Cyclerion(CYCN) - 2020 Q4 - Annual Report

Business Overview Cyclerion Therapeutics, a clinical-stage biopharmaceutical company, focuses on developing CNS treatments, with lead asset CY6463 for MELAS and ADv, and outsources all manufacturing Research and Development Programs The company's R&D focuses on CNS programs, led by CY6463 in Phase 2a for MELAS and planned for ADv, while non-CNS assets are available for out-licensing - The lead asset, CY6463, a CNS-penetrant sGC stimulator, is in development for serious CNS diseases, with positive Phase 1 results announced in October 2020[24][26] - A Phase 2a clinical trial in MELAS has been initiated, and a Phase 2a trial in ADv is planned for mid-2021, supported by a $2 million grant from the Alzheimer's Association[27] - Non-CNS assets, praliciguat and olinciguat, have completed Phase 2 studies and are available for out-licensing, being outside the company's strategic focus[29] Intellectual Property The company protects its technology through owned patents and trade secrets, with CY6463 patents expiring in 2037 and other assets extending into the 2030s - The company owns its intellectual property, comprising 17 issued U.S. patents and numerous pending applications domestically and abroad[34][35] - The CY6463 patent portfolio includes two issued U.S. patents covering the compound and compositions, expiring in 2037[37][38] - The praliciguat and olinciguat patent portfolios include multiple U.S. patents expiring between 2031 and 2037[40][41][44] Government Regulation The company's drug development is subject to extensive FDA regulation, involving nonclinical studies, INDs, multi-phase clinical trials, NDA submission, and post-approval compliance, with potential for expedited review designations - The drug approval process requires extensive nonclinical studies, an IND submission, and multi-phase clinical trials to establish safety and efficacy before NDA submission to the FDA[54][59] - The FDA offers programs like Fast Track, Breakthrough Therapy, Accelerated Approval, and Priority Review to expedite development and review for serious conditions[69][71][72] - Orphan Drug Designation provides seven years of market exclusivity for drugs treating rare diseases affecting fewer than 200,000 people in the U.S[67][68] - Post-approval, the company is subject to ongoing FDA regulation, including recordkeeping, adverse event reporting, and cGMP compliance[79][80] Competition The company faces significant competition, primarily from Bayer/Merck in sGC modulators, and from companies developing treatments for MELAS and Alzheimer's Disease, where no specific ADv treatments are approved - The primary competitor in the sGC modulator space is the Bayer/Merck collaboration, with two approved non-CNS products, ADEMPAS® and VERQUVO®[96] - For MELAS, there are no approved treatments, but competitors in clinical development include PTC Therapeutics, Khondrion B.V, and Abliva AB[92] - For ADv, there are no approved treatments, but competition includes approved AD symptom treatments and late-stage AD candidates from companies like Biogen, Eli Lilly, and Roche[93][95] Manufacturing and Human Capital The company outsources all manufacturing to third-party CMOs and, as of December 31, 2020, had approximately 34 employees after a workforce reduction - The company relies entirely on third-party contract manufacturing organizations (CMOs) for all clinical and nonclinical supply needs, owning no manufacturing facilities[98] - As of December 31, 2020, the company had approximately 34 employees, with an additional 17 employees transitioning out in Q1 2021 due to a 2020 workforce reduction[102] Risk Factors The company faces significant risks including financial losses, high CNS drug development failure rates, clinical trial delays, regulatory uncertainties, heavy reliance on third parties, and post-separation tax and strategic restrictions Financial Position and Capital Needs As a clinical-stage company with no product revenue, Cyclerion has incurred significant net losses and will require substantial additional funding to advance its pipeline - The company is a clinical-stage biopharmaceutical company with no approved products and has never generated revenue from product sales[120] Net Loss | Fiscal Year | Net Loss (in millions USD) | | :--- | :--- | | 2020 | $77.8 | | 2019 | $123.0 | - As of December 31, 2020, the company had approximately $54.4 million in cash and cash equivalents and will require significant additional funding[128] Business and Industry Risks The company faces inherent risks in CNS drug development due to biological complexities, high clinical trial failure rates, potential COVID-19 disruptions, and the lengthy, unpredictable regulatory approval process - CNS therapy development is challenging due to the blood-brain barrier and often poor translatability from nonclinical to clinical results[132] - The COVID-19 pandemic continues to risk disrupting clinical development, potentially delaying patient enrollment and trial execution[137][138] - The regulatory approval process is lengthy and unpredictable, with no guarantee of product candidate approval[143][144] Reliance on Third Parties The company's business model heavily relies on third parties for out-licensing, clinical trials (CROs), and manufacturing (CMOs), posing risks to performance, quality, and regulatory compliance due to less direct control - Failure to find a partner for out-licensing praliciguat would adversely affect the prospect of realizing financial benefit from the asset[160] - The company relies on third-party CROs for clinical studies and CMOs for drug manufacturing, depending on their performance and compliance with regulations like GCP and cGMP[164][170][171] - Reliance on third parties necessitates sharing confidential information and trade secrets, increasing the risk of misappropriation or unauthorized disclosure[174][175] Risks Related to the Separation from Ironwood The 2019 separation from Ironwood poses risks including unrepresentative historical financials, potential IRS challenge to tax-free status leading to significant indemnification liabilities, and restrictions on strategic transactions - Historical financial information may not be representative of future results due to expense allocations from Ironwood prior to the separation[286][287] - If the separation from Ironwood is deemed taxable, Cyclerion could be required to indemnify Ironwood for significant, uncapped tax liabilities[288][294] - To preserve tax-free status, the tax matters agreement prohibits Cyclerion from certain transactions, like a 3% or more change of ownership, for two years post-distribution[295] Management's Discussion and Analysis (MD&A) This section provides management's analysis of the company's financial condition and results for 2020 versus 2019, highlighting decreased operating expenses, sufficient cash for 12 months, and details on R&D and liquidity sources Results of Operations (2020 vs. 2019) In fiscal year 2020, the company reported a net loss of $77.8 million, a 37% improvement from 2019, driven by significant reductions in R&D and G&A expenses, and gains from lease modifications Key Financial Metrics | Financial Metric | 2020 (in thousands USD) | 2019 (in thousands USD) | Change ($ in thousands USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue from related party | $2,296 | $4,507 | $(2,211) | (49)% | | Research and development | $56,414 | $95,140 | $(38,726) | (41)% | | General and administrative | $28,816 | $34,404 | $(5,588) | (16)% | | Net loss | $(77,802) | $(123,008) | $45,206 | (37)% | R&D External Costs by Program | R&D External Costs by Program | 2020 (in thousands USD) | 2019 (in thousands USD) | | :--- | :--- | :--- | | CY6463 | $5,561 | $4,278 | | Praliciguat | $311 | $13,344 | | Olinciguat | $6,868 | $13,064 | | Discovery research | $1,218 | $1,293 | - The decrease in R&D expenses was primarily due to reduced spending on praliciguat studies (down $13.0 million) and olinciguat studies (down $6.2 million), alongside lower personnel and facility costs[363] - The company recorded a net gain on lease modification of $1.7 million and sublease termination income of $2.9 million in 2020[365][367] Liquidity and Capital Resources As of December 31, 2020, the company held $54.4 million in cash, which management deems sufficient for the next 12 months, following 2020 financing activities including a private placement and a PPP loan - The company had $54.4 million in unrestricted cash and cash equivalents as of December 31, 2020[373] - Management concluded that existing cash and cash equivalents are sufficient to fund planned operations for at least the next 12 months from the report filing date[374][387] - In 2020, the company raised approximately $24.3 million via a private placement, received a $3.5 million PPP loan, and established a $50.0 million ATM offering[370][371][382] Cash Flow Summary | Cash Flow Summary | 2020 (in thousands USD) | 2019 (in thousands USD) | | :--- | :--- | :--- | | Net cash used in operating activities | $(72,490) | $(102,215) | | Net cash provided by (used in) investing activities | $18 | $(6,715) | | Net cash provided by financing activities | $28,090 | $211,571 | Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no auditor attestation required for an emerging growth company - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[408] - Based on its assessment, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[413] - This annual report does not include an auditor's attestation report on internal control over financial reporting, as permitted for "emerging growth companies"[415] Financial Statements and Notes This section presents the company's audited consolidated financial statements for 2020 and 2019, along with detailed notes on accounting policies, the Ironwood separation impact, lease modifications, share-based compensation, income taxes, and workforce reductions Consolidated Financial Statements As of December 31, 2020, the company reported total assets of $115.4 million, total liabilities of $55.9 million, a net loss of $77.8 million, and $72.5 million in net cash used in operating activities Balance Sheet Highlights (Dec 31, 2020) | Balance Sheet Highlights (Dec 31, 2020) | Amount (in thousands USD) | | :--- | :--- | | Cash and cash equivalents | $54,395 | | Total assets | $115,378 | | Total liabilities | $55,885 | | Total stockholders' equity | $59,493 | Statement of Operations Highlights (FY 2020) | Statement of Operations Highlights (FY 2020) | Amount (in thousands USD) | | :--- | :--- | | Total cost and expenses | $83,561 | | Loss from operations | $(81,265) | | Net loss | $(77,802) | | Net loss per share | $(2.56) | Selected Notes to Financial Statements Key financial notes confirm no substantial doubt about going concern, detail 2020 lease amendments yielding $1.7 million gain and $2.9 million income, describe a $5.0 million workforce reduction, and disclose fully offset NOL carryforwards - Management concluded no substantial doubt exists regarding the company's ability to continue as a going concern for at least one year from the financial statements' issuance[486][488] - In 2020, two lease amendments resulted in a net gain on modification of $1.7 million, and a sublease termination generated $2.9 million in net income[518][519][520] - A workforce reduction in November 2020 impacted approximately 48 employees with an estimated cost of $5.0 million[629][630] - As of December 31, 2020, the company had federal and state NOL carryforwards of approximately $98.8 million and $98.9 million, respectively, fully offset by a valuation allowance[618][620]