Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This report contains certain statements that may be deemed ‘forward-looking statements’ within the meaning of United States securities laws. 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. Certain factors that could cause results to differ materially from those projected or implied in the forward-looking statements are set forth in this Annual Report on Form 10-K for the year ended December 31, 2021 under the caption “Item 1A — Risk factors”.
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.
Overview
We are a clinical-stage biopharmaceutical company developing innovative cancer medicines based on cell cycle, transcriptional regulation and mitosis control biology. We are a pioneer company in the field of cancer cell cycle biology with a vision to improve patient healthcare by translating insights in cancer biology into medicines that can overcome resistance and ultimately increase a patient’s overall survival. Our strategy is to build a diversified biopharmaceutical business based on a pipeline of novel drug candidates addressing oncology and hematology indications .
During 2021, our primary focus has been on our transcriptional regulation program which is evaluating fadraciclib, a CDK2/9 inhibitor, in solid tumors and hematological malignancies . The anti-mitotic program is evaluating CYC140, a PLK1 inhibitor, in advanced cancers.
We currently retain virtually all marketing rights worldwide to the compounds associated with our drug programs.
Agreements to Sell Securities
On August 12, 2021, we entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. ("Cantor"), pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $50.0 million through Cantor as the sales agent. Cantor may sell our common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act. Subject to the terms and conditions of the Sales Agreement, Cantor will use commercially reasonable efforts consistent with its normal trading and sales practices to sell shares of our common stock from time to time, based upon our instructions, including any price, time or size limits specified by us. We have provided Cantor with customary
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indemnification rights, and Cantor will be entitled to a commission at a fixed rate equal to 3.0% of the gross proceeds per share sold. We have no obligation to sell any of the shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement. The Sales Agreement will terminate upon the sale of all of the shares under the Sales Agreement unless terminated earlier by either party as permitted under the Sales Agreement. During the year ended December 31, 2021, the Company sold 752,425 shares under the Sales Agreement for net proceeds of approximately $4.0 million.
On March 12, 2021, we entered into an Underwriting Agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc., as representative of the underwriters identified therein (collectively, the “Underwriters”), pursuant to which we agreed to issue and sell 1,807,143 shares of common stock, $0.001 par value per share, at a public offering price of $7.00 per share (the “Offering”) along with a 30-day overallotment option to purchase up to an additional 271,071 shares of common stock at the public offering price, less underwriting discounts and commissions. The closing of the offering occurred on March 16, 2021, and the net proceeds to us (including exercise of the over-allotment option) were approximately $13.5 million, after deducting placement agent fees and other offering expenses payable by us.
On December 18, 2020 we entered into a definitive securities purchase agreement with Acorn Bioventures, LP, a biotech-focused fundamental investor. Under the agreement, Acorn Bioventures has agreed to purchase in a registered direct offering 485,912 shares of common stock and 237,745 shares of newly designated Series B Preferred Stock (convertible into shares of common stock at a ratio of 1:5), and in a concurrent private placement, warrants to purchase 669,854 shares of common stock, for aggregate net proceeds of approximately $6.9 million. The offering was priced at-the-market pursuant to the rules of the Nasdaq Stock Market. The warrants became exercisable beginning twelve months following the date of issuance, will expire on the five-year anniversary of the date of issuance, and have an exercise price of $4.13 per share.
On April 24, 2020 we announced the public offering of (i) 4,000,000 shares of our common stock (or pre-funded warrants to purchase common stock in lieu thereof) and (ii) common warrants to purchase up to 4,000,000 shares of common stock. Each share of common stock and, as applicable, each pre-funded warrant, was sold together with a common warrant to purchase one share of common stock at a combined effective price to the public of $5.00 per share and accompanying common warrant, and/or $4.999 per pre-funded warrant and accompanying common warrant. For each pre-funded warrant we sold, the number of shares of common stock we offered was decreased on a one-for-one basis. The common warrants are immediately exercisable at a price of $5.00 per share of common stock and will expire five years from the date of issuance. The shares of common stock and/or the pre-funded warrants, and the accompanying common warrants, were purchased together in the offering, but were issued separately and became immediately separable upon issuance. After deducting placement agent fees and other offering expenses payable by us, total net proceeds of the public offering are approximately $18.3 million.
Dividend on Preferred Stock
On December 13, 2021, the Board of Directors declared a quarterly cash dividend in the amount of $0.15 per share on our Preferred Stock. The cash dividend was paid on February 1, 2022 to the holders of record of the Preferred Stock as of the close of business on January 14, 2022.
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Results of Operations
Years Ended December 31, 2020 and 2021
Results of Continuing Operations
Revenues
There were no revenues for the years ended December 31, 2020 and 2021.
The future
We do not anticipate any revenues for the foreseeable future.
Research and development
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 materials;
● Technology license costs;
● Stock-based compensation; and
● Rent and facility expenses for our office.
The following table provides information with respect to our research and development expenditures for the years ended December 31, 2020 and 2021 (in thousands except percentages):
Year Ended
December 31,
Difference
Year ended December 31,
Difference
2020
2021
$
%
Transcriptional Regulation (fadraciclib)
$
3,665
$
11,105
$
7,440
203
Anti-mitotic (CYC140)
579
3,579
3,000
518
DNA Damage Response (sapacitabine)
203
301
98
48
Other research and development programs and expenses
312
492
180
58
Total research and development expenses
$
4,759
$
15,477
$
10,718
225
Research and development expenses represented 45% and 67% of our operating expenses for the years ended December 31, 2020 and 2021, respectively.
Research and development expenses increased by $10.7 million from $4.8 million for the year ended December 31, 2020 to $15.5 million for the year ended December 31, 2021. Expenditure for the transcriptional regulation program increased by $7.4 million relative to the respective comparative period. This was due to an increase in clinical trial costs of $4.4 million associated with the opening of clinical trial sites for the evaluation of fadraciclib in Phase 1/2 studies which were not included in the MD Anderson alliance, increase in purchases of clinical supplies of $1.2 million, commencement of pre-clinical and toxicology studies costs of $1.1 million and employment costs of $0.7
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million. Research and development expenses relating to CYC140 increased by $3.0 million relative to the respective comparative period. This was due largely to increases in pre-clinical evaluation costs of $0.7 million, clinical trial supply manufacturing costs of $1.7 million and employment costs of $0.4 million.
The future
We anticipate that overall research and development expenses for the year ended December 31, 2022 will increase compared to the year ended December 31, 2021 as we progress our clinical development into streamlined Phase 1/2 programs which were not included in the concluded MD Anderson alliance.
General and administrative
General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the total general and administrative expenses for the years ended December 31, 2020 and 2021 (in thousands except percentages):
Year Ended
December 31,
Difference
Year ended December 31,
Difference
2020
2021
$
%
Total general and administrative expenses
$
5,877
$
7,461
$
1,584
27
Total general and administrative expenses represented 55% and 33% of our operating expenses for the years ended December 31, 2020 and 2021, respectively.
Our general and administrative expenditures increased by $1.6 million from $5.9 million for the year ended December 31, 2020 to $7.5 million for the year ended December 31, 2021. The increase was due to $0.4 million costs related to the assignment of our lease facility in Dundee, Scotland and increases in legal and professional costs of $0.5 million, employment and recruitment costs of $0.2 million relating to expansion of the clinical team and stock compensation costs of $0.5 million.
The future
We expect general and administrative expenditures for the year ended December 31, 2022 to be lower than our expenditures for the year ended December 31, 2021, due to reduced recruitment and professional costs.
Other income (expense), net
The following table summarizes the other income (expense) for years ended December 31, 2020 and 2021 (in thousands except percentages):
Year Ended
December 31,
Difference
Year ended December 31,
Difference
2020
2021
$
%
Foreign exchange gains
$
22
$
44
$
22
(100)
Interest income
42
16
(26)
(62)
Other income, net
891
144
(747)
(84)
Total other income
$
955
204
$
(751)
(79)
Total other income, net, decreased by approximately $0.8 million from approximately $1.0 million for the year ended December 31, 2020 to approximately $0.2 million for the year ended December 31, 2021. The decrease in other income is primarily related to lower royalties received under a December 2005 Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by us in March 2006) sold certain assets and intellectual property to ThermoFisher Scientific Company, or TSC (formerly Life Technologies Corporation) through the APA and
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other related agreements. The assets and technology were not part of our product development plan following the transaction between Xcyte and us in March 2006. Accordingly, we recognized $891,000 and $144,000 of other income arising from sales related to this transaction during the years ended December 31, 2020 and 2021, respectively. We have no knowledge of TSC’s activities and cannot predict when we may receive income under the APA, if any.
Foreign exchange gains (losses)
Foreign exchange gains increased by $22,000 to a gain of $44,000 for the year ended December 31, 2021 compared to a gain of approximately $22,000 for the year ended December 31, 2020.
We have intercompany loans in place between our parent company based in New Jersey and our subsidiary based in Scotland. The intercompany loans outstanding are not expected to be repaid in the foreseeable future and the nature of the funding advanced is of a long-term investment nature. Therefore, all unrealized foreign exchange gains or losses arising on the intercompany loans are recognized in other comprehensive income until repayment of the intercompany loan becomes foreseeable. Unfavorable unrealized foreign exchange movements related to intercompany loans resulted in a loss of $2.1 million for the year ended December 31, 2021 and a gain of $7.6 million for the year ended December 31, 2020.
The future
Other income (expense), net 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.
As the funding advanced through intercompany loans is that of a long-term investment in nature, unrealized foreign exchange gains and losses on such funding will be recognized in other comprehensive income (loss) 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 taxation and customs authority (HMRC), in respect of qualifying research and development costs incurred. This credit is an offset to research and development expenditure recorded in the consolidated statement of operations.
The following table summarizes total income tax benefit for the years ended December 31, 2020 and 2021 (in thousands except percentages):
Year Ended
December 31,
Difference
Year ended December 31,
Difference
2020
2021
$
%
Total income tax benefit
$
1,236
$
3,847
$
2,611
211
The income tax benefit increased significantly by approximately $2.6 million, from $1.2 million for the year ended December 31, 2020 to $3.8 million for the year ended December 31. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one year.
The future
We expect to continue to be eligible to receive United Kingdom research and development tax credits for the year ending December 2022 and will continue to elect to receive payment of the tax credit. Beyond 2022, we cannot be certain to be eligible to receive this tax credit. The amount of tax credits we will receive is entirely dependent on the amount of eligible research and development expenses we incur and could be restricted by any future cap introduced by HMRC. As we expect our eligible expenses to be higher in the fiscal year ended December 31, 2022, the level of tax credits recoverable is anticipated to be higher in 2022 compared to the fiscal year ended December 31, 2021.
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Liquidity and Capital Resources
The following is a summary of our key liquidity measures as of December 31, 2020 and 2021 (in thousands):
December 31,
2020
2021
Cash and cash equivalents
$
33,406
$
36,559
Working capital:
Current assets
$
35,469
$
40,942
Current liabilities
(2,486)
(5,294)
Total working capital
$
32,983
$
35,648
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, licensing revenue, royalty income, and a limited amount of product revenue from operations discontinued in September 2012. We have incurred significant loses since our inception. As of December 31, 2021, we had an accumulated deficit of $385.0 million.
Cash Flows
Cash provided by (used in) operating, investing and financing activities for the years ended December 31, 2020 and 2021 is summarized as follows (in thousands):
Year Ended December 31,
2020
2021
Net cash used in operating activities
$
(7,934)
$
(18,540)
Net cash used in investing activities
(96)
(27)
Net cash provided by financing activities
29,504
21,737
Operating activities
Net cash used in operating activities increased by $10.6 million, from $7.9 million for the year ended December 31, 2020 to $18.5 million for the year ended December 31, 2021. The increase in cash used by operating activities was primarily the result of an increase in our year-over-year net loss of $10.4 million, an increase in working capital of $1.2 million, offset by an increase in non-cash stock-based compensation of $0.7 million and a change in our lease liability of $0.3 million.
Investing activities
Net cash used in investing activities decreased by $69,000 for the year ended December 31, 2021 due to a decrease in capital expenditures on IT software.
Financing activities
Net cash provided by financing activities was $21.7 million for the year ended December 31, 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
- $4.0 million from the issuance of common stock under a controlled equity offering sales agreement with Cantor Fitzgerald & Co., and
- offset by dividend payments of approximately $0.2 million to the holders of our 6% Convertible Exchangeable Preferred Stock.
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Net cash provided by financing activities was $29.5 million for the year ended December 31, 2020, primarily as a 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,
- approximately $4.5 million from warrant exercises associated with the co-placement agency agreement with Roth Capital Partners,
- approximately $6.9 million of net proceeds from the issuance of common stock and accompanying common stock warrants in a securities purchase agreement with Acorn Bioventures, LP, and
- offset by dividend payments of approximately $0.2 million to the holders of our 6% Convertible Exchangeable 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 FDA or EMA in other countries and successfully commercialized.
We believe that existing funds together with cash generated from operations, including the R&D tax credit, and recent financing activities, are sufficient to satisfy our planned working capital, capital expenditures and other financial commitments through mid-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 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.
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
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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 candidate programs at an earlier stage of development, which would lower the economic value of those programs to us.
Contractual Obligations
The following table summarizes our long-term contractual obligations as of December 31, 2021 (in thousands):
Payments Due by Period
Less than
More than
Total
1 year
1 – 3 years
3 – 5 years
5 years
Operating Lease Obligations (1)
$
43
$
39
$
4
$
—
$
—
(1) Operating lease obligations relate primarily to leasing of office space at our Berkeley Heights, New Jersey location. The lease for our Berkeley Heights location, which was entered into in August 2020, expires in July 2022.
Off-Balance Sheet Arrangements
Since our inception, we have not had any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the judgments and estimates required by the following accounting policies to be critical in the preparation of our consolidated financial statements.
Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this report. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Accrued Research and Development Costs
Accrued research and development costs comprise our best estimates related to the cost of clinical trials, laboratory, and manufacturing activities that were incurred, but not paid or invoiced, as of the end of a reporting period.
Data management and monitoring of our clinical trials are performed with the assistance of contract research organizations, or CROs, or clinical research associates, or CRAs, in accordance with our standard operating procedures. Typically, CROs and CRAs bill monthly for services performed, or based upon milestones achieved. We accrue unbilled clinical trial expenses based on estimates of the level of services performed each period. Moreover, clinical trial costs related to patient enrollment are accrued as patients are entered into and progress through the trial.
We also perform outsourced laboratory and manufacturing activities. We accrue for unbilled laboratory and manufacturing activities performed by third parties based on estimates of their progress towards completing the requested tasks.
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As of December 31, 2021, we accrued $2.3 million of clinical trial, laboratory, and manufacturing costs that we believe had been incurred as of year-end but had not been invoiced. This represents approximately 15% of our total research and development expense for the year ended December 31, 2021. The comparable accrual for unbilled research and development costs as of December 31, 2020 was approximately $0.8 million. This accrual represented approximately 16% of our total research and development expense for the year ended December 31, 2020.
When recording these accruals, we must make judgments about the progress of our various clinical activities. We (as well as our CROs and CRAs) are reliant on information being provided timely and accurately by the multitude of clinics and hospitals where the studies are being conducted, some of which are located internationally. We must also make estimates about the progress our third-party vendors are making towards completing laboratory and manufacturing activities.
Stock-based Compensation
We grant stock options, restricted stock units and restricted stock to officers, employees, directors and consultants under our 2018 Equity Incentive Plan (the 2018 Plan) and the 2020 Inducement Equity Incentive Plan. We measure compensation cost for all stock-based awards at fair value on date of grant and recognize compensation over the requisite service period. The fair value of restricted stock and restricted stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. The determination of grant-date fair value for stock option awards is estimated using an option-pricing model, which includes variables such as the expected volatility of our share price, the anticipated exercise behavior of our employees, interest rates, and dividend yields. These variables are projected based on our historical data, experience, and other factors. Changes in any of these variables could result in significant adjustments to the expense recognized for share-based payments.
Recent Accounting Pronouncements Not Yet Effective
In November 2021 , the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance . This ASU requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC 958-605 or based on International Accounting Standard No. 20 . ASU 2021-10 will become effective for us on January 1, 2022. We have evaluated the effect that this guidance will have on our Consolidated Financial Statements and determined it will not have a material impact.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) . The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. We do not believe that this new guidance will have a material impact on its financial statements for any past transactions, but it could change the way that we account for subsequent amendments to our outstanding warrants, if any.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide information response to this item.
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