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, 2023

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 Capital Market LLC

 

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 1, 2023, the registrant had 43,524,894 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, 2023 and December 31, 2022

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for Three Months Ended March 31, 2023 and 2022

6

Condensed Consolidated Statements of Stockholders’ Equity for Three Months Ended March 31, 2023 and 2022

7

Condensed Consolidated Statements of Cash Flows for Three Months Ended March 31, 2023 and 2022

9

Notes to the Condensed Consolidated Financial Statements

10

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

 

PART II — OTHER INFORMATION

 

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 5.

Other Information

31

Item 6.

Exhibits

31

Signatures

33

 

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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 zagociguat and CY3018;
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;
our ability to access capital, capabilities, and transactions necessary to advance the development of our assets;
our ability to pursue a transaction or that any transaction, if pursued, will be completed on attractive terms, including in particaular whether the Asset Purchase Agreement (as defined below in Note 1 to the Condensed Consolidated Financial Statements) will be consummated in accordance with its terms;
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 in Note 1 to the Condensed Consolidated Financial Statements) 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;

 

3


 

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;
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;
the coronavirus ("COVID-19") pandemic may continue to disrupt our business, including our development activities; 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, 2022, 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,
2023

 

 

December 31,
2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,169

 

 

$

13,382

 

Accounts receivable

 

 

96

 

 

 

96

 

Prepaid expenses

 

 

567

 

 

 

805

 

Other current assets

 

 

503

 

 

 

537

 

Total current assets

 

 

8,335

 

 

 

14,820

 

Operating lease right-of-use asset

 

 

1,171

 

 

 

1,218

 

Other assets

 

 

1,950

 

 

 

2,041

 

Total assets

 

$

11,456

 

 

$

18,079

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,925

 

 

$

2,970

 

Accrued research and development costs

 

 

1,605

 

 

 

2,275

 

Accrued expenses and other current liabilities

 

 

2,001

 

 

 

2,382

 

Total current liabilities

 

 

7,531

 

 

 

7,627

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, no par value, 400,000,000 shares authorized and 43,524,894 issued and outstanding at March 31, 2023 and 400,000,000 shares authorized and 43,518,724 issued and outstanding at December 31, 2022

 

 

 

 

 

 

Paid-in capital

 

 

270,052

 

 

 

269,626

 

Accumulated deficit

 

 

(266,108

)

 

 

(259,154

)

Accumulated other comprehensive loss

 

 

(19

)

 

 

(20

)

Total stockholders' equity

 

 

3,925

 

 

 

10,452

 

Total liabilities and stockholders' equity

 

$

11,456

 

 

$

18,079

 

 

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,

 

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

Revenue from development agreement

 

 

 

 

 

225

 

Revenue from grants

 

 

 

 

 

486

 

Total revenues

 

 

 

 

 

711

 

Cost and expenses:

 

 

 

 

 

 

Research and development

 

 

3,773

 

 

 

9,743

 

General and administrative

 

 

3,269

 

 

 

3,952

 

Total cost and expenses

 

 

7,042

 

 

 

13,695

 

Loss from operations

 

 

(7,042

)

 

 

(12,984

)

Interest and other income (expenses), net

 

 

88

 

 

 

6

 

Net loss

 

$

(6,954

)

 

$

(12,978

)

Net loss per share:

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.16

)

 

$

(0.30

)

Weighted average shares used in calculating:

 

 

 

 

 

 

Basic and diluted net loss per share

 

 

43,521

 

 

 

43,425

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(6,954

)

 

$

(12,978

)

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation adjustment gain

 

 

1

 

 

 

 

Comprehensive loss

 

$

(6,953

)

 

$

(12,978

)

 

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, 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

 

 

 

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, 2022

 

 

43,518,724

 

 

$

 

 

$

269,626

 

 

$

(259,154

)

 

$

(20

)

 

$

10,452

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,954

)

 

 

 

 

 

(6,954

)

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

 

 

6,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

416

 

 

 

 

 

 

 

 

 

416

 

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

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

10

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Balance at March 31, 2023

 

 

43,524,894

 

 

$

 

 

$

270,052

 

 

$

(266,108

)

 

$

(19

)

 

$

3,925

 

 

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,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(6,954

)

 

$

(12,978

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

48

 

Share-based compensation expense

 

 

426

 

 

 

1,767

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

(127

)

Prepaid expenses

 

 

238

 

 

 

(79

)

Other current assets

 

 

34

 

 

 

(9

)

Operating lease assets

 

 

47

 

 

 

46

 

Other assets

 

 

91

 

 

 

91

 

Accounts payable

 

 

955

 

 

 

691

 

Accrued research and development costs

 

 

(670

)

 

 

(1,815

)

Accrued expenses and other current liabilities

 

 

(381

)

 

 

(470

)

Net cash (used in) operating activities

 

 

(6,214

)

 

 

(12,835

)

Effect of exchange rate changes on cash and cash equivalents

 

 

1

 

 

 

(1

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(6,213

)

 

 

(12,836

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

13,382

 

 

 

53,961

 

Cash, cash equivalents and restricted cash, end of period

 

$

7,169

 

 

$

41,125

 

 

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 biopharmaceutical company on a mission to develop treatments for serious diseases. Our portfolio includes novel soluble guanylate cyclase ("sGC") stimulators that modulate a key node in a fundamental signaling network in both the central nervous system ("CNS") and the periphery. The nitric oxide ("NO") soluble guanylate cyclase ("sGC") cyclic guanosine monophosphate ("cGMP") signaling pathway is a fundamental mechanism that precisely controls key aspects of physiology throughout the body. The NO-sGC-cGMP pathway, regulates diverse and critical biological functions including mitochondrial function, neuronal function, inflammation, and hemodynamics. Although this pathway has been successfully targeted with several drugs in the periphery, this mechanism has yet to be fully leveraged therapeutically, particularly in the CNS, where impaired NO-sGC-cGMP signaling is believed to play an important role in the pathogenesis of many neurodegenerative and neuropsychiatric diseases.

Zagociguat is a clinical-stage CNS-penetrant sGC stimulator that has shown rapid improvement in cerebral blood flow, functional brain connectivity, brain response to visual stimulus, cognitive performance, and biomarkers associated mitochondrial function and inflammation in clinical studies. CY 3018 is a CNS-targeted sGC stimulator that preferentially localizes to the brain and has a pharmacology profile that suggests its potential for the treatment of neuropsychiatric diseases and disorders. Praliciguat is a systemic sGC stimulator that is licensed to Akebia Therapeutics, Inc. ("Akebia") and being advanced in rare kidney disease. Olinciguat is a clinical-stage vascular sGC stimulator that the Company intends to out-license for cardiovascular diseases. Cyclerion is actively evaluating the best combination of capital, capabilities, and transactions available to it to advance the development of zagociguat and its other clinical development candidates and to maximize shareholder value.

Cyclerion GmbH, a wholly owned subsidiary, was incorporated in Zug, Switzerland on May 3, 2019. 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 for serious CNS diseases.

Zagociguat is an orally administered CNS-penetrant sGC stimulator. As an sGC stimulator, zagociguat amplifies endogenous NO signaling by acting as a positive allosteric modulator to sensitize the sGC enzyme to NO and increase the production of cGMP, and thereby amplify endogenous NO signaling. By compensating for deficient NO-sGC-cGMP signaling zagociguat may have broad therapeutic potential as a treatment for people with serious diseases.

On January 13, 2020, we announced positive results from our Phase 1 first-in-human study that provided the foundation for continued development of zagociguat. The results from this study indicate that zagociguat was well tolerated. Pharmacokinetic data, obtained from both blood and cerebral spinal fluid ("CSF"), support once-daily dosing, with or without food, and demonstrated zagociguat 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 zagociguat Phase 1 translational pharmacology study in healthy elderly participants. Treatment with zagociguat 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 decreases in

 

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inflammatory biomarkers associated with aging and neurodegenerative diseases. Zagociguat was safe and generally well tolerated in the study. These results, together with nonclinical data, supported the continued development of zagociguat as a potential new medicine for serious diseases involving the CNS.

On June 10, 2022, we announced positive topline clinical data for zagociguat in our signal-seeking clinical study for the potential treatment of Mitochondrial Encephalomyopathy, Lactic Acidosis and Stroke-like episodes ("MELAS"). In this open-label, single-arm study of the oral, once-daily sGC stimulator in eight adults aged 18 or older with MELAS, improvements were seen across a range of endpoints reflecting multiple domains of disease activity, including mitochondrial disease-associated biomarkers 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 among several endpoints with each other and with zagociguat plasma concentrations. Zagociguat was well tolerated with no serious or severe adverse events and no events leading to discontinuation. Pharmacokinetics were consistent with the Phase 1 studies in healthy volunteers. The positive data from this study support the potential of zagociguat to provide therapeutic benefit to people living with mitochondrial diseases, including MELAS.

On July 28, 2022, we announced positive topline data from our signal-seeking clinical study of zagociguat for the potential treatment of Cognitive Impairment Associated with Schizophrenia ("CIAS"). Data from the 14-day, double blind, randomized, placebo-controlled, multiple-ascending-dose study in 48 adults aged 18-50 with stable schizophrenia on a stable, single atypical antipsychotic regimen demonstrated that once-daily zagociguat was safe and well tolerated, with no reports of serious adverse events, severe adverse events, or treatment discontinuation due to adverse events. We further announced that study data demonstrated a strong effect on cognitive performance after two weeks of 15mg once-daily dosing and that positive movements on inflammatory biomarkers were also observed. These signals on exploratory endpoints are consistent with pro-cognitive and anti-inflammatory effects of zagociguat observed in preclinical studies and prior clinical trials and support the further development of oral, once-daily zagociguat.

In October 2022, the WHO International Nonproprietary Names committee and the United States Adopted Name council selected zagociguat as a nonproprietary name for CY6463.

On March 22, 2023, we announced that given the significant capital and capabilities necessary to ensure that the MELAS Phase 2b study is executed efficiently and with the highest quality, and the currently unfavorable capital market conditions, we are actively evaluating the best combination of capital, capabilities, and transactions available to us to advance the development of zagociguat and our other clinical development candidates and to maximize shareholder value.

On March 31, 2023, we entered into a stock purchase agreement with the Company's Chief Executive Officer (the "CEO") pursuant to which the CEO will make an equity investment in the Company of $5 million in cash for common stock or nonvoting convertible preferred stock of the Company, the purchase price, consistent with Nasdaq rules, to be at or above the market price at the time of signing that agreement. The closing of the equity investment will take place six business days after the signing of the Asset Purchase Agreement (as defined below), or May 11, 2023.

On May 11, 2023, the Company entered into an Asset Purchase Agreement (the "Asset Purchase Agreement”) with an investor group which includes Peter Hecht, the Company's Chief Executive Officer ("CEO"), JW Celtics Investment Corp. (“Buyer Parent”) and JW Cycler Inc. (“Buyer”). Pursuant to the terms of the Asset Purchase Agreement and subject to the approval by the Company's shareholders, the Company will receive proceeds of $8 million as cash consideration, reimbursement for certain operating expenses related to zagociguat and CY3018 for the period between signing and closing of the transaction and 10% of all of Buyer Parent's outstanding equity securities upon the successful closing of the transaction.

On May 11, 2023, we announced topline data from our signal- seeking clinical study of zagociguat for the potential treatment of Alzheimer's disease with vascular pathology ("ADv"), which study was supported in part by a $2 million grant from the Alzheimer's Association's Part the Cloud-Gates Partnership Grant Program (the "PTC Grant") . This exploratory, randomized, placebo-controlled, study of oral once-daily zagociguat was designed to evaluate safety, tolerability, and pharmacokinetics as well as explore the impact of zagociguat on biomarkers and

 

11


 

cognitive performance over a twelve-week dosing period. The total number of enrolled participants was capped at 12 participants due to challenges associated with enrollment. Data from this study show that the safety and tolerability of profile once-daily zagociguat was consistent with prior studies. Given the small number of participants we are unable to draw any conclusions from the data generated in the study.

CY3018 is a CNS-targeted sGC stimulator in preclinical development that preferentially localizes to the brain and has a pharmacology profile that suggests its potential for the treatment of neuropsychiatric diseases and disorders.

Praliciguat is an orally administered, once-daily systemic sGC stimulator. On June 3, 2021, we entered into a license agreement with 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. Cyclerion is eligible to receive up to $585 million in total potential future development, regulatory, and commercialization milestone payments. Cyclerion is also eligible to receive tiered, sales-based royalties ranging from single-digit to high-teen percentages.

Olinciguat is an orally administered, once-daily, vascular sGC stimulator that was evaluated in a Phase 2 study of participants with sickle cell disease. We released topline results from this study in October 2020. We intend to out-license olinciguat to an entity with strong cardiovascular and/or cardiopulmonary capabilities.

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 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 three months ended March 31, 2023.

Basis of Presentation

The condensed consolidated financial statements and the related disclosures are unaudited and have been prepared in accordance with accounting principles generally accepted in the U.S. Additionally, certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 22, 2023.

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, 2023 and 2022 are not necessarily indicative of the results that may be expected for the full year or any other subsequent interim period.

 

12


 

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, in accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, 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.

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

The Company’s expectation to generate 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.

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").

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided a period of 180 calendar days, or until November 28, 2022, to regain compliance with the Bid Price Requirement. The Company did not regain compliance with the Bid Price Requirement by the initial compliance date. On November 29, 2022, Nasdaq notified the Company that it is eligible for an additional 180 calendar day period, or until May 29, 2023 (the "Extended Compliance Date"), to regain compliance with the Bid Price Requirement. Nasdaq’s determination was

 

13


 

based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market with the exception of the Bid Price Requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. Effective November 25, 2022, the Company transferred its listing of the Company’s common stock from the Nasdaq Global Market to the Nasdaq Capital Market, a continuous trading market that operates in substantially the same manner as the Nasdaq Global Market. The Company’s common stock continues to trade under the symbol “CYCN”.

To date, the Company has not regained compliance with the Bid Price Requirement. If at any time before May 29, 2023, 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. 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.

On April 3, 2023, the Company filed with the SEC a definitive proxy statement for its annual meeting of stockholders to be held on May 15, 2023, at which meeting the Company is seeking stockholder approval of a reverse stock split with the primary intent of increasing the price of its common stock to meet the price criteria for continued listing on Nasdaq. 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 on how stockholders will vote on such proposal or 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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 three months ended March 31, 2023 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

 

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adoption is permitted. The Company adopted ASU 2016-13 in the first quarter of 2023, 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 March 31, 2023 and December 31, 2022 (in thousands):

 

 

 

Fair Value Measurements as of March 31, 2023:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,079

 

 

$

 

 

$

 

 

$

6,079

 

Cash equivalents

 

$

6,079

 

 

$

 

 

$

 

 

$

6,079

 

 

 

 

Fair Value Measurements as of December 31, 2022:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,357

 

 

$

 

 

$

 

 

$

12,357

 

Cash equivalents

 

$

12,357

 

 

$

 

 

$

 

 

$

12,357

 

 

During the three months ended March 31, 2023 and 2022, 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 receivable, 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,

 

 

 

2023

 

 

2022

 

Software

 

 

2,174

 

 

$

2,174

 

Computer equipment

 

 

 

 

 

7

 

Leasehold improvements

 

 

 

 

 

 

Property and equipment, gross

 

 

2,174

 

 

 

2,181

 

Less: accumulated depreciation and amortization

 

 

(2,174

)

 

 

(2,181

)

Property and equipment, net

 

$

 

 

$

 

 

As of March 31, 2023, and December 31, 2022, the Company’s property and equipment was primarily located in Boston, Massachusetts.

During the three months ended March 31, 2023, the Company did not record depreciation and amortization expenses. The company recorded approximately $0.1 million of depreciation and amortization expenses for the three months ended March 31, 2022.

 

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5. Accrued Expenses and Other Current Liabilities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Accrued incentive compensation

 

$

362

 

 

$

238

 

Salaries

 

 

248

 

 

 

246

 

Accrued vacation

 

 

186

 

 

 

186

 

Professional fees

 

 

924

 

 

 

835

 

Accrued severance and benefit costs

 

 

141

 

 

 

809

 

Other

 

 

140

 

 

 

68

 

Accrued expenses and other current liabilities

 

$

2,001

 

 

$

2,382

 

 

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.

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, 2023 and December 31, 2022.

7. Leases

In May 2021, the Company signed a 12-month membership agreement to lease space with WeWork at 501 Boylston Street, Boston, Massachusetts, commencing on August 1, 2021. The agreement was extended for six months on August 1, 2022. The 12-month agreement and 6-month extension are accounted for as short-term leases. The Company recorded a de minimis amount and approximately $0.1 million, in lease expense associated with the membership agreement during the three months ended March 31, 2023 and 2022, respectively.

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

 

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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 $0.1 million and $0.1 million of lease expense during the three months ended March 31, 2023 and 2022, respectively. 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 and $0.1 million for the three months ended March 31, 2023 and 2022, respectively. 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 mirrored two of Ironwood Pharmaceuticals, Inc’s ("Ironwood") 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 tax-free spin-off of Ironwood's sGC business (the "Separation") as part of the equity conversion. As a result of the Separation and in accordance with the Employee Matters Agreement between Ironwood and Cyclerion entered into as part of the Separation, 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, 2023 and 2022 (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Research and development

 

$

229

 

 

$

830

 

General and administrative

 

 

197

 

 

 

937

 

 

$

426

 

 

$

1,767

 

 

 

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A summary of stock option activity for the three months ended March 31, 2023, 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, 2022

 

 

7,311,893

 

 

$

9.23

 

 

 

5.8

 

 

 

20

 

Granted

 

 

 

 

 

0.00

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

0.00

 

 

 

 

 

 

 

Cancelled or forfeited

 

 

(600,887

)

 

 

14.29

 

 

 

 

 

 

 

Outstanding as of March 31, 2023

 

 

6,711,006

 

 

$

8.77

 

 

 

6.1

 

 

$

0

 

Exercisable at March 31, 2023

 

 

4,867,431

 

 

$

11.30

 

 

 

5.2

 

 

$

0

 

As of March 31, 2023, 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 $1.8 million and the weighted average period over which that expense is expected to be recognized is 3.2 years.

A summary of RSU activity for the three months ended March 31, 2023 is as follows:

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

 

Grant Date

 

 

 

of Shares

 

 

Fair Value

 

Unvested as of December 31, 2022

 

 

815,587