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Item 7. Management’s Discussion and Analysis

2023-03-08 compared with 2022-03-30 · 56 added, 84 removed, 136 unchanged (51% of the section changed)

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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.

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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 .

We reported no revenues for the years ended December 31, 2021 and 2022, and do not expect to report revenue for the foreseeable future.

During 2022, 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.

The anti-mitotic program is evaluating plogosertib, a PLK1 inhibitor, in advanced cancers.

We currently retain 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

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.

("Cantor"), pursuant to which we could 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 could sell the 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.

On August 12, 2022, we became aware that the shelf registration statement on Form S-3 (file number 333-231923) (the “Registration Statement”) associated with this Sales Agreement had expired on June 21, 2022.

Prior to becoming aware of the expiration, we sold an aggregate of 3,117,100 shares of our common stock at market prices, following the expiration of the Registration Statement and through August 12, 2022, for aggregate proceeds of approximately $4,494,496.

There was no sale of shares post August 12, 2022.

The sale of these shares may be subject to potential rescission rights by certain shareholders.

As of December 31, 2022, there have been no claims or demands to exercise such rights.

As a result of these potential rescission rights, we reclassified 3,117,100 shares, with an aggregate purchase price of $4,494,496 of our common stock as temporary equity, presented outside of stockholders’ equity.

The reclassification of these shares shall remain for a period of one year from the transaction date.

These shares have been treated as issued and outstanding for purposes of earnings per share and general financial reporting.

On August 15, 2022, due to expiry of the Registration Statement, the Sales Agreement was mutually terminated.

A total of 3,281,067 shares, for gross proceeds of approximately $7.6 million, had been sold pursuant to the Sales Agreement, including 2,528,642 shares during the year ended December 31, 2022 for gross proceeds of approximately $3.4 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.

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.

Dividend on Preferred Stock

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Results of Continuing Operations

There were no revenues for the years ended December 31, 2020 and 2021.

We do not anticipate any revenues for the foreseeable future.

Research and development

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The following table provides information with respect to our research and development expenditures for the years ended December 31, 2021 and 2022 (in thousands except percentages):

Year ended December 31,

Transcriptional Regulation (fadraciclib)

Anti-mitotic (CYC140)

DNA Damage Response (sapacitabine)

Other research and development programs and expenses

Anti-mitotic (plogosertib)

Other research and development expenses

Total research and development expenses

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Research and development expenses increased by $4.8 million from $15.5 million for the year ended December 31, 2021 to $20.3 million for the year ended December 31, 2022.

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

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.

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.

Expenditure for the transcriptional regulation program increased by $2.9 million for the year ending December 31, 2022 relative to the respective comparative period.

This was due to an increase in clinical trial costs of $2.2 million associated with the progression of clinical trials for the evaluation of fadraciclib in Phase 1/2 studies, along with an increase in non-clinical expenditure of $0.7 million.

Research and development expenses relating to plogosertib increased by $2.0 million for the year ending December 31, 2022 relative to the respective comparative period.

This was due to an increase in clinical trial costs of $2.7 million associated with the

progression of clinical trials for the evaluation of plogosertib in Phase 1/2 studies, offset by a decrease in non-clinical expenditure of $0.7 million.

We anticipate that overall research and development expenses for the year ended December 31, 2023 will be broadly similar compared to the year ended December 31, 2022 as we continue our Phase 1/2 programs.

General and administrative

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The following table summarizes the total general and administrative expenses for the years ended December 31, 2021 and 2022 (in thousands except percentages):

Year ended December 31,

Total general and administrative expenses

Total general and administrative expenses represented 33% and 27% of our operating expenses for the years ended December 31, 2021 and 2022, 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.

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.

Our general and administrative expenditures remained relatively flat at approximately $7.4 million for each of the years ended December 31, 2021 and 2022.

During the year ended December 31, 2022 as compared to the year ended December 31, 2021, there were increases in employment costs of $0.3 million, stock compensation costs of $0.2 million and professional costs of $0.2 million, offset by reductions in facility costs of $0.6 million.

We expect general and administrative expenditures for the year ended December 31, 2023 to remain relatively flat compared to the year ended December 31, 2022.

Other income (expense), net

The following table summarizes the other income (expense) for years ended December 31, 2021 and 2022 (in thousands except percentages):

Year ended December 31,

Foreign exchange gains

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Total other income

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

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.

Total other income, net, increased by approximately $1.5 million from approximately $0.2 million for the year ended December 31, 2021 to approximately $1.7 million for the year ended December 31, 2022.

The increase in other income primarily relates to royalties receivable under a December 2005 Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by us in March 2006) sold through the APA and other related agreements certain assets and intellectual property which are not related to our product development plans to ThermoFisher Scientific Company, or TSC.

Accordingly, we presented $1.3 million and $144,000 as other income received from TSC during the years ended December 31, 2022 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.

Foreign exchange gains increased by approximately $189,000 to a gain of $233,000 for the year ended December 31, 2022 compared to a gain of approximately $44,000 for the year ended December 31, 2021.

We have intercompany loans in place between our parent company based in New Jersey and our subsidiary based in Scotland.

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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.

Unfavorable unrealized foreign exchange movements related to intercompany loans resulted in a loss of $21.2 million for the year ended December 31, 2022 compared to a loss of $2.1 million for the year ended December 31, 2021.

Other income (expense), net will continue to be impacted by changes in foreign exchange rates and the receipt of income under the APA.

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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,

The following table summarizes total income tax benefit from such credits for the years ended December 31, 2021 and 2022 (in thousands except percentages):

Income tax benefit

Total income tax benefit

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We expect to continue to be eligible to receive United Kingdom research and development tax credits for the year ending December 2023 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.

Beyond 2023, we cannot be certain to be eligible to receive this tax credit or if eligible, the amount that may be receivable due to proposed changes by HMRC to the elibility criteria.

Liquidity and Capital Resources

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Total working capital

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 provided by (used in) operating, investing and financing activities for the years ended December 31, 2021 and 2022 is summarized as follows (in thousands):

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Net cash used in operating activities increased by $2.3 million, from $18.5 million for the year ended December 31, 2021 to $20.8 million for the year ended December 31, 2022.

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.

The increase in cash used by operating activities was primarily the result of an increase in our year-over-year net loss of $2.3 million, an increase in working capital of $0.2 million and a decrease in change in lease liability of $0.1 million, offset by an increase in stock compensation costs 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.

Net cash used in investing activities decreased by $20,000 for the year ended December 31, 2022 due to a decrease in capital expenditures on IT equipment.

Financing activities

Net cash provided by financing activities was $3.0 million for the year ended December 31, 2022 as a direct result of receiving approximately:

- $3.2 million in net proceeds 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% Convertible Exchangeable Preferred Stock.

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.

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- offset by dividend payments of approximately $0.2 million to the holders of our 6% Convertible Exchangeable Preferred Stock.

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.

Funding Requirements and Going Concern

As of December 31, 2022, we had cash and cash equivalents of $18.3 million We have incurred losses since our inception and as of December 31, 2022, we had an accumulated deficit of $406.2 million.We expect to continue to incur substantial operating losses in the future.

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.

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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

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 candidate programs at an earlier stage of development, which would lower the economic value of those programs to us.

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.

As discussed in Note 1 of the Notes to the Consolidated Financial Statements accompanying this Annual Report on Form 10-K, under ASC Topic 205-40, Presentation of Financial Statements - Going Concern , management is

required at each reporting period to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued.

Based on our current operating plan, we anticipate that our cash and cash equivalents of $18.3 million as of December 31, 2022 will allow us to meet our liquidity requirements to the fourth quarter of 2023.

Our history of losses, our negative cash flows from operations, our liquidity resources currently on hand, and our dependence on the ability to obtain additional financing to fund our operations after the current resources are exhausted, about which there can be no certainty, have resulted in our assessment that there is substantial doubt about our ability to continue as a going concern for a period of at least twelve months from the issuance date of this Annual Report on Form 10-K.

While we have plans in place to mitigate this risk, which primarily consist of raising additional capital through a combination of public or private equity or debt financings or by entering into partnership agreements for further development of our drug candidates, there is no guarantee that we will be successful in these mitigation efforts.

Contractual Obligations

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Operating Lease Obligations (1)

(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.

(1) Operating lease obligations relate primarily to leasing office space at our Berkeley Heights, New Jersey location.

The lease for our Berkeley Heights location, which was entered into in April 2022, expires in July 2025.

Off-Balance Sheet Arrangements

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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.

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.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis