Cytokinetics, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The company is a clinical-stage biopharmaceutical developer of muscle-function medicines and had no commercial product sales.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $3.6 million | $7.1 million | $7.4 million | $15.6 million |
| Research and development expense | $21.8 million | $24.0 million | $43.5 million | $47.6 million |
| General and administrative expense | $14.2 million | $9.8 million | $26.6 million | $19.3 million |
| Operating loss | $32.4 million | $26.7 million | $62.7 million | $51.2 million |
| Net loss | $40.8 million | $32.1 million | $80.2 million | $61.5 million |
| Basic and diluted loss per share | $0.68 | $0.56 | $1.35 | $1.09 |
- Revenue was primarily collaboration research reimbursements. Q2 revenue from Amgen was $2.1 million and from Astellas $1.2 million, versus $2.8 million and $4.4 million, respectively, in Q2 2019.
- R&D expense declined, mainly because reldesemtiv spending fell after its prior development work; G&A rose, largely from personnel-related costs, stock compensation and outside services. The filing does not present a meaningful gross margin; the company had no product sales.
- For the first half, operating cash use was $57.6 million, investing cash provided was $78.1 million, and financing cash provided was $4.1 million. Cash and cash equivalents increased $24.7 million to $61.1 million. Cash, cash equivalents and short-term investments totaled $213.1 million at quarter-end.
- At June 30, working capital was $196.3 million; current assets were $219.0 million and current liabilities $22.7 million. Total liabilities were $310.6 million, compared with total assets of $232.5 million; stockholders’ deficit was $78.1 million.
- Reported borrowings, net of discounts and issuance costs, were $132.4 million: term loan $45.6 million and convertible notes $86.7 million. The term loan bears an 8.05% rate, is secured by substantially all assets other than intellectual property, and matures in December 2023. The $138 million principal amount of 4% convertible notes matures in 2026; the filing reports a 12.5% effective interest rate on the liability component.
- Non-cash interest related to the future-royalty sale was $11.6 million for the first half. The royalty liability was $154.9 million at June 30.
Material changes and developments
- Compared with Q2 2019, revenue fell by $3.5 million and net loss widened by $8.7 million. Lower R&D expense was more than offset by higher G&A and interest expense; 2020 interest expense included the convertible notes issued in November 2019.
- In April, Astellas returned to Cytokinetics exclusive control and responsibility for reldesemtiv, CK-601 and other fast skeletal regulatory activators. Astellas agreed to fund one-third of out-of-pocket costs for a potential reldesemtiv ALS Phase 3 trial, capped at $12 million, and provide existing drug inventory. Cytokinetics will owe low- to mid-single-digit royalties on certain reldesemtiv sales. Astellas retains a collaboration on other skeletal sarcomere activators, with potential development and commercial milestones.
- After quarter-end, July transactions included a $25 million upfront payment from Ji Xing for CK-274 rights in greater China, with up to $200 million in potential milestones and tiered royalties; a $50 million common-stock sale to RTW investors; and a public offering that generated approximately $189 million net proceeds. These proceeds were not included in June 30 cash.
- Also after quarter-end, the company agreed to sell its mavacamten royalty for $85 million, subject to closing conditions, including MyoKardia consent. It also secured a conditional RTW funding commitment of up to $90 million for CK-274 development, in exchange for a 2% or 4% royalty on specified territory sales if funded.
Outlook, commentary and risks
- Management stated that June 30 cash, cash equivalents and investments were expected to fund requirements for at least 12 months from the filing date. The company anticipates continuing operating losses and cash outflows and may need additional financing or collaborations. No specific numerical 2020 revenue, R&D or G&A guidance is provided in the supplied filing text.
- GALACTIC-HF, Amgen’s Phase 3 omecamtiv mecarbil heart-failure outcomes trial, had completed enrollment; top-line results were expected in Q4 2020. The trial’s monitoring committee recommended continuing without changes after its second and final planned interim analysis. FDA granted fast track designation in May.
- COVID-19 temporarily paused enrollment in METEORIC-HF and REDWOOD-HCM; enrollment had resumed by filing. Management expected METEORIC-HF enrollment could finish in early 2021 and first-cohort REDWOOD-HCM data by year-end 2020. Pandemic-related clinical, operational and financing impacts remained uncertain.
- Other pipeline updates: CK-274 Phase 2 REDWOOD-HCM began in Q1 2020; a Phase 1 study of CK-271 was planned for Q3 2020. AMG 594 Phase 1 was complete with analysis ongoing. Reldesemtiv’s Phase 2 ALS trial did not meet its prespecified dose-response primary endpoint (p=0.11); any Phase 3 advancement remained potential, not assured.
- Major risks include clinical-trial failure or delay, dependence on partners and contract manufacturers, the need for further capital, debt and royalty obligations, competition, regulatory and reimbursement uncertainty, and COVID-19 disruption. The company also reported an undiscounted $217.7 million commitment for its Oyster Point facility lease, expected to commence in late 2021; no related right-of-use asset or lease liability had been recognized at June 30 because the facility was not yet available for use.
Important facts for investors to verify
- Whether GALACTIC-HF results and other pipeline data support further development, regulatory filings or milestone payments.
- Whether the $85 million mavacamten royalty sale closed and whether MyoKardia’s required consent was obtained.
- Whether CK-274 clinical milestones trigger any of the conditional RTW funding and the associated royalty and security terms.
- How post-quarter financing proceeds, share issuance and potential convertible-note dilution affect cash runway and per-share value.
- Whether trial enrollment, manufacturing transfers and facility delivery remain on schedule despite COVID-19 and other operational risks.