Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including, without limitation, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend that the forward-looking statements be covered by the safe harbor for forward-looking statements in the Exchange Act. The forward-looking information is based on various factors and was derived using numerous assumptions. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are usually accompanied by words such as “believe,” “anticipate,” “plan,” “seek,” “expect,” “intend” and similar expressions.
Forward-looking statements necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in the forward looking statements due to a number of factors, including those set forth in Part I, Item 1A, entitled “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2020, as updated and supplemented by Part II, Item 1A, entitled “Risk Factors,” of our Quarterly Reports on Form 10-Q, and elsewhere in this report. In addition, while we expect the coronavirus pandemic to have an impact on our business operations and financial results, the extent of the impact on our clinical development and regulatory efforts, our corporate development objectives, our financial position and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease. These factors as well as other cautionary statements made in this Quarterly Report on Form 10-Q, should be read and understood as being applicable to all related forward-looking statements wherever they appear herein. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our judgment as of the date hereof. We encourage you to read those descriptions carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements. In this report, “Cyclacel,” the “Company,” “we,” “us,” and “our” refer to Cyclacel Pharmaceuticals, Inc.
Overview
Consistent with our mission of developing medicines that expand available treatment options for patients with unmet medical needs, we have three orally-available candidates in clinical development:
● Fadraciclib (formerly CYC065), a cyclin dependent kinase (CDK) inhibitor selectively targeting CDK2 and CDK9. Oral fadraciclib is currently being evaluated in mid-stage clinical trials in both patients with solid cancers and hematological malignancies.
● CYC140 is a novel, small molecule, selective and potent PLK-centric inhibitor, primarily targeting PLK1. We are currently planning a streamlined study with oral CYC140 in a broad range of solid tumors in multiple cohorts defined by cancer histology to be followed by a similar study in patients with hematological malignancies .
● Sapacitabine is a nucleoside analogue with a DNA damage response (DDR) mechanism . It is being evaluated as a combination therapy with venetoclax in patients with relapsed/refractory acute myeloid leukemia (AML).
Cyclacel retains virtually all marketing rights worldwide to the compounds associated with the Company’s drug programs.
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Results of Operations
Three And Nine months Ended September 30, 2020 and 2021
Results of Continuing Operations
Revenues
Revenues for each of the three and nine months ended September 30, 2020 and 2021 were $0.
The future
There are no active collaboration, licensing, or clinical supply agreements and consequently no revenues are expected in the foreseeable future.
Research and development expenses
From our inception, we have focused on drug discovery and development programs, with a particular emphasis on orally-available anticancer agents. Our research and development expenses have represented costs incurred to discover and develop novel small molecule therapeutics, including clinical trial costs for fadraciclib, CYC140, and sapacitabine. We have also incurred costs related to the advancement of product candidates through preclinical and clinical stages of development and in-house research to advance our biomarker program and technology platforms. We expense all research and development costs as they are incurred. Research and development expenses primarily include:
● Clinical trial and regulatory-related costs;
● Payroll and personnel-related expenses, including consultants and contract research organizations;
● Preclinical studies and laboratory supplies and materials;
● Technology license costs;
● Stock-based compensation; and
● Rent and facility expenses for our offices and laboratories.
The following table provides information with respect to our research and development expenditures for the three and nine months ended September 30, 2020 and 2021 (in $000s except percentages):
Three Months Ended
Nine Months Ended
September 30,
Difference
September 30,
Difference
2020
2021
$
%
2020
2021
$
%
Transcriptional Regulation (fadraciclib)
$
854
$
3,331
$
2,477
290
$
2,592
$
7,748
$
5,156
199
Mitosis Regulation (CYC140)
127
664
537
423
399
2,480
2,081
522
DNA Damage Response (sapacitabine)
54
96
42
78
138
269
131
95
Other research and development programs and expenses
40
126
86
215
215
387
172
80
Total research and development expenses
$
1,075
$
4,217
$
3,142
292
$
3,344
$
10,884
$
7,540
225
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Total research and development expenses for the three and nine months ended September 30, 2021 represented 70% and 66% of our operating expenses respectively, an increase over respective comparative periods.
During both the three and nine months ended September 30, 2021, the increase in expenditure for the transcriptional regulation program relative to the respective comparative periods was due to clinical supply manufacturing and opening of clinical trial sites for the evaluation of fadraciclib in a Phase 1/2 studies. Research and development expenses relating to CYC140 increased during both the three and nine months ended September 30, 2021 as the pre-clinical evaluation and clinical trial supply manufacturing of CYC140 progressed.
The future
We anticipate that overall research and development expenses for the year ended December 31, 2021 will increase compared to the year ended December 31, 2020 as we progress both of our clinical development programs.
General and administrative expenses
General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the general and administrative expenses for the three and nine months ended September 30, 2020 and 2021 (in $000s except percentages):
Three Months Ended
Nine Months Ended
September 30,
Difference
September 30,
Difference
2020
2021
$
%
2020
2021
$
%
Total general and administrative expenses
$
1,497
$
1,781
$
284
19
$
4,124
$
5,520
$
1,396
34
Total general and administration expenses for the three and nine months ended September 30, 2021 represented 30% and 34% of our operating expenses respectively, a decrease over respective comparative periods.
During both the three and nine months ended September 30, 2021, the increase in general and administrative expenses was primarily due to a $0.4 million reverse premium in relation to assignation of our lease facility in Dundee, Scotland and an increase in legal, professional and recruitment costs relating to expansion of the clinical team.
The future
We expect general and administrative expenditures for the year ended December 31, 2021 to increase by approximately 20% compared to our expenditures for the year ended December 31, 2020 due to lease assignation premium, legal, professional and recruitment costs.
Other income (expense), net
The following table summarizes other income for the three and nine months ended September 30, 2020 and 2021 (in $000 except percentages):
Three Months Ended
Nine Months Ended
September 30,
Difference
September 30,
Difference
2020
2021
$
%
2020
2021
$
%
Foreign exchange gains (losses)
$
(25)
$
9
$
34
(136)
$
42
$
5
$
(37)
(88)
Interest income
4
4
—
—
36
12
(24)
(67)
Other income, net
56
—
(56)
(100)
891
144
(747)
(84)
Total other income
$
35
$
13
$
(22)
(63)
$
969
$
161
$
(808)
(83)
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The decrease in total other income for the nine months ended September 30, 2021 is related to royalties receivable under a December 2005 Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by the Company in March 2006) sold certain assets and intellectual property to ThermoFisher Scientific Company, or TSC (formerly Invitrogen Corporation) through the APA and other related agreements. The assets and technology were not part of the Company’s product development plan following the transaction between Xcyte and Cyclacel in March 2006. Accordingly, the company recognized $0 and $144,000 of other income arising from sales related to this transaction during the three and nine months ended September 30, 2021, respectively. We have no knowledge of TSC’s activities and cannot predict when we may receive income under the APA, if any.
The future
Other income (expense), net for the year ended December 31, 2021, will continue to be impacted by changes in foreign exchange rates and the receipt of income under the APA. As we are not in control of sales made by TSC, we are unable to estimate the level and timing of income under the APA, if any.
Because the nature of funding advanced through intercompany loans is that of a long-term investment, unrealized foreign exchange gains and losses on such funding will be recognized in other comprehensive income until repayment of the intercompany loan becomes foreseeable.
Income tax benefit
Credit is taken for research and development tax credits, which are claimed from the United Kingdom’s revenue and customs authority, or HMRC, in respect of qualifying research and development costs incurred.
The following table summarizes total income tax benefit for the three and nine months ended September 30, 2020 and 2021 (in $000s except percentages):
Three Months Ended
Nine Months Ended
September 30,
Difference
September 30,
Difference
2020
2021
$
%
2020
2021
$
%
Total income tax benefit
$
281
$
998
$
717
255
$
858
$
2,650
$
1,792
209
The total income tax benefit comprises research and development tax credits recoverable. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one year and the availability of trading losses.
The future
We expect to continue to be eligible to receive United Kingdom research and development tax credits for the foreseeable future and will continue to elect to receive payment of the tax credit. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur and could be restricted by any future cap or other restrictions or modifications introduced by UK taxation authorities. As we expect our eligible expenses to be higher in the fiscal year ended December 31, 2021, the level of tax credits recoverable is anticipated to be higher in 2021 compared to the fiscal year ended December 31, 2020.
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Liquidity and Capital Resources
The following is a summary of our key liquidity measures as of September 30, 2020 and 2021 (in $000s):
September 30,
2020
2021
Cash and cash equivalents
$
23,130
$
40,219
Working capital:
Current assets
$
25,934
$
43,375
Current liabilities
(1,712)
(3,591)
Total working capital
$
24,222
$
39,784
Since our inception, we have relied primarily on the proceeds from sales of common and preferred equity securities to finance our operations and internal growth. Additional funding has come through research and development tax credits, government grants, the sale of product rights, interest on investments and licensing revenue. We have incurred significant losses since our inception. As of September 30, 2021, we had an accumulated deficit of $379.7 million.
Cash Flows
Cash used in operating, investing and financing activities for the nine months ended September 30, 2020 and 2021 is summarized as follows (in $000s):
Nine Months Ended September 30,
2020
2021
Net cash used in operating activities
$
(6,782)
$
(13,991)
Net cash used in investing activities
(54)
(25)
Net cash provided by financing activities
18,156
20,850
Operating activities
Net cash used in operating activities increased by $7.2 million, from $6.8 million for the nine months ended September 30, 2020 to $14.0 million for the nine months ended September 30, 2021. The increase in cash used by operating activities was primarily the result of an increase in net loss of $7.9 million, a change in working capital of $0.1 million, offset by an increase of stock compensation expense of $0.6 million and change in lease liability of $0.2 million.
Investing activities
Net cash used by investing activities decreased by $29,000 for the nine months ended September 30, 2021, predominantly due to decreased capital expenditures on IT equipment.
Financing activities
Net cash provided by financing activities was $20.9 million for the nine months ended September 30, 2021 as a direct result of receiving approximately:
● $13.5 million in net proceeds from the issuance of common stock under an underwriting agreement with Oppenheimer & Co. Inc.,
● $4.5 million from warrant exercises associated with a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC, and
● $3.0 million from the issuance of common stock under a controlled equity offering sales agreement with Cantor Fitzgerald & Co.,
● offset by dividend payments of approximately $0.2 million to the holders of our 6% Preferred Stock.
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Net cash provided by financing activities was $18.2 million for the nine months ended September 30, 2020 as a direct result of receiving approximately $18.3 million in net proceeds from the issuance of common stock and accompanying common stock warrants under a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC, offset by dividend payments of approximately $0.1 million to the holders of our 6% Preferred Stock.
Operating Capital and Capital Expenditure Requirements
We expect to continue to incur substantial operating losses in the future and cannot guarantee that we will generate any significant product revenues until a product candidate has been approved by the Food and Drug Administration (“FDA”) or European Medicines Agency (“EMA”) in other countries and successfully commercialized.
We believe that existing funds together with cash generated from operations, such as recent financing activities and the R&D tax credit, are sufficient to satisfy our planned working capital, capital expenditures and other financial commitments through to early 2023. However, we do not currently have sufficient funds to complete development and commercialization of any of our drug candidates. Current business and capital market risks could have a detrimental effect on the availability of sources of funding and our ability to access them in the future, which may delay or impede our progress of advancing our drugs currently in the clinical pipeline to approval by the FDA or EMA for commercialization. Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.
Our future funding requirements will depend on many factors, including but not limited to:
● the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;
● the costs associated with establishing manufacturing and commercialization capabilities;
● the extent to which the coronavirus impacts the Company’s financial condition and operations, which will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease;
● the costs of acquiring or investing in businesses, product candidates and technologies;
● the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
● the costs and timing of seeking and obtaining FDA and EMA approvals;
● the effect of competing technological and market developments; and
● the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter.
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Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. Although we are not reliant on institutional credit finance and therefore not subject to debt covenant compliance requirements or potential withdrawal of credit by banks, we are reliant on the availability of funds and activity in equity markets. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs or make changes to our operating plan. In addition, we may have to partner one or more of our product candidates at an earlier stage of development, which would lower the economic value of those programs to us. Management continues to evaluate the impact of the COVID-19 pandemic on its current operations and future plans and takes appropriate measures to address any such impact, but there can be no assurance that these efforts will be successful and that the pandemic will not have negative effect on the Company’s financial position and results of operations, but it could materially affect the ability of the Company to raise future capital or to conduct clinical studies on a timely basis.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide information in response to this item.
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