Cytokinetics, Incorporated — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter results. Cytokinetics is a clinical-stage biopharmaceutical company developing small-molecule muscle-function therapies; it had no products approved for sale and no product-sales revenue.
Financial performance and liquidity
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Total revenue | $4.0 million | $2.6 million |
| Research and development expense | $37.2 million | $38.0 million |
| General and administrative expense | $13.6 million | $14.2 million |
| Operating loss | $48.0 million | $49.6 million |
| Net loss | $47.9 million | $49.3 million |
| Operating cash flow | $(45.6) million | $(44.8) million |
- Fourth-quarter 2011 revenue was $0.757 million; net loss was $11.877 million and basic and diluted loss per share was $0.16.
- 2011 revenue comprised $2.054 million in related-party R&D reimbursements, $1.946 million in grant and other revenue, and no license revenue. The increase from 2010 mainly reflected higher Amgen reimbursements and NINDS grant revenue. 2009 revenue of $81.5 million was unusually high due largely to Amgen license revenue.
- At year-end, cash and cash equivalents were $18.8 million and investments were $30.2 million, or $49.0 million combined, down from $72.8 million. Working capital was $46.5 million; total assets were $52.8 million and stockholders’ equity was $48.2 million.
- Equipment-financing debt was $0.152 million, all current; the UBS loan had been repaid in 2010. Operating lease commitments totaled $22.2 million through 2018. The company reported no off-balance-sheet financing arrangements.
- Profitability and operating margins are not meaningful indicators for this development-stage company: it reported a substantial operating loss and had no product revenue. The accumulated deficit was $408.5 million.
Material changes and unusual items
- Revenue rose 55% from 2010, while total operating expenses declined slightly. R&D expense fell by $0.8 million; spending shifted among programs, with skeletal-muscle R&D down $5.1 million and smooth-muscle R&D up $3.7 million.
- In October 2011, the company announced an approximately 18% workforce reduction, recorded $1.2 million of restructuring charges, and refocused resources on CK-2017357, omecamtiv mecarbil, follow-on skeletal-muscle research, and Amgen collaboration work.
- 2011 net loss allocable to common stockholders included a $2.857 million deemed dividend related to the beneficial conversion feature of Series A convertible preferred stock; it was not an operating cash expense.
- Financing activities provided $21.6 million in 2011, primarily from the Deerfield financing and ATM stock sales. The company sold 5.3 million common shares and issued 8,070 preferred shares convertible into 8.07 million common shares, plus warrants for 6.685 million shares. Further equity sales could dilute shareholders.
Business outlook, commentary, and risks
- Management estimated existing cash, cash equivalents, investments, and investment interest would fund operations for at least 12 months from the filing’s March 2012 date. It cautioned that assumptions could prove wrong and additional financing might not be available on acceptable terms.
- 2012 expense guidance: R&D of $32–35 million, expected to decrease from 2011; G&A of $13–14 million, expected to remain around 2011 levels. No specific revenue forecast was provided.
- Amgen controls development and commercialization of omecamtiv mecarbil outside Japan. The Phase IIb ATOMIC-AHF trial was enrolling its first cohort, with a decision on progression to the second cohort anticipated in the first half of 2012. Amgen’s decisions affect potential milestones, royalties, and development timing.
- CK-2017357 was in Phase II studies for ALS and myasthenia gravis; management expected several trial readouts in the first half of 2012 and planned further regulatory discussions. CK-2127107 remained in preclinical development, with an IND filing targeted by year-end 2012. Smooth-muscle inhibitors remained preclinical.
- Clinical evidence remained preliminary. CK-2017357 was associated with dose-related dizziness; in the claudication study, six-minute-walk performance worsened as dose and drug concentration increased. Co-administration with riluzole approximately doubled average maximum riluzole plasma levels. Omecamtiv mecarbil had dose-limiting cardiac effects at intolerable exposures; a sudden death in an earlier patient study was reported as possibly related, although the investigator assessed it as unrelated.
- Principal risks include continued losses and financing needs, uncertain clinical and regulatory outcomes, reliance on Amgen and other partners, trial delays or adverse effects, competition, manufacturing dependence, and intellectual-property challenges. A $100 million shelf registration and a $20 million ATM agreement provide potential equity capacity, but do not assure funding.
Important facts for investors to verify
- Cash runway assumptions and subsequent cash burn relative to management’s at-least-12-month estimate.
- Clinical-trial results and safety findings for ATOMIC-AHF and CK-2017357, including the implications of dizziness and the riluzole interaction.
- Amgen’s development decisions, trial progression, and any milestone, royalty, or reimbursement receipts.
- Actual 2012 R&D and G&A spending versus guidance, and progress toward the CK-2127107 IND.
- Potential dilution from the convertible preferred stock, warrants, stock-based awards, ATM sales, and shelf offerings.