10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

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 May 2, 2022, the registrant had 43,448,360 shares of common stock, no par value, outstanding.

 


 

CYCLERION PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

TABLE OF CONTENTS

 

 

 

Page

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

5

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for Three Months Ended March 31, 2022 and 2021

6

 

Condensed Consolidated Statements of Stockholders’ Equity for Three Months Ended March 31, 2022 and 2021

7

 

Condensed Consolidated Statements of Cash Flows for Three Months Ended March 31, 2022 and 2021

9

 

Notes to the Condensed Consolidated Financial Statements

10

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

 

 

 

 

PART II — OTHER INFORMATION

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 5.

Other Information

28

Item 6.

Exhibits

28

 

Signatures

30

 

 

 

 


 

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 coronavirus ("COVID-19") pandemic and related constraints on supply chains and human resource availability 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;
the success of collaboration or license agreements of our product candidates;
whether the praliciguat out-license will result in the creation of any therapies;
whether any development, regulatory, and commercialization milestones or royalty payments provided for in the agreement with Akebia (as defined below) will be achieved;
the impact on our business of workforce and expense reduction initiatives;
our plans with respect to the development, manufacture or sale of our product candidates and the associated timing thereof, including the design and results of pre-clinical and clinical studies;
the safety profile and related adverse events of our product candidates;
the efficacy and perceived therapeutic benefits of our product candidates, their potential indications and their market potential;
U.S. and non-U.S. regulatory requirements for our product candidates, including any post-approval development and regulatory requirements, and the ability of our product candidates to meet such requirements;
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; and
trends and challenges in the markets for our potential products.

See the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, 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,
2022

 

 

December 31,
2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,125

 

 

$

53,961

 

Accounts receivable

 

 

227

 

 

 

100

 

Prepaid expenses

 

 

1,007

 

 

 

928

 

Other current assets

 

 

477

 

 

 

468

 

Total current assets

 

 

42,836

 

 

 

55,457

 

Property and equipment, net

 

 

17

 

 

 

65

 

Operating lease right-of-use asset

 

 

1,356

 

 

 

1,402

 

Other assets

 

 

2,316

 

 

 

2,407

 

Total assets

 

$

46,525

 

 

$

59,331

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,519

 

 

$

1,828

 

Accrued research and development costs

 

 

4,538

 

 

 

6,353

 

Accrued expenses and other current liabilities

 

 

2,434

 

 

 

2,904

 

Total current liabilities

 

 

9,491

 

 

 

11,085

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, no par value, 400,000,000 shares authorized and 43,448,360 issued and outstanding at March 31, 2022 and 400,000,000 shares authorized and 43,410,185 issued and outstanding at December 31, 2021

 

 

 

 

 

 

Accumulated deficit

 

 

(228,054

)

 

 

(215,076

)

Paid-in capital

 

 

265,112

 

 

 

263,345

 

Accumulated other comprehensive loss

 

 

(24

)

 

 

(23

)

Total stockholders' equity

 

 

37,034

 

 

 

48,246

 

Total liabilities and stockholders' equity

 

$

46,525

 

 

$

59,331

 

 

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,

 

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

Revenue from development agreement

 

 

225

 

 

 

62

 

Revenue from grants

 

 

486

 

 

 

 

Total revenues

 

 

711

 

 

 

62

 

Cost and expenses:

 

 

 

 

 

 

Research and development

 

 

9,743

 

 

 

8,092

 

General and administrative

 

 

3,952

 

 

 

5,365

 

Total cost and expenses

 

 

13,695

 

 

 

13,457

 

Loss from operations

 

 

(12,984

)

 

 

(13,395

)

Interest and other income (expenses), net

 

 

6

 

 

 

(4

)

Net loss

 

$

(12,978

)

 

$

(13,399

)

Net loss per share:

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.30

)

 

$

(0.39

)

Weighted average shares used in calculating:

 

 

 

 

 

 

Basic and diluted net loss per share

 

 

43,425

 

 

 

34,081

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(12,978

)

 

$

(13,399

)

Comprehensive loss

 

$

(12,978

)

 

$

(13,399

)

 

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

 

6


 

Cyclerion Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands except share data)

(Unaudited)

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Accumulated
other
comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

loss

 

 

equity

 

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 employee stock purchase plan

 

 

 

 

 

 

 

 

1,921

 

 

 

 

 

 

 

 

 

1,921

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

 

 

 

391

 

Balance at March 31, 2021

 

 

34,129,925

 

 

$

 

 

$

225,288

 

 

$

(176,828

)

 

$

(27

)

 

$

48,433

 

 

 

7


 

Cyclerion Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Accumulated
other
comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

loss

 

 

equity

 

Balance at December 31, 2021

 

 

43,410,185

 

 

$

 

 

$

263,345

 

 

$

(215,076

)

 

$

(23

)

 

$

48,246

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,978

)

 

 

 

 

 

(12,978

)

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

 

 

38,175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

1,476

 

 

 

 

 

 

 

 

 

1,476

 

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

 

 

 

 

 

 

 

 

291

 

 

 

 

 

 

 

 

 

291

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Balance at March 31, 2022

 

 

43,448,360

 

 

$

 

 

$

265,112

 

 

$

(228,054

)

 

$

(24

)

 

$

37,034

 

 

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,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(12,978

)

 

$

(13,399

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

48

 

 

 

258

 

Net loss on disposal of property and equipment

 

 

 

 

 

(12

)

Share-based compensation expense

 

 

1,767

 

 

 

2,312

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(127

)

 

 

 

Related party accounts receivable

 

 

 

 

 

127

 

Prepaid expenses

 

 

(79

)

 

 

(396

)

Other current assets

 

 

(9

)

 

 

(92

)

Operating lease assets

 

 

46

 

 

 

1,006

 

Other assets

 

 

91

 

 

 

91

 

Accounts payable

 

 

691

 

 

 

(54

)

Related party accounts payable

 

 

 

 

 

(286

)

Accrued research and development costs

 

 

(1,815

)

 

 

199

 

Operating lease liabilities

 

 

 

 

 

(774

)

Accrued expenses and other current liabilities

 

 

(470

)

 

 

(3,435

)

Net cash (used in) operating activities

 

 

(12,835

)

 

 

(14,455

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

 

 

 

1,462

 

Net cash provided by investing activities

 

 

 

 

 

1,462

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercises of stock options and ESPP

 

 

 

 

 

27

 

Net cash provided by financing activities

 

 

 

 

 

27

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1

)

 

 

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(12,836

)

 

 

(12,966

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

53,961

 

 

 

58,232

 

Cash, cash equivalents and restricted cash, end of period

 

$

41,125

 

 

$

45,266

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,125

 

 

$

41,429

 

Restricted Cash

 

$

 

 

$

3,837

 

Total cash, cash equivalents and restricted cash

 

$

41,125

 

 

$

45,266

 

 

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, is a pioneering, central nervous system ("CNS") penetrant, soluble guanylate cyclase ("sGC") stimulator that is currently in clinical development for Alzheimer’s disease with vascular pathology ("ADv"), cognitive impairment associated with schizophrenia ("CIAS"), 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 ("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 next generation compound, CY3018.

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. NO-sGC-cGMP is a fundamental signaling network that is widely used in the nervous system. 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 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 results from this study 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 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.

 

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We have initiated exploratory clinical trials with CY6463 in ADv, CIAS, and MELAS. The ADv study is supported in part by a grant from the Alzheimer’s Association’s Part the Cloud-Gates Partnership Grant Program (the "PTC Grant"), which provides Cyclerion with $2 million of funding over two years.

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. Praliciguat is an orally administered, once-daily systemic sGC stimulator. On June 3, 2021, we entered into the License Agreement (as defined below) with Akebia Therapeutics, Inc. ("Akebia") relating to the exclusive worldwide license to Akebia of our rights to the development, manufacture, medical affairs and commercialization of pharmaceutical products containing praliciguat and other related products and forms thereof enumerated in such agreement. 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. Olinciguat is available for licensing to a third party partner.

The Separation

On April 1, 2019, Ironwood Pharmaceuticals, Inc. ("Ironwood") completed the 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.

 

2020 Equity Private Placement

 

On July 29, 2020, the Company entered into a Common Stock Purchase Agreement (the "2020 Equity Private Placement") for the private placement of 6,062,500 shares of the Company's common stock, 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 utilize the services of a placement agent or broker and accordingly incurred no material related transaction fees or commissions.

2021 Equity Private Placement

On June 3, 2021, the Company entered into a Common Stock Purchase Agreement (the “2021 Equity Private Placement”) for the private placement of 5,735,988 shares of the Company’s common stock, for total gross proceeds of approximately $18 million. The closing of the 2021 Equity Private Placement occurred on June 7, 2021. The Company did not utilize the services of a placement agent or broker and accordingly incurred no material related transaction fees or commissions.

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. The Company has sold 3,353,059 shares of its common stock for net proceeds of $12.5 million under the ATM Offering since entering into the Sales Agreement, with no shares of common stock issued or sold under the ATM Offering during the three months ended March 31, 2022.

 

11


 

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 condensed consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission on February 24, 2022.

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, 2022 and 2021 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

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 candidates CY6463, CY3018 and its discovery research programs. Through March 31, 2022, the Company had raised an aggregate of $219.8 million (in net proceeds) from equity private placements and the ATM Offering.

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 of $41.1 million as of March 31, 2022, 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Use of Estimates

The preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles ("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 ("ROU") assets and operating lease liabilities, income taxes, including the valuation allowance for deferred tax assets, research and development expenses, contingencies, share-based

 

12


 

compensation and going concern. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Except as discussed elsewhere in the notes to the consolidated financial statements, the Company did not adopt any new accounting pronouncements during the three months ended March 31, 2022 that had a material effect on its condensed consolidated financial statements.

In June 2016 the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. This standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. As a smaller reporting company, ASU 2016-13 will become effective for the Company for fiscal years beginning after December 15, 2022, and early adoption is permitted. The Company is currently evaluating the impact that ASU 2016-13 will have on its financial statements and related disclosures.

In May 2021 the FASB issued Accounting Standards Update No. 2021-04, Earnings Per Share ("Topic 260"), Debt-Modifications and Extinguishments ("Subtopic 470-50"), Compensation-Stock Compensation ("Topic 718"), and Derivatives and Hedging-Contracts in Entity’s Own Equity ("Subtopic 815-40"): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, a consensus of the Emerging Issues Task Force ("EITF") , which amends the FASB Accounting Standards Codification ("ASC" or the “Codification”) to provide explicit guidance, and, thus, reduce diversity in practice, on accounting by issuers for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. This amendment provides that for an entity that presents earnings per share ("EPS") in accordance with Topic 260, the effects of a modification or an exchange of a freestanding equity-classified written call option that is recognized as a dividend should be an adjustment to net income (or net loss) in the basic EPS calculation. The amended guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and should be applied prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 in the first quarter of 2022, 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 Company’s condensed consolidated financial statements upon adoption.

3. 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, 2022 and December 31, 2021 (in thousands):

 

 

 

Fair Value Measurements as of March 31, 2022:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

40,072

 

 

$

 

 

$

 

 

$

40,072

 

Cash equivalents

 

$

40,072

 

 

$

 

 

$

 

 

$

40,072

 

 

 

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Fair Value Measurements as of December 31, 2021:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

52,917

 

 

$

 

 

$

 

 

$

52,917

 

Cash equivalents

 

$

52,917

 

 

$

 

 

$

 

 

$

52,917

 

 

During the three months ended March 31, 2022 and 2021, 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.

4. Property and Equipment

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Software

 

 

2,214

 

 

$

2,214

 

Computer equipment

 

 

51

 

 

 

51

 

Property and equipment, gross

 

 

2,265

 

 

 

2,265

 

Less: accumulated depreciation and amortization

 

 

(2,248

)

 

 

(2,200

)

Property and equipment, net

 

$

17

 

 

$

65

 

 

As of March 31, 2022, and December 31, 2021, the Company’s property and equipment was primarily located in Cambridge, Massachusetts.

Depreciation and amortization expense of the Company’s property and equipment was a de minimis amount and approximately $0.3 million for the three months ended March 31, 2022 and 2021, respectively.

5. Accrued Expenses and Other Current Liabilities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accrued incentive compensation

 

$

520

 

 

$

1,369

 

Salaries

 

 

455

 

 

 

266

 

Accrued vacation

 

 

363

 

 

 

345

 

Professional fees

 

 

710

 

 

 

398

 

Accrued severance and benefit costs

 

 

 

 

 

28

 

Other

 

 

386

 

 

 

498

 

Accrued expenses and other current liabilities

 

$

2,434

 

 

$

2,904

 

 

6. Commitments and Contingencies

Other Funding Commitments

In the normal course of business, the Company enters into contracts with clinical research organizations and other third parties for clinical and preclinical research studies and other services and products for operating purposes. These contracts are generally cancellable, with notice, at the Company’s option and do not have any significant cancellation penalties.

 

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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, 2022 and December 31, 2021.

7. Leases

On April 30, 2021, the Company entered into a Termination Agreement (the "Termination Agreement") for its Head Lease (the "Head Lease") for the Company's former headquarters located at 301 Binney Street, Cambridge, MA, as initially amended on February 28, 2020, and further amended on September 15, 2020. Pursuant to the Termination Agreement, the Company surrendered the leased space of approximately 57,000 square feet to the building’s landlord. The Company did not pay any termination fees in connection with the Termination Agreement. As a result of the termination of the Head Lease, the related right-of-use asset was written off, the lease liability was derecognized, and the $3.8 million security deposit was returned to the Company and recorded as part of our cash balance.

Lease cost was 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 and $0.5 million of variable lease costs, related to the Head Lease. The Company did not record any lease costs related to the Head Lease during the three months ended March 31, 2022. For the three months ended March 31, 2021, the Company paid $1.4 million related to its lease liability.

 

In May 2021, the Company signed a membership agreement to lease space with WeWork at 501 Boylston Street, Boston, Massachusetts. The lease commenced on August 1, 2021 and was accounted for as a short term lease. The Company recorded $0.1 million lease expense associated with the membership agreement during the three months ended March 31, 2022.

On September 15, 2020, the Company entered into a Sublease Termination Agreement (the "Sublease Termination Agreement") to terminate its sublease of 15,700 rentable square feet of its leased premises under the Head Lease. Under the terms of the Sublease Termination Agreement, the subtenant was relieved of its obligation to provide future cash rental payments to the Company. The agreements requiring the former subtenant to provide licensed rooms and services to the Company free of charge through the original sublease term survived the sublease termination. The Company gained access to the licensed rooms and services beginning in the third quarter of 2021. The letter of credit security deposit related to the sublease was released.

The Company determined that the Sublease Termination Agreement constituted a non-monetary exchange under ASC 845 Nonmonetary Transactions ("ASC 845") where, in return for the free rooms and the services, the Company agreed to terminate its rights and obligations under the sublease agreement. In accordance with ASC 845, the Company determined that the accounting for the transaction should be based on the fair value of assets or services involved. The Company estimated the fair value of the rooms and services to be approximately $1.5 million and $2.9 million, respectively.

The Company determined that the licensed rooms represent a lease under ASC Topic 842, Leases. The Company obtained control of the rooms in the third quarter of 2021 and the prepaid rooms balance of approximately $1.4 million was reclassified from other assets to a ROU asset. The related lease expense is recognized on a straight-line basis over the lease term of 8.88 years. The Company recorded a de minimis amount of lease expense during the

 

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three months ended March 31, 2022. The Company determined that the licensed services represent a non-lease component, which is recognized separately from the lease component for this asset class. The expense related to the licensed services is recognized on a straight-line basis over the period the services are received. The Company recorded $0.1 million for the three months ended March 31, 2022. Both the lease expense and services expense are recognized as a component of research and development costs in the condensed consolidated statements of operations and comprehensive loss.

8. Share-based Compensation Plans

In 2019, Cyclerion adopted share-based compensation plans. Specifically, Cyclerion adopted the 2019 Employee Stock Purchase Plan (“2019 ESPP”) and the 2019 Equity Incentive Plan (“2019 Equity Plan”). Under the 2019 ESPP, eligible employees may use payroll deductions to purchase shares of stock in offerings under the plan, and thereby acquire an interest in the future of the Company. The 2019 Equity Plan provides for stock options and restricted stock units (“RSUs”).

Cyclerion 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 following table provides share-based compensation reflected in the Company’s condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021 (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Research and development

 

$

830

 

 

$

982

 

General and administrative

 

 

937

 

 

 

1,330

 

 

 

$

1,767

 

 

$

2,312

 

 

A summary of stock option activity for the three months ended March 31, 2022, 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, 2021

 

 

7,080,426

 

 

$

10.73

 

 

 

6.9

 

 

 

 

Granted

 

 

1,437,950

 

 

 

1.25

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

0.00

 

 

 

 

 

 

 

Cancelled or forfeited

 

 

(247,978

)

 

 

(13.30

)

 

 

 

 

 

 

Outstanding as of March 31, 2022

 

 

8,270,398

 

 

$

9.01

 

 

 

7.4

 

 

$

0

 

Exercisable at March 31, 2022

 

 

4,618,482

 

 

$

13.05

 

 

 

6.1

 

 

$

0

 

As of March 31, 2022, 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 $7.9 million and the weighted average period over which that expense is expected to be recognized is 3.4 years.

 

 

 

 

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A summary of RSU activity for the three months ended March 31, 2022 is as follows:

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Grant Date

 

 

 

of Shares

 

 

Fair Value

 

Unvested as of December 31, 2021

 

 

92,804

 

 

$

13.70

 

Granted

 

 

 

 

 

 

Vested

 

 

(38,175

)

 

 

15.01

 

Forfeited

 

 

 

 

 

 

Unvested as of March 31, 2022

 

 

54,629

 

 

$

12.78

 

 

As of March 31, 2022, the unrecognized share-based compensation expense, net of estimated forfeitures, related to all unvested restricted stock units by the Company’s employees is $0.5 million and the weighted-average period over which that expense is expected to be recognized is 1.1 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, 2022 and 2021 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, 2022 and 2021.

 

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. As of March 31, 2022, there were 450,000 outstanding stock options containing market conditions with a weighted average exercise price of $2.01. As of March 31, 2022 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 1.93 years.

9. Loss per share

Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period as follows:

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

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