Cytokinetics, Inc. — 2017 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2017; fourth-quarter figures are also presented. Cytokinetics is a clinical-stage biopharmaceutical company developing muscle activators. Its lead programs were omecamtiv mecarbil, a cardiac myosin activator in Phase 3 development with Amgen, and reldesemtiv, a skeletal muscle activator being developed with Astellas in Phase 2 trials. The company had no product sales.
Financial performance and position
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $13.4 million | $106.4 million |
| Research and development expense | $90.3 million | $59.9 million |
| General and administrative expense | $36.5 million | $27.8 million |
| Operating income (loss) | $(113.4) million | $18.7 million |
| Net income (loss) | $(127.8) million | $16.5 million |
| Net cash from (used in) operations | $(101.8) million | $37.0 million |
| Cash, cash equivalents and investments at year-end | $285.4 million | $163.9 million |
| Working capital at year-end | $241.9 million | $125.4 million |
Fourth-quarter 2017 revenue was negative $18,000 and net loss was $40.5 million; the filing does not provide a clear standalone quarterly cash-flow figure. Revenue is collaboration-, grant- and milestone-based, so reported revenue and margins fluctuate and are not representative of product economics. The company reported no commercial product revenue.
At December 31, 2017, gross long-term debt was $32.0 million (carrying value $31.8 million), with an 8.05% floor interest rate and principal payments scheduled after interest-only payments through May 2019. The balance sheet also included a $104.7 million net liability for monetized future royalties. The company stated its available cash and investments should fund operations for at least 12 months, subject to assumptions and development spending.
Material changes versus the prior comparable period
- Revenue fell $93.0 million year over year, largely reflecting the absence of 2016’s substantial Astellas upfront/license revenue and Amgen milestone receipts. 2017 revenue included Astellas collaboration revenue and Amgen milestones, offset by $20.0 million of co-investment payments recorded as a reduction of revenue.
- R&D expense rose $30.4 million, primarily from increased clinical activity, including tirasemtiv and reldesemtiv studies. G&A expense rose $8.7 million, including higher personnel, stock compensation and commercial-readiness costs.
- Cash and investments increased despite $101.8 million of operating cash use, supported by equity issuance, $90.0 million proceeds from selling a portion of future omecamtiv mecarbil royalties, and other financing. Share count increased to 53.96 million from 40.65 million at year-end 2016.
- The company recorded $14.0 million of non-cash interest expense related to the royalty-sale liability. This liability is accreted using an estimated effective annual rate of approximately 17%.
Outlook, commentary, risks and unusual items
- Management expected 2018 R&D and G&A expenses to decrease from 2017, mainly because tirasemtiv development and related commercial-readiness activity were suspended. No specific expense or revenue guidance amounts are provided in the filing text.
- In November 2017, the Phase 3 VITALITY-ALS trial of tirasemtiv failed its primary and secondary endpoints; the company suspended its development. It continued the VIGOR-ALS open-label extension to assess longer-term safety and tolerability.
- Management expected continued development of reldesemtiv in SMA and ALS, with Phase 2 results anticipated in the second quarter of 2018 for SMA and the second half of 2018 for ALS; COPD and limited-mobility trial results were also expected in the second half of 2018. Amgen was conducting the Phase 3 GALACTIC-HF trial of omecamtiv mecarbil.
- The company’s development and potential future receipts depend substantially on Amgen and Astellas, which generally retain discretion over program development. Clinical failure, regulatory delay, partner decisions, financing needs, competition, manufacturing and intellectual-property risks are material uncertainties.
- In February 2017, Cytokinetics received $90.0 million for a portion of future royalties and RPI separately purchased $10.0 million of common stock. It also completed a public offering and other equity issuances; these transactions strengthened liquidity but increased dilution and future royalty-related obligations.
- The company disclosed an unauthorized intrusion into its email server in February 2018, after year-end, in which proprietary business information was accessed. Management stated it did not believe material losses had resulted, but future impacts were uncertain.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor considered controls effective at December 31, 2017. A prior-year material weakness involving clinical-trial expense accruals was reported as remediated.
Important facts for investors to verify
- Cash runway assumptions against the operating cash burn, planned clinical spending and remaining financing needs.
- Whether the 2018 trial timelines and expected expense reductions were achieved, particularly for reldesemtiv and omecamtiv mecarbil.
- The terms, future cash-flow implications and accounting estimates for the RPI royalty-sale liability and Amgen co-investment commitment.
- Partner funding, development priorities and decision rights under the Amgen and Astellas agreements, including potential milestone and royalty conditions.
- Share dilution from 2017 financings, outstanding awards and warrants, and any subsequent capital raises.
- The consequences of the tirasemtiv trial failure and the February 2018 email-server intrusion, including any resulting costs, disclosures or operational effects.