PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In $000s, except share, and per share, and liquidation preference amounts)
(Unaudited)
| | | | | | |
| | December 31, | | June 30, |
| | 2020 | | 2021 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 33,406 | | $ | 43,639 |
Prepaid expenses and other current assets | | | 2,063 | | | 2,564 |
Total current assets | | | 35,469 | | | 46,203 |
Property and equipment, net | | | 106 | | | 73 |
Right-of-use lease asset | | | 1,227 | | | 58 |
Total assets | | $ | 36,802 | | $ | 46,334 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 514 | | $ | 1,197 |
Accrued and other current liabilities | | | 1,972 | | | 1,921 |
Total current liabilities | | | 2,486 | | | 3,118 |
Lease liability | | | 1,057 | | | 0 |
Total liabilities | | | 3,543 | | | 3,118 |
Stockholders’ equity: | | | | | | |
Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2020 and June 30, 2021; | | | | | | |
6% Convertible Exchangeable preferred stock; 335,273 shares issued and outstanding at December 31, 2020 and June 30, 2021. Aggregate preference in liquidation of $4,006,512 as of December 31, 2020 and June 30, 2021. | | | 0 | | | 0 |
Series A convertible preferred stock, $0.001 par value; 264 shares issued and outstanding at December 31, 2020 and June 30, 2021. | | | 0 | | | 0 |
Series B convertible preferred stock, $0.001 par value; 237,745 shares issued and outstanding at December 31, 2020 and June 30, 2021. | | | 0 | | | 0 |
Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2020 and June 30, 2021; 6,246,896 and 9,234,110 shares issued and outstanding at December 31, 2020 and June 30, 2021. | | | 6 | | | 9 |
Additional paid-in capital | | | 400,071 | | | 418,542 |
Accumulated other comprehensive loss | | | (746) | | | (658) |
Accumulated deficit | | | (366,072) | | | (374,677) |
Total stockholders’ equity | | | 33,259 | | | 43,216 |
Total liabilities and stockholders’ equity | | $ | 36,802 | | $ | 46,334 |
| | December 31, | | | September 30, | |
| | 2016 | | | 2017 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 16,520 | | | $ | 26,025 | |
Prepaid expenses and other current assets | | | 3,097 | | | | 1,792 | |
Total current assets | | | 19,617 | | | | 27,817 | |
Property, plant and equipment (net) | | | 45 | | | | 34 | |
Total assets | | $ | 19,662 | | | $ | 27,851 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 2,497 | | | $ | 1,973 | |
Accrued and other current liabilities | | | 2,762 | | | | 2,292 | |
Total current liabilities | | | 5,259 | | | | 4,265 | |
Other liabilities | | | 130 | | | | 128 | |
Total liabilities | | | 5,389 | | | | 4,393 | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2016 and September 30, 2017; 6% Convertible Exchangeable preferred stock; 335,273 shares issued and outstanding at December 31, 2016 and September 30, 2017. Aggregate preference in liquidation of $4,006,512 at December 31, 2016 and September 30, 2017. | | | — | | | | — | |
Series A convertible preferred stock; 0 shares and 664 shares issued and outstanding at December 31, 2016 and September 30, 2017, respectively. | | | — | | | | — | |
Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2016 and September 30, 2017; 4,256,829 and 11,697,021 shares issued and outstanding at December 31, 2016 and September 30, 2017, respectively. | | | 4 | | | | 12 | |
Additional paid-in capital | | | 350,051 | | | | 364,843 | |
Accumulated other comprehensive loss | | | (743 | ) | | | (762 | ) |
Accumulated deficit | | | (335,039 | ) | | | (340,635 | ) |
Total stockholders’ equity | | | 14,273 | | | | 23,458 | |
Total liabilities and stockholders’ equity | | $ | 19,662 | | | $ | 27,851 | |
The accompanying notes are an integral part of these consolidated financial statements.
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000s, except share and per share amounts)
(Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | |
| | June 30, | | June 30, | |
| | 2020 | | 2021 | | 2020 | | 2021 | |
| | | | | | | | | | | | | |
Revenues | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | |
Research and development | | | 1,163 | | | 4,101 | | | 2,270 | | | 6,667 | |
General and administrative | | | 1,309 | | | 1,999 | | | 2,626 | | | 3,738 | |
Total operating expenses | | | 2,472 | | | 6,100 | | | 4,896 | | | 10,405 | |
Operating loss | | | (2,472) | | | (6,100) | | | (4,896) | | | (10,405) | |
Other income (expense): | | | | | | | | | | | | | |
Foreign exchange gains (losses) | | | (2) | | | (13) | | | 67 | | | (3) | |
Interest income | | | 4 | | | 4 | | | 32 | | | 8 | |
Other income, net | | | 18 | | | 18 | | | 835 | | | 144 | |
Total other income, net | | | 20 | | | 9 | | | 934 | | | 149 | |
Loss before taxes | | | (2,452) | | | (6,091) | | | (3,962) | | | (10,256) | |
Income tax benefit | | | 286 | | | 964 | | | 576 | | | 1,651 | |
Net loss | | | (2,166) | | | (5,127) | | | (3,386) | | | (8,605) | |
Dividend on convertible exchangeable preferred shares | | | (50) | | | (50) | | | (101) | | | (101) | |
Net loss applicable to common shareholders | | $ | (2,216) | | $ | (5,177) | | $ | (3,487) | | $ | (8,706) | |
Basic and diluted earnings per common share: | | | | | | | | | | | | | |
Net loss per share – basic and diluted | | $ | (0.58) | | $ | (0.56) | | $ | (1.48) | | $ | (1.07) | |
Weighted average common shares outstanding | | | 3,850,228 | | | 9,234,110 | | | 2,355,113 | | | 8,172,472 | |
| | Three Months Ended September 30, | | | Nine months Ended September 30, | |
| | 2016 | | | 2017 | | | 2016 | | | 2017 | |
Revenues: | | | | | | | | | | | | |
Grant revenue | | $ | 205 | | | $ | - | | | $ | 566 | | | $ | - | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | | 2,409 | | | | 958 | | | | 7,545 | | | | 3,491 | |
General and administrative | | | 1,273 | | | | 1,154 | | | | 4,002 | | | | 3,802 | |
Total operating expenses | | | 3,682 | | | | 2,112 | | | | 11,547 | | | | 7,293 | |
Operating loss | | | (3,477 | ) | | | (2,112 | ) | | | (10,981 | ) | | | (7,293 | ) |
Other income (expense): | | | | | | | | | | | | | | | | |
Foreign exchange gains (losses) | | | 51 | | | | (22 | ) | | | 369 | | | | (65 | ) |
Interest income | | | 8 | | | | 30 | | | | 31 | | | | 59 | |
Other income, net | | | 18 | | | | 28 | | | | 56 | | | | 907 | |
Total other income | | | 77 | | | | 36 | | | | 456 | | | | 901 | |
Loss before taxes | | | (3,400 | ) | | | (2,076 | ) | | | (10,525 | ) | | | (6,392 | ) |
Income tax benefit | | | 454 | | | | 219 | | | | 1,573 | | | | 793 | |
Net loss | | | (2,946 | ) | | | (1,857 | ) | | | (8,952 | ) | | | (5,599 | ) |
Dividend on convertible exchangeable preferred shares | | | (50 | ) | | | (50 | ) | | | (150 | ) | | | (151 | ) |
Beneficial conversion feature of Series A convertible preferred stock | | | - | | | | (3,638 | ) | | | - | | | | (3,638 | ) |
Conversion of Series A convertible preferred stock | | | - | | | | (3,373 | ) | | | - | | | | (3,373 | ) |
Net loss applicable to common shareholders | | $ | (2,996 | ) | | $ | (8,918 | ) | | $ | (9,102 | ) | | $ | (12,761 | ) |
| | | | | | | | | | | | | | | | |
Basic and diluted earnings per common share: | | | | | | | | | | | | | | | | |
Net loss per share – basic and diluted | | $ | (0.86 | ) | | $ | (0.91 | ) | | $ | (2.89 | ) | | $ | (2.06 | ) |
Weighted average common shares outstanding | | | 3,473,696 | | | | 9,835,441 | | | | 3,145,730 | | | | 6,200,783 | |
The accompanying notes are an integral part of these consolidated financial statements.
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In $000s)
(Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | |
| | June 30, | | June 30, | |
| | 2020 | | 2021 | | 2020 | | 2021 | |
Net loss | | $ | (2,166) | | $ | (5,127) | | $ | (3,386) | | $ | (8,605) | |
Translation adjustment | | | 709 | | | (869) | | | 11,769 | | | (2,452) | |
Unrealized foreign exchange gain (loss) on intercompany loans | | | (697) | | | 941 | | | (11,884) | | | 2,540 | |
Comprehensive loss | | $ | (2,154) | | $ | (5,055) | | $ | (3,501) | | $ | (8,517) | |
| | Three Months Ended September 30, | | | Nine months Ended September 30, | |
| | 2016 | | | 2017 | | | 2016 | | | 2017 | |
Net loss | | $ | (2,946 | ) | | $ | (1,857 | ) | | $ | (8,952 | ) | | $ | (5,599 | ) |
Translation adjustment | | | 4,839 | | | | (4,882 | ) | | | 19,604 | | | | (13,435 | ) |
Unrealized foreign exchange gain on intercompany loans | | | (4,860 | ) | | | 4,856 | | | | (19,766 | ) | | | 13,417 | |
Comprehensive loss | | $ | (2,967 | ) | | $ | (1,883 | ) | | $ | (9,114 | ) | | $ | (5,617 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In $000s, except share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated | | | | | | |
| | | | | | | | | | | | Additional | | Other | | | | | Total |
| | Preferred Stock | | Common Stock | | Paid-in | | Comprehensive | | Accumulated | | Stockholders’ |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Loss | | Deficit | | Equity |
Balances at December 31, 2019 | | 335,537 | | $ | — | | 859,998 | | $ | 1 | | $ | 370,142 | | $ | (819) | | $ | (357,627) | | $ | 11,697 |
Stock-based compensation | | — | | | — | | — | | | — | | | 90 | | | — | | | — | | | 90 |
Preferred stock dividends | | — | | | — | | — | | | — | | | (50) | | | — | | | — | | | (50) |
Unrealized foreign exchange on intercompany loans | | — | | | — | | — | | | — | | | — | | | (11,187) | | | — | | | (11,187) |
Translation adjustment | | — | | | — | | — | | | — | | | — | | | 11,060 | | | — | | | 11,060 |
Loss for the period | | — | | | — | | — | | | — | | | — | | | — | | | (1,220) | | | (1,220) |
Balances at March 31, 2020 | | 335,537 | | $ | — | | 859,998 | | $ | 1 | | $ | 370,182 | | $ | (946) | | $ | (358,847) | | $ | 10,390 |
Adjustment | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — |
Issue of common stock, pre-funded warrants and warrants on equity financing, net of expenses | | — | | | — | | 4,003,986 | | | 4 | | | 18,302 | | | — | | | — | | | 18,306 |
Stock-based compensation | | — | | | — | | — | | | — | | | 86 | | | — | | | — | | | 86 |
Preferred stock dividends | | — | | | — | | — | | | — | | | (50) | | | — | | | — | | | (50) |
Unrealized foreign exchange on intercompany loans | | — | | | — | | — | | | — | | | — | | | (697) | | | — | | | (697) |
Translation adjustment | | — | | | — | | — | | | — | | | — | | | 709 | | | — | | | 709 |
Loss for the period | | — | | | — | | — | | | — | | | — | | | — | | | (2,166) | | | (2,166) |
Balances at June 30, 2020 | | 335,537 | | $ | — | | 4,863,984 | | $ | 5 | | $ | 388,520 | | $ | (934) | | $ | (361,013) | | $ | 26,578 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2020 | | 573,282 | | $ | — | | 6,246,896 | | $ | 6 | | $ | 400,071 | | $ | (746) | | $ | (366,072) | | $ | 33,259 |
Issuance of common stock in underwritten offering, net of issuance costs | | — | | | — | | 2,078,214 | | | 2 | | | 13,500 | | | — | | | — | | | 13,502 |
Warrant Exercises | | — | | | — | | 909,000 | | | 1 | | | 4,544 | | | — | | | — | | | 4,545 |
Stock-based compensation | | — | | | — | | — | | | — | | | 255 | | | — | | | — | | | 255 |
Preferred stock dividends | | — | | | — | | — | | | — | | | (50) | | | — | | | — | | | (50) |
Unrealized foreign exchange on intercompany loans | | — | | | — | | — | | | — | | | — | | | 1,599 | | | — | | | 1,599 |
Translation adjustment | | — | | | — | | — | | | — | | | — | | | (1,583) | | | — | | | (1,583) |
Loss for the period | | — | | | — | | — | | | — | | | — | | | — | | | (3,478) | | | (3,478) |
Balances at March 31, 2021 | | 573,282 | | $ | — | | 9,234,110 | | $ | 9 | | $ | 418,320 | | $ | (730) | | $ | (369,550) | | $ | 48,049 |
Stock-based compensation | | — | | | — | | — | | | — | | | 272 | | | — | | | — | | | 272 |
Preferred stock dividends | | — | | | — | | — | | | — | | | (50) | | | — | | | — | | | (50) |
Unrealized foreign exchange on intercompany loans | | — | | | — | | — | | | — | | | — | | | 941 | | | — | | | 941 |
Translation adjustment | | — | | | — | | — | | | — | | | — | | | (869) | | | — | | | (869) |
Loss for the period | | — | | | — | | — | | | — | | | — | | | — | | | (5,127) | | | (5,127) |
Balances at June 30, 2021 | | 573,282 | | $ | — | | 9,234,110 | | $ | 9 | | $ | 418,542 | | $ | (658) | | $ | (374,677) | | $ | 43,216 |
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000s)
(Unaudited)
| | | | | | |
| | Six Months Ended |
| | June 30, |
| | 2020 | | 2021 |
Operating activities: | | | | | | |
Net loss | | $ | (3,386) | | $ | (8,605) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Depreciation | | | 10 | | | 26 |
Stock-based compensation | | | 176 | | | 533 |
Changes in lease liability | | | (70) | | | 115 |
Changes in operating assets and liabilities: | | | | | | |
Prepaid expenses and other assets | | | (585) | | | (476) |
Accounts payable and other current liabilities | | | (798) | | | 626 |
Net cash used in operating activities | | | (4,653) | | | (7,781) |
Investing activities: | | | | | | |
Purchase of property, plant and equipment | | | (4) | | | (16) |
Net cash used in investing activities | | | (4) | | | (16) |
Financing activities: | | | | | | |
Proceeds from issuing common stock and warrant exercises, net of issuance costs | | | 18,307 | | | 18,047 |
Payment of preferred stock dividend | | | (101) | | | (101) |
Net cash provided by (used in) financing activities | | | 18,206 | | | 17,946 |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | (92) | | | 84 |
Net increase (decrease) in cash and cash equivalents | | | 13,457 | | | 10,233 |
Cash and cash equivalents, beginning of period | | | 11,885 | | | 33,406 |
Cash and cash equivalents, end of period | | $ | 25,342 | | $ | 43,639 |
Supplemental cash flow information: | | | | | | |
Cash received during the period for: | | | | | | |
Interest | | | 32 | | | 9 |
Taxes | | | 0 | | | 1,390 |
| | | | | | |
Non cash financing activities: | | | | | | |
Accrual of preferred stock dividends | | | 50 | | | 50 |
| | Nine months Ended September 30, | |
| | 2016 | | | 2017 | |
Operating activities: | | | | | | | | |
Net loss | | $ | (8,952 | ) | | $ | (5,599 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| | | | | | | | |
Depreciation | | | 109 | | | | 25 | |
Stock-based compensation | | | 614 | | | | 200 | |
Changes in operating assets and liabilities: | | | | | | | | |
Prepaid expenses and other assets | | | 629 | | | | 1,464 | |
Accounts payable and other current liabilities | | | 464 | | | | (1,350 | ) |
Net cash used in operating activities | | | (7,136 | ) | | | (5,260 | ) |
| | | | | | | | |
Investing activities: | | | | | | | | |
Purchase of property, plant and equipment | | | — | | | | (11 | ) |
Net cash used in investing activities | | | — | | | | (11 | ) |
| | | | | | | | |
Financing activities: | | | | | | | | |
Proceeds from issuance of common stock, net of issuance costs | | | 5,241 | | | | 14,751 | |
Payment of preferred stock dividend | | | (150 | ) | | | (151 | ) |
Net cash provided by financing activities | | | 5,091 | | | | 14,600 | |
| | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | (366 | ) | | | 176 | |
Net increase / (decrease) in cash and cash equivalents | | | (2,411 | ) | | | 9,505 | |
Cash and cash equivalents, beginning of period | | | 20,440 | | | | 16,520 | |
Cash and cash equivalents, end of period | | $ | 18,029 | | | $ | 26,025 | |
| | | | | | | | |
Supplemental cash flow information: | | | | | | | | |
Cash received during the period for: | | | | | | | | |
Interest | | | 31 | | | | 60 | |
Taxes | | | 1,965 | | | | 1,815 | |
| | | | | | | | |
Non cash financing activities: | | | | | | | | |
Accrual of preferred stock dividends | | | 50 | | | | 50 | |
Receivable from issuance of common stock | | | 1,518 | | | | — | |
The accompanying notes are an integral part of these consolidated financial statements.
CYCLACEL PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Nature of Operations
Cyclacel Pharmaceuticals, Inc. (“Cyclacel” or “the Company”the “Company”), is aclinical-stage biopharmaceutical companyusing developing innovative cancer medicines based on cell cycle, control, transcriptional regulation and DNA damage responsemitosis biology. The Company uses insights in cancer biology to develop innovative, targetedinvestigational medicines foraddressing the growing problem of resistance. Cancer cells learn to evade anticancer therapeutics and become resistant to available therapies. The Company aims to suppress mechanisms of resistance and reactivate the body’s own cell death mechanisms to destroy cancer and other proliferative diseases. Cyclacel is a pioneer company in the field of cell cycle biology with a vision to improve patient healthcare by translating cancer biology into medicines.cells.
As of SeptemberThrough June 30, 2017,2021, substantially all efforts of the Company to date have been devoted to performing research and development, conducting clinical trials, developing and acquiring intellectual property, raising capital and recruiting and training personnel.
| 2. | Summary of Significant Accounting Policies |
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated balance sheet as of SeptemberJune 30, 2017,2021, the consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and six months ended June 30, 2021 and 2020 and the consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, and all related disclosures contained in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 20162020 is derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 20162020 filed with the Securities and Exchange Commission (“SEC”(the “SEC”). on March 1, 2021. The consolidated financial statements are presented on the basis of accounting principles that are generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the consolidated balance sheet as of SeptemberJune 30, 2017,2021, and the results of operations and, comprehensive loss for the three and ninesix months ended SeptemberJune 30, 20172021, and cash flows for the ninesix months ended SeptemberJune 30, 2017,2021, have been made. The interim results for the three and ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results to be expected for the year ending December 31, 20172021 or for any other year.reporting period. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 20162020 that are included in the Company’s Annual Report on Form 10-K filed with the SEC.SEC on March 1, 2021.
Reverse Stock Split
UseOn April 14, 2020 the Company completed a one-for-twenty reverse stock split, which reduced the number of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and related disclosures of contingent assets and liabilities at the dateshares of the financial statementsCompany’s common stock that were issued and outstanding immediately prior to the effectiveness of the reverse stock split. The number of shares of the Company’s authorized common stock was not affected by the reverse stock split and the reported amounts of revenues and expenses during the reporting period. Critical estimates include inputs used to determine the fairpar value of warrants issued duringCyclacel’s common stock remained unchanged at $0.001 per share. The reverse stock split reduced the reporting period, clinical trial accruals, research and development expenditures, stock-based compensation expense and the recognitionnumber of revenue, eachshares of which Cyclacel reviews on an ongoing basis. The estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates.
Risks and Uncertainties
Drug candidates developed by the Company typically will require approvals or clearances from the Food and Drug Administration (“FDA”), European Medicines Agency (“EMA”) or other international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s drug candidates will receive anycommon stock that were outstanding at April 14, 2020 from 17,199,974 to 859,998, after the cancellation of 14 fractional shares. NaN fractional shares were issued in connection with the reverse stock split. Stockholders who otherwise held fractional shares of the required approvals or clearances. IfCompany’s common stock as a result of the Company was denied approval or clearance orreverse stock split received a cash payment in lieu of such approval was delayed, or is unablefractional shares. All amounts related to obtain the necessary financing to complete the developmentnumber of shares and approval processes, there will be a material adverse impact on the Company’sper share amounts have been retroactively restated in these consolidated financial condition and results of operations. The Company has relied upon government grants to fund certain of its earlier stage programs and does not expect to be able to continue to be successful in obtaining government grants to fund the Company’s research and development activities.
Going Concern
Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least one year from the date the financial statements are issued. The Company expects that its cash of $26.0approximately $43.6 million as of SeptemberJune 30, 2017,2021 will be sufficient to fund its operating expenses and capital expenditure requirements through to the end of 2019.
early 2023.
This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued, including:
| a. | The Company’s current financial condition, including its liquidity sources;sources of liquidity; |
| b. | The Company’s conditional and unconditional obligations due or anticipated within one year; |
| c. | The funds necessary to maintain the Company’s operations considering its current financial condition, obligations, and other expected cash flows; and |
| d. | Other conditions and events, when considered in conjunction with the above, that may adversely affect the Company’s ability to meet its obligations. |
The future viability of the Company beyond the endbeginning of 20192023 is dependent on its ability to raise additional capital to finance its operations. The Company will needdoes not currently have sufficient funds to raise substantial additional capital to pursue the transcriptional regulation program evaluating CYC065, a CDK inhibitor, in patients with advanced cancers, or the DNA damage response program evaluating a sequential regimencomplete development and commercialization of sapacitabine and CDK inhibitors, in patients with BRCA positive, advanced solid cancers.any of its drug candidates. Additional funding may not be available to the Company on favorable terms, or at all. If the Company is unablenot able to obtainsecure additional funds,funding when needed, it will needmay have to reduce operating expenses, enter into a collaboration or other similar arrangement with respect to development and/or commercialization rights to its CDK inhibitors or sapacitabine, if available, or be forced to delay, or reduce the scope of or eliminate one or more of its CDK inhibitorsclinical trials or research and sapacitabine development programs including any potential regulatory filings relatedor make changes to its operating plan. In addition, it may have to partner one or more of its product candidate programs at an earlier stage of development, which would lower the economic value of those programs to the SEAMLESS study, and/or limit or cease its operations.Company. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.
In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. It has now spread globally, including the United States and United Kingdom, where the Company has its operations. The World Health Organization has declared the coronavirus outbreak a pandemic. The extent to which the coronavirus impacts the Company’s financial condition and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the pandemic, the emergence of new geographic hotspots, the emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States, the United Kingdom and other countries, and the effectiveness of actions taken globally to contain and treat the disease. At this time, the Company is unable to estimate the impact of this event on its financial condition or operations, but it could materially affect the ability of the Company to raise future capital or to conduct clinical studies on a timely basis.
Segments
Accounting standards adopted in the period
On January 1, 2020, the Company adopted the guidance issued in ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” As permitted by the ASU, the Company will apply the new guidance on a prospective basis to any new cloud computing arrangements. ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. There has been no impact of this pronouncement on the Company’s consolidated financial statements and disclosures.
The FASB has issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This standard simplifies the accounting for convertible instruments, such as convertible debt or convertible preferred stock, by eliminating two potential methods in accounting for the embedded conversion feature. The standard also removes certain conditions previously used to evaluate whether a freestanding
financial instrument, or certain types of embedded features, are considered to be settled in the issuer’s own equity. Finally, ASU 2020-06 requires that an entity use the if-converted method in calculating the effects of convertible instruments on diluted earnings per share, with one limited exception. As a smaller reporting company, the amendments in this ASU are effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those years. Early adoption is managed and operated as one business which is focused on using cell cycle, transcriptional regulation, and DNA damage response biology to develop innovative, targeted medicinespermitted, but no earlier than for cancer and other proliferative diseases.The entire business is managed by a single management team that reports to the Chief Executive Officer.fiscal years beginning after December 15, 2020. The Company does not operate separate linescurrently have any contracts affected by this guidance, but has nonetheless elected to early adopt ASU 2020-06 as of businessJanuary 1, 2021. There was no impact of early adopting this pronouncement on the Company’s consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) has issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. This standard provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform initiatives that would replace interbank offered rates, including the London Interbank Offered Rate (LIBOR). For example, modifications of lease contracts within the scope of ASC 842 solely for changes in reference rates would be accounted for as a continuation of the existing contracts with respect to anyno reassessments of its products or product candidatesthe lease classification and the discount rate. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not prepare discrete financial information with respect to separate products or product candidates orcurrently have any contracts affected by location. Accordingly, the Company views its business as one reportable operating segment with development operations in two geographic areas, namely the United States and the United Kingdom.this guidance.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the time of initial purchase to be cash equivalents. The objectives of the Company’s cash management policy are to safeguard and preserve funds, to maintain liquidity sufficient to meet Cyclacel’s cash flow requirements and to attain a market rate of return.
The Company’s cash and cash equivalents balance at September 30, 2017 was $26.0 million and it maintains its cash accounts both within the United States and the United Kingdom. Cash held in the United States is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per account. The Company has cash balances exceeding the balance insured by the FDIC that totalled approximately $24.3 million at September 30, 2017. Cash held in the United Kingdom is insured by the UK Government Financial Services Compensation Scheme (“FSCS”) up to £75,000 per account. The Company has cash balances exceeding the balance insured by the FSCS that totalled approximately $1.4 million at September 30, 2017.
Fair Value of Financial Instruments
Financial instruments consist of cash equivalents, accounts payable and accrued liabilities. The carrying amounts of cash equivalents, accounts payable and accrued liabilities approximate their respective fair values due to the nature of the accounts, notably their short maturities.
Comprehensive Income (Loss)
All components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments, are reported, net of any related tax effect, to arrive at comprehensive income (loss). NoNaN taxes were recorded on items of other comprehensive income (loss). There were no0 reclassifications out of other comprehensive income (loss) during the three and ninesix months ended SeptemberJune 30, 20162020 and 2017.2021.
Revenue recognition
Recently Issued Accounting Pronouncements
In July 2017,The Company recognizes revenue using the FASB issued Accounting Standards Update (“ASU”) No. 2017-11, Accounting for Certain Financial Instrumentsfive step-model provided in ASC 606, Revenue from Contracts with Down Round Features (“ASU 2017-11),Customers (“ASC 606”):
| (1) | identify the contract with a customer; |
| (2) | identify the performance obligations in the contract; |
| (3) | determine the transaction price; |
| (4) | allocate the transaction price to the performance obligations in the contract and |
| (5) | recognize revenue when, or as, the Company satisfies a performance obligation. |
The transaction price could include both fixed payments and an estimate of variable consideration, including milestone payments. The Company determines the variable consideration to be included in the transaction price by estimating the most likely amount that will be received and then applies a constraint to reduce the consideration to the amount which simplifiesis probable of being received. When applying the accounting for certain financial instruments with down-round features. ASU 2017-11constraint, the Company considers:
| ● | Whether achievement of a development milestone is highly susceptible to factors outside the entity’s influence, such as milestones involving the judgment or actions of third parties, including regulatory bodies; |
| ● | Whether the uncertainty about the achievement of the milestone is not expected to be resolved for a long period of time; |
| ● | Whether the Company can reasonably predict that a milestone will be achieved based on previous experience; and |
| ● | The complexity and inherent uncertainty underlying the achievement of the milestone. |
The transaction price is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. ASU 2017-11 should be adopted retrospectively forallocated to each prior reporting period presented or retrospectively asperformance obligation based on the relative selling price of each performance obligation. The best estimate of the beginningselling price is determined after considering all reasonably available information, including market data and conditions, entity-specific factors such as the cost structure of the yeardeliverable and internal profit and pricing objectives.
The revenue allocated to each performance obligation is recognized as or when the Company satisfies the performance obligation.
The Company recognizes a contract asset, when the value of adoption. The Companyanticipates this standard will not have a material impact onits consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory (‘‘ASU 2016-16’’), which requires the recognitionsatisfied (or part satisfied) performance obligations is in excess of the income tax consequencespayment due to the Company, and deferred revenue when the amount of unconditional consideration is in excess of the value of satisfied (or part satisfied) performance obligations. Once a right to receive consideration is unconditional, that amount is presented as a receivable.
Grant revenue received from organizations that are not the Company’s customers, such as charitable foundations or government agencies, is presented as a reduction against the related research and development expenses.
Leases
The Company accounts for lease contracts in accordance with ASC 842. As of June 30, 2021, the Company’s 1 outstanding lease is classified as an intra-entity transfer ofoperating lease.
The Company recognizes an asset other than inventory, whenfor the transfer occurs. The standard is effectiveright to use an underlying leased asset for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Companyanticipates this standard will not have a material impactthe lease term and records lease liabilities based onits consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statementpresent value of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Companyanticipates this standard will not have a material impact on its consolidated financial statements.
In February 2016, the FASB issued guidance on accounting for leases in ASU No, 2016-02. The guidance requires that lessees recognize a lease liability, which is a lessee’sCompany’s obligation to make lease payments arising fromunder the lease. As the Company’s leases do not indicate an implicit rate, the Company uses a best estimate of its incremental borrowing rate to discount the future lease measuredpayments. The Company estimates its incremental borrowing rate based on observable information about risk-free interest rates that are the same tenure as the lease term, adjusted for various factors, including the effects of assumed collateral, the nature of how the loan is repaid (e.g., amortizing versus bullet), and the Company’s credit risk.
The Company evaluates options included in its lease agreements to extend or terminate the lease. The Company will reflect the effects of exercising those options in the lease term when it is reasonably certain that the Company will exercise that option. In assessing whether it is reasonably certain that the Company will exercise an option, the Company considers factors such as:
| ● | The lease payments due in any optional period; |
| ● | Penalties for failure to exercise (or not exercise) the option; |
| ● | Market factors, such as the availability of similar assets and current rental rates for such assets; |
| ● | The nature of the underlying leased asset and its importance to the Company’s operations; and |
| ● | The remaining useful lives of any related leasehold improvements. |
Lease expense for lease payments is recognized on a discounted basis;straight-line basis over the lease term. Variable lease payments, if any, are recognized in the period when the obligation to make those payments is incurred. Lease incentives received prior to lease commencement are recorded as a reduction in the right-of-use asset. Fixed lease incentives received after lease commencement reduce both the lease liability and athe right-of-use asset, which isasset.
The Company has elected an asset that represents the lessee’s rightaccounting policy to use, or control the use of, a specified assetaccount for the lease term at the commencement date. The guidance is effective for fiscal years beginning after December 15, 2018. Early application is permitted. The guidance must be adopted onand non-lease components as a modified retrospective transition approach for leases existing, or entered into after, the beginning of the earliest comparative period presentedsingle lease component.
3. Revenue
Revenue recognized in the financial statements. The Company is currently evaluating the impact of the guidance on the consolidated financial statements.three and six months ended June 30, 2020 and 2021 was $0.
4. Net Loss per Common Share
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (‘‘ASU 2014-09’’), which supersedes existing revenue recognition guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The standard defines a five-step process to achieve this principle; (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The guidance is effective for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. ASU 2014-09 was amended by multiple accounting standards updates from 2014-2016.
The Company anticipates this standard will not have a material impact on its consolidated financial statements. While the Company is continuing to assess all potential impacts of the standard, the Company currently believes the most significant impact relates to its accounting for revenues related to grants received from government agencies or nonprofit organizations and revenues from contingent “milestone” based payments. Under the new standard, the Company expects to report grant revenue, if new grants are obtained, in other income (or in some cases as a contra-expense). Historically, grants have been reported in revenue. As the grantor is not likely to be receiving a good or service in exchange for the payment, the grant cannot be reported in revenue under ASU 2014-09. The Company also expects to recognize revenue associated with contingent milestone-based payments at the time the contingent event is probable to be met, rather than when the milestone is achieved. However, given the limited number of potential milestones owed to Cyclacel, and the inherent risk involved in developing drugs, the timing of revenue recognition associated with contingent milestones is unlikely to be impacted.
ASU 2014-09 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently intends to use the modified retrospective method when it adopts the new accounting standard, and does not anticipate recording a material adjustment to opening accumulated deficit as of the date of adoption.
| 3. | Net Loss Per Common Share |
The Company calculates net loss per common share in accordance with ASC 260 “Earnings Per Share” (“ASC 260”). Basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders (adjusted for conversion and beneficial conversion feature of preferred stock) by the weighted average number of shares of common stock outstanding during the period.
The following potentially dilutive shares of common stocksecurities have not been included in the computation of diluted net loss per share for the ninethree months ended SeptemberJune 30, 20162020 and 2017,2021, as the result would be anti-dilutive:
| | | | |
| | June 30, | | June 30, |
| | 2020 | | 2021 |
Stock options | | 134,594 | | 731,761 |
6% convertible exchangeable preferred stock | | 85 | | 85 |
Series A preferred stock | | 6,600 | | 6,600 |
Series B preferred stock | | 0 | | 1,188,725 |
Common stock warrants | | 4,370,525 | | 3,234,379 |
Total shares excluded from calculation | | 4,511,804 | | 5,161,550 |
| | September 30, 2016 | | | September 30, 2017 | |
Stock options | | | 393,723 | | | | 381,786 | |
6% Convertible Exchangeable preferred stock | | | 1,698 | | | | 1,698 | |
Series A convertible preferred stock | | | - | | | | 332,000 | |
Common stock warrants | | | - | | | | 7,590,000 | |
Total shares excluded from calculation | | | 395,421 | | | | 8,305,484 | |
| 4. | 5. Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets consisted of the following (in $000s):
| | | | | | |
| | December 31, | | June 30, |
| | 2020 | | 2021 |
Research and development tax credit receivable | | $ | 1,313 | | $ | 1,586 |
Prepayments and VAT receivable | | | 684 | | | 836 |
Other current assets | | | 66 | | | 142 |
| | $ | 2,063 | | $ | 2,564 |
| | December 31, | | | September 30, | |
| | 2016 | | | 2017 | |
Research and development tax credit receivable | | $ | 1,730 | | | $ | 845 | |
Prepayments | | | 867 | | | | 365 | |
VAT receivable | | | 327 | | | | 376 | |
Other current assets | | | 173 | | | | 206 | |
| | $ | 3,097 | | | $ | 1,792 | |
| 5. | 6. Accrued and Other Current Liabilities |
Accrued and other current liabilities consisted of the following (in $000s):
| | | | | | |
| | December 31, | | June 30, |
| | 2020 | | 2021 |
Accrued research and development | | $ | 781 | | $ | 1,450 |
Accrued legal and professional fees | | | 325 | | | 207 |
Other current liabilities | | | 866 | | | 264 |
| | $ | 1,972 | | $ | 1,921 |
| | December 31, | | | September 30, | |
| | 2016 | | | 2017 | |
Accrued research and development | | $ | 2,138 | | | $ | 1,881 | |
Accrued legal and professional fees | | | 194 | | | | 227 | |
Other current liabilities | | | 430 | | | | 184 | |
| | $ | 2,762 | | | $ | 2,292 | |
Other current liabilities as at 31 December 2020 include accrued compensation and the current portion of the lease liability for the Company’s facility in Dundee, Scotland.
| 6. | 7. Leases The Company currently has 1 lease, relating to its facility in Berkeley Heights, New Jersey. On May 4, 2021, the Company assigned the operating lease relating to its facility in Dundee, Scotland to the University of Dundee, Scotland for a reverse premium of approximately $400,000, of which 50% was payable on assignment. The remaining 50% is due on May 4, 2022 and is recorded as a payable for the period ended June 30, 2021. The Company has 0 further obligations, liabilities or commitments in relation to this facility. As of and for the six months ended June 30, 2021: The Company recognized operating lease expenses of $144,463. Cash payments made during the six months ended June 30, 2021 totaled $150,941 and were presented as cash outflows from operating activities. The remaining lease term as of June 30, 2021 is approximately 1.1 years for the Berkeley Heights facility. The discount rate used by the Company in determining the lease liability was 12%. Remaining lease payments under the lease are (in $000’s): | | | | 2021 | | $ | 46 | 2022 | | | 36 | 2023 | | | 0 | 2024 | | | 0 | 2025 | | | 0 | Thereafter | | | 0 | | | $ | 82 |
8. Stock Based Compensation |
ASC 718 requires compensation expense associated with share-based awards to be recognized over the requisite service period, which for the Company is the period between the grant date and the date the award vests or becomes exercisable. Most of the awards granted by the Company (and still outstanding) vest ratably over one to four years and have a maximum life of ten years from the date of grant.
Effective January 1, 2016, theyears. The Company recognizes all share-based awards under the straight-line attribution method, assuming that all granted awards will vest. Forfeitures will beare recognized in the periods when they occur. The actual expense recognized over the vesting period is based on only those shares that vest.
Stock based compensation has been reported within expense line items on the consolidated statement of operations for the three and ninesix months ended SeptemberJune 30, 20162020 and 20172021 as shown in the following table (in $000s):
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | |
| | 2016 | | | 2017 | | | 2016 | | | 2017 | | |
| | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | |
| | | June 30, | | June 30, | |
| | | 2020 | | 2021 | | 2020 | | 2021 | |
General and administrative | | $ | 113 | | | $ | 48 | | | $ | 376 | | | $ | 146 | | | $ | 52 | | $ | 190 | | $ | 107 | | $ | 364 | |
Research and development | | | 79 | | | | 17 | | | | 238 | | | | 54 | | | | 34 | | | 88 | | | 69 | | | 169 | |
Stock-based compensation costs before income taxes | | $ | 192 | | | $ | 65 | | | $ | 614 | | | $ | 200 | | | $ | 86 | | $ | 278 | | $ | 176 | | $ | 533 | |
On2018 Plan
In May 22, 2015,2018, the Company’s stockholders approved the 20152018 Equity Incentive Plan (the “2015“2018 Plan”), under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. On May 30, 2017,The 2018 Plan replaces the 2015 Equity Incentive Plan (the “2015 Plan”).
The 2018 Plan allows for the issuance of up to 775,000 shares of the Company’s stockholders approvedcommon stock pursuant to various types of award grants, including stock options and restricted stock units. In addition, the amendment2018 Plan allows up to 35,494 additional shares to be issued if awards outstanding under the 2018 Plan are cancelled or expire on or after the date of the Company’s 2018 annual meeting of stockholders.
As of June 30, 2021, the Company has reserved 179,964 shares of the Company’s common stock under the 2018 Plan for future issuances, including shares that were available under the 2015 Plan and carried forward to increase the number of shares of common stock available for such equity incentive grants. The 2015 Plan replaces the 2006 Equity Incentive2018 Plan. As of September 30, 2017, there were approximately 612,500 reservedStock option awards available to be granted under the 2015 plan.Company’s equity incentive plans have a maximum life of 10 years and generally vest over a one to four-year period from the date of grant.
2020 Inducement Equity Incentive Plan
In October 2020, the Inducement Equity Incentive Plan (the “Inducement Plan”), became effective. Under the Inducement Plan, Cyclacel may make equity incentive grants to new senior level Employees (persons to whom the Company may issue securities without stockholder approval). The Inducement Plan allows for the issuance of up to 200,000 shares of the Company’s common stock (or the equivalent of such number). As of June 30, 2021, 120,000 shares under the Inducement Plan have been issued, leaving a remaining reserve of 80,000 shares.
Option Grants and Exercises
There were 12,000129,153 options granted during the ninesix months ended SeptemberJune 30, 2017.
In 2016, the Company granted certain performance based options. As of September 30, 2017, 184,924 such options remain outstanding.2021. These options will vest uponhad a grant date fair value ranging between $4.56-$6.14 per option. There were 36,400 options granted during the fulfillmentsix months ended June 30, 2020. These options had a grant date fair value of certain clinical outcome conditions and will terminate automatically if they have not vested by December 31, 2020.$3.95. The Company determined that the satisfactionfair value of the vesting criteria was not probablestock options granted is calculated using the Black-Scholes option-pricing model as of September 30, 2017 and, as a result, did not record any expense related to these awards forprescribed by ASC 718 using the three and nine months ended September 30, 2017.following assumptions:
| | | | |
| | | | |
| | Six months ended | | Six months ended |
| | June 30, 2020 | | June 30, 2021 |
Expected term (years) | | 6 | | 5 – 6 |
Risk free interest rate | | 0.425% | | 0.420% – 1.000% |
Volatility | | 114% | | 99 – 102% |
Expected dividend yield over expected term | | 0.00% | | 0.00% |
There were no0 stock options exercised during each of the ninesix months ended SeptemberJune 30, 20162020 and 2017,2021, respectively. The Company does not expect to be able to benefit from the deduction for stock option exercises that may occur during the year ended December 31, 2017 because the company has tax loss carryforwards from prior periods that would be expected to offset any potential taxable income for the year ended December 31, 2017.income.
Outstanding Options
A summary of the share option activity and related information is as follows:
| | Number of Options Outstanding | | | Weighted Average Exercise Price Per Share | | | Weighted Average Remaining Contractual Term (Years) | | | Aggregate Intrinsic Value ($000) | |
Options outstanding at December 31, 2016 | | | 389,379 | | | $ | 25.80 | | | | 5.83 | | | $ | 121 | |
Granted | | | 12,000 | | | $ | 4.38 | | | | | | | | | |
Cancelled/forfeited | | | (19,593 | ) | | $ | 108.73 | | | | | | | | | |
Options outstanding at September 30, 2017 | | | 381,786 | | | $ | 20.87 | | | | 5.24 | | | $ | — | |
Unvested at September 30, 2017 | | | (236,962 | ) | | $ | 5.06 | | | | 4.41 | | | $ | — | |
Vested and exercisable at September 30, 2017 | | | 144,824 | | | $ | 46.73 | | | | 6.60 | | | $ | — | |
11
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | |
| | Number of | | Average | | Remaining | | Aggregate |
| | Options | | Exercise | | Contractual | | Intrinsic |
| | Outstanding | | Price Per Share | | Term (Years) | | Value ($000) |
Options outstanding at December 31, 2020 | | 602,683 | | $ | 11.01 | | 9.39 | | $ | 1,861 |
Granted | | 129,153 | | $ | 6.57 | | — | | | — |
Exercised | | — | | | 0 | | — | | | — |
Cancelled/forfeited | | (74) | | $ | 2,570.42 | | — | | | — |
Options outstanding at June 30, 2021 | | 731,762 | | $ | 9.97 | | 9.04 | | $ | 894 |
| | | | | | | | | | |
Unvested at June 30, 2021 | | 558,002 | | $ | 4.89 | | 9.44 | | $ | 824 |
Vested and exercisable at June 30, 2021 | | 173,760 | | $ | 26.28 | | 7.79 | | $ | 70 |
The fair value of the stock options granted is calculated using the Black-Scholes option-pricing model as prescribed by ASC 718.
The expected term assumption is estimated using past history of early exercise behavior and expectations about future behaviors.
The weighted average risk-free interest rate represents interest rate for treasury constant maturities published by the Federal Reserve Board. If the term of available treasury constant maturity instruments is not equal to the expected term of an employee option, Cyclacel uses the weighted average of the two Federal Reserve securities closest to the expected term of the employee option.
Restricted Stock Units
Volatility is based on the Company’s historical volatility over the same period as the expected term for a given award.
| 7. | Commitments and Contingencies |
Distribution, Licensing and Research Agreements
The Company has entered into licensing agreements with academic and research organizations. Underissued 14,000 restricted stock units to employees during the termsyear ended December 31, 2019. The Company issued 3,938 additional restricted stock units to employees during the year ended December 31, 2020, of these agreements,which 1,414 units have been forfeited. The vesting of the remaining 16,524 outstanding restricted stock units is dependent upon the fulfillment of certain clinical conditions. The Company recorded 0 compensation expense related to restricted stock units for the quarter ended June 30, 2021.
The Company issued an additional 18,992 restricted stock units to directors of the Company has received licenses to certain technology and patent applications. The Companyduring the three months ended June 30, 2021. These restricted stock units will vest over a period of one or three years. Each restricted stock unit was valued at $6.69 based on their fair value at the date of grant, which is required to pay royalties on future sales of products employing the technology or falling under claims of patent applications.
Pursuantequivalent to the Daiichi Sankyo license under which the Company licenses certain patent rights for sapacitabine, its lead drug candidate, the Company has agreed to pay Daiichi Sankyo an up-front fee, to reimburse Daiichi Sankyo for certain enumerated expenses, and to make milestone payments and pay royalties on a country-by-country basis. The up-front fee, the Phase 3 entry milestone, and certain past reimbursements have been paid. A further $10.0 million in aggregate milestone payments could be payable subject to achievement of all the specific contractual milestones, which are primarily related to regulatory approval in various territories and the Company’s decision to continue with these projects. Royalties are payable in each country for the term of patent protection in the country or for ten years following the first commercial sale of licensed products in the country, whichever is later. Royalties are payable on net sales. Net sales are defined as the gross amount invoiced by the Company or its affiliates or licensees, less discounts, credits, taxes, shipping and bad debt losses. The agreement extends from its commencement date to the date on which no further amounts are owed under it. If the Company wishes to appoint a third party to develop or commercialize any sapacitabine-based products in Japan, within certain limitations, Daiichi Sankyo must be notified and given a right of first refusal, with such right ending sixty days after notification, to develop and/or commercialize in Japan. In general, the license may be terminated by the Company for technical, scientific, efficacy, safety, or commercial reasons on six months’ notice, or twelve months’ notice, if after a launchmarket price of a sapacitabine-based product, or by either party for material default.
July 2017 Underwritten Public Offering
On July 21, 2017, the Company issued (i) 3,154,000 Class A Units for $2 per unit, each consisting of one share of the Company’s common stock. Summarized information for restricted stock units as of June 30, 2021 is as follows:
| | | | | | | |
| | | | Weighted | | Weighted |
| | | | Average | | Average |
| | Restricted | | Grant Date | | Remaining |
| | Stock Units | | Value Per Share | | Term |
Restricted Stock Units outstanding at June 30, 2021 | | 35,516 | | $ | 8.84 | | 9.26 years |
| | | | | | | |
Unvested at June 30, 2021 | | 35,516 | | $ | 8.84 | | 9.26 years |
Vested and exercisable at June 30, 2021 | | — | | $ | — | | 9.26 years |
9. Stockholders Equity
March 2021 equity financing
On March 12, 2021, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc., as representative of the underwriters identified therein (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and a warrant to purchase one sharesell 1,807,143 shares of common stock, $0.001 par value per share, at a public offering price of $7.00 per share (the “Class A Warrants”“Offering”), along with a 30-day overallotment option to purchase up to an additional 271,071 shares of common stock at the public offering price, less underwriting discounts and (ii) 8,872 Class B Units, each consisting of one sharecommissions.
The closing of the Company’s Series A Convertible Preferred Stock,offering occurred on March 16, 2021, and the net proceeds to the Company (including exercise of the over-allotment option) were approximately $13.5 million, after deducting placement agent fees and other offering expenses payable by the Company.
December 2020 equity financing
On December 18, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Acorn Bioventures, LP (the “Purchaser”), pursuant to which the Company agreed to offer, issue and sell to the Purchaser, (i) in a registered direct offering, (a) an aggregate of 485,912 shares (the “Common Shares”) of common stock, par value $0.001 per share (“Common Stock”), and (b) an aggregate of 237,745 shares of Series B Convertible Preferred Stock (the “Series A“Preferred Shares,” and collectively with the Common Shares, the “Shares”), par value $0.001 per share (“Series B Preferred Stock”), convertible into 500and (ii) in a concurrent private placement, warrants (the “Warrants”) to purchase up to an aggregate of 669,854 shares (the “Warrant Shares”) of Common Stock.
The combined purchase price for each Share, together with 1 Warrant to purchase 0.4 shares of Common Stock, is $4.18. Each Warrant shall be exercisable beginning on the 12-month anniversary of the date of issuance for a period of five years after the date of issuance, at an exercise price of $4.13 per Warrant Share. The exercise price of the initialWarrants will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. The Warrants may be exercised on a “cashless” basis.
Each share of Series B Convertible Preferred Stock will convert into 5 shares of Common Stock.
The conversion feature within the Series B Convertible Preferred Stock was determined to be beneficial as of the offering date. A beneficial conversion feature is defined as a nondetachable conversion feature that is "in-the-money" at issuance. The Company calculated the value of the beneficial conversion feature based on its intrinsic value, which is the difference between the “effective conversion price” (after allocating the proceeds of the offering between the Series B Convertible Preferred Stock, the Warrants and Common Stock issued) and the market price and a warrant to purchase aof the Company's common shares, multiplied by the number of shares of common stock equal to $1,000.00 divided byinto which the conversion price (the “ClassSeries B Warrants”) for $1,000 per unit. The net proceeds to the Company after the underwriters’ exercise in full of the over-allotment option were approximately $13,700,000, after deducting underwriting discounts, commissions and other estimated offering expenses. The Class A Units and Class B Units have no stand-alone rights and the shares of common stock, Series A Preferred Stock and the Class A and Class B Warrants comprising those units were immediately separable.
The common stock, Class A Warrants and Class B Warrants (together the “Warrants”) and Series A Preferred Stock are freestanding financial instruments. The Warrants are classified within equity in the consolidated balance sheet and are not remeasured on a recurring basis. The Series AConvertible Preferred Stock is classified within equity in the consolidated balance sheet.
The proceeds$3.18 per share is different from the Class A Units were allocated to common stock and Class A Warrants on a relative fair value basis. Similarly, the proceeds from the Class B Units were allocated to the Series A Preferred Stock and the Class B Warrants based on their relative fair values. Following the allocation of the offering proceeds associated with the Class B units, the Company determined that the Series A Preferred Stock had a beneficial$4.18 per share contractual conversion feature with an aggregate intrinsic value of approximately $3,638,000. price.
As the Series Aseries B Preferred Stock contained no stated redemption date and the conversion feature could be exercised at any time, the discount associated with the beneficial conversion feature was immediately charged against additional paid-in capitalpaid-in-capital and treated as a deemed dividend for both financial reporting and earnings per share purposes. See Note 3 for
The common stock, Warrants and Series B Preferred Stock are freestanding financial instruments. The Warrants are classified within equity (as a component of additional information.paid-in capital) in the consolidated balance sheet and are not remeasured on a recurring basis. The Series B Preferred Stock is classified within permanent equity in the consolidated balance sheet.
The closing of the offering occurred on December 22, 2020 and the net proceeds to the Company were approximately $6.9 million, after deducting offering expenses payable by the Company.
As of June 30, 2021, 237,745 shares of the Series B Preferred Stock remained issued and outstanding.
June 2016 At Market IssuanceApril 2020 equity financing
On June 23, 2016,April 21, 2020, the Company entered into an At Market Issuance Sales Agreement (the “FBR Sales Agreement”)a co-placement agency agreement with FBRRoth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, & Co. (”FBR”a division of Arcadia Securities, LLC (the “Co-Placement Agents”), under which and a securities purchase agreement with certain purchasers for the Company was authorized to issuepurchase and sell sharessale of its common stock, from time to time, through FBR, acting as its sales agent. Under the FBR Sales Agreement, FBR was authorized to sell such(i) 1,910,000 shares of common stock, by any method that is deemed(ii) pre-funded warrants to be an “at the market offering”. The Company was not obligatedpurchase up to make any sales of common stock under the FBR Sales Agreement, and the Company was required to pay FBR a commission of 3.0% of the gross proceeds of the sale of any2,090,000 shares of common stock sold through FBR. In the nine months ended September 30, 2017, the Company sold 183,118at an exercise price of $0.001 per share, and (iii) accompanying common stock warrants to purchase up to 4,000,000 shares of common stock underat an exercise price of $5.00 per share. The shares of common stock and accompanying common stock warrants were sold at a combined public offering price of $5.00 per share and common stock warrant. Each common stock warrant sold with the FBR Sales agreement forshares of common stock represents the right to purchase 1 share of common stock at an exercise price of $5.00 per share. The common stock warrants are exercisable immediately and expire five years from the date of issuance.
The pre-funded warrants and accompanying common stock warrants were sold at a combined public offering price of $4.999 per pre-funded warrant and common stock warrant. The pre-funded warrants were sold to purchasers whose purchase of shares of common stock in the public offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of the Company’s outstanding common stock immediately following the consummation of the public offering, in lieu of shares of common stock. Each pre-funded warrant represents the right to purchase 1 share of the Company’s common stock at an exercise price of $0.001 per share. The pre-funded warrants are exercisable immediately and may be exercised at any time until the pre-funded warrants are exercised in full. The shares of common stock and pre-funded warrants, and accompanying common stock warrants, were issued separately and are immediately separable upon issuance.
The closing of the offering occurred on April 24, 2020, and the net proceeds to the Company were approximately $18.3 million, after deducting placement agent fees and other offering expenses payable by the Company.
Subsequent to the closing of approximately $1.1 million, and the FBR Sales Agreement terminated automatically by its terms.offering, all of the pre-funded warrants issued in connection therewith were converted into 2,090,000 shares of common stock.
Warrants
December 2020 Warrants
As of SeptemberJune 30, 2017, there2021, warrants to purchase 669,854 shares of common stock remained outstanding. Each warrant shall be exercisable beginning on the 12-month anniversary of the date of issuance for a period of five years after the date of issuance, at an exercise price of $4.13 per Warrant Share. The exercise price of the Warrants will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the warrants. The warrants may be exercised on a “cashless” basis.
There were 7,590,0000 exercises of these warrants during the three and six months ended June 30, 2021.
April 2020 Warrants
As of June 30, 2021, 2,190,000 warrants issued in connection with the April 2020 equity financing remained outstanding, each with an exercise price of $2.00.$5.00. All such warrants were issued in connection with the April 2020 co-placement agency agreement. The common warrants are immediately exercisable and will expire on the fifth anniversary of the original issuance date. The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting the Company’s common stock. The common warrants were issued separately from the common stock and were eligible for transfer immediately after issuance. A common warrant to purchase 1 share of common stock was issued for every share of common stock purchased in this offering.
The common warrants are exercisable, at the option of each holder, in whole or in part, by delivering to the Company a duly executed exercise notice accompanied by payment in full for the number of shares of the Company’s common stock purchased upon such exercise (except in the case of a cashless exercise). A holder (together with its affiliates) may not exercise any portion of the common warrant to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, except that upon at least 61 days prior notice from the holder to the Company, the holder may increase the amount of ownership of outstanding stock after exercising the holder’s common warrants up to 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the common warrants. NaN fractional shares of common stock will be issued in connection with the exercise of a common warrant. In lieu of fractional shares, the Company will round down to the next whole share.
A total of 909,000 warrants were exercised during the six months ended June 30, 2021.
July 2017 Warrants
As of June 30, 2021, 374,525 warrants issued in connection with the July 2017 underwritten public offering remained outstanding, each with an exercise price of $40.00. All such warrants were issued in connection with the July 2017 Underwritten Public Offeringunderwritten public offering and are immediately exercisable. The Warrantswarrants expire in 2024. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of its warrants if the holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of common stock in excess of 4.99% (or, at the election of the purchaser, 9.99%) of the shares of our Common Stock then outstanding after giving effect to such exercise.
The exercise price and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock. The warrant holders must pay the exercise price in cash upon exercise of the warrants, unless such warrant holders are utilizing the cashless exercise provision of the warrants. On the expiration date, unexercised warrants will automatically be exercised via the “cashless” exercise provision.
Prior to the exercise of any warrants to purchase common stock, holders of the warrants will not have any of the rights of holders of the common stock purchasable upon exercise, including the right to vote, except as set forth therein.
There was no exercisewere 0 exercises of these warrants during the three and six months ended SeptemberJune 30, 2016 and 2017 respectively.2021.
Series A Preferred Stock
8,872 shares of the Company’s Series A Preferred Stock were issued in the July 2017 Underwritten Public Offering.underwritten public offering. During the three monthsyear ended September 30,December 31, 2017, 8,2088,608 shares of the Series A Preferred Stock were converted into 4,104,000215,200 shares of common stock. As of SeptemberJune 30, 2017, 6642021, 264 shares of the Series A Preferred Stock remainremained issued and outstanding.
outstanding.
Each share of Series A Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock determined by dividing $1,000 by the initial conversion price of $2.00$40.00 per share, subject to a 4.99% blocker provision, or, upon election by a holder prior to the issuance of shares of Series A Preferred Stock, 9.99%, and is subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations. The 664264 shares of Series A Preferred Stock issued and outstanding at SeptemberJune 30, 2017,2021, are convertible into 332,0006,600 shares of common stock.
In the event of a liquidation, the holders of shares of the Series A Preferred Stock mayshall be permitted to participate on an as-converted-to-common-stock basis in any distribution of assets of the Company. The Company shall not pay any dividends on shares of common stock (other than dividends in the form of common stock) unless and until such time as dividends on each share of Series A Preferred Stock are paid on an as-converted basis. There is no restriction on the Company’s ability to repurchase shares of Series A Preferred Stock while there is any arrearage in the payment of dividends on such shares, and there are no sinking fund provisions applicable to the Series A Preferred Stock.
Subject to certain conditions, at any time following the issuance of the Series A Preferred Stock, the Company has the right to cause each holder of the Series A Preferred Stock to convert all or part of such holder’s Series A Preferred Stock in the event that (i) the volume weighted average price of our common stock for 30 consecutive trading days (the “Measurement Period”) exceeds 300% of the initial conversion price of the Series A Preferred Stock (subject to adjustment for forward and reverse stock splits, recapitalizations, stock dividends and similar transactions), (ii) the daily trading volume on each Trading Day during such Measurement Period exceeds $500,000 per trading day and (iii) the holder is not in possession of any information that constitutes or might constitute, material non-public information which was provided by the Company. The right to cause each holder of the Series A Preferred Stock to convert all or part of such holder’s Series A Preferred Stock shall be exercised ratably among the holders of the then outstanding preferred stock.
The Series A Preferred Stock has no maturity date, will carry the same dividend rights as the common stock, and with certain exceptions, contains no voting rights. In the event of any liquidation or dissolution of the Company, the Series A Preferred Stock ranks senior to the common stock in the distribution of assets, to the extent legally available for distribution.
6% Convertible Exchangeable Preferred Stock
As of SeptemberJune 30, 2017,2021, there were 335,273 shares of the Company’s 6% Convertible Exchangeable Preferred Stock (“6%(the “6% Preferred Stock”) issued and outstanding at an issue price of $10.00 per share. Dividends on the 6% Preferred Stock are cumulative from the date of original issuance at the annual rate of 6% of the liquidation preference of the 6% Preferred Stock, payable quarterly on the first day of February, May, August and November, commencing February 1, 2005. Any dividends must be declared by the Company’s Boardboard of directors and must come from funds that are legally available for dividend payments. The 6% Preferred Stock has a liquidation preference of $10.00 per share, plus accrued and unpaid dividends. As of June 30, 2021, accrued and unpaid dividends amounted to $50,291.
The Company may automatically convert the 6% Preferred Stock into common stock if the per share closing price of the Company’s common stock has exceeded $2,961,$59,220, which is 150% of the conversion price of the 6% Preferred Stock, for at least 20 trading days during any 30-day30 day trading period, ending within five trading days prior to notice of automatic conversion.
The 6% Preferred Stock has no maturity date and no voting rights prior to conversion into common stock, except under limited circumstances.
The Company may, at its option, redeem the 6% Preferred Stock in whole or in part, out of funds legally available at the redemption price of $10.00 per share.
The 6% Preferred Stock is exchangeable, in whole but not in part, at the option of the Company on any dividend payment date beginning on November 1, 2005 (the “Exchange Date”) for the Company’s 6% Convertible Subordinated Debentures (“Debentures”(the “Debentures”) at the rate of $10.00 principal amount of Debentures for each share of 6% Preferred Stock. The Debentures, if issued, will mature 25 years after the Exchange Date and have terms substantially similar terms to those of the 6% Preferred Stock. No such exchanges have taken place to date.
10. Subsequent Events
Dividends on 6% Preferred Stock
On September 7, 2017,June 15, 2021, the Boardboard of directors declared a quarterly cash dividend in the amount of $0.15 per share on the 6%Company’s Preferred Stock. The cash dividend was paid on NovemberAugust 1, 20172021 to the holders of record of the 6% Preferred Stock as of the close of business on October 13, 2017.July 16, 2021.
Controlled Equity Offering Sales Agreement
On October 17 2017, 400August 12, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. ("Cantor"), pursuant to which it may issue and sell, from time to time, shares of Series A preferredits common stock were converted into 200,000having an aggregate offering price of up to $50.0 million through Cantor as the sales agent. Cantor may sell the Company’s common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act.
Subject to the terms and conditions of the Sales Agreement, Cantor will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon the Company's instructions, including any price, time or size limits specified by the Company. The Company has provided Cantor with customary indemnification rights, and Cantor will be entitled to a commission at a fixed commission rate equal to 3.0% of common stock. 264the gross proceeds per share sold. The Company has no obligation to sell any of the shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement. The Sales Agreement will terminate upon the sale of Series A preferred stock remain outstanding and are convertible into 132,000all of the shares under the Sales Agreement unless terminated earlier by either party as permitted under the Sales Agreement.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including, without limitation, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend that the forward-looking statements be covered by the safe harbor for forward-looking statements in the Exchange Act. The forward-looking information is based on various factors and was derived using numerous assumptions. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are usually accompanied by words such as “believe,” “anticipate,” “plan,” “seek,” “expect,” “intend” and similar expressions.
Forward-looking statements necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in the forward looking statements due to a number of factors, including those set forth in Part I, Item 1A, entitled “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2016,2020, as updated and supplemented by Part II, Item 1A, entitled “Risk Factors,” of our Quarterly Reports on Form 10-Q, and elsewhere in this report. In addition, while we expect the coronavirus pandemic to have an impact on our business operations and financial results, the extent of the impact on our clinical development and regulatory efforts, our corporate development objectives, our financial position and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease. These factors as well as other cautionary statements made in this Quarterly Report on Form 10-Q, should be read and understood as being applicable to all related forward-looking statements wherever they appear herein. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our judgment as of the date hereof. We encourage you to read those descriptions carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements. In this report, “Cyclacel,” the “Company,” “we,” “us,” and “our” refer to Cyclacel Pharmaceuticals, Inc.
Overview
Through the third quarter of 2017, our focus has been on our transcriptional regulation program, pursuant to which we are evaluating our cyclin dependent kinase, or CDK, inhibitor and ourDNA damage response, or DDR, program, in which we are evaluating sapacitabine in combinationConsistent with our CDK inhibitor seliciclib in solid tumors in a Phase1 study. Additionally, we are completing the analysismission of data fromSEAMLESS, the Phase 3 study in acute myeloid leukemia, or “AML”.
Transcriptional Regulation Program, CDK inhibitors
We are progressing clinical development of our CDK inhibitor CYC065 in an ongoing, first-in-human, Phase 1 trial in patients with advanced solid tumors.
CDKs are a family of enzymes first discovered as regulators of the cell cycle, but which are now understood to also provide pivotal functions in the regulation of transcription, DNA repair and metastatic spread. The precise selectivity of an individual CDK inhibitor molecule for specific CDK enzymes is key to targeting particular tumor types and minimizing undesirable side effects through non-specific antiproliferative activity.
In general, cell cycle regulation is less well controlled in cancer cells than in normal cells, which explains in part why cancer cells divide uncontrollably. Different CDKs are responsible for control of different aspects of proliferation, and when dysregulated, can be drivers of particular cancer sub-sets. Modulating CDK activity with targeted therapies is an attractive strategy to reinforce cell cycle control and decrease the rate of abnormal proliferation of cancer cells. The first Food and Drug Administration or “FDA” approval in March 2015 of a CDK4/6 inhibitor for palbociclib, and in 2017, ribociclib and abemaciclib, all for a type of breast cancer, has led to great interest in the development of this class of drugs as oncology therapeutics.
Cyclacel’s founding scientist, Professor Sir David Lane, is a globally recognized authority in cell cycle biology, who discovered p53, a key tumor suppressor genedeveloping medicines that malfunctions in about two-thirds of human cancers. Under his guidance, Cyclacel’s drug discovery and development programs concentrated on the CDK2/9 isoforms, which operate as key components of the p53 pathway. These efforts resulted in bringing two molecules into clinical trials: seliciclib, our first-generation CDK inhibitor, and CYC065, our second-generation CDK inhibitor, which has benefited from the Company’s clinical experience with seliciclib.
CYC065 is being evaluated in an on-going Phase 1 first-in-human clinical trial. The objective of Part 1 of the clinical trial was to assess the safety and recommended dosing for Phase 2 (RP2D) of CYC065 in advanced cancer patients, based on determination of the biologically effective dose through measurement of CYC065's effects on the Mcl-1 biomarker. Part 1 is now complete and the RP2D has been selected, Part 2 of the study will focus on patients with advanced solid tumors with amplification of cyclin E, or CCNE, Mcl-1 and/or MYC. The trial is being conducted at the Dana Farber Cancer Institute in Boston.
Seliciclib, is being evaluated in an all-oral Phase 1 combination study with our sapacitabine in patients with BRCA mutations. In total seliciblib has been evaluated to date in approximately 450 patients with various liquid and solid cancers.
Similar to the approved CDK4/6 inhibitors, abemaciclib, palbociclib, and ribociclib, CYC065 may be most useful in combination with other anticancer agents. CDK2/9 inhibitors, such as CYC065 may be useful as treatmentsexpand available options for patients, with either liquid or solid tumors,we have three orally-available programs in combination with Bcl-2 antagonists, such as venetoclax, or HER2 inhibitors, such as trastuzumab.
DNA Damage Response, or DDR, Program
In our DNA damage response program we are evaluating sapacitabine in combination with our first-generation CDK inhibitor seliciclib in solid tumors.
Cancer cells with modified DNA damage response, or DDR, mechanisms can accumulate additional genetic changes and continue to proliferate. Cancer cells that are deficient in such DDR pathways are more susceptible to DNA damage, a property exploited by traditional cancer treatments, such as DNA-damaging chemotherapy and radiotherapy. However, such treatments are often associated with significant and unwanted side effects. Developing treatments which target specific DDR deficiencies to preferentially kill cancer cells, while minimizing the impact on normal cells, is a promising strategy which could result in more selective, better tolerated therapies with the aim of improving survival in various types of cancer.
We have focused on developing treatments targeting DNA damage pathways, such as evaluating sapacitabine in a Phase 1 combination study with seliciclib in patients with BRCA mutations. Sapacitabine is an oral nucleoside analogue prodrug whose metabolite, CNDAC, generates single-strand DNA breaks, or SSB, either leading to arrest of the cell cycle at G2 phase or development of double-strand DNA breaks, or DSB. Repair of CNDAC-induced DSB is dependent on the homologous recombination, or HR repair pathway. BRCA mutations in cancer cells are a cause of HR deficiency, making such cancer cells susceptible to cell death induced by sapacitabine.
In addition to these development programs, we are completing analysis of data from SEAMLESS, the Phase 3 study in AML, in the elderly, in an alternating schedule with decitabine and closing the last remaining clinical trial sites. Dependent on the outcome of this analysis, we will seek meetings with regulatory authorities to discussing potential regulatory submissions. In parallel we also plan to present SEAMLESS data at an oral presentation at the 59th American Society of Hematology Annual Meeting in Atlanta, Georgia.development:
● | Fadraciclib (formerly CYC065), a cyclin dependent kinase (CDK) inhibitor selectively targeting CDK2 and CDK9. Oral fadraciclib is currently being evaluated in mid-stage clinical trials in both patients with solid cancers and hematological malignancies. |
● | CYC140 is a novel, small molecule, selective and potent PLK-centric inhibitor, primarily targeting PLK1. We are currently planning a streamlined study with oral CYC140 in a broad range of solid tumors in multiple cohorts defined by cancer histology. |
● | Sapacitabine is a nucleoside analogue with a DNA damage response (DDR) mechanism. It is being evaluated as a combination therapy with venetoclax in patients with relapsed/refractory acute myeloid leukemia (AML). |
Cyclacel currently retains virtually all marketing rights worldwide to the compounds associated with the Company’s drug programs.
On July 21, 2017, the Company issued (i) 3,154,000 Class A Units for $2 per unit, each consistingTable of one share of the Company’s common stock, and a warrant to purchase one share of common stock (the “Class A Warrants”), and (ii) 8,872 Class B Units, each consisting of one share of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), and a warrant to purchase a number of shares of common stock equal to $1,000.00 divided by the conversion price (the “Class B Warrants”) for $1,000 per unit. The net proceeds to the Company were approximately $13,700,000, after deducting underwriting discounts, commissions and other estimated offering expenses. The Class A Units and Class B Units have no stand-alone rights and the shares of common stock, Series A Preferred Stock and the Class A and Class B Warrants comprising those units were immediately separable.Contents
Subsequent Events
On October 17 2017, 400 shares of Series A preferred stock were converted into 200,000 shares of common stock. 264 shares of Series A preferred stock remain outstanding and are convertible into 132,000 shares of common stock. On October 23 2017, 7,500 warrants connected with the July 2017 Underwritten Public Offering were exercised, resulting in cash proceeds of $15,000.
Results of Operations
Three And Six Months Ended SeptemberJune 30, 20162020 and 20172021
Results of Continuing Operations
Revenues
Revenues
for each of the three and six months ended June 30, 2020 and 2021 were $0.
The following table summarizes the components of ourfuture
There are no active collaboration, licensing, or clinical supply agreements and there will be no revenues for the three months ended September 30, 2016 and 2017 (in $000s, except percentages):foreseeable future.
| | Three Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Grant revenue | | $ | 205 | | | $ | - | | | $ | (205 | ) | | | (100 | ) |
We recognized $0.2 million and $0 in grant revenue for the three months ended September 30, 2016 and 2017, respectively, from the European Union and the Biomedical Catalyst of the United Kingdom government.
The future
We will not recognize further grant revenue for the CYC140 program, as the grant from the Biomedical Catalyst of the United Kingdom government ended in November 2016. Although we may apply for additional grants in 2017, we will not recognize grant revenue for the remainder of 2017 and we are not certain of our ability to obtain grant revenue in 2018.
Research and development expenses
From our inception, we have focused on drug discovery and development programs, with a particular emphasis on orally-available anticancer agents, and our research and development expenses have represented costs incurred to discover and develop novel small molecule therapeutics, including clinical trial costs for our CDK inhibitors,fadraciclib, CYC140, sapacitabine, and sapacitabine in combination with seliciclib. We have also incurred costs in the advancement of product candidates toward clinical and pre-clinicalpreclinical trials and the development of in-house research to advance our biomarker program and technology platforms. We expense all research and development costs as they are incurred. Research and development expenses primarily include:
| ·● | Clinical trial and regulatory-related costs; |
| ·● | Payroll and personnel-related expenses, including consultants and contract research;research organizations; |
| ·● | Preclinical studies and laboratory supplies and materials; |
| ·● | Technology license costs; and |
| ·● | Stock-based compensation; and |
| ● | Rent and facility expenses for our offices and laboratories. |
The following table provides information with respect to our research and development expenditures for the three and six months ended SeptemberJune 30, 20162020 and 20172021 (in $000s except percentages):
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | | Six Months Ended | | | | | |
| | June 30, | | Difference | | June 30, | | Difference |
| | 2020 | | 2021 | | $ | | % | | 2020 | | 2021 | | $ | | % |
Transcriptional Regulation (fadraciclib) | | $ | 856 | | $ | 2,776 | | $ | 1,920 | | 224 | | $ | 1,738 | | $ | 4,439 | | $ | 2,701 | | 155 |
Mitosis Regulation (CYC140) | | | 112 | | | 1,107 | | | 995 | | 888 | | | 272 | | | 1,785 | | | 1,513 | | 556 |
DNA Damage Response (sapacitabine) | | | 98 | | | 80 | | | (18) | | (18) | | | 84 | | | 173 | | | 89 | | 106 |
Other research and development programs and expenses | | | 97 | | | 138 | | | 41 | | 42 | | | 176 | | | 270 | | | 94 | | 53 |
Total research and development expenses | | $ | 1,163 | | $ | 4,101 | | $ | 2,938 | | 253 | | $ | 2,270 | | $ | 6,667 | | $ | 4,397 | | 194 |
| | Three Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Sapacitabine | | $ | 1,510 | | | $ | 603 | | | $ | (907 | ) | | | (60 | ) |
Other costs related to research and development programs, management and exploratory research | | | 899 | | | | 355 | | | | (544 | ) | | | (61 | ) |
Total research and development expenses | | $ | 2,409 | | | $ | 958 | | | $ | (1,451 | ) | | | (60 | ) |
Total research and development expenses for the three and six months ended June 30, 2021 represented 65%67% and 45%64% of our operating expenses respectively, an increase over respective comparative periods.
During both the three and six months ended June 30, 2021, the increase in expenditure for the three months ended September 30, 2016transcriptional regulation program relative to the respective comparative periods was due to clinical supply manufacturing and 2017, respectively.
Research and development expenditures decreased by $1.5 million from $2.4 millionopening of clinical trial sites for the three months ended September 30, 2016 to $1.0 million for the three months ended September 30, 2017.evaluation of fadraciclib in a Phase 1/2 solid tumor study. Research and development expenses relating to sapacitabine decreased by $0.9 million from $1.5 million forCYC140 increased during both the three and six months ended SeptemberJune 30, 2016 to $0.6 million for2021 as the three months ended September 30, 2017, primarily as a resultpre-clinical evaluation and clinical trial supply manufacturing of a reduction in expenditures associated with the SEAMLESS Phase 3 trial as clinical sites are closed.CYC140 progressed.
The future
We anticipate that overall research and development expendituresexpenses for the year ended December 31, 20172021 will decreaseincrease compared to the year ended December 31, 2016,2020 as we close the remainingprogress our clinical study sites for SEAMLESS. The timing and extent of any future SEAMLESS expenditure, including the possibility of registration submissions to regulatory authorities in Europe and the U.S., are dependent upon final clinical data and regulatory authority input.development programs.
General and administrative expenses
General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the general and administrative expenses for the three and six months ended SeptemberJune 30, 20162020 and 20172021 (in $000s except percentages):
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | Six Months Ended | | | | | |
| June 30, | | Difference | | June 30, | | Difference |
| 2020 | | 2021 | | $ | | % | | 2020 | | 2021 | | $ | | % |
Total general and administrative expenses | $ | 1,309 | | $ | 1,999 | | $ | 690 | | 53 | | $ | 2,626 | | $ | 3,738 | | $ | 1,112 | | 42 |
| | Three Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Total general and administrative expenses | | $ | 1,273 | | | $ | 1,154 | | | $ | (119 | ) | | | (9 | ) |
Total general and administration expenses for the three and six months ended June 30, 2021 represented 35%33% and 55%36% of our operating expenses forrespectively, a decrease over respective comparative periods.
During both the three and six months ended SeptemberJune 30, 2016 and 2017, respectively. General2021, the increase in general and administrative expenses remained relatively flat at $1.3was primarily due to a $0.4 million reverse premium in relation to assignation of the our lease facility in Dundee, Scotland and $1.2 million foran increase in legal, professional and recruitment costs relating to expansion of the three months ended September 30, 2016 and 2017.clinical team.
The future
We expect general and administrative expenditures for the year ended December 31, 20172021 to increase by approximately 12% compared to our expenditures for the year ended December 31, 20162020 due to remain relatively flat.lease assignation premium, legal, professional and recruitment costs.
Other income (expense), net
The following table summarizes other income (expense) for the three and six months ended SeptemberJune 30, 20162020 and 20172021 (in $000 except percentages):
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | Six Months Ended | | | | | |
| June 30, | | Difference | | June 30, | | Difference |
| 2020 | | 2021 | | $ | | % | | 2020 | | 2021 | | $ | | % |
Foreign exchange gains (losses) | $ | (2) | | $ | (13) | | $ | (11) | | 550 | | $ | 67 | | $ | (3) | | $ | (70) | | (104) |
Interest income | | 4 | | | 4 | | | — | | — | | | 32 | | | 8 | | | (24) | | (75) |
Other income, net | | 18 | | | 18 | | | — | | — | | | 835 | | | 144 | | | (691) | | (83) |
Total other income | $ | 20 | | $ | 9 | | $ | (11) | | (55) | | $ | 934 | | $ | 149 | | $ | (785) | | (84) |
| | Three Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Foreign exchange gains (losses) | | $ | 51 | | | $ | (22 | ) | | $ | (73 | ) | | | (143 | ) |
Interest income | | | 8 | | | | 30 | | | | 22 | | | | 275 | |
Other income, net | | | 18 | | | | 28 | | | | (10 | ) | | | (56 | ) |
Total other income | | $ | 77 | | | $ | 36 | | | $ | (41 | ) | | | (53 | ) |
Foreign exchange gains (losses)
Foreign exchange gains (losses) decreased by approximately $73,000 from a gainTable of $51,000Contents
The decrease in total other income for the threesix months ended SeptemberJune 30, 2016,2021 is related to royalties receivable under a lossDecember 2005 Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by the Company in March 2006) sold certain assets and intellectual property to ThermoFisher Scientific Company, or TSC (formerly Invitrogen Corporation) through the APA and other related agreements. The assets and technology were not part of $22,000 forthe Company’s product development plan following the transaction between Xcyte and Cyclacel in March 2006. Accordingly, the company recognized $18,000 and $144,000 of other income arising from sales related to this transaction during the three and six months ended SeptemberJune 30, 2017.2021, respectively. We have no knowledge of TSC’s activities and cannot predict when we may receive income under the APA, if any.
The future
Other income (expense), net for the year ended December 31, 20172021, will continue to be impacted by changes in foreign exchange rates and the receipt of income under the Asset Purchase Agreement, or APA, with Life Technologies Corporation, or LTC, (formerly Invitrogen Corporation), in respect of certain assets and intellectual property owned by Xcyte Therapies, Inc., or Xcyte, and sold to LTC in December 2005. The assets and technology were not part of our product development plan following the transaction between Xcyte and Cyclacel in March 2006.APA. As we are not in control of sales made by LTCTSC, we are unable to estimate the level and timing of income under the APA, if any.
Because the nature of funding advanced through intercompany loans is that of a long-term investment, in nature, unrealized foreign exchange gains and losses on such funding will be recognized in other comprehensive income until repayment of the intercompany loan becomes foreseeable.
Income tax benefit
Credit is taken for research and development tax credits, which are claimed from the United Kingdom’s revenue and customs authority, or HMRC, in respect of qualifying research and development costs incurred.
The following table summarizes total income tax benefit for the three and six months ended SeptemberJune 30, 20162020 and 20172021 (in $000s except percentages):
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | Six Months Ended | | | | | |
| June 30, | | Difference | | June 30, | | Difference |
| 2020 | | 2021 | | $ | | % | | 2020 | | 2021 | | $ | | % |
Total income tax benefit | $ | 286 | | $ | 964 | | $ | 678 | | 237 | | $ | 576 | | $ | 1,651 | | $ | 1,075 | | 187 |
| | Three Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Total income tax benefit | | $ | 454 | | | $ | 219 | | | $ | (235 | ) | | | (52 | ) |
The total income tax benefit which is comprised ofcomprises research and development tax credits recoverable, decreased by $0.2 million from an income tax benefit of $0.5 million for the three months ended September 30, 2016 to an income tax benefit of $0.2 million for the three months ended September 30, 2017.recoverable. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one year.year and the availability of trading losses.
The future
We expect to continue to be eligible to receive United Kingdom research and development tax credits for the foreseeable future and will continue to elect to do so.receive payment of the tax credit. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur. Weincur and could be restricted by any future cap introduced by UK taxation authorities. As we expect our qualifying research and development expenditureeligible expenses to decrease forbe higher in the fiscal year ended December 31, 2017 in comparison to2021, the year ended December 31, 2016.
Nine Months Ended September 30, 2016 and 2017
Results of Continuing Operations
Revenues
The following table summarizes the components of our revenues for the nine months ended September 30, 2016 and 2017 (in $000s, except percentages):
| | Nine Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Grant revenue | | $ | 566 | | | $ | - | | | $ | (566 | ) | | | (100 | ) |
We recognized $0.6 million and $0 in grant revenue for the nine months ended September 30, 2016 and 2017, respectively, from the European Union and the Biomedical Catalyst of the United Kingdom government.
The future
We will not recognize further grant revenue for the CYC140 program, as the grant from the Biomedical Catalyst of the United Kingdom government ended in November 2016. Although we may apply for additional grants in 2017, we will not recognize grant revenue for the remainder of 2017 and we are not certain of our ability to obtain grant revenue in 2018.
Research and development expenses
From our inception, we have focused on drug discovery and development programs, with a particular emphasis on orally-available anticancer agents, and our research and development expenses have represented costs incurred to discover and develop novel small molecule therapeutics, including clinical trial costs for our CDK inhibitors, sapacitabine and sapacitabine in combination with seliciclib. We have also incurred costs in the advancement of product candidates toward clinical and pre-clinical trials and the development of in-house research to advance our biomarker program and technology platforms. We expense all research and development costs as they are incurred. Research and development expenses primarily include:
| · | Clinical trial and regulatory-related costs; |
| · | Payroll and personnel-related expenses, including consultants and contract research; |
| · | Preclinical studies and laboratory supplies and materials; |
| · | Technology license costs; and |
| · | Rent and facility expenses for our laboratories. |
The following table provides information with respect to our research and development expenditures for the nine months ended September 30, 2016 and 2017 (in $000s except percentages):
| | Nine Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Sapacitabine | | $ | 5,206 | | | $ | 2,331 | | | $ | (2,875 | ) | | | (55 | ) |
Other costs related to research and development programs, management and exploratory research | | | 2,339 | | | | 1,160 | | | | (1,179 | ) | | | (50 | ) |
Total research and development expenses | | $ | 7,545 | | | $ | 3,491 | | | $ | (4,054 | ) | | | (54 | ) |
Total research and development expenses represented 65% and 48% of our operating expenses for the nine months ended September 30, 2016 and 2017, respectively.
Research and development expenditures decreased by $4.1 million from $7.5 million for the nine months ended September 30, 2016 to $3.5 million for the nine months ended September 30, 2017. Research and development expenses relating to sapacitabine decreased by $2.9 million from $5.2 million for the nine months ended September 30, 2016 to $2.3 million for the nine months ended September 30, 2017, primarily as a result of a reduction in expenditures associated with the SEAMLESS Phase 3 trial as clinical sites are closed.
The future
We anticipate that overall research and development expenditures for the year ended December 31, 2017 will decrease compared to the year ended December 31, 2016, as we close the remaining clinical study sites for SEAMLESS. The timing and extent of any future SEAMLESS expenditure, including the possibility of registration submissions to regulatory authorities in Europe and the U.S., are dependent upon final clinical data.
General and administrative expenses
General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the general and administrative expenses for the nine months ended September 30, 2016 and 2017 (in $000s except percentages):
| | Nine Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Total general and administrative expenses | | $ | 4,002 | | | $ | 3,802 | | | $ | (200 | ) | | | (5 | ) |
Total general and administration expenses represented 35% and 52% of our operating expenses for the nine months ended September 30, 2016 and 2017, respectively. General and administrative expenses remained flat at $4.0 million and $3.8 million for the nine months ended September 30, 2016 and 2017, respectively.
The future
We expect general and administrative expenditures for the year ended December 31, 2017 compared to our expenditures for the year ended December 31, 2016 to remain relatively flat.
Other income (expense), net
The following table summarizes other income (expense) for the nine months ended September 30, 2016 and 2017 (in $000 except percentages):
| | Nine Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Foreign exchange gains / (losses) | | $ | 369 | | | $ | (65 | ) | | $ | (434 | ) | | | (118 | ) |
Interest income | | | 31 | | | | 59 | | | | 28 | | | | 90 | |
Other income, net | | | 56 | | | | 907 | | | | 851 | | | | 1,520 | |
Total other income | | $ | 456 | | | $ | 901 | | | $ | 445 | | | | 98 | |
Total other income increased by approximately $0.4 million, from $0.5 million for the nine months ended September 30, 2016 to $0.9 million for the nine months ended September 30, 2017. The increase in other income is primarily related to income received under the APA with LTC, in respect of certain assets and intellectual property owned by Xcyte, and sold to LTC in December 2005. The assets and technology were not part of our product development plan following the transaction between Xcyte and Cyclacel in March 2006. We have no knowledge of LTC’s activities and cannot predict when we may receive income under the APA, if any.
Foreign exchange gains
Foreign exchange gains decreased by approximately $0.4 million, from a gain of $0.4 million for the nine months ended September 30, 2016, to a loss of $65,000 for the nine months ended September 30, 2017.
The future
Other income (expense), net for the year ended December 31, 2017 will continue to be impacted by changes in foreign exchange rates and the receipt of income under the APA. As we are not in control of sales made by LTC we are unable to estimate the level and timing of income under the APA, if any.
Because the nature of funding advanced through intercompany loans is that of a long-term investment in nature, unrealized foreign exchange gains and losses on such funding will be recognized in other comprehensive income until repayment of the intercompany loan becomes foreseeable.
Income tax benefit
Credit is taken for research and development tax credits, which are claimed from the United Kingdom’s revenue and customs authority, or HMRC, in respect of qualifying research and development costs incurred.
The following table summarizes total income tax benefit for the nine months ended September 30, 2016 and 2017 (in $000s except percentages):
| | Nine Months Ended September 30, | | | Difference | |
| | 2016 | | | 2017 | | | $ | | | % | |
Total income tax benefit | | $ | 1,573 | | | $ | 793 | | | $ | (780 | ) | | | (50 | ) |
The total income tax benefit, which comprised of research and development tax credits recoverable, decreased by $0.8 million from an income tax benefit of $1.6 million for the nine months ended September 30, 2016 to an income tax benefit of $0.8 million for the nine months ended September 30, 2017. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one year.
The future
We expect to continueanticipated to be eligiblehigher in 2021 compared to receive United Kingdom research and development tax credits for the foreseeable future and will elect to do so. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur. We expect our qualifying research and development expenditure to decrease for thefiscal year ended December 31, 2017 in comparison to the year ended December 31, 2016.2020.
Liquidity and Capital Resources
The following is a summary of our key liquidity measures as of SeptemberJune 30, 20162020 and 20172021 (in thousands)$000s):
| | | | | | |
| | |
| | June 30, |
| | 2020 | | 2021 |
Cash and cash equivalents | | $ | 25,342 | | $ | 43,639 |
Working capital: | | | | | | |
Current assets | | $ | 27,933 | | $ | 46,203 |
Current liabilities | | | (1,512) | | | (3,118) |
Total working capital | | $ | 26,421 | | $ | 43,085 |
| | Nine Months Ended September 30, | |
| | 2016 | | | 2017 | |
Cash and cash equivalents | | $ | 18,029 | | | $ | 26,025 | |
Working capital: | | | | | | | | |
Current assets | | | 22,579 | | | | 27,817 | |
Current liabilities | | | (5,570 | ) | | | (4,265 | ) |
Total working capital | | $ | 17,009 | | | $ | 23,552 | |
Since our inception, we have relied primarily on the proceeds from sales of common and preferred equity securities to finance our operations and internal growth. Additional funding has come through research and development tax credits, government grants, the sale of product rights, interest on investments and licensing revenue, and a limited amount of product revenue from operations discontinued in September 2012.revenue. We have incurred significant losses since our inception. The increase in the cash balance during the year is primarily as a result of the approximately $13.7 million in net proceeds from the July 2017 underwritten public offering. As of SeptemberJune 30, 2017,2021, we had an accumulated deficit of $340.6$374.7 million.
Cash Flows
Cash used in operating, investing and financing activities for the ninesix months ended SeptemberJune 30, 20162020 and 20172021 is summarized as follows (in thousands)$000s):
| | | | | | |
| | Six Months Ended June 30, |
| | 2020 | | 2021 |
Net cash used in operating activities | | $ | (4,653) | | $ | (7,781) |
Net cash (used in) investing activities | | | (4) | | | (16) |
Net cash provided by financing activities | | | 18,206 | | | 17,946 |
| | Nine months ended | |
| | September 30, | |
| | 2016 | | | 2017 | |
Net cash used in operating activities | | $ | (7,136 | ) | | $ | (5,260 | ) |
Net cash used in investing activities | | | — | | | | (11 | ) |
Net cash provided by financing activities | | | 5,091 | | | | 14,600 | |
Operating activities
Net cash used in operating activities decreasedincreased by $1.9$3.1 million, from $7.1$4.7 million for the ninesix months ended SeptemberJune 30, 20162020 to $5.3$7.8 million for the ninesix months ended SeptemberJune 30, 2017.2021. The decreaseincrease in cash used by operating activities was primarily the result of a reductionan increase in net loss of $3.3$5.1 million, offset by a change in working capital of $1.7$1.5 million, increase of stock compensation expense of $0.4 million and stock compensationchange in lease liability of $0.4$0.2 million.
Investing activities
Net cash used inby investing activities increased by $11,000 as a result of$12,000 for the six months ended June 30, 2021 predominantly due to increased capital expenditureexpenditures on IT equipment.IT.
Financing activities
Net cash provided by financing activities was $14.6$17.9 million for the ninesix months ended SeptemberJune 30, 2017, primarily2021 as a direct result of thereceiving approximately $13.7 million in net proceeds from the July 2017 underwritten public offering andapproximately $1.1$13.5 million in net proceeds from the issuance of common stock under the FBR Sales Agreement entered into in June 2016an underwriting agreement with Oppenheimer & Co. Inc., and approximately $4.5 million from warrant exercises associated with a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC, offset by dividend payments of approximately $0.2$0.1 million to the holders of our 6% Preferred Stock.
Net cash provided by financing activities was $5.1$18.2 million for the ninesix months ended SeptemberJune 30, 2016, primarily2020 as a direct result of receiving approximately $5.1$18.3 million in net proceeds from the issuance of common stock and accompanying common stock warrants under the FBR Sales Agreement entered into in June 2016a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and approximately $0.2 million in net proceeds fromBrookline Capital Markets, aControlled Equity OfferingSM Sales Agreement withCantor Fitzgerald & Coentered into in July 2015 division of Arcadia Securities, LLC, offset by dividend payments of approximately $0.2$0.1 million to the holders of our 6% Preferred Stock.
Operating Capital and Capital Expenditure Requirements
We expect to continue to incur substantial operating losses in the future and cannot guarantee that we will generate any significant product revenues until a product candidate has been approved by the FDAFood and Drug Administration (“FDA”) or European Medicines Agency (“EMA”) in other countries and successfully commercialized.
We believe that existing funds together with cash generated from operations, such as recent financing activities and the R&D tax credit, and recent financing activities, are sufficient to satisfy our planned working capital, capital expenditures and other financial commitments through 2019.to early 2023. However, we do not currently have sufficient funds to complete development and commercialization of any of our drug candidates. Current business and capital market risks could have a detrimental effect on the availability of sources of funding and our ability to access them in the future, which may delay or impede our progress of advancing our drugs currently in the clinical pipeline to approval by the FDA or EMA for commercialization. Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.
Our future funding requirements will depend on many factors, including but not limited to:
| ● | the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities; |
| ● | the costs associated with establishing manufacturing and commercialization capabilities; |
| ● | the extent to which the coronavirus impacts the Company’s financial condition and operations, which will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease; |
| ● | the costs of acquiring or investing in businesses, product candidates and technologies; |
| ● | the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; |
| ● | the costs and timing of seeking and obtaining FDA and EMA approvals; |
| ● | the effect of competing technological and market developments; and |
| ● | the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter. |
the costs associated with establishing manufacturing and commercialization capabilities;
the costs of acquiring or investing in businesses, product candidates and technologies;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
the costs and timing of seeking and obtaining FDA and EMA approvals;
the effect of competing technological and market developments; and
the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter.
Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. Although we are not reliant on institutional credit finance and therefore not subject to debt covenant compliance requirements or potential withdrawal of credit by banks, we are reliant on the availability of funds and activity in equity markets. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs or make changes to our operating plan. In addition, we may have to partner one or more of our product candidate programscandidates at an earlier stage of development, which would lower the economic value of those programs to us.At this time, the Company is unable to estimate the impact of the COVID-19 pandemic on its financial condition or operations, but it could materially affect the ability of the Company to raise future capital or to conduct clinical studies on a timely basis.
Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk
As a smaller reporting company, we are not required to provide information in response to this item.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness, as of SeptemberJune 30, 2017,2021, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon such evaluation, our chief executive officer and principal financial and accounting officer have concluded that, as of SeptemberJune 30, 2017,2021, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the Securities and Exchange Commission, or SEC, under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Overover Financial Reporting
There have beenwere no significant changes made in our internal controls over financial. The recent ‘stay at home’ orders issued by the United States, United Kingdom and overseas governments in the global fight against the coronavirus pandemic has not resulted in any significant changes in our internal controlcontrols over financial reporting during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure youensure that such improvements will be sufficient to provide us with effective internal control over financial reporting.
PART II. Other Information
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2020. For a further discussion of our Risk Factors, refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Controlled Equity Offering Sales Agreement
None.
In June 2019, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (the “SEC”) which was declared effective by the SEC on June 21, 2019 (the “Form S-3”). On August 12, 2021, and pursuant to the Form S-3, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. ("Cantor"), pursuant to which it may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $50.0 million through Cantor as the sales agent. Cantor may sell the Company’s common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act.
24 Subject to the terms and conditions of the Sales Agreement, Cantor will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon the Company's instructions, including any price, time or size limits specified by the Company. The Company has provided Cantor with customary indemnification rights, and Cantor will be entitled to a commission at a fixed commission rate equal to 3.0% of the gross proceeds per share sold. The Company has no obligation to sell any of the shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement. The Sales Agreement will terminate upon the sale of all of the shares under the Sales Agreement unless terminated earlier by either party as permitted under the Sales Agreement.
Item 6. Exhibits
3.1Exhibit Number |
| Certificate of Designation of Series A Preferred Stock, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S-1 (No. 333-218305) effective July 28, 2017.Description |
1.1* | | |
4.1
| | FormControlled Equity Offering Sales Agreement, dated as of Warrant to purchase shares ofAugust 12, 2021, by and among Cyclacel Pharmaceuticals, Inc. Common Stock, incorporated herein by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 (No. 333-218305) effective July 28, 2017.and Cantor Fitzgerald & Co. |
5.1* | | Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. |
31.110.1
| | Employment Agreement between Cyclacel Pharmaceuticals, Inc. and Spiro Rombotis. |
10.2 | | Employment Agreement between Cyclacel Pharmaceuticals, Inc. and Paul McBarron. |
23.1* 31.1* | | Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (Included in Exhibit 5.1) Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a) As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* | | |
31.2
| | Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a) As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* | | |
32.1
| | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2* | | |
32.2
| | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | | |
101 | | The following materials from Cyclacel Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for the period ended SeptemberJune 30, 2017,2021, formatted in XBRL (ExtensibleiXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements. |
104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101). |
| * | Filed herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
| | | |
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| CYCLACEL PHARMACEUTICALS, INC. |
| | | |
Date: November 13, 2017August 12, 2021 | By: | By: | /s/ Paul McBarron |
| | | Paul McBarron |
| | | Chief Operating Officer, Chief Financial Officer and Executive Vice President, Finance |