10-Q
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rollingInterestMember2022-06-300001755237us-gaap:CommonStockMember2022-03-310001755237us-gaap:RetainedEarningsMember2022-03-3100017552372022-01-012022-03-310001755237cycn:LicensedRoomMember2022-01-012022-06-300001755237us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-06-300001755237us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2022-06-300001755237us-gaap:PerformanceSharesMember2022-01-012022-06-300001755237srt:MinimumMemberus-gaap:PerformanceSharesMember2022-01-012022-06-300001755237us-gaap:RetainedEarningsMember2021-03-310001755237us-gaap:EmployeeStockOptionMember2022-04-012022-06-300001755237us-gaap:CommonStockMember2022-01-012022-03-310001755237us-gaap:PropertyPlantAndEquipmentMember2022-01-012022-06-300001755237cycn:CyclerionSecuritiesCorporationMember2019-11-150001755237cycn:AkbeiaSupplyAgreementMember2022-01-012022-06-300001755237cycn:WeworkMember2022-01-012022-06-300001755237us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2021-06-300001755237us-gaap:ResearchAndDevelopmentExpenseMember2022-04-012022-06-300001755237us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-3000017552372022-08-050001755237us-gaap:EmployeeStockOptionMember2021-04-012021-06-300001755237us-gaap:PropertyPlantAndEquipmentMember2021-01-012021-06-300001755237us-gaap:RetainedEarningsMember2021-01-012021-03-310001755237us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2022-01-012022-03-310001755237us-gaap:AdditionalPaidInCapitalMember2020-12-310001755237us-gaap:SubsequentEventMember2022-11-282022-11-280001755237us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-06-3000017552372021-07-012022-12-3100017552372022-06-012022-06-010001755237us-gaap:RestrictedStockUnitsRSUMember2022-06-300001755237srt:MinimumMember2022-01-012022-06-300001755237us-gaap:CommonStockMember2021-01-012021-03-310001755237us-gaap:RestrictedStockUnitsRSUMember2022-04-012022-06-300001755237us-gaap:RestrictedStockUnitsRSUMember2021-04-012021-06-300001755237us-gaap:CommonStockMember2021-03-310001755237us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-06-30xbrli:pureutr:sqftcycn:TradingDayxbrli:sharesiso4217:USDxbrli:sharescycn:Employeeiso4217:USD

 

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 June 30, 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 August 5, 2022, the registrant had 43,479,835 shares of common stock, no par value, outstanding.

 


 

CYCLERION PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS

 

 

 

Page

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

5

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for Three and Six Months Ended June 30, 2022 and 2021

6

 

Condensed Consolidated Statements of Stockholders’ Equity for Three and Six Months Ended June 30, 2022 and 2021

7

 

Condensed Consolidated Statements of Cash Flows for Six Months Ended June 30, 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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

 

 

 

 

PART II — OTHER INFORMATION

 

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 5.

Other Information

32

Item 6.

Exhibits

32

 

Signatures

34

 

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. All statements in this report, other than statements of historical facts, including statements about future events, financing plans, financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations, are forward-looking statements that involve certain risks and uncertainties. Use of the words “may,” “might,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “seeks,” “intends,” “evaluates,” “pursues,” “anticipates,” “continues,” “designs,” “impacts,” “affects,” “forecasts,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal” or the negative of those words or other similar expressions may identify forward-looking statements that represent our current judgment about possible future events, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national, or global political, economic, business, competitive, market and regulatory conditions and the following:

we could be delisted from Nasdaq;
there is substantial doubt regarding our ability to continue as a going concern;
the timing, investment and associated activities involved in developing, obtaining regulatory approval for, launching and commercializing our product candidates, including 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;

 

3


 

our ability to obtain and maintain intellectual property protection for our product candidates and the strength thereof;
our future financial performance, revenues, expense levels, payments, cash flows, profitability, tax obligations, capital raising and liquidity sources, real estate needs and concentration of voting control, as well as the timing and drivers thereof, and internal control over financial reporting;
our ability to compete with other companies that are or may be developing or selling products that are competitive with our product candidates;
the impact of government regulation in the life sciences industry, particularly with respect to healthcare reform; 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)

 

 

 

June 30,
2022

 

 

December 31,
2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,323

 

 

$

53,961

 

Accounts receivable

 

 

227

 

 

 

100

 

Prepaid expenses

 

 

647

 

 

 

928

 

Other current assets

 

 

482

 

 

 

468

 

Total current assets

 

 

31,679

 

 

 

55,457

 

Property and equipment, net

 

 

 

 

 

65

 

Operating lease right-of-use asset

 

 

1,310

 

 

 

1,402

 

Other assets

 

 

2,224

 

 

 

2,407

 

Total assets

 

$

35,213

 

 

$

59,331

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,767

 

 

$

1,828

 

Accrued research and development costs

 

 

4,759

 

 

 

6,353

 

Accrued expenses and other current liabilities

 

 

2,326

 

 

 

2,904

 

Total current liabilities

 

 

9,852

 

 

 

11,085

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 Common stock, no par value, 400,000,000 shares authorized and 43,479,835 issued and outstanding at June 30, 2022 and 400,000,000 shares authorized and 43,410,185 issued and outstanding at December 31, 2021

 

 

 

 

 

 

Accumulated deficit

 

 

(241,442

)

 

 

(215,076

)

Paid-in capital

 

 

266,828

 

 

 

263,345

 

Accumulated other comprehensive loss

 

 

(25

)

 

 

(23

)

Total stockholders' equity

 

 

25,361

 

 

 

48,246

 

Total liabilities and stockholders' equity

 

$

35,213

 

 

$

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
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from license agreement

 

$

 

 

$

3,000

 

 

$

 

 

$

3,000

 

Revenue from development agreement

 

 

72

 

 

 

 

 

 

297

 

 

 

62

 

Revenue from grants

 

 

234

 

 

 

 

 

 

720

 

 

 

 

Total revenues

 

 

306

 

 

 

3,000

 

 

 

1,017

 

 

 

3,062

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

10,218

 

 

 

12,054

 

 

 

19,961

 

 

 

20,146

 

General and administrative

 

 

3,521

 

 

 

6,241

 

 

 

7,473

 

 

 

11,606

 

Loss on lease termination

 

 

 

 

 

881

 

 

 

 

 

 

881

 

Total cost and expenses

 

 

13,739

 

 

 

19,176

 

 

 

27,434

 

 

 

32,633

 

Loss from operations

 

 

(13,433

)

 

 

(16,176

)

 

 

(26,417

)

 

 

(29,571

)

Interest and other income (expenses), net

 

 

45

 

 

 

(6

)

 

 

51

 

 

 

(10

)

Net loss

 

$

(13,388

)

 

$

(16,182

)

 

$

(26,366

)

 

$

(29,581

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.31

)

 

$

(0.45

)

 

$

(0.61

)

 

$

(0.85

)

Weighted average shares used in calculating:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

 

43,459

 

 

 

35,707

 

 

 

43,442

 

 

 

34,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,388

)

 

$

(16,182

)

 

$

(26,366

)

 

$

(29,581

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment (loss) gain

 

 

(1

)

 

 

1

 

 

 

(2

)

 

 

1

 

Comprehensive loss

 

$

(13,389

)

 

$

(16,181

)

 

$

(26,368

)

 

$

(29,580

)

 

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

 

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

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

 

 

 

391

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

34,129,925

 

 

$

 

 

$

225,288

 

 

$

(176,828

)

 

$

(27

)

 

$

48,433

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,182

)

 

 

 

 

 

(16,182

)

Issuance of common stock - June 2021 equity private placement and ATM

 

 

9,087,547

 

 

 

 

 

 

30,497

 

 

 

 

 

 

 

 

 

30,497

 

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

 

 

57,777

 

 

 

 

 

 

133

 

 

 

 

 

 

 

 

 

133

 

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

 

 

 

 

 

 

 

 

1,942

 

 

 

 

 

 

 

 

 

1,942

 

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

 

 

 

 

 

 

 

 

398

 

 

 

 

 

 

 

 

 

398

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Balance at June 30, 2021

 

 

43,275,249

 

 

$

 

 

$

258,258

 

 

$

(193,010

)

 

$

(26

)

 

$

65,222

 

 

 

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

 

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

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,388

)

 

 

 

 

 

(13,388

)

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

 

 

31,475

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

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

 

 

 

 

 

 

 

 

1,410

 

 

 

 

 

 

 

 

 

1,410

 

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

 

 

 

 

 

 

 

 

289

 

 

 

 

 

 

 

 

 

289

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Balance at June 30, 2022

 

 

43,479,835

 

 

$

 

 

$

266,828

 

 

$

(241,442

)

 

$

(25

)

 

$

25,361

 

 

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)

 

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(26,366

)

 

$

(29,581

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

65

 

 

 

376

 

Net loss on disposal of property and equipment

 

 

 

 

 

6,322

 

Loss on lease termination

 

 

 

 

 

881

 

Share-based compensation expense

 

 

3,466

 

 

 

4,652

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(127

)

 

 

 

Related party accounts receivable

 

 

 

 

 

127

 

Prepaid expenses

 

 

281

 

 

 

50

 

Other current assets

 

 

(14

)

 

 

(121

)

Operating lease assets

 

 

92

 

 

 

1,344

 

Other assets

 

 

183

 

 

 

183

 

Accounts payable

 

 

939

 

 

 

237

 

Related party accounts payable

 

 

 

 

 

(286

)

Accrued research and development costs

 

 

(1,594

)

 

 

819

 

Operating lease liabilities

 

 

 

 

 

(1,048

)

Accrued expenses and other current liabilities

 

 

(578

)

 

 

(3,919

)

Net cash (used in) operating activities

 

 

(23,653

)

 

 

(19,964

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

 

 

 

1,464

 

Net cash provided by investing activities

 

 

 

 

 

1,464

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from equity private placement and ATM

 

 

 

 

 

30,497

 

Proceeds from exercises of stock options and ESPP

 

 

17

 

 

 

160

 

Net cash provided by financing activities

 

 

17

 

 

 

30,657

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(2

)

 

 

1

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(23,638

)

 

 

12,158

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

53,961

 

 

 

58,232

 

Cash, cash equivalents and restricted cash, end of period

 

$

30,323

 

 

$

70,390

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,323

 

 

$

70,390

 

Total cash, cash equivalents and restricted cash

 

$

30,323

 

 

$

70,390

 

 

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 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.

On June 10, 2022, we announced positive topline clinical data for CY6463 in our signal-seeking clinical study for the potential treatment of MELAS. In this open-label, single-arm study of the oral, once-daily sGC

 

10


 

stimulator in eight adults aged 18 or older with MELAS, improvements were seen across a range of assessments, including mitochondrial disease-associated biomarker such as lactate and GDF-15, a broad panel of inflammatory biomarkers, cerebral blood flow, and functional connectivity between neural networks. These positive effects after 29 days of dosing were supported by correlations across several endpoints. CY6463 was well tolerated with no adverse events and pharmacokinetics were consistent with the Phase 1 study in healthy volunteers. The positive data from this study further support the potential of CY6463 to provide therapeutic benefit to people living with MELAS.

On July 28, 2022, we announced positive topline data from our signal-seeking clinical study of CY6463 for the potential treatment of CIAS in individuals with stable schizophrenia on a stable, single, atypical antipsychotic regimen. Data from the 14-day, double blind, randomized, placebo-controlled, multiple-ascending-dose study in 48 adults aged 18-50 demonstrate that once-daily CY6463 was safe and well tolerated, with no reports of serious adverse events ("SAEs”), severe adverse events (“AEs”), or treatment discontinuation due to AEs. Study data demonstrate a strong effect on cognitive performance after two weeks of 15mg once-daily dosing. Positive movement on inflammatory biomarkers was also observed. These signals on exploratory endpoints provide further evidence of the pro-cognitive and anti-inflammatory effects of CY6463 observed in preclinical studies and prior clinical trials. Study data demonstrate the translation of sGC multi-dimensional pharmacology and the therapeutic potential of amplifying sGC signaling in the CNS and support the further development of oral, once-daily CY6463.

We have an ongoing signal-seeking clinical study of CY6463 for the potential treatment of ADv. 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.

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. No shares of common stock have been issued or sold under the ATM Offering during the six months ended June 30, 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 and six months ended June 30, 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.

In accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. In performing its analysis, management excluded certain elements of its operating plan that cannot be considered probable. Under ASC 205-40, the future receipt of potential funding from future partnerships, equity or debt issuances, the potential milestones from the Akebia agreement and reductions in force cannot be considered probable at this time because these plans are not entirely within the Company’s control and/or have not been approved by the Board of Directors as of the date of these consolidated financial statements.

The Company's expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support its planned operations, raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date that these consolidated financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include reduced spending, and the pursuit of additional capital. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources, or adequately reduce expenditures, while reasonably possible, is less than probable. Accordingly, the Company has concluded that substantial doubt exists about the Company's ability to continue as a going concern for a period of at least 12 months from the date of issuance of these consolidated financial statements.

 

12


 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard

On June 1, 2022, the Company received a notice from the Nasdaq Stock Market ("Nasdaq") notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company's common stock listed on Nasdaq has been below the minimum $1.00 per share required for continued listing on the Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the “Bid Price Requirement”). The Nasdaq deficiency letter has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on The Nasdaq Global Select Market under the symbol “CYCN” at this time.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided a period of 180 calendar days, or until November 28, 2022, to regain compliance with the Bid Price Requirement. If at any time before November 28, 2022, the bid price of the Company’s common stock closes at a $1.00 per share or more for a minimum of 10 consecutive business days, Nasdaq will provide written notification to the Company that it has regained compliance with the Bid Price Requirement. In the event the Company does not regain compliance with the Bid Price Requirement by November 28, 2022, the Company may be afforded an additional 180-day compliance period, provided it demonstrates that it meets all other applicable standards for initial listing on the Nasdaq Capital Market, except the Bid Price Requirement. If the Company does not regain compliance with the Bid Price Requirement by the end of the second compliance period, the Company's stock will be subject to delisting.

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider available options to regain compliance with the Bid Price Requirement, including initiating a reverse stock split. However, there can be no assurance that the Company will be able to regain compliance with the Bid Price Requirement or will otherwise be in compliance with other Nasdaq Listing Rules.

2. Summary of Significant Accounting Policies

The accounting policies of the Company are set forth in Note 2. Summary of Significant Accounting Policies to the consolidated financial statements contained in the Company’s 2021 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 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 six months ended June 30, 2022 that had a material effect on its condensed consolidated financial statements.

 

13


 

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 any impact on the Company's financial position or results of operations.

No other accounting standards known by the Company to be applicable to it that have been issued by the FASB or other standard-setting bodies and that do not require adoption until a future date are expected to have a material impact on the 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 June 30, 2022, and December 31, 2021 (in thousands):

 

 

 

Fair Value Measurements as of June 30, 2022:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents: