Cytokinetics, Incorporated — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; balance-sheet comparisons are to December 31, 2016. Cytokinetics is a late-stage biopharmaceutical company developing muscle-function drug candidates. It had no commercial drug sales and relied on collaboration revenue, grants, financing and investment income.
Financial performance and liquidity
Amounts are in millions of dollars, except per-share data.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $4.2 | $8.4 |
| Research and development expense | $19.3 | $13.5 |
| General and administrative expense | $8.1 | $6.8 |
| Operating loss | $(23.3) | $(12.0) |
| Interest expense | $3.1 | $0.6 |
| Net loss | $(25.9) | $(12.5) |
| Basic and diluted net loss per share | $(0.62) | $(0.31) |
| Net cash used in operating activities | $(20.9) | $(17.5) |
- Revenue fell 51%, primarily because Astellas-related license and research revenue declined. Q1 2017 revenue included a $1.3 million payment to Amgen for the omecamtiv mecarbil co-investment option, recorded as a reduction of collaboration revenue.
- R&D expense rose $5.8 million, mainly from VITALITY-ALS clinical costs, clinical manufacturing and higher personnel expense. G&A rose $1.3 million; higher personnel and commercial-development costs were partly offset by lower legal fees.
- Cash and investments totaled $257.2 million at March 31, up from $163.9 million at December 31. Cash and cash equivalents alone were $49.4 million; short- and long-term investments were $157.2 million and $50.6 million.
- Cash used in investing was $112.3 million, primarily reflecting purchases of investments; financing provided $115.7 million, including $90.6 million net from the royalty transaction, $17.4 million from the at-the-market equity offering and $7.6 million from RPI’s stock purchase. Cash and cash equivalents ended the quarter at $49.4 million, down $17.5 million during the quarter.
- Working capital was $174.2 million. Long-term debt had a $30.0 million face amount, with $4.8 million classified as current and $25.2 million long-term. The company also reported a $92.9 million carrying liability from the royalty sale. Accumulated deficit was $544.2 million.
Material changes and financing
- In February 2017, Cytokinetics sold RPI a portion of potential omecamtiv mecarbil royalties for $90 million and issued RPI 875,656 common shares for $10 million. The transaction was non-refundable even if the drug is never commercialized. The royalty proceeds are accounted for as a liability because of the company’s continuing involvement; the liability carried a 17% effective annual non-cash interest rate and was $92.9 million net at quarter-end.
- The company increased its Amgen Phase 3 co-investment commitment for omecamtiv mecarbil to $40 million, in exchange for potential incremental royalties of up to 4% on increasing worldwide sales outside Japan and North American institutional-care co-promotion rights. The remaining scheduled payments at March 31 were $37.5 million, payable through 2018 and contingent on Amgen continuing the program.
- Q1 ATM sales produced $17.4 million net from 1.44 million shares. Common shares outstanding were 43.4 million at March 31 and 45.1 million at April 27, 2017.
- The $30 million Oxford Finance/Silicon Valley Bank loan bears 7.5% interest; principal repayments begin in October 2017 and are due through 2020. It is secured by substantially all company assets other than intellectual property. The company disclosed it did not meet conditions to access the remaining $10 million available under the loan by March 31, 2017.
Outlook, programs and risks
- Management said cash, cash equivalents and investments were expected to fund requirements for at least the next 12 months. It anticipated operating losses and cash outflows, with R&D and G&A expenses expected to increase significantly in 2017 versus 2016. The filing does not provide clear numerical 2017 revenue or expense guidance.
- VITALITY-ALS tirasemtiv Phase 3 enrollment was complete. A March data monitoring committee review recommended continuing the trial without modification. The company highlighted uncertainty over whether regulators will accept slow vital capacity as a sufficient endpoint and whether trial results, dosing and safety will support approval; further trials could be required.
- CK-2127107: the SMA Phase 2 trial’s first cohort was complete and the second cohort open to enrollment; enrollment and data were anticipated in 2017. Astellas was continuing enrollment in the COPD Phase 2 trial. Cytokinetics anticipated starting an ALS Phase 2 trial around mid-2017, and Astellas a frailty Phase 1b trial in Q2 2017.
- Amgen was conducting GALACTIC-HF, an approximately 8,000-patient Phase 3 outcomes trial of omecamtiv mecarbil. Cytokinetics also expected results from a Japanese Phase 2 study in Q3 2017.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, reliance on Amgen and Astellas’ development decisions, need for future capital, and lack of product revenue. The company noted that tirasemtiv’s Phase 2b BENEFIT-ALS trial did not meet its primary efficacy endpoint, and that a Phase 3 tirasemtiv program may require substantial additional funding. Astellas’ tirasemtiv option remained unexercised.
- Management reported no legal proceedings and no material change in market-risk disclosures. Disclosure controls were judged effective; the filing also described a previously identified R&D accrual control weakness as remediated by year-end 2016.
Most important facts for investors to verify
- VITALITY-ALS final results, safety findings, and regulatory acceptance of its endpoints and evidence.
- Actual cash burn and whether the stated 12-month runway remains adequate as 2017 spending increases.
- Timing and terms of the remaining $37.5 million Amgen co-investment payments, and the effect of royalty-sale accounting and accretion on future interest expense.
- Progress and data timing for CK-2127107 trials and any Astellas decision on the tirasemtiv option.
- Future dilution from equity financing, warrants and other share issuances, alongside the company’s ability to fund development without additional financing.