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| CYCC > SEC Filings for CYCC > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
• Sapacitabine in myelodysplastic syndromes or MDS;
• Sapacitabine in cutaneous T-cell lymphoma or CTCL; and
• Sapacitabine in solid tumor indications
Cyclacel may continue to fund certain additional programs pending the
availability of clinical data, at which time the Company will determine the
feasibility of pursuing advanced development including:
• Seliciclib in nasopharyngeal cancer or NPC;
• Seliciclib in non small-cell lung cancer or NSCLC; and
• CYC116 in patients with solid tumors
We focus primarily on the discovery and development of orally available
anticancer agents that target the cell cycle with the aim of slowing the
progression or shrinking the size of tumors, and enhancing the quality of life
and improving survival rates of cancer patients. We are generating several
families of anticancer drugs that act on the cell cycle including nucleoside
analogues, cyclin dependent kinase or CDK inhibitors and Aurora kinase/Vascular
Endothelial Growth Factor Receptor 2 or AK/VEGFR2 inhibitors. Although a number
of pharmaceutical and biotechnology companies are currently attempting to
develop nucleoside analogues, CDK inhibitor and AK inhibitor drugs, we believe
that our drug candidates are differentiated in that they are orally available
and have unique target profiles or mechanisms of action. For example, we believe
that our sapacitabine is the only orally available nucleoside analogue presently
being tested in Phase 2 trials in AML, seliciclib is the only orally available
CDK inhibitor currently in Phase 2 trials and CYC116 is the only dual Aurora A
and Aurora B kinase inhibitor in clinical trials that also interacts with VEGFR2
and has anti-angiogenic activity.
Our corporate headquarters is located in Berkeley Heights, New Jersey, with
research facilities located in the United Kingdom. From our inception in 1996
through September 30, 2008, we have devoted substantially all our efforts and
resources to our research and development activities. We have incurred
significant net losses since inception. As of September 30, 2008, our
accumulated deficit during the development stage was $194.8 million. We expect
to continue incurring substantial losses for the next several years as we
continue to develop our clinical, pre-clinical and other drugs currently in
development and build our commercialization capability. Our operating expenses
are primarily comprised of research and development expenses and selling,
general and administrative costs.
On September 16, 2008, the Company announced a revision of its operating plan to
concentrate its resources on the advancement of its lead drug, sapacitabine,
while maintaining the Company's core competency in drug discovery and cell cycle
biology. The plan reduced the workforce across all locations by 25 people. For
the three months ended September 30, 2008, the Company recorded a restructuring
charge of $0.5 million.
As of September 30, 2008, we have not generated significant product revenue but
have financed our operations and internal growth through private placements,
licensing revenue, interest on investments, government grants and research and
development tax credits. Our revenue has consisted of collaboration and grant
revenue. Beginning in 2008, our revenue now includes product sales following the
ALIGN acquisition.
Acquisition of ALIGN Pharmaceuticals, LLC and ALIGN Holdings, LLC
On October 5, 2007, the Company purchased certain net assets of ALIGN
Pharmaceuticals, LLC or ALIGN. As part of the asset purchase, the Company
acquired the sellers' exclusive rights to sell and distribute three products in
the United States used primarily to manage the effects of radiation or
chemotherapy in cancer patients: Xclair® Cream, Numoisyn™ Liquid and Numoisyn™
Lozenges. The acquired business provides Cyclacel with the foundation to build a
commercial organization focused on cancer that is complementary to Cyclacel's
oncology/hematology products in development and is part of Cyclacel's strategy
to build a diversified biopharmaceutical business.
Under the terms of the asset purchase agreement, the Company (i) paid
approximately $3.3 million in cash to the sellers at closing, plus approximately
$0.5 million to be used to pay certain creditors of the sellers, and (ii) agreed
to issue up to a maximum aggregate of 184,176 shares of the Company's common
stock, or the Stock Consideration, as consideration for the asset purchase.
46,044 shares of the Stock Consideration are issuable on the first anniversary
of the closing date, and the balance is issuable in two tranches upon
achievement of certain operational and financial milestones (in all cases,
subject to satisfaction of any outstanding indemnification obligations of the
sellers). The Company has already determined that 46,044 shares of the Stock
Consideration will not be issued due to the seller's failure to achieve the
first of the two milestones. The Company is reviewing certain indemnity issues
which may be satisfied pursuant to the terms of the asset purchase agreement.
The final 92,088 shares of the Stock Consideration is issuable if the sellers
meet certain financial milestones as of December 31, 2008. The Company is also
committed, as part of securing long term supply arrangements, to make future
payments of approximately $0.6 million in 2009 and $0.7 million in 2010. The
present value of these commitments has been reported as other short term
payables and other long term payables on the condensed consolidated balance
sheets As of September 30, 2008.
Results of Operations
The results of operations and balance sheet data for the three months ended
September 30, 2008 reflect the operations of the Company and its subsidiary
companies, including ALIGN. However, the results of operations for the
comparable periods in 2007 do not reflect the results of ALIGN and, therefore,
may not be comparable to the results of the current period.
Three Months Ended September 30, 2007 and 2008
Revenues
The following table summarizes the components of our revenues for the three
months ended September 30, 2007 and 2008:
Three Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Product revenue - 257 257 100
Grant revenue 33 12 (21 ) (64 )
Total revenue 33 269 236 715
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Product revenue is derived as a result of the asset acquisition of ALIGN on
October 5, 2007. During the three months ended September 30, 2008, we recorded
sales of $0.3 million.
Grant revenue is recognized as we incur and pay for qualifying costs and
services under the applicable grant. Grant revenue is primarily derived from
various United Kingdom government grant awards.
Cost of goods sold
Three Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Cost of goods sold - 120 120 100
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Total cost of sales represented 47% of product revenue for the three months
ended September 30, 2008.
During the three months ended September 30, 2008, we recorded cost of goods sold
of $0.1 million related to the sale of the ALIGN products.
Research and development expenses
To date, we have focused on drug discovery and development programs, with
particular emphasis on orally available anticancer agents. Research and
development expense represents costs incurred to discover and develop novel
small molecule therapeutics, including clinical trial costs for sapacitabine,
seliciclib and CYC116, to advance product candidates through clinical trials, to
develop in-house research and preclinical study capabilities and 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:
• payroll and related-expense, including consultants and contract research;
• clinical trial and regulator-related costs;
• pre-clinical studies;
• screening and identification of drug candidates;
• laboratory supplies and materials;
• technology license costs;
• rent and facility expenses for our laboratories; and
• scientific consulting fees.
The following table provides information with respect to our research and development expenditure for the three months ended September 30, 2007 and 2008:
Three Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Sapacitabine 477 1,299 822 172
Seliciclib 758 797 39 5
CYC116 672 183 (489 ) (73 )
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Total research and development expenses 4,449 4,030 (419 ) (9 )
Total research and development expenses represented 64% and 28% of our operating
expenses for the three months ended September 30, 2007 and 2008, respectively.
Research and development expenditure decreased $0.4 million from $4.4 million
for the three month period ended September 30, 2007 to $4.0 million for the
three month period ended September 30, 2008. Sapacitabine costs increased by
$0.8 million primarily due to the commencement of a Phase 2 trial in elderly AML
in December 2007 and costs related to pre-clinical and product scale-up costs.
This was further offset by a reduction of $0.5 million in the CYC116 program due
to re-formulation of the drug as well as a reduction in other programs in order
to conserve cash.
The future
We plan to invest in our research and development programs to further enhance
our clinical and regulatory capabilities to allow us to advance the development
of our drug candidates. In August 2008, we announced the results of the Phase 2
trial of seliciclib in the APPRAISE study. We do not expect to incur additional
expenses after the last enrolled patient completes follow-up according to the
study protocol other than the normal costs associated with preparing the final
study reports. In September 2008, we announced a revision of our operating plan
and we plan to concentrate on the advancement of our lead drug sapacitabine and
in doing so reduce our research and development costs and conserve our cash.
Selling, general and administrative expenses Selling, general and administrative expenses include costs for sales and marketing and administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the selling, general and administrative expenses for the three months ended September 30, 2007 and 2008:
Three Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Total selling, general and
administrative expenses 2,523 3,218 695 28
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Total selling, general and administration expenses represented 36% and 23% of
our operating expenses for the three months ended September 30, 2007 and 2008,
respectively.
Our selling, general and administrative expenditure increased by $0.7 million to
$3.2 million for the three months ended September 30, 2008 from $2.5 million for
the three months ended September 30, 2007. The increase of $0.7 million in
expenses was primarily attributable to $0.7 million of ALIGN related costs
maintaining our sales force and marketing efforts as well as a $0.2 million
charge on the amortization of intangibles.
The future
Following the acquisition of ALIGN, we expect to incur additional costs in
support of developing ALIGN's commercial operations. Additionally, we expect
that our selling, general and administrative expenses will continue to increase
in subsequent periods due to supporting these sales and marketing requirements
and the added costs of ensuring the ALIGN business complies with the
requirements of the Sarbanes-Oxley Act of 2002.
Goodwill and intangible asset impairment
In accordance with FAS 142, we recorded an impairment charge related to the
goodwill acquired in the Xcyte transaction of approximately $2.7 million during
the three months ended September 30, 2008 as a result of our market
capitalization being lower than the book value of its constituent assets and
liabilities as a result of our reduced common stock price. In accordance with
FAS No. 144, we recorded an impairment charge related to the intangible assets
ascribed in the ALIGN transaction of approximately $3.6 million during the three
months ended September 30, 2008 as a result of the sum of the undiscounted cash
flows are less than the carrying amount of the intangible assets on
September 30, 2008.
Restructuring expense
As of September 30, 2008, the restructuring liability associated with exiting
the Bothell facility was $2.3 million accounting for the estimated fair value of
the remaining lease payments, net of estimated sub-lease income. The
restructuring liability is subject to a variety of assumptions and estimates. We
review these assumptions and estimates on a quarterly basis and will adjust the
accrual if necessary. There was no change in the estimate for the three months
ended September 30, 2008.
For the three months ended September 30, 2007 and 2008, we recorded accretion
expense associated with the Bothell restructuring lease of $0.1 million on the
consolidated statement of operations as interest expense. A further $0.2 million
of accretion expense will be recognized over the remaining life of the lease to
December 2010.
In September 2008, we announced a revision of our operating plan that
concentrates our resources on the advancement of our lead drug, sapacitabine,
while maintaining our core competency in drug discovery and cell cycle biology.
The plan reduced the workforce across all locations by 25 people. We recorded an
estimated $0.4 million charge for severance payments and $0.1 million
accelerated deprecation charge for assets that will no longer be used during the
three months ended September 30, 2008.
Other income (expense)
Other income (expense) is comprised of the change in valuation of the
derivative, change in value of liability classified warrants, foreign exchange
gains and losses, interest income and interest expense. The following table
summarizes the other income (expense) for the three months ended September 30,
2007 and 2008:
Three Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Change in valuation of derivative (19 ) - 19 100
Change in valuation of warrants 951 432 (519 ) (55 )
Foreign exchange gains/(losses) 459 (4,776 ) (5,235 ) (1,141 )
Interest income 955 287 (668 ) (70 )
Interest expense (54 ) (69 ) (15 ) (28 )
Total other income (expense) 2,292 (4,126 ) (6,418 ) (280 )
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On November 3, 2007, the embedded derivative associated with the dividend
make-whole payment expired reducing the liability to $0 and thus no further
marked to market adjustments will be made with regard to this embedded
derivative. For the three months ended September 30, 2007, the derivative
valuation expense was $19,000.
The change in valuation of warrants relates to the issue of warrants to purchase
shares of our common stock under the registered direct financing completed in
February 2007. The warrants issued to the investors meet the requirements of and
are being accounted for as a liability in accordance with EITF 00-19. The value
of the warrants is being marked to market each reporting period as a derivative
gain or loss until exercised or expiration. For the three months ended
September 30, 2007 and 2008, we recognized the change in the value of warrants
of approximately $1.0 million and $0.4 million, respectively, as other income in
the consolidated statement of operations.
For the three months ended September 30, 2008, we recorded a foreign exchange
loss of $4.8 million on our intercompany loans due to the strength of the US
dollar against the British pound. This is shown on the consolidated statement of
operations as a separate line item called foreign exchange gains/
(losses) within other income (expense) and re-classified from selling, general
and administrative as the underlying loan activity is of a financing nature
rather than related to the operating activities of the business and also owing
to its magnitude. The comparative figures have also been re-classified and for
the three months to September 30, 2007 there was a foreign exchange gain of
$0.5 million.
Interest income decreased by $0.7 million from $1.0 million for three months
ended September 30, 2007 to $0.3 million for the three months ended
September 30, 2008. The decrease is primarily attributable to lower average
balances of cash and cash equivalents and short-term investments in 2008 as
compared to 2007.
Interest expense increased by $15,000 to $0.1 million for the three months ended
September 30, 2008 from $54,000 for the three months ended September 30, 2007.
During the three months ended September 30, 2007 and 2008 interest expenses
included accretion expenses associated with the Bothell lease restructuring
provision. During the three months ended September 30, 2008, there was also
interest associated with the deferred consideration and notes payable in
relation to the acquisition of ALIGN on October 5, 2007.
The future
The valuation of the liability-classified warrants will continue to be
re-measured at the end of each reporting period. The valuation of the warrants
are dependent upon many factors including estimated market volatility and stock
price, and may fluctuate significantly and could have a significant impact on
our consolidated statement of operations. We will also continue to be subject to
foreign currency movements as a result of our research activities within the
United Kingdom.
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 research and development tax credits for the
three months ended September 30, 2007 and 2008:
Three Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Total income tax benefit 433 411 (22 ) (5 )
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Research and development tax credits recoverable decreased by $22,000 from
$0.43 million for three months ended September 30, 2007 to $0.41 million for the
three months ended September 30, 2008. This decrease was a reflection of
decreased income taxes available for recovery as a consequence of lower eligible
research and development payroll expenses in 2008.
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.
Nine Months Ended September 30, 2007 and 2008
Revenues
The following table summarizes the components of our revenues for the nine
months ended September 30, 2007 and 2008:
Nine Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Collaboration and research and
development revenue 10 - (10 ) (100 )
Product revenue - 590 590 100
Grant revenue 107 36 (71 ) (66 )
Total revenue 117 626 509 435
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Collaboration and research and development revenue was derived from several
agreements under which the Company provides compounds for evaluation for an
agreed consideration.
Grant revenue is recognized as we incur and pay for qualifying costs and
services under the applicable grant. Grant revenue is primarily derived from
various United Kingdom government grant awards.
Product revenue is derived as a result of the asset acquisition of ALIGN on
October 5, 2007. During the nine months ended September 30, 2008, we recorded
sales of $0.6 million.
Cost of goods sold
Nine Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Cost of goods sold - 315 315 100
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Total cost of sales represented 53% of product revenue for the nine months ended
September 30, 2008.
During the nine months ended September 30, 2008, we recorded cost of goods sold
of $0.3 million related to the sale of ALIGN products.
Research and development expenses
The following table provides information with respect to our research and
development expenditure for the nine months ended September 30, 2007 and 2008:
Nine Months Ended September 30,
2007 2008 Difference Difference
($000s) %
Sapacitabine 1,862 4,940 3,078 165
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