Cytokinetics, Incorporated — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Cytokinetics is a clinical-stage biopharmaceutical company developing muscle-function therapies; it reported no commercial product sales.
Financial performance and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $1.053m | $0.462m | $1.817m | $1.084m |
| Research and development expense | $10.513m | $10.236m | $19.692m | $19.304m |
| General and administrative expense | $4.187m | $3.380m | $7.524m | $7.217m |
| Operating loss | $13.647m | $13.154m | $25.399m | $25.437m |
| Net loss | $13.632m | $13.144m | $25.344m | $25.333m |
| Net loss per common share | $0.23 | $0.21 | $0.41 | $0.40 |
Amounts are in millions except per-share data. Revenue consisted mainly of Amgen research-cost reimbursements and NINDS grant revenue. Gross margin is not meaningful because the company had no commercial product revenue. Net cash used in operations was $25.386m in the first half, essentially unchanged from $25.422m a year earlier.
Cash, cash equivalents and investments totaled $66.9m at June 30, down from $72.8m at year-end 2010. Current assets were $69.8m and current liabilities $5.5m. Equipment-financing debt was $0.489m, all current; the company also disclosed $22.7m in future operating lease payments. Management said available cash and investments should fund operations for at least 12 months, while warning that additional capital may be needed.
Changes, financing and unusual items
- Q2 revenue increased year over year, principally reflecting higher Amgen reimbursements and $0.399m of grant revenue; first-half revenue rose to $1.817m from $1.084m.
- First-half R&D expense increased modestly. Higher smooth-muscle and other research spending was largely offset by lower skeletal-muscle spending. Q2 G&A rose, including financing-related advisory costs and legal expense.
- In April, Deerfield financing generated approximately $19.9m net: 5.3m common shares, convertible preferred stock convertible into 8.07m common shares, and warrants for 6.685m shares. The preferred-stock beneficial conversion feature created a one-time, non-cash $2.857m deemed dividend, increasing loss allocable to common shareholders.
- The company established a $20m at-the-market equity sales facility in June; no shares had been sold under it as of June 30. The prior Kingsbridge committed equity facility expired in March. Shareholders authorized an increase in common-share authorization to 245m, effective in August.
Outlook, pipeline and principal risks
- 2011 expense guidance: R&D of $42m–$47m and G&A of $15m–$17m; management expected both categories to increase versus 2010. No clear revenue guidance was provided.
- Amgen initiated a Phase IIb trial of intravenous omecamtiv mecarbil in hospitalized heart-failure patients in May. Amgen controls development outside Japan; future milestones and royalties depend on development and commercialization outcomes.
- CK-2017357 (tirated through the skeletal-muscle program) remained in clinical development. A multiple-dose ALS trial began in July, with data anticipated by year-end; the myasthenia-gravis Phase IIa and a drug-interaction study were also ongoing or awaiting data. In the PAD trial, heel-raise performance improved, but six-minute-walk performance declined as dose and drug exposure increased; dizziness and other dose-related adverse events were cited as possible contributors.
- The NINDS grant provides up to $2.8m over three years for CK-2017357 research; the filing said up to $1.6m in future payments remained subject to eligible costs.
- Management anticipates ongoing operating losses and cash outflows. Risks include uncertain clinical results and safety, trial delays, dependence on Amgen and other partners, lack of product revenue, financing and dilution risk, regulatory and manufacturing challenges, and intellectual-property disputes. The filing notes potential omecamtiv-related cardiac safety findings at doses above the maximum tolerated dose and a CK-2017357 interaction with riluzole under evaluation.
- No legal proceedings were reported. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- Cash runway assumptions and whether additional financing or ATM share sales become necessary.
- Upcoming CK-2017357 trial and drug-interaction results, especially safety, dose response, and the PAD walking-test finding.
- Amgen’s omecamtiv mecarbil trial progress, decisions, and any resulting milestone or reimbursement payments.
- Potential dilution from preferred conversion, outstanding warrants, equity facilities, and the expanded authorized share count.
- Actual 2011 spending versus guidance and availability of remaining grant funding.