Cytokinetics, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; filed November 1, 2019. Amounts below are in U.S. dollars. The company is a late-stage biopharmaceutical developer and has no commercial drug sales.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $6.1m | $10.6m | $21.7m | $22.1m |
| Operating expenses | $30.0m | $28.6m | $96.8m | $89.6m |
| Operating loss | $(23.9)m | $(17.9)m | $(75.2)m | $(67.5)m |
| Net loss | $(29.6)m | $(22.0)m | $(91.1)m | $(79.8)m |
| Net loss per share, diluted | $(0.50) | $(0.40) | $(1.60) | $(1.47) |
- Q3 revenue was research and development reimbursement; there was no license revenue, compared with $1.9m in Q3 2018. Nine-month R&D revenue rose to $21.7m from $17.0m, while prior-year license revenue of $5.1m did not recur. 2019 R&D revenue included $10.5m from Amgen and $11.2m from Astellas for the nine-month period.
- R&D expense was $67.8m for nine months, up $1.9m year over year; higher cardiac-program and omecamtiv mecarbil Phase 3 activity was partly offset by lower skeletal-program spending. G&A expense rose to $29.0m from $23.7m, primarily due to legal and personnel-related costs, including stock compensation. No product gross margin is reported; commercial sales have not begun.
- Operating cash use was $71.9m for nine months, versus $88.9m in 2018. Investing activities provided $30.6m, and financing activities provided $38.7m, including $36.2m net proceeds from at-the-market share sales. Cash and cash equivalents ended at $39.6m, versus $42.3m at year-end 2018.
- Cash, cash equivalents and short-term investments totaled $166.0m at September 30, down from $198.7m at December 31, 2018. Working capital was $155.0m. Management said available cash and investments were expected to fund requirements for at least 12 months from the filing date, while warning that additional capital may be needed and may not be available on acceptable terms.
- Long-term debt, net, was $44.8m; the May 2019 $45.0m term loan refinanced approximately $42.0m outstanding under the prior loan. The loan bears interest at the greater of 8.05% or 6.81% plus 30-day LIBOR; the reported rate was 8.83%. Interest-only payments run through December 2020, subject to milestone-based extension, with maturity in December 2023. Debt is secured by substantially all assets other than intellectual property.
- The liability from the sale of future royalties was $137.7m. Related non-cash interest expense was $15.2m for nine months and is expected to increase as the liability accretes. Total liabilities of $207.3m exceeded total assets of $187.4m; stockholders’ deficit was $19.9m.
Material developments, outlook and risks
- GALACTIC-HF, the Phase 3 omecamtiv mecarbil heart-failure outcomes trial, completed enrollment of more than 8,200 patients. A March 2019 interim futility review recommended continuing without changes; a further interim analysis was planned for Q1 2020. METEORIC-HF, a second Phase 3 trial, was ongoing.
- CK-274’s Phase 1 study met its stated safety, tolerability and pharmacology objectives; a Phase 2 obstructive hypertrophic cardiomyopathy trial was expected to start in Q4 2019.
- FORTITUDE-ALS did not meet statistical significance for its prespecified primary dose-response endpoint (p=0.11). Reported numerical trends and post-hoc findings do not establish efficacy. Dose-related transaminase elevations and declines in a renal-function measure were observed. The COPD and elderly limited-mobility reldesemtiv studies also did not demonstrate efficacy.
- Cytokinetics and Astellas had agreed in principle to give Cytokinetics exclusive control over development and commercialization of fast skeletal muscle troponin activators, including reldesemtiv and CK-601. The proposed terms included reduced Astellas funding and royalties to Astellas on potential sales. The arrangement remained non-binding pending definitive agreements; there was no assurance they would be completed.
- In July 2019, the company signed a 12-year lease for approximately 234,892 square feet at Oyster Point, expected to commence in September 2021. Undiscounted payments were estimated at $217.7m, with a $34.1m tenant-improvement allowance and a refundable $5.1m security deposit. A separate expansion lease had $1.3m of undiscounted commitments. These future leases were not recognized as liabilities at quarter-end because the premises were not yet available for use.
- The company reported an accumulated deficit of $834.4m and anticipated future operating losses and cash outflows. Key risks include clinical and regulatory failure, dependence on Amgen and Astellas, financing needs, potential dilution, and loan covenants. No numerical 2019 revenue or expense guidance is provided in the supplied filing text.
- Management concluded disclosure controls and procedures were ineffective as of September 30, 2019 due to an unremediated material weakness involving review of internally prepared financial reports. Additional accounting staff were hired and a new ERP system was substantially implemented, but remediation was not yet complete. The weakness had not resulted in a restatement of prior financial statements.
Important facts for investors to verify
- Current trial timelines and results, especially GALACTIC-HF’s planned interim analysis and the Phase 2 start and progress for CK-274.
- Whether definitive Astellas agreements are executed, and the resulting allocation of development costs, control, royalties and manufacturing responsibilities.
- Cash burn, funding runway and financing needs, including potential dilution from further equity issuance.
- Debt terms, milestone-based interest-only extension conditions, covenant compliance and the growing royalty-sale liability.
- Whether the financial-reporting material weakness is remediated and controls are operating effectively.
- Oyster Point lease commencement, build-out funding, security-deposit timing and the company’s ability to meet long-term lease commitments.