Korsana Biosciences, Inc 10-Q for FY2023 Q3
Korsana Biosciences, Inc. (KRSA)
About this 10-Q
Korsana Biosciences, Inc filed this 10-Q on November 13, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $0
- compared with $0 a year earlier
- Net income
- $7.57M
- compared with a net loss of $10.5M a year earlier
- Diluted EPS
- $2.72
- compared with -$4.83 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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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
(Exact Name of Registrant as Specified in its Charter)
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Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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The |
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.
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).
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 ☐ |
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Accelerated filer ☐ |
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Smaller reporting company |
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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
As of November 9, 2023, the registrant had
CYCLERION PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
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:
3
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 in our Quarterly Report on Form 10-Q for the period ended June 30, 2023 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 data)
(Unaudited)
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September 30, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Operating lease right-of-use asset |
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Other investment |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued research and development costs |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Commitments and contingencies (Note 8) |
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Stockholders' equity |
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Preferred shares, |
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Common stock, |
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Paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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*Adjusted retroactively for reverse stock split - see Note 1
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)
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Three Months Ended |
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Nine Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenues: |
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Revenue from development agreement |
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$ |
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$ |
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$ |
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$ |
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Total revenues |
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Cost and expenses: |
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Research and development |
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General and administrative |
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Impairment loss |
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Total cost and expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Interest and other income, net |
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Net loss from continuing operations |
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( |
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( |
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( |
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( |
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Discontinued operations: |
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Gain (loss) from discontinued operations |
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( |
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( |
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Net gain (loss) |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Net gain (loss) per share - basic: |
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Net loss per share from continuing operations - basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net gain (loss) per share from discontinued operations - basic |
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( |
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( |
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Basic net gain (loss) per share (*) |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Net gain (loss) per share - diluted: |
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Net loss per share from continuing operations - diluted |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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Net gain (loss) per share from discontinued operations - diluted |
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( |
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( |
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Diluted net gain (loss) per share (*) |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares used in calculating: |
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Basic shares |
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Diluted shares |
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Other comprehensive loss: |
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Net gain (loss) |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Other comprehensive loss: |
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Foreign currency translation adjustment loss (gain) |
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( |
) |
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( |
) |
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( |
) |
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Comprehensive gain (loss) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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*Adjusted retroactively for reverse stock split - see Note 1
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)
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Common Stock |
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Paid-in |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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capital |
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deficit |
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loss |
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equity |
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Balance at December 31, 2021 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan |
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— |
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— |
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— |
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— |
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Share‑based compensation expense related to issuance of stock options to non-employees |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2022 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|||
Net loss |
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— |
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— |
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— |
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( |
) |
|
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— |
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( |
) |
Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan |
|
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— |
|
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— |
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— |
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|||
Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan |
|
|
— |
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|
|
— |
|
|
|
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|
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— |
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— |
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Share‑based compensation expense related to issuance of stock options to non-employees |
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||||||
Foreign currency translation adjustment |
|
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— |
|
|
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— |
|
|
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— |
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|
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— |
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|
|
( |
) |
|
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( |
) |
Balance at June 30, 2022 |
|
|
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|
$ |
— |
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$ |
|
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Net loss |
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— |
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— |
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— |
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( |
) |
|
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— |
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( |
) |
Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan |
|
|
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— |
|
|
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— |
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|
|
— |
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|
|
— |
|
|
|
— |
|
|
Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
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|
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— |
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— |
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Share‑based compensation expense related to issuance of stock options to non-employees |
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||||||
Foreign currency translation adjustment |
|
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— |
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— |
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— |
|
|
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— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2022 |
|
|
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|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
7
Cyclerion Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands except share data)
(Unaudited)
|
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Common Stock (*) |
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Preferred Stock |
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Paid-in |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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deficit |
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loss |
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equity |
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Balance at December 31, 2022 |
|
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$ |
— |
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— |
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$ |
— |
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|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Net loss |
|
|
— |
|
|
|
— |
|
|
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— |
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— |
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|
|
— |
|
|
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( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
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— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
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||
Share‑based compensation expense related to issuance of stock options to non-employees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
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|
||
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
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|
||
Balance at March 31, 2023 |
|
|
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Net loss |
|
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— |
|
|
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— |
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|
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— |
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|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
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( |
) |
Issuance of common stock |
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|
|
|
|
— |
|
|
|
— |
|
|
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— |
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|
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— |
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— |
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Issuance of preferred shares |
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— |
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— |
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— |
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— |
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— |
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|||
Issuance of common stock upon exercise of stock options, RSUs and employee stock purchase plan |
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— |
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— |
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— |
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— |
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— |
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|||
Share-based compensation expense related to issuance of stock options and RSUs to employees and employee stock purchase plan |
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|
— |
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— |
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— |
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— |
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— |
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— |
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Share‑based compensation expense related to issuance of stock options to non-employees |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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Fractional shares issuance |
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( |
) |
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— |
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|
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— |
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— |
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— |
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|
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— |
|
|
|
— |
|
|
|
— |
|
Balance at June 30, 2023 |
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
— |
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|
$ |
|
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Issuance of common stock upon vesting of RSUs |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation expense related to issuance of stock options and RSUs to employees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Share‑based compensation expense related to issuance of stock options to non-employees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2023 |
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
*Adjusted retroactively for reverse stock split - see Note 1
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)
|
|
Nine Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Gain on disposal of discontinued operations |
|
|
( |
) |
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
||
Impairment loss |
|
|
|
|
|
|
||
Share-based compensation expense |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
( |
) |
|
Prepaid expenses |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
( |
) |
|
Operating lease assets |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Accounts payable |
|
|
( |
) |
|
|
( |
) |
Accrued research and development costs |
|
|
( |
) |
|
|
( |
) |
Accrued expenses and other current liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Net proceeds from disposal of discontinued operations |
|
|
|
|
|
|
||
Net cash provided by investing activities |
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from stock purchase agreement |
|
|
|
|
|
|
||
Proceeds from exercises of stock options and ESPP |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosure: |
|
|
|
|
|
|
||
Non-cash gain on disposal of discontinued operations |
|
$ |
|
|
$ |
|
||
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 and has been successfully targeted with several drugs.
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. 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. CY3018 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. On July 28, 2023, the Company sold Zagociguat and CY3018 to Tisento Therapeutics, Inc. ("Tisento"), a newly formed private company focused on their development, in which Cyclerion currently holds a 10% equity stake received in partial consideration of such sale. See "Asset Purchase Agreement" and "Note 4" below. Cyclerion is actively evaluating other activities aimed at enhancing shareholder value, which may potentially include collaborations, licenses, mergers, acquisitions and/or other targeted investments.
Cyclerion GmbH, a wholly owned subsidiary, was incorporated in Zug, Switzerland on May 3, 2019. The functional currency is the Swiss franc. Subsequent to September 30, 2023, the liquidation process for Cyclerion GmbH has been concluded and the subsidiary is pending deregistration from the commercial registry.
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
Company Overview
The Company’s mission is to develop treatments for serious diseases.
Praliciguat is an orally administered, once-daily systemic sGC stimulator. On June 3, 2021, Cyclerion entered into a license agreement (as defined below) 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 $
Olinciguat is an orally administered, once-daily, vascular sGC stimulator that was evaluated in a Phase 2 study of participants with sickle cell disease. The Company released topline results from this study in October 2020. Cyclerion intends to out-license olinciguat to an entity with strong cardiovascular and/or cardiopulmonary capabilities.
Zagociguat and CY3018 are orally administered CNS-penetrant sGC stimulators. On July 28, 2023, the Company sold zagociguat and CY3018 to Tisento in exchange for $
10
closing of the transaction, and
Cyclerion continues to evaluate other activities aimed at enhancing shareholder value, which may potentially include collaborations, licenses, mergers, acquisitions and/or other targeted investments. No such activities are currently pending as of the date of the filing.
Stock Purchase Agreement
In March 2023, we entered into a stock purchase agreement with the Company's Chief Executive Officer (the "CEO") pursuant to which he invested $
Asset Purchase Agreement
On May 11, 2023, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with an investor group that included the CEO, JW Celtics Investment Corp and JW Cycle Inc. which subsequently changed their names to Tisento Therapeutics Holdings Inc.("Tisento Parent") and Tisento Therapeutics Inc. ("Tisento"). Upon the closing on July 28, 2023, of the transactions contemplated by the Asset Purchase Agreement, the Company sold to Tisento specified assets relating to the Company’s zagociguat and CY3018 programs (the "Program Assets") and Tisento assumed certain liabilities relating thereto, including, but not limited to (i) liabilities, costs and expenses arising after the date of the Asset Purchase Agreement relating to the employment of certain Cyclerion employees and the conduct of certain preclinical and clinical trial activities prior to the closing of the transactions contemplated by the Asset Purchase Agreement, and (ii) liabilities relating to such assets to the extent relating to the period after the closing of the transaction. In consideration for such sale and assumption, at such closing the Company received proceeds of $8.0 million as cash consideration, $2.4 million as reimbursement for certain operating expenses related to such assets for the period between signing and closing of the Asset Purchase Agreement, and shares of common stock of Tisento Parent comprising 10% of the then issued and outstanding equity securities of Tisento Parent immediately following such closing, subject to certain protections against dilution.
Reverse Stock Split
On May 15, 2023, the Company filed Articles of Amendment to the Company's Restated Articles of Organization with the Secretary of Commonwealth of Massachusetts to effect a 1-for-20 reverse stock split of the Company's issued and outstanding shares of common stock. The reverse stock split was reflected on the Nasdaq Capital Market beginning with the opening of trading on May 16, 2023. No fractional shares were issued in connection with the reverse stock split. All share amounts and per share amounts disclosed in this Quarterly Report on Form 10-Q have been adjusted retroactively to reflect the reverse stock split for all periods presented.
At-the-Market Shelf Registration Statement
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 $
11
net proceeds of $
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 and nine months ended September 30, 2023 and 2022 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, 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, certain cost reduction measures 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 expects that its cash, cash equivalents and marketable securities as of September 30, 2023, will be sufficient to fund operations into 2025, however the Company will need to obtain additional funding to sustain operations as it expects to continue to generate operating losses for the foreseeable future. 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. 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, 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.
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.
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 2022 Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Discontinued Operations
In accordance with ASC 205-20 “Presentation of Financial Statements: Discontinued Operations”, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, non-current assets, current liabilities, and non-current liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations and disclosed in the notes to financial statements. At the same time, the results of all discontinued operations, less applicable income taxes, shall be reported as components of net loss separate from the net income (loss) of continuing operations.
The Program Assets met the definition of a discontinued operation. Accordingly, the Company has classified the results of the Program Assets as discontinued operations in its unaudited condensed consolidated statements of operations for all periods presented. All assets and liabilities associated with the Program Assets were classified as assets and liabilities of discontinued operations in the Note 4, "Discontinued Operations". All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted. For additional information, see Note 4, “Discontinued Operations”.
Investment
The Company accounts for investments in equity securities without a readily determinable fair value at cost, minus impairment. If the Company identifies observable price changes in orderly transactions for an identical or a similar investment of the same issuer, the Company will measure the equity security at fair value as of the date that the observable transaction occurred in accordance with ASC Topic 321, Investments-Equity Securities.
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, fair value determination of other investment, 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.
13
Except as discussed elsewhere in the notes to the consolidated financial statements, the Company did not adopt any new accounting pronouncements during the nine months ended September 30, 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 became effective for the Company for fiscal years beginning after December 15, 2022. 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 September 30, 2023, and December 31, 2022 (in thousands):
|
|
Fair Value Measurements as of September 30, 2023: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
Fair Value Measurements as of December 31, 2022: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
During the nine months ended September 30, 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, accounts receivable, accounts payable, and accrued expenses approximate their fair value due to the short-term nature of these amounts.
4. Discontinued Operations
On May 11, 2023, the Company entered into the Purchase Agreement with Tisento for Tisento’s acquisition of substantially all of the assets comprising the Company’s zagociguat and CY3018 programs, in exchange for consideration at closing of $
The carrying value of the disposal group was lower than its fair value, less costs to sell, and accordingly, a gain on disposal was recorded during the three and nine months ended September 30, 2023. The operations of the Program Assets are presented as discontinued for all periods presented. The transaction closed on July 28, 2023.
14
The following table presents the results of the discontinued operations for the three and nine months ended September 30, 2023 and 2022 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from grants |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain on disposal of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net gain (loss) from discontinued operations |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations as of December 31, 2022 (in thousands).
|
|
December 31, 2022 |
|
|
Prepaid expenses |
|
$ |
|
|
Other current assets |
|
|
|
|
Total current assets of discontinued operations |
|
|
|
|
Total assets of discontinued operations |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
Accrued research and development costs |
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
Total current liabilities of discontinued operations |
|
|
|
|
Total liabilities of discontinued operations |
|
|
|
|
Net liabilities of discontinued operations |
|
$ |
( |
) |
The following table presents the significant non-cash item for the discontinued operations that are included in the accompanying unaudited condensed consolidated statements of cash flows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The transaction consideration received from the sale of the Program Assets were as follows (in thousands):
|
|
Amount |
|
|
Closing payment |
|
$ |
|
|
Expense reimbursement |
|
|
|
|
Investment in Tisento Parent |
|
|
|
|
Gross transaction consideration from the sale |
|
|
|
|
Net assets sold |
|
|
|
|
Gain on disposal of discontinued operations |
|
$ |
|
|
15
During the three and nine months ended September 30, 2023, the Company incurred $
5. Other Investment
On July 28, 2023, the Company closed the transactions contemplated by the Asset Purchase Agreement receiving proceeds of $
The investment does not have a readily determinable fair value and therefore will be measured at cost minus impairment adjusted by observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This investment will be measured at fair value on a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss is recognized in the consolidated statements of operations and comprehensive loss equal to the amount by which the carrying value exceeds the fair value of the investment. As of September 30, 2023,
The initial fair value of the investment in Tisento Parent was determined by reference to the risk-adjusted net assets value using the discounted cash flow method. The estimated net assets value of Tisento Parent includes the cash generated/used from the operations and the proceeds from equity financing. Valuations were derived by reference to observable valuation measures for comparable companies or transactions, including weighted average cost of capital (
6. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Software |
|
$ |
|
|
$ |
|
||
Computer equipment |
|
|
|
|
|
|
||
Property and equipment, gross |
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
As of September 30, 2023, and December 31, 2022, the Company’s property and equipment was primarily located in Boston, Massachusetts.
During the three and nine months ended September 30, 2023, the Company did
16
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Accrued incentive compensation |
|
$ |
|
|
$ |
|
||
Salaries |
|
|
|
|
|
|
||
Accrued vacation |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Accrued severance and benefit costs |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
8. Commitments and Contingencies
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 September 30, 2023 and December 31, 2022.
9. Leases
In May 2021 the Company signed a
On September 15, 2020, the Company entered into a Sublease Termination Agreement (the "Sublease Termination Agreement") to terminate its sublease of
The Company determined that the Sublease Termination Agreement constituted a non-monetary exchange under ASC 845 Nonmonetary Transactions (“ASC 845”) where, in return for the free rooms and the services, the Company agreed to terminate its rights and obligations under the sublease agreement. In accordance with ASC 845, the Company determined that the accounting for the transaction should be based on the fair value of assets or services involved. The Company estimated the fair value of the rooms and services to be approximately $
17
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 $
After the closing of the Asset Purchase Agreement, the Company had no plans in the foreseeable future to use the licensed rooms and the Company is restricted from subleasing the rooms. In August 2023, the ROU asset and other assets were fully impaired and the Company recognized a $
10. 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 and nine months ended September 30, 2023 and 2022 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Research and development |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
18
A summary of stock option activity for the nine months ended September 30, 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 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Cancelled or forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of September 30, 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 $
A summary of RSU activity for the nine months ended September 30, 2023 is as follows:
|
|
|
|
|
Weighted Average |
|
||
|
|
Number |
|
|
Grant Date |
|
||
|
|
of Shares |
|
|
Fair Value |
|
||
Unvested as of December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested as of September 30, 2023 |
|
|
|
|
$ |
|
||
The Company has granted to certain employees stock options that vest upon the achievement of specified price targets of the Company’s share price for a period through December 31, 2024. Vesting is measured based upon the average closing price of the Company’s share price for any
19
11. Gain (loss) per share
Basic and diluted net gain (loss) per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss from continuing operations (in thousands) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net gain (loss) from discontinued operations (in thousands) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total net gain (loss) (in thousands) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares used in calculating net gain (loss) per share — basic (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares used in calculating net gain (loss) per share — diluted (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net gain (loss) per share — basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share from continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net gain (loss) per share from discontinued operations |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total gain (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net gain (loss) per share — diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share from continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net gain (loss) per share from discontinued operations |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total gain (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Except for the three months ended September 30, 2023, we exclude shares of preferred stock, common stock related to stock options and RSUs from the calculation of diluted net loss per share since the inclusion of such shares would be anti-dilutive in each period. During the three months ended September 30, 2023,
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
12. Defined Contribution Plan
Subsequent to the Separation, the Company adopted a defined contribution similar to the plan in place at Ironwood. The plan assets under the Ironwood defined contribution 401(k) Savings Plan were transferred to the Company's Plan.
20
Subject to certain IRS limits, eligible employees may elect to contribute from
Included in compensation expense is a de minimis amount and approximately $
13. Workforce Reduction
On October 6, 2022, the Company began a reduction of its current workforce by
The Company recorded total costs related to the 2022 Workforce Reduction of approximately $
The following table summarizes the accrued liabilities activity recorded in connection with the reduction in workforce for the nine months ended September 30, 2023 (in thousands):
|
|
Amounts |
|
|
Charges |
|
|
Amount |
|
|
Adjustments |
|
|
Amounts |
|
|||||
Workforce reduction |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
Total |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
14. License Agreement
Akebia License Agreement
On June 3, 2021, the Company and Akebia entered into a License Agreement (the “Akebia License Agreement”) relating to the exclusive worldwide license by the Company to Akebia of our rights to the development, manufacture, medical affairs and commercialization of pharmaceutical products containing the pharmaceutical compound known as praliciguat and other related products and forms thereof enumerated in the License Agreement (collectively, the “Products”). Pursuant to the Akebia License Agreement, Akebia will be responsible for all future research, development, regulatory, and commercialization activities for the Products.
Akebia paid a $
Pursuant to the Akebia License Agreement, the Company determined the Akebia License Agreement represents a service arrangement under the scope of ASC 606. Given the reversion of the rights under the Akebia License Agreement represents a penalty in substance for a termination by Akebia, the contract term would be the stated term of the Akebia License Agreement.
The Company determined that the grant of license to our patents and trademarks, know how transfer, the assignment of regulatory submissions and trademarks and additional knowledge transfer assistance obligations represent a single promise and performance obligation to be transferred to Akebia over time due to the nature of the
21
promises in the contract. The provision of development materials on hand was identified as a separate performance obligation. However, it is immaterial in the context of the contract as the development materials are low value and do not have an alternative use to the Company.
The consideration related to sales-based milestone payments, including royalties, will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license. The Company will re-evaluate the probability of achievement of the milestones and any related constraints each reporting period.
Akebia Supply Agreement
On August 3, 2021, the Company and Akebia entered into a Supply Agreement (the “Supply Agreement”) relating to the manufacturing by the Company of the Initial Supply of the Drug Product and placebo ("Initial Supply") for Akebia's use pursuant to the Akebia License Agreement. Akebia will pay the Company for the manufacturing costs at mutually agreed upon rates.
The Company determined the Supply Agreement has stand-alone value under the scope of ASC 606 and should not be combined with the Akebia License Agreement. Given that the Supply Agreement can be terminated at any time without cause with 30 days' notice, the Company deemed the Supply Agreement to be a month-to-month contract. The manufacturing of the Initial Supply by the Company represents a single performance obligation and consideration related to the manufacturing costs will be recognized over time as costs are incurred. The Company did
15. Grant Revenue
In August 2021, the Company was approved to receive funding from Alzheimer’s Association’s Part the Cloud-Gates Partnership Grant Program (the "PTC Grant”) for the Phase 2 study of CNS sGC stimulation in AD with vascular features. The granting period was July 1, 2021, to December 31, 2022, and the Company receive an award of $
The Company incurred approximately $
16. Subsequent Events
The Company has evaluated all events and transactions that occurred after the balance sheet date through the date the consolidated financial statements were issued and determined that there were no such events requiring recognition or disclosure in the consolidated financial statements.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the corresponding notes included in this Quarterly Report on Form 10-Q, as well as the audited condensed consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2022. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those referenced or set forth under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2022 and the Form 10-Q for the period ended June 30, 2023, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We are 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 and has been successfully targeted with several drugs.
We operate in one reportable business segment—human therapeutics.
Financial Overview
Research and Development Expense. Research and development expenses are incurred in connection with the discovery and development of our product candidates. These expenses consist primarily of the following costs: compensation, benefits and other employee-related expenses, research and development related facilities, third-party contracts relating to nonclinical study and clinical trial activities. All research and development expenses are charged to operations as incurred.
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.
Zagociguat and CY3018 are orally administered CNS-penetrant sGC stimulators. On July 28, 2023, Tisento purchased zagociguat and CY3018 in exchange for $8 million in cash consideration, $2.4 million as 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 Tisento Parent's outstanding equity securities.
Cyclerion continues to evaluate other activities aimed at enhancing shareholder value, which may potentially include collaborations, licenses, mergers, acquisitions, and/or other targeted investments. No such activities are currently pending.
The following table summarizes our research and development expenses of continuing operations, employee and facility related costs allocated to research and development expense, and discovery and pre-clinical
23
phase programs, for the three and nine months ended September 30, 2023 and 2022. The product pipeline expenses related primarily to external costs associated with nonclinical studies and clinical trial costs.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
Product pipeline external costs |
|
$ |
58 |
|
|
$ |
168 |
|
|
$ |
88 |
|
|
$ |
534 |
|
Personnel and related internal costs |
|
|
304 |
|
|
|
858 |
|
|
|
555 |
|
|
|
2,938 |
|
Facilities and other |
|
|
218 |
|
|
|
388 |
|
|
|
848 |
|
|
|
1,331 |
|
Total research and development expenses |
|
$ |
580 |
|
|
$ |
1,414 |
|
|
$ |
1,491 |
|
|
$ |
4,803 |
|
Securing regulatory approvals for new drugs is a lengthy and costly process. Any failure by us or our partners to obtain, or any delay in obtaining, regulatory approvals would materially adversely affect our product candidate development efforts and our business overall.
Given the inherent uncertainties of pharmaceutical product development, we cannot estimate with any degree of certainty how our programs will evolve, and therefore the amount of time or money that would be required to obtain regulatory approval to market them. As a result of these uncertainties surrounding the timing and outcome of any approvals, we are currently unable to estimate precisely when, if ever, our discovery and development candidates will be approved.
The successful development of any current or future product candidates is highly uncertain and subject to a number of risks including, but not limited to:
As a result of the factors listed in 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 in Part II, Section 1A of our Form 10-Q for the period ended June 30, 2023, we are unable to determine the duration and costs to complete current or future nonclinical and clinical stages of any current or future product candidates, including as licensed to third parties, or when, or to what extent, we may generate revenues from the commercialization and sale of any current or future product candidates. Development timelines, probability of success and development costs vary widely. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the data from the studies of each product candidate, the competitive landscape and ongoing assessments of such product candidate’s commercial potential.
General and Administrative Expense. General and administrative expenses consists primarily of compensation, benefits and other employee-related expenses for personnel in our administrative, finance, legal,
24
information technology, business development, and human resource functions. Other costs include the legal costs of pursuing patent protection of our intellectual property, general and administrative related facility costs, insurance costs and professional fees for accounting and legal services. We record all general and administrative expenses as incurred.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with GAAP. The preparation of these financial statements requires us to make certain estimates and assumptions 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. We base our estimates on our 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 our estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known.
We believe that our application of accounting policies requires significant judgments and estimates on the part of management and is the most critical to aid in fully understanding and evaluating our reported financial results. Our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements elsewhere in this Quarterly Report on Form 10-Q.
All research and development expenses are expensed as incurred. We defer and capitalize nonrefundable advance payments we make for research and development activities until the related goods are received or the related services are performed. A discussion of our critical accounting policies and estimates may be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading Critical Accounting Policies and Estimates.
Results of Operations
The revenue and expenses reflected in the consolidated financial statements may not be indicative of revenue and expenses that will be incurred by us in the future. The following discussion summarizes the key factors we believe are necessary for an understanding of our consolidated financial statements.
Revenues and Expenses
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||||||
|
|
(dollars in thousands) |
|
|
(dollars in thousands) |
|
||||||||||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Revenue from development agreement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
0% |
|
|
|
— |
|
|
|
297 |
|
|
|
(297 |
) |
|
|
100 |
% |
|
Total revenues |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
0% |
|
|
|
— |
|
|
|
297 |
|
|
|
(297 |
) |
|
|
(100 |
)% |
|
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Research and development |
|
|
580 |
|
|
|
1,414 |
|
|
|
(834 |
) |
|
|
(59 |
)% |
|
|
1,491 |
|
|
|
4,803 |
|
|
|
(3,312 |
) |
|
|
(69 |
)% |
General and administrative |
|
|
2,131 |
|
|
|
3,104 |
|
|
|
(973 |
) |
|
|
(31 |
)% |
|
|
6,361 |
|
|
|
9,579 |
|
|
|
(3,218 |
) |
|
|
(34 |
)% |
Impairment loss |
|
|
3,304 |
|
|
|
— |
|
|
|
3,304 |
|
|
|
100 |
% |
|
|
3,304 |
|
|
|
— |
|
|
|
3,304 |
|
|
|
100 |
% |
Total cost and expenses |
|
|
6,015 |
|
|
|
4,518 |
|
|
|
1,497 |
|
|
|
33 |
% |
|
|
11,156 |
|
|
|
14,382 |
|
|
|
(3,226 |
) |
|
|
(22 |
)% |
Loss from operations |
|
|
(6,015 |
) |
|
|
(4,518 |
) |
|
|
(1,497 |
) |
|
|
33 |
% |
|
|
(11,156 |
) |
|
|
(14,085 |
) |
|
|
2,929 |
|
|
|
(21 |
)% |
Interest and other income, net |
|
|
107 |
|
|
|
111 |
|
|
|
(4 |
) |
|
|
(4 |
)% |
|
|
257 |
|
|
|
162 |
|
|
|
95 |
|
|
|
59 |
% |
Net loss from continuing operations |
|
|
(5,908 |
) |
|
|
(4,407 |
) |
|
|
(1,501 |
) |
|
|
34 |
% |
|
|
(10,899 |
) |
|
|
(13,923 |
) |
|
|
3,024 |
|
|
|
(22 |
)% |
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gain (loss) from discontinued operations |
|
|
13,474 |
|
|
|
(6,089 |
) |
|
|
19,563 |
|
|
|
(321 |
)% |
|
|
7,330 |
|
|
|
(22,939 |
) |
|
|
30,269 |
|
|
|
(132 |
)% |
Net gain (loss) |
|
$ |
7,566 |
|
|
$ |
(10,496 |
) |
|
$ |
18,062 |
|
|
|
(172 |
)% |
|
$ |
(3,569 |
) |
|
$ |
(36,862 |
) |
|
$ |
33,293 |
|
|
|
(90 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
25
Revenues. There was no revenue recognized during the three months ended September 30, 2023 and 2022. The decrease in revenue of approximately $0.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 can be attributed to approximately $0.3 million of revenue generated from the Akebia Supply Agreement in the nine months ended September 30, 2022.
Research and development expense. The decrease in research and development expense of approximately $0.8 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was driven by decreases of approximately $0.6 million in salaries and other employee-related expenses including non-cash stock-based compensation, approximately $0.1 million in IT services, and approximately $0.1 million in external research costs related to discovery research.
The decrease in research and development expense of approximately $3.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was driven by decreases of approximately $2.4 million in salaries and other employee-related expenses including approximately $1.6 million in non-cash stock-based compensation, approximately $0.2 million in IT services, approximately $0.3 million in professional services, and approximately $0.4 million in external research costs related to discovery research.
General and administrative expense. The decrease in general and administrative expenses of approximately $1.0 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was primarily driven by decreases of approximately $0.6 million in stock-based compensation, approximately $0.2 million in amortization of insurance policies and approximately $0.2 million in salary expense.
The decrease in general and administrative expenses of approximately $3.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily driven by decreases of approximately $2.1 million in non-cash stock-based compensation, approximately $0.8 million in salaries and other employee-related costs, approximately $0.3 million in amortization of insurance policies, approximately $0.2 million in board member fees, approximately $0.2 million in rent expenses, partially offset by an increase of $0.5 million in legal fees associated with corporate strategic initiatives.
Impairment loss. The impairment loss consists of an impairment loss of operating lease of approximately $3.3 million during the three and nine months ended September 30, 2023. There was no impairment loss recognized during the three and nine months ended September 30, 2022.
Gain (loss) from discontinued operations. The gain from discontinued operations increased by $19.6 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The gain was primarily driven by the one-time gain of sale of approximately $15.8 million, and approximately $5.0 million decrease of research and development expense, offset by $1.2 million increase in general and administrative expenses due to the closing costs related to the disposal incurred during the three months ended September 30, 2023. The decrease in research and development expense included approximately $3.6 million decrease in external research costs related to zagociguat clinical trials and CY3018 costs and approximately $1.2 million decrease in salaries and other employee-related expenses.
The increase in gain from discontinued operations of approximately $30.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was driven by the one-time gain of sale of approximately $15.8 million, and approximately $17.8 million decrease of research and development expense, offset by $2.6 million increase in general and administrative expenses due to closing and transaction costs related to the disposal incurred during the nine months ended September 30, 2023. The decrease in research and development expense included approximately $13.3 million decreased in external research costs in related to zagociguat clinical trials and CY3018 costs, approximately $3.5 million decrease in salaries and other employee-related expenses and approximately $1.0 million decrease in consulting expense.
Interest and other income increased by approximately $0.1 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to an increase of approximately $0.1 million in interest income driven by higher interest rates.
26
Liquidity and Capital Resources
On September 3, 2020, we entered into the Sales Agreement with Jefferies with respect to the ATM Offering under the Shelf. The Shelf expired in July 2023. We did not sell any shares of our common stock under the Shelf in 2022 or 2023.
On May 19, 2023, we sold 225,000 shares of our common stock, pursuant to a Common Stock Purchase Agreement, and 351,037 shares of Series A Preferred Stock, to our CEO, for total gross proceeds of approximately $5 million. There were no material fees or commissions related to the transaction.
On July 28, 2023, we closed the transactions contemplated by the Asset Purchase Agreement receiving proceeds of $8.0 million as cash consideration, approximately $2.4 million as reimbursement for certain operating expenses related to zagociguat and CY3018 programs for the period between signing and closing of the transaction, and 10% of all of Tisento Parent's outstanding equity securities.
Our ability to continue to fund our operations and meet capital needs will depend on our ability to generate cash from operations and access to capital markets and other sources of capital, as further described below. We anticipate that our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures and other general corporate purposes.
On September 30, 2023, we had approximately $9.1 million of unrestricted cash and cash equivalents. Our cash equivalents include amounts held in U.S. government money market funds. We invest cash in excess of immediate requirements in accordance with our investment policy, which requires all investments held by us to be at least “AAA” rated or equivalent, with a remaining final maturity when purchased of less than twelve months, so as to primarily achieve liquidity and capital preservation.
Going Concern
We evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our 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 our plans sufficiently alleviates substantial doubt about our 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 our analysis, management excluded certain elements of our 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 our control and/or have not been approved by the Board of Directors as of the date of these consolidated financial statements.
We have incurred recurring losses since our inception, including a net loss of $3.6 million for the nine months ended September 30, 2023. In addition, as of September 30, 2023, we had an accumulated deficit of $259.2 million. We expect that our cash, cash equivalents and marketable securities as of September 30, 2023, will be sufficient to fund operations into 2025, however we will need to obtain additional funding to sustain operations as we expect to continue to generate operating losses for the foreseeable future. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern.
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.
27
Reverse Stock Split
On May 15, 2023, we filed Articles of Amendment to our Restated Articles of Organization with the Secretary of Commonwealth of Massachusetts to effect a 1-for-20 reverse stock split of our issued and outstanding shares of common stock. The reverse stock split was reflected on the Nasdaq Capital Market beginning with the opening of trading on May 16, 2023. No fractional shares were issued in connection with the reverse stock split. All share amounts and per share amounts disclosed in this Quarterly Report on Form 10-Q have been adjusted retroactively to reflect the reverse stock split for all periods presented.
Cash Flows
The following is a summary of cash flows for the years ended September 30, 2023 and 2022:
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Net cash used in operating activities |
|
$ |
(19,704 |
) |
|
$ |
(33,568 |
) |
|
$ |
13,864 |
|
|
|
(41 |
)% |
Net cash provided by investing activities |
|
$ |
10,402 |
|
|
$ |
— |
|
|
$ |
10,402 |
|
|
|
— |
|
Net cash provided by financing activities |
|
$ |
5,024 |
|
|
$ |
17 |
|
|
$ |
5,007 |
|
|
|
100 |
% |
Cash Flows from Operating Activities
Net cash used in operating activities was $19.7 million for the nine months ended September 30, 2023 compared to $33.6 million for the nine months ended September 30, 2022. The decrease in net cash used in operations of $13.9 million primarily relates to a decrease of approximately $33.3 million in our net loss and adjusted by an increase of approximately $3.3 million in impairment loss, offset by an increase of approximately $15.8 million in gain on disposal of discontinued operations, a decrease of approximately $4.2 million in stock-based compensation, and a decrease of approximately $2.8 million in working capital accounts.
Cash Flows from Investing Activities
Net cash provided by investing activities for the nine months ended September 30, 2023 of $10.4 million was due to cash proceeds received from the disposal of discontinued operations of approximately $10.4 million. There was no investing activity incurred in the nine months ended September 30, 2022.
Cash Flows from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2023 of $5.0 million was due to cash received from the May 2023 stock purchase agreement of $5 million. There was a de minimis amount of financing activity in the nine months ended September 30, 2022.
Funding Requirements
We expect our expenses to fluctuate as we continue to maintain out-license opportunities and seek to broaden our portfolio through in-licensing of complementary CNS assets. We expect that our cash, cash equivalents and marketable securities as of September 30, 2023, will be sufficient to fund operations into 2025, however we will need to obtain additional funding to sustain operations as we expect to continue to generate operating losses for the foreseeable future. Failure to obtain necessary capital when needed may delay development of any future product candidates, or other operations.
Because of the many risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our
28
expenses will fluctuate, and our future funding requirements will depend on, and could increase or decrease significantly as a result of many factors, including the:
A change in any of these or other variables with respect to the development of any current or future product candidates could significantly change the costs and timing of the development of that product candidate.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances or licensing arrangements with third parties, of which there can be no assurance. To the extent that we raise additional capital through the sale of equity or convertible debt securities, outstanding equity ownership may be materially diluted, and the terms of securities sold in such transactions could include liquidation or other preferences that adversely affect the rights of holders of common stock. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in increased fixed payment obligations.
If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, as to which raise there can be no assurances, we may have to relinquish rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise funds, we may need to cease operations.
Contractual Commitments and Obligations
Tax-related Obligations
We exclude assets, liabilities or obligations pertaining to uncertain tax positions from our summary of contractual commitments and obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities. As of September 30, 2023, we had no uncertain tax positions.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance.
New Accounting Pronouncements
For a discussion of new accounting pronouncements see Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this report. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
30
PART II
Item 1. Legal Proceedings
We are not a party to any material legal proceedings at this time. From time to time we may be subject to various legal proceedings and claims, which may have a material adverse effect on our financial position or results of operations.
Item 1A. Risk Factors
You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended June 30, 2023.
Item 5. Other Information
On July 28, 2023, the transactions contemplated by the Asset Purchase Agreement were consummated. Upon the closing, the Company sold to Tisento specified assets relating to the Company’s zagociguat and CY3018 programs and Tisento assumed certain liabilities relating thereto, including, but not limited to (i) liabilities, costs and expenses arising after the date of the Asset Purchase Agreement relating to the employment of certain Cyclerion employees and the conduct of certain preclinical and clinical trial activities prior to the closing of the transactions contemplated by the Asset Purchase Agreement, and (ii) liabilities relating to such assets to the extent relating to the period after the closing of the transaction. In consideration for such sale and assumption, at such closing the Company received proceeds of $8 million as cash consideration, reimbursement for certain operating expenses related to such assets for the period between signing and closing of the Asset Purchase Agreement, and 10% of the issued and outstanding equity securities of Tisento Parent immediately following such closing, subject to certain protections against dilution.
The foregoing summary is qualified entirely by reference to the Asset Purchase Agreement, a copy of which is incorporated by reference herein as Exhibit 10.3, which is filed as Exhibit 2.1 to the Current Report on Form 8-K filed on May 11, 2023 (File No. 001-38787).
Item 6. Exhibits
See the Exhibit Index on the following page of this Quarterly Report on Form 10-Q.
31
EXHIBIT INDEX
Exhibit No. |
|
Description |
|
|
|
|
||
|
||
|
||
|
||
101.INS |
|
Inline XBRL Instance Document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
|
Cover Page Interactive Data File. |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CYCLERION THERAPEUTICS, INC. |
|
|
|
|
|
By: |
/s/ Peter M. Hecht |
|
Name: |
Peter M. Hecht |
|
Title: |
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
By: |
/s/ Anjeza Gjino |
|
Name: |
Anjeza Gjino |
|
Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Date: November 13, 2023
33
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter M. Hecht, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cyclerion Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 13, 2023 |
By: |
/s/ Peter M. Hecht |
|
Name: |
Peter M. Hecht |
|
Title: |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anjeza Gjino, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cyclerion Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 13, 2023 |
By: |
/s/ Anjeza Gjino |
|
Name: |
Anjeza Gjino |
|
Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter M. Hecht, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of Cyclerion Therapeutics, Inc. for the period ended September 30, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Cyclerion Therapeutics, Inc.
Date: November 13, 2023 |
By: |
/s/ Peter M. Hecht |
|
Name: |
Peter M. Hecht |
|
Title: |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Anjeza Gjino, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of Cyclerion Therapeutics, Inc. for the period ended September 30, 2023 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Cyclerion Therapeutics, Inc.
Date: November 13, 2023 |
By: |
/s/ Anjeza Gjino |
|
Name: |
Anjeza Gjino |
|
Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) |