Cytokinetics, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Amounts below are in U.S. dollars; financial figures are rounded to millions unless noted.
Business context
Cytokinetics is a late-stage biopharmaceutical company developing muscle-directed drug candidates. It has no commercial product revenue; reported revenue came from research and development reimbursements and collaboration or license arrangements, principally with Amgen and Astellas.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $7.1m | $6.2m | $15.6m | $11.5m |
| Research and development expense | $24.0m | $21.6m | $47.6m | $43.7m |
| General and administrative expense | $9.8m | $8.0m | $19.3m | $17.3m |
| Operating loss | $(26.7)m | $(23.4)m | $(51.2)m | $(49.5)m |
| Net loss | $(32.1)m | $(27.5)m | $(61.5)m | $(57.8)m |
| Basic and diluted loss per share | $(0.56) | $(0.51) | $(1.09) | $(1.07) |
Second-quarter revenue increased 15% year over year, while first-half revenue increased 36%, mainly from collaboration research reimbursements. No gross margin is presented; the filing reports operating losses rather than product economics. First-half operating expenses rose 10%, with higher cardiac-program activity partly offset by lower skeletal-muscle spending. Net loss increased 6% for the first half, reflecting higher operating and interest costs.
- Cash flow: First-half net cash used in operating activities was $51.6m, compared with $56.7m in 2018. Investing activities provided $16.9m; financing activities provided $26.8m, including $24.8m net proceeds from the at-the-market stock offering.
- Liquidity: At June 30, cash and cash equivalents were $34.4m, short- and long-term investments were $140.8m, and total cash, cash equivalents and marketable securities were $175.1m. Working capital was $163.0m.
- Debt and other obligations: Reported long-term debt, net, was $44.5m. The company refinanced its prior loans with a $45.0m term loan in May; the loan bears interest at 9.24% as of June 30, is secured by substantially all assets other than intellectual property, and has interest-only payments through December 2020, subject to possible extension. The future-royalty liability was $132.4m. Lease liabilities totaled $8.8m.
- Balance sheet: Total liabilities exceeded assets by $4.9m at June 30, versus stockholders’ equity of $25.9m at December 31, 2018. Accumulated deficit was $804.8m.
Material changes, outlook and risks
- Management said existing cash, cash equivalents and investments were expected to fund cash requirements for at least 12 months from the filing date. The company expects continued operating losses and cash outflows and may need additional capital or collaboration funding. The filing references 2019 revenue and expense guidance but the provided text does not give clear numerical guidance.
- Cardiac R&D spending increased, including work on omecamtiv mecarbil Phase 3 development and the CK-274 program. The GALACTIC-HF monitoring committee recommended continuing the trial without changes after its first planned interim analysis; enrollment was announced complete in July 2019. Amgen conducts the trial.
- FORTITUDE-ALS, a Phase 2 trial of reldesemtiv, did not achieve statistical significance for its primary dose-response endpoint (p=0.11). Company-reported analyses showed numerical or clinically meaningful trends favoring treatment, but these do not establish efficacy. The company said it was analyzing results to inform a possible Phase 3 protocol. Dose-related transaminase elevations and declines in cystatin-C-estimated kidney function were reported.
- Cytokinetics was in discussions with Astellas about amending their collaboration terms, potentially affecting funding, development responsibility and commercial returns. Changes could increase Cytokinetics’ funding burden.
- Disclosure controls and procedures were deemed ineffective as of June 30, 2019 due to an unremediated material weakness in review and verification of internally prepared financial reports. Additional accounting staff were hired, but remediation was not yet complete; the filing says this weakness did not require restatement of prior financial statements.
- In July 2019, the company entered a lease for approximately 234,892 square feet of office and laboratory space, with a 12-year initial term expected to commence in September 2021. This is a significant future occupancy commitment.
- Other material risks include clinical and regulatory uncertainty, dependence on Amgen and Astellas, additional financing needs and potential dilution, debt covenants, and the absence of product sales. The company reported no material legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether collaboration funding and available liquidity support the stated 12-month runway, given operating cash use and the company’s continuing losses.
- Progress and results of GALACTIC-HF and METEORIC-HF, and Amgen’s development and commercialization decisions for omecamtiv mecarbil.
- What Astellas collaboration changes are agreed, including their effects on reldesemtiv funding, responsibilities and potential returns.
- Whether reldesemtiv’s mixed Phase 2 ALS findings support further development, and how renal-function and liver-enzyme signals affect its risk-benefit profile.
- Progress in remediating the financial-reporting material weakness and any future disclosure about control effectiveness.
- The financial and operational implications of the new 12-year facility lease, the secured term loan and the growing future-royalty liability.