Cytokinetics, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; filed November 8, 2018. Cytokinetics is a late-stage biopharmaceutical company developing muscle-function therapies. It had no commercial product sales and relied on collaboration revenue, financing and investment income.
Financial performance
Amounts below are in millions, except per-share data. Gross margin was not separately reported.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $10.6 | $6.2 | $22.1 | $13.4 |
| Operating expenses | $28.6 | $34.6 | $89.6 | $90.3 |
| Operating loss | $(17.9) | $(28.4) | $(67.5) | $(76.9) |
| Net loss | $(22.0) | $(32.4) | $(79.8) | $(87.3) |
| Basic and diluted loss per share | $(0.40) | $(0.60) | $(1.47) | $(1.82) |
| Net cash used in operations | — | — | $(88.9) | $(77.7) |
- Q3 revenue increased $4.5 million year over year, principally reflecting higher Astellas revenue and a $0.2 million MyoKardia milestone; Q3 2017 included a $10.0 million Amgen milestone, offset by co-investment payments to Amgen. Nine-month revenue rose $8.7 million.
- Q3 R&D expense declined $3.6 million year over year, primarily after tirasemtiv development was suspended. Nine-month R&D increased $1.8 million. G&A declined to $7.2 million for Q3 and $23.7 million for nine months, from $9.7 million and $26.2 million, respectively.
- Cash and cash equivalents were $27.6 million and short-term investments $182.7 million at September 30, totaling $210.3 million in cash, equivalents and marketable securities. Working capital was $205.8 million.
- Debt carrying value was $41.9 million, including $3.8 million current. The company drew an additional $10.0 million in Q3; the loan bears interest at the greater of 8.05% or 6.81% plus 30-day LIBOR. The royalty-sale liability was $117.7 million.
- Nine-month cash used in operations was $88.9 million, including ongoing R&D and the final $18.8 million paid to Amgen for the co-invest option. Financing provided $12.7 million, primarily from the additional debt draw. Cash and cash equivalents fell from $125.2 million at year-end 2017.
Material changes and accounting
- ASC 606 was adopted January 1, 2018 using the modified retrospective method. Adoption increased opening accumulated equity by $11.5 million and materially shifted the timing and classification of collaboration revenue. For the first nine months, the company reported $17.0 million of R&D and other revenue and $5.1 million of license revenue; the filing attributes substantial differences from prior accounting to ASC 606. Prior-period statements were not restated.
- Q3 2018 revenue was primarily from Astellas: $8.5 million R&D revenue and $1.9 million license revenue. Approximately $9.5 million of the 2016 Astellas Amendment transaction price allocated to services remained unrecognized at quarter-end.
- Total stockholders’ equity declined to $52.1 million from $109.8 million at December 31, 2017, principally reflecting the nine-month net loss, partly offset by ASC 606 adoption and equity-related items.
Outlook, programs and risks
- Liquidity outlook is stated inconsistently: the financial-statement note says existing cash, equivalents and investments should cover cash requirements for at least 12 months from filing; MD&A says at least 24 months based on current plans. Management expects continued operating losses and cash outflows and notes that additional capital may be needed.
- Management expected 2018 R&D and G&A expenses to decrease versus 2017, primarily following the suspension of tirasemtiv development; no numerical expense or revenue guidance is provided in the text.
- Amgen’s Phase 3 GALACTIC-HF trial of omecamtiv mecarbil was expected to complete enrollment in the first half of 2019, with a futility interim analysis also expected then. Cytokinetics and Amgen were working toward starting the METEORIC-HF Phase 3 trial by year-end 2018. The company had completed its $40.0 million co-investment commitment in return for incremental royalty rights.
- Reldesemtiv’s Phase 2 SMA study showed statistically significant concentration-dependent changes in 6-minute walk distance and maximal expiratory pressure, but several other measures did not differ from placebo. The company planned an FDA interaction regarding use of 6-minute walk distance for a potential registration program.
- Reldesemtiv missed the primary endpoint in Astellas’ COPD Phase 2 trial, with no statistically significant difference on secondary endpoints. Astellas halted enrollment in its elderly frailty Phase 1b trial after an interim analysis met predefined lack-of-efficacy criteria. FORTITUDE-ALS enrollment was expected to finish in Q4 2018, with results expected in the first half of 2019.
- Key risks include clinical-trial failure or delay, reliance on Amgen and Astellas and their development decisions, the need for financing, regulatory and commercialization uncertainty, and potential debt covenant default. The company also disclosed an email-server intrusion discovered in February 2018; it did not believe material losses had resulted. No material legal proceedings were reported.
Investor facts to verify
- Resolve the stated 12-month versus 24-month cash runway estimates and assess cash burn against the $210.3 million liquidity pool.
- Track GALACTIC-HF enrollment/interim-analysis timing, METEORIC-HF initiation and FORTITUDE-ALS results against the stated expectations.
- Assess the implications of mixed reldesemtiv results in SMA, COPD and frailty, and any subsequent regulatory or partner decisions.
- Review ASC 606’s impact on revenue comparability and remaining Astellas performance obligations.
- Monitor debt maturities and covenants, the growing royalty-sale liability, and the availability and terms of future funding.