CYCLERION THERAPEUTICS, INC. Forward-Looking Information
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the corresponding notes included in this Quarterly Report on Form 10-Q, as well as the audited condensed consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, for the fiscal year endedDecember 31, 2021 . This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those referenced or set forth under "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing innovative medicines for people with serious diseases of the CNS, including cognitive and neurodegenerative disorders. Our current lead asset, CY6463, is a pioneering CNS-penetrant sGC stimulator in clinical development for ADv, CIAS, and MELAS. sGC stimulators are small molecules that act synergistically with NO on sGC to boost production of cyclic guanosine monophosphate, or cGMP. cGMP is a key second messenger that, when produced by sGC, regulates diverse and critical biological functions in the CNS including blood flow and vascular dynamics, inflammatory and fibrotic processes, bioenergetics, metabolism and neuronal function.
We operate in one reportable business segment-human therapeutics.
Financial Overview
Research and Development Expense. Research and development expenses are incurred in connection with the discovery and development of our product candidates. These expenses consist primarily of the following costs: compensation, benefits and other employee-related expenses, research and development related facilities, third-party contracts relating to nonclinical study and clinical trial activities. All research and development expenses are charged to operations as incurred. CNS assets. The core of our portfolio is CY6463, an orally administered CNS-penetrant sGC stimulator that is being developed as a symptomatic and potentially disease-modifying therapy for CNS diseases associated with cognitive impairment. NO-sGC-cGMP is a fundamental signaling network, that is widely used in the nervous system. CY6463 enhances the brain's natural ability to produce cGMP, an important second messenger in the CNS, by stimulating sGC, a key node in the NO-sGC-cGMP pathway. This pathway is critical to basic CNS functions, and deficient NO-sGC-cGMP signaling is believed to play an important role in the pathogenesis of many CNS diseases. Agents that stimulate sGC to produce cGMP may compensate for deficient NO signaling. InJanuary 2020 , we announced positive results from our Phase 1 first-in-human study that provided the foundation for continued development of CY6463. The results from this study indicate that CY6463 was well tolerated. Pharmacokinetic data, obtained from both blood and cerebral spinal fluid, support once-daily dosing with or without food and demonstrated CY6463 penetration of the blood-brain-barrier with CSF concentrations expected to be pharmacologically active. InOctober 2020 , we announced positive topline results from our CY6463 Phase 1 translational pharmacology study in healthy elderly participants. Treatment with CY6463 for 15 days in this 24-subject study confirmed and extended results seen in the earlier first-in-human Phase 1 study: once-daily oral treatment demonstrated blood-brain-barrier penetration with expected CNS exposure and target engagement. Results also showed significant improvements in neurophysiological and objective performance measures as well as in inflammatory biomarkers associated with aging and neurodegenerative diseases. CY6463 was safe and generally well tolerated in this study. Significant effects on cerebral blood flow and markers of bioenergetics were not observed in this study of healthy elderly participants. We believe that these results, together with nonclinical data, support continued development of CY6463 as a potential new medicine for serious CNS diseases. 21 -------------------------------------------------------------------------------- InJune 2022 , we announced positive topline clinical data for CY6463 in our signal-seeking clinical study for the potential treatment of MELAS. In this open-label, single-arm study of the oral, once-daily sGC stimulator in eight adults aged 18 or older, improvements were seen across a range of assessments, including mitochondrial disease-associated biomarker such as lactate and GDF-15, a broad panel of inflammatory biomarkers, cerebral blood flow, and functional connectivity between neural networks. These positive effects after 29 days of dosing were supported by correlations across several endpoints. CY6463 was well tolerated with no adverse events and pharmacokinetics were consistent with the Phase 1 study in healthy volunteers. The positive data from this study further support the potential of CY6463 to provide therapeutic benefit to people living with MELAS. InJuly 2022 , we announced positive topline data from our signal-seeking clinical study of CY6463 for the treatment of CIAS in individuals with stable schizophrenia on a stable, single, atypical antipsychotic regimen. Data from the 14-day, double blind, randomized, placebo-controlled, multiple-ascending-dose study in 48 adults aged 18-50 demonstrate that once-daily CY6463 was safe and well tolerated, with no reports of serious adverse events ("SAEs"), severe adverse events ("AEs"), or treatment discontinuation due to AEs. Study data demonstrate a strong effect on cognitive performance after two weeks of 15mg once-daily dosing. Positive movement on inflammatory biomarkers was also observed. These signals on exploratory endpoints provide further evidence of the pro-cognitive and anti-inflammatory effects of CY6463 observed in preclinical studies and prior clinical trials. Study data demonstrate the translation of sGC multi-dimensional pharmacology and the therapeutic potential of amplifying sGC signaling in the CNS and support the further development of oral, once-daily CY6463. We have an ongoing signal-seeking clinical study of CY6463 for the potential treatment of ADv. The ADv study will be supported in part by a grant from theAlzheimer's Association's Part the Cloud-Gates Partnership Grant Program, which provides Cyclerion with$2 million of funding over two years.
Our next-generation CNS asset, CY3018, is a differentiated CNS-penetrant sGC stimulator with greater CSF-to-plasma exposure relative to CY6463 based on nonclinical studies. CY3018 is intended to expand the potential of sGC stimulation for the treatment of disorders of the CNS.
Non-CNS assets. We have other assets that are outside of our current strategic focus. These non-core assets are not being internally developed at this time. Praliciguat is an orally administered, once-daily systemic sGC stimulator. OnJune 3, 2021 , we entered into the License Agreement with Akebia relating to the exclusive worldwide license to Akebia of our rights to the development, manufacture, medical affairs and commercialization of pharmaceutical products containing the pharmaceutical compound praliciguat and other related products and forms thereof enumerated in such agreement. Olinciguat is an orally administered, once-daily, vascular sGC stimulator that was evaluated in a Phase 2 study of participants with sickle cell disease. We released topline results from this study inOctober 2020 . Olinciguat is available for licensing to a third-party partner. The following table summarizes our research and development expenses, employee and facility related costs allocated to research and development expense, and discovery and pre-clinical phase programs, for the three and six months endedJune 30, 2022 and 2021. The product pipeline expenses relate primarily to external costs associated with nonclinical studies and clinical trial costs, which are presented by development candidates. Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in thousands) (in thousands) Product pipeline external costs: CY6463$ 5,047 $ 3,012 $ 9,532 $ 3,876 CY3018 1,463 606 2,396 606 Discovery research 220 - 366 700 Total product pipeline external costs 6,730 3,618 12,294 5,182 Personnel and related internal costs 2,703 2,488 5,987 6,312 Facilities and other 785 5,948
1,680 8,652
Total research and development expenses
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Securing regulatory approvals for new drugs is a lengthy and costly process. Any
failure by us to obtain, or any delay in obtaining, regulatory approvals would
materially adversely affect our product development efforts and our business
overall.
Given the inherent uncertainties of pharmaceutical product development, we
cannot estimate with any degree of certainty how our programs will evolve, and
therefore the amount of time or money that would be required to obtain
regulatory approval to market them. As a result of these uncertainties
surrounding the timing and outcome of any approvals, we are currently unable to
estimate precisely when, if ever, our discovery and development candidates will
be approved. We invest carefully in our pipeline, and the commitment of funding
for each subsequent stage of our development programs is dependent upon the
receipt of clear, supportive data.
The successful development of our product candidates is highly uncertain and subject to a number of risks including, but not limited to:
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The full impact of COVID-19 pandemic continues to develop and could continue to adversely affect our programs and operations, including our clinical trials, corporate development, and other activities. Cyclerion works closely with its clinical trial sites and investigators to deliver trials in a manner consistent with the safety of study participants and healthcare professionals.
•
The duration of clinical trials may vary substantially according to the type and complexity of the product candidate and may take longer than expected.
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There is substantial doubt regarding our ability to continue as a going concern. We will need to raise additional financing in upcoming periods, which may not be available on acceptable terms, or at all. Failure to obtain necessary capital when needed may force us to delay, limit or terminate our development efforts or other operations.
•
The United States FDA and comparable agencies outsidethe United States . impose substantial and varying requirements on the introduction of therapeutic pharmaceutical products, which typically require lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures.
•
Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.
•
The duration and cost of discovery, nonclinical studies and clinical trials may vary significantly over the life of a product candidate and are difficult to predict.
•
The costs, timing and outcome of regulatory review of a product candidate may not be favorable, and, even if approved, a product may face post-approval development and regulatory requirements.
•
The emergence of competing technologies and products and other adverse market developments may reduce or eliminate the potential value of our pipeline.
As a result of the factors listed in the "Risk Factors" section in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , and elsewhere in this Quarterly Report on Form 10-Q, we are unable to determine the duration and costs to complete current or future nonclinical and clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of our product candidates. Development timelines, probability of success and development costs vary widely. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the data from the studies of each product candidate, the competitive landscape and ongoing assessments of such product candidate's commercial potential. General and Administrative Expense. General and administrative expense consists primarily of compensation, benefits and other employee-related expenses for personnel in our administrative, finance, legal, information technology, business development, and human resource functions. Other costs include the legal costs of pursuing patent protection of our intellectual property, general and administrative related facility costs, insurance costs and professional fees for accounting and legal services. We record all general and administrative expenses as incurred. 23 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with GAAP. The preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the amounts of expenses during the reported periods. We base our estimates on our historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from our estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in which they become known. We believe that our application of accounting policies requires significant judgments and estimates on the part of management and is the most critical to aid in fully understanding and evaluating our reported financial results. Our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements elsewhere in this Quarterly Report on Form 10-Q. All research and development expenses are expensed as incurred. We defer and capitalize nonrefundable advance payments we make for research and development activities until the related goods are received or the related services are performed. A discussion of our critical accounting policies and estimates may be found in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading Critical Accounting Policies and Estimates.
Results of Operations
The revenue and expenses reflected in the consolidated financial statements may
not be indicative of revenue and expenses that will be incurred by us in the
future. The following discussion summarizes the key factors we believe are
necessary for an understanding of our consolidated financial statements.
Revenues and Expenses
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands) (dollars in thousands)
Revenues:
Revenue from
license agreement $ - $ 3,000 $ (3,000 ) (100 )% $ - $ 3,000 $ (3,000 ) (100 )%
Revenue from
development
agreement 72 - 72 100 % 297 62 235 379 %
Revenue from grants 234 - 234 100 % 720 - 720 100 %
Total revenues 306 3,000 (2,694 ) (90 )% 1,017 3,062 (2,045 ) (67 )%
Cost and expenses:
Research and
development 10,218 12,054 (1,836 ) (15 )% 19,961 20,146 (185 ) (1 )%
General and
administrative 3,521 6,241 (2,720 ) (44 )% 7,473 11,606 (4,133 ) (36 )%
Loss on lease
termination - 881 (881 ) (100 )% - 881 (881 ) (100 )%
Total cost and
expenses 13,739 19,176 (5,437 ) (28 )% 27,434 32,633 (5,199 ) (16 )%
Loss from
operations (13,433 ) (16,176 ) 2,743 (17 )% (26,417 ) (29,571 ) 3,154 (11 )%
Interest and other
income (expenses),
net 45 (6 ) 51 (850 )% 51 (10 ) 61 (610 )%
Net loss $ (13,388 ) $ (16,182 ) $ 2,794 (17 )% $ (26,366 ) $ (29,581 ) $ 3,215 (11 )%
Revenues. The decrease in revenue of approximately $2.7 million for the three
months ended June 30, 2022 , compared to the three months ended June 30, 2021 ,
can be attributed primarily to $3.0 million up-front payment from the License
Agreement received in the three months ended June 30, 2021 , offset by
approximately $0.2 million associated with the PTC Grant and approximately $0.1
million of revenue generated from the Akebia Supply Agreement in the three
months ended June 30, 2022 .
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The decrease in revenue of approximately $2.0 million for the six months ended
June 30, 2022 compared to the six months ended June 30, 2021 can be attributed
to $3.0 million up-front payment from the License Agreement in the six months
ended June 30, 2021 , offset by approximately $0.7 million associated with the
PTC Grant and approximately $0.3 million of revenue generated from the Akebia
Supply Agreement in the six months ended June 30, 2022 .
Research and development expense. The decrease in research and development
expense of approximately $1.8 million for the three months ended June 30, 2022
compared to the three months ended June 30, 2021 was driven by a decrease of
approximately $5.1 million in facilities and operating costs allocated to
research and development primarily related to approximately $4.2 million of
non-cash write-off of leasehold improvements related to the Termination
Agreement, and approximately $0.9 million reduction in the Company's total
leased premises cost, offset by an increase of $0.2 million in salaries,
stock-based compensation and other employee-related expenses, and by a net
increase of approximately $3.1 million in external research costs which was
driven by an increase of approximately $2.0 million associated with the CIAS and
ADv clinical trials, and approximately $1.3 million for CY3018 costs, offset by
a decrease of approximately $0.2 million in discovery research.
The decrease in research and development expense of approximately $0.2 million
for the six months ended June 30, 2022 compared to the six months ended June 30,
2021 was driven by a decrease of approximately $7.0 million in facilities and
operating costs allocated to research and development primarily due to
approximately $4.2 million of non-cash write-off of leasehold improvements
related to the Termination Agreement, approximately $2.8 million reduction in
the Company's total leased premises cost, and a decrease of approximately $0.3
million in salaries, stock-based compensation and other employee-related
expenses, offset by a net increase of approximately $7.1 million in external
research costs. The increase in external research costs was primarily due to
approximately $5.6 million associated with the CIAS and ADv clinical trials, and
approximately $2.2 million for CY3018 costs, offset by a decrease of
approximately $0.7 million in discovery research.
General and administrative expense. The decrease in general and administrative
expenses of approximately $2.7 million for the three months ended June 30, 2022
compared to the three months ended June 30, 2021 was primarily driven by a
decrease of approximately $2.1 million in facilities and operating costs,
primarily due to $2.1 million of non-cash write off of leasehold improvements in
2021 related to the Termination Agreement, a decrease of approximately $0.5
million in stock-based compensation, and approximately $0.1 million related to
salary expense.
The decrease in general and administrative expenses of approximately $4.1
million for the six months ended June 30, 2022 compared to the six months ended
June 30, 2021 was primarily driven by a decrease of approximately $2.5 million
in facilities and operating costs, primarily due to $2.1 million of non-cash
write off of leasehold improvements in 2021 related to the Termination Agreement
and $0.4 million reduction in the Company's total leased premises costs, a
decrease of approximately $0.9 million in stock-based compensation, and
approximately $0.7 million in salaries and other employee-related costs.
Loss on lease termination. No loss was recorded in the three months ended June
30, 2022 , compared to a loss on lease modification of $0.9 million recorded in
the three months ended June 30, 2021 related to the Termination Agreement to the
Head Lease of 301 Binney Street in Cambridge, Massachusetts that was executed on
April 30, 2021 .
Interest and other income (expenses), net. Interest and other income increased
by approximately $0.1 million for the three months ended June 30, 2022 compared
to the three months ended June 30, 2021 due to an increase in interest rates.
Interest and other income increased by approximately $0.1 million for the six
months ended June 30, 2022 compared to the six months ended June 30, 2021 due to
an increase of approximately $0.1 million in interest income driven by higher
interest rates.
Liquidity and Capital Resources
Cyclerion has raised approximately
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On September 3, 2020 , the Company entered into the Sales Agreement with
Jefferies with respect to the ATM Offering under the Shelf. Under the ATM
Offering, the Company may offer and sell, from time to time at its sole
discretion, shares of its common stock, having an aggregate offering price of up
to $50.0 million through Jefferies as its sales agent. The Company will pay to
Jefferies cash commissions of 3.0 percent of the gross proceeds of sales of
common stock under the Sales Agreement. The Company has sold 3,353,059 shares of
its common stock for net proceeds of $12.5 million under the ATM Offering since
entering into the Sales Agreement, with no shares of common stock issued or sold
under the ATM Offering during the six months ended June 30, 2022 .
On June 7, 2021 , we closed on a private placement of 5,735,988 shares of our
common stock, pursuant to a Common Stock Purchase Agreement, for total gross
proceeds of approximately $18 million . There were no material fees or
commissions related to the transaction. The Company intends to use the proceeds
to fund working capital and other general corporate purposes.
Our ability to continue to fund our operations and meet capital needs will
depend on our ability to generate cash from operations and access to capital
markets and other sources of capital, as further described below. We anticipate
that our principal uses of cash in the future will be primarily to fund our
operations, working capital needs, capital expenditures and other general
corporate purposes.
On June 30, 2022 , we had approximately $30.3 million of unrestricted cash and
cash equivalents. Our cash equivalents include amounts held in U.S. government
money market funds. We invest cash in excess of immediate requirements in
accordance with our investment policy, which requires all investments held by us
to be at least "AAA" rated or equivalent, with a remaining final maturity when
purchased of less than twelve months, so as to primarily achieve liquidity and
capital preservation.
Continued Nasdaq Listing
On June 1, 2022 , the Company received a notice from the Nasdaq Stock Market
("Nasdaq") notifying the Company that, for the last 30 consecutive business
days, the closing bid price for the Company's common stock listed on Nasdaq has
been below the minimum $1.00 per share required for continued listing on the
Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the "Bid
Price Requirement"). The Nasdaq deficiency letter has no immediate effect on the
listing of the Company's common stock, and its common stock will continue to
trade on The Nasdaq Global Select Market under the symbol "CYCN" at this time.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been
provided a period of 180 calendar days, or until November 28, 2022 , to regain
compliance with the Bid Price Requirement. If at any time before November 28,
2022 , the bid price of the Company's common stock closes at a $1.00 per share or
more for a minimum of 10 consecutive business days, Nasdaq will provide written
notification to the Company that it has regained compliance with the Bid Price
Requirement. In the event the Company does not regain compliance with the Bid
Price Requirement by November 28, 2022 , the Company may be afforded an
additional 180-day compliance period, provided it demonstrates that it meets all
other applicable standards for initial listing on the Nasdaq Capital Market,
except the Bid Price Requirement. If the Company does not regain compliance with
the Bid Price Requirement by the end of the second compliance period, the
Company's stock will be subject to delisting.
The Company intends to monitor the closing bid price of its common stock and
may, if appropriate, consider available options to regain compliance with the
Bid Price Requirement, including initiating a reverse stock split. However,
there can be no assurance that the Company will be able to regain compliance
with the Bid Price Requirement or will otherwise be in compliance with other
Nasdaq Listing Rules.
Going Concern
The Company evaluated whether there are conditions and events, considered in the
aggregate, that raise substantial doubt about its ability to continue as a going
concern within one year after the date that these consolidated financial
statements are issued. This evaluation initially does not take into
consideration the potential mitigating effect of management's plans that have
not been fully implemented as of the date the financial statements are issued.
When substantial doubt exists under this methodology, management evaluates
whether the mitigating effect of its plans sufficiently alleviates substantial
doubt about the Company's ability to continue as a going concern. The mitigating
effect of management's plans, however, is only considered if both (1) it is
probable that the plans will be effectively implemented within one year after
the date that the financial statements are issued, and (2)
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it is probable that the plans, when implemented, will mitigate the relevant
conditions or events that raise substantial doubt about the entity's ability to
continue as a going concern within one year after the date that these
consolidated financial statements are issued. In performing its analysis,
management excluded certain elements of its operating plan that cannot be
considered probable. Under ASC 205-40, the future receipt of potential funding
from future partnerships, equity or debt issuances, the potential milestones
from the Akebia agreement and reductions in force cannot be considered probable
at this time because these plans are not entirely within the Company's control
and/or have not been approved by the Board of Directors as of the date of these
consolidated financial statements.
The Company's expectation to generate operating losses and negative operating
cash flows in the future and the need for additional funding to support its
planned operations raise substantial doubt regarding the Company's ability to
continue as a going concern for a period of one year after the date that these
consolidated financial statements are issued. Management's plans to alleviate
the conditions that raise substantial doubt include reduced spending, and the
pursuit of additional capital. Management has concluded the likelihood that its
plan to successfully obtain sufficient funding from one or more of these
sources, or adequately reduce expenditures, while reasonably possible, is less
than probable. Accordingly, the Company has concluded that substantial doubt
exists about the Company's ability to continue as a going concern for a period
of at least 12 months from the date of issuance of these consolidated financial
statements.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the ordinary course of business. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might result from the outcome of the uncertainties described above.
Cash Flows
The following is a summary of cash flows for the years endedJune 30, 2022 and 2021: Six Months Ended June 30, Change 2022 2021 $ % (dollars in thousands) Net cash used in operating activities$ (23,653 ) $ (19,964 ) $ (3,689 ) 18 % Net cash provided by investing activities $ -$ 1,464 $ (1,464 ) (100 )% Net cash provided by financing activities$ 17 $ 30,657 $ (30,640 ) (100 )%
Cash Flows from Operating Activities
Net cash used in operating activities was$23.7 million for the six months endedJune 30, 2022 compared to$20.0 million for the six months endedJune 30, 2021 . The increase in net cash used in operations of$3.7 million primarily relates to the non-cash leasehold improvement write off of$6.3 million in the prior year, the recording of non-cash loss on lease termination of$0.9 million in the prior year, and a decrease of stock-based compensation and other non-cash items of$1.5 million , offset by a decrease in our net loss of$3.2 million and an increase in working capital accounts of$1.8 million .
Cash Flows from Investing Activities
Net cash provided by investing activities was$1.5 million for the six months endedJune 30, 2021 was primarily related to the cash received from sale of lab equipment in 2021. There was no investing activity in the six months endedJune 30, 2022 .
Cash Flows from Financing Activities
Net cash provided by financing activities for the six months endedJune 30, 2021 of$30.6 million was due to cash received from theJune 2021 Equity Private Placement of$18 million , net proceeds from the ATM Offering of$12.5 million , and proceeds from the purchases of shares under the 2019 ESPP. There was no financing activity in the six months endedJune 30, 2022 . 27 --------------------------------------------------------------------------------
Debt - Paycheck Protection Program
OnApril 21, 2020 , we received loan proceeds in the amount of approximately$3.5 million pursuant to a promissory note agreement (the "Promissory Note") with a bank under the Paycheck Protection Program ("PPP"), of which certain key terms were adjusted by the Paycheck Protection Program Flexibility Act ("PPPFA"). The Promissory Note had an initial loan maturity ofApril 20, 2022 , a stated interest rate of 1.0% per annum, and had payments of principal and interest that were due monthly after an initial deferral period where interest accrued, but no payments were due. Under the PPPFA, the initial deferral may be extended from six up to ten months and the loan maturity may be extended from two to five years. The Promissory Note provided for customary events of default, including, among others, those relating to failure to make payment when due and breaches of representations. The loan is subject to all the terms and conditions applicable under the PPPFA and is subject to review by theSmall Business Association ("SBA") for compliance with program requirements. InAugust 2021 , the Company applied with the SBA for forgiveness of the PPP loan and was notified onNovember 4, 2021 , that the SBA has approved our application to forgive the entire amount of the loan and accrued interest. InNovember 2021 , the Company recorded a gain on extinguishment of debt of$3.6 million representing the principal and accrued interest for the PPP Loan.
Funding Requirements
We expect our expenses to fluctuate as we advance the preclinical activities and clinical trials of our product candidates. Based on our cash and cash equivalents position as ofJune 30, 2022 and our planned operating expenses and capital expenditure requirements there is substantial doubt regarding our ability to continue as a going concern for a period of one year after the date of this Quarterly Report on Form 10-Q. We will need to raise additional capital in upcoming periods, which may not be available on acceptable terms, or at all. Failure to obtain necessary capital when needed may delay current development of our product candidates, halt new development phases, or other operations.
Because of the many risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our expenses will fluctuate, and our future funding requirements will depend on, and could increase or decrease significantly as a result of many factors, including the:
•
scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;
•
costs, timing and outcome of regulatory review of our product candidates;
•
costs of future activities, including medical affairs, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
•
cost and timing of necessary actions to support our strategic objectives;
•
costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and
•
timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.
A change in any of these or other variables with respect to the development of
any of our product candidates could significantly change the costs and timing of
the development of that product candidate.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our cash needs through a combination of public or private
equity offerings, debt financings, collaborations, strategic alliances or
licensing arrangements with third parties. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
outstanding equity ownership may be materially diluted, and the terms of
securities sold in such transactions could include liquidation or other
preferences that adversely affect the rights of holders of common stock. Debt
financing and preferred equity financing, if available, may involve agreements
that include
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restrictive covenants that limit our ability to take specified actions, such as
incurring additional debt, making capital expenditures or declaring dividends.
In addition, debt financing would result in increased fixed payment obligations.
If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.
If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Commitments and Obligations
Tax-related Obligations
We exclude assets, liabilities or obligations pertaining to uncertain tax
positions from our summary of contractual commitments and obligations as we
cannot make a reliable estimate of the period of cash settlement with the
respective taxing authorities. As of
Other Funding Commitments
As ofJune 30, 2022 , we had, and continue to have, several ongoing studies in various clinical trial stages. Our most significant clinical trial spending is with clinical research organizations, or CROs. The contracts with CROs generally are cancellable, with notice, at our option and do not have any significant cancellation penalties.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance.
New Accounting Pronouncements
For a discussion of new accounting pronouncements see Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
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