets to a ROU asset. The related lease
expense is recognized on a straight-line basis over the lease term of
8.88
years. The Company recorded $
0.1
million and $
0.1
million of lease expense during the
three months ended March 31, 2023 and 2022, respectively. The Company
determined that the licensed services represent a non-lease component, which
is recognized separately from the lease component for this asset class. The
expense related to the licensed services is recognized on a straight-line
basis over the period the services are received. The Company recorded $
0.1
million and $
0.1
million for the
three months ended March 31, 2023 and 2022
, respectively. Both the lease expense and services expense are recognized as
a component of research and development costs in the condensed consolidated
statements of operations and comprehensive loss.
8. Share-based Compensation Plans
In 2019, Cyclerion adopted share-based compensation plans. Specifically,
Cyclerion adopted the 2019 Employee Stock Purchase Plan (2019 ESPP) and the
2019 Equity Incentive Plan (2019 Equity Plan). Under the 2019 ESPP, eligible
employees may use payroll deductions to purchase shares of stock in offerings
under the plan, and thereby acquire an interest in the future of the Company.
The 2019 Equity Plan provides for stock options and restricted stock units
(RSUs).
Cyclerion mirrored two of Ironwood Pharmaceuticals, Incs ("Ironwood") existing
plans, the Amended and Restated 2005 Stock Incentive Plan (2005 Equity Plan)
and the Amended and Restated 2010 Employee, Director and Consultant Equity
Incentive Plan (2010 Equity Plan"). These mirror plans were adopted to
facilitate the exchange of Ironwood equity awards for Cyclerion equity awards
upon the tax-free spin-off of Ironwood's sGC business (the "Separation") as
part of the equity conversion. As a result of the Separation and in accordance
with the Employee Matters Agreement between Ironwood and Cyclerion entered
into as part of the Separation, employees of both companies retained their
existing Ironwood vested options and received a pro-rata share of Cyclerion
options, regardless of which company employed them post-Separation. For
employees that were ultimately employed by Cyclerion, unvested Ironwood
options and RSUs were converted to unvested Cyclerion options and RSUs.
The following table provides share-based compensation reflected in the
Companys condensed consolidated statements of operations and comprehensive
loss for the
three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended
March 31,
2023 2022
Research and development $ 229 $ 830
General and administrative 197 937
$ 426 $ 1,767
17
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A summary of stock option activity for the
three months ended March 31, 2023, is as follows:
Weighted
Weighted Average Average
Average Remaining Intrinsic
Number Exercise Contractual Value (in
of Options Price Term (Years) thousands)
Outstanding as of December 31, 2022 7,311,893 $ 9.23 5.8 20
Granted 0.00
Exercised 0.00
Cancelled or forfeited ( ) 14.29
600,887
Outstanding as of March 31, 2023 6,711,006 $ 8.77 6.1 $ 0
Exercisable at March 31, 2023 4,867,431 $ 11.30 5.2 $ 0
As of March 31, 2023, the unrecognized share-based compensation expense, net
of estimated forfeitures, related to all unvested time-based stock options
held by the Companys employees is $
1.8
million and the weighted average period over which that expense is expected to
be recognized is
3.2
years.
A summary of RSU activity for the
three months ended March 31, 2023 is as follows:
Weighted Average
Number Grant Date
of Shares Fair Value
Unvested as of December 31, 2022 815,587 $ 0.77
Granted
Vested ( ) 14.20
6,170
Forfeited
Unvested as of March 31, 2023 809,417 $ 0.66
As of March 31, 2023, the unrecognized share-based compensation expense, net
of estimated forfeitures, related to all unvested restricted stock units by
the Companys employees is $
0.3
million and the weighted-average period over which that expense is expected to
be recognized is
0.52
years.
The Company has granted to certain employees stock options containing market
conditions that vest upon the achievement of specified price targets of the
Companys share price for a period through December 31, 2024. Vesting is
measured based upon the average closing price of the Companys share price for
any
thirty
consecutive trading days, subject to certain service requirements. Stock
compensation cost is expensed on a straight-line basis over the derived
service period for each stock price target within the award, ranging from
approximately
4.0
to
4.6
years. The Company accelerates expense when a stock price target is achieved
prior to the derived service period. As of
March 31, 2023
there were
300,000
outstanding stock options containing market conditions with a weighted average
exercise price of $
2.01
. As of
March 31, 2023
there was $
0.1
million of unrecognized compensation costs related to stock options containing
market conditions, which is expected to be recognized over a weighted-average
period of
1
year.
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9. Loss per share
Basic and diluted net loss per common share is computed by dividing net loss
by the weighted average number of common shares outstanding during the period
as follows:
Three Months Ended
March 31,
2023 2022
Numerator:
Net loss (in thousands) $ ( ) $ ( )
6,954 12,978
Denominator:
Weighted average shares used in calculating net loss per share basic and diluted (in thousands) 43,521 43,425
Net loss per share basic and diluted $ ( ) $ ( )
0.16 0.30
We exclude shares of common stock related to stock options and RSUs from the
calculation of diluted net loss per share since the inclusion of such shares
would be anti-dilutive.
The following table sets forth potential shares that were considered
anti-dilutive for the
three months ended March 31, 2023 and 2022:
Three Months Ended
March 31,
2023 2022
Stock Options $ 6,711,006 $ 8,270,398
RSUs 809,417 54,629
$ 7,520,423 $ 8,325,027
10. Defined Contribution Plan
Subsequent to the Separation, the Company adopted a defined contribution
401(k) Savings Plan
similar to the plan in place at Ironwood. The plan assets under the Ironwood
defined contribution 401(k) Savings Plan were transferred to the Company's
plan.
Subject to certain IRS limits, eligible employees may elect to contribute from
1
% to
100
% of their compensation. The Company's contributions to the plan are at the
sole discretion of the board of directors. Currently, the Company provides a
matching contribution of
75
% of the employees contributions, up to $
6,000
annually.
Included in compensation expense is approximately $
0.1
million and $
0.2
million related to the defined contribution 401(k) Savings Plan for the
three months ended March 31, 2023 and 2022
, respectively.
11. Workforce Reduction
2022 Workforce Reduction
On October 6, 2022, the Company began a reduction of its current workforce by
thirteen
(13) full-time employees to align its resources with its current priorities of
focusing on a mitochondrial disease-focused strategy. The workforce reduction
was completed in the fourth quarter of 2022.
The Company recorded total costs related to the 2022 Workforce Reduction of
approximately $
1.3
million, including a de minimis amount of stock-based compensation from the
modification of certain share-based equity awards.
The following table summarizes the accrued liabilities activity recorded in
connection with the reduction in workforce for the
three months ended March 31, 2023 (in thousands):
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Amounts Charges Amount Adjustments Amounts
accrued at paid accrued at
December 31, March 31,
2022 2023
2022 workforce reduction $ ( ) $ $ 668 $ $ ( )
809 141
Total $ ( ) $ $ 668 $ $ ( )
809 141
12. License Agreement
Akebia License Agreement
On June 3, 2021, the Company and Akebia entered into a License Agreement (the
Akebia License Agreement) relating to the exclusive worldwide license by the
Company to Akebia of our rights to the development, manufacture, medical
affairs and commercialization of pharmaceutical products containing the
pharmaceutical compound known as praliciguat and other related products and
forms thereof enumerated in the License Agreement (collectively, the
Products). Pursuant to the Akebia License Agreement, Akebia will be
responsible for all future research, development, regulatory, and
commercialization activities for the Products.
Akebia paid a $
3.0
million up-front payment to the Company upon signing of the Akebia License
Agreement and the Company is eligible to receive additional milestone cash
payments of up to $
12.0
million upon initiation of a Phase 2 clinical trial. Further milestone cash
payments by Akebia are scheduled in the Akebia License Agreement based on the
initiation of Phase 3 clinical trials in the U.S. for Products for first and
second indication, for FDA approvals, for approvals in certain other major
markets, and for certain sales milestones. In addition to these cash milestone
payments, Akebia will pay the Company tiered royalty payments on net sales in
certain major markets at percentages ranging from the mid-single digits to the
high-teens, subject to certain reductions and offsets.
Pursuant to the Akebia License Agreement, the Company determined the Akebia
License Agreement represents a service arrangement under the scope of ASC 606.
Given the reversion of the rights under the Akebia License Agreement
represents a penalty in substance for a termination by Akebia, the contract
term would be the stated term of the Akebia License Agreement.
The Company determined that the grant of license to our patents and
trademarks, know how transfer, the assignment of regulatory submissions and
trademarks and additional knowledge transfer assistance obligations represent
a single promise and performance obligation to be transferred to Akebia over
time due to the nature of the promises in the contract. The provision of
development materials on hand was identified as a separate performance
obligation. However, it is immaterial in the context of the contract as the
development materials are low value and do not have an alternative use to the
Company.
The consideration related to sales-based milestone payments, including
royalties, will be recognized when the related sales occur as these amounts
have been determined to relate predominantly to the license. The Company will
re-evaluate the probability of achievement of the milestones and any related
constraints each reporting period.
Akebia Supply Agreement
On August 3, 2021, the Company and Akebia entered into a Supply Agreement (the
Supply Agreement) relating to the manufacturing by the Company of the Initial
Supply of the Drug Product and placebo ("Initial Supply") for Akebia's use
pursuant to the Akebia License Agreement. Akebia will pay the Company for the
manufacturing costs at mutually agreed upon rates.
The Company determined the Supply Agreement has stand-alone value under the
scope of ASC 606 and should not be combined with the Akebia License Agreement.
Given that the Supply Agreement can be terminated at any time without cause
with 30 days notice, the Company deemed the Supply Agreement to be a
month-to-month contract. The manufacturing of the Initial Supply by the
Company represents a single performance obligation and consideration related
to the manufacturing costs will be recognized over time as costs are incurred.
The Company recorded approximately $
0.2
million as revenue from the Supply Agreement in the three months ended March
31, 2022. There was
no
revenue recognized as part of the Supply Agreement in the three months ended
March 31, 2023.
20
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13. Grant Revenue
In August 2021, the Company was approved to receive funding from the PTC Grant
for the Phase 2 study of CNS sGC stimulation in AD with vascular features. The
granting period was July 1, 2021, to December 31, 2022, and the Company
received an award of $
2
million.
The Company determined that this transaction is non-reciprocal as there is not
considered to be a commensurate value exchanged with the Alzheimer's
Association as the funding provider. Where commensurate value is not exchanged
for goods and services provided, a recipient assesses whether the grant is
conditional or unconditional. The Company considered all conditions and
barriers associated with this grant and determined the grant is conditional
and revenue will be recognized upon achieving certain milestones and incurring
internal costs specifically covered by this grant. Under ASC 958-605, revenues
will be recognized as the Company incurs expenses related to the PTC Grant.
The Company has incurred
no
costs associated with the grant for the three months ended March 31, 2023,
compared to approximately $
0.5
million of expenses associated with the grant for the three months ended March
31, 2022. The Company had a deferred revenue balance of approximately $
0.1
million related to advance billings as of March 31, 2023
.
14. Subsequent Events
On May 11, 2023, the Company entered into the Asset Purchase Agreement with an
investor group which includes the Company's CEO, Buyer Parent and Buyer.
Pursuant to the terms of the Asset Purchase Agreement and subject to the
approval by the Company's shareholders, the Company will receive proceeds of $
8
million as cash consideration, reimbursement for certain operating expenses
related to zagociguat and CY3018 for the period between signing and closing of
the transaction and
10
% of all of Buyer Parent's outstanding equity securities upon the successful
closing of the transaction. The Company will also receive net proceeds of $
5
million pursuant to a stock purchase agreement with the Company's CEO, which
will take place six business days after the signing of the Asset Purchase
Agreement.
21
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Item 2.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking Information
The following discussion of our financial condition and results of operations
should be read in conjunction with the unaudited condensed consolidated
financial statements and the corresponding notes included in this Quarterly
Report on Form 10-Q, as well as the audited condensed consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2022. This discussion contains
forward-looking statements that involve significant risks and uncertainties.
As a result of many factors, such as those referenced or set forth under
Cautionary Note Regarding Forward-Looking Statements and Risk Factors in Part
II, Item 1A of this Quarterly Report on Form 10-Q, our actual results may
differ materially from those anticipated in these forward-looking statements.
Overview
We are a biopharmaceutical company on a mission to develop treatments for
serious diseases. Zagociguat is a pioneering CNS-penetrant sGC stimulator that
has shown rapid improvements across a range of endpoints reflecting multiple
domains of disease activity, including mitochondrial disease-associated
biomarkers. sGC stimulators are small molecules that act synergistically with
NO as positive allosteric modulators of sGC to boost production of cGMP. cGMP
is a key second messenger that, when produced by sGC, regulates diverse and
critical biological functions such as mitochondrial function, neuronal
function, inflammation, and vascular dynamics.
We operate in one reportable business segmenthuman therapeutics.
Financial Overview
Research and Development Expense.
Research and development expenses are incurred in connection with the
discovery and development of our product candidates. These expenses consist
primarily of the following costs: compensation, benefits and other
employee-related expenses, research and development related facilities,
third-party contracts relating to nonclinical study and clinical trial
activities. All research and development expenses are charged to operations as
incurred.
Zagociguat is an orally administered CNS-penetrant sGC stimulator. NO-sGC-cGMP
is a fundamental signaling network, including in the brain where it is
critical to basic CNS functions. Deficient NO-sGC-cGMP signaling is believed
to play an important role in the pathogenesis of many neurological disorders.
As an sGC stimulator, zagociguat amplifies endogenous NO signaling by acting
as a positive allosteric modulator to sensitize the sGC enzyme to NO, and
increase the production of cGMP. By compensating for deficient NO-sGC-cGMP
signaling, zagociguat may have broad therapeutic potential as a treatment for
people with serious diseases.
In January 2020, we announced positive results from our Phase 1 first-in-human
study that provided the first clinical data supporting the development of
zagociguat. The results from this study indicate that zagociguat was well
tolerated. Pharmacokinetic data, obtained from both blood and cerebral spinal
fluid, support once-daily dosing with or without food and demonstrated
zagociguat penetration of the blood-brain-barrier with concentrations in the
CSF expected to be pharmacologically active.
In October 2020, we announced positive topline results from our zagociguat
Phase 1 translational pharmacology study in healthy elderly participants.
Treatment with zagociguat for 15 days in this 24-subject study confirmed and
extended results seen in the earlier first-in-human Phase 1 study: once-daily
oral treatment demonstrated blood-brain barrier penetration with expected CNS
exposure and target engagement. Results also showed significant improvements
in neurophysiological and objective performance measures as well as decreases
in inflammatory biomarkers associated with aging and neurodegenerative
diseases. Zagociguat was safe and generally well tolerated in the study. These
results, together with nonclinical data, support continued development of
zagociguat as a potential new medicine for serious CNS diseases.
In June 2022, we announced positive topline clinical data for zagociguat in
our signal-seeking clinical study for the potential treatment of MELAS. In
this open-label, single-arm study of the oral, once-daily sGC stimulator in
eight adults aged 18 or older with MELAS, improvements were seen across a
range of endpoints reflecting multiple domains of disease activity, including
mitochondrial disease-associated biomarkers such as
22
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lactate and GDF-15, a broad panel of inflammatory biomarkers, cerebral blood
flow, and functional connectivity between neural networks. These positive
effects after 29 days of dosing were supported by correlations among several
endpoints with each other and with zagociguat plasma concentrations.
Zagociguat was well tolerated with no serious or severe adverse events and no
events leading to discontinuation. Pharmacokinetics were consistent with the
Phase 1 studies in healthy volunteers. The positive data from this study
supports the potential of zagociguat to provide therapeutic benefit to people
living with mitochondrial diseases, including MELAS.
In July 2022, we announced positive topline data from our signal-seeking
clinical study of zagociguat for the potential treatment of CIAS. Data from
the 14-day, double blind, randomized, placebo-controlled, multiple-ascending-dos
e study in 48 adults aged 18-50 with stable schizophrenia on a stable, single,
atypical antipsychotic regimen demonstrated that once-daily zagociguat was
safe and well tolerated, with no reports of serious adverse events, severe
adverse events, or treatment discontinuation due to adverse events. We further
announced that study data demonstrated a strong effect on cognitive
performance after two weeks of 15mg once-daily dosing and that positive
movement on inflammatory biomarkers was also observed. These signals on
exploratory endpoints are consistent with the pro-cognitive and anti-inflammator
y effects of zagociguat observed in preclinical studies and prior clinical
trials and support the further development of oral, once-daily zagociguat.
In October 2022, the WHO International Nonproprietary Names committee and the
United States Adopted Name Council selected zagociguat as a nonproprietary
name for CY6463.
In March 2023, we announced that given the significant capital and
capabilities necessary to ensure that the MELAS Phase 2b study is executed
efficiently and with the highest quality, and the currently unfavorable
capital market conditions, we are actively evaluating the best combination of
capital, capabilities, and transactions available to us to advance the
development of zagociguat and our other clinical development candidates and to
maximize shareholder value.
On March 31, 2023, we entered into a stock purchase agreement with the
Companys Chief Executive Office ("CEO") pursuant to which the CEO will make an
equity investment in the Company of $5 million in cash for common stock or
nonvoting convertible preferred stock of the Company, the purchase price,
consistent with Nasdaq rules, to be at or above the market price at the time
of signing that agreement. The closing of the equity investment will take
place six business days after the signing of the Asset Purchase Agreement, or
May 11, 2023.
On May 11, 2023, the Company entered into an Asset Purchase Agreement (the
"Asset Purchase Agreement") with an investor group which includes the CEO, JW
Celtics Investment Corp. (Buyer Parent) and JW Cycler Inc. (Buyer). Pursuant
to the terms of the Asset Purchase Agreement and subject to the approval by
Company's shareholders, the Company will receive proceeds of $8 million as
cash consideration, reimbursement for certain operating expenses related to
zagociguat and CY3018 for the period between signing and closing of the
transaction and 10% of all of Buyers Parent outstanding equity securities upon
the successful closing of the transaction.
On May 11, 2023, we announced topline data from our signal- seeking clinical
study of zagociguat for the potential treatment of Alzheimer's disease with
vascular pathology ("ADv"), which study was supported in part by a $2 million
grant from the Alzheimer's Associations Part the Cloud-Gates Partnership Grant
Program (the "PTC Grant"). This exploratory, randomized, placebo-controlled,
study of oral once-daily zagociguat was designed to evaluate safety,
tolerability, and pharmacokinetics as well as explore the impact of zagociguat
on biomarkers and cognitive performance over a twelve-week dosing period. The
total number of enrolled participants was capped at 12 participants due to
challenges associated with enrollment. Data from this study show that the
safety and tolerability of profile once-daily zagociguat was consistent with
prior studies. Given the small number of participants we are unable to draw
any conclusions from the data generated in the study.
CY3018 is a CNS-targeted sGC stimulator in preclinical development that
preferentially localizes to the brain and has a pharmacology profile that
suggests its potential for the treatment of neuropsychiatric diseases and
disorders.
Praliciguat is an orally administered, once-daily systemic sGC stimulator. On
June 3, 2021, we entered into a license agreement with Akebia relating to the
exclusive worldwide license to Akebia of our rights to the
23
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development, manufacture, medical affairs and commercialization of
pharmaceutical products containing praliciguat and other related products and
forms, thereof enumerated in such agreement. Cyclerion is eligible to receive
up to $585 million in total potential future development, regulatory, and
commercialization milestone payments. Cyclerion is also eligible to receive
tiered, sales-based royalties ranging from single-digit to high-teen
percentages.
Olinciguat is an orally administered, once-daily, vascular sGC stimulator that
was evaluated in a Phase 2 study of participants with sickle cell disease. We
released topline results from this study in October 2020. We intend to
out-license olinciguat to an entity with strong cardiovascular and/or
cardiopulmonary capabilities.
The following table summarizes our research and development expenses, employee
and facility related costs allocated to research and development expense, and
discovery and pre-clinical phase programs, for the three months ended March
31, 2023 and 2022. The product pipeline expenses relate primarily to external
costs associated with nonclinical studies and clinical trial costs, which are
presented by development candidates.
Three Months Ended
March 31,
2023 2022
(in thousands)
Product pipeline external costs:
Zagociguat 2,294 4,452
CY3018 58 933
Discovery research 30 178
Total product pipeline external costs 2,382 5,563
Personnel and related internal costs 1,073 3,284
Facilities and other 318 896
Total research and development expenses $ 3,773 $ 9,743
Securing regulatory approvals for new drugs is a lengthy and costly process.
Any failure by us to obtain, or any delay in obtaining, regulatory approvals
would materially adversely affect our product candidate development efforts
and our business overall.
Given the inherent uncertainties of pharmaceutical product development, we
cannot estimate with any degree of certainty how our programs will evolve, and
therefore the amount of time or money that would be required to obtain
regulatory approval to market them. As a result of these uncertainties
surrounding the timing and outcome of any approvals, we are currently unable
to estimate precisely when, if ever, our discovery and development candidates
will be approved. We invest carefully in our pipeline, and the commitment of
funding for each subsequent stage of our development programs is dependent
upon the receipt of clear, supportive data.
The successful development of our product candidates is highly uncertain and
subject to a number of risks including, but not limited to:
"
There is substantial doubt regarding our ability to continue as a going
concern. We will need to raise additional funding, which may not be available
on acceptable terms, or if at all. Failure to obtain necessary capital may
force us to delay, limit or terminate our development efforts or other
operations.
"
Cyclerion works closely with its clinical trial sites and investigators to
deliver trials in a manner consistent with the safety of study participants
and healthcare professionals.
"
The duration of clinical trials may vary substantially according to the type
and complexity of the product candidate and may take longer than expected.
"
The United States FDA and comparable agencies outside the United States.
impose substantial and varying requirements on the introduction of therapeutic
pharmaceutical products, which typically require lengthy and detailed
laboratory and clinical testing procedures, sampling activities and other
costly and time-consuming procedures.
24
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"
Data obtained from nonclinical and clinical activities at any step in the
testing process may be adverse and lead to discontinuation or redirection of
development activity. Data obtained from these activities also are susceptible
to varying interpretations, which could delay, limit or prevent regulatory
approval.
"
The duration and cost of discovery, nonclinical studies and clinical trials
may vary significantly over the life of a product candidate and are difficult
to predict.
"
The costs, timing and outcome of regulatory review of a product candidate may
not be favorable, and, even if approved, a product may face post-approval
development and regulatory requirements.
"
The emergence of competing technologies and products and other adverse market
developments may reduce or eliminate the potential value of our pipeline.
"
The continuing impact of COVID-19, which could continue to adversely affect
our programs and operations, including our development activities, corporate
development, and other activities.
As a result of the factors listed in the Risk Factors section in Part I, Item
1A of our Annual Report on Form 10-K for the fiscal year ended December 31,
2022, and elsewhere in this Quarterly Report on Form 10-Q, we are unable to
determine the duration and costs to complete current or future nonclinical and
clinical stages of our product candidates, including as licensed to third
parties, or when, or to what extent, we may generate revenues from the
commercialization and sale of our product candidates. Development timelines,
probability of success and development costs vary widely. We anticipate that
we will make determinations as to which additional programs to pursue and how
much funding to direct to each program on an ongoing basis in response to the
data from the studies of each product candidate, the competitive landscape and
ongoing assessments of such product candidates commercial potential.
General and Administrative Expense.
General and administrative expenses consists primarily of compensation,
benefits and other employee-related expenses for personnel in our
administrative, finance, legal, information technology, business development,
and human resource functions. Other costs include the legal costs of pursuing
patent protection of our intellectual property, general and administrative
related facility costs, insurance costs and professional fees for accounting
and legal services. We record all general and administrative expenses as
incurred.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements prepared in
accordance with GAAP. The preparation of these financial statements requires
us to make certain estimates and assumptions that may affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
amounts of expenses during the reported periods. We base our estimates on our
historical experience and on various other assumptions that are believed to be
reasonable, the results of which form the basis for making judgments about the
carrying values of assets and liabilities. Actual results may differ
materially from our estimates under different assumptions or conditions.
Changes in estimates are reflected in reported results in the period in which
they become known.
We believe that our application of accounting policies requires significant
judgments and estimates on the part of management and is the most critical to
aid in fully understanding and evaluating our reported financial results. Our
significant accounting policies are more fully described in Note 2,
Summary of Significant Accounting Policies
, of the consolidated financial statements elsewhere in this Quarterly Report
on Form 10-Q.
All research and development expenses are expensed as incurred. We defer and
capitalize nonrefundable advance payments we make for research and development
activities until the related goods are received or the related services are
performed. A discussion of our critical accounting policies and estimates may
be found in our Annual Report on Form 10-K for the fiscal year ended December
31, 2022 in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations
under the heading
Critical Accounting Policies and Estimates.
25
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Results of Operations
The revenue and expenses reflected in the consolidated financial statements
may not be indicative of revenue and expenses that will be incurred by us in
the future. The following discussion summarizes the key factors we believe are
necessary for an understanding of our consolidated financial statements.
Revenues and Expenses
Three Months Ended Change
March 31,
2023 2022 $ %
(dollars in thousands)
Revenues:
Revenue from development agreement 225 (225 ) (100 )%
Revenue from grants 486 (486 ) (100 )%
Total revenues 711 (711 ) (100 )%
Cost and expenses:
Research and development 3,773 9,743 (5,970 ) (61 )%
General and administrative 3,269 3,952 (683 ) (17 )%
Total cost and expenses 7,042 13,695 (6,653 ) (49 )%
Loss from operations (7,042 ) (12,984 ) 5,942 (46 )%
Interest and other income (expenses), net 88 6 82 1367 %
Net loss $ (6,954 ) $ (12,978 ) $ 6,024 (46 )%
Revenues
. The decrease in revenue of approximately $0.7 million for the three months
ended March 31, 2023, compared to the three months ended March 31, 2022, can
be attributed to the revenue from the PTC Grant and the Akebia Supply
Agreement recognized in 2022.
Research and development expense.
The decrease in research and development expense of approximately $6.0 million
for the three months ended March 31, 2023 compared to the three months ended
March 31, 2022 was driven by a decrease of approximately $2.2 million in
external research costs related to the completion of the zagociguat clinical
trials in CIAS and MELAS in 2022. a decrease of approximately $0.9 million for
CY3018 costs, a decrease of approximately $0.1 million in discovery research,
a decrease of approximately $1.6 million in other employee-related expenses
primarily due to the workforce reduction in November 2022, a decrease of
approximately $0.6 million in non-cash stock-based compensation, and a
decrease of approximately $0.6 million in professional services.
General and administrative expense.
The decrease in general and administrative expenses of approximately $0.7
million for the three months ended March 31, 2023 compared to the three months
ended March 31, 2022 was primarily driven by a decrease in non-cash
stock-based compensation.
Interest and other income (expenses), net.
Interest and other income (expenses), net increased by approximately $0.1
million for the three months ended March 31, 2023, compared to the three
months ended March 31, 2022 due to an increase in interest income driven by
higher interest rates.
Liquidity and Capital Resources
On September 3, 2020, the Company entered into the Sales Agreement with
Jefferies with respect to the ATM Offering under the Shelf. Under the ATM
Offering, the Company may offer and sell, from time to time at its sole
discretion, shares of its common stock, having an aggregate offering price of
up to $50.0 million through Jefferies as its sales agent. The Company will pay
Jefferies cash commissions of 3.0 percent of the gross proceeds of sales of
common stock under the Sales Agreement. The Company has sold 3,353,059 shares
of its common stock for net proceeds of $12.5 million under the ATM Offering
since entering into the Sales Agreement, with no shares of common stock issued
or sold under the ATM Offering during the three months ended March 31, 2023.
On June 7, 2021, we closed on a private placement of 5,735,988 shares of our
common stock, pursuant to a Common Stock Purchase Agreement, for total gross
proceeds of approximately $18 million. There were no material
26
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fees or commissions related to the transaction. The Company intends to use the
proceeds to fund working capital and other general corporate purposes.
Our ability to continue to fund our operations and meet capital needs will
depend on our ability to generate cash from operations and access to capital
markets and other sources of capital, as further described below. We
anticipate that our principal uses of cash in the future will be primarily to
fund our operations, working capital needs, capital expenditures and other
general corporate purposes.
On March 31, 2023, we had approximately $7.2 million of unrestricted cash and
cash equivalents. Our cash equivalents include amounts held in U.S. government
money market funds. We invest cash in excess of immediate requirements in
accordance with our investment policy, which requires all investments held by
us to be at least AAA rated or equivalent, with a remaining final maturity
when purchased of less than twelve months, so as to primarily achieve
liquidity and capital preservation.
Going Concern
The Company evaluated whether there are conditions and events, considered in
the aggregate, that raise substantial doubt about its ability to continue as a
going concern within one year after the date that these consolidated financial
statements are issued. This evaluation initially does not take into
consideration the potential mitigating effect of managements plans that have
not been fully implemented as of the date the financial statements are issued.
When substantial doubt exists under this methodology, management evaluates
whether the mitigating effect of its plans sufficiently alleviates substantial
doubt about the Companys ability to continue as a going concern. The
mitigating effect of managements plans, however, is only considered if both
(1) it is probable that the plans will be effectively implemented within one
year after the date that the financial statements are issued, and (2) it is
probable that the plans, when implemented, will mitigate the relevant
conditions or events that raise substantial doubt about the entitys ability to
continue as a going concern within one year after the date that these
consolidated financial statements are issued. In performing its analysis,
management excluded certain elements of its operating plan that cannot be
considered probable. Under ASC 205-40, the future receipt of potential funding
from future partnerships, equity or debt issuances, and the potential
milestones from the Akebia agreement cannot be considered probable at this
time because these plans are not entirely within the Companys control and/or
have not been approved by the Board of Directors as of the date of these
consolidated financial statements.
The Company has incurred recurring losses since its inception, including a net
loss of $7.0 million for the three months ended March 31, 2023. In addition,
as of March 31, 2023, the Company had an accumulated deficit of $266.1
million. The Company expects to continue to generate operating losses for the
foreseeable future. The Company expects that its cash, cash equivalents and
marketable securities as of March 31, 2023 will not be sufficient to fund
operations for at least the next twelve months from the date of issuance of
these consolidated financial statements and the Company will need to obtain
additional funding. Accordingly, the Company has concluded that substantial
doubt exists about the Companys ability to continue as a going concern for a
period of at least 12 months from the date of issuance of these consolidated
financial statements.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the ordinary 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 result from the outcome of the uncertainties described above.
Continued Nasdaq Listing
On June 1, 2022, the Company received a notice from the Nasdaq Stock Market
("Nasdaq") notifying the Company that, for the last 30 consecutive business
days, the closing bid price for the Company's common stock listed on Nasdaq
has been below the minimum $1.00 per share required for continued listing on
the Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(a)(1)
(the "Bid Price Requirement").
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided
a period of 180 calendar days, or until November 28, 2022, to regain
compliance with the Bid Price Requirement. The Company did not regain
compliance with the Bid Price Requirement by the initial compliance date. On
November 29, 2022,
27
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Nasdaq notified the Company that it is eligible for an additional 180 calendar
day period, or until May 29, 2023 (the "Extended Compliance Date"), to regain
compliance with the Bid Price Requirement. Nasdaqs determination was based on
the Company meeting the continued listing requirement for market value of
publicly held shares and all other applicable requirements for initial listing
on the Nasdaq Capital Market with the exception of the Bid Price Requirement,
and the Companys written notice of its intention to cure the deficiency during
the second compliance period by effecting a reverse stock split, if necessary.
Effective November 25, 2022, the Company transferred its listing of the
Companys common stock from the Nasdaq Global Market to the Nasdaq Capital
Market, a continuous trading market that operates in substantially the same
manner as the Nasdaq Global Market. The Companys common stock continues to
trade under the symbol CYCN.
To date, the Company has not regained compliance with the Bid Price
Requirement. If at any time before May 29, 2023, the bid price of the
Company's common stock closes at a $1.00 per share or more for a minimum of 10
consecutive business days, Nasdaq will provide written notification to the
Company that it has regained compliance with the Bid Price Requirement. If the
Company does not regain compliance with the Bid Price Requirement by the end
of the second compliance period, the Company's stock will be subject to
delisting.
On April 3, 2023, the Company filed with the SEC a definitive proxy statement
for its annual meeting of stockholders to be held on May 15, 2023, at which
meeting the Company is seeking stockholder approval of a reverse stock split
with the primary intent of increasing the price of its common stock to meet
the price criteria for continued listing on Nasdaq. The Company intends to
monitor the closing bid price of its common stock and may, if appropriate,
consider available options to regain compliance with the Bid Price
Requirement, including initiating a reverse stock split. However, there can be
no assurance on how stockholders will vote on such proposal or that the
Company will be able to regain compliance with the Bid Price Requirement or
will otherwise be in compliance with other Nasdaq Listing Rules.
Cash Flows
The following is a summary of cash flows for the three months ended March 31,
2023 and 2022:
Three Months Ended Change
March 31,
2023 2022 $ %
(dollars in thousands)
Net cash used in operating activities $ (6,214 ) $ (12,835 ) $ 6,621 (52 )%
Cash Flows from Operating Activities
Net cash used in operating activities was $6.2 million for the three months
ended March 31, 2023 compared to $12.8 million for the three months ended
March 31, 2022. The decrease in net cash used in operations of $6.6 million
primarily relates to a decrease in our net loss of $6.0 million, a decrease in
working capital accounts of $2.0 million, partially offset by a decrease of
stock-based compensation of $1.4 million.
Funding Requirements
We expect our expenses to fluctuate as we engage in preclinical activities and
clinical trials of our product candidates, continue to maintain out-license
opportunities and seek to broaden our portfolio through in-licensing of
complementary CNS assets. Based on our cash and cash equivalents position as
of March 31, 2023 and our planned operating expenses and capital expenditure
requirements there is substantial doubt regarding our ability to continue as a
going concern for a period of one year after the date of this Quarterly Report
on Form 10-Q. We will need to raise additional capital in upcoming periods
which may not be available on acceptable terms, if at all. Failure to obtain
necessary capital when needed may delay current development of our product
candidates, halt new development phases, or other operations.
Because of the many risks and uncertainties associated with research,
development and commercialization of product candidates, we are unable to
estimate the exact amount of our working capital requirements. Our
28
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expenses will fluctuate, and our future funding requirements will depend on,
and could increase or decrease significantly as a result of many factors
including the:
"
scope, progress, results and costs of researching and developing our product
candidates, and conducting preclinical studies and clinical trials;
"
costs, timing and outcome of regulatory review of our product candidates;
"
costs of future activities, including medical affairs, manufacturing and
distribution, for any of our product candidates for which we receive marketing
approval;
"
cost and timing of necessary actions to support our strategic objectives;
"
costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing our intellectual property rights and defending intellectual
property-related claims; and
"
timing, receipt and amount of sales of, or milestone payments related to or
royalties on, our current or future product candidates, if any.
A change in any of these or other variables with respect to the development of
any of our product candidates could significantly change the costs and timing
of the development of that product candidate.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our cash needs through a combination of public or private
equity offerings, debt financings, collaborations, strategic alliances or
licensing arrangements with third parties. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
outstanding equity ownership may be materially diluted, and the terms of
securities sold in such transactions could include liquidation or other
preferences that adversely affect the rights of holders of common stock. 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. In addition, debt financing would result in increased
fixed payment obligations.
If we raise funds through collaborations, strategic alliances 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, reduce or eliminate our 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.
Contractual Commitments and Obligations
Tax-related Obligations
We exclude assets, liabilities or obligations pertaining to uncertain tax
positions from our summary of contractual commitments and obligations as we
cannot make a reliable estimate of the period of cash settlement with the
respective taxing authorities. As of March 31, 2023, we had no uncertain tax
positions.
Other Funding Commitments
As of March 31, 2023, we had, and continue to have, several ongoing studies in
various clinical trial stages. Our most significant clinical trial spending is
with clinical research organizations, or CROs. The contracts with CROs
generally are cancellable, with notice, at our option and do not have any
significant cancellation penalties.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities, that would have been established for the purpose of
facilitating off-balance sheet arrangements (as that term is defined in Item
303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited
purposes. As such, we are not exposed to any financing, liquidity, market or
credit risk that could arise if we had engaged in those types of relationships.
We enter into guarantees in the ordinary course of business related to the
guarantee of our own performance.
29
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New Accounting Pronouncements
For a discussion of new accounting pronouncements see Note 2,
Summary of Significant Accounting Policies
, of the consolidated financial statements appearing elsewhere in this
Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitati
ve Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934, as amended (the Exchange Act) and are not required to
provide the information required under this item.
Item 4. Controls
and Procedures.
Evaluation of Disclosure Controls and Procedures
The term disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act refers to controls and procedures that are
designed to ensure that information required to be disclosed by a company in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the companys
management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Because there are inherent
limitations in all control systems, a control system, no matter how well
conceived and operated, can provide only reasonable, as opposed to absolute,
assurance that the objectives of the control system are met. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be
considered relative to their costs. Our management, with the participation of
our chief executive officer and chief financial officer, evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls and
procedures were effective, at the reasonable assurance level, as of the end of
the period covered by this report. However, our management does not expect
that our disclosure controls and procedures or our internal control over
financial reporting will prevent all errors and all fraud.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the period covered by this Quarterly Report on Form 10-Q which have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
30
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PART
II
Item 1.
Legal
Proceedings
We are not a party to any material legal proceedings at this time. From time
to time we may be subject to various legal proceedings and claims, which may
have a material adverse effect on our financial position or results of
operations.
Item 1A.
Ri
sk Factors
You should carefully review and consider the information regarding certain
factors which could materially affect our business, financial condition or
future results set forth under the heading Risk Factors in Part I, Item 1A of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
There have been no material changes from the risk factors previously disclosed
therein.
Ite
m 5.
Other Information
Not applicable.
Item 6.
Exhibits
See the Exhibit Index on the following page of this Quarterly Report on Form
10-Q.
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EXHIBIT INDEX
Exhibit Description
No.
10.1 Stock Purchase Agreement, incorporated by reference to Exhibit 1 to
Amendment No. 3 to Schedule 13D filed by Peter M. Hecht on April 3, 2023
31.1 Certificate of Chief Executive Officer (Principal Executive
Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certificate of Chief Financial Officer (Principal Financial
Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certificate of Chief Executive Officer (Principal Executive Officer) pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certificate of Chief Financial Officer (Principal Financial Officer) pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy
Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension
Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension
Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension
Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension
Presentation Linkbase Document.
104 Cover Page Interactive Data File.
32
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SIGNA
TURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYCLERION THERAPEUTICS, INC.
By: /s/ Peter M. Hecht
Name: Peter M. Hecht
Title: Chief Executive Officer (Principal Executive Officer)
By: /s/ Anjeza Gjino
Name: Anjeza Gjino
Title: Chief Financial Officer (Principal Financial and Accounting Officer)
Date: May 11, 2023
33
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter M. Hecht, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cyclerion
Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent
fiscal quarter (the registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting.
Date: May 11, 2023 By: /s/ Peter M. Hecht
Name: Peter M. Hecht
Title: Chief Executive Officer (Principal Executive Officer)
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Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anjeza Gjino, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cyclerion
Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent
fiscal quarter (the registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting.
Date: May 11, 2023 By: /s/ Anjeza Gjino
Name: Anjeza Gjino
Title: Chief Financial Officer (Principal Financial and Accounting Officer)
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Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter M. Hecht, certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
knowledge, the Quarterly Report on Form 10-Q of Cyclerion Therapeutics, Inc.
for the period ended March 31, 2023 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the
information contained in such Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of Cyclerion
Therapeutics, Inc.
Date: May 11, 2023 By: /s/ Peter M. Hecht
Name: Peter M. Hecht
Title: Chief Executive Officer (Principal Executive Officer)
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Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Anjeza Gjino, certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
knowledge, the Quarterly Report on Form 10-Q of Cyclerion Therapeutics, Inc.
for the period ended March 31, 2023 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the
information contained in such Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of Cyclerion
Therapeutics, Inc.
Date: May 11, 2023 By: /s/ Anjeza Gjino
Name: Anjeza Gjino
Title: Chief Financial Officer (Principal Financial and Accounting Officer)
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