cycn-10q_20200930.htm

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 September 30, 2020

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
(State or other jurisdiction of
incorporation or organization)

 

83-1895370
(I.R.S. Employer
Identification No.)

 

 

 

301 Binney Street, Cambridge, Massachusetts
(Address of principal executive offices)

 

02142
(Zip Code)

 

(857) 327-8778

Registrant’s 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 Stock Market LLC
(Nasdaq Global Select Market)

 

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 (§ 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 November 3, 2020, the registrant had 33,961,868 shares of common stock, no par value, outstanding. 

 

 

 


CYCLERION PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

 

 

 

Page

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

5

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

5

 

Condensed Consolidated and Combined Statements of Operations and Comprehensive Loss for Three and Nine Months Ended September 30, 2020 and 2019

6

 

Condensed Consolidated and Combined Statements of Stockholders’ Equity (Deficit) for Three and Nine Months Ended September 30, 2020 and 2019

7

 

Condensed Consolidated and Combined Statements of Cash Flows for Three and Nine Months Ended September 30, 2020 and 2019

9

 

Notes to the Condensed Consolidated and Combined Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

 

 

 

 

PART II — OTHER INFORMATION

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 5.

Other Information

37

Item 6.

Exhibits

37

 

Signatures

39

 

 

 


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report 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:

 

the timing, investment and associated activities involved in developing, obtaining regulatory approval for, launching and commercializing our product candidates, including IW-6463;

 

the COVID-19 pandemic affecting our clinical trials and other operating activities in ways that are difficult to judge at this time;

 

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;

 

our interpretation of the data from the praliciguat Phase 2 clinical trial in patients with diabetic nephropathy, including regarding the clinical site whose results appear to be inconsistent with the overall study population;

 

our ability to out-license praliciguat;

 

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;

 

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;

3


 

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;

 

potential indemnification liabilities we may owe to Ironwood after the separation;

 

the tax treatment of the spin-off distribution and the limitations of the tax matters agreement that we entered into with Ironwood; and

 

trends and challenges in the markets for our potential products.

See the “Risk Factors” section in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2019, our quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2020 and June 30, 2020 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 Consolidated Balance Sheets

(In thousands except share and per share data)

(Unaudited)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,840

 

 

$

94,895

 

Related party accounts receivable

 

 

400

 

 

 

1,474

 

Prepaid expenses

 

 

1,218

 

 

 

1,966

 

Other current assets

 

 

1,666

 

 

 

2,862

 

Total current assets

 

 

70,124

 

 

 

101,197

 

Restricted cash, net of current portion

 

 

3,837

 

 

 

4,991

 

Property and equipment, net

 

 

10,180

 

 

 

11,613

 

Operating lease right-of-use asset

 

 

44,396

 

 

 

68,137

 

Other assets

 

 

2,865

 

 

 

540

 

Total assets

 

$

131,402

 

 

$

186,478

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,360

 

 

$

3,230

 

Related party accounts payable

 

 

495

 

 

 

81

 

Accrued research and development costs

 

 

2,160

 

 

 

2,198

 

Accrued expenses and other current liabilities

 

 

5,605

 

 

 

9,320

 

Short-term note payable

 

 

3,509

 

 

 

 

Current portion of operating lease liabilities

 

 

3,133

 

 

 

3,420

 

Total current liabilities

 

 

16,262

 

 

 

18,249

 

Operating lease liabilities, net of current portion

 

 

39,786

 

 

 

70,500

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, no par value, 400,000,000 shares authorized and 33,961,555 issued and outstanding at September 30, 2020 and 400,000,000 shares authorized and 27,598,133 issued and outstanding at December 31, 2019

 

 

 

 

 

 

Accumulated deficit

 

 

(144,201

)

 

 

(85,627

)

Paid-in capital

 

 

219,582

 

 

 

183,376

 

Accumulated other comprehensive loss

 

 

(27

)

 

 

(20

)

Total stockholders' equity

 

 

75,354

 

 

 

97,729

 

Total liabilities and stockholders' equity

 

$

131,402

 

 

$

186,478

 

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

5


Cyclerion Therapeutics, Inc.

Condensed Consolidated and Combined Statements of Operations and Comprehensive Loss

(In thousands except per share data)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue from related party

 

$

400

 

 

$

1,398

 

 

$

2,163

 

 

$

3,026

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

13,703

 

 

 

22,295

 

 

 

44,322

 

 

 

74,458

 

General and administrative

 

 

8,033

 

 

 

7,119

 

 

 

21,551

 

 

 

27,019

 

(Gain) loss on lease modification, net

 

 

444

 

 

 

 

 

 

(1,669

)

 

 

 

Total cost and expenses

 

 

22,180

 

 

 

29,414

 

 

 

64,204

 

 

 

101,477

 

Loss from operations

 

 

(21,780

)

 

 

(28,016

)

 

 

(62,041

)

 

 

(98,451

)

Sublease termination income, net

 

 

2,875

 

 

 

 

 

 

2,875

 

 

 

 

Interest and other income, net

 

 

93

 

 

 

699

 

 

 

592

 

 

 

1,498

 

Net loss

 

$

(18,812

)

 

$

(27,317

)

 

$

(58,574

)

 

$

(96,953

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.59

)

 

$

(1.00

)

 

$

(2.01

)

 

$

(3.54

)

Weighted average shares used in calculating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

 

32,096

 

 

 

27,434

 

 

 

29,196

 

 

 

27,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(18,812

)

 

$

(27,317

)

 

$

(58,574

)

 

$

(96,953

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment (loss) gain

 

 

3

 

 

 

5

 

 

 

(7

)

 

 

1

 

Total other comprehensive (loss) gain

 

 

3

 

 

 

5

 

 

 

(7

)

 

 

1

 

Comprehensive loss

 

$

(18,809

)

 

$

(27,312

)

 

$

(58,581

)

 

$

(96,952

)

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

 

6


Cyclerion Therapeutics, Inc.

Condensed Consolidated and Combined Statements of Stockholders’ Equity (Deficit)

(In thousands except share data)

(Unaudited)

 

 

Common Stock

 

 

Net Parent

 

 

Paid-in

 

 

Accumulated

 

 

Accumulated

other

comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Investment

 

 

capital

 

 

deficit

 

 

loss

 

 

equity (deficit)

 

Balance at December 31, 2018

 

 

 

 

$

 

 

$

(10,445

)

 

$

 

 

$

 

 

$

 

 

$

(10,445

)

Net loss

 

 

 

 

 

 

 

 

(37,381

)

 

 

 

 

 

 

 

 

 

 

 

(37,381

)

Net transfers from Ironwood

 

 

 

 

 

 

 

 

36,085

 

 

 

 

 

 

 

 

 

 

 

 

36,085

 

Ironwood allocation - share-based compensation

 

 

 

 

 

 

 

 

3,989

 

 

 

 

 

 

 

 

 

 

 

 

3,989

 

Balance at March 31, 2019

 

 

 

 

$

 

 

$

(7,752

)

 

$

 

 

$

 

 

$

 

 

$

(7,752

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,254

)

 

 

 

 

 

(32,254

)

Net transfers from Ironwood

 

 

 

 

 

 

 

 

2,602

 

 

 

 

 

 

 

 

 

 

 

 

2,602

 

Ironwood allocation - share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Separation-related adjustments

 

 

 

 

 

 

 

 

7,752

 

 

 

 

 

 

 

 

 

 

 

 

7,752

 

Reclassification of net parent company investment

 

 

 

 

 

 

 

 

(2,602

)

 

 

2,602

 

 

 

 

 

 

 

 

 

 

Distribution of common stock by Ironwood upon separation

 

 

15,562,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock - 2019 private placement, net of fees

 

 

11,817,165

 

 

 

 

 

 

 

 

 

164,622

 

 

 

 

 

 

 

 

 

164,622

 

Issuance of common stock upon exercise of options and employee stock purchase plan

 

 

9,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock awards

 

 

21,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense related to share-based awards to employees

 

 

 

 

 

 

 

 

 

 

 

6,224

 

 

 

 

 

 

 

 

 

6,224

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Balance at June 30, 2019

 

 

27,411,189

 

 

$

 

 

$

 

 

$

173,448

 

 

$

(32,254

)

 

$

(4

)

 

$

141,190

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,317

)

 

 

 

 

 

(27,317

)

Issuance of common stock upon exercise of options and employee stock purchase plan

 

 

57,256

 

 

 

 

 

 

 

 

 

372

 

 

 

 

 

 

 

 

 

372

 

Share-based compensation expense related to share-based awards to employees

 

 

 

 

 

 

 

 

 

 

 

4,948

 

 

 

 

 

 

 

 

 

4,948

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

5

 

Balance at September 30, 2019

 

 

27,468,445

 

 

$

 

 

$

 

 

$

178,768

 

 

$

(59,571

)

 

$

1

 

 

$

119,198

 

7


Cyclerion Therapeutics, Inc.

Condensed Consolidated and Combined Statements of Stockholders’ Equity (Deficit)

(In thousands except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Net Parent

 

 

Paid-in

 

 

Accumulated

 

 

Accumulated

other

comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Investment

 

 

capital

 

 

deficit

 

 

loss

 

 

equity (deficit)

 

Balance at December 31, 2019

 

 

27,598,133

 

 

$

 

 

$

 

 

$

183,376

 

 

$

(85,627

)

 

$

(20

)

 

$

97,729

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,228

)

 

 

 

 

 

(20,228

)

Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan

 

 

156,761

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

4,036

 

 

 

 

 

 

 

 

 

4,036

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Balance at March 31, 2020

 

 

27,754,894

 

 

$

 

 

$

 

 

$

187,413

 

 

$

(105,855

)

 

$

(18

)

 

$

81,540

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,534

)

 

 

 

 

 

(19,534

)

Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan

 

 

102,816

 

 

 

 

 

 

 

 

 

155

 

 

 

 

 

 

 

 

 

155

 

Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

3,952

 

 

 

 

 

 

 

 

 

3,952

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

(12

)

Balance at June 30, 2020

 

 

27,857,710

 

 

$

 

 

$

 

 

$

191,520

 

 

$

(125,389

)

 

$

(30

)

 

$

66,101

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,812

)

 

 

 

 

 

(18,812

)

Issuance of common stock - 2020 private placement

 

 

6,062,500

 

 

 

 

 

 

 

 

 

24,250

 

 

 

 

 

 

 

 

 

24,250

 

Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan

 

 

41,345

 

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

3,796

 

 

 

 

 

 

 

 

 

3,796

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Balance at September 30, 2020

 

 

33,961,555

 

 

$

 

 

$

 

 

$

219,582

 

 

$

(144,201

)

 

$

(27

)

 

$

75,354

 

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

 

 

8


Cyclerion Therapeutics, Inc.

Condensed Consolidated and Combined Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(58,574

)

 

$

(96,953

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,827

 

 

 

2,047

 

Net loss on disposal of property and equipment

 

 

205

 

 

 

76

 

Gain on lease modification

 

 

(1,669

)

 

 

 

Sublease termination income, net

 

 

(2,875

)

 

 

 

Share-based compensation expense

 

 

11,785

 

 

 

15,161

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Related party accounts receivable

 

 

1,074

 

 

 

(1,440

)

Prepaid expenses

 

 

748

 

 

 

(1,297

)

Other current assets

 

 

(8

)

 

 

(49

)

Operating lease assets

 

 

(3,592

)

 

 

2,108

 

Other assets

 

 

(979

)

 

 

25

 

Accounts payable

 

 

(1,094

)

 

 

1,942

 

Related party accounts payable

 

 

414

 

 

 

187

 

Accrued research and development costs

 

 

(38

)

 

 

(1,719

)

Operating lease liabilities

 

 

(2,000

)

 

 

3,395

 

Accrued expenses and other current liabilities

 

 

(3,673

)

 

 

(3,535

)

Net cash (used in) operating activities

 

 

(58,449

)

 

 

(80,052

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,489

)

 

 

(6,714

)

Proceeds from sale of property and equipment

 

 

71

 

 

 

99

 

Net cash (used in) investing activities

 

 

(1,418

)

 

 

(6,615

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from 2020 private placement

 

 

24,250

 

 

 

 

Gross proceeds from 2019 private placement

 

 

 

 

 

175,000

 

Costs associated with 2019 private placement

 

 

 

 

 

(10,378

)

Proceeds from exercises of stock options and ESPP

 

 

172

 

 

 

365

 

Proceeds from short-term note payable

 

 

3,509

 

 

 

 

Transfers from Ironwood

 

 

 

 

 

46,439

 

Net cash provided by financing activities

 

 

27,931

 

 

 

211,426

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(7

)

 

 

1

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(31,943

)

 

 

124,760

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

102,620

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

70,677

 

 

$

124,760

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

Cash paid for initial direct costs of lease modification

 

$

6,507

 

 

$

 

Non-cash investing activities

 

 

 

 

 

 

 

 

Fixed asset purchases in accounts payable and accrued expenses

 

$

4

 

 

$

95

 

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated and balance sheets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,840

 

 

$

117,034

 

Restricted cash

 

 

3,837

 

 

 

7,726

 

Total cash, cash equivalents and restricted cash

 

$

70,677

 

 

$

124,760

 

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

 

9


Cyclerion Therapeutics, Inc.

Notes to the Condensed Consolidated and Combined Financial Statements

(Unaudited)

1. Nature of Business

Nature of Operations

Cyclerion Therapeutics, Inc. (“Cyclerion”, the “Company” or “we”) is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing innovative medicines for people with serious diseases of the central nervous system (“CNS”), including cognitive and neurodegenerative disorders. Our current lead asset, IW-6463, is a pioneering CNS-penetrant sGC stimulator in clinical development for Mitochondrial Encephalomyopathy, Lactic Acidosis and Stroke-like episodes (MELAS) and Alzheimer's disease with vascular pathology (“ADv”). sGC stimulators are small molecules that act synergistically with nitric oxide (“NO”) on sGC to boost production of cyclic guanosine monophosphate, or cGMP. cGMP is a key second messenger that, when produced by sGC, regulates diverse and critical biological functions in the CNS including blood flow and vascular dynamics, inflammatory and fibrotic processes, bioenergetics, metabolism and neuronal function.

Cyclerion GmbH, a wholly owned subsidiary, was incorporated in Zug, Switzerland on May 3, 2019. Cyclerion GmbH is an operational entity with one employee who is the Company’s Chief Innovation Officer. 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 Company’s priorities are advancing its ongoing IW-6463 clinical programs and seeking the out-licensing of praliciguat:

IW-6463, an orally administered CNS-penetrant sGC stimulator that is being developed as a symptomatic and potentially disease modifying therapy for serious CNS diseases. Nitric oxide is one of several fundamental neurotransmitters, yet it has not been leveraged for its full CNS therapeutic potential. IW-6463 stimulates sGC, a signaling enzyme that responds to the presence of NO, to enhance the body’s natural ability to produce cGMP, an important signaling molecule, naturally. An impaired NO-sGC-cGMP signaling pathway is believed to play an important role in the pathogenesis of neurodegenerative diseases and is critical to basic neuronal functions. Agents that stimulate sGC to produce cGMP may compensate for deficient NO signaling.

On January 13, 2020 the Company released positive top line results from our first-in-human study of IW-6463. IW-6463 was generally well tolerated in healthy human adults. The study demonstrated IW-6463 penetration across the blood-brain-barrier at levels expected to be pharmacologically active as well as a mild reduction in blood pressure providing evidence of peripheral pharmacological activity.

On October 14, 2020, the Company announced positive topline results from its IW-6463 Phase 1 translational pharmacology study. Treatment with IW-6463 in this 15-day 24-subject crossover study confirmed and extended results seen in earlier Phase 1 studies: once daily oral treatment demonstrated desired CNS exposure, blood-brain-barrier penetration and target engagement. Subjects receiving IW-6463 showed meaningful improvements in certain neurophysiological and objective performance measures that are associated with age-related cognitive decline and neurodegenerative diseases. Effects on cerebral blood flow and markers of bioenergetics were not observed in this study. IW-6463 was shown to be safe and generally well-tolerated. These results support the ongoing development of IW-6463 in serious CNS diseases.

We will soon begin enrolling our IW-6463 Phase 2 clinical trial in Mitochondrial Encephalomyopathy, Lactic acidosis, and Stroke-like episodes (MELAS). Over the coming months, the Company will use the findings of the translational pharmacology study and from the previous Phase 1 study, to inform further clinical development activities, including the planned Phase 2 clinical trial in Alzheimer’s disease with vascular pathology in 2021.

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Olinciguat, an orally-administered, once-daily, vascular sGC stimulator for the potential treatment of sickle cell disease (“SCD”). Olinciguat was evaluated in the STRONG-SCD study, a randomized, placebo-controlled, dose-ranging Phase 2 study of 70 participants with sickle cell disease designed to evaluate safety, tolerability, and pharmacokinetics of olinciguat, compared to placebo, and to explore effects on daily symptoms and biomarkers of disease activity when dosed over a 12-week treatment period. On October 14, 2020, the Company announced topline results from this study. It did not demonstrate adequate activity to support further internal clinical development. The Company intends to complete its analysis of the study results and present or publish them in a future forum.

Praliciguat, an orally administered, once-daily systemic sGC stimulator that was evaluated in two Phase 2 proof-of-concept studies: a dose-ranging study in 156 adult patients with diabetic nephropathy, and a study in 196 adult patients with heart failure with preserved ejection fraction (HFpEF), CAPACITY-HFpEF. On October 30, 2019, we released topline results from these studies. The Company’s efforts to out-license rights to praliciguat have expanded to discussions beyond treatment of cardiometabolic disorders to include additional indications where sGC stimulators have demonstrated efficacy.

The Separation

On April 1, 2019, Ironwood Pharmaceuticals, Inc. (“Ironwood”) completed the previously announced separation of its sGC business, and certain other assets and liabilities, into a separate, independent publicly traded company by way of a pro-rata distribution of all of the outstanding shares of common stock of Cyclerion Therapeutics, Inc. through a dividend distribution of one share of the Company’s common stock, with no par value per share, for every 10 shares of Ironwood common stock held by Ironwood stockholders as of the close of business on March 19, 2019, the record date for the Distribution (the entire transaction being the “Separation”). As a result of the Separation, the Company became an independent public company and commenced trading under the symbol “CYCN” on the Nasdaq Global Select Market on April 2, 2019.

In connection with the Separation, on March 30, 2019, the Company entered into certain agreements with Ironwood to provide a framework for the Company’s relationship with Ironwood following the Separation, including, among others, the Separation Agreement, Tax Matters Agreement, and Employee Matters Agreement (“EMA”).

In addition, in connection with the Separation, on April 1, 2019, the Company entered into a Development Agreement, an Ironwood Transition Services Agreement, a Cyclerion Transition Services Agreement and an Intellectual Property License Agreement with Ironwood.

On April 2, 2019, the Company issued 11,817,165 shares in a private placement (the “2019 Equity Private Placement”) of common stock to accredited investors for gross proceeds of $175 million (net proceeds of approximately $165 million).

2020 Equity Private Placement

On July 29, 2020, the Company entered into a Common Stock Purchase Agreement (the “2020 Equity Private Placement”) with two investors for a private placement of 6,062,500 shares of the Company’s common stock, at a purchase price of $4.00 per share for total gross proceeds of approximately $24.3 million. The closing of the 2020 Equity Private Placement occurred on July 29, 2020. The Company did not use a placement agent or broker in connection with the 2020 Equity Private Placement and incurred no commissions and no material direct transaction fees.

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 to Jefferies cash commissions of 3.0 percent of

11


the gross proceeds of sales of common stock under the Sales Agreement. As of September 30, 2020, no shares have been issued or sold under the ATM Offering.

Basis of Presentation

The Company did not operate as a separate, stand-alone entity for the prior interim period covered by the interim condensed consolidated and combined financial statements. The Company’s condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, condensed consolidated and combined statements of operations and comprehensive loss and statements of cash flows for the three and nine months ended September 30, 2020 and combined statements of operations and comprehensive loss for the three months ended September 30, 2019 consist of the condensed consolidated balances and activity of Cyclerion as prepared on a stand-alone basis. The Company’s condensed consolidated and combined statements of operations and comprehensive loss and statements of cash flows for the nine months ended September 30, 2019 have been prepared on a “carve out” basis.

The unaudited condensed consolidated and combined financial statements reflect the historical results of the operations, financial position and cash flows of Cyclerion, in conformity with United States generally accepted accounting principles (“U.S. GAAP”).

The accompanying unaudited condensed consolidated and combined financial statements reflect the condensed consolidated and combined financial position and condensed consolidated and combined results of operations of the Company as an independent, publicly-traded company for the period after the Separation on April 1, 2019. The unaudited condensed consolidated and combined financial statements also reflect the financial position and results of operations of the Company as a combined reporting entity of Ironwood for periods prior to the Separation.

For periods prior to the Separation, the unaudited condensed consolidated and combined financial statements of Cyclerion reflect the assets, liabilities, and expenses directly attributable to Cyclerion, as well as allocations of certain corporate level expenses, deemed necessary to fairly present the results of operations and cash flows of Cyclerion, as discussed further below. As such, these allocations may not be indicative of the actual amounts that would have been recorded had Cyclerion operated as an independent, publicly traded company for the years presented. 

Prior to the Separation, Cyclerion was dependent upon Ironwood for all of its working capital and financing requirements, as Ironwood used a centralized approach to cash management and financing its operations. There were no cash amounts specifically attributable to Cyclerion for the historical periods presented; therefore, there is no cash reflected for historical periods in the condensed consolidated and combined financial statements. Accordingly, cash and cash equivalents, debt or related interest expense have not been allocated to Cyclerion in the historical financial statements. Financing transactions related to Cyclerion are accounted for as a component of net parent investment in the historical combined balance sheets and as a financing activity on the accompanying combined statements of cash flows.

Prior to the Separation, Cyclerion’s combined financial statements included an allocation of expenses related to certain Ironwood corporate functions, including senior management, legal, human resources, finance, information technology and quality assurance. These expenses were allocated to Cyclerion based on direct usage or benefit where identifiable, with the remainder allocated pro-rata based on project related costs, headcount or other measures. These allocations may not be indicative of the actual expense that would have been incurred had Cyclerion operated as an independent, publicly traded company for the periods presented.

Prior to the Separation, the combined balance sheets of Cyclerion included assets and liabilities that were allocated principally on a specific identification basis and net parent investment was shown in lieu of stockholders’ equity. As a result of the Separation, the Company’s net parent investment balance was reclassified to paid-in capital.

Going Concern

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company’s evaluation entails analyzing prospective operating budgets and

12


forecasts for expectations of the Company’s 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 Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.

The Company has experienced negative operating cash flows for all historical periods presented. The Company expects these losses to continue into the foreseeable future as the Company continues the development and clinical testing of its product candidate IW-6463, and its discovery research programs. On April 2, 2019, the Company received gross proceeds of $175 million (net proceeds of approximately $165 million) from the 2019 Equity Private Placement. On July 29, 2020, the Company received proceeds of approximately $24.3 million from the 2020 Equity Private Placement.

After considering the Company’s current research and development plans and the timing expectations related to the progress of its programs, and after considering its existing cash and cash equivalents as of September 30, 2020, the Company did not identify conditions or events that would raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date these financial statements were issued.

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 and combined financial statements contained in the Company’s 2019 annual report on Form 10-K. The Company includes herein certain updates to those policies.

Leases

The Company has a property lease for its headquarters location at 301 Binney Street, Cambridge, MA (the “Head Lease”). The Company determines if an arrangement is a lease at the inception of the contract. The asset component of the Company’s operating leases is recorded as operating lease right-of-use (“ROU”) assets, and the liability component is recorded as current portion of operating lease liabilities and operating lease liabilities, net of current portion, in the Company’s consolidated balance sheets.

ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. The Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments if an implicit rate of return is not provided with the lease contract. Operating lease right-of-use assets are adjusted for incentives received.

Lease cost is recognized on a straight-line basis over the lease term, and includes amounts related to short-term leases. Variable lease costs that do not depend on an index or rate are recognized as incurred.

ROU assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate upon lease modification. The difference between the remeasured ROU assets and the operating lease liabilities are recognized as a gain or loss in operating expenses. The Company reviews any changes to its lease agreements for potential modifications and/or indicators of impairment of the respective ROU asset.

On October 18, 2019, the Company entered into an agreement to sublease 15,700 rentable square feet of its Head Lease to a subtenant (the “Sublease Agreement”). Sublease income is recognized on straight-line basis over the term of the sublease agreement and is recorded net of the related rent expense from the Head Lease within interest and other income, net in the condensed consolidated and combined statements of operations and comprehensive loss. In sublease agreements that contain non-monetary consideration, the Company estimates the fair market value of the non-monetary consideration received using market data and recognizes it on a straight-line basis over the sublease term. Variable lease consideration that does not depend on an index or rate is allocated to a non-lease component and is recognized over time in accordance with the pattern of transfer. No modification or impairment was deemed to have occurred by entering into the sublease agreement because the Company was not released, either fully or in part, from its obligations under the Head Lease. See Note 8, Leases.

13


On February 28, 2020 the Company entered into an amendment to its Head Lease at 301 Binney Street in Cambridge, Massachusetts (the “Lease Amendment”). The Lease Amendment provided for the partial termination of the Company's rights and obligations with respect to a portion of the leased premises of approximately 40,000 rentable square feet. The Company will continue to lease approximately 74,000 rentable square feet under terms of the amended lease. The Lease Amendment was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract. As such, the ROU assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification and the Company recorded a gain of approximately $2.1 million as a component of operating expenses for the three months ended March 31, 2020. No impairment of the ROU asset was deemed to have occurred. See Note 8, Leases.

On September 15, 2020, the Company entered into an amendment to its Head Lease at 301 Binney Street in Cambridge, Massachusetts (the “Second Lease Amendment”). The Second Lease Amendment provided for the partial termination of the Company's rights and obligations with respect to a portion of the leased premises of approximately 17,000 rentable square feet (the “Surrender Space”). The Surrender Space includes the 15,700 rentable square feet being subleased by the Company to a subtenant. The Company will continue to lease approximately 57,000 rentable square feet under terms of the amended lease. The Second Lease Amendment was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract. As such, the ROU assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification and the Company recorded a loss of approximately $0.4 million as a component of operating expenses for the three months ended September 30, 2020. No impairment of the ROU asset was deemed to have occurred. See Note 8, Leases.

On September 15, 2020, concurrent with the execution of the Second Lease Amendment, the Company entered into an agreement with its subtenant to terminate the Sublease Agreement of approximately 15,700 rentable square feet (“the Sublease Termination Agreement”). Under the terms of the Sublease Termination Agreement, the former subtenant is obligated to provide licensed rooms and services to the Company free of charge through the original sublease term. Upon termination of the sublease, the Company recognized sublease termination income of approximately $3.1 million related to the prepaid rooms and services, and wrote off the remaining indirect costs from the sublease of approximately $0.2 million, in the condensed consolidated and combined statements of operations and comprehensive loss. See Note 8, Leases.

Paycheck Protection Program Loan

On April 21, 2020, the Company received loan proceeds in the amount of approximately $3.5 million pursuant to a promissory note agreement (the “Promissory Note”) with a bank under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The Promissory Note has a loan maturity of April 20, 2022, a stated interest rate of 1.0% per annum, and has payments of principal and interest that are due monthly after an initial six-month deferral period where interest accrues, but no payments are due. The Promissory Note provides for customary events of default, including, among others, those relating to failure to make payment when due and breaches of representations. The Company may prepay the principal of the Promissory Note at any time without incurring any prepayment charges. The loan is subject to all the terms and conditions applicable under the PPP and is subject to review by the Small Business Association (the “SBA”) for compliance with program requirements, including the Company’s certification that the current economic uncertainty made the PPP loan request necessary to support ongoing operations. On October 2, 2020, the SBA issued procedural guidance with respect to PPP loans and changes in ownership and the Company believes that it is compliant with respect to the 2020 Equity Private Placement and the ATM Offering.

In June 2020, the Payroll Protection Program Flexibility Act (“PPPFA”) was signed into law adjusting certain key terms of loans issued under the PPP. In accordance with the PPPFA, the initial deferral period may be extended from six to up to ten months and the loan maturity may be extended from two to five years. The PPPFA also provided for certain other changes, including the extent to which the loan may be forgiven.

The loan’s principal and accrued interest are forgivable to the extent that the proceeds are used for eligible purposes, subject to certain limitations, and that the Company maintains its payroll levels over a twenty-four-week period following the loan date. The loan forgiveness amount may be reduced if the Company terminates employees or reduces salaries during the twenty-four-week period. The Company believes that it has used the proceeds for

14


eligible purposes consistent with the provisions of the PPPFA. However, there can be no assurance that any portion of the loan will be forgiven and that we will not have to repay the loan in full.

As the legal form of the Promissory Note is a debt obligation, the Company is accounting for it as debt under Accounting Standards Codification (ASC) 470, Debt and recorded an initial short-term liability of $3.5 million in the condensed consolidated balance sheet upon receipt of the loan proceeds. The Company is accruing interest over the term of the loan and is not imputing additional interest at a market rate because the guidance on imputing interest in ASC 835-30, Interest excludes transactions where interest rates are prescribed by a government agency. A de minimis amount of interest expense has been recognized within interest and other income, net in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and a de minimis amount of interest expense has been accrued within accrued expenses and other current liabilities on the condensed consolidated balance sheet as of September 30, 2020. If any amount of the loan is ultimately forgiven, income from the extinguishment of debt would be recognized as a gain on loan extinguishment in the consolidated statement of operations and comprehensive loss.

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 condensed consolidated and combined financial statements, the Company did not adopt any new accounting pronouncements during the nine months ended September 30, 2020 that had a material effect on its condensed consolidated and combined financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”) to provide additional guidance on the adoption of ASU 2016-13, ASU No. 2019-10, Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2019-11”) and ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)("ASU 2020-02"). ASU 2019-04 added Topic 326, Financial Instruments—Credit Losses, and made several amendments to the codification and also modified the accounting for available-for-sale debt securities. ASU 2019-05 provides targeted transition relief by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. ASU 2019-10 aligned the effective dates of certain major updates not yet effective to conform to the FASB’s new philosophy of staggering major updates between large public companies and all other entities. ASU 2019-11’s major provisions included additional clarifications and practical expedients related to expected recoveries for purchased assets with credit deterioration, troubled debt restructuring, accrued interest receivables, and other areas when adopting ASU 2016-13. ASU 2020-02 provided amendments to the Topic 326 including a new section related to credit losses measured at amortized cost and a clarification to Topic 842 and is effective when adopting other areas of Financial Instruments-Credit Losses Topic 326. As a public business entity that qualifies as a smaller reporting company, ASU 2016-13, ASU 2019-04 and ASU 2019-05 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact that the adoption of these ASUs will have on the Company’s financial position and results of operations.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (“ASU 2018-13”): Disclosure Framework—Changes to the Disclosure Requirement for Fair Value Measurement (“ASU 2018-13”) which amends the disclosure requirements for fair value measurements. The amendments in ASU 2018-13 are effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-13 in the first quarter of 2020 and the adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

15


In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40, Intangibles—Goodwill and Other—Internal Use Software (ASC 350-40), to determine which implementation costs to capitalize as assets or expense as incurred. The internal-use software guidance in ASC 350-40 requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as they are incurred. A customer’s accounting for the hosting component of the arrangement is not affected by this guidance. The amendments in ASU 2018-15 are effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-15 in the first quarter of 2020 and the adoption of this standard did not have a material 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