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 and combined financial statements and the corresponding notes included in this Quarterly Report on Form 10-Q, as well as the audited consolidated and combined financial statements and notes thereto included in our Annual Report on Form 10-K. 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 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, IW-6463, is a pioneering CNS-penetrant sGC stimulator in clinical development for MELAS and ADv. sGC stimulators are small molecules that act synergistically with nitric oxide 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.
Separation from Ironwood Pharmaceuticals
OnApril 1, 2019 , Ironwood Pharmaceuticals Inc., or Ironwood, completed the separation of its sGC business, and certain other assets and liabilities, into us as a separate, independent publicly traded company by way of a pro-rata distribution of our common stock through a dividend distribution of one share of our common stock, with no par value per share, for every 10 shares of Ironwood common stock held by Ironwood stockholders as of the close of business onMarch 19, 2019 , the record date for the distribution, which we refer to herein as the Separation. As a result of the Separation, we became an independent public company and commenced trading under the symbol "CYCN" on the Nasdaq Global Select Market onApril 2, 2019 .
In connection with the Separation, on
In addition, in connection with the Separation, onApril 1, 2019 , we entered into a Development Agreement, an Ironwood Transition Services Agreement, a Cyclerion Transition Services Agreement and an Intellectual Property License Agreement with Ironwood. All services provided to and from the Company under the Transition Services Agreements were completed as ofMarch 31, 2020 and the agreements were terminated. Ironwood and the Company have agreed that the Development Agreement will not be renewed beyond its initial term which ends onMarch 31, 2021 .
On
Our historical condensed consolidated and combined financial statements for the periods prior to the Separation have been derived from Ironwood's combined financial statements and accounting records and are presented in conformity with United States Generally Accepted Accounting Principles, orU.S. GAAP.
Our historical financial statements may not be indicative of our future performance and do not necessarily reflect what our results of operations, financial condition and cash flows would have been had we operated as a separate, publicly traded company for the periods presented prior to the Separation. The condensed consolidated and
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combined financial statements prior to the Separation included herein do not
reflect any changes that occurred in our financing or operations as a result of
the Separation from Ironwood.
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.
The core of our portfolio is IW-6463, an orally administered CNS-penetrant sGC
stimulator that is being developed as a symptomatic and potentially disease
modifying therapy for serious CNS diseases. Nitric oxide is one of several
fundamental neurotransmitters, but it has not yet been leveraged for its full
CNS therapeutic potential. IW-6463 stimulates sGC, a signaling enzyme that
responds to the presence of NO, to enhance the body's natural ability to produce
cyclic guanosine monophosphate (cGMP), an important signaling molecule. An
impaired NO-sGC-cGMP signaling pathway is believed to play an important role in
the pathogenesis of neurodegenerative diseases and is critical to basic neuronal
functions. Agents that stimulate sGC to produce cGMP may compensate for
deficient NO signaling.
In January 2020 , we announced positive Phase 1 study results that provided the
foundation for continued development of IW-6463. The Phase 1 healthy participant
study results indicate that IW-6463 was well tolerated. Pharmacokinetic (PK)
data, obtained from both blood and cerebral spinal fluid, support once-daily
dosing with or without food and demonstrated IW-6463 penetration of the
blood-brain-barrier at levels expected to be pharmacologically active.
In October 2020 , we announced positive topline results from our IW-6463 Phase 1
translational pharmacology study. Treatment with IW-6463 in this 15-day
24-subject crossover study confirmed and extended results seen in earlier Phase
1 studies: once daily oral treatment demonstrated desired CNS exposure,
blood-brain-barrier penetration and target engagement. Results also showed
statistically significant improvements in neurophysiological and objective
performance measures associated with age-related cognitive decline and
neurodegenerative diseases. IW-6463 was shown to be safe and generally
well-tolerated. 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 preclinical data, support continued
development of IW-6463 as a potential new medicine for serious CNS diseases.
We will soon begin enrolling our IW-6463 Phase 2 clinical trial in Mitochondrial
Encephalomyopathy, Lactic acidosis, and Stroke-like episodes (MELAS). In the
coming months, we will use the findings of the translational pharmacology study,
in addition to observations from the previous Phase 1 study, to inform further
clinical development activities, including the initiation of a planned Phase 2
clinical trial in Alzheimer's disease with vascular pathology (ADv) in H1 2021,
as well as explore other potential indications.
Non-core assets in our portfolio are:
Olinciguat, an orally administered, once-daily, vascular sGC stimulator. Olinciguat was evaluated in the STRONG-SCD study, a randomized, placebo-controlled, dose-ranging Phase 2 study of 70 participants with sickle cell disease designed to evaluate safety, tolerability, and pharmacokinetics of olinciguat, compared to placebo, as well as to explore effects on daily symptoms and biomarkers of disease activity when dosed over a 12-week treatment period. OnOctober 14, 2020 , we announced topline results from this study, which did not demonstrate adequate activity to support further internal clinical development. We intend to complete analysis of the study results and present them or publish them in a future forum. 26
-------------------------------------------------------------------------------- Praliciguat, an orally administered, once-daily systemic sGC stimulator that was evaluated in two Phase 2 proof-of-concept studies: a dose-ranging study in 156 adult patients with diabetic nephropathy, and a study in 196 adult patients with heart failure with preserved ejection fraction (HFpEF), CAPACITY-HFpEF. OnOctober 30, 2019 , we released topline results from these studies. The Company's efforts to out-license rights to praliciguat have expanded to discussions beyond treatment of cardiometabolic disorders to include additional indications where sGC stimulators have demonstrated efficacy.
The following table summarizes our research and development expenses and employee and facility related costs allocated to research and development expense, for the three and nine months endedSeptember 30, 2020 and 2019. The product pipeline expenses relate primarily to external costs associated with nonclinical studies and clinical trial costs, which are presented by development candidate. Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (in thousands) (in thousands)
Product pipeline external costs:
IW-6463$ 1,502 $ 1,559 $ 4,339 $ 3,797 Olinciguat 2,012 2,891 6,273 10,794 Praliciguat 53 2,575 269 12,102 Discovery research 541 364 743 999
Total product pipeline external costs 4,108 7,389 11,624 27,692
Personnel and related internal costs 6,214 9,517
20,688 29,540
Facilities and other 3,381 5,389
12,010 17,226
Total research and development expenses
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:
• The COVID-19 pandemic could affect our programs and operations in
ways that are difficult to judge at this time, including our
operations, clinical trials, corporate development activities and
other activities. Cyclerion is working closely with its clinical
trial sites and investigators to deliver its ongoing and planned
trials in a manner consistent with the safety of studyparticipants
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.
• The U.S FDA and comparable agencies outside the U.S. 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.
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• 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 Item 1A of
our annual report on Form 10-K for the fiscal year ended December 31, 2019 , our
quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2020 and
June 30, 2020 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. Certain costs associated with our separation
from Ironwood are included in these expenses. We record all general and
administrative expenses as incurred.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated and combined financial statements prepared in accordance withU.S. 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 condensed consolidated and combined financial statements, and the amounts of expenses during the reported periods. Significant estimates and assumptions in our condensed consolidated and combined financial statements include those related to allocation of expenses, assets and liabilities from Ironwood's historical financial statements for the periods prior to the Separation, impairment of long-lived assets; income taxes, including the valuation allowance for deferred tax assets; research and development expenses; contingencies and share-based compensation. 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 condensed consolidated and combined 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. See Note 2, Summary of Significant Accounting Policies, of the condensed consolidated and combined financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. 28
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Results of Operations
For the period prior to the Separation, our condensed consolidated and combined
financial statements include an allocation of expenses related to certain
Ironwood corporate functions, including senior management, legal, human
resources, finance, information technology and quality assurance. These expenses
were allocated to Cyclerion based on direct usage or benefit where identifiable,
with the remainder allocated pro-rata based on project related costs, headcount
or other measures. We considered the allocation methodologies used to be a
reasonable and appropriate reflection of the historical Ironwood expenses
attributable to us. The expenses reflected in the condensed consolidated and
combined financial statements may not be indicative of expenses that will be
incurred by us in the future. After the Separation, we began performing these
corporate functions using internal resources or purchased services, certain of
which were provided by Ironwood under the Transition Services Agreement. The
following discussion summarizes the key factors we believed are necessary for an
understanding of our consolidated financial statements.
Expenses
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2020 2019 $ % 2020 2019 $ %
(dollars in thousands) (dollars in thousands)Revenue from related party$ 400 $ 1,398 $ (998 ) (71 )%$ 2,163 $ 3,026 $ (863 ) (29 )% Cost and expenses: Research and development 13,703 22,295 (8,592 ) (39 )% 44,322 74,458 (30,136 ) (40 )% General and administrative 8,033 7,119 914
13 % 21,551 27,019 (5,468 ) (20 )% (Gain) loss on lease modification 444
- 444 100 % (1,669 ) - (1,669 ) 100 %
Total cost and expenses 22,180 29,414 (7,234 ) (25 )% 64,204 101,477 (37,273 ) (37 )%
Loss from operations (21,780 ) (28,016 ) 6,236 (22 )% (62,041 ) (98,451 ) 36,410 (37 )% Sublease termination income, net 2,875
- 2,875 100 % 2,875 - 2,875 100 %
Interest and other income, net 93 699 (606 ) (87 )% 592 1,498 (906 ) (60 )%
Net loss $ (18,812 ) $ (27,317 ) $ 8,505 (31 )% $ (58,574 ) $ (96,953 ) $ 38,379 (40 )%
Revenue from related party. The decrease in revenue from related party of
approximately $1.0 million for the three months ended September 30, 2020
compared to the three months ended September 30, 2019 is the result of a
decrease in services performed under the Development Agreement for Ironwood,
which was entered into in connection with the Separation. The decrease in
revenue from related party of approximately $0.9 million for the nine months
ended September 30, 2020 compared to the nine months ended September 30, 2019 is
due to a decrease in services provided in the current year as compared to the
prior year, partially offset by the Company providing services to Ironwood for
three quarters in 2020 compared to only two quarters post-Separation in 2019.
Ironwood and the Company have agreed that the Development Agreement will not be
renewed beyond its initial term which ends on March 31, 2021 .
Research and development expense. The decrease in research and development
expense of approximately $8.6 million for the three months ended September 30,
2020 compared to the three months ended September 30, 2019 was driven by a
decrease of approximately $3.3 million in salaries, stock-based compensation and
other employee-related expenses primarily due to lower average headcount, a
decrease of approximately $2.0 million of facilities and operating costs
allocated to research and development primarily due to reductions in the
Company's total leased premises, and a net decrease of approximately $3.3
million in external research costs. The net decrease in external research costs
was primarily due to decreases of approximately $2.5 million associated with the
completion of two praliciguat phase 2 proof of concept studies, both of which
reported top-line data on October 30, 2019 , approximately $0.9 million
associated with olinciguat primarily due to the STRONG-SCD study and
approximately $0.1 million in IW-6463 studies, partially offset by an increase
of approximately $0.2 million discovery research.
The decrease in research and development expense of approximately $30.1 million
for the nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019 was primarily due to decreases of approximately $8.8 million
in salaries, stock-based compensation and other employee-related expenses
primarily
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due to lower average headcount, approximately $5.2 million in facilities and
operating costs allocated to research and development primarily due to
reductions in the Company's total leased premises, and approximately $16.1
million in net external research costs. The net decrease in external research
costs was primarily due to decreases over the periods of approximately $11.8
million in praliciguat studies, approximately $4.5 million in olinciguat studies
and approximately $0.3 million in discovery research, partially offset by an
increase of approximately $0.5 million in IW-6463 studies.
General and administrative expense. The increase in general and administrative
expenses of approximately $0.9 million for the three months ended September 30,
2020 compared to the three months ended September 30, 2019 was primarily due to
an increase of approximately $1.5 million in professional fees supporting the
Company's financing activities, including the Shelf, the 2020 Equity Private
Placement and the ATM Offering in the current year, a net increase of
approximately $0.5 million for other operating and administrative expenses and
approximately $0.4 million for patent filings, partially offset by a decrease of
approximately $1.5 million in salaries, stock-based compensation and other
employee-related expenses, due to lower average headcount.
The decrease in general and administrative expenses of approximately $5.5
million for the nine months ended September 30, 2020 compared to the nine months
ended September 30, 2019 was primarily driven by approximately $3.5 million of
non-recurring outsourced professional services and other costs associated with
the Separation recorded in the prior period and a decrease of approximately $3.5
million in salaries, stock-based compensation and other employee-related costs,
primarily due to lower average headcount and the pre-Separation allocation from
Ironwood recorded in the prior period, partially offset by an increase of
approximately $1.5 million in professional fees supporting the Company's
financing activities in the current year, including the Shelf, the 2020 Equity
Private Placement and the ATM Offering.
(Gain) loss on lease modification. The loss on lease modification of
The gain on lease modification of$1.7 million recorded in the nine months endedSeptember 30, 2020 is driven by a$2.1 million gain related to the Lease Amendment to the Head Lease at301 Binney Street inCambridge, Massachusetts that was executed onFebruary 28, 2020 , partially offset by a$0.4 million loss related to the Second Lease Amendment to the Head Lease at301 Binney Street inCambridge, Massachusetts that was executed onSeptember 15, 2020 . Sublease termination income, net. The sublease termination income, net of$2.9 million recorded in three and nine months endedSeptember 30, 2020 represents the difference between the consideration received and the consideration given up related to the Sublease Termination Agreement that was executed onSeptember 15, 2020 . Interest and other income, net. Interest and other income, net decreased by approximately 0.6 million for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 due to a decrease of approximately$0.7 million in interest income driven by lower cash balances and lower interest rates, partially offset by an increase of approximately$0.1 million in net sublease income. Interest and other income, net decreased by approximately 0.9 million for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 due to a decrease of approximately$1.2 million in interest income driven by a lower cash balances and lower interest rates, partially offset by an increase of approximately$0.3 million in net sublease income.
Liquidity and Capital Resources
Prior to the Separation, the primary source of liquidity for our business was cash flow allocated to Cyclerion from Ironwood. Post Separation, transfers of cash to and from Ironwood related to the Transition Service Agreements, Development Agreement and provisions of the Separation Agreement, have been reflected in the condensed consolidated and combined statement of cash flows.
After the Separation on
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On July 29, 2020 , we closed on a private placement of 6,062,500 shares of our
common stock, pursuant to a Common Stock Purchase Agreement, for total gross
proceeds of approximately $24.3 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.
On September 3, 2020 , the Company entered into the Sales Agreement with
Jefferies with respect to the ATM Offering under the shelf registration
statement. 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. As of September 30,
2020 , no shares have been issued or sold under the ATM Offering.
Our ability to continue to fund our operations and meet capital needs will
depend on our ability to generate cash from operations and access to capital
markets and other sources of capital, as further described below. We anticipate
that our principal uses of cash in the future will be primarily to fund our
operations, working capital needs, capital expenditures and other general
corporate purposes.
On September 30, 2020 , we had approximately $66.8 million of unrestricted cash
and cash equivalents. Our cash equivalents include amounts held in U.S.
government money market funds. We invest cash in excess of immediate
requirements in accordance with our investment policy, which requires all
investments held by us to be at least "AAA" rated or equivalent, with a
remaining final maturity when purchased of less than twelve months, so as to
primarily achieve liquidity and capital preservation.
Going Concern
Based on our development plans and clinical stage patient testing and our timing expectations related to the progress of our discovery research programs, we expect that our existing cash and cash equivalents as ofSeptember 30, 2020 will be sufficient to fund our planned operating expenses and capital expenditure requirements at least into the fourth quarter of 2021, excluding net cash flows from potential business development activities. We have based this estimate on assumptions that may prove to be wrong, particularly as the process of testing drug candidates in clinical trials is costly and the timing of progress in these trials is uncertain. Cash Flows The following is a summary of cash flows for the years endedSeptember 30, 2020 and 2019: Nine Months Ended September 30, Change 2020 2019 $ % (dollars in thousands)
Net cash used in operating activities
5,197 (79 )%
Net cash provided by financing activities
Cash Flows from Operating Activities
Net cash used in operating activities was$58.4 million for the nine months endedSeptember 30, 2020 compared to$80.1 million for the nine months endedSeptember 30, 2019 . The decrease in net cash used in operations of$21.6 million primarily relates to a decrease in our net loss of$38.4 million , partially offset by the payment of a$6.3 million termination fee related to the Head Lease modification in the current year, a decrease of stock-based compensation and other non-cash items of$3.4 million , the recording of non-cash sublease termination income, net of$2.9 million in the current year, an increase in the cash used by our working capital accounts of$2.5 million , and the recording of a non-cash gain on lease modification of$1.7 million in the current year. 31
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Cash Flows from Investing Activities
Net cash used in investing activities was
Cash Flows from Financing Activities
Cash provided by financing activities for the nine months endedSeptember 30, 2020 was$27.9 million , resulting from the cash received from the 2020 Equity Private Placement of$24.3 million , proceeds from the short-term note payable of$3.5 million and proceeds from the purchases of shares under the ESPP and other stock plans. Cash provided by financing activities for the nine months endedSeptember 30, 2019 was$211.4 million , resulting from the net cash proceeds received from the 2019 Equity Private Placement of$164.6 million , the cash transferred to us from Ironwood based on changes in our cash used for operations prior to the Separation of$46.4 million and proceeds from the purchases of shares under the ESPP and other stock plans of$0.4 million .
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 has an initial loan maturity ofApril 20, 2022 , a stated interest rate of 1.0% per annum, and has payments of principal and interest that are due monthly after an initial deferral period where interest accrues, but no payments are 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 provides for customary events of default, including, among others, those relating to failure to make payment when due and breaches of representations. We may prepay the principal of the Promissory Note at any time without incurring any prepayment charges. The loan is subject to all the terms and conditions applicable under the PPPFA and is subject to review by theSmall Business Association for compliance with program requirements. The loan's principal and accrued interest are forgivable to the extent that the proceeds are used for eligible purposes, subject to certain limitations, and that we maintain our payroll levels over a twenty-four-week period following the loan date. The loan forgiveness amount may be reduced if we terminate employees or reduce salaries during the twenty-four-week period. We believe that we have used the proceeds for eligible purposes consistent with the provisions of the PPPFA. However, the Company cannot assure at this time that the loan under the Promissory Note will be forgiven partially, or in full.
Funding Requirements
We expect our expenses to fluctuate as we advance the preclinical activities and clinical trials of our product candidates.
We believe that our existing cash and cash equivalents as ofSeptember 30, 2020 will enable us to fund our planned operating expenses and capital expenditure requirements at least into the fourth quarter of 2021 excluding net cash flows from potential business development activities. We based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.
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;
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• 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. Further, our operating plans may
change in the future, and we may need additional funds to meet operational needs
and capital requirements associated with such operating plans.
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. As discussed under the "Risk Factors"
in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December
31, 2019 , to preserve the tax-free treatment of the Separation, we may be
barred, in certain circumstances, for a two year period following the
Separation, from engaging in certain capital raising transactions. To the extent
that we raise additional capital through the sale of equity or convertible debt
securities, outstanding equity ownership may be materially diluted, and the
terms of securities sold in such transactions could include liquidation or other
preferences that adversely affect the rights of holders of common stock. Debt
financing and preferred equity financing, if available, may involve agreements
that include restrictive covenants that limit our ability to take specified
actions, such as incurring additional debt, making capital expenditures or
declaring dividends. In addition, debt financing would result in increased fixed
payment obligations.
If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, 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 ofSeptember 30, 2020 , 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.
Transition from Ironwood and Costs to Operate as an
Our condensed consolidated and combined financial statements for the period
prior to the Separation reflect our operating results and financial position as
it was operated by Ironwood, rather than as an independent company. As a result
of the Separation, we have incurred additional ongoing operating expenses to
operate as an independent, publicly traded, company. These costs include the
cost of various corporate headquarters functions, incremental information
technology-related costs and incremental costs to operate stand-alone
accounting, legal, human
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resources and other administrative functions. We also incur non-recurring expenses and non-recurring capital expenditures.
We entered into the Ironwood Transition Services Agreement that provided us with certain services and resources related to corporate functions for an initial term of up to two years from the date of the Separation (as applicable). All services provided by Ironwood to the Company under the Ironwood Transition Services Agreement were completed as ofMarch 31, 2020 , and it has been terminated. It is not practicable to estimate the costs that would have been incurred in each of the periods presented in the historical financial statements for the functions described above. Actual costs that would have been incurred if we operated as a stand-alone company for the periods prior to the Separation would have depended on various factors, including organizational design, outsourcing and other strategic decisions related to corporate functions, information technology and back office infrastructure.
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 condensed consolidated and combined financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
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