Cytokinetics, Inc. — Q3 2013 Form 10-Q
Business context and period. Development-stage biopharmaceutical company focused on small-molecule therapies affecting muscle function. This unaudited report covers the quarter and nine months ended September 30, 2013. Its clinical-stage candidates include tirasemtiv, CK-2127107 and omecamtiv mecarbil; the company had no commercial drug sales.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $4.5 | $1.7 | $6.3 | $5.4 |
| Research and development expense | $13.4 | $8.8 | $35.6 | $25.8 |
| General and administrative expense | $3.6 | $3.0 | $11.0 | $8.6 |
| Operating loss | $(12.6) | $(10.1) | $(40.3) | $(29.0) |
| Net loss | $(12.6) | $(10.0) | $(40.2) | $(28.9) |
| Net loss per share | $(0.43) | $(0.45) | $(1.52) | $(1.86) |
- At September 30, cash and cash equivalents were $19.3 million, with short- and long-term investments of $66.1 million; total cash, cash equivalents and investments were $85.4 million, versus $74.0 million at December 31, 2012.
- Operating cash flow was positive $4.7 million for the first nine months, versus negative $26.3 million in the comparable 2012 period. The 2013 figure was substantially supported by $36.0 million of deferred-revenue cash inflows, alongside a $40.2 million net loss.
- Cash used in investing was $7.3 million; cash provided by financing was $7.0 million, mainly from Amgen’s stock purchase. The balance sheet reports no borrowing balance. Total liabilities were $48.3 million, including $36.0 million deferred revenue.
- Current assets were $83.3 million and current liabilities $45.0 million. Accumulated deficit was $489.1 million. Operating margins are not meaningful for this loss-making development-stage company.
Changes, agreements and outlook
- Nine-month revenue increased $0.9 million year over year, while net loss widened $11.3 million. R&D expense rose $9.8 million, primarily from higher outsourced clinical costs and increased spending on skeletal-muscle programs.
- Astellas agreement: Cytokinetics received a $16 million upfront payment in July. It recognized $1.4 million of license revenue by quarter-end and deferred the remaining $14.6 million of that upfront fee. The company also reported $18.4 million of deferred Astellas revenue, including prepayments for expected R&D costs. The agreement includes potential milestones and royalties, which are contingent and not assured.
- Amgen expanded its omecamtiv mecarbil collaboration to include Japan. Cytokinetics received a $15 million upfront license fee and $10 million for stock in June. At September 30, $17.5 million was deferred under the amended agreement; in October, the company determined revenue-recognition conditions were met and expected to begin recognition in Q4. Potential Japan milestones total up to $50 million, plus royalties.
- Management forecast 2013 revenue of $30–$32 million, R&D expense of $56–$59 million and G&A expense of $17–$18 million. It expected R&D spending to increase and believed existing cash and investments would cover projected requirements for at least 12 months. The company cautioned that it expects continuing losses and may need additional capital.
Clinical developments, risks and other notable items
- BENEFIT-ALS enrollment was expanded to approximately 680 after a vendor programming error caused 58 patients assigned to tirasemtiv to receive placebo at a study visit and thereafter. The company reported no DSMB safety concerns; enrollment completion was expected in Q4 2013, with results expected in the first half of 2014. The protocol changes were expected to add about $6 million in 2013–2014 costs.
- In ATOMIC-AHF, a Phase IIb trial of intravenous omecamtiv mecarbil, the primary dyspnea endpoint was not met. The filing described favorable dose-related trends, similar overall rates of adverse events and seven post-randomization myocardial infarctions in treatment groups versus three in placebo groups; it reported no relationship between troponin increases and drug concentration.
- CK-2127107 was in Phase I development with Astellas. The company reported completion of enrollment in one Phase I trial and initiation of dosing in another.
- Principal risks include clinical-trial failure or delay, the BENEFIT-ALS data issue, dependence on Amgen and Astellas’ development decisions, need for additional financing, lack of commercial revenue, regulatory and manufacturing uncertainty, and potential equity dilution. Future Phase III testing of tirasemtiv for ALS was expected to require substantial funding.
- The company reported no legal proceedings, no material change in internal control over financial reporting, and effective disclosure controls. It disclosed no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether BENEFIT-ALS completed enrollment as expected and whether the protocol amendment preserved the trial’s intended statistical power and interpretability.
- Subsequent trial results and safety information for tirasemtiv, CK-2127107 and omecamtiv mecarbil, including the implications of ATOMIC-AHF missing its primary endpoint and the myocardial-infarction imbalance.
- Timing and amount of collaboration revenue recognition, reimbursement receipts and any milestone or royalty payments; these are not equivalent to recurring product revenue.
- Cash burn and liquidity after the reporting date, whether the stated 12-month funding outlook remained achievable, and financing needs for potential tirasemtiv Phase III trials.
- Potential dilution: common shares outstanding rose to 29.5 million from 23.7 million at year-end 2012; warrants and options may add further shares.