CYTOKINETICS INC quarterly report, Q1 FY2012

Cytokinetics, Inc. — Q1 2012 Form 10-Q

Reporting period: Three months ended March 31, 2012. Cytokinetics is a clinical-stage biopharmaceutical company with no commercial drug sales; reported revenue came from collaborations, grants, and research reimbursements.

Financial highlights

Amounts in USD millions except per-share data. The company reported no meaningful product gross margin; it remained loss-making.

Metric	Q1 2012	Q1 2011	Change
Revenue	$1.82	$0.76	Up $1.06
Research and development expense	$8.75	$9.18	Down $0.43
General and administrative expense	$3.06	$3.34	Down $0.28
Operating loss	$(9.94)	$(11.75)	Loss narrowed $1.81
Net loss	$(9.93)	$(11.71)	Loss narrowed $1.78
Net loss per share, basic and diluted	$(0.13)	$(0.18)	Improved $0.05
Net cash used in operations	$(8.74)	$(12.88)	Use decreased $4.14

• Revenue increased mainly from Amgen reimbursements ($1.18 million versus $0.39 million) and new Global Blood Therapeutics reimbursements; Q1 2012 also included $0.30 million of NINDS grant revenue.
• At March 31, cash and cash equivalents were $17.82 million and short-term investments were $25.27 million, totaling $43.08 million, excluding $0.05 million of restricted cash. Total current assets were $45.22 million; current liabilities were $4.47 million.
• Cash, cash equivalents, and investments decreased $5.9 million from year-end 2011. Q1 cash flows included $5.05 million provided by investing activities and $2.67 million provided by financing activities, primarily reflecting investment maturities and $2.82 million net ATM proceeds.
• The company repaid its remaining equipment-financing debt during Q1; no such debt remained at March 31. Operating-lease payments totaled $21.41 million over future periods, including $3.02 million due within one year.
• Accumulated deficit since inception was $418.44 million. Common shares outstanding rose from 74.92 million at December 31, 2011 to 77.51 million at March 31, 2012. Outstanding Series A preferred stock was convertible into 8.07 million common shares.

Material changes and outlook

• Compared with Q1 2011, higher collaboration and other research revenue and lower operating expenses reduced the quarterly net loss. R&D expense fell primarily with lower laboratory and personnel costs, partly offset by higher outsourced clinical and preclinical costs.
• Management forecast 2012 revenue of $4–5 million, R&D expense of $32–35 million, and G&A expense of $13–14 million. Management expected R&D spending to decrease versus 2011 and G&A to remain approximately level with 2011.
• Management believed available cash, cash equivalents, investments, and investment income would fund projected operating requirements for at least 12 months from the filing. The company expected continued losses and cash outflows and may need additional capital or partnerships; financing may be unavailable or dilutive or carry restrictive terms.
• The company had a $100 million shelf registration capacity remaining as of May 4, 2012. Under its ATM agreement, it sold 2.60 million shares for approximately $2.8 million net proceeds in Q1; cumulative ATM proceeds were approximately $5.3 million by May 3, 2012.

Programs, management commentary, and risks

• Omecamtiv mecarbil: Amgen leads development outside Japan and reimburses agreed research costs. More than 200 patients had enrolled in the first ATOMIC-AHF Phase IIb cohort; an independent committee review and decision on possible progression to a second cohort were expected in Q2 2012. Amgen initiated an oral-formulation Phase I study in February, with data expected in the second half of 2012. Potential milestone payments under the collaboration total up to $600 million, plus royalties; these are contingent, not assured.
• CK-2017357: The company continued its Phase IIa myasthenia gravis trial, with data expected in the second half of 2012. ALS trial results were described as showing encouraging trends, but the trials were not designed or powered to establish statistically significant treatment effects. FDA granted fast-track designation for ALS in April 2012; the company anticipated further regulatory discussions.
• CK-2127107: Nonclinical work continued, with an IND or foreign equivalent filing anticipated by year-end 2012. Smooth-muscle myosin inhibitors remained in preclinical research.
• The October 2011 restructuring reduced the workforce by 18 employees, approximately 18%, to 83. A $41,000 restructuring-charge reversal was recorded in Q1; $44,000 remained accrued and was expected to be paid by October 31, 2012.
• Key risks include clinical failure, safety or regulatory delays, reliance on Amgen for omecamtiv mecarbil, lack of partners for other programs, uncertain access to capital, potential shareholder dilution, and dependence on contract manufacturers and research organizations. The filing notes prior dose-limiting cardiac effects with omecamtiv mecarbil and adverse events with CK-2017357; a prior interaction study found co-administration of CK-2017357 and riluzole approximately doubled average maximum riluzole plasma levels.
• The IRS was examining tax year 2009; management said it maintained adequate reserves. No legal proceedings were reported. Management concluded disclosure controls were effective, and reported no material change in internal control over financial reporting.

Important facts for investors to verify

• Whether collaboration and grant revenue, and the stated 2012 revenue range, are realized as expected.
• Whether cash burn, program spending, and financing availability support the stated minimum 12-month liquidity outlook; monitor ATM and shelf-related dilution.
• Clinical data, regulatory feedback, and trial timing for omecamtiv mecarbil and CK-2017357, including safety and whether early ALS trends translate into adequately powered evidence.
• Progress toward the CK-2127107 IND filing and the availability of partners or funding for internally funded programs.
• Amgen’s development and funding decisions, and any changes to the collaboration, milestone prospects, or royalty economics.