Cytokinetics, Inc. — Q3 2020 Form 10-Q
Business context and reporting period. Late-stage biopharmaceutical company developing muscle-activating and muscle-inhibiting therapies. This unaudited filing covers the quarter and nine months ended September 30, 2020; dollar amounts below are in millions unless noted. The company had no commercial drug sales.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $41.7 | $6.1 | $49.1 | $21.7 |
| Research and development revenue | $5.2 | $6.1 | $12.6 | $21.7 |
| License revenue | $36.5 | — | $36.5 | — |
| Research and development expense | $24.2 | $20.2 | $67.7 | $67.8 |
| General and administrative expense | $12.3 | $9.8 | $38.9 | $29.0 |
| Operating income (loss) | $5.2 | $(23.9) | $(57.5) | $(75.2) |
| Net loss | $(3.2) | $(29.6) | $(83.4) | $(91.1) |
| Net loss per share, basic and diluted | $(0.05) | $(0.50) | $(1.34) | $(1.60) |
| Net cash used in operating activities | Not stated for quarter | Not stated for quarter | $(43.2) | $(71.9) |
Liquidity and debt. At September 30, cash and cash equivalents were $200.8, short-term investments $209.5, and long-term investments $41.0. Cash plus short-term investments totaled $410.3; total cash and investments including long-term holdings were $451.2. Working capital was $390.8. Carrying values were $45.9 for the term loan and $88.1 for convertible notes, or $134.0 total borrowings; the future-royalty liability was another $160.4. The company reported $474.1 in total assets and $324.5 in total liabilities.
The company said existing cash, cash equivalents and investments should fund requirements for at least 12 months from the filing date, while warning that it expects future operating losses and cash outflows. It has an accumulated deficit of $948.4.
Material changes versus prior periods
- Q3 revenue increased mainly because $36.5 of license revenue was recognized from the July RTW/Ji Xing transactions. The revenue was the residual allocation for the CK-274 license; it is not recurring product revenue.
- Nine-month operating cash use improved by $28.6 versus 2019. Net loss narrowed by $7.7, while non-cash expenses and working-capital movements also affected cash flow.
- Nine-month R&D expense was essentially unchanged. Higher spending on METEORIC-HF and cardiac myosin inhibitors was offset by lower reldesemtiv spending after the FORTITUDE-ALS trial ended. G&A expense rose $9.9, primarily from personnel-related costs, stock compensation and outside services.
- July financing materially strengthened liquidity: a public offering generated approximately $188.9 net, and a private placement with RTW generated approximately $36.2 net. Shares outstanding were 70.6 million at September 30 and 70,779,023 at November 2.
Outlook, commentary and principal risks
- Clinical update after quarter-end: On October 8, 2020, the company and its partners reported that omecamtiv mecarbil met GALACTIC-HF’s primary composite endpoint, reducing cardiovascular death or heart-failure events versus placebo (HR 0.92; 95% CI 0.86–0.99; p=0.025). No reduction in the secondary endpoint of cardiovascular death was observed; adverse events, including major ischemic cardiac events, were balanced. Further analyses were ongoing.
- METEORIC-HF enrollment, temporarily suspended during COVID-19, resumed in June; the company expected completion in the first half of 2021. REDWOOD-HCM enrollment also resumed, with first-cohort data expected to inform progression to a second cohort by year-end 2020.
- CK-274 is being developed for hypertrophic cardiomyopathy, including the Phase 2 REDWOOD-HCM trial. Ji Xing licensed CK-274 rights in greater China for a $25.0 upfront payment, potential milestones of up to $200.0, and tiered royalties. Development and commercial success in that territory depend on Ji Xing.
- Under the Astellas restructuring, Cytokinetics regained control of reldesemtiv and related fast skeletal activators. Astellas agreed to contribute one-third of eligible costs for a potential ALS Phase 3 trial, capped at $12.0; Cytokinetics would owe royalties on specified reldesemtiv sales territories.
- The proposed sale of mavacamten royalties to RTW for $85.0 remained conditional: closing conditions were unmet by October 12 and the deadline was extended to November 11, 2020. The company had not recorded the $85.0 proceeds at September 30. RTW also committed up to $90.0 for CK-274 development, subject to clinical milestones and other conditions, in exchange for a share of specified future net sales.
- The term loan bears interest at 8.05% at quarter-end and is secured by substantially all assets other than intellectual property. Its interest-only period was extended to July 2021 following CK-274 trial initiation and was to extend through December 2021 following the GALACTIC-HF result. The $138.0 principal amount of 2026 convertible notes carries 4.0% cash interest; accounting interest expense is higher due to discount amortization.
- COVID-19 created risks to trial enrollment, operations, supply chains and access to capital. The company also highlighted clinical, regulatory, manufacturing, partner-dependence, competition, reimbursement, intellectual-property and financing risks. It has no product revenue and expects continued losses.
- The filing refers to 2020 revenue, R&D and G&A guidance, but the provided filing text does not state clear numerical guidance values. The company reported effective disclosure controls as of September 30, 2020 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the GALACTIC-HF benefit is clinically meaningful and persists in detailed analyses, particularly given the absence of a demonstrated cardiovascular-death reduction.
- Whether the RTW royalty sale closed by the extended deadline and whether the conditional CK-274 funding becomes available; neither should be treated as assured cash in this filing.
- Progress, enrollment and results for REDWOOD-HCM, METEORIC-HF and any planned reldesemtiv ALS program, including effects of COVID-19.
- Cash runway assumptions and future funding needs, taking account of operating cash use, debt service, the royalty liability and the planned long-term facility lease.
- Potential dilution from equity financing and conversion of the 2026 notes, as well as the terms and conditions attached to future royalty-based funding.