Company Quick10K Filing
Quick10K
Cyclacel Pharmaceuticals
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.71 17 $12
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-29 Shareholder Vote, Other Events
8-K 2019-05-14 Earnings, Exhibits
8-K 2019-03-07 Other Events
8-K 2019-01-08
8-K 2019-01-01 Officers, Exhibits
8-K 2018-12-11 Other Events
8-K 2018-11-12 Earnings, Exhibits
8-K 2018-10-04 Enter Agreement, Exhibits
8-K 2018-10-01 Enter Agreement, Other Events, Exhibits
8-K 2018-09-06 Officers, Other Events, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-05-31 Other Events
8-K 2018-05-31 Shareholder Vote, Exhibits
8-K 2018-03-28 Earnings, Exhibits
8-K 2018-03-07 Other Events
MRK Merck 201,670
TSLA Tesla 42,900
VNDA Vanda 866
GSM Ferroglobe 364
POPE Pope Resources Partnership 292
AT Atlantic Power 254
SVBI Severn Bancorp 117
APEN Apollo Endosurgery 72
WIZD Wizard World 0
RLBY Reliability 0
CYCC 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tv521138_ex31-1.htm
EX-31.2 tv521138_ex31-2.htm
EX-32.1 tv521138_ex32-1.htm
EX-32.2 tv521138_ex32-2.htm

Cyclacel Pharmaceuticals Earnings 2019-03-31

CYCC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv521138_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______ 

 

Commission file number 000-50626

 

CYCLACEL PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   91-1707622
(State or Other Jurisdiction
of Incorporation or Organization)
  (I.R.S. Employer
Identification No.)

 

200 Connell Drive, Suite 1500

Berkeley Heights, New Jersey

  07922
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (908) 517-7330

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Accelerated filer ¨
Non-accelerated filer x   Smaller reporting filer x
    Emerging growth company ¨

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter):

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share CYCC The Nasdaq Stock Market LLC
Preferred Stock, $0.001 par value CYCCP The Nasdaq Stock Market LLC

 

As of May 10, 2019 there were 17,199,974 shares of the registrant’s common stock outstanding.

 

 

 

 

 

CYCLACEL PHARMACEUTICALS, INC.

INDEX

 

      Page
Part I. Financial Information  
  Item 1. Financial Statements (Unaudited) 3
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
  Item 4. Controls and Procedures 22
Part II. Other Information  
  Item 1. Legal Proceedings 23
  Item 1A. Risk Factors 23
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
  Item 3. Defaults Upon Senior Securities 23
  Item 4. Mine Safety Disclosures 23
  Item 5. Other Information 23
  Item 6. Exhibits 23
   
SIGNATURE PAGE 24

 

 2 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

 

(In $000s, except share, per share, and liquidation preference amounts)

(Unaudited)

 

   December 31,   March 31, 
   2018   2019 
ASSETS          
Current assets:          
Cash and cash equivalents  $17,504   $17,934 
Prepaid expenses and other current assets   2,283    2,190 
Total current assets   19,787    20,124 
           
Property and equipment, net   36    33 
Right-of-use lease asset   -    1,353 
Total assets  $19,823   $21,510 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $2,719   $1,284 
Accrued and other current liabilities   1,732    1,203 
Total current liabilities   4,451    2,487 
Lease liability   -    1,468 
Other liabilities   100    - 
Total liabilities   4,551    3,955 
           
Stockholders’ equity:          
Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2018 and March 31, 2019; 6% Convertible Exchangeable preferred stock; 335,273 shares issued and outstanding at December 31, 2018 and March 31, 2019. Aggregate preference in liquidation of $4,006,512 as of December 31, 2018 and March 31, 2019.   -    - 
Series A convertible preferred stock, $0.001 par value; 264 shares issued and outstanding at December 31, 2018 and March 31, 2019.   -    - 
Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2018 and March 31, 2019; 12,497,447 and 17,199,974 shares issued and outstanding at December 31, 2018 and March 31, 2019.   12    17 
Additional paid-in capital   365,817    369,958 
Accumulated other comprehensive loss   (760)   (781)
Accumulated deficit   (349,797)   (351,639)
Total stockholders’ equity   15,272    17,555 
Total liabilities and stockholders’ equity  $19,823   $21,510 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 3 

 

 

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(In $000s, except share and per share amounts)

(Unaudited)

 

   Three Months Ended
March 31,
 
   2018   2019 
Revenues:          
           
Total revenues  $   $ 
Operating expenses:          
Research and development   798    1,012 
General and administrative   1,364    1,192 
Total operating expenses   2,162    2,204 
Operating loss   (2,162)   (2,204)
Other income (expense):          
Foreign exchange (losses)   (4)   15 
Interest income   69    79 
Other income, net   566    - 
Total other income, net   631    94 
Loss before taxes   (1,531)   (2,110)
Income tax benefit   182    268 
Net loss   (1,349)   (1,842)
Dividend on 6% Convertible Exchangeable preferred stock   (50)   (50)
Net loss applicable to common stockholders  $(1,399)  $(1,892)
           
Basic and diluted earnings per common share:          
           
Net loss per share – basic and diluted  $(0.12)  $(0.14)
Weighted average common shares outstanding   11,997,447    13,638,271 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 4 

 

 

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(In $000s)

(Unaudited)

 

   Three Months Ended
March 31,
 
   2018   2019 
Net loss  $(1,349)  $(1,842)
Translation adjustment   (6,328)   (3,897)
Unrealized foreign exchange gain on intercompany loans   6,276)   3,876 
Comprehensive loss  $(1,401)  $(1,863)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 5 

 

 

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

(In thousands, except share amounts)

(Unaudited)

 

                   Accumulated         
                   Additional   Other       Total 
   Preferred Stock   Common Stock   Paid-in   Comprehensive   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Loss   Deficit   Equity 
Balances at December 31, 2017   335,537   $-    11,997,447   $12   $365,057   $(794)  $(342,509)   21,766 
Issue of common stock on
At Market Issuance sales agreement
   -    -    -    -    -    -    -    - 
Stock-based compensation   -    -    -    -    81    -    -    81 
Preferred stock dividends   -    -    -    -    (50)   -    -    (50)
Unrealized foreign exchange on intercompany loans   -    -    -    -    -    6,276    -    6,276 
Translation adjustment   -    -    -    -    -    (6,328)   -    (6,328)
Loss for the period   -    -    -    -    -    -    (1,349)   (1,349)
Balances at March 31, 2018   335,537   $-    11,997,447   $12   $365,088   $(846)  $(343,858)  $20,396 
                                         
                                         
Balances at December 31, 2018   335,537   $-    12,497,447   $12   $365,817   $(760)  $(349,797)   15,272 
Issue of common stock on
At Market Issuance sales agreement
   -    -    4,702,527    5    4,106    -    -    4,111 
Stock-based compensation   -    -    -    -    85    -    -    85 
Preferred stock dividends   -    -    -    -    (50)   -    -    (50)
Unrealized foreign exchange on intercompany loans   -    -    -    -    -    3,876    -    3,876 
Translation adjustment   -    -    -    -    -    (3,897)   -    (3,897)
Loss for the period   -    -    -    -    -    -    (1,842)   (1,842)
Balances at March 31, 2019   335,537   $-    17,199,974   $17   $369,958   $(781)  $(351,639)  $17,555 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 6 

 

 

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In $000s)

(Unaudited)

 

   Three Months Ended
March 31,
 
   2018   2019 
Operating activities:          
Net loss  $(1,349)  $(1,842)
Adjustments to reconcile net loss to net cash used in operating activities:          
           
Depreciation   7    6 
Stock-based compensation   81    85 
Gain on disposal of property and equipment       (29)
Changes in operating assets and liabilities:          
Prepaid expenses and other assets   (876)   (1,215)
Accounts payable and other current liabilities   (2)   (689)
Net cash used in operating activities   (2,139)   (3,684)
           
Investing activities:          
Purchase of property, plant and equipment   (22)   (2)
Proceeds from sale of property and equipment       29 
Net cash used in investing activities   (22)   27 
           
Financing activities:          
Proceeds from issuance of common stock, net of issuance costs       4,106 
Payment of preferred stock dividend   (50)   (50)
Net cash provided by / (used in) financing activities   (50)   4,056 
Effect of exchange rate changes on cash and cash equivalents   26    31 
Net decrease in cash and cash equivalents   (2,185)   430 
Cash and cash equivalents, beginning of period   23,910    17,504 
Cash and cash equivalents, end of period  $21,725   $17,934 
           
Supplemental cash flow information:          
Cash received during the period for:          
Interest  $69   $79 
Taxes        
           
Non cash financing activities:          
Accrual of preferred stock dividends   50    50 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 7 

 

 

CYCLACEL PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.Company Overview

 

Nature of Operations

 

Cyclacel Pharmaceuticals, Inc. (“Cyclacel” or “the Company”), is a clinical-stage biopharmaceutical company using its expertise in cell cycle, transcriptional regulation and DNA damage response biology to develop innovative, targeted medicines for cancer and other serious diseases. Cyclacel is a pioneer company in the field of cell cycle biology with a vision to improve patient healthcare by translating insights in cancer biology into medicines.

 

As of March 31, 2019, substantially all efforts of the Company to date have been devoted to performing research and development, conducting clinical trials, developing and acquiring intellectual property, raising capital and recruiting and training personnel.

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated balance sheet as of March 31, 2019, the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three months ended March 31, 2019 and 2018, and all related disclosures contained in the accompanying notes are unaudited. The consolidated balance sheet as of December 31, 2018 is derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”). The consolidated financial statements are presented on the basis of accounting principles that are generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the consolidated balance sheet as of March 31, 2019, and the results of operations, comprehensive loss and cash flows for the three months ended March 31, 2019, have been made. The interim results for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other year. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2018 that are included in the Company’s Annual Report on Form 10-K filed with the SEC.

 

Going Concern

 

Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least one year from the date the financial statements are issued. The Company expects that its cash of $17.9 million as of March 31, 2019 will be sufficient to fund its operating expenses and capital expenditure requirements through the end of 2020.

 

This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued, including:

 

a.The Company’s current financial condition, including its sources of liquidity;
b.The Company’s conditional and unconditional obligations due or anticipated within one year;
c.The funds necessary to maintain the Company’s operations considering its current financial condition, obligations, and other expected cash flows; and
d.Other conditions and events, when considered in conjunction with the above that may adversely affect the Company’s ability to meet its obligations.

 

​The future viability of the Company beyond the end of 2020 is dependent on its ability to raise additional capital to finance its operations. The Company does not currently have sufficient funds to complete development and commercialization of any of its drug candidates. Additional funding may not be available to the Company on favorable terms, or at all. If the Company is not able to secure additional funding when needed, it may have to delay, reduce the scope of or eliminate one or more of its clinical trials or research and development programs or make changes to its operating plan. In addition, it may have to partner one or more of its product candidate programs at an earlier stage of development, which would lower the economic value of those programs to the Company. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

 

 8 

 

 

Accounting standards adopted in the period

 

On January 1, 2019, the Company adopted the guidance on accounting for leases (“ASC 842”) in Accounting Standards Update No, 2016-02, Leases as amended by subsequent updates issued in 2018 and 2019. The guidance requires that lessees recognize both a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term at the commencement date.

 

The Company has elected the package of practical expedients permitted in ASC 842. Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, or (c) whether any unamortized initial direct costs would have met the definition of initial direct costs in ASC 842 at lease commencement. In addition, the Company has elected an accounting policy to not allocate payments made under the lease agreement between lease and non-lease components.

 

The Company transitioned to the new guidance at the adoption date by recognizing a lease liability of $1.5 million for the present value of the remaining minimum rental payments, as defined under prior accounting rules, and a corresponding right-of-use asset. In addition, the Company reclassified an existing deferred rent obligation of $120,000 created under prior accounting rules against the opening right-of-use asset. Because the Company adopted the new leasing guidance on a cumulative catch-up basis effective January 1, 2019, the Company has not recast prior period financial statements for the effects of this new standard. Accordingly, the Company’s financial condition as of December 31, 2018 and March 31, 2019 may not be comparable.

 

Recently Issued Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The standard can be adopted either using the prospective or retrospective transition approach. The Company is currently evaluating the impact of this pronouncement on the Company's consolidated financial statements and disclosures.

 

Fair Value of Financial Instruments

 

Financial instruments consist of cash equivalents, accounts payable and accrued liabilities. The carrying amounts of cash equivalents, accounts payable and accrued liabilities approximate their respective fair values due to the nature of the accounts, notably their short maturities.

 

Comprehensive Income (Loss)

 

All components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments, are reported, net of any related tax effect, to arrive at comprehensive income (loss). No taxes were recorded on items of other comprehensive income (loss). There were no reclassifications out of other comprehensive income (loss) during the three months ended March 31, 2018 and 2019.

 

Revenue recognition

 

With effect from January 1, 2018, the Company recognizes revenue using the five step-model provided in ASC 606, Revenue from Contracts with Customers (“ASC 606”):

 

(1)identify the contract with a customer;
(2)identify the performance obligations in the contract;

(3)determine the transaction price;
(4)allocate the transaction price to the performance obligations in the contract; and
(5)recognize revenue when, or as, the Company satisfies a performance obligation.

 

 9 

 

 

The transaction price includes fixed payments and an estimate of variable consideration, including milestone payments. The Company determines the variable consideration to be included in the transaction price by estimating the most likely amount that will be received and then applies a constraint to reduce the consideration to the amount which is probable of being received. When applying the constraint, the Company considers:

 

·Whether achievement of a development milestone is highly susceptible to factors outside the entity’s influence, such as milestones involving the judgment or actions of third parties, including regulatory bodies;

·Whether the uncertainty about the achievement of the milestone is not expected to be resolved for a long period of time;

·Whether the Company can reasonably predict that a milestone will be achieved based on previous experience; and.

·The complexity and inherent uncertainty underlying the achievement of the milestone.

 

The transaction price is allocated to each performance obligation based on the relative selling price of each performance obligation. The best estimate of the selling price is determined after considering all reasonably available information, including market data and conditions, entity-specific factors such as the cost structure of the deliverable and internal profit and pricing objectives.

 

The revenue allocated to each performance obligation is recognized as or when the Company satisfies the performance obligation.

 

The Company recognizes a contract asset, when the value of satisfied (or part satisfied) performance obligations is in excess of the payment due to the Company, and deferred revenue when the amount of unconditional consideration is in excess of the value of satisfied (or part satisfied) performance obligations. Once a right to receive consideration is unconditional, that amount is presented as a receivable.

 

With effect from January 1, 2018, grant revenue, if new grants are obtained, will be presented as a reduction against the related research and development expenses.

 

Leases

 

Effective from January 1, 2019, the Company accounts for lease contracts in accordance with ASC 842. As of March 31, 2019, all of the Company’s leases are classified as operating.

 

The Company recognizes an asset for the right to use an underlying leased asset for the lease term and records lease liabilities based on the present value of the Company’s obligation to make lease payments under the lease. As the Company’s leases do not indicate an implicit rate, the Company uses a best estimate of its incremental borrowing rate to discount the future lease payments. The Company estimates its incremental borrowing rate based on observable information about risk-free interest rates for that are the same tenure as the lease term, adjusted for various factors including the effects of assumed collateral, the nature of how the risk-free loan is repaid (e.g., amortizing versus bullet), and the Company’s credit risk.

 

The Company evaluates options included in its lease agreements to extend or terminate the lease. The Company will reflect the effects of exercising those options in the lease term when it is reasonably certain that the Company will exercise that option. In assessing whether it is reasonably certain that the Company will exercise an option, the Company considers factors such as:

 

·The lease payments due in any optional period
·Penalties for failure to exercise (or not exercise) the option
·Market factors, such as the availability of similar assets and current rental rates for such assets
·The nature of the underlying leased asset and its importance to the Company’s operations
·The remaining useful lives of any related leasehold improvements

 

Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease payments, if any, are recognized in the period when the obligation to make those payments is incurred. Lease incentives received prior to lease commencement are recorded as a reduction in the right-of-use asset. Fixed lease incentives received after lease commencement reduce both the lease liability and the right-of-use asset.

 

 10 

 

 

The Company has elected an accounting policy to account for the lease and non-lease components as a single lease component.

  

3.Revenue

 

Revenue recognized in the three months ended March 31, 2018 and 2019 was $nil.

 

The aggregate transaction price that is allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2019 was $nil.

  

4.Net Loss per Common Share

 

The Company calculates net loss per common share in accordance with ASC 260 “Earnings Per Share” (“ASC 260”). Basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

 

The following potentially dilutive securities have not been included in the computation of diluted net loss per share for the three months ended March 31, 2018 and 2019, as the result would be anti-dilutive:

 

   March 31,
2018
   March 31,
2019
 
Stock options   708,400    2,249,142 
Convertible preferred stock   1,698    1,698 
Series A preferred stock   132,000    132,000 
Common stock warrants   7,490,500    7,490,500 
Total shares excluded from calculation   8,332,598    9,873,340 

 

5.Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following (in $000s):

 

   December 31,   March 31, 
   2018   2019 
Research and development tax credit receivable  $1,148   $1,441 
Prepayments and VAT receivable   899    677 
Other current assets   236    72 
   $2,283   $2,190 

  

6.Accrued and Other Liabilities

 

Accrued and other current liabilities consisted of the following (in $000s):

 

   December 31,   March 31, 
   2018   2019 
Accrued research and development  $1,110   $804 
Accrued legal and professional fees   259    228 
Other current liabilities   363    171 
   $1,732   $1,203 

 

 11 

 

 

7.Leases

 

The Company has a single lease related to its facility in Dundee, Scotland.

 

As of and for the three months ended March 31, 2019

 

The Company recognized operating lease expense of $79,663. Cash payments made during the three months ended March 31, 2019 totaled $164,185, and were presented as cash outflows from operating activities. The remaining lease term is approximately 6.5 years as of March 31, 2019. The discount rate used by the Company in determining the lease liability was 12%.

 

Remaining lease payments under the lease are:

 

2019  $246,348 
2020   328,464 
2021   328,464 
2022   328,464 
2023   328,464 
Thereafter   574,813 
   $2,135,017 

 

As of and for the twelve months ended December 31, 2018

 

Prior to January 1, 2019, the Company accounted for its Dundee facility lease under ASC 840, Leases. Rent expense, which includes lease payments related to the Company’s research and development facilities and corporate headquarters and other rent related expenses was $0.5 and $0.4 million for each of the years ended December 31, 2017 and 2018, respectively.

 

The following is a summary of the Company’s future contractual obligations and commitments relating to its facilities leases as at December 31, 2018 (in thousands):

 

   Operating
Lease 
Obligation
 
2019  $321 
2020   321 
2021   321 
2022   321 
2023   321 
thereafter   581 
Total future minimum lease obligations  $2,186 

  

8.Stock Based Compensation

 

ASC 718 requires compensation expense associated with share-based awards to be recognized over the requisite service period, which for the Company is the period between the grant date and the date the award vests or becomes exercisable. Most of the awards granted by the Company (and still outstanding) vest ratably over one to four years. The Company recognizes all share-based awards under the straight-line attribution method, assuming that all granted awards will vest. Forfeitures are recognized in the periods when they occur.

 

 12 

 

 

Stock based compensation has been reported within expense line items on the consolidated statement of operations for the three months ended March 31, 2018 and 2019 as shown in the following table (in $000s):

  

   Three Months Ended
March 31,
 
   2018   2019 
General and administrative  $59   $54 
Research and development   22    31 
Stock-based compensation costs before income taxes  $81   $85 

  

2018 Plan

 

In May 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”), under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. The 2018 Plan replaces the 2015 Equity Incentive Plan (the “2015 Plan”).

 

The 2018 Plan allows for the issuance of up to 1,500,000 shares of the Company’s common stock pursuant to various types of award grants, including stock options and restricted stock units. In addition, the 2018 Plan allows up to 709,889 additional shares to be issued if awards outstanding under the 2018 Plan are cancelled or expire on or after the date of the Company’s 2018 annual meeting of stockholders.

 

As of March 31, 2019, the Company has reserved 245,208 shares of the Company’s common stock under the 2018 Plan, including shares that were available under the 2015 Plan and carried forward to the 2018 Plan. Stock option awards granted under the Company’s equity incentive plans have a maximum life of 10 years and generally vest over a one to four-year period from the date of grant.

 

There were 1,419,020 options granted during the three months ended March 31, 2019. These options had a grant date fair value ranging between $0.57-$0.61 per option.

 

There were 306,304 options granted during the year ended December 31, 2018. These options had grant date fair values ranging between $1.17-$1.29 per option. Of these options, approximately 174,272 are performance based and will vest upon the fulfillment of certain clinical objectives. The Company determined that the satisfaction of one criterion, the commencement of the HEM study by December 31, 2018, occurred as of December 31, 2018, but that the other vesting criteria related to these awards were not probable as of December 31, 2018. As such, the Company recognized compensation cost for these grants under the expectation that 25% of these awards (the portion associated with the HEM study) will vest.

 

There were no stock options exercised during each of the three months ended March 31, 2018 and 2019, respectively. The Company does not expect to be able to benefit from the deduction for stock option exercises that may occur because the company has tax loss carryforwards from prior periods that would be expected to offset any potential taxable income.

 

Outstanding Options

 

A summary of the share option activity and related information is as follows:

  

   Number of
Options
Outstanding
   Weighted
Average
Exercise
Price Per Share
   Weighted
Average
Remaining
Contractual
Term (Years)
   Aggregate
Intrinsic
Value ($000)
 
Options outstanding at December 31, 2018   831,611   $6.68    8.13   $ 
Granted   1,419,020   $0.72           
Cancelled/forfeited   (1,488)  $33.60           
Options outstanding at March 31, 2019   2,249,143   $2.90    9.09   $312 
Unvested at March 31, 2019   (1,914,016)  $1.28    9.36   $17 
Vested and exercisable at March 31, 2019   335,127   $12.20    7.58   $295 

 

 13 

 

 

The fair value of the stock options granted is calculated using the Black-Scholes option-pricing model as prescribed by ASC 718 using the following assumptions:

 

   Year ended 
December 31, 2018
   Quarter ended 
March 31, 2019
 
Expected term (years)   6    5-6 
Risk free interest rate   2.730% – 2.855%   2.490% – 2.610%
Volatility   105% – 107%   103% – 110%
Expected dividend yield over expected term   0.00%   0.00%
Resulting weighted average grant date fair value  $1.25   $0.58 

  

9.Stockholders Equity

 

October 2018 At Market Issuance

 

On October 4, 2018, the Company entered into a Common Stock Sales Agreement, or the Sales Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, as sales agent, pursuant to which Wainwright may sell shares of common stock, par value $0.001 per share, having an aggregate offering price of up to $5,000,000, by any method that is deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.  Shares sold under the Sales Agreement were offered and sold pursuant to the Company’s previously filed and effective Registration Statement on Form S-3 and a prospectus supplement and accompanying base prospectus.  The Company paid Wainwright a commission of 3.0% of the gross sales price per share sold. During the fourth quarter of 2018, the Company sold 500,000 shares under the Sales Agreement for gross proceeds of approximately $0.7 million. The Sales Agreement was concluded during the first quarter of 2019, during which the Company sold a further 4,702,527 shares for gross proceeds of approximately $4.3 million. Aggregate net proceeds to the Company were approximately $4.7 million, after deducting commissions and other expenses.

 

July 2017 Underwritten Public Offering

 

On July 21, 2017, the Company issued (i) 3,154,000 Class A Units for $2 per unit, each consisting of one share of the Company’s common stock, and a warrant to purchase one share of common stock (the “Class A Warrants”), and (ii) 8,872 Class B Units, each consisting of one share of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), convertible into 500 shares of Common Stock at the initial conversion price, and a warrant to purchase a number of shares of common stock equal to $1,000.00 divided by the conversion price (the “Class B Warrants”) for $1,000 per unit. The net proceeds to the Company after the underwriters’ exercise in full of the over-allotment option were approximately $13.7 million, after deducting underwriting discounts, commissions and other estimated offering expenses. The Class A Units and Class B Units have no stand-alone rights and the shares of common stock, Series A Preferred Stock and the Class A and Class B Warrants comprising those units were immediately separable.

 

The common stock, Class A Warrants and Class B Warrants (together the “Warrants”) and Series A Preferred Stock are freestanding financial instruments. The Warrants are classified within equity in the consolidated balance sheet and are not remeasured on a recurring basis. The Series A Preferred Stock is classified within equity in the consolidated balance sheet.

 

Warrants

 

As of March 31, 2019, there were 7,490,500 warrants outstanding, each with an exercise price of $2.00. All such warrants were issued in connection with the July 2017 Underwritten Public Offering and are immediately exercisable. The warrants expire in 2024. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of its warrants if the holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of common stock in excess of 4.99% (or, at the election of the purchaser, 9.99%) of the shares of our Common Stock then outstanding after giving effect to such exercise.

 

 14 

 

 

The exercise price and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock. The warrant holders must pay the exercise price in cash upon exercise of the warrants, unless such warrant holders are utilizing the cashless exercise provision of the warrants. On the expiration date, unexercised warrants will automatically be exercised via the “cashless” exercise provision.

 

Prior to the exercise of any warrants to purchase common stock, holders of the warrants will not have any of the rights of holders of the common stock purchasable upon exercise, including the right to vote, except as set forth therein.

 

There was no exercise of warrants during the three months ended March 31, 2019.

 

Series A Preferred Stock

 

8,872 shares of the Company’s Series A Preferred Stock were issued in the July 2017 Underwritten Public Offering. During the year ended December 31, 2017, 8,608 shares of the Series A Preferred Stock were converted into 4,304,000 shares of common stock. As of March 31, 2019, 264 shares of the Series A Preferred Stock remain issued and outstanding.

 

Each share of Series A Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock determined by dividing $1,000 by the initial conversion price of $2.00 per share, subject to a 4.99% blocker provision, or, upon election by a holder prior to the issuance of shares of Series A Preferred Stock, 9.99%, and is subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations. The 264 shares of Series A Preferred Stock issued and outstanding at March 31, 2019, are convertible into 132,000 shares of common stock.

 

In the event of a liquidation, the holders of shares of the Series A Preferred Stock may participate on an as-converted-to-common-stock basis in any distribution of assets of the Company. The Company shall not pay any dividends on shares of common stock (other than dividends in the form of common stock) unless and until such time as dividends on each share of Series A Preferred Stock are paid on an as-converted basis. There is no restriction on the Company’s ability to repurchase shares of Series A Preferred Stock while there is any arrearage in the payment of dividends on such shares, and there are no sinking fund provisions applicable to the Series A Preferred Stock.

 

Subject to certain conditions, at any time following the issuance of the Series A Preferred Stock, the Company has the right to cause each holder of the Series A Preferred Stock to convert all or part of such holder’s Series A Preferred Stock in the event that (i) the volume weighted average price of our common stock for 30 consecutive trading days (the “Measurement Period”) exceeds 300% of the initial conversion price of the Series A Preferred Stock (subject to adjustment for forward and reverse stock splits, recapitalizations, stock dividends and similar transactions), (ii) the daily trading volume on each Trading Day during such Measurement Period exceeds $500,000 per trading day and (iii) the holder is not in possession of any information that constitutes or might constitute, material non-public information which was provided by the Company. The right to cause each holder of the Series A Preferred Stock to convert all or part of such holder’s Series A Preferred Stock shall be exercised ratably among the holders of the then outstanding preferred stock.

 

The Series A Preferred Stock has no maturity date, will carry the same dividend rights as the common stock, and with certain exceptions contains no voting rights. In the event of any liquidation or dissolution of the Company, the Series A Preferred Stock ranks senior to the common stock in the distribution of assets, to the extent legally available for distribution.

 

6% Convertible Exchangeable Preferred Stock

 

As of March 31, 2019, there were 335,273 shares of the Company’s 6% Convertible Exchangeable Preferred Stock (“6% Preferred Stock”) issued and outstanding at an issue price of $10.00 per share. Dividends on the 6% Preferred Stock are cumulative from the date of original issuance at the annual rate of 6% of the liquidation preference of the 6% Preferred Stock, payable quarterly on the first day of February, May, August and November, commencing February 1, 2005. Any dividends must be declared by the Company’s Board and must come from funds that are legally available for dividend payments. The 6% Preferred Stock has a liquidation preference of $10.00 per share, plus accrued and unpaid dividends.

 

The Company may automatically convert the 6% Preferred Stock into common stock if the per share closing price of the Company’s common stock has exceeded $2,961, which is 150% of the conversion price of the 6% Preferred Stock, for at least 20 trading days during any 30-day trading period, ending within five trading days prior to notice of automatic conversion.

 

 15 

 

 

The 6% Preferred Stock has no maturity date and no voting rights prior to conversion into common stock, except under limited circumstances.

 

The Company may, at its option, redeem the 6% Preferred Stock in whole or in part, out of funds legally available at the redemption price of $10.00 per share.

 

The 6% Preferred Stock is exchangeable, in whole but not in part, at the option of the Company on any dividend payment date beginning on November 1, 2005 (the “Exchange Date”) for the Company’s 6% Convertible Subordinated Debentures (“Debentures”) at the rate of $10.00 principal amount of Debentures for each share of 6% Preferred Stock. The Debentures, if issued, will mature 25 years after the Exchange Date and have terms substantially similar to those of the 6% Preferred Stock. No such exchanges have taken place to date.

  

10.Subsequent Events

 

On March 7, 2019, the Board of Directors declared a quarterly cash dividend in the amount of $0.15 per share on the Company’s 6% Convertible Exchangeable Preferred Stock. The cash dividend was paid on May 1, 2019 to the holders of record of the 6% Convertible Exchangeable Preferred Stock as of the close of business on April 15, 2019.

  

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, 2018, 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. 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

 

Through the first quarter of 2019, our primary focus has been on our transcriptional regulation program where we are evaluating CYC065, our cyclin dependent kinase, or CDK, inhibitor and our DNA damage response, or DDR, program where we are evaluating sapacitabine in combination with our CDK inhibitor seliciclib in Phase 1/2 studies in patients with solid tumors. Additionally in our SEAMLESS study of sapacitabine in Acute Myeloid Leukemia, or AML, stratified and exploratory subgroup analyses have been completed and have defined a patient population who may benefit from treatment with the experimental arm. We have begun discussing the SEAMLESS data with certain regulatory authorities.

  

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Transcriptional Regulation Program

 

CDKs are a family of enzymes first discovered as regulators of the cell cycle, but that are now understood to also provide pivotal functions in the regulation of transcription, DNA repair and metastatic spread. The precise selectivity of an individual CDK inhibitor molecule for certain specific CDKs is key to targeting particular tumor types and minimizing undesirable side effects through non-specific antiproliferative activity.

 

  In general, cell cycle regulation is less well controlled in cancer cells than in normal cells, which explains in part why cancer cells divide uncontrollably. Different CDKs are responsible for control of different aspects of proliferation, and when dysregulated, can be drivers of particular cancer sub-sets. Modulating CDK activity with targeted therapies is an attractive strategy to reinforce cell cycle control and decrease the rate of abnormal proliferation of cancer cells. The FDA approval of CDK inhibitors, palbociclib, ribociclib and abemaciclib, for a type of breast cancer, has led to great interest in the development of this class of drugs as oncology therapeutics.

 

Cyclacel’s founding scientist, Professor Sir David Lane, is a globally recognized authority in cell cycle biology, who discovered p53, a key tumor suppressor that malfunctions in about two-thirds of human cancers. Under his guidance, Cyclacel’s drug discovery and development programs concentrated on the CDK2/9 isoforms, which operate as key components of the p53 pathway. These efforts resulted in bringing two molecules into clinical trials: seliciclib, a first-generation CDK inhibitor, and CYC065, a second-generation CDK inhibitor, which has benefited from the Company’s clinical experience with seliciclib. 

 

CYC065 has been evaluated in a first-in-human, Phase 1 trial in patients with advanced solid tumors and a recommended Phase 2 dose established. The study demonstrated that CYC065 durably suppresses Mcl-1, a member of the Bcl-2 family of survival proteins. CYC065 is under investigation in combination with other anticancer drugs, including Bcl-2 inhibitors such as venetoclax. Preclinical data suggests that CYC065 may benefit adults and children with hematological malignancies, including acute myeloid leukemias (AML), acute lymphocytic leukemias (ALL), and in particular leukemias with rearrangement of the Mixed Lineage Leukemia gene (MLL-r), chronic lymphocytic leukemias (CLL), B-cell lymphomas, multiple myelomas, and patients with certain solid tumors, including breast and uterine cancers, and neuroblastomas. 

 

DNA Damage Response, or DDR, Program

 

Many cancers have defects in the way in which cells monitor and repair damaged DNA, collectively termed DNA damage response, or DDR. These deficiencies in DDR pathways render cells more susceptible to DNA damage. Many traditional cancer treatments, such as DNA-damaging chemotherapy and radiotherapy, are based on this finding. However, such treatments are often accompanied by significant and unwanted side effects. Developing treatments which target specific DDR deficiencies to preferentially kill cancer cells, while minimizing the impact on normal cells, has potential for more selective, better tolerated therapies to improve survival in multiple cancers.

 

We have focused on developing treatments targeting DNA damage pathways for several years. For example, sapacitabine is an oral nucleoside analogue prodrug whose metabolite, CNDAC, generates single-strand DNA breaks, or SSB, either leading to arrest of the cell cycle at G2 phase or development of double-strand DNA breaks, or DSB. Repair of CNDAC-induced DSB is dependent on the homologous recombination, or HR repair pathway. BRCA mutations in cancer cells are a cause of HR deficiency, making such cancer cells more susceptible to cell death induced by sapacitabine.

 

 We are evaluating sapacitabine in a Phase 1/2 combination study with seliciclib in patients with BRCA mutations. A Phase 1b/2 investigator-sponsored clinical trial is underway to evaluate the safety and effectiveness of sapacitabine in combination with olaparib in patients with BRCA mutant breast cancer. The trial is being conducted at the Dana-Farber Cancer Institute with collaborators Cyclacel and AstraZeneca providing sapacitabine investigational drug and the approved PARP-inhibitor olaparib, respectively.

 

CYC140

 

CYC140 is a novel, small molecule, selective polo-like-kinase 1 (PLK1) inhibitor which is open for enrollment in a FIH study in patients with advanced leukemias and MDS. CYC140 is differentiated from previous clinical PLK1 inhibitors, demonstrating potent and selective target inhibition and high activity in xenograft models of human cancers when dosed orally at non-toxic doses and is the subject of a translational biology program focused on acute leukemias and esophageal cancer.

 

 MD Anderson Clinical Collaboration

 

On October 1, 2018, the Company entered into a three-year Clinical Collaboration Agreement, or CCA with The University of Texas MD Anderson Cancer Center, or MD Anderson. The main objective of the CCA is to clinically evaluate the safety and efficacy of three Cyclacel medicines in patients with hematological malignancies, including chronic lymphocytic leukemias, acute myeloid leukemias, myelodysplastic syndromes and other advanced leukemias. Under the terms of the CCA, MD Anderson will conduct four clinical studies with a total projected enrollment of up to 170 patients. Under the risk-sharing agreement MD Anderson will assume the patient costs for all studies and Cyclacel, who is the sponsor, will provide investigational drugs and other limited support. Upon first commercial sale in specific indications studied in the alliance, Cyclacel will make certain payments to MD Anderson.

 

 17 

 

 

Cyclacel currently retains virtually all marketing rights worldwide to the compounds associated with the Company’s drug programs.

  

Results of Operations

 

Three Months Ended March 31, 2018 and 2019

 

Results of Continuing Operations

 

Revenues

 

Revenues for the three months ended March 31, 2018 and 2019 were $nil and $nil.

 

The future

 

Recognition of any further revenue from milestones under a collaboration, licensing and supply agreement with ManRos Therapeutics SA is dependent on the clinical progress of the program, which we do not control.

 

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, and our research and development expenses have represented costs incurred to discover and develop novel small molecule therapeutics, including clinical trial costs for sapacitabine, seliciclib, and sapacitabine in combination with seliciclib. We have also incurred costs in the advancement of product candidates toward clinical and pre-clinical trials and the development of 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 laboratories.

 

The following table provides information with respect to our research and development expenditures for the three months ended March 31, 2018 and 2019 (in $000s except percentages):

 

   Three Months
Ended March 31,
   Difference 
   2018   2019   $   % 
Transcriptional Regulation  $470   $620   $150    32 
DNA Damage Response   37    31    (6)   (16)
Sapacitabine   141    102    (39)   (28)
Other research and development programs and expenses   150    259    109    73 
Total research and development expenses  $798   $1,012   $214    27 

 

 18 

 

 

Total research and development expenses represented 37% and 46% of our operating expenses for the three months ended March 31, 2018 and 2019, respectively.

 

Research and development expenditures increased by $0.2 million from $0.8 million for the three months ended March 31, 2018 to $1.0 million for the three months ended March 31, 2019. The increase was primarily as a result of expenditures relating to transcriptional regulation as the clinical evaluation of CYC065 progresses

 

The future

 

We anticipate that overall research and development expenditures for the year ended December 31, 2019 will increase compared to the year ended December 31, 2018, as we progress the clinical development of CYC065. The timing and extent of any future SEAMLESS expenditure, including the possibility of registration submissions to regulatory authorities in Europe and the U.S., are dependent upon the outcome of discussions with regulatory authorities.

 

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 months ended March 31, 2018 and 2019 (in $000s except percentages):

 

   Three Months Ended
March 31,
   Difference 
   2018   2019   $   % 
Total general and administrative expenses  $1,364   $1,192   $(172)   (13)

 

Total general and administration expenses represented 63% and 54% of our operating expenses for the three months ended March 31, 2018 and 2019, respectively. General and administrative expenses expenditures decreased by $0.2 million from $1.4 million for the three months ended March 31, 2018 to $1.2 million for the three months ended March 31, 2019 due to reduced professional and consultancy costs.

 

The future

 

We expect general and administrative expenditures for the year ended December 31, 2019 to decrease as compared to our expenditures for the year ended December 31, 2018 due to reduced recruitment and professional consultancy costs.

 

Other income (expense), net

 

The following table summarizes other income (expense) for the three months ended March 31, 2018 and 2019 (in $000 except percentages):

 

   Three Months Ended
March 31,
   Difference 
   2018   2019   $   % 
Foreign exchange gains/(losses)  $(4)  $15   $19    475 
Interest income   69    79    10    14 
Other income, net   566    -    (566)   (100)
Total other income  $631   $94   $(537)   (85)

 

Total other income decreased by approximately $0.5 million, from $0.6 million for the three months ended March 31, 2018 to $0.1 million for the three months ended March 31, 2019. The decrease in other income is primarily related to lower 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 an 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 $566,000 and $0 of other income arising from sales related to this transaction during the three months ended March 31,2018 and 2019, respectively. We have no knowledge of TSC’s activities and cannot predict when we may receive income under the APA, if any.

 

 19 

 

 

Foreign exchange gains/(losses)

 

Foreign exchange gains increased by approximately $19,000, from a loss of $4,000 for the three months ended March 31, 2018, to a gain of $15,000 for the three months ended March 31, 2019.

 

The future

 

Other income (expense), net for the year ended December 31, 2019 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 LTC 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 in nature, 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 months ended March 31, 2018 and 2019 (in $000s except percentages):

 

   Three Months Ended
March 31,
   Difference 
   2018   2019   $   % 
Total income tax benefit  $182   $268   $86    47 

 

The total income tax benefit, which comprised of research and development tax credits recoverable, increased by $0.1 million from an income tax benefit of $0.2 million for the three months ended March 31, 2018 to an income tax benefit of $0.3 million for the three months ended March 31, 2019. 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 elect to do so. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur and having sufficient trading losses. We expect our qualifying research and development expenditure to increase for the year ended December 31, 2019 in comparison to the year ended December 31, 2018.

 

Liquidity and Capital Resources

 

The following is a summary of our key liquidity measures as of March 31, 2018 and 2019 (in thousands):

 

   March 31, 
   2018   2019 
Cash and cash equivalents  $21,725   $17,934 
Working capital:          
Current assets   24,732    20,124 
Current liabilities   (4,258)   (2,487)
Total working capital  $20,474   $17,637 

 

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, and a limited amount of product revenue from operations discontinued in September 2012. We have incurred significant losses since our inception. As of March 31, 2019, we had an accumulated deficit of $ 351.6 million.

 

 20 

 

 

Cash Flows

 

Cash used in operating, investing and financing activities for the three months ended March 31, 2018 and 2019 is summarized as follows (in thousands):

 

   Three months ended
March 31,
 
   2018   2019 
Net cash used in operating activities  $(2,139)  $(3,684)
Net cash used in investing activities   (22)   27
Net cash provided by (used in) financing activities   (50)   4,056 

 

Operating activities

 

Net cash used in operating activities increased by $1.6 million, from $2.1 million for the three months ended March 31, 2018 to $ 3.7 million for the three months ended March 31, 2019. The increase in cash used by operating activities was primarily the result of a change in working capital of $1.0 million and an increase in net loss of $0.5 million.

 

Financing activities

 

Net cash provided by financing activities increased by $4.1 million, for the three months ended March 31, 2019 as a direct result of receiving approximately $4.1 million in net proceeds from the issuance of common stock under the Sales Agreement with H C Wainright, offset by a $50,000 preferred dividend payment.

 

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, such as the R&D tax credit, and recent financing activities, are sufficient to satisfy our planned working capital, capital expenditures and other financial commitments through to the end of 2020. 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.

 

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

 

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.

 

Item 4. Controls and Procedures

 

Under the supervision and with the participation of our management, including our chief executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness, as of March 31, 2019, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon such evaluation, our chief executive officer and principal financial and accounting officer have concluded that, as of March 31, 2019, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the Securities and Exchange Commission, or SEC, under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

Beginning January 1, 2019, we implemented ASU 2016-02, Leases (Topic 842). There were no significant changes made in our internal controls over financial reporting as a result of the implementation.

 

Inherent Limitation on the Effectiveness of Internal Controls

 

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

 

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PART II. Other Information

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2018. For a further discussion of our Risk Factors, refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit
Number
Description
10.1   Employment Agreement between Cyclacel Pharmaceuticals, Inc. and Spiro Rombotis (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2019).
10.2   Employment Agreement between Cyclacel Pharmaceuticals, Inc. and Paul McBarron (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2019).
31.1* Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a) As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a) As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*   Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*   Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*   The following materials from Cyclacel Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

 

*Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    CYCLACEL PHARMACEUTICALS, INC.
     
Date: May 14, 2019 By:   /s/ Paul McBarron
    Paul McBarron
    Chief Operating Officer, Chief Financial Officer and
    Executive Vice President, Finance

 

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