Cyclacel Raising Money

On July 24, Cyclacel Pharmaceuticals Inc. (CYCC - Snapshot Report) stated that it has entered into definitive agreements to raise gross proceeds of $3.4 million, prior to deducting placement agent fees and other estimated offering expenses. Additionally, it intends to raise up to $2.5 million in a registered direct offering from select institutional investors.

The transaction includes the sale and issuance of 4 million units, each unit consisting of one share of Cyclacel’s common stock and a warrant to purchase 0.18 shares of common stock. The purchase price per unit is $0.85. The deal is expected to close on or about July 29, 2009.

The proceeds from the transaction along with the company’s cash balance will be used primarily for further clinical development of lead anti-cancer candidate sapacitabine (CYC682).

We are still concerned about the company’s cash position despite its efforts to raise funds and cut costs. We note that the company has taken various measures to cut costs over the last few quarters. Last year, it reduced its workforce by 30% worldwide.

Further, it suspended the payment of quarterly dividend in April, 2009. In spite of all these measures, it is expected that the current level of cash and cash equivalents will only be sufficient to meet Cyclacel’s funding needs through mid-2010.

For the financing of its operations and internal growth, the company is primarily dependent on private placements, licensing revenue, interest on investments, government grants and research and development tax credits. In addition, Cyclacel generates revenues through the marketing of three products acquired through the acquisition of Align Pharmaceuticals in 2007.

We believe the company will need to raise funds again in the first half of 2010 to continue operations in the longer term. As such, we are neutral on Cyclacel’s shares.