cycn-10q_20210331.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 March 31, 2021

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.)

 

 

 

245 First Street, 18th Floor, 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 April 27, 2021, the registrant had 34,134,466 shares of common stock, no par value, outstanding. 

 

 

 


 

CYCLERION PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED March 31, 2021

TABLE OF CONTENTS

 

 

 

Page

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

5

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for Three Months Ended March 31, 2021 and 2020

6

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for Three Months Ended March 31, 2021 and 2020

7

 

Condensed Consolidated Statements of Cash Flows for Three Months Ended March 31, 2021 and 2020

9

 

Notes to the Condensed Consolidated Financial Statements

10

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

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:

 

the timing, investment and associated activities involved in developing, obtaining regulatory approval for, launching and commercializing our product candidates, including CY6463;

 

the COVID-19 pandemic affecting our clinical trials and other operating activities;

 

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 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;

 

our ability to obtain and maintain intellectual property protection for our product candidates and the strength thereof;

3


 

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, 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)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,429

 

 

$

54,395

 

Related party accounts receivable

 

 

 

 

 

127

 

Prepaid expenses

 

 

1,213

 

 

 

816

 

Other current assets

 

 

1,804

 

 

 

3,163

 

Total current assets

 

 

44,446

 

 

 

58,501

 

Restricted cash, net of current portion

 

 

3,837

 

 

 

3,837

 

Property and equipment, net

 

 

6,607

 

 

 

6,865

 

Operating lease right-of-use asset

 

 

42,396

 

 

 

43,402

 

Other assets

 

 

2,681

 

 

 

2,773

 

Total assets

 

$

99,967

 

 

$

115,378

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,095

 

 

$

1,149

 

Related party accounts payable

 

 

 

 

 

286

 

Accrued research and development costs

 

 

1,620

 

 

 

1,421

 

Accrued expenses and other current liabilities

 

 

3,858

 

 

 

7,294

 

Short-term note payable

 

 

3,509

 

 

 

3,509

 

Current portion of operating lease liabilities

 

 

3,385

 

 

 

3,293

 

Total current liabilities

 

 

13,467

 

 

 

16,952

 

Operating lease liabilities, net of current portion

 

 

38,067

 

 

 

38,933

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, no par value, 400,000,000 shares authorized and 34,129,925 issued and outstanding at March 31, 2021 and 400,000,000 shares authorized and 34,047,300 issued and outstanding at December 31, 2020

 

 

 

 

 

 

Accumulated deficit

 

 

(176,828

)

 

 

(163,429

)

Paid-in capital

 

 

225,288

 

 

 

222,949

 

Accumulated other comprehensive loss

 

 

(27

)

 

 

(27

)

Total stockholders' equity

 

 

48,433

 

 

 

59,493

 

Total liabilities and stockholders' equity

 

$

99,967

 

 

$

115,378

 

 

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

5


Cyclerion Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands except per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Revenue from development agreement

 

$

62

 

 

$

 

Revenue from related party

 

 

 

 

 

1,014

 

Total revenues

 

 

62

 

 

 

1,014

 

Cost and expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

8,092

 

 

 

16,825

 

General and administrative

 

 

5,365

 

 

 

6,891

 

Gain on lease modification, net

 

 

 

 

 

(2,113

)

Total cost and expenses

 

 

13,457

 

 

 

21,603

 

Loss from operations

 

 

(13,395

)

 

 

(20,589

)

Interest and other income, net

 

 

(4

)

 

 

361

 

Net loss

 

$

(13,399

)

 

$

(20,228

)

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.39

)

 

$

(0.73

)

Weighted average shares used in calculating:

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

 

34,081

 

 

 

27,669

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(13,399

)

 

$

(20,228

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment (loss) gain

 

 

 

 

 

2

 

Total other comprehensive (loss) gain

 

 

 

 

 

2

 

Comprehensive loss

 

$

(13,399

)

 

$

(20,226

)

 

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

 

6


 

Cyclerion Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands except share data)

(Unaudited)

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Accumulated

other

comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

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

 

7


 

Cyclerion Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Accumulated

other

comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

loss

 

 

equity (deficit)

 

Balance at December 31, 2020

 

 

34,047,300

 

 

$

 

 

$

222,949

 

 

$

(163,429

)

 

$

(27

)

 

$

59,493

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,399

)

 

 

 

 

 

(13,399

)

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

 

 

82,625

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

27

 

Share‑based compensation expense related to issuance of stock options and RSUs to employees and ESPP

 

 

 

 

 

 

 

 

1,921

 

 

 

 

 

 

 

 

 

1,921

 

Share‑based compensation expense related to issuance of stock options to non-employees

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

 

 

 

391

 

Balance at March 31, 2021

 

 

34,129,925

 

 

 

 

 

 

225,288

 

 

 

(176,828

)

 

 

(27

)

 

 

48,433

 

 

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,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(13,399

)

 

$

(20,228

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

258

 

 

 

626

 

Net loss on disposal of property and equipment

 

 

(12

)

 

 

(41

)

Gain on lease modification

 

 

 

 

 

(2,113

)

Share-based compensation expense

 

 

2,312

 

 

 

4,036

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Related party accounts receivable

 

 

127

 

 

 

448

 

Prepaid expenses

 

 

(396

)

 

 

98

 

Other current assets

 

 

(92

)

 

 

(9

)

Operating lease assets

 

 

1,006

 

 

 

(5,502

)

Other assets

 

 

91

 

 

 

(519

)

Accounts payable

 

 

(54

)

 

 

(1,026

)

Related party accounts payable

 

 

(286

)

 

 

(22

)

Accrued research and development costs

 

 

199

 

 

 

484

 

Operating lease liabilities

 

 

(774

)

 

 

(699

)

Accrued expenses and other current liabilities

 

 

(3,435

)

 

 

(4,713

)

Net cash (used in) operating activities

 

 

(14,455

)

 

 

(29,180

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(1,405

)

Proceeds from sale of property and equipment

 

 

1,462

 

 

 

49

 

Net cash provided by (used in) investing activities

 

 

1,462

 

 

 

(1,356

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercises of stock options and ESPP

 

 

27

 

 

 

1

 

Net cash provided by financing activities

 

 

27

 

 

 

1

 

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

 

 

 

 

 

2

 

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

 

 

(12,966

)

 

 

(30,533

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

58,232

 

 

 

102,620

 

Cash, cash equivalents and restricted cash, end of period

 

$

45,266

 

 

$

72,087

 

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

 

$

 

 

$

39

 

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

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,429

 

 

$

67,096

 

Restricted cash

 

 

3,837

 

 

 

4,991

 

Total cash, cash equivalents and restricted cash

 

$

45,266

 

 

$

72,087

 

 

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 clinical-stage biopharmaceutical company on a mission to develop treatments that restore cognitive function. Our lead asset, CY6463 (previously known as IW-6463), is a pioneering, CNS-penetrant, soluble guanylate cyclase (sGC) stimulator that is currently in clinical development for Alzheimer’s disease with vascular pathology (ADv), and Mitochondrial Encephalomyopathy, Lactic Acidosis and Stroke-like episodes (MELAS). sGC stimulators are small molecules that act synergistically with nitric oxide (NO) as positive allosteric modulators of 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 neuronal function, neuroinflammation, cellular bioenergetics, and vascular 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 Scientific 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 mission is to develop treatments that restore cognitive function. Its priorities are advancing its ongoing CY6463 clinical programs and seeking the out-licensing of praliciguat and other non-CNS assets.

CNS assets. CY6463 is 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-sGC-cGMP is a fundamental CNS signaling network, but it has not yet been leveraged for its full therapeutic potential. CY6463 enhances the brain’s natural ability to produce cGMP, an important second messenger in the CNS, by stimulating sGC, a key node in the NO-sGC-cGMP pathway. This pathway is critical to basic CNS functions and deficient NO-sGC-cGMP signaling is believed to play an important role in the pathogenesis of neurodegenerative diseases. Agents that stimulate sGC to produce cGMP may compensate for deficient NO signaling.

On January 13, 2020, we announced positive results from our Phase 1 first-in-human study that provided the foundation for continued development of CY6463. The Phase 1 healthy participant study results indicate that CY6463 was well tolerated. Pharmacokinetic (PK) data, obtained from both blood and cerebral spinal fluid (CSF), support once-daily dosing with or without food and demonstrated CY6463 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 CY6463 Phase 1 translational pharmacology study – in healthy elderly participants. Treatment with CY6463 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 in inflammatory biomarkers associated with aging and neurodegenerative diseases. CY6463 was shown to be safe and generally well tolerated. Significant effects on cerebral blood flow and markers of bioenergetics were not observed in this study of healthy elderly participants. We believe that these results, together with nonclinical data, support continued development of CY6463 as a potential new medicine for serious CNS diseases.

We have initiated our CY6463 Phase 2a clinical trial in adult participants with MELAS. Startup activities are ongoing for our Phase 2a clinical trial in ADv, with enrollment expected to begin in mid-2021.The ADv study will be

10


supported in part by a grant from the Alzheimer’s Association’s Part the Cloud-Gates Partnership Grant Program, which provides Cyclerion with $2 million of funding over two years. We continue to explore the potential for CY6463 in additional indications starting with cognitive impairment associated with schizophrenia (CIAS) where we are planning to initiate a Phase 1b signal-seeking study,

Our next generation CNS asset, CY3018, is a differentiated CNS-penetrant sGC stimulator with greater CSF-to-plasma exposure relative to CY6463. CY3018 is intended to expand the potential of sGC stimulation for the treatment of disorders of the CNS.

Non-CNS assets. We have other assets that are outside of our current strategic focus. These non-core assets are not being internally developed at this time and are available for licensing to a third-party partner. Praliciguat is an orally administered, once-daily systemic sGC stimulator that was evaluated in two Phase 2 proof-of-concept studies for adult participants with diabetic nephropathy (DN) and heart failure with preserved ejection fraction (HFpEF). We released topline results from these studies in October 2019. 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 also have discovery and pre-clinical phase programs with organ-targeted sGC stimulators.

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.

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 the gross proceeds of sales of common stock under the Sales Agreement. As of March 31, 2021, no shares have been issued or sold under the ATM Offering.

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 Company’s 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 25, 2021.

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 Company’s financial position and the results of its operations for the interim periods presented. The results of operations for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

11


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, 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 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 and the Company expects these losses to continue into the foreseeable future as the Company continues the development and clinical testing of its product candidate CY6463, and its discovery research programs. Through March 31, 2021, the Company had raised an aggregate of $189.3 million from equity private placements.

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 March 31, 2021, 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 financial statements contained in the Company’s 2020 annual report on Form 10-K. The Company includes herein certain updates to those policies.

Use of Estimates

The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company’s 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 Company’s 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 assets and operating lease liabilities, income taxes, including the valuation allowance for deferred tax assets, research and development expenses, contingencies, and share-based compensation. 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, 2021 that had a material effect on its 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 adoption is permitted. The Company is currently evaluating the impact that ASU 2016-13 will have on its financial statements and related disclosures.

12


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 Company’s consolidated financial statements upon adoption.

3. Related Party Transactions

Development Agreement with Ironwood

As part of the Separation from Ironwood, the Company entered into a Development Agreement with Ironwood.

Under the Development Agreement, the Company provided certain research and development services to Ironwood at mutually agreed upon rates and the amounts earned are recorded as revenue from related party for the three months ended March 31, 2020. Such research and development activities were governed by a joint steering committee composed of representatives of both Ironwood and the Company. Ironwood and the Company have agreed not to renew the Development Agreement beyond the end of its initial term on March 31, 2021. These transactions under the Development Agreement were considered related party transactions due to Mark Currie’s role as President of the Company through December 31, 2020 and board member of Ironwood. In January 2021, Mark Currie’s role transitioned from President of the Company to a senior advisor on a consulting basis. Therefore, effective January 2021, transactions under the Development Agreement are no longer accounted for as related party transactions. The Company recorded approximately $1.0 million as related party revenue for the three months ended March 31, 2020.

4. Fair Value of Financial Instruments

The Company’s cash equivalents are generally classified within Level 1 of the fair value hierarchy. The following tables present information about the Company’s 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, 2021 and December 31, 2020 (in thousands):

 

 

 

Fair Value Measurements as of March 31, 2021 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

40,310

 

 

$

 

 

$

 

 

$

40,310

 

Cash equivalents

 

$

40,310

 

 

$

 

 

$

 

 

$

40,310

 

 

 

 

Fair Value Measurements as of December 31, 2020 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

53,240

 

 

$

 

 

$

 

 

$

53,240

 

Cash equivalents

 

$

53,240

 

 

$

 

 

$

 

 

$

53,240

 

 

During the three months ended March 31, 2021 and 2020, there were no transfers between levels. The fair value of the Company’s 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 payable and accrued expenses approximate their fair value due to the short-term nature of these amounts.

 

13


 

5. Property and Equipment

Property and equipment, net consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Software

 

$

2,214

 

 

$

2,214

 

Computer and office equipment

 

 

44

 

 

 

44

 

Leasehold improvements

 

 

14,894

 

 

 

14,894

 

Property and equipment, gross

 

 

17,152

 

 

 

17,152

 

Less: accumulated depreciation and amortization

 

 

(10,545

)

 

 

(10,287

)

Property and equipment, net

 

$

6,607

 

 

$

6,865

 

 

As of March 31, 2021, and December 31, 2020, the Company’s property and equipment was primarily located in Cambridge, Massachusetts.

Depreciation and amortization expense of the Company’s property and equipment was approximately $0.3 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively.

 

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Accrued incentive compensation

 

$

368

 

 

$

1,720

 

Salaries

 

 

457

 

 

 

514

 

Accrued vacation

 

 

351

 

 

 

555

 

Professional fees

 

 

528

 

 

 

689

 

Accrued severance and benefit costs

 

 

1,779

 

 

 

3,640

 

Other

 

 

375

 

 

 

176

 

Accrued expenses and other current liabilities

 

$

3,858

 

 

$

7,294

 

 

7. 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 Company’s 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 Company’s 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, 2021 and December 31, 2020.

14


8. Leases

On April 1, 2019, the Company entered into the Head Lease, a direct operating lease for its former headquarters located at 301 Binney Street, Cambridge, MA originally consisting of approximately 114,000 rentable square feet of office and laboratory space on the first and second floors. The Head Lease had a term of 123 months with two five-year extension options and certain expansion rights. The Head Lease also included a letter of credit of $7.7 million, posted with the landlord as a security deposit, which was collateralized by a money market account recorded as restricted cash on the Company’s consolidated balance sheets. The Company had also entered into customary non-disturbance arrangements with the building landlord’s mortgagee and with the property ground lessor recognizing Company’s leasehold interest in this property.

On February 28, 2020 the Company amended the Head Lease. The Lease Amendment partially terminated the Company’s rights and obligations with respect to an approximately 40,000 rentable square feet. The Company continued to lease the remaining space of approximately 74,000 square feet including the area covered by the subleased premise, discussed below. In connection with this Lease Amendment the Company reduced its remaining lease payments through June 2029 by approximately $41.9 million and paid a $6.3 million termination fee and $0.2 million related to other initial direct costs, which were deferred and recognized over the remaining lease term. The Company’s security deposit was also reduced by approximately $2.7 million to approximately $5.0 million.

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 Right-of-Use (“ROU”) assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification of 9.7%, which resulted in a reduction of the ROU asset of $21.4 million and a reduction in the operating lease liabilities of $23.5 million. The Company recorded the resulting gain of approximately $2.1 million as a component of operating expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

On September 15, 2020 the Company entered into the Second Lease Amendment to its Head Lease. The Second Lease Amendment partially terminated the Company’s rights and obligations with respect to approximately 17,000 rentable square feet (the “Surrender Space”), including 15,700 rentable square feet subleased by the Company to a subtenant. The Company continues to lease approximately 57,000 square feet of space, under terms of the Second Lease Amendment. The Company reduced its remaining lease payments through June 2029 by approximately $16.9 million. The Company paid no termination or other initial direct costs related to the execution of the Second Lease Amendment. The Company’s security deposit was reduced by approximately $1.2 million to approximately $3.8 million, which is classified as restricted cash on the Company’s consolidated balance sheet as of March 31, 2021.

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 of 6.1%, which resulted in a reduction of the ROU asset of $5.9 million and a reduction in the operating lease liabilities of $5.5 million. The Company recorded the resulting loss of approximately $0.4 million as a component of operating expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

The Company had an operating lease ROU asset of approximately $42.4 million and $43.4 million related to the amended Head Lease recorded in its condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively. The Company had current operating lease liabilities of approximately $3.4 million and $3.3 million, and noncurrent operating lease liabilities of approximately $38.1 million and $38.9 million, related to the amended Head Lease recorded in its consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively.

Lease cost is recognized on a straight-line basis over the lease term. For the three months ended March 31, 2021, the Company recognized a total of approximately $1.6 million of total lease costs. Variable lease costs not subject to an index or rate are recognized as incurred. For the three months ended March 31, 2021, the Company recognized a total of approximately $0.5 million of variable lease costs related to the Head Lease, as amended.

15


For the three months ended March 31, 2020, the Company recognized a total of approximately $2.7 million and 1.0 million in total lease costs and variable lease costs, respectively related to the Head Lease, as amended

Supplemental cash flow information related to leases for the three months ended March 31, 2021 and 2020 as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

2020

 

Decrease in right-of-use assets related to lease modifications

 

$

 

$

21,386

 

Decrease in operating lease liabilities due to lease modifications

 

$

 

$

23,499

 

Cash paid for amounts included in the measurement of lease liabilities (in thousands)

 

$

1,405

 

$

2,421

 

Weighted-average remaining lease term of operating leases (in years)

 

 

8.3

 

 

9.3

 

Weighted-average discount rate of operating leases

 

 

6.1

%

 

9.7

%

 

On October 18, 2019, the Company entered into an agreement with a third party to sublease 15,700 rentable square feet of its lease premises under the Head Lease. The sublease was scheduled to expire on June 30, 2029, unless earlier terminated in accordance with the sublease agreement, and had no extension options. The sublease provided for annual base rent of approximately $1.5 million in the first year, which increased on a yearly basis by 3.0% (subject to an abatement of base rent of approximately $0.7 million for the first six months of the sublease). As part of the consideration for the sublease, the sublessee agreed to provide licensed rooms and services within the sublease premises to the Company over the sublease term free of charge. In addition, the sublessee was responsible for its pro rata share of certain costs, taxes and operating expenses related to the subleased space, the consideration for which is variable and is based on the actual operating costs of the lessor. The Company allocated the total consideration in the sublease agreement between the lease and non-lease components in the contract based on their relative standalone prices. The Company determined that the variable consideration related exclusively to non-lease components and would be recognized as incurred. The sublease included an initial security deposit of $0.5 million, which was provided by the sublessee in the form of a letter of credit, and an additional security deposit of $0.4 million within nine months of the sublease commencement.

For the three months ended March 31, 2020, gross sublease income of $0.5 million was recorded related to the sublease. Net sublease income of approximately $0.1 million was recorded in interest and other income in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2020.

On September 15, 2020, concurrent with execution of the Second Lease Amendment, the Company entered into the Sublease Termination Agreement to terminate its sublease of 15,700 rentable square feet. 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 expects to receive the benefit of 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 constitutes a non-monetary exchange under ASC 845 Nonmonetary Transactions (“ASC 845”) where, in return for the free rooms and the services, the 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. Accordingly, prepaid rooms and services of $4.4 million were recorded upon the sublease termination, of which $1.7 million is recorded in other current assets and $2.7 million is recorded in other assets in the condensed consolidated balance sheets as of March 31, 2021. During the year-ended December 31, 2020, termination fee income of $3.1 million was recognized related to the rooms and services, after considering the rent receivable balance of $1.3 million outstanding from the subtenant. The remaining unamortized direct costs of $0.2 million were written off.

16


The Company determined that the licensed rooms represent a lease under ASC 842. Once the Company obtains control of the rooms, the prepaid rooms balance will be reclassified from other assets to a ROU asset, and the related lease expense will be recorded on a straight-line basis over the lease term. The Company determined that the licensed services represent a non-lease component, which will be recognized separately from the lease component for this asset class. The expense related to the licensed services will be recognized on a straight-line basis over the period the services are received. Both the lease expense and services expense will be recognized as a component of research and development costs in the consolidated statements of operations and comprehensive loss.

Future minimum lease payments under non-cancelable operating leases under ASC 842 as of March 31, 2021 are as follows:

 

 

 

Operating

Lease

Payments

 

2021 (remaining nine months)

 

$

4,337

 

2022

 

 

5,908

 

2023

 

 

6,080

 

2024

 

 

6,256

 

2025

 

 

6,438

 

2026 and thereafter

 

 

24,047

 

Total future minimum lease payments (receipts)

 

 

53,066

 

Less: present value adjustment

 

 

11,614

 

Operating lease liabilities at March 31, 2021

 

 

41,452

 

Less: current portion of operating lease liabilities

 

 

3,385

 

Operating lease liabilities, net of current portion

 

$

38,067

 

 

9. 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 also mirrored two of Ironwood’s 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 Separation as part of the equity conversion. As a result of the Separation and in accordance with the EMA, 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 conversion of equity awards resulting from the Separation impacted approximately 143 employees and was treated as a Type 1 modification under ASC Topic 718, Share Based Payments, as the awards are expected to vest under the original terms. Incremental compensation expense was measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms were modified. The fair value of RSUs and restricted stock awards was measured using the fair value stock price immediately before and immediately after the modification date which resulted in no incremental compensation expense. The fair value of stock options was measured using the Black-Scholes option pricing method using the appropriate valuation assumptions immediately before and immediately after the modification date. As a result of the modification, during the year ended December 31, 2019, Cyclerion recognized a one-time incremental expense of approximately $0.3 million for the vested stock options and will recognize an incremental expense of approximately $7.5 million for the unvested stock options over their remaining vesting period.

17


The following table provides share-based compensation reflected in the Company’s consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020 (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Research and development

 

$

982

 

 

$

1,921

 

General and administrative

 

 

1,330

 

 

 

2,115

 

 

 

$

2,312

 

 

$

4,036

 

 

A summary of stock option activity for the three months ended March 31, 2021 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, 2020

 

 

7,426,356

 

 

$

11.87

 

 

 

7.0

 

 

 

1,178

 

Granted

 

 

400,000

 

 

 

3.04

 

 

 

 

 

 

 

Exercised

 

 

(12,404

)

 

 

2.14

 

 

 

 

 

 

 

Cancelled or forfeited

 

 

(917,702

)

 

 

9.49

 

 

 

 

 

 

 

Outstanding as of March 31, 2021

 

 

6,896,250

 

 

$

11.69

 

 

 

6.8

 

 

$

551

 

Exercisable at March 31, 2021

 

 

3,973,588

 

 

$

14.21

 

 

 

5.5

 

 

$

162

 

 

As of March 31, 2021, the unrecognized share-based compensation expense, net of estimated forfeitures, related to all unvested time-based stock options held by the Company’s employees is $11.3 million and the weighted-average period over which that expense is expected to be recognized is 3.33 years.

 

A summary of RSU activity for the three months ended March 31, 2021 is as follows:

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Grant Date

 

 

 

of Shares

 

 

Fair Value

 

Unvested as of December 31, 2020

 

 

294,913

 

 

$

14.52

 

Vested

 

 

(70,221

)

 

 

15.71

 

Forfeited

 

 

(93,672

)

 

 

14.41

 

Unvested as of March 31, 2021

 

 

131,020

 

 

$

13.95

 

As of March 31, 2021, the unrecognized share-based compensation expense, net of estimated forfeitures, related to all unvested restricted stock units by the Company’s employees is $1.7 million and the weighted-average period over which that expense is expected to be recognized is 1.76 years.

 

The Company has granted to certain employees performance-based options to purchase shares of common stock. These options are subject to performance-based milestone vesting. During the three months ended March 31, 2021 and 2020 there were no shares that vested as a result of performance milestone achievements. The Company recorded no share-based compensation expense related to these performance-based options for the three months ended March 31, 2021 and 2020.

 

18


 

The Company also has granted to certain employees stock options containing market conditions that vest upon the achievement of specified price targets of the Company’s share price for a period through December 31, 2024. Vesting is measured based upon the average closing price of the Company’s 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. The Company does not reverse expense recognized if the share price target(s) are ultimately not achieved but expense is reversed when a stock award recipient has a break in service prior to the completion of the derived service period. For each of the three months ended March 31, 2021 and 2020, the Company recorded a de minimis amount of share-based compensation expense, respectively related to these stock options containing market conditions. During the three months ended March 31, 2021, 150,000 stock options containing market conditions were forfeited with a weighted average exercise price of $2.01. As of March 31, 2021, there were 450,000 outstanding stock options containing market conditions with a weighted average exercise price of $2.01. As of March 31, 2021, there was $0.2 million of unrecognized compensation costs related to stock options containing market conditions, which is expected to be recognized over a weighted-average period of 2.91 years.

10. 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,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Net loss (in thousands)

 

$

(13,399

)

 

$

(20,228

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares used in calculating net loss per share — basic and diluted (in thousands)

 

 

34,081

 

 

 

27,669

 

Net loss per share — basic and diluted

 

$

(0.39

)

 

$

(0.73

)

 

For the three months ended March 31, 2021, there were 7,346,250 shares of common stock related to stock options and 131,020 shares of common stock related to RSUs were excluded from the calculation of diluted net loss per share since the inclusion of such shares would be anti-dilutive.

 

For the three months ended March 31, 2020, 7,936,087 shares of common stock related to stock options and 499,644 shares of common stock related to RSUs were excluded from the calculation of diluted net loss per share since the inclusion of such shares would be anti-dilutive

11. Defined Contribution Plan

Prior to the Separation, Ironwood maintained a defined contribution 401(k) Savings Plan in the form of a qualified 401(k) plan for the benefit of substantially all of its employees, which included Ironwood employees who became Cyclerion employees. Compensation expense related to the 401(k) match was allocated to Cyclerion using a pro-rata method based on project-related costs and headcount that management believes are consistent and reasonable.

Subsequent to the Separation, Cyclerion 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 Cyclerion plan. Subject to certain IRS limits, eligible employees may elect to contribute from 1% to 100% of their compensation. Cyclerion contributions to the plan are at the sole discretion of the board of directors. Currently, Cyclerion provides a matching contribution of 75% of the employee’s contributions, up to $6,000 annually.

19


Included in compensation expense is approximately $0.2 million and $0.3 million related to the defined contribution 401(k) Savings Plan for the three months ended March 31, 2021, and 2020, respectively.

12. Workforce Reduction

2019 Workforce Reduction

On October 30, 2019, the Company began a reduction of its current workforce by approximately thirty (30) full-time employees to align its resources with its ongoing clinical and preclinical programs, innovation strategy and partnering efforts. The total one-time costs related to the workforce reduction were approximately $3.0 million.

The workforce reduction was substantially completed during the year ended December 31, 2019, in which the Company recorded approximately $2.8 million of severance and benefits costs. The workforce reduction was finalized during the three months ended March 31, 2020, in which the Company recorded approximately $0.2 million in additional severance and benefits costs.

The following table summarizes the accrued liabilities activity recorded in connection with the reduction in workforce for the three months ended March 31, 2020 (in thousands):

 

 

Amounts

accrued at

December

31, 2019

 

 

Charges

 

 

Amount

paid

 

 

Adjustments

 

 

Amounts

accrued at

March 31,

2020

 

October 2019 workforce reduction

 

$

2,009

 

 

$

158

 

 

$

1,491

 

 

$

 

 

$

676

 

Total

 

$

2,009

 

 

$

158

 

 

$

1,491

 

 

$

 

 

$

676

 

 

2020 Workforce Reduction

On November 5, 2020, the Company began a reduction of its current workforce by approximately forty-eight (48) full-time employees to align its resources with its current priorities of focusing on the MELAS study, the planned ADv study and further characterization of CY6463 novel pharmacology.

The total one-time costs related to the 2020 Workforce Reduction were approximately $5.0 million, including approximately $0.1 million in stock-based compensation from the modification of certain share-based equity awards.

The Company reduced its workforce by approximately thirty-one (31) employees in the fourth quarter of 2020 and recorded approximately $4.1 million of severance and benefits costs in accordance with ASC Topic 420, Exit or Disposal Cost Obligations, or ASC 420, including a de minimis amount of stock-based compensation expense, for the year ended December 31, 2020. The workforce reduction was completed by the end of the first quarter of 2021.

The following table summarizes the accrued liabilities activity recorded in connection with the reduction in workforce for the three months ended March 31, 2021 (in thousands):

 

 

 

Amounts

accrued at

December 31,

2020

 

 

Charges

 

 

Amount

paid

 

 

Adjustments

 

 

Amounts

accrued at

March 31,

2021

 

2020 workforce reduction

 

$

3,640

 

 

$

901

 

 

$

2,762

 

 

$

 

 

$

1,779

 

Total

 

$

3,640

 

 

$

901

 

 

$

2,762

 

 

$

 

 

$

1,779

 

 

20


 

13. Subsequent Events

On April 30, 2021, the Company signed and executed a lease termination agreement with its lessor to terminate its Head Lease. The original lease termination date was June 30, 2029. As of the lease termination date, the fair value of the right of use lease liability related to the Head Lease was approximately $42.1 million. The Company is evaluating the impact of the early lease termination on its condensed consolidated financial statements but expects to write-off the right of use asset and liability balances as of the lease termination date.

Upon lease termination, the Company will also cancel the letter of credit related to the lease, which is recorded as restricted cash of approximately $3.8 million on the Company’s condensed consolidated balance sheet.

21


Item 2. Management’s 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 consolidated financial statements and the corresponding notes included in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K. 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 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 clinical-stage biopharmaceutical company focused on discovering, developing and commercializing innovative medicines for people with serious diseases of the CNS, including cognitive and neurodegenerative disorders. Our current lead asset, CY6463, is a pioneering CNS-penetrant sGC stimulator in clinical development for MELAS and ADv. sGC stimulators are small molecules that act synergistically with nitric oxide 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.

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.

CNS assets. The core of our portfolio is CY6463, an orally administered CNS-penetrant sGC stimulator that is being developed as a symptomatic and potentially disease-modifying therapy for CNS diseases associated with cognitive impairment. Nitric oxide-sGC-cGMP is a fundamental CNS signaling network, but it has not yet been leveraged for its full therapeutic potential. CY6463 enhances the brain’s natural ability to produce cGMP, an important second messenger in the CNS, by stimulating sGC, a key node in the NO-sGC-cGMP pathway. This pathway is critical to basic CNS functions, and deficient NO-sGC-cGMP signaling is believed to play an important role in the pathogenesis of many CNS diseases. Agents that stimulate sGC to produce cGMP may compensate for deficient NO signaling.

In January 2020, we announced positive Phase 1 study results that provided the foundation for continued development of CY6463. The Phase 1 healthy participant study results indicate that CY6463 was well tolerated. Pharmacokinetic (PK) data, obtained from both blood and cerebral spinal fluid (CSF), support once-daily dosing with or without food and demonstrated CY6463 penetration of the blood-brain-barrier with CSF concentrations expected to be pharmacologically active.

In October 2020, we announced positive topline results from our CY6463 Phase 1 translational pharmacology study in healthy elderly participants. Treatment with CY6463 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 in inflammatory biomarkers associated with aging and neurodegenerative diseases. CY6463 was safe and generally well tolerated in this study. Significant effects on cerebral blood flow and markers of bioenergetics were not observed in this study of healthy elderly participants. We believe that these results, together with nonclinical data, support continued development of CY6463 as a potential new medicine for serious CNS diseases.

22


We have initiated our CY6463 Phase 2a clinical trial in adult participants with MELAS. Study start-up activities are ongoing for our Phase 2a clinical trial in ADv, with enrollment expected to begin in mid-2021. The ADv study will be supported in part by a grant from the Alzheimer's Association’s Part the Cloud-Gates Partnership Grant Program, which provides Cyclerion with $2 million of funding over two years. We continue to explore the potential for CY6463 in additional indications starting with cognitive impairment associated with schizophrenia (CIAS) where we are planning to initiate a Phase 1b signal seeking study.

Our next-generation CNS asset, CY3018, is a differentiated CNS-penetrant sGC with greater CSF-to-plasma exposure relative to CY6463. CY3018 is intended to expand the potential of sGC stimulation for the treatment of disorders of the CNS.

Non-CNS assets. We have other assets that are outside of our current strategic focus. These non-core assets are not being internally developed at this time and are available for licensing to a third-party partner. Praliciguat is an orally administered, once-daily systemic sGC stimulator that was evaluated in two Phase 2 proof-of-concept studies for adult participants with diabetic nephropathy (DN) and heart failure with preserved ejection fraction (HFpEF). We released topline results from these studies in October 2019. 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 also have discovery and pre-clinical phase programs with organ-targeted sGC stimulators.

The following table summarizes our research and development expenses and employee and facility related costs allocated to research and development expense, for the three months ended March 31, 2021 and 2020. The product pipeline expenses relate primarily to external costs associated with nonclinical studies and clinical trial costs, which are presented by development candidate.

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Product pipeline external costs:

 

 

 

 

 

 

 

 

CY6463

 

 

1,166

 

 

 

1,338

 

Olinciguat

 

 

166

 

 

 

2,626

 

Praliciguat

 

 

(468

)

 

 

135

 

Discovery research

 

 

700

 

 

 

13

 

Total product pipeline external costs

 

 

1,564

 

 

 

4,112

 

Personnel and related internal costs

 

 

3,824

 

 

 

7,737