Cytokinetics, Inc. — Q2 2013 Form 10-Q
Business context and reporting period
Clinical-stage biopharmaceutical company focused on small-molecule therapies that modulate muscle function. This unaudited filing covers the quarter and six months ended June 30, 2013; financial amounts below are in millions of dollars unless stated otherwise. Its leading programs were tirasemtiv (Phase II, ALS and other neuromuscular disorders), CK-2127107 (Phase I, skeletal muscle weakness) and omecamtiv mecarbil (developed with Amgen for heart failure).
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $1.0 | $1.8 | $1.8 | $3.7 |
| Research and development expense | $12.3 | $8.2 | $22.2 | $17.0 |
| General and administrative expense | $3.7 | $2.6 | $7.4 | $5.6 |
| Net loss | $15.0 | $8.9 | $27.7 | $18.9 |
| Net loss per share, basic and diluted | $0.58 | $0.76 | $1.11 | $1.54 |
Revenue was principally collaboration reimbursements and grant income; the company had no commercial drug sales. Operating margins are not meaningful given the early-stage business and continuing losses. The larger Q2 and year-to-date losses reflected higher R&D and administrative spending.
- Six-month cash used in operations was $5.6, compared with $17.4 in 2012; deferred collaboration revenue supported the 2013 cash-flow result. Investing activities provided $0.3, and financing activities provided $7.5.
- Cash and cash equivalents were $17.1 at June 30, versus $14.9 at year-end 2012. Short-term investments were $58.6, for combined cash and investments of approximately $75.7, versus $74.0 at year-end.
- Current assets were $93.6 and current liabilities $34.0. Total liabilities were $42.6, including deferred revenue. The filing reports no current borrowings or material debt balance; future minimum operating lease payments totaled $17.6.
Material changes and notable items
- Amgen expanded its omecamtiv mecarbil license to Japan in June, making the collaboration worldwide. Cytokinetics received a $15.0 upfront license fee and $10.0 for a common-stock purchase; certain amounts were deferred rather than recognized as Q2 revenue. The company may receive up to $50.0 in Japan-related pre-commercialization milestones and royalties.
- Cytokinetics entered a collaboration with Astellas for CK-2127107 and related muscle-activator research. The $16.0 upfront payment was received in July, after quarter-end, and was deferred for recognition over the estimated two-year research term. The agreement provides for potential reimbursements, development and sales milestones, and royalties.
- R&D expense increased 30% year over year for the first six months, led by higher outsourced clinical costs and spending on the skeletal-muscle program. Six-month skeletal-muscle R&D expense rose to $17.0 from $11.4; cardiac-muscle R&D declined to $1.5 from $2.2.
- A one-for-six reverse stock split took effect June 24, 2013; share and per-share figures in the filing reflect it retroactively. Amgen’s June stock purchase and conversions of preferred shares also increased common shares outstanding.
Outlook, risks and contingencies
- Management forecast 2013 revenue of $30–$32, R&D expense of $56–$59 and G&A expense of $17–$18. It expected R&D spending to continue rising.
- Management believed available cash, investments and investment income would fund operations for at least 12 months from June 30. The company nevertheless expects continuing losses and cash outflows, has a $476.5 accumulated deficit, and may need additional financing or partnerships. Funding on acceptable terms is not assured.
- In BENEFIT-ALS, a data-management programming error caused 58 patients assigned to tirasemtiv to receive placebo at a study visit and thereafter. The company corrected the error; the safety board reported no patient-safety concerns. The protocol was amended to allow enrollment of about 680 patients to preserve intended statistical power. Enrollment was expected to finish in the second half of 2013, with results in early 2014; the changes were expected to add about $5 in direct trial costs during 2013 and 2014.
- At least one confirmatory Phase III tirasemtiv trial was expected to be needed for potential ALS approval, and the filing highlights the related funding requirement. Development of CK-2127107 and omecamtiv mecarbil depends substantially on Astellas and Amgen, respectively, including their decisions on timing and continuation.
- Clinical, regulatory, manufacturing, intellectual-property, partner-dependence and future-financing risks remain significant. No legal proceedings were reported. Management concluded disclosure controls were effective, subject to the limitations described in the filing.
Important facts for investors to verify
- Whether BENEFIT-ALS enrollment, statistical power, timing and costs remained consistent with the amended plan, and what the eventual trial results showed.
- Actual cash runway and cash burn, including how deferred collaboration receipts and the July Astellas payment affect liquidity and revenue recognition.
- Progress and partner commitments for CK-2127107 and omecamtiv mecarbil, and whether any milestones or royalties are achieved.
- Actual 2013 revenue and expense versus management’s ranges, and the funding plan for any tirasemtiv Phase III trial.
- Potential dilution from outstanding warrants, options and other share-based awards; confirm share counts are interpreted on the post-reverse-split basis.