Cytokinetics, Inc. — Q1 2018 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2018. Cytokinetics is a clinical-stage biopharmaceutical company developing muscle-function therapies; it has no commercial product sales and depends on collaborations and financing. Key programs include omecamtiv mecarbil with Amgen and reldesemtiv with Astellas.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $5.3 million | $4.2 million; up $1.1 million |
| Operating expenses | $31.4 million | $27.4 million |
| Operating loss | $26.1 million | $23.3 million |
| Net loss | $30.3 million | $25.9 million |
| Net loss per share | $0.56 | $0.62 |
| Operating cash used | $29.8 million | $20.9 million |
At March 31, cash and cash equivalents were $115.0 million, with short- and long-term investments of $140.5 million; total cash, cash equivalents and investments were $255.5 million. Working capital was $233.8 million. Long-term debt was $32.0 million, and the royalty-sale liability was $108.8 million. Cash and cash equivalents declined $10.2 million during the quarter.
Revenue was entirely collaboration-related, principally from Astellas. The filing reports no product sales. R&D spending rose to $22.1 million from $19.3 million, mainly due to reldesemtiv clinical activity and preclinical work on an unpartnered cardiac program. G&A rose to $9.3 million from $8.1 million.
Material changes and unusual items
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption reduced reported Q1 R&D revenue by $1.3 million and license revenue by $2.0 million versus prior accounting guidance; the opening accumulated deficit was reduced by $18.1 million. Prior-period results were not restated.
- Non-cash interest expense on the royalty-sale liability increased to $4.1 million from $2.3 million, reflecting accretion under the royalty monetization arrangement.
- The Amgen co-invest option required a $6.3 million payment during Q1. The company had elected to fund $40 million of omecamtiv mecarbil Phase 3 development for incremental royalties of up to 4% outside Japan.
- In February 2018, the company discovered unauthorized access to its email server involving proprietary business information; it reported no material losses from security breaches.
Outlook, programs and risks
- Management stated in the financial-statement note that existing cash, cash equivalents and investments should fund requirements for at least 12 months from filing; the MD&A separately said resources were expected to fund requirements for at least 24 months. This difference is important to clarify.
- Management expected 2018 R&D and G&A expenses to decrease versus 2017, primarily following suspension of tirasemtiv development and lower commercial-readiness costs. No specific numeric 2018 revenue or expense guidance is provided in the supplied filing text.
- Results from the Phase 2 reldesemtiv SMA trial were expected in Q2 2018; ALS trial results were expected in Q4 2018; COPD results were expected in the second half of 2018. Amgen was conducting the Phase 3 GALACTIC-HF trial of omecamtiv mecarbil and planning another Phase 3 study.
- Tirasemtiv development was suspended after the VITALITY-ALS Phase 3 trial failed its primary and secondary endpoints. The company planned to close the VIGOR-ALS extension and transition interested participants to a managed access program.
- Key risks include clinical-trial failure or delay, reliance on Amgen and Astellas and their development decisions, need for additional capital, lack of product revenue, regulatory and competitive uncertainty, and debt covenant and repayment obligations. Management warned that future funding may not be available on acceptable terms.
- The company reported no legal proceedings and stated disclosure controls were effective; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Reconcile the 12-month versus 24-month cash runway statements and assess cash burn against planned trial commitments.
- Confirm the correct Q1 cash-flow figures: the financial statements report $29.8 million operating cash used and $20.1 million investing cash provided, while MD&A gives different figures.
- Track reldesemtiv trial results and the progress and timing of Amgen’s omecamtiv mecarbil Phase 3 program.
- Assess the accounting and cash implications of ASC 606 contract assets/liabilities, the Amgen co-invest payments, and the growing royalty-sale liability.
- Review financing needs, access conditions for the remaining $10 million under the loan agreement, debt covenants, and the impact of the reported email-server intrusion.