CYCLERION THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report on Form 10-K.
Forward-Looking Information
The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the corresponding notes included in this Annual Report on Form 10K. This discussion contains forwardlooking 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 Item 1A of this Annual Report on Form 10K, our actual results may differ materially from those anticipated in these forwardlooking statements.
Overview
We are a clinical-stage 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 segment-human 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
In
48
--------------------------------------------------------------------------------
In
In
In
In
In
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
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
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 years
49
--------------------------------------------------------------------------------
ended
Year Ended
December 31,
2022 2021
(in thousands)
Product pipeline external costs:
Zagociguat $ 13,629 $ 12,396
CY3018 4,009 3,310
Discovery research 663 551
Total product pipeline external costs 18,301 16,257 Personnel and related internal costs 10,237 11,374 Facilities and other
2,955 10,005
Total research and development expenses
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:
•
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.
•
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.
•
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.
•
The United States FDA and comparable agencies outside
•
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.
50
--------------------------------------------------------------------------------
As a result of the factors listed above, including the factors discussed under the "Risk Factors" section in Item 1A of this Annual Report on Form 10-K, 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 candidate's commercial potential.
General and Administrative Expense. General and administrative expense 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 Annual Report on Form 10-K.
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. See Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
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
51
--------------------------------------------------------------------------------
Year Ended
December 31, Change
2022 2021 $ %
(dollars in thousands)
Revenues:
Revenue from license agreement $ - $ 3,000 $ (3,000 ) (100 )%
Revenue from development
agreement 297 320 (23 ) (7 )%
Revenue from grants 1,328 622 706 114 %
Total revenues 1,625 3,942 (2,317 ) (59 )%
Cost and expenses:
Research and development 31,493 37,636 (6,143 ) (16 )%
General and administrative 14,504 20,620 (6,116 ) (30 )%
Loss on lease termination - 881 (881 ) (100 )%
Total cost and expenses 45,997 59,137 (13,140 ) (22 )%
Loss from operations (44,372 ) (55,195 ) 10,823 (20 )%
Gain on Extinguishment of Debt - 3,564 (3,564 ) (100 )%
Interest and other income
(expenses), net 294 (16 ) 310 (1938 )%
Net loss $ (44,078 ) $ (51,647 ) $ 7,569 (15 )%
Revenues. The decrease in revenue of approximately
Research and development expenses. The decrease in research and development
expenses of approximately
General and administrative expenses. The decrease in general and administrative
expenses of approximately
Loss on lease modification and termination. The loss on lease modification and
termination of approximately
Gain on Extinguishment of Debt. The gain on extinguishment of debt of
Interest and other (expenses) income, net. Interest and other (expenses) income,
net increased by approximately
Liquidity and Capital Resources
On
52
--------------------------------------------------------------------------------
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
On
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
Continued Nasdaq Listing
On
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided a
period of 180 calendar days, or until
If at any time before
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 that the Company will be able to regain compliance with the Bid Price Requirement, would receive sufficient shareholder support for a reverse stock split, or will otherwise be in compliance with other Nasdaq Listing Rules.
53
--------------------------------------------------------------------------------
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 management's 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 Company's ability to continue as a going concern. The mitigating effect of management's 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 entity's 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 Company's 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
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.
Cash Flows
The following is a summary of cash flows for the years endedDecember 31, 2022 and 2021: Year Ended December 31, Change 2022 2021 $ % (dollars in thousands)
Net cash used in operating activities
Cash Flows from Operating Activities
Net cash used in operating activities was
Cash Flows from Investing Activities
Net cash provided by investing activities was
54
--------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net cash provided by financing activities of
Debt - Paycheck Protection Program
On
In
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
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 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.
55
--------------------------------------------------------------------------------
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
Other Funding Commitments
As of
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.
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 Annual Report on Form 10-K.
© Edgar Online, source
