Bio Green Med Solution, Inc.: Form 10-Q for the period ended Sep 30, 2022

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, 2021, as updated and supplemented by Part II, Item 1A, entitled “Risk Factors,” of our Quarterly Reports on Form 10-Q, and elsewhere in this report. In addition, while we expect the coronavirus pandemic to have an ongoing impact on our business operations and financial results, the extent of the impact on our clinical development and regulatory efforts, our corporate development objectives, our financial position and the value of and market for our common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease. These factors as well as other cautionary statements made in this Quarterly Report on Form 10-Q, should be read and understood as being applicable to all related forward-looking statements wherever they appear herein. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our judgment as of the date hereof. We encourage you to read those descriptions carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements. In this report, “Cyclacel,” the “Company,” “we,” “us,” and “our” refer to Cyclacel Pharmaceuticals, Inc.

Overview

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 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 rate. Our primary focus has been on our transcriptional regulation program, which is evaluating fadraciclib, a CDK2/9 inhibitor, in solid tumors and hematological malignancies. In addition, the anti-mitotic program is evaluating CYC140, a PLK1 inhibitor, in advanced cancers.

We are evaluating oral fadraciclib and CYC140 in Phase 1/2 streamlined studies the aim of which is to assess safety and identify signals of clinical activity which may lead to registration-enabling outcomes.

Fadraciclib Phase 1/2 Study in Advanced Solid Tumors and Lymphomas (065-101; NCT#04983810)

In this ongoing study, eighteen patients have been treated in the first five dose escalation levels. Following a protocol amendment, we are enrolling dose level six. The proof-of-concept stage includes seven histologically defined cohorts thought to be sensitive to the drug’s mechanism: breast, colorectal (including KRAS mutant), endometrial/ uterine, hepatobiliary, ovarian cancers and lymphomas. An additional basket cohort will enroll patients regardless of histology with biomarkers relevant to the drug’s mechanism, including MCL1, MYC and/or cyclin E amplified.

Fadraciclib Phase 1/2 Study in Hematological Malignancies (065-102; NCT#05168904)

Based on good tolerability in the 065-101 study and following FDA clearance of a protocol amendment we have has accelerated dose progression by omitting dose levels two and three and enrolling patients at dose level four. The proof-of-concept stage, where fadraciclib will be administered both as a single agent and in combination, includes seven histologically defined cohorts which will include patients with acute myeloid leukemia (or AML) or myelodysplastic syndromes (or MDS) who have an inadequate response or have progressed on venetoclax combinations with hypomethylating agent (or HMA) or low dose Ara C. The trial will also include patients with chronic lymphocytic leukemia or CLL who have progressed after at least two lines of therapy including a BTK inhibitor and/or venetoclax.

CYC140 Phase 1/2 Study in Advanced Solid Tumors and Lymphomas (140-101; NCT#05358379)

The first patient was dosed in this study in April 2022 and treated at the second dose escalation level. Similar to fadraciclib this Phase 1/2 registration-directed trial uses a streamlined design and will first determine in a dose escalation stage the recommended Phase 2 dose (or RP2D) for single-agent CYC140. Once RP2D has been established, the trial will immediately enter into proof-of-concept, cohort stage, using a Simon 2-stage design. In this stage CYC140 will be administered to patients in up to seven mechanistically relevant cohorts including patients with bladder, breast, colorectal (including KRAS mutant), hepatocellular and biliary tract, and lung cancers (both small cell and non-small cell), as well as lymphomas. An additional basket cohort will enroll patients with biomarkers relevant to the drug’s mechanism, including MYC amplified tumors. The protocol allows for expansion of individual cohorts based on response which may allow acceleration of the clinical development and registration plan for CYC140.

We currently retain virtually all marketing rights worldwide to the compounds associated with our drug programs.

Results of Operations

Three and Nine Months Ended September 30, 2021 and 2022

Revenues

Revenues for each of the three and nine months ended September 30, 2021 and 2022 were $0.

The future

There are no active collaboration, licensing, or clinical supply agreements and we do not anticipate any revenues for the foreseeable future.

Research and Development Expenses

From our inception, we have focused on drug discovery and development programs, with a particular emphasis on orally available anticancer agents, and our research and development expenses have represented costs incurred to discover and develop novel small molecule therapeutics, including clinical trial costs for fadraciclib and CYC140, as well as other compounds such as sapacitabine and seliciclib. We will not be pursuing further development of sapacitabine and have notified Daiichi Sankyo Co., Ltd., the licensor, that we wishe to terminate the sapacitabine license agreement for commercial reasons. The termination is expected to be effective as of March 23, 2023.

We have also incurred costs in the advancement of product candidates toward clinical and preclinical 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, supplies and materials;
• Technology license costs;
• Stock-based compensation; and
• Rent and facility expenses for our offices.

The following table provides information with respect to our research and development expenditures for the three and nine months ended September 30, 2021 and 2022 (in $000s except percentages):

Total research and development expenses for the three and nine months ended September 30, 2022 represented 68% and 72% of our operating expenses respectively, compared to 70% and 66% in the respective prior periods.

Research and development expenses increased by $2.7 million from $10.9 million for the nine months ended September 30, 2021 to $13.6 million for the nine months ended September 30, 2022. Expenditure for the transcriptional regulation program increased by $1.0 million for the nine months ended September 30, 2022, relative to the respective comparative period. This was due to an increase in clinical trial costs of $1.2 million associated with the progression of clinical trials for the evaluation of fadraciclib in Phase 1/2 studies, offset by a decrease in non-clinical expenditure of $0.2 million. Research and development expenses relating to CYC140 increased by $1.8 million for the nine months ended September 30, 2022, relative to the respective comparative period. This was due to an increase in clinical trial costs of $2.4 million associated with the progression of clinical trials for the evaluation of CYC140 in Phase 1/2 studies, offset by a decrease in non-clinical expenditure of $0.6 million.

The future

We continue to 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 programs.

General and administrative expenses

General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the general and administrative expenses for the three and nine months ended September 30, 2021 and 2022 (in $000s except percentages):

Total general and administrative expenses for the three and nine months ended September 30, 2022 represented 32% and 28% of our operating expenses respectively, compared to 30% and 34% in the respective prior periods.

During the three months ended September 30, 2022, the increase in general and administrative expenses was primarily due to a $0.4 million cost associated with the Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. (the “Sales Agreement”). The decrease in general and administrative expenses during the nine months ended September 30, 2022 relative to the corresponding prior year period was due to reductions in legal and professional expenses and recruitment costs relating to expansion of the clinical team that were incurred in the first half of 2021 along with a one-time $0.4 million reverse premium charge in relation to assignation of the lease facility in Dundee, Scotland which was recognized during the second quarter of 2021.

The future

We expect general and administrative expenditures for the year ended December 31, 2022 to decrease slightly compared to our expenditures for the year ended December 31, 2021, due to lower recruitment and professional costs.

Other income (expense), net

The following table summarizes other income for the three and nine months ended September 30, 2021 and 2022 (in $000 except percentages):

Total other income increased by $1.7 million from $0.2 million for the nine months ended September 30, 2021 to $1.9 million for the nine months ended September 30, 2022. 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 nine months ended September 30, 2022 and 2021 respectively.

Foreign exchange gains (losses)

Foreign exchange gains increased by $0.5 million, from $5,000 for the nine months ended September 30, 2021, to $0.5 million for the nine months ended September 30, 2022, primarily due to the weakening of the pound sterling relative to US dollar.

The future

Other income (expense), net for the year ended December 31, 2022, will continue to be impacted by changes in foreign exchange rates and the receipt of income under the APA. As we are not in control of sales made by TSC, we are unable to estimate the level and timing of income under the APA, if any.

Because the nature of funding advanced through intercompany loans is that of a long-term investment, unrealized foreign exchange gains and losses on such funding will be recognized in other comprehensive income until repayment of any intercompany loan becomes foreseeable.

Income Tax Benefit

Credit is taken for research and development tax credits, which are claimed from the United Kingdom’s HM Revenue and Customs authority, or HMRC, in respect of qualifying research and development costs incurred.

The following table summarizes total income tax benefit for the three and nine months ended September 30, 2022 and 2021 (in $000s except percentages):

The total income tax benefit, which comprised of research and development tax credits recoverable, increased by approximately $0.5 million from $2.6 million for the nine months ended September 30, 2021 to $3.1 million for the nine months ended September 30, 2022. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one year and the availability of trading losses.

The future

We expect to continue to be eligible to receive United Kingdom research and development tax credits for the foreseeable future and will continue to elect to receive payment of the tax credit. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur and could be restricted by any future cap 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 prior year.

Liquidity and Capital Resources

The following is a summary of our key liquidity measures as of September 30, 2021 and 2022 (in $000s):

Since our inception, we have relied primarily on the proceeds from sales of common and preferred equity securities to finance our operations and internal growth. Additional funding has come through research and development tax credits, government grants, the sale of product rights, interest on investments and licensing revenue. We have incurred significant losses since our inception. As of September 30, 2022, we had an accumulated deficit of $398.7 million.

On August 12, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. ("Cantor"), pursuant to which the Company could issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $10.0 million through Cantor as the sales agent. On August 12, 2022, the Company 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, the Company sold an aggregate of 3,117,100 shares of its common stock following the expiration of the Registration Statement and through August 12, 2022, for an aggregate of approximately $4,494,496 under the Registration Statement pursuant to the Sales Agreement. The sale of these shares may be subject to potential rescission rights by the shareholders, as described in more detail under “Risk Factors”. As of September 30, 2022, there have been no claims or demands to exercise such rights.

Cash Flows

Cash from operating, investing and financing activities for the nine months ended September 30, 2022 and 2021 is summarized as follows (in $000s):

Operating activities

Net cash used in operating activities increased by $1.7 million, from $14.0 million for the nine months ended September 30, 2021 to $15.7 million for the nine months ended September 30, 2022. The increase in cash used by operating activities was primarily the result of a change in working capital of $1.6 million, a change in lease liability of $0.2 million, and an increase in net loss of $0.2 million, offset by an increase of stock compensation expense of $0.3 million.

Investing activities

Net cash used by investing activities decreased by $18,000 for the nine months ended September 30, 2022 due to capital expenditures on information technology (IT) during the respective comparative period.

Financing activities

Net cash provided by financing activities was $2.9 million for the nine months ended September 30, 2022 as a direct result of receiving approximately $3.1 million, net of expenses, from the issuance of common stock under the Sales Agreement, offset by dividend payments of approximately $0.2 million to the holders of our 6% Preferred Stock.

Net cash provided by financing activities was $20.9 million for the nine months ended September 30, 2021 as a direct result of receiving approximately:

• $13.5 million in net proceeds from the issuance of common stock under an underwriting agreement with Oppenheimer & Co. Inc.,
• $4.5 million from warrant exercises associated with a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC, and
• $3.0 million from the issuance of common stock under the Sales Agreement,
• offset by dividend payments of approximately $0.2 million to the holders of our 6% Preferred Stock.

Operating Capital and Capital Expenditure Requirements

We expect to continue to incur substantial operating losses in the future and cannot guarantee that we will generate any significant product revenues until a product candidate has been approved by the Food and Drug Administration (“FDA”) or European Medicines Agency (“EMA”) in other countries and successfully commercialized.

We believe that existing funds together with cash generated from operations, such as recent financing activities and the R&D tax credit, are sufficient to satisfy our planned working capital, capital expenditures and other financial commitments to the end of 2023. However, we do not currently have sufficient funds to complete development and commercialization of any of our drug candidates. Current business and capital market risks could have a detrimental effect on the availability of sources of funding and our ability to access them in the future, which may delay or impede our progress of advancing our drugs currently in the clinical pipeline to approval by the FDA or EMA for commercialization. Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.

Our future funding requirements will depend on many factors, including but not limited to:

• the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;
• the costs associated with establishing manufacturing and commercialization capabilities;
• the costs of acquiring or investing in businesses, product candidates and technologies;
• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
• the costs and timing of seeking and obtaining FDA and EMA approvals;
• the effect of competing technological and market developments;
• the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter; and
• the extent to which the coronavirus impacts our financial condition and operations, which will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. Although we are not reliant on institutional credit finance and therefore not subject to debt covenant compliance requirements or potential withdrawal of credit by banks, we are reliant on the availability of funds and activity in equity markets. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs or make changes to our operating plan. In addition, we may have to partner one or more of our product candidates at an earlier stage of development, which would lower the economic value of those programs to us.

Impact of COVID-19

The COVID-19 pandemic has led to global supply chain challenges, which have negatively impacted the availability and cost of materials. The global outbreak of COVID-19 has also adversely affected our clinical trials with regards to the pace of patient enrollment as a result of restrictions on travel and/or transport of clinical materials, as well as diversion of hospital staff and resources to COVID-19 infected patients. The extent to which COVID-19 will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, the severity of COVID-19 or new variants or the effectiveness of actions to contain and treat COVID-19 and its variants, particularly in the geographies where we or our third-party suppliers, contract manufacturers, or contract research organizations operate. At this time, we are unable to fully estimate the impact of the pandemic or current geopolitical turmoil on our financial condition or operations, but either or both could materially affect our ability to raise future capital or to conduct clinical studies on a timely basis.

Critical Accounting Policies and Estimates

Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements. We evaluate our estimates, judgments, and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2021 and Note 2 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There have been no material changes to our critical accounting policies during the three months ended September 30, 2022.

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 September 30, 2022, 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 September 30, 2022, 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

There were no significant changes made in our internal controls over financial reporting.

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 ensure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Except as set forth below, 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, 2021. 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, 2021.

Shares sold under our ATM Sales Agreement may be subject to rescission rights and other penalties, requiring us to repurchase shares sold thereunder.

In connection with our August 2021 Controlled Equity Offering Sales Agreement (the “Sales Agreement”), on August 12, 2022, we became aware that our shelf registration statement on Form S-3 (file number 333-231923) (the “Registration Statement”) 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 following the expiration of the Registration Statement and through August 12, 2022 at an average price of approximately $1.44 per share for an aggregate of approximately $4,494,496 (the “Sales”) under the Registration Statement pursuant to the Sales Agreement. Because the Registration Statement had already expired, the Sales could be determined to be unregistered sales of securities, which could subject us to enforcement actions or penalties and fines by federal and/or state regulatory authorities. In accordance with Section 5 of the Securities Act, direct purchasers in the Sales may have rescission rights pursuant to which they may be entitled to recover the amount paid for such shares, plus statutory interest, upon returning the shares to us within one year from the transaction date. If all purchasers in the Sales demanded rescission and it was determined that every such purchaser were entitled to such rights, we may be obligated to repay an aggregate of approximately $4,494,496 for the Sales, excluding statutory interest. If purchasers successfully seek rescission and/or damages, and/or the SEC and/or state securities agencies impose financial penalties on us which are not covered by insurance, we may not have sufficient resources to make the necessary payments, and any such claims, damages or penalties could have a material adverse effect on our stock price, business prospects, results of operations, and financial condition. We cannot predict the likelihood of any claims or actions being brought against us or the amount of any penalties or fines in connection with the Sales.