Cytokinetics, Incorporated — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Cytokinetics is a clinical-stage biopharmaceutical company developing muscle-function therapies; it has no commercial drug sales.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $8.0 million | $0.8 million |
| Research and development expense | $12.5 million | $9.8 million |
| General and administrative expense | $4.3 million | $3.6 million |
| Operating loss | $8.8 million | $12.6 million |
| Net loss | $8.7 million | $12.6 million |
| Basic and diluted loss per share | $0.27 | $0.53 |
| Net cash used in operating activities | $17.8 million | $12.2 million |
- Revenue growth largely reflected Astellas collaboration reimbursements and a $2.0 million development milestone, plus $2.1 million of recognized license revenue. These are collaboration-related, not product sales.
- R&D expense increased $2.7 million year over year, mainly from higher outsourced clinical costs and personnel. Higher revenue reduced the reported operating and net losses despite increased operating expenses.
- Cash, cash equivalents and investments totaled $101.9 million at quarter-end, versus $80.2 million at December 31, 2013. Cash and cash equivalents alone were $13.3 million; short- and long-term investments were $69.1 million and $19.5 million.
- The increase in resources principally reflected $37.5 million of net proceeds from a February public offering. Financing cash inflows were $39.8 million; investing activities used $28.9 million, largely as investment purchases exceeded maturities.
- Total liabilities were $21.1 million, primarily accounts payable, accruals and deferred revenue. The filing reports no borrowings on the balance sheet. Current assets were $86.1 million and current liabilities $19.8 million.
- No meaningful commercial gross margin is reported because the company has no drug sales. The filing reports interest and other income of $26,000 and no income-tax benefit.
Material changes and business developments
- In February 2014, the company issued 5.03 million shares in a public offering, receiving $37.5 million net. Shares outstanding rose from 30.7 million at December 31, 2013 to 36.1 million at March 31, 2014.
- Astellas collaboration revenue included $1.7 million of internal-cost reimbursements, $1.5 million of other-cost reimbursements and a $2.0 million CK-2127107 milestone. The company recognized $2.1 million of the Astellas upfront license fee under proportional performance accounting.
- Amgen reimbursed $0.7 million of research costs. The Amgen collaboration covers omecamtiv mecarbil worldwide and research activities were expected to continue through December 2014.
- Research-plan reimbursements from MyoKardia ended after that collaboration’s planned termination in August 2013.
Outlook, clinical results and risks
- Management forecast 2014 revenue of $29–$31 million, R&D expense of $52–$55 million and G&A expense of $16–$18 million. Management expected R&D and G&A to increase versus 2013.
- Management said available cash, cash equivalents and investments should fund projected requirements for at least 12 months from the filing’s assessment, while also anticipating ongoing operating losses and cash outflows. Additional funding may be needed; it may be unavailable or dilutive, and spending could be reduced if financing prospects weaken.
- BENEFIT-ALS did not meet its primary endpoint: ALSFRS-R change was −2.98 points with tirasemtiv versus −2.40 with placebo (p=0.11). The trial reported a significant reduction in decline in Slow Vital Capacity, a secondary measure, but other secondary results were mixed.
- Tirasemtiv had more withdrawals after randomization (99 versus 33) and more frequent dizziness, fatigue and nausea. Serious adverse events occurred in 9.0% of tirasemtiv patients versus 5.4% on placebo; patients receiving tirasemtiv also lost more weight. Further analysis was planned; additional development would require substantial funding.
- CK-2127107 was in Phase I development with Astellas; enrollment began in multiple-ascending-dose study CY 5012. The COSMIC-HF expansion for oral omecamtiv mecarbil opened to enrollment; management expected its enrollment and the Amgen-reimbursed CY 1211 study to finish in 2014.
- Development and commercial milestones and royalties under Amgen and Astellas agreements are contingent, not assured. The company depends on partners for key development and commercialization decisions and has no manufacturing or sales infrastructure of its own.
- Other significant risks include clinical failure or delays, adverse effects, regulatory approval, intellectual-property protection, reliance on contract manufacturers and CROs, and the need for additional capital. The company disclosed $15.2 million of future minimum operating-lease payments, with its facility lease ending in 2018. No legal proceedings were reported.
Most important facts for investors to verify
- Follow-up analyses and any further-development decision for tirasemtiv after BENEFIT-ALS missed its primary endpoint; assess the clinical relevance and safety implications of secondary findings.
- Track actual revenue against the $29–$31 million 2014 forecast, including timing and sustainability of collaboration reimbursements, milestones and deferred license revenue.
- Compare cash use and R&D spending with management’s forecasts and the stated 12-month liquidity assessment; assess the timing and terms of any additional financing.
- Monitor trial progress and results for CK-2127107 and omecamtiv mecarbil, and partner decisions that could alter development plans or expected payments.
- Assess dilution and potential share supply: the February offering increased shares outstanding, and substantial warrants and options remained outstanding.