Cytokinetics, Incorporated — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Financial amounts are in U.S. dollars; figures below are in millions unless otherwise noted. Cytokinetics is a clinical-stage biopharmaceutical company with no commercial drug sales and substantial ongoing development costs.
Financial performance and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $1.43 | $0.39 | $3.24 | $1.48 |
| Research and development expense | $8.89 | $9.55 | $28.58 | $28.85 |
| General and administrative expense | $3.20 | $3.41 | $10.73 | $10.63 |
| Operating loss | $(10.67) | $(12.57) | $(36.07) | $(38.00) |
| Net loss | $(10.64) | $(12.34) | $(35.98) | $(37.67) |
| Net loss per share, basic and diluted | $(0.15) | $(0.19) | $(0.55) | $(0.59) |
- Revenue was mainly Amgen research-cost reimbursements and grant revenue. No product sales were reported. Nine-month Amgen revenue was $2.04 million; NINDS grant revenue was $1.21 million.
- Operating cash use was $34.65 million in the first nine months, versus $35.74 million in the comparable 2010 period. Investing activities provided $16.51 million and financing activities provided $19.22 million, including $19.9 million net proceeds from the April Deerfield financing.
- Cash, cash equivalents and investments totaled $57.6 million at September 30, down from $72.8 million at December 31, 2010. Current assets were $59.87 million and current liabilities $5.03 million. Total liabilities were $5.03 million, including $0.31 million of equipment financing debt; no long-term debt was shown.
- Accumulated deficit was $396.6 million. Management said existing cash, cash equivalents and investments should fund operations for at least 12 months, while warning that additional capital may be needed and may not be available on acceptable terms.
- Gross margins are not meaningful for this development-stage company; the filing reports no commercial product revenue.
Material changes and financing
- Losses narrowed year over year in both the quarter and nine-month period, while nine-month revenue increased by $1.77 million. R&D spending was nearly flat for the nine months, but spending shifted among programs: skeletal muscle R&D decreased to $18.4 million from $22.3 million, while smooth muscle R&D increased to $4.3 million from $1.5 million.
- In April, the company raised approximately $20.1 million gross from Deerfield through common stock, convertible preferred stock and warrants; net proceeds were approximately $19.9 million. The preferred stock is convertible into 8.07 million common shares, and warrants cover 6.685 million shares. The company recorded a $2.86 million non-cash deemed dividend related to the preferred stock’s beneficial conversion feature.
- An at-the-market sales agreement permits up to $20 million of common stock sales, but no shares had been sold under it as of September 30. The Kingsbridge committed equity facility expired in March 2011.
- Common shares outstanding were 72,279,751 as of October 28, 2011. Potential dilution includes preferred-stock conversion, warrants and options.
Outlook, programs and risks
- For 2011, management projected revenue of $3–4 million, R&D expense of $40–42 million and G&A expense of $15–16 million. It expected full-year R&D expense to increase versus 2010. Amgen reimbursements in Q4 were expected to be minimal; the companies were discussing possible expanded research and funding in 2012.
- Omecamtiv mecarbil is being developed by Amgen, which controls development outside Japan. The company reported ongoing dosing in the first ATOMIC-AHF Phase IIb cohort and anticipated a decision on progression to the second cohort in the first half of 2012.
- CK-2017357 development included ALS trials and an ongoing myasthenia gravis study; the company anticipated some study data in late 2011 or the first half of 2012. It also advanced CK-2127107 into studies intended to support an IND or foreign equivalent.
- In October 2011, after quarter-end, the company announced an approximately 18% workforce reduction (18 employees, leaving 83) to focus resources on later-stage muscle programs. It expected approximately $1.3 million of restructuring charges in Q4, subject to possible revisions.
- Key risks include clinical-trial safety, efficacy and timing; reliance on Amgen and other external partners; uncertain regulatory approval and commercialization; need for future financing and potential shareholder dilution; and the possibility that funding constraints require reductions in research programs. The filing also notes a riluzole interaction: co-administration with CK-2017357 approximately doubled average maximum riluzole plasma levels.
- The company reported no legal proceedings and no material change in market-risk exposure. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the stated 12-month cash runway remains adequate given operating cash use, the Q4 restructuring costs and development spending.
- Actual 2011 revenue and expense results versus management’s stated ranges, including the level of Amgen reimbursements and availability of grant funding.
- Clinical-trial progress and reported data for omecamtiv mecarbil and CK-2017357, including safety findings, enrollment, timing and partner decisions.
- Potential dilution from conversion of 8.07 million preferred shares, exercise of warrants and any future ATM or other equity issuance.
- Final restructuring costs and any effects of the workforce reduction on program execution and research capacity.