Cyclo Therapeutics(CYTH) - 2020 Q4 - Annual Report

Part I Business Cyclo Therapeutics develops Trappsol® Cyclo™ for Niemann-Pick Type C and Alzheimer's, while operating a legacy fine chemical business - The company's core focus is the development of Trappsol® Cyclo™ for the rare and fatal disease Niemann-Pick Type C (NPC), with clinical programs underway in the U.S., Europe, and Israel[14][15] - Trappsol® Cyclo™ has received key regulatory designations, including Orphan Drug status in the U.S. and Europe, and Fast Track designation from the FDA, potentially accelerating its path to market[18] - The company is also exploring Trappsol® Cyclo™ for Alzheimer's disease, with a single-patient expanded access program showing disease stabilization and plans to engage the FDA on a clinical trial protocol in early 2021[20][49] - The estimated total addressable annual market for treating NPC with Trappsol® Cyclo™ is approximately $550 million[24] Research and Development Expenses (2019-2020) | Year | R&D Expense (Approx.) | | :--- | :--- | | 2020 | $6,096,000 | | 2019 | $4,869,000 | Clinical Studies for NPC Trappsol® Cyclo™ clinical studies for NPC show promising safety and efficacy, with 86% of patients meeting the primary endpoint in the European/Israeli Phase I/II trial - In the European/Israeli Phase I/II study, 6 out of 7 patients (86%) who completed the trial met the efficacy endpoint of at least a one-point improvement in two or more of the 17 domains on the NPC Clinical Severity Scale[34][35] - Data from the U.S. Phase I study demonstrated that Trappsol® Cyclo™ removes trapped cholesterol from liver cells and reduces levels of the protein tau in a majority of patients, suggesting it prevents neurodegeneration[40][41][44] - Based on clinical data, the company has selected the 2000 mg/kg dose for its pivotal Phase III trial and received a "Study May Proceed" notification from the FDA in October 2020[16][38] Government Regulation The company's biopharmaceutical products are subject to extensive FDA regulation, benefiting from Orphan Drug and Fast Track designations to expedite approval - The FDA drug approval process is lengthy and complex, generally involving preclinical studies, an IND application, Phase I-III clinical trials, and submission of an NDA[57][58][71] - Trappsol® Cyclo™ has been granted Orphan Drug Designation by the FDA, which provides a seven-year period of marketing exclusivity for the treatment of NPC upon approval[89][90] - The company received Fast Track Designation for Trappsol® Cyclo™ in January 2017, which is intended to expedite the development and review of drugs for serious conditions with unmet medical needs[93][94] - NPC was designated a Rare Pediatric Disease by the FDA, making the company eligible for a priority review voucher upon market approval, which can be used to shorten a future FDA review time or be sold to another company[100] Legacy Fine Chemical Business The legacy fine chemical business, generating most revenue from cyclodextrin sales, faces significant customer concentration and relies on major manufacturers for supply - In 2020, revenues were composed of 3% biopharmaceuticals, 96% basic cyclodextrins, and 1% cyclodextrin complexes[119] - The business has significant customer concentration, with three customers accounting for 69% of sales in 2020 and four customers accounting for 70% in 2019[121] Risk Factors The company faces significant risks including financial losses, capital needs, single product dependency, clinical trial failures, and customer concentration in its legacy business - The company has a history of net losses, reporting approximately $8.9 million in 2020 and $7.5 million in 2019, and will require additional capital to fund its clinical trials and operations[126][127] - The company is largely dependent on the success of its lead drug candidate, Trappsol® Cyclo™, which may never receive regulatory approval or achieve market acceptance[132][134] - The company relies on unpatented trade secrets to protect its manufacturing process for Trappsol® Cyclo™, which are difficult to protect and may not provide a competitive advantage if discovered by others[154][155] - A small number of customers account for a substantial portion of the legacy fine chemical business revenue, with the top five customers representing 81% of total sales in fiscal 2020[184][185] - The recent COVID-19 pandemic poses a risk of disruption to clinical trials, supply chain, and the ability to raise capital[152] Unresolved Staff Comments The company reports no unresolved staff comments Properties The company leases its principal office and warehouse space in Gainesville, Florida, under an agreement expiring in January 2023 - The company leases its principal office and warehouse space in Gainesville, Florida. The current lease expires on January 31, 2023[199] Legal Proceedings The company is not currently involved in any material litigation - The company reports that it is not currently involved in any litigation that would have a material adverse effect on its financial position or results of operations[200] Mine Safety Disclosures Not applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants trade on Nasdaq, with no dividends paid or anticipated, as earnings are retained for business expansion - Common Stock and warrants are traded on the Nasdaq Capital Market under symbols "CYTH" and "CYTHW"[205] - The company has never paid cash dividends and does not anticipate paying any in 2021, intending to retain earnings for business expansion[207] Selected Financial Data Not applicable Management's Discussion and Analysis of Financial Condition and Results of Operations Net loss increased in 2020 due to higher R&D and personnel costs, despite improved liquidity from capital raises, with additional funding required for future clinical development Key Financial Results (2020 vs. 2019) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenues | $903,000 | $1,007,000 | | R&D Expenses | $6,096,000 | $4,869,000 | | Personnel Expenses | $2,562,000 | $1,906,000 | | Net Loss | ($8,942,000) | ($7,532,500) | Liquidity Position (End of Year) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash | $12,846,000 | $2,784,000 | | Cash Used in Operations | ($8,540,000) | ($6,589,000) | - In December 2020, the company raised gross proceeds of $14.375 million in a public offering. This, along with other private placements, significantly strengthened its cash position[241][242] - The company believes it has sufficient cash to meet operating costs and capital requirements through March 2022, but will need to raise additional capital to continue its clinical trials and fund ongoing operations beyond that[245] Quantitative and Qualitative Disclosures About Market Risk Not applicable Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2020 and 2019, including notes and the auditor's report highlighting going concern and inventory valuation Consolidated Balance Sheet Data (as of Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $12,846,113 | $2,783,719 | | Total Assets | $14,187,964 | $4,113,228 | | Total Liabilities | $3,735,482 | $3,177,246 | | Total Stockholders' Equity | $10,452,482 | $935,982 | Consolidated Statement of Operations Data (Year Ended Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Product Sales | $903,376 | $1,007,198 | | Research and Development | $6,096,445 | $4,869,160 | | Loss from Operations | ($8,961,405) | ($7,544,560) | | Net Loss | ($8,941,603) | ($7,532,533) | | Basic and Diluted Net Loss per Share | ($5.60) | ($6.97) | - The independent auditor's report identified the company's business plan and going concern considerations, as well as the valuation of inventory, as critical audit matters[270][272][276] Notes to Consolidated Financial Statements Notes detail revenue breakdown, significant customer concentration, equity transactions including a reverse stock split and capital raises, and net operating loss carryforwards - In 2020, three major customers accounted for 69% of total revenues, and their balances represented 74% of total accounts receivable at year-end[338] - On December 8, 2020, the company effected a 1-for-100 reverse stock split of its common stock[358] - The company has approximately $25.2 million in federal and state net operating loss carryforwards available to offset future taxable income, though a 100% valuation allowance has been applied[375][377] - In May 2020, a subsidiary borrowed $158,524 under the Paycheck Protection Program (PPP), which may be forgiven if qualifying expenses are met[356] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None reported Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes reported - Based on an evaluation, management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020[404] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework[407] Other Information None Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - This information will be filed in the Proxy Statement for the 2021 Annual Meeting of Stockholders within 120 days of the fiscal year-end[412] Executive Compensation Executive compensation information is incorporated by reference from the 2021 Proxy Statement - This information will be filed in the Proxy Statement for the 2021 Annual Meeting of Stockholders[413] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2021 Proxy Statement - This information will be filed in the Proxy Statement for the 2021 Annual Meeting of Stockholders[414] Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2021 Proxy Statement - This information will be filed in the Proxy Statement for the 2021 Annual Meeting of Stockholders[415] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2021 Proxy Statement - This information will be filed in the Proxy Statement for the 2021 Annual Meeting of Stockholders[416] Part IV Exhibits, Financial Statement Schedules This section lists exhibits filed with the Form 10-K, including corporate documents, material contracts, and officer certifications