Cytokinetics, Incorporated — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing was signed March 3, 2016. Although the request refers to 2015 Q4, this is an annual report; quarterly figures are noted separately below. The company is a clinical-stage biopharmaceutical business developing muscle activators and had no approved products or commercial product sales.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $28.7 million | $46.9 million |
| Research and development expense | $46.4 million | $44.4 million |
| General and administrative expense | $19.7 million | $17.3 million |
| Operating loss | $37.4 million | $14.8 million |
| Net loss | $37.5 million | $14.6 million |
| Net loss per share, basic and diluted | $0.97 | $0.41 |
| Cash provided by (used in) operating activities | $4.9 million | $(44.8) million |
| Cash, cash equivalents and investments at year-end | $111.6 million | $83.2 million |
| Working capital at year-end | $81.5 million | $107.3 million |
| Long-term debt carrying value at year-end | $14.6 million | None |
Revenue was primarily collaboration and license revenue, not product sales. Astellas accounted for $26.1 million, approximately 91% of 2015 revenue; Amgen accounted for $2.5 million. The 2015 operating cash inflow was substantially influenced by receipt of $45 million from Astellas and a $46.6 million reduction in related-party receivables; it should not be read as evidence of recurring operating cash generation. The filing reports no income tax provision and maintains a full valuation allowance against deferred tax assets.
For Q4 2015, revenue was $9.8 million and net loss was $9.2 million, versus Q4 2014 revenue of $21.8 million and net income of $8.4 million. The annual filing does not provide a clear Q4 cash-flow or margin figure.
Material changes versus prior year
- Revenue fell $18.3 million, or about 39%, largely reflecting lower collaboration reimbursements and the absence of the $17.0 million Astellas milestone revenue recognized in 2014. In 2015, Astellas license revenue included recognition of upfront fees over the collaboration performance period.
- Net loss increased by $22.9 million. Research and development expense rose $2.0 million, as higher preclinical, staffing and skeletal-muscle program costs more than offset lower outsourced clinical costs after BENEFIT-ALS ended.
- Cash and investments increased by $28.4 million, supported by Astellas payments, $14.9 million net loan proceeds and equity issuance. Working capital declined, while year-end debt increased from zero.
- The company began Phase 3 VITALITY-ALS for tirasemtiv and Phase 2 development of CK-2127107 in spinal muscular atrophy. Amgen reported Phase 2 COSMIC-HF results for omecamtiv mecarbil.
Programs, outlook and significant risks
- Tirasemtiv / ALS: BENEFIT-ALS did not meet its primary ALS Functional Rating Scale endpoint, although tirasemtiv significantly reduced decline in slow vital capacity (SVC). Serious adverse events were more frequent on tirasemtiv than placebo, and withdrawals after randomization were higher. VITALITY-ALS was designed around SVC; enrollment was expected in the first half of 2016 and results in the third quarter of 2017. In January 2016, planned enrollment increased from about 445 to about 600 patients. Regulatory acceptance of SVC as an adequate endpoint remains uncertain, and additional Phase 3 trials could be required.
- CK-2127107: The company began a Phase 2 SMA trial in December 2015; Astellas was expected to begin a Phase 2 COPD trial in the first half of 2016. Astellas funds collaboration development, subject to the company’s participation rights and options. Future milestone and royalty amounts are contingent, not assured.
- Omecamtiv mecarbil / heart failure: COSMIC-HF met its primary pharmacokinetics objective and showed improvements in several prespecified secondary cardiac-function measures, with adverse events generally comparable to placebo. The earlier ATOMIC-AHF trial did not meet its primary dyspnea endpoint. Amgen was expected to decide on possible Phase 3 advancement in the months following the filing.
- Management outlook: Management expected research and development and general and administrative expenses to increase significantly in 2016. It believed year-end cash, cash equivalents and investments would fund projected operating requirements for at least 12 months, while acknowledging that assumptions could prove incorrect and further capital would be needed over time. In February 2016, the company drew an additional $15 million under its loan agreement.
- Funding and partner dependence: The company has a $534.7 million accumulated deficit, expects continuing losses and has never generated product-sales revenue. Funding depends on collaborations, financing markets and possible equity or debt offerings. Astellas generated most 2015 revenue, and Amgen and Astellas control important development decisions for partnered programs.
- Debt and dilution: The loan agreement provides up to $40 million, with $15 million drawn by year-end and an additional $15 million drawn in February 2016. It bears 7.5% stated interest for the first two draws, has a final payment fee, is secured by substantially all assets other than intellectual property, and includes restrictive covenants and default provisions. The company also had an at-the-market equity facility and substantial outstanding options and warrants.
- Legal contingency: Cytokinetics’ California lawsuit against its BENEFIT-ALS data-management vendor, alleging fraud, breach of contract and negligence and seeking damages, remained pending. The vendor’s separate North Carolina declaratory-judgment case was dismissed. The company recorded no gain for its claim.
- Other risks: Clinical failure or delay, adverse effects, manufacturing and CRO execution, regulatory approval and reimbursement, intellectual-property challenges, competition, partner decisions, and the possibility that financing is unavailable on acceptable terms could materially affect results. The filing identifies no off-balance-sheet arrangements. Management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Current cash runway and cash burn, including the effect of the February 2016 loan draw and planned 2016 expense increases.
- VITALITY-ALS enrollment, protocol execution and regulatory views on SVC as an endpoint; compare eventual outcomes with BENEFIT-ALS efficacy and tolerability limitations.
- Amgen’s decision and development plan for omecamtiv mecarbil after COSMIC-HF, including how the ATOMIC-AHF primary-endpoint miss factors into that decision.
- Astellas’ progress on CK-2127107 trials and the actual timing and conditions for any collaboration reimbursements, milestones or royalties.
- Debt covenant compliance, remaining borrowing availability and terms, outstanding share dilution from equity facilities, options and warrants, and progress of the vendor litigation.