Attached files
file | filename |
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EX-3.2 - EX-3.2 - CYTOKINETICS INC | f59630exv3w2.htm |
EX-31.1 - EX-31.1 - CYTOKINETICS INC | f59630exv31w1.htm |
EX-10.2 - EX-10.2 - CYTOKINETICS INC | f59630exv10w2.htm |
EX-32.1 - EX-32.1 - CYTOKINETICS INC | f59630exv32w1.htm |
EX-31.2 - EX-31.2 - CYTOKINETICS INC | f59630exv31w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - CYTOKINETICS INC | Financial_Report.xls |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-50633
CYTOKINETICS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware | 94-3291317 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
280 East Grand Avenue | ||
South San Francisco, California | 94080 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (650) 624-3000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Number of shares of common stock, $0.001 par value, outstanding as of July 29, 2011:
72,279,751.
CYTOKINETICS, INCORPORATED
TABLE OF CONTENTS FOR FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2011
TABLE OF CONTENTS FOR FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2011
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EX-3.2 | ||||||||
EX-10.2 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
CYTOKINETICS, INCORPORATED
(A Development Stage Enterprise)
(A Development Stage Enterprise)
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 23,769 | $ | 17,514 | ||||
Short-term investments |
43,143 | 54,125 | ||||||
Related party accounts receivable |
27 | 46 | ||||||
Prepaid and other current assets |
2,865 | 1,813 | ||||||
Total current assets |
69,804 | 73,498 | ||||||
Long-term investments |
| 1,206 | ||||||
Property and equipment, net |
1,705 | 2,321 | ||||||
Restricted cash |
439 | 788 | ||||||
Other assets |
209 | 179 | ||||||
Total assets |
$ | 72,157 | $ | 77,992 | ||||
LIABILITIES and STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,005 | $ | 1,119 | ||||
Accrued liabilities |
3,737 | 5,372 | ||||||
Related party payables and accrued liabilities |
11 | | ||||||
Short-term portion of equipment financing lines |
489 | 833 | ||||||
Deferred revenue |
263 | | ||||||
Total current liabilities |
5,505 | 7,324 | ||||||
Long-term portion of equipment financing lines |
| 152 | ||||||
Total liabilities |
5,505 | 7,476 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $0.001 par value: |
||||||||
Authorized: 10,000,000 shares at June 30, 2011 and December 31, 2010 |
||||||||
Issued and outstanding: Series A Convertible Preferred Stock
8,070 shares at June 30, 2011 and zero shares at December 31, 2010 |
| | ||||||
Common stock, $0.001 par value: |
||||||||
Authorized: 170,000,000 shares at June 30, 2011 and December 31, 2010 |
||||||||
Issued and outstanding: 72,279,751 shares at June 30, 2011 and
66,907,600 shares at December 31, 2010 |
72 | 67 | ||||||
Additional paid-in capital |
452,559 | 431,103 | ||||||
Accumulated other comprehensive income (loss) |
15 | (4 | ) | |||||
Deficit accumulated during the development stage |
(385,994 | ) | (360,650 | ) | ||||
Total stockholders equity |
66,652 | 70,516 | ||||||
Total liabilities and stockholders equity |
$ | 72,157 | $ | 77,992 | ||||
The accompanying notes are an integral part of these financial statements.
3
Table of Contents
CYTOKINETICS, INCORPORATED
(A Development Stage Enterprise)
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Period from | ||||||||||||||||||||
August 5, 1997 | ||||||||||||||||||||
Three Months Ended | Six Months Ended | (Date of Inception) | ||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | to June 30, | ||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Research and development
revenues from related parties |
$ | 654 | $ | 462 | $ | 1,043 | $ | 1,084 | $ | 50,140 | ||||||||||
Research and development,
grant and other revenues |
399 | | 774 | | 4,818 | |||||||||||||||
License revenues from related
parties |
| | | | 112,935 | |||||||||||||||
Total revenues |
1,053 | 462 | 1,817 | 1,084 | 167,893 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development |
10,513 | 10,236 | 19,692 | 19,304 | 434,982 | |||||||||||||||
General and administrative |
4,187 | 3,380 | 7,524 | 7,217 | 137,886 | |||||||||||||||
Restructuring charges |
| | | | 2,450 | |||||||||||||||
Total operating expenses |
14,700 | 13,616 | 27,216 | 26,521 | 575,318 | |||||||||||||||
Operating loss |
(13,647 | ) | (13,154 | ) | (25,399 | ) | (25,437 | ) | (407,425 | ) | ||||||||||
Interest and other, net |
15 | 10 | 55 | 104 | 21,405 | |||||||||||||||
Loss before income taxes |
(13,632 | ) | (13,144 | ) | (25,344 | ) | (25,333 | ) | (386,020 | ) | ||||||||||
Income tax benefit |
| | | | (26 | ) | ||||||||||||||
Net loss |
(13,632 | ) | (13,144 | ) | (25,344 | ) | (25,333 | ) | (385,994 | ) | ||||||||||
Deemed dividend related to
beneficial conversion feature of
convertible preferred stock |
(2,857 | ) | | (2,857 | ) | | (2,857 | ) | ||||||||||||
Net loss allocable to common
stockholders |
$ | (16,489 | ) | $ | (13,144 | ) | $ | (28,201 | ) | $ | (25,333 | ) | $ | (388,851 | ) | |||||
Net loss per share allocable to
common stockholders basic and
diluted |
$ | (0.23 | ) | $ | (0.21 | ) | $ | (0.41 | ) | $ | (0.40 | ) | ||||||||
Weighted-average number of shares
used in computing net loss per
share allocable to common
stockholders basic and diluted |
71,151 | 63,815 | 69,043 | 62,910 |
The accompanying notes are an integral part of these financial statements.
4
Table of Contents
CYTOKINETICS, INCORPORATED
(A Development Stage Enterprise)
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Period from | ||||||||||||
August 5, 1997 | ||||||||||||
Six Months Ended | (Date of Inception) | |||||||||||
June 30, | June 30, | to June 30, | ||||||||||
2011 | 2010 | 2011 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (25,344 | ) | $ | (25,333 | ) | $ | (385,994 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization of property and equipment |
813 | 966 | 28,179 | |||||||||
Loss on disposal of equipment |
3 | | 301 | |||||||||
Non-cash impairment charges |
| | 103 | |||||||||
Non-cash restructuring expenses, net of reversals |
| | 498 | |||||||||
Non-cash interest expense |
| | 504 | |||||||||
Non-cash forgiveness of loans to officers |
| 9 | 434 | |||||||||
Stock-based compensation |
1,492 | 2,006 | 30,768 | |||||||||
Non-cash warrant expense |
| | 1,626 | |||||||||
Other non-cash expenses |
| | 141 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Related party accounts receivable |
19 | (33 | ) | (378 | ) | |||||||
Prepaid and other assets |
(1,006 | ) | (344 | ) | (3,026 | ) | ||||||
Accounts payable |
(41 | ) | (440 | ) | 1,145 | |||||||
Accrued liabilities |
(1,596 | ) | (1,502 | ) | 3,576 | |||||||
Related party payables and accrued liabilities |
11 | | 11 | |||||||||
Deferred revenue |
263 | (751 | ) | 263 | ||||||||
Net cash used in operating activities |
(25,386 | ) | (25,422 | ) | (321,849 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchases of investments |
(25,138 | ) | (66,543 | ) | (936,568 | ) | ||||||
Proceeds from sales and maturities of investments |
37,346 | 76,073 | 873,499 | |||||||||
Proceeds from sales of auction rate securities |
| 10,425 | 20,025 | |||||||||
Purchases of property and equipment |
(317 | ) | (274 | ) | (30,910 | ) | ||||||
Proceeds from sales of property and equipment |
3 | | 141 | |||||||||
(Increase) decrease in restricted cash |
349 | 441 | (439 | ) | ||||||||
Issuance of related party notes receivable |
| | (1,146 | ) | ||||||||
Proceeds from repayments of notes receivable |
| | 859 | |||||||||
Net cash provided by (used in) investing activities |
12,243 | 20,122 | (74,539 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from initial public offering, sale of common stock to related
party, and public offerings, net of issuance costs |
| | 206,871 | |||||||||
Proceeds from draw down of committed equity financing and
at-the-market facility, net of issuance costs |
(76 | ) | 8,930 | 52,778 | ||||||||
Proceeds from other issuances of common stock and warrants, net of
issuance costs |
10,641 | 219 | 18,060 | |||||||||
Proceeds from issuance of preferred stock, net of issuance costs |
9,329 | | 142,501 | |||||||||
Repurchase of common stock |
| | (68 | ) | ||||||||
Proceeds from loan with UBS |
| | 12,441 | |||||||||
Repayment of loan with UBS |
| (10,201 | ) | (12,441 | ) | |||||||
Proceeds from equipment financing lines |
| | 23,696 | |||||||||
Repayment of equipment financing lines |
(496 | ) | (844 | ) | (23,681 | ) | ||||||
Net cash provided by (used in) financing activities |
19,398 | (1,896 | ) | 420,157 | ||||||||
Net increase (decrease) in cash and cash equivalents |
6,255 | (7,196 | ) | 23,769 | ||||||||
Cash and cash equivalents, beginning of period |
17,514 | 25,561 | | |||||||||
Cash and cash equivalents, end of period |
$ | 23,769 | $ | 18,365 | $ | 23,769 | ||||||
The accompanying notes are an integral part of these financial statements.
5
Table of Contents
CYTOKINETICS, INCORPORATED
(A Development Stage Enterprise)
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Overview
Cytokinetics, Incorporated (the Company, we or our) was incorporated under the laws of
the state of Delaware on August 5, 1997. The Company is a clinical-stage biopharmaceutical company
focused on the discovery and development of novel small molecule therapeutics that modulate muscle
function for the potential treatment of serious diseases and medical conditions. The Company is a
development stage enterprise and has been primarily engaged in conducting research, developing drug
candidates and technologies, and raising capital. The Company has never generated revenues from
commercial sales of its drugs and it may not have drugs to market for at least several years, if
ever.
The Companys registration statement for its initial public offering (IPO) was declared
effective by the Securities and Exchange Commission (SEC) on April 29, 2004. The Companys common
stock commenced trading on the NASDAQ National Market, now the NASDAQ Global Market, on April 29,
2004 under the trading symbol CYTK.
The Companys financial statements contemplate the conduct of the Companys operations in the
normal course of business. The Company has incurred an accumulated deficit since inception and
there can be no assurance that the Company will attain profitability. The Company had a net loss of
$25.3 million and net cash used in operations of $25.4 million for the six months ended June 30,
2011, and an accumulated deficit of $386.0 million as of June 30, 2011. Cash, cash equivalents and
investments decreased to $66.9 million at June 30, 2011 from $72.8 million at December 31, 2010.
The Company anticipates that it will continue to have operating losses and net cash outflows in
future periods. If sufficient additional capital is not available on terms acceptable to the
Company, its liquidity will be impaired.
The Company has funded its operations primarily through sales of equity securities, contract
payments under its collaboration agreements, debt financing arrangements, government grants and
interest income. Until it achieves profitable operations, the Company intends to continue to fund
operations through payments from strategic collaborations, additional sales of equity securities,
government grants and debt financings. Based on the current status of its development plans, the
Company believes that its existing cash, cash equivalents and investments at June 30, 2011 will be
sufficient to fund its cash requirements for at least the next 12 months. If, at any time, the
Companys prospects for financing its research and development programs decline, the Company may
decide to reduce research and development expenses by delaying, discontinuing or reducing its
funding of one or more of its research or development programs. Alternatively, the Company might
raise funds through strategic collaborations, public or private financings or other arrangements.
Such funding, if needed, may not be available on favorable terms, or at all.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America (GAAP) for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The financial statements include
all adjustments (consisting only of normal recurring adjustments) that management believes are
necessary for the fair statement of the balances and results for the periods presented. These
interim financial statement results are not necessarily indicative of results to be expected for
the full fiscal year or any future interim period.
The balance sheet at December 31, 2010 has been derived from the audited financial statements
at that date. The financial statements and related disclosures have been prepared with the
presumption that users of the interim financial statements have read or have access to the audited
financial statements for the preceding fiscal year. Accordingly, these financial statements should
be read in conjunction with the audited financial statements and notes thereto contained in the
Companys Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 11, 2011.
6
Table of Contents
Comprehensive Loss
Comprehensive loss consists of net loss and other comprehensive income (loss). Other
comprehensive income (loss) includes certain changes in stockholders equity that are excluded from
net loss. Comprehensive loss and its components for the three and six months ended June 30, 2011
and 2010 were as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss |
$ | (13,632 | ) | $ | (13,144 | ) | $ | (25,344 | ) | $ | (25,333 | ) | ||||
Change in unrealized gain on investments |
6 | 10 | 19 | 2 | ||||||||||||
Comprehensive loss |
$ | (13,626 | ) | $ | (13,134 | ) | $ | (25,325 | ) | $ | (25,331 | ) | ||||
Restricted Cash
In accordance with the terms of the Companys line of credit agreements with General Electric
Capital Corporation (GE Capital), the Company is obligated to maintain a certificate of deposit
with the lender. In January 2011, GE Capital reduced the amount of the Companys certificate of
deposit. The balance of the certificate of deposit, which the Company classifies as restricted
cash, was as follows (in thousands):
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Certificate of deposit classified as restricted cash |
$ | 439 | $ | 788 | ||||
Note 2. Net Loss Per Share
Basic net loss per share allocable to common stockholders is computed by dividing the net loss
allocable to common stockholders by the weighted average number of vested common shares outstanding
during the period. Diluted net loss per share allocable to common stockholders is computed by
giving effect to all potentially dilutive common shares, including outstanding stock options,
unvested restricted stock, warrants, convertible preferred stock and shares issuable under the
Companys Employee Stock Purchase Plan (ESPP), by applying the treasury stock method. Following
is the calculation of basic and diluted net loss per share allocable to common stockholders (in
thousands, except per share data):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss |
$ | (13,632 | ) | $ | (13,144 | ) | $ | (25,344 | ) | $ | (25,333 | ) | ||||
Deemed dividend related to beneficial
conversion feature of convertible
preferred stock |
(2,857 | ) | | (2,857 | ) | | ||||||||||
Net loss allocable to common stockholders |
$ | (16,489 | ) | $ | (13,144 | ) | $ | (28,201 | ) | $ | (25,333 | ) | ||||
Weighted-average common shares outstanding |
71,151 | 63,996 | 69,043 | 63,095 | ||||||||||||
Unvested restricted stock |
| (181 | ) | | (185 | ) | ||||||||||
Weighted-average number of shares used
in computing net loss per share allocable to
common stockholders basic and
diluted |
71,151 | 63,815 | 69,043 | 62,910 | ||||||||||||
Net loss per share allocable to common
stockholders basic and diluted |
$ | (0.23 | ) | $ | (0.21 | ) | $ | (0.41 | ) | $ | (0.40 | ) |
The following instruments were excluded from the computation of diluted net loss per share
allocable to common stockholders for the periods presented because their effect would have been
antidilutive (in thousands):
Three and Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2011 | 2010 | |||||||
Options to purchase common stock |
9,978 | 8,250 | ||||||
Unvested restricted common stock |
| 175 | ||||||
Warrants to purchase common stock |
10,238 | 4,027 | ||||||
Series A convertible preferred stock (as converted to common stock) |
8,070 | | ||||||
Shares issuable related to the ESPP |
54 | 45 | ||||||
Total shares |
28,340 | 12,497 | ||||||
7
Table of Contents
Note 3. Supplemental Cash Flow Data
Supplemental cash flow data was as follows (in thousands):
Period from | ||||||||||||
August 5, 1997 | ||||||||||||
Six Months Ended | (date of inception) | |||||||||||
June 30, | June 30, | to June 30, | ||||||||||
2011 | 2010 | 2011 | ||||||||||
Significant non-cash investing and financing activities: |
||||||||||||
Deferred stock-based compensation |
$ | | $ | | $ | 6,940 | ||||||
Purchases of property and equipment through accounts payable |
39 | 58 | 39 | |||||||||
Purchases of property and equipment through trade in value
of disposed property and equipment |
| | 258 | |||||||||
Penalty on restructuring of equipment financing lines |
| | 475 | |||||||||
Conversion of convertible preferred stock to common stock |
| | 133,172 | |||||||||
Warrants issued in equity financing |
| | 1,585 |
Note 4. Related Party Research and Development Arrangements
Amgen Inc. (Amgen)
Pursuant to its collaboration and option agreement with Amgen (the Amgen Agreement), the
Company has recognized research and development revenue from Amgen for reimbursements of its costs
of full-time employee equivalents (FTEs) supporting the research and development program for
omecamtiv mecarbil and related compounds, and for reimbursements of other costs related to that
program. These reimbursements were recorded as research and development revenues from related
parties. Revenue from Amgen was as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
FTE reimbursements |
$ | 637 | $ | 321 | $ | 1,001 | $ | 737 | ||||||||
Reimbursements of other costs |
17 | 141 | 42 | 347 | ||||||||||||
Total research and development revenues from Amgen |
654 | 462 | 1,043 | 1,084 | ||||||||||||
Total revenue from Amgen |
$ | 654 | $ | 462 | $ | 1,043 | $ | 1,084 | ||||||||
Deferred revenue and related party accounts receivable related to Amgen were as follows (in
thousands):
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Deferred revenue Amgen |
$ | 263 | $ | | ||||
Related party accounts receivable Amgen |
$ | 27 | $ | 41 | ||||
GlaxoSmithKline (GSK)
There were no related party accounts receivables due from GSK at June 30, 2011 or December 31,
2010. Related party payables and accrued liabilities due to GSK were as follows (in thousands):
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Related party payables and accrued liabilities GSK |
$ | 11 | $ | | ||||
Note 5. Grant Arrangement
In July 2010, the National Institute of Neurological Disorders and Stroke (NINDS) awarded to
the Company a $2.8 million grant to support for three years its research and development of CK-2017357 directed to the potential treatment for myasthenia gravis. We have determined
that the Company is the principal participant in the grant arrangement and, accordingly, the
8
Table of Contents
Company records amounts earned under the arrangement as revenue. The Company recognized grant
revenue under this grant arrangement as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
NINDS myasthenia gravis |
$ | 399 | $ | | $ | 774 | $ | | ||||||||
Note 6. Cash Equivalents and Investments
Cash Equivalents and Available for Sale Investments
The amortized cost and fair value of cash equivalents and available for sale investments at
June 30, 2011 and December 31, 2010 were as follows (in thousands):
June 30, 2011 | ||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Maturity | ||||||||||||||||
Cost | Gains | Losses | Value | Dates | ||||||||||||||||
Cash equivalents money market funds |
$ | 22,996 | $ | | $ | | $ | 22,996 | ||||||||||||
Short-term investments U.S. Treasury securities |
$ | 43,128 | $ | 15 | $ | | $ | 43,143 | 7/2011-4/2012 | |||||||||||
December 31, 2010 | ||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Maturity | ||||||||||||||||
Cost | Gains | Losses | Value | Dates | ||||||||||||||||
Cash equivalents money market funds |
$ | 16,966 | | | $ | 16,966 | ||||||||||||||
Short-term investments U.S. Treasury securities |
$ | 54,129 | $ | 4 | $ | (8 | ) | $ | 54,125 | 1/2011- 12/2011 | ||||||||||
Long-term investments U.S. Treasury securities |
$ | 1,207 | | $ | (1 | ) | $ | 1,206 | 1/2012 | |||||||||||
As of June 30, 2011, the Companys cash equivalents and short-term investments had no
unrealized losses. As of December 31, 2010, the Companys cash equivalents had no unrealized
losses, and its U.S. Treasury securities classified as short- and long-term investments had
unrealized losses of approximately $9,000. The unrealized losses primarily were caused by slight
increases in short-term interest rates subsequent to the purchase date of the related securities.
The Company collected the contractual cash flows on its U.S. Treasury securities that matured from
January through July 2011, and expects to be able to collect all contractual cash flows on the
remaining maturities of its U.S. Treasury securities.
Interest income was as follows (in thousands):
Period from | ||||||||||||||||||||
August 5, 1997 | ||||||||||||||||||||
Three Months Ended | Six Months Ended | (date of inception) | ||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | to June 30, | ||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||||||
Interest income |
$ | 27 | $ | 63 | $ | 78 | $ | 227 | $ | 28,471 | ||||||||||
Investments in Auction Rate Securities and Investment Put Option Related to Auction Rate Securities
Rights
On June 30, 2010, the Company exercised its Series C-2 Auction Rate Securities Rights issued
to the Company by UBS AG (the ARS Rights), which required that UBS AG purchase the Companys
remaining outstanding auction rate securities (ARS) at par value. Accordingly, on the settlement
date of July 1, 2010, UBS AG deposited the proceeds of $7.5 million into the Companys money market
account. The Company recorded the ARS Rights as an investment put option, which was extinguished at
the time that the ARS Rights were exercised.
The Company recognized changes in the fair value of the ARS, excluding the sale of ARS, and
changes in the fair value of the ARS Rights in current period earnings in Interest and other, net.
Unrealized gains (losses) on the ARS and ARS Rights recognized in Interest and other, net, for the
three and six months ended June 30, 2010 are set forth in Note 10. Interest and Other, Net.
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Note 7. Fair Value Measurements
The Company follows the fair value accounting guidance to value its financial assets and
liabilities. Fair value is defined as the price that would be received for assets when sold or paid
to transfer a liability in an orderly transaction between market participants at the measurement
date (exit price). The Company utilizes market data or assumptions that the Company believes market
participants would use in pricing the asset or liability, including assumptions about risk and the
risks inherent in the inputs to the valuation technique. These inputs can be readily observable,
market corroborated or generally unobservable.
The Company primarily applies the market approach for recurring fair value measurements and
endeavors to utilize the best information reasonably available. Accordingly, the Company utilizes
valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs to the extent possible, and considers the security issuers and the third-party
insurers credit risk in its assessment of fair value.
The Company classifies the determined fair value based on the observability of those inputs.
Fair value accounting guidance establishes a fair value hierarchy that prioritizes the inputs used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to
unobservable inputs (Level 3 measurement). The three defined levels of the fair value hierarchy are
as follows:
Level 1 Observable inputs, such as quoted prices in active markets for identical assets or
liabilities;
Level 2 Inputs, other than the quoted prices in active markets, that are observable either
directly or through corroboration with observable market data; and
Level 3 Unobservable inputs, for which there is little or no market data for the assets or
liabilities, such as internally-developed valuation models.
Financial assets measured at fair value on a recurring basis as of June 30, 2011 and December
31, 2010 were classified in one of the three categories described above as follows (in thousands):
June 30, 2011 | ||||||||||||||||
Fair Value Measurements Using | Assets | |||||||||||||||
Level 1 | Level 2 | Level 3 | At Fair Value | |||||||||||||
Money market funds |
$ | 22,996 | $ | | $ | | $ | 22,996 | ||||||||
U.S. Treasury securities |
43,143 | | | 43,143 | ||||||||||||
Total |
$ | 66,139 | $ | | $ | | $ | 66,139 | ||||||||
Amounts included in: |
||||||||||||||||
Cash and cash equivalents |
$ | 22,996 | $ | | $ | | $ | 22,996 | ||||||||
Short-term investments |
43,143 | | | 43,143 | ||||||||||||
Total |
$ | 66,139 | $ | | $ | | $ | 66,139 | ||||||||
December 31, 2010 | ||||||||||||||||
Fair Value Measurements Using | Assets | |||||||||||||||
Level 1 | Level 2 | Level 3 | At Fair Value | |||||||||||||
Money market funds |
$ | 16,966 | $ | | $ | | $ | 16,966 | ||||||||
U.S. Treasury securities |
55,331 | | | 55,331 | ||||||||||||
Total |
$ | 72,297 | $ | | $ | | $ | 72,297 | ||||||||
Amounts included in: |
||||||||||||||||
Cash and cash equivalents |
$ | 16,966 | $ | | $ | | $ | 16,966 | ||||||||
Short-term investments |
54,125 | | | 54,125 | ||||||||||||
Long-term investments |
1,206 | $ | | $ | | 1,206 | ||||||||||
Total |
$ | 72,297 | $ | | $ | | $ | 72,297 | ||||||||
The valuation technique used to measure fair value for the Companys Level 1 assets is a
market approach, using prices and other relevant information generated by market transactions
involving identical assets.
As of June 30, 2011, the Company had no financial assets measured at fair value on a recurring
basis using significant Level 3 inputs. The following table provides a rollforward of all assets
measured at fair value using significant Level 3 inputs for the three and six months ended June 30,
2010 (in thousands):
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Investment Put | ||||||||
Option Related | ||||||||
ARS | to ARS Rights | |||||||
Balance as of December 31, 2009 |
$ | 15,542 | $ | 2,358 | ||||
Unrealized gain on ARS, included in Interest and other, net |
19 | | ||||||
Unrealized loss on the investment put option related to
ARS Rights, included in Interest and other, net |
| (19 | ) | |||||
Sale of ARS |
(250 | ) | | |||||
Balance as of March 31, 2010 |
15,311 | 2,339 | ||||||
Unrealized gain on ARS, included in Interest and other, net |
1,562 | | ||||||
Unrealized loss on the investment put option related to
ARS Rights, included in Interest and other, net |
| (1,562 | ) | |||||
Sale of ARS |
(10,175 | ) | | |||||
Balance as of June 30, 2010 |
$ | 6,698 | $ | 777 | ||||
The Company recognized the unrealized gains or losses resulting from changes in the fair value
of the ARS, excluding the sale of ARS, and the changes in the fair value of the ARS Rights in
current period earnings in Interest and other, net.
The Companys equipment financing line debt is not recorded at fair value, but the Company is
required to disclose its fair value. The Company determined the fair value of the equipment
financing line debt using a discounted cash flow model. The major inputs to the model are expected
cash flows, which equal the contractual payments, and borrowing rates available to the Company for
similar debt as of the applicable balance sheet dates. The fair value and the carrying value of the
equipment financing line debt were as follows (in thousands):
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Carrying value equipment financing line |
$ | 489 | $ | 985 | ||||
Fair value equipment financing line |
$ | 472 | $ | 947 | ||||
The carrying amount of the Companys cash, accounts receivable and accounts payable
approximates fair value due to the short-term nature of these instruments.
Note 8. Loan with UBS
In connection with the settlement with UBS AG relating to the Companys ARS, in October 2008,
the Company entered into a loan agreement with UBS Bank USA and UBS Financial Services Inc. On
January 5, 2009, the Company borrowed approximately $12.4 million under the loan agreement, with
its ARS held in accounts with UBS Financial Services Inc. as collateral. Proceeds from sales of the
ARS were first applied as repayments of the loan balance. The Company repaid the remaining balance
of the loan in full during the second quarter of 2010.
Activity related to this loan during the three and six months ended June 30, 2010 was as
follows (in thousands):
Balance as of December 31, 2009 |
$ | 10,201 | ||
Interest expense incurred |
29 | |||
Interest income from ARS applied to loan balance |
(107 | ) | ||
Proceeds from sales of ARS applied to loan balance |
(250 | ) | ||
Balance as of March 31, 2010 |
9,873 | |||
Interest expense incurred |
27 | |||
Interest income from ARS applied to loan balance |
(33 | ) | ||
Proceeds from sales of ARS applied to loan balance |
(9,867 | ) | ||
Balance as of June 30, 2010 |
$ | | ||
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Note 9. Stockholders Equity
Increase in Authorized Shares
On May 18, 2011, the stockholders approved an increase in the number of authorized shares of
common stock from 170,000,000 to 245,000,000. This increase became effective in August, 2011, when
the Company filed the Certificate of Amendment of Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware.
2007 Committed Equity Facility
The 2007 committed equity financing facility with Kingsbridge Capital Limited expired on March
31, 2011, and no further shares are available to the Company for sale under the facility. The
warrants associated with this facility expired in April 2011.
Deerfield
On April 18, 2011, the Company entered into a securities purchase agreement (the Deerfield
Agreement) with Deerfield Private Design Fund II, L.P., Deerfield Private Design International II,
L.P., Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International
Limited (collectively, Deerfield). On April 20, 2011, pursuant to the Deerfield Agreement, the
Company issued to Deerfield (i) 5,300,000 shares of common stock for a purchase price of $1.50 per
share, (ii) 8,070 shares of Series A convertible preferred stock (the Series A Preferred Stock)
for a purchase price of $1,500.00 per share, and (iii) warrants to purchase 6,685,000 shares of the
Companys common stock at an initial exercise price of $1.65 per share, for aggregate gross
proceeds of approximately $20.1 million. After issuance costs of approximately $0.2 million, the
net proceeds were approximately $19.9 million.
The warrants issued to Deerfield will become exercisable on October 20, 2011 and will remain
exercisable until April 20, 2015. The warrant holders are prohibited from exercising the warrants
and obtaining shares of common stock if, as a result of such exercise, the holder and its
affiliates would own more than 9.98% of the total number of shares of the Companys common stock
then issued and outstanding. The Company valued the warrants as of the date of issuance at $5.8
million using the Black-Scholes option pricing model and the following assumptions: a contractual
term of four years, a risk-free interest rate of 1.66%, volatility of 80%, and the fair value of
the Companys common stock on the issuance date of $1.52. As of June 30, 2011, none of the warrants
were vested or exercisable.
Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock at any
time at the holders option. However, the holder is prohibited from converting the Series A
Preferred Stock into shares of common stock if, as a result of such conversion, the holder and its
affiliates would own more than 9.98% of the total number of shares of common stock then issued and
outstanding. In the event of the Companys liquidation, dissolution, or winding up, holders of
Series A Preferred Stock will receive a payment equal to $0.001 per share before any proceeds are
distributed to the common stockholders. Shares of Series A Preferred Stock generally have no voting
rights, except as required by law and except that the consent of holders of a majority of the
outstanding Series A Preferred Stock is required to amend the terms of the Series A Preferred
Stock. Holders of Series A Preferred Stock are not entitled to receive any dividends, unless and
until specifically declared by the Companys board of directors. The Series A Preferred Stock
ranks senior to the Companys common stock as to distributions of assets upon the Companys
liquidation, dissolution or winding up, whether voluntarily or involuntarily. The Series A
Preferred Stock may rank senior to, on parity with or junior to any class or series of the
Companys capital stock created in the future depending upon the specific terms of such future
stock issuance.
The offering was made pursuant to a shelf registration statement that the Company filed with
the SEC on November 10, 2008, which became effective on November 19, 2008 (File No. 333-155259).
The closing of the offering took place on April 20, 2011.
In accordance with the accounting guidance for valuing stock and warrants when preferred
stock, common stock and warrants are issued in a single transaction and all are to be accounted for
as equity, the Company allocated the gross purchase proceeds using the relative fair value method.
The fair value of the common stock issued to Deerfield was calculated based on the closing price of
the stock on the commitment date as quoted on The NASDAQ Global Market. The Series A Preferred
Stock was valued based on the fair value of the Companys common stock on the commitment date times
the conversion ratio of one share of preferred to one thousand shares of common stock. The fair
value of the Series A Preferred Stock was determined to be essentially equivalent to the fair value
of the common stock into which it is convertible, based on the preferred holders ability to
immediately convert the Series A Preferred Stock to common stock and the fact that the liquidation
preference of the Series A Preferred Stock is only $0.001 per share. The fair value of the warrants
was determined using the Black-Scholes pricing model, as discussed above. The relative fair value
ratio of each of the instruments issued was than applied to the total gross proceeds of $20.1
million, resulting in allocated purchase prices of $6.2 million for the common stock, $9.4 million
for the Series A Preferred Stock, and $4.5 million for the warrants.
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The fair value of the common stock into which the Series A Preferred Stock is convertible
exceeded the allocated purchase price of the Series A Preferred Stock by $2.9 million on the date
of issuance, resulting in a beneficial conversion feature. The Company recognized the beneficial
conversion feature as a one-time, non-cash deemed dividend to the holders of Series A Preferred
Stock on the date of issuance, which is the date the stock first became convertible.
MLV
On June 10, 2011, the Company entered into an At-The-Market Issuance Sales Agreement (the MLV
Agreement) with McNicoll, Lewis & Vlak LLC (MLV), pursuant to which the Company may issue and
sell shares of common stock having an aggregate offering price of up to $20.0 million or 14,383,670
shares, whichever occurs first, from time to time through MLV as its sales agent. The issuance and
sale of these shares by the Company under the MLV Agreement, if any, are subject to the continued
effectiveness of its registration statement on Form S-3, which was declared effective by the SEC on
June 23, 2011 (File No. 333-174869).
Sales of the Companys common stock through MLV, if any, will be made on The NASDAQ Global
Market by means of ordinary brokers transactions at market prices or as otherwise agreed to by the
Company and MLV. Subject to the terms and conditions of the MLV Agreement, MLV will use
commercially reasonable efforts to sell the Companys common stock from time to time, based upon
our instructions (including any price, time or size limits or other customary parameters or
conditions we may impose). The Company is not obligated to make any sales of common stock under the
MLV Agreement. The offering of shares of common stock pursuant to the MLV Agreement will terminate
upon the earlier of (1) the sale of all common stock subject to the MLV Agreement or (2)
termination of the MLV Agreement. The MLV Agreement may be terminated by MLV or the Company at any
time upon ten days notice to the other party, or by MLV at any time in certain circumstances,
including the occurrence of a material adverse change in the Companys business. The Company will
pay MLV a commission rate equal to 3.0% of the gross proceeds of the sales price per share of any
common stock sold through MLV under the MLV Agreement. The Company has also provided MLV with
customary indemnification and contribution rights. The Company incurred approximately $0.1 million of
issuance costs associated with this offering. As of June 30, 2011, no shares have been issued to
MLV under the MLV Agreement.
Stock Option Plans
Stock option activity for the six months ended June 30, 2011 under the Companys 2004 Equity
Incentive Plan, as amended, and the Companys 1997 Stock Option/Stock Issuance Plan was as follows:
Shares | ||||||||||||
Available for | Weighted | |||||||||||
Grant of | Average Exercise | |||||||||||
Options | Stock Options | Price per Share of | ||||||||||
or Awards | Outstanding | Stock Options | ||||||||||
Balance at December 31, 2010 |
5,127,695 | 8,096,476 | $ | 4.32 | ||||||||
Increase in authorized shares |
3,000,000 | | | |||||||||
Options granted |
(2,525,256 | ) | 2,525,256 | $ | 1.60 | |||||||
Options exercised |
| (16,000 | ) | $ | 1.09 | |||||||
Options forfeited/expired |
627,739 | (627,739 | ) | $ | 4.33 | |||||||
Balance at June 30, 2011 |
6,230,178 | 9,977,993 | $ | 3.63 | ||||||||
Note 10. Interest and Other, Net
Components of Interest and other, net were as follows (in thousands):
Period from | ||||||||||||||||||||
August 5, 1997 | ||||||||||||||||||||
Three Months Ended | Six Months Ended | (date of inception) | ||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | to June 30, | ||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||||||
Unrealized gain on ARS (Note 6 and 7) |
$ | | $ | 1,562 | $ | | $ | 1,581 | $ | | ||||||||||
Unrealized loss on investment put option
related to ARS Rights (Note 6 and 7) |
| (1,562 | ) | | (1,581 | ) | | |||||||||||||
Warrant expense |
| | | | (1,585 | ) | ||||||||||||||
Interest income and other income |
29 | 71 | 83 | 234 | 28,952 | |||||||||||||||
Interest expense and other expense |
(14 | ) | (61 | ) | (28 | ) | (130 | ) | (5,962 | ) | ||||||||||
Interest and other, net |
$ | 15 | $ | 10 | $ | 55 | $ | 104 | $ | 21,405 | ||||||||||
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Investments that the Company designates as trading securities are reported at fair value, with
gains or losses resulting from changes in fair value recognized in earnings and included in
Interest and other, net. The Company sold its remaining outstanding ARS on June 30, 2010.
The Company elected to measure the investment put option related to the ARS Rights at fair
value to mitigate volatility in reported earnings due to its linkage to the ARS. Changes in the
fair value of the ARS Rights are recognized in current period earnings in Interest and other, net.
The investment put option related to the ARS rights was extinguished on July 1, 2010, the
settlement date of the sale of the remaining ARS.
Warrant expense for the period from inception to June 30, 2011 was related to the change in
the fair value of the warrant liability that was recorded in connection with the Companys
registered direct equity offering in May 2009.
Interest income and other income primarily consisted of interest income generated from the
Companys cash, cash equivalents and investments. Interest expense and other expense primarily
consisted of interest expense on borrowings under the Companys equipment financing lines and,
through June 30, 2010, on its loan agreement with UBS Bank USA and UBS Financial Services Inc.
Note 11. Income Taxes
The Company follows the accounting guidance established by the Financial Accounting Standards
Board (FASB) which defines the threshold for recognizing the benefits of tax return positions in
the financial statements as more-likely-than-not to be sustained by the taxing authorities based
solely on the technical merits of the position. If the recognition threshold is met, the tax
benefit is measured and recognized as the largest amount of tax benefit that, in the Companys
judgment, is greater than 50% likely to be realized.
The Company files income tax returns with the United States Internal Revenue Service (IRS)
and the state of California. For jurisdictions in which tax filings are made, the Company is
subject to income tax examination for all fiscal years since inception. The tax year 2009 is
currently under a limited scope examination by the IRSs Large Business and International Division.
The Company believes that it maintains adequate reserves for uncertain tax positions.
Note 12. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In October 2009, the FASB issued new accounting guidance for recognizing revenue for
multiple-deliverable revenue arrangements. The new guidance amends the existing guidance for
separately accounting for individual deliverables in a revenue arrangement with multiple
deliverables, and removes the criterion that an entity must use objective and reliable evidence of
fair value to separately account for the deliverables. The new guidance also establishes a
hierarchy for determining the value of each deliverable and establishes the relative selling price
method for allocating consideration when vendor-specific objective evidence or third party evidence
of value does not exist. The Companys adoption of the new guidance prospectively for new revenue
arrangements entered into or materially modified beginning on January 1, 2011 did not have a
material impact on its financial position or results of operations.
In January 2010, the FASB issued new accounting guidance for improving disclosures about fair
value measurements, which requires a gross presentation of Level 3 fair value rollforwards. The
Companys adoption of the guidance on January 1, 2011 did not have a material impact on its
financial position or results of operations.
In April 2010, the FASB issued new accounting guidance on the milestone method of revenue
recognition. The new guidance codifies the milestone method as an acceptable revenue recognition
model when a milestone is deemed to be substantive. The Companys adoption of the guidance
effective for milestones achieved beginning on January 1, 2011 did not have a material impact on
its financial position or results of operations.
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Accounting Pronouncements Not Yet Adopted
In June 2011, the FASB issued new accounting guidance that revises the manner in which
entities present comprehensive income in their financial statements. The new guidance requires
entities to present comprehensive income either in a continuous statement of comprehensive income,
which replaces the statement of operations, or in two separate, consecutive statements. The new
guidance does not change the items that must be reported in other comprehensive income, nor does it
require new disclosures. The new guidance is effective for the Company beginning in the first
quarter of 2012. The Company expects that the new guidance will affect the presentation of
comprehensive income in its financial statements, but has not yet decided which presentation method
it will adopt.
Note 13. Subsequent Events
In July 2011, GE Capital reduced the Companys certificate of deposit, which the Company
classifies as restricted cash, by $0.2 million.
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This discussion and analysis should be read in conjunction with our financial statements and
accompanying notes included elsewhere in this report. Operating results are not necessarily
indicative of results that may occur in future periods.
This report contains forward-looking statements that are based upon current expectations
within the meaning of the Private Securities Litigation Reform Act of 1995. We intend that such
statements be protected by the safe harbor created thereby. Forward-looking statements involve
risks and uncertainties and our actual results and the timing of events may differ significantly
from the results discussed in the forward-looking statements. Examples of such forward-looking
statements include, but are not limited to, statements about or relating to:
| guidance concerning revenues, research and development expenses and general and administrative expenses for 2011; |
| the sufficiency of existing resources to fund our operations for at least the next 12 months; |
| our capital requirements and needs for additional financing; |
| the initiation, design, progress, timing and scope of clinical trials and development activities for our drug candidates and potential drug candidates conducted by ourselves or our partners, such as Amgen, including the anticipated timing for initiation of clinical trials and anticipated dates of data becoming available or being announced from clinical trials; |
| the results from the clinical trials and non-clinical and preclinical studies of our drug candidates and other compounds, and the significance and utility of such results; |
| our and our partners, such as Amgens, plans or ability to conduct the continued research and development of our drug candidates and other compounds; |
| our expected roles in research, development or commercialization under our strategic alliances, such as with Amgen; |
| the properties and potential benefits of, and the potential market opportunities for, our drug candidates and other compounds, including the potential indications for which they may be developed; |
| the sufficiency of the clinical trials conducted with our drug candidates to demonstrate that they are safe and efficacious; |
| our receipt of milestone payments, royalties, reimbursements and other funds from current or future partners under strategic alliances, such as with Amgen; |
| our plans to seek strategic alternatives for our mitotic kinesin inhibitor drug candidates with third parties; |
| our ability to continue to identify additional potential drug candidates that may be suitable for clinical development; |
| our plans or ability to commercialize drugs with or without a partner, including our intention to develop sales and marketing capabilities; |
15
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| the focus, scope and size of our research and development activities and programs; |
| the utility of our focus on the cytoskeleton and our ability to leverage our experience in muscle contractility to other muscle functions; |
| our ability to protect our intellectual property and to avoid infringing the intellectual property rights of others; |
| expected future sources of revenue and capital; |
| losses, costs, expenses and expenditures; |
| future payments under loan and lease obligations and equipment financing lines; |
| potential competitors and competitive products; |
| retaining key personnel and recruiting additional key personnel; |
| expected future amortization of employee stock-based compensation; and |
| the potential impact of recent accounting pronouncements on our financial position or results of operations. |
Such forward-looking statements involve risks and uncertainties, including, but not limited
to, those risks and uncertainties relating to:
| Amgens decisions with respect to the timing, design and conduct of development activities for omecamtiv mecarbil, including decisions to postpone or discontinue research or development activities relating to omecamtiv mecarbil; |
| our ability to obtain additional financing; |
| our receipt of funds and access to other resources under our current or future strategic alliances; |
| difficulties or delays in the development, testing, production or commercialization of our drug candidates; |
| difficulties or delays in or slower than anticipated patient enrollment in our or our partners clinical trials; |
| adverse side effects, including potential drug-drug interactions, or inadequate therapeutic efficacy of our drug candidates that could slow or prevent product approval (including the risk that current and past results of preclinical research or non-clinical or clinical development may not be indicative of future clinical trials results); |
| results from non-clinical studies that may adversely impact the timing or the further development of our drug candidates and potential drug candidates; |
| the possibility that the U.S. Food and Drug Administration (the FDA) or foreign regulatory agencies may delay or limit our or our partners ability to conduct clinical trials or may delay or withhold approvals for the manufacture and sale of our products; |
| activities and decisions of, and market conditions affecting, current and future strategic partners; |
| our ability to enter into partnership agreements for any of our programs on acceptable terms and conditions or in accordance with our planned timelines; |
| the availability of funds under our grant from the National Institute of Neurological Disorders and Stroke in future periods; |
| changing standards of care and the introduction of products by competitors or alternative therapies for the treatment of indications we target that may make our drug candidates commercially unviable; |
| changes in laws and regulations applicable to drug development, commercialization or reimbursement; |
16
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| the uncertainty of protection for our intellectual property, whether in the form of patents, trade secrets or otherwise; and |
| potential infringement or misuse by us of the intellectual property rights of third parties. |
In addition such statements are subject to the risks and uncertainties discussed in the Risk
Factors section and elsewhere in this document. Operating results reported are not necessarily
indicative of results that may occur in future periods.
When used in this report, unless otherwise indicated, Cytokinetics, the Company, we,
our and us refers to Cytokinetics, Incorporated.
CYTOKINETICS, and our logo used alone and with the mark CYTOKINETICS, are registered service
marks and trademarks of Cytokinetics. Other service marks, trademarks and trade names referred to
in this report are the property of their respective owners.
Overview
We are a clinical-stage biopharmaceutical company focused on the discovery and development of
novel small molecule therapeutics that modulate muscle function for the potential treatment of
serious diseases and medical conditions. Our research and development activities relating to the
biology of muscle function have evolved from our knowledge and expertise regarding the
cytoskeleton, a complex biological infrastructure that plays a fundamental role within every human
cell. Our current research and development programs relating to the biology of muscle function are
directed to small molecule modulators of the contractility of cardiac, skeletal and smooth muscle.
We have leveraged, and intend to continue to leverage, our experience in muscle contractility in
order to expand our current pipeline into new therapeutic areas, and expect to continue to be able
to identify additional potential drug candidates that may be suitable for clinical development. To
date, five drug candidates arising from our research activities have been progressed into clinical
development. We are also advancing other research programs directed to muscle contractility,
growth, energetics and metabolism.
Our drug candidates currently in clinical development include omecamtiv mecarbil for the
potential treatment of heart failure and CK-2017357 for the potential treatment of diseases or
medical conditions associated with skeletal muscle weakness or wasting. We are also advancing
back-up and follow-on skeletal sarcomere activators, each with different physiochemical and
pharmacokinetic properties, intended to supplement our ongoing development activities. We have
identified two potential drug candidates that we are progressing in non-clinical research and
development activities. CK-2017357 and both these potential drug candidates selectively activate
the fast skeletal muscle troponin complex, which is a set of regulatory proteins that modulates the
contractility of the fast skeletal muscle sarcomere. We are also conducting preclinical research
on compounds that inhibit smooth muscle contractility. These compounds may be useful as potential
treatments for diseases and conditions complicated by bronchoconstriction, such as asthma and
chronic obstructive pulmonary disease. In addition, we are evaluating strategic alternatives for
the further clinical development of the three drug candidates from our discontinued oncology
program: ispinesib, SB-743921 and GSK-923295.
Muscle Contractility Programs
Cardiac Muscle Contractility
Our lead drug candidate from this program is omecamtiv mecarbil, a novel cardiac muscle myosin
activator. In December 2006, we entered into a collaboration and option agreement with Amgen to
discover, develop and commercialize novel small molecule therapeutics that activate cardiac muscle
contractility for potential applications in the treatment of heart failure, including omecamtiv
mecarbil. In May 2009, Amgen exercised its option under this agreement to obtain an exclusive
license worldwide, except Japan, to develop and commercialize omecamtiv mecarbil and other drug
candidates arising from the collaboration, and subsequently paid us an option exercise fee of $50.0
million. As a result, Amgen is now responsible for the development and commercialization of
omecamtiv mecarbil and related compounds, at its expense worldwide, except Japan, subject to our
development and commercialization participation rights. Under the agreement, Amgen will reimburse
us for agreed research and development activities we perform. The agreement provides for potential
pre-commercialization and commercialization milestone payments of up to $600.0 million in the
aggregate on omecamtiv mecarbil and other potential products arising from research under the
collaboration, and royalties that escalate based on increasing levels of annual net sales of
products commercialized under the agreement. The agreement also provides for us to receive
increased royalties by co-funding Phase III development costs of drug candidates under the
collaboration. If we elect to co-fund such costs, we would be entitled to co-promote omecamtiv
mecarbil in North America and participate in agreed commercialization activities in institutional
care settings, at Amgens expense.
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We expect omecamtiv mecarbil to be developed as a potential treatment across the continuum of
care for heart failure both as an intravenous formulation for the treatment of patients
hospitalized with acutely decompensated heart failure and as an oral formulation for chronic
administration. We are also conducting joint research activities with Amgen under an agreed
research plan directed to potential next-generation compounds in our cardiac muscle contractility
program.
In May 2011, dosing was initiated in an international, randomized, double-blind,
placebo-controlled Phase IIb clinical trial of an intravenous formulation of omecamtiv mecarbil in
patients with left ventricular systolic dysfunction hospitalized with acutely decompensated heart
failure. This trial is currently open for enrollment in the United States, Canada, European Union
and Australia. This trial is being conducted by Amgen in collaboration with Cytokinetics.
We and Amgen are discussing plans for the initiation of additional studies designed to assess
the safety, tolerability and pharmacokinetics of multiple oral formulations of omecamtiv mecarbil,
to occur first in healthy volunteers and then in stable heart failure patients.
The clinical trials program for omecamtiv mecarbil may proceed for several years, and we will
not be in a position to generate any revenues or material net cash flows from sales of this drug
candidate until the program is successfully completed, regulatory approval is achieved, and the
drug is commercialized. Omecamtiv mecarbil is at too early a stage of development for us to predict
if or when this may occur. We funded all research and development costs associated with this
program prior to Amgens option exercise in May 2009. We recorded research and development expenses
for activities relating to our cardiac muscle contractility program of approximately $1.1 million
and $1.2 million in the first half of 2011 and 2010, respectively. We recognized research and
development revenue from Amgen of $1.0 million and $1.1 million in the first half of 2011 and 2010,
respectively, consisting of reimbursements of full-time employee equivalent (FTE) and other
expenses.
We anticipate that our expenditures relating to the research and development of compounds in
our cardiac muscle contractility program will increase if we participate in the future advancement
of omecamtiv mecarbil through clinical development. Our expenditures will also increase if Amgen
terminates development of omecamtiv mecarbil or related compounds and we elect to develop them
independently, or if we elect to co-fund later-stage development of omecamtiv mecarbil or other
compounds in our cardiac muscle contractility program under our collaboration and option agreement
with Amgen.
Skeletal Muscle Contractility
CK-2017357 is the lead drug candidate from this program. We are also advancing back-up and
follow-on skeletal sarcomere activators, each with different physiochemical and pharmacokinetic
properties, intended to supplement our ongoing development activities. We have identified two
potential drug candidates that we are progressing in non-clinical research and development
activities. CK-2017357 and these potential drug candidates are structurally distinct and selective
small molecule activators of the fast skeletal sarcomere. These compounds act on fast skeletal
muscle troponin. Activation of troponin increases its sensitivity to calcium, leading to an
increase in skeletal muscle contractility. We are evaluating the potential indications for which
CK-2017357 and these potential drug candidates may be useful.
Each of CK-2017357 and our potential drug candidates has demonstrated encouraging
pharmacological activity in preclinical models and, with respect to CK-2017357, in healthy
volunteers in patients with amyotrophic lateral sclerosis (ALS), and in patients with peripheral
artery disease and claudication, which is pain or cramping in the leg muscles due to inadequate
blood flow during exercise. In two recent Phase IIa clinical trials of CK-2017357, evidence of
potentially clinically relevant pharmacodynamic effects was observed in patients with ALS and in
patients with peripheral artery disease and claudication, respectively. CK-2017357 has received an
orphan drug designation from the FDA for the potential treatment of ALS. In July 2010, we were
awarded a grant in the amount of $2.8 million by the National Institute of Neurological Disorders
and Stroke, which is intended to support for three years our research and development of
CK-2017357 for the potential treatment of myasthenia gravis. The grant was awarded under the
American Recovery and Reinvestment Act of 2009. We recognized revenue of $0.8 million under this
grant arrangement in the first half of 2011, which we recorded as research and development, grant
and other revenues.
We have initiated three evidence of effect Phase IIa clinical trials of
CK-2017357. Two of these trials have been completed, one in patients with ALS and one in patients with symptoms
of claudication associated with peripheral artery disease
(PAD). A trial in
patients with generalized myasthenia gravis is ongoing. Our evidence of effect clinical trials are randomized,
double-blind, placebo-controlled, three-period cross-over studies of single doses of CK-2017357
administered to patients with impaired muscle function. These studies are intended to translate the
mechanism of action of CK-2017357 into statistically significant and
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potentially clinically relevant pharmacodynamic effects (as we did in healthy volunteers),
which may then form the basis for larger clinical trials designed to demonstrate proof of concept
and possibly even to support registration.
ALS. In April 2011, we presented additional analyses of data from our Phase IIa evidence of
effect clinical trial of CK-2017357 in ALS patients during a Clinical Trials Session at the 63rd
Annual Meeting of the American Academy of Neurology.
In July 2011, we initiated dosing of patients in a Phase II multiple dose, safety,
tolerability, pharmacokinetic and pharmacodynamic clinical trial of
CK-2017357 designed to evaluate 24
patients with ALS receiving daily oral doses of CK-2017357 for up to
14 days who are not taking riluzole. We are expanding this trial
to include an additional cohort of 24 ALS patients who will receive
CK-2017357 and riluzole together for up to 14 days. The primary objective
of this trial is to evaluate the safety and tolerability of multiple doses of CK-2017357 in
patients with ALS. In addition, patients will be asked to report their ALS symptoms using the ALS
Functional Rating Scale-Revised (ALSFRS-R). Patients will also undergo tests of muscle
fatigability, certain indices of pulmonary function, and patients and investigators global status
assessments. We anticipate that data from this clinical trial will be available by the end of 2011.
Claudication. In June 2011, at the 22nd Annual Scientific Sessions of the Society
of Vascular Medicine, we presented data from our Phase IIa evidence of effect clinical trial of
CK-2017357 in male and female patients with calf muscle claudication associated with PAD. The
primary objective of this trial was to demonstrate an effect of single doses of CK-2017357 on
measures of skeletal muscle function and fatigability in these patients. The secondary objectives
of this clinical trial were to evaluate and characterize the relationship, if any, between the
doses and plasma concentrations of CK-2017357 and its pharmacodynamic effects, and to evaluate the
safety and tolerability of CK-2017357 administered as single doses to these patients. Accordingly,
in this hypothesis-generating trial, multiple pharmacodynamic assessments were made without
specifying a single primary pharmacodynamic endpoint.
As evidenced by heel raise testing, CK-2017357 increased calf muscle performance in these
patients with calf muscle claudication. The increases in calf muscle performance and the
occurrence of adverse events both appeared related to increasing dose and plasma concentrations of
CK-2017357. Conversely, performance on a 6-minute walk test was inversely related to increases in
both the dose and plasma concentration of CK-2017357. Dose related adverse events, particularly
dizziness and others related to walking, may explain this negative effect on 6-minute walk
performance. The authors concluded that CK-2017357 merits further study and that potential next
steps could include studies to explore whether the adverse events observed, such as dizziness,
might abate with repeated dosing, alternate dosing regimens, and/or gradual dose titration.
Myasthenia Gravis. We continue to enroll and dose patients in our Phase IIa evidence of
effect clinical trial of CK-2017357 in patients with generalized myasthenia gravis (MG). This
clinical trial, initiated in January 2011, and preclinical research on MG are being funded by a
$2.8 million grant from the National Institute of Neurological Disorders and Stroke. At least 36
and up to 78 patients may be enrolled in this clinical trial, and we continue to enroll and dose
patients in this trial. Patients receive a single oral dose of placebo or 250 mg or 500 mg of
CK-2017357. The primary objective of this trial is to assess the effects of CK-2017357 on measures
of muscle strength, muscle fatigue and pulmonary function in these patients. The secondary
objectives of this clinical trial are to evaluate and characterize the relationship, if any,
between the doses and plasma concentrations of CK-2017357 and its pharmacodynamic effects; to
evaluate the safety and tolerability of CK-2017357 administered as single doses to patients with
myasthenia gravis; and to evaluate the effect of CK-2017357 on investigator- and patient-determined
global functional assessment and the Modified MG Symptom Score, an assessment combining patient
reports and physician evaluations to assess the severity of symptoms due to myasthenia gravis. We
anticipate that data from this clinical trial will be available by the end of 2011.
Drug-Drug Interaction Study. We recently completed the dosing of patients in a Phase I
drug-drug interaction study of CK-2017357 administered orally to healthy volunteers. This study is
intended to evaluate the effects of CK-2017357 on the pharmacokinetics of riluzole and other drugs
and the pharmacokinetics of CK-2017357 when administered after a meal and when fasting. We
anticipate that data from this trial will be available in the second half of 2011.
CK-2017357 is at too early a stage of development for us to predict if or when we will be in a
position to generate any revenues or material net cash flows from the potential commercialization
of this drug candidate. We currently fund all research and development costs associated with this
program. We recorded research and development expenses for activities relating to our skeletal
muscle contractility program of approximately $12.9 million and $14.6 million in the first half of
2011 and 2010, respectively. We anticipate that our expenditures relating to the research and
development of compounds in our skeletal muscle contractility program will increase significantly
if and as we advance CK-2017357 or other compounds from this program into and through development.
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Smooth Muscle Contractility
Our smooth muscle contractility program is focused on the discovery and development of small
molecule smooth muscle myosin inhibitors, which may be useful as potential treatments for diseases
and conditions associated with excessive smooth muscle contraction, and leverages our expertise in
muscle function and its application to drug discovery. Our inhaled smooth muscle myosin inhibitors
have demonstrated pharmacological activity in preclinical models of bronchoconstrictive diseases
and may have applications for indications such as asthma or chronic obstructive pulmonary disease.
Our smooth muscle myosin inhibitors, administered orally or intravenously, have also demonstrated
pharmacological activity in preclinical models of vascular constriction. We intend to continue to
conduct preclinical research on compounds from this program.
Our smooth muscle myosin inhibitors are at too early a stage of development for us to predict
if or when we will be in a position to generate any revenues or material net cash flows from their
commercialization. We currently fund all research and development costs associated with this
program. We recorded research and development expenses for activities relating to our smooth muscle
contractility program of approximately $2.8 million and $1.1 million in the first half of 2011 and
2010, respectively. We anticipate that our expenditures relating to the research and development of
compounds in our smooth muscle contractility program will increase significantly if and as we
advance compounds from this program into and through development.
Oncology Program: Mitotic Kinesin Inhibitors
We currently have three drug candidates for the potential treatment of cancer: ispinesib,
SB-743921 and GSK-923295. All of these arose from our earlier research activities directed to the
role of the cytoskeleton in cell division and were progressed under our strategic alliance with
GlaxoSmithKline (GSK), established in 2001. We agreed with GSK to terminate our strategic
alliance effective February 2010. We have retained all rights to ispinesib, SB-743921 and
GSK-923295, subject to certain royalty obligations to GSK.
Each of ispinesib, SB-743921 and GSK-923295 is at too early a stage of development for us to
predict if or when we will be in a position to generate any revenues or material net cash flows
from its commercialization. We currently are responsible for all research and development costs
associated with ispinesib and SB-743921. GSK remains responsible for completing its Phase I
clinical trial of GSK-923295 in cancer patients, at its expense. Following GSKs completion of its
Phase I clinical trial of GSK-923295, we will be responsible for any further research and
development costs associated with GSK-923295. We recorded research and development expenses for
activities relating to our mitotic kinesin inhibitors program of approximately zero and $0.7
million in the first half of 2011 and 2010, respectively. We do not currently intend to conduct any
further development of these drug candidates in oncology ourselves. We are evaluating strategic
alternatives for the future development and commercialization of ispinesib, SB-743921 and
GSK-923295 with third parties. We may not be able to enter into an agreement regarding such a
strategic alternative on acceptable terms, if it all.
Development Risks
The successful development of any of our drug candidates is highly uncertain. We cannot
estimate with certainty or know the exact nature, timing and costs of the activities necessary to
complete the development of any of our drug candidates or the date of completion of these
development activities due to numerous risks and uncertainties, including, but not limited to:
| decisions made by Amgen with respect to the development of omecamtiv mecarbil; |
| the uncertainty of the timing of the initiation and completion of patient enrollment and treatment in our clinical trials; |
| the possibility of delays in the collection of clinical trials data and the uncertainty of the timing of the analyses of our clinical trials data after these trials have been initiated and completed; |
| safety issues that may arise at any time during clinical trials and non-clinical and preclinical studies; |
| our potential inability to obtain additional funding and resources for our development activities on acceptable terms, if at all, including, but not limited to, our potential inability to obtain or retain partners to assist in the design, management, conduct and funding of clinical trials; |
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| delays or additional costs in manufacturing of our drug candidates for clinical trial use, including developing appropriate formulations of our drug candidates; |
| the uncertainty of clinical trial results, including variability in patient response; |
| the uncertainty of obtaining FDA or other foreign regulatory agency approval required for the clinical investigation of our drug candidates; |
| the uncertainty related to the development of commercial scale manufacturing processes and qualification of a commercial scale manufacturing facility; and |
| possible delays in the characterization, formulation and manufacture of potential drug candidates. |
If we fail to complete the development of any of our drug candidates in a timely manner, it
could have a material adverse effect on our operations, financial position and liquidity. In
addition, any failure by us or our partners to obtain, or any delay in obtaining, regulatory
approvals for our drug candidates could have a material adverse effect on our results of
operations. A further discussion of the risks and uncertainties associated with completing our
programs on schedule, or at all, and certain consequences of failing to do so are discussed further
in the risk factors entitled We have never generated, and may never generate, revenues from
commercial sales of our drugs and we may not have drugs to market for at least several years, if
ever, Clinical trials may fail to demonstrate the desired safety and efficacy of our drug
candidates, which could prevent or significantly delay completion of clinical development and
regulatory approval and Clinical trials are expensive, time-consuming and subject to delay, and
other risk factors.
Results of Operations
Revenues
We recorded total revenues of $1.1 million and $0.5 million for the second quarter of 2011 and
2010, respectively, and $1.8 million and $1.1 million for the first half of 2011 and 2010,
respectively.
Research and development revenues from related parties for the second quarter of 2011 and 2010
consisted of research and development revenues from our strategic alliance with Amgen. Research and
development revenues from Amgen were $0.7 million and $0.5 million in the second quarter of 2011
and 2010, respectively. Research and development revenues from Amgen for the second quarter of 2011
consisted of $0.6 million for reimbursements of FTE expenses and $17,000 for reimbursements of
other research and development expenses. Research and development revenues from Amgen for the
second quarter of 2010 consisted of reimbursements of $0.3 million for FTE costs and $0.2 million
for other out-of-pocket expenses. Research and development revenues from Amgen were $1.0 million
and $1.1 million for the first half of 2011 and 2010, respectively. Research and development
revenues from Amgen for the first half of 2011 consisted of $1.0 million for reimbursements of FTE
expenses and $42,000 for reimbursements of other research and development expenses. Research and
development revenues from Amgen for the first half of 2010 consisted of reimbursements of $0.7
million for FTE costs and $0.4 million for other out-of-pocket expenses.
In July 2010, the National Institute of Neurological Disorders and Strokes awarded us a grant
to support for three years our research and development of CK-2017357 directed to the potential
treatment for MG. In the second quarter and first half of 2011, we recognized grant revenue of $0.4
million and $0.8 million, respectively, under this arrangement.
The deferred revenue balance related to Amgen was $0.3 million at June 30, 2011 and zero at
December 31, 2010. The deferred revenue balance at June 30, 2011 consisted of Amgens prepayment of
FTE reimbursements.
Research and Development Expenses
Research and development expenses were $10.5 million and $10.2 million in the second quarter
of 2011 and 2010, respectively. The increase in research and development expenses in the second
quarter of 2011 compared to the same period in 2010 was primarily due to an increase of $0.7
million in clinical and preclinical outsourcing costs, partially offset by a decrease of $0.4
million in personnel related costs.
Research and development expenses were $19.7 million and $19.3 million in the first half of
2011 and 2010, respectively. The increase in research and development expenses in the first half of
2011 compared to the same period in 2010 was primarily due to an
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increase of $0.9 million in clinical and preclinical outsourcing costs and $0.6 million in
laboratory expenses, partially offset by a decrease of $0.8 million in personnel and $0.2 million
in facility related costs.
From a program perspective, the $0.3 million increase in spending in the second quarter of
2011 compared to the second quarter of 2010 was due to increased spending of $1.0 million for our
smooth muscle contractility program and $0.7 million for our other research programs, partially
offset by decreases of $1.1 million for our skeletal muscle contractility program, $0.2 million for
our mitotic kinesin inhibitors program and $0.1 million for our cardiac muscle contractility
program. For the first half of 2011 compared to the first half of 2010, the $0.4 million increase
in research and development expenses was due increased spending of $1.7 million for our smooth
muscle contractility program and $1.2 million for our other research programs, partially offset by
decreases of $1.7 million for our skeletal muscle contractility program, $0.7 million for our
mitotic kinesin inhibitors program and $0.1 million for our cardiac muscle contractility program.
Research and development expenses incurred were related to the following programs (in
millions):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cardiac muscle contractility |
$ | 0.6 | $ | 0.7 | $ | 1.1 | $ | 1.2 | ||||||||
Skeletal muscle contractility |
7.0 | 8.1 | 12.9 | 14.6 | ||||||||||||
Smooth muscle contractility |
1.5 | 0.5 | 2.8 | 1.1 | ||||||||||||
Mitotic kinesin inhibitors |
| 0.2 | | 0.7 | ||||||||||||
All other research programs |
1.4 | 0.7 | 2.9 | 1.7 | ||||||||||||
Total research and development expenses |
$ | 10.5 | $ | 10.2 | $ | 19.7 | $ | 19.3 | ||||||||
Clinical development timelines, likelihood of success and total completion costs vary
significantly for each drug candidate and are difficult to estimate. We anticipate that we will
determine on an ongoing basis which research and development programs to pursue and how much
funding to direct to each program, taking into account the scientific and clinical success of each
drug candidate. The lengthy process of seeking regulatory approvals and subsequent compliance with
applicable regulations requires the expenditure of substantial resources. Any failure by us to
obtain and maintain, or any delay in obtaining, regulatory approvals could cause our research and
development expenditures to increase and, in turn, could have a material adverse effect on our
results of operations.
We expect our research and development expenditures to increase in 2011 compared to 2010. As
part of our strategic alliance with Amgen, we expect to continue development of our drug candidate
omecamtiv mecarbil for the potential treatment of heart failure. We expect to continue development
of our drug candidate CK-2017357 and our potential drug candidates from our skeletal sarcomere
contractility program for the potential treatment of diseases and medical conditions associated
with muscle weakness or wasting. We expect to continue research on our smooth muscle myosin
inhibitor compounds, which may be useful for the potential treatment of diseases and medical
conditions associated with bronchoconstriction or vasoconstriction. We anticipate that research and
development expenses for 2011 will be in the range of $42.0 million to $47.0 million. Non-cash
expenses such as stock-based compensation and depreciation of approximately $2.5 million are
included in our estimate of 2011 research and development expenses.
General and Administrative Expenses
General and administrative expenses were $4.2 million and $3.4 million in the second quarter
of 2011 and 2010, respectively. The increase in the second quarter of 2011 compared to the same
period in 2010 was primarily due to an increase of $0.8 million in financial services associated
with assessing financing alternatives and an increase of $0.3 million in legal expenses, partially
offset by a decrease of $0.3 million in personnel expenses. General and administrative expenses
were $7.5 million and $7.2 million in the first half of 2011 and 2010, respectively. The increase
in the first half of 2011, compared to 2010, was primarily due to an increase of $0.8 million in
financial services associated with assessing financing alternatives and an increase of $0.1 million
in legal expenses, partially offset by decreases of $0.6 million personnel expenses.
We expect that general and administrative expenses will increase in 2011 compared to 2010. We
anticipate general and administrative expenses to be in the range of $15.0 million to $17.0
million. Non-cash expenses such as stock-based compensation and depreciation of approximately $2.3
million are included in our estimate of 2011 general and administrative expenses.
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Interest and Other, Net
Components of Interest and other, net were as follows (in millions):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Unrealized gain on auction rate securities (ARS) |
$ | | $ | 1.6 | $ | | $ | 1.6 | ||||||||
Unrealized loss on investment put option related to
auction rate securities rights (the ARS Rights) |
| (1.6 | ) | | (1.6 | ) | ||||||||||
Interest income and other income |
| 0.1 | 0.1 | 0.2 | ||||||||||||
Interest expense and other expense |
| (0.1 | ) | | (0.1 | ) | ||||||||||
Interest and other, net |
$ | | $ | | $ | 0.1 | $ | 0.1 | ||||||||
Interest income and other income decreased in the second quarter of 2011 compared to the
second quarter of 2010, and in the first half of 2011 compared to the first half of 2010, due to
lower average invested balances and lower average effective interest rates.
Interest expense and other expense primarily consisted of interest expense on our equipment
financing debt and, through the second quarter of 2010, our loan with UBS Bank USA.
Income Taxes
We follow the accounting guidance established by the Financial Accounting Standards Board
(FASB) which defines the threshold for recognizing the benefits of tax return positions in the
financial statements as more-likely-than-not to be sustained by the taxing authorities based
solely on the technical merits of the position. If the recognition threshold is met, the tax
benefit is measured and recognized as the largest amount of tax benefit that, in our judgment, is
greater than 50% likely to be realized.
We file income tax returns with the United States Internal Revenue Service (IRS) and the
state of California. For jurisdictions in which tax filings are made, we are subject to income tax
examination for all fiscal years since inception. The tax year 2009 is currently under a limited
scope examination by the IRSs Large Business and International Division. We believe that we
maintain adequate reserves for uncertain tax positions.
Critical Accounting Policies
The accounting policies that we consider to be our most critical (i.e., those that are most
important to the portrayal of our financial condition and results of operations and that require
our most difficult, subjective or complex judgments), the effects of those accounting policies
applied and the judgments made in their application are summarized in Item 7Managements
Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting
Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended December 31,
2010.
Recent Accounting Pronouncements
See Note 12, Recent Accounting Pronouncements in the Notes to Unaudited Condensed Financial
Statements for a discussion of recently adopted accounting pronouncements and accounting
pronouncements not yet adopted, and their expected impact on our financial position and results of
operations.
Liquidity and Capital Resources
From August 5, 1997, our date of inception, through June 30, 2011, we funded our operations
through the sale of equity securities, equipment financings, non-equity payments from
collaborators, government grants and interest income.
Deerfield
On April 18, 2011, we entered into a securities purchase agreement (the Deerfield Agreement)
with Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P.,
Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International
Limited (collectively, Deerfield). On April 20, 2011, pursuant to the Deerfield Agreement, we
issued to Deerfield (i) 5,300,000 shares of common stock for a purchase price of $1.50 per share,
(ii) 8,070 shares of Series A convertible
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preferred stock (the Series A Preferred Stock) for a purchase price of $1,500.00 per share,
and (iii) warrants to purchase 6,685,000 shares of our common stock at an initial exercise price of
$1.65 per share, for aggregate gross proceeds of approximately $20.1 million. After issuance costs
of approximately $0.2 million, the net proceeds were approximately $19.9 million. The warrants
issued to Deerfield will become exercisable on October 20, 2011 and will remain exercisable until
April 20, 2015. The warrant holders are prohibited from exercising the warrants and obtaining
shares of common stock if, as a result of such exercise, the warrant holder and its affiliates
would own more than 9.98% of the total number of shares of our common stock then issued and
outstanding.
Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock at any
time at the holders option. However, the holder is prohibited from converting the Series A
Preferred Stock into shares of common stock if, as a result of such conversion, the holder and its
affiliates would own more than 9.98% of the total number of shares of common stock then issued and
outstanding. In the event of the our liquidation, dissolution, or winding up, holders of Series A
Preferred Stock will receive a payment equal to $0.001 per share before any proceeds are
distributed to the common stockholders. Shares of Series A Preferred Stock generally have no voting
rights, except as required by law and except that the consent of holders of a majority of the
outstanding Series A Preferred Stock is required to amend the terms of the Series A Preferred
Stock. Holders of Series A Preferred Stock are not entitled to receive any dividends, unless and
until specifically declared by our board of directors. The Series A Preferred Stock ranks senior
to the Companys common stock as to distributions of assets upon our liquidation, dissolution or
winding up, whether voluntarily or involuntarily. The Series A Preferred Stock may rank senior to,
on parity with or junior to any class or series of our capital stock created in the future
depending upon the specific terms of such future stock issuance.
The offering was made pursuant to a shelf registration statement that we filed with the SEC on
November 10, 2008, which became effective on November 19, 2008 (File No. 333-155259). The closing
of the offering took place on April 20, 2011.
The fair value of the common stock into which the Series A Preferred Stock is convertible
exceeded the allocated purchase price of the Series A Preferred Stock by $2.9 million on the date
of issuance, resulting in a beneficial conversion feature. We recognized the beneficial conversion
feature as a one-time, non-cash deemed dividend to the holders of Series A Preferred Stock on the
date of issuance, which is the date the stock first became convertible.
MLV
On June 10, 2011, we entered into an At-The-Market Issuance Sales Agreement (the MLV
Agreement) with McNicoll, Lewis & Vlak LLC (MLV), pursuant to which we may issue and sell shares
of common stock having an aggregate offering price of up to $20.0 million or 14,383,670 shares,
whichever occurs first, from time to time through MLV as our sales agent. The issuance and sale of
these shares by us under the MLV Agreement, if any, are subject to the continued effectiveness of
our registration statement on Form S-3, which was declared effective by the SEC on June 23, 2011
(File No. 333-174869).
Sales of our common stock through MLV, if any, will be made on The NASDAQ Global Market by
means of ordinary brokers transactions at market prices or as otherwise agreed to by us and MLV.
Subject to the terms and conditions of the MLV Agreement, MLV will use commercially reasonable
efforts to sell our common stock from time to time, based upon our instructions (including any
price, time or size limits or other customary parameters or conditions we may impose). We are not
obligated to make any sales of common stock under the MLV Agreement. The offering of shares of
common stock pursuant to the MLV Agreement will terminate upon the earlier of (1) the sale of all
common stock subject to the MLV Agreement or (2) termination of the MLV Agreement. The MLV
Agreement may be terminated by MLV or us at any time upon ten days notice to the other party, or by
MLV at any time in certain circumstances, including the occurrence of a material adverse change in
our business. We will pay MLV a commission rate equal to 3.0% of the gross proceeds of the sales
price per share of any common stock sold through MLV under the MLV Agreement. We have also provided
MLV with customary indemnification and contribution rights. We incurred approximately $0.1 million
of issuance costs associated with this offering. As of August 4, 2011, no shares have been issued
to MLV under the MLV Agreement.
Grant
We are eligible to request up to $1.6 million in future grant payments from the National
Institute of Neurological Disorders and Stroke, provided we incur eligible research and development
costs for CK-2017357 directed to the potential treatment for myasthenia gravis for three years.
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Sources and Uses of Cash
Our cash, cash equivalents and investments, excluding restricted cash, totaled $66.9 million
at June 30, 2011, down from $72.8 million at December 31, 2010. The decrease of $5.9 million was
primarily due to the use of cash to fund operations, partially offset by net proceeds from the
April 2011 equity transaction with Deerfield.
Net cash used in operating activities was $25.4 million in the first half of 2011 and 2010 and
primarily resulted from the net loss of $25.3 million for both periods.
Net cash provided by investing activities was $12.2 million in the first half of 2011 and
primarily consisted of proceeds from the maturity of investments, net of cash used to purchase
investments, of $12.2 million. Net cash provided by investing activities in the first half of 2010
was $20.1 million and primarily consisted of proceeds from the sale of auction rate securities
(ARS) of $10.4 million and from the maturity of investments, net of cash used to purchase
investments, of $9.5 million.
Net cash provided by financing activities was $19.4 million in the first half of 2011 and
primarily consisted of net proceeds of $19.9 million from our issuance of common and preferred
stock and warrants to Deerfield in April 2011. Net cash used in financing activities in the first
half of 2010 was $1.9 million and primarily consisted of repayments of $10.2 million on our loan
with UBS Bank USA, partially offset by proceeds of $8.9 million from drawdowns under our 2007
committed equity financing facility with Kingsbridge. The 2007 committed financing facility with
Kingsbridge expired on March 31, 2011 and no further shares are available to us for sale under the
facility.
Shelf Registration Statement. In November 2008, we filed a shelf registration statement with
the SEC, which was declared effective in November 2008. The shelf registration statement allows us
to issue shares of our common stock from time to time for an aggregate initial offering price of up
to $100 million. As of August 4, 2011, $45.1 million remains available to us under this shelf
registration statement, assuming all outstanding warrants are exercised in cash. The specific terms
of offerings, if any, under the shelf registration statement would be established at the time of
such offerings.
As of June 30, 2011, future minimum payments under our loan and lease obligations were as
follows (in thousands):
Within | One to | Three to | After | |||||||||||||||||
One Year | Three Years | Five Years | Five Years | Total | ||||||||||||||||
Operating leases (1) |
$ | 2,906 | $ | 6,025 | $ | 6,662 | $ | 7,121 | $ | 22,714 | ||||||||||
Equipment financing line |
489 | | | | 489 | |||||||||||||||
Total |
$ | 3,395 | $ | 6,025 | $ | 6,662 | $ | 7,121 | $ | 23,203 | ||||||||||
(1) | Our long-term commitment under operating lease relates to payments under our facility lease in South San Francisco, California, which expires in 2018. |
In future periods, we expect to incur substantial costs as we continue to expand our research
programs and related research and development activities. We plan to continue to support the
clinical development of our cardiac muscle myosin activator omecamtiv mecarbil for the potential
treatment of heart failure and research of potential next-generation compounds as part of our
strategic alliance with Amgen. We plan to continue clinical development of our fast skeletal
troponin activator CK-2017357 for the potential treatment of diseases and conditions related to
skeletal muscle weakness or wasting. We plan to continue to conduct non-clinical development of our
potential drug candidates from our skeletal sarcomere contractility program. We plan to progress
one or more of our smooth muscle myosin inhibitor compounds into and through non-clinical and
clinical development. We expect to incur significant research and development expenses as we
advance the research and development of our other compounds from our muscle contractility programs
through research to candidate selection.
Our future capital uses and requirements depend on numerous factors. These factors include,
but are not limited to, the following:
| the initiation, progress, timing, scope and completion of preclinical research, non-clinical development and clinical trials for our drug candidates and potential drug candidates; |
| the time and costs involved in obtaining regulatory approvals; |
| delays that may be caused by requirements of regulatory agencies; |
| Amgens decisions with regard to funding of development and commercialization of omecamtiv mecarbil or other compounds for the potential treatment of heart failure under our collaboration; |
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| our level of funding for the development of current or future drug candidates; |
| the number of drug candidates we pursue; |
| the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims; |
| our ability to establish and maintain selected strategic alliances required for the development of drug candidates and commercialization of our potential drugs; |
| our plans or ability to expand our drug development capabilities, including our capabilities to conduct clinical trials for our drug candidates; |
| our plans or ability to establish sales, marketing or manufacturing capabilities and to achieve market acceptance for potential drugs; |
| the expansion and advancement of our research programs; |
| the hiring of additional employees and consultants; |
| the expansion of our facilities; |
| the acquisition of technologies, products and other business opportunities that require financial commitments; and |
| our revenues, if any, from successful development of our drug candidates and commercialization of potential drugs. |
We believe that our existing cash and cash equivalents, investments and interest earned on
investments will be sufficient to meet our projected operating requirements for at least the next
12 months.
If, at any time, our prospects for internally financing our research and development programs
decline, we may decide to reduce research and development expenses by delaying, discontinuing or
reducing our funding of development of one or more of our drug candidates or potential drug
candidates or of other research and development programs. Alternatively, we might raise funds
through strategic relationships, public or private financings or other arrangements. There can be
no assurance that funding, if needed, will be available on attractive terms, or at all, or in
accordance with our planned timelines. Furthermore, financing obtained through future strategic
relationships may require us to forego certain commercialization and other rights to our drug
candidates. Similarly, any additional equity financing may be dilutive to stockholders and debt
financing, if available, may involve restrictive covenants. Our failure to raise capital as and
when needed could have a negative impact on our financial condition and our ability to pursue our
business strategy.
Off-Balance Sheet Arrangements
As of June 30, 2011, we did not have any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. In addition, we do not engage in
trading activities involving non-exchange traded contracts. Therefore, we are not materially
exposed to financing, liquidity, market or credit risk that could arise if we had engaged in these
relationships. We do not have relationships or transactions with persons or entities that derive
benefits from their non-independent relationship with us or our related parties.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our exposure to market risk has not changed materially since our disclosures in Item 7A,
Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for
the year ended December 31, 2010.
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ITEM 4. | CONTROLS AND PROCEDURES |
(a) Evaluation of disclosure controls and procedures
Our management evaluated, with the participation and under the supervision of our Chief
Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on this evaluation, our Chief
Executive Officer and our Chief Financial Officer have concluded, subject to the limitations
described below, that our disclosure controls and procedures are effective to ensure that
information we are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to management as appropriate to allow timely decisions regarding
required disclosures.
(b) Changes in internal control over financial reporting
There was no change in our internal control over financial reporting that occurred during the
period covered by this report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
(c) Limitations on the Effectiveness of Controls
A control system, no matter how well-conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the controls are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues, if any, within a company have been detected. Accordingly, our disclosure
controls and procedures are designed to provide reasonable, not absolute, assurance that the
objectives of our disclosure control system are met.
PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
None.
ITEM 1A. | RISK FACTORS |
In evaluating our business, you should carefully consider the following risks in addition to
the other information in this report. Any of the following risks could materially and adversely
affect our business, results of operations, financial condition or your investment in our
securities, and many are beyond our control. It is not possible to predict or identify all such
factors and, therefore, you should not consider any of these risk factors to be a complete
statement of all the potential risks or uncertainties that we face.
Risks Related To Our Business
We have a history of significant losses and may not achieve or sustain profitability and, as a
result, you may lose all or part of your investment.
We have generally incurred operating losses in each year since our inception in 1997, due to
costs incurred in connection with our research and development activities and general and
administrative costs associated with our operations. Our drug candidates are all in early and
mid-stage clinical testing, and we and our partners must conduct significant additional clinical
trials before we and our partners can seek the regulatory approvals necessary to begin commercial
sales of our drugs. We expect to incur increasing losses for at least several more years, as we
continue our research activities and conduct development of, and seek regulatory approvals for, our
drug candidates, and commercialize any approved drugs. If our drug candidates fail or do not gain
regulatory approval, or if our drugs do not achieve market acceptance, we will not be profitable.
If we fail to become and remain profitable, or if we are unable to fund our continuing losses, you
could lose all or part of your investment.
We will need substantial additional capital in the future to sufficiently fund our operations.
We have consumed substantial amounts of capital to date, and our operating expenditures will
increase over the next several years if we expand our research and development activities. We have
funded all of our operations and capital expenditures with proceeds from private and public sales
of our equity securities, strategic alliances with Amgen, GSK and others, equipment financings,
interest on investments and government grants. We believe that our existing cash and cash
equivalents, short-term investments and interest earned on investments should be sufficient to meet
our projected operating requirements for at least the next 12 months. We have based this estimate
on assumptions that may prove to be wrong, and we could utilize our available capital resources
sooner than we
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currently expect. Because of the numerous risks and uncertainties associated with the
development of our drug candidates and other research and development activities, including risks
and uncertainties that could impact the rate of progress of our development activities, we are
unable to estimate with certainty the amounts of capital outlays and operating expenditures
associated with these activities.
For the foreseeable future, our operations will require significant additional funding, in
large part due to our research and development expenses and the absence of any revenues from
product sales. Until we can generate a sufficient amount of product revenue, we expect to raise
future capital through strategic alliance and licensing arrangements, public or private equity
offerings and debt financings. We do not currently have any commitments for future funding other
than grant funding for our myasthenia gravis preclinical and clinical activities, and
reimbursements, milestone and royalty payments that we may receive under our collaboration and
option agreement with Amgen. We may not receive any further funds under that agreement. Our ability
to raise funds may be adversely impacted by current economic conditions, including the effects of
the recent disruptions to the credit and financial markets in the United States and worldwide. In
particular, the pool of third-party capital that in the past has been available to
development-stage companies such as ours has decreased significantly in recent years, and such
decreased availability may continue for a prolonged period. As a result of these and other factors,
we do not know whether additional financing will be available when needed, or that, if available,
such financing would be on terms favorable to our stockholders or us.
To the extent that we raise additional funds through strategic alliances or licensing and
other arrangements with third parties, we will likely have to relinquish valuable rights to our
technologies, research programs or drug candidates, or grant licenses on terms that may not be
favorable to us. To the extent that we raise additional funds by issuing equity securities, our
stockholders will experience additional dilution. To the extent that we raise additional funds
through debt financing, the financing may involve covenants that restrict our business activities.
In addition, funding from any of these sources, if needed, may not be available to us on favorable
terms, or at all, or in accordance with our planned timelines.
If we can not raise the funds we need to operate our business, we will need to discontinue
certain research and development activities and our stock price likely would be negatively
affected.
We depend on Amgen for the conduct, completion and funding of the clinical development and
commercialization of omecamtiv mecarbil (formerly known as CK-1827452).
In May 2009, Amgen exercised its option to acquire an exclusive license to our drug candidate
omecamtiv mecarbil worldwide, except for Japan. As a result, Amgen is responsible for the clinical
development and obtaining and maintaining regulatory approval of omecamtiv mecarbil for the
potential treatment of heart failure worldwide, except Japan.
We do not control the clinical development activities being conducted or that may be conducted
in the future by Amgen, including, but not limited to, the timing of initiation, termination or
completion of clinical trials, the analysis of data arising out of those clinical trials or the
timing of release of data concerning those clinical trials, which may impact our ability to report
on Amgens results. Amgen may conduct these activities more slowly or in a different manner than we
would if we controlled the clinical development of omecamtiv mecarbil. Amgen is responsible for
filing future applications with the FDA or other regulatory authorities for approval of omecamtiv
mecarbil and will be the owner of any marketing approvals issued by the FDA or other regulatory
authorities for omecamtiv mecarbil. If the FDA or other regulatory authorities approve omecamtiv
mecarbil, Amgen will also be responsible for the marketing and sale of the resulting drug, subject
to our right to co-promote omecamtiv mecarbil in North America if we exercise our option to co-fund
Phase III development costs of omecamtiv mecarbil under the collaboration. However, we cannot
control whether Amgen will devote sufficient attention and resources to the clinical development of
omecamtiv mecarbil or will proceed in an expeditious manner, even if we do exercise our option to
co-fund the development of omecamtiv mecarbil. Even if the FDA or other regulatory agencies approve
omecamtiv mecarbil, Amgen may elect not to proceed with the commercialization of the resulting drug
in one or more countries.
Amgen generally has discretion to elect whether to pursue or abandon the development of
omecamtiv mecarbil and may terminate our strategic alliance for any reason upon six months prior
notice. If the initial results of one or more clinical trials with omecamtiv mecarbil do not meet
Amgens expectations, Amgen may elect to terminate further development of omecamtiv mecarbil or
certain of the potential clinical trials for omecamtiv mecarbil, even if the actual number of
patients treated at that time is relatively small. If Amgen abandons omecamtiv mecarbil, it would
result in a delay in or could prevent us from commercializing omecamtiv mecarbil, and would delay
and could prevent us from obtaining revenues for this drug candidate. Disputes may arise between us
and Amgen, which may delay or cause the termination of any omecamtiv mecarbil clinical trials,
result in significant litigation or cause Amgen to act in a manner that is not in our best
interest. If development of omecamtiv mecarbil does not progress for these or any other reasons,
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we would not receive further milestone payments or royalties on product sales from Amgen with
respect to omecamtiv mecarbil. If Amgen abandons development of omecamtiv mecarbil prior to
regulatory approval or if it elects not to proceed with commercialization of the resulting drug
following regulatory approval, we would have to seek a new partner for clinical development or
commercialization, curtail or abandon that clinical development or commercialization, or undertake
and fund the clinical development of omecamtiv mecarbil or commercialization of the resulting drug
ourselves. If we seek a new partner but are unable to do so on acceptable terms, or at all, or do
not have sufficient funds to conduct the development or commercialization of omecamtiv mecarbil
ourselves, we would have to curtail or abandon that development or commercialization, which could
harm our business.
We have never generated, and may never generate, revenues from commercial sales of our drugs and
we will not have drugs to market for at least several years, if ever.
We currently have no drugs for sale and we cannot guarantee that we will ever develop or
obtain approval to market any drugs. To receive marketing approval for any drug candidate, we must
demonstrate that the drug candidate satisfies rigorous standards of safety and efficacy to the FDA
in the United States and other regulatory authorities abroad. We and our partners will need to
conduct significant additional research and preclinical and clinical testing before we or our
partners can file applications with the FDA or other regulatory authorities for approval of any of
our drug candidates. In addition, to compete effectively, our drugs must be easy to use,
cost-effective and economical to manufacture on a commercial scale, compared to other therapies
available for the treatment of the same conditions. We may not achieve any of these objectives.
Currently, our only drug candidates that have progressed into clinical development are: omecamtiv
mecarbil, our drug candidate for the potential treatment of heart failure; CK-2017357, our drug
candidate for the potential treatment of diseases associated with aging, muscle wasting and
neuromuscular dysfunction; and ispinesib, SB-743921 and GSK-923295, our drug candidates for the
potential treatment of cancer. We cannot be certain that the clinical development of these or any
future drug candidates will be successful, that they will receive the regulatory approvals required
to commercialize them, or that any of our other research programs will yield a drug candidate
suitable for clinical testing or commercialization. Our commercial revenues, if any, will be
derived from sales of drugs that we do not expect to be commercially marketed for at least several
years, if at all. The development of any one or all of these drug candidates may be discontinued at
any stage of our clinical trials programs and we may not generate revenue from any of these drug
candidates.
Clinical trials may fail to demonstrate the desired safety and efficacy of our drug candidates,
which could prevent or significantly delay completion of clinical development and regulatory
approval.
Prior to receiving approval to commercialize any of our drug candidates, we or our partners
must adequately demonstrate to the FDA and foreign regulatory authorities that the drug candidate
is sufficiently safe and effective with substantial evidence from well-controlled clinical trials.
In clinical trials we or our partners will need to demonstrate efficacy for the treatment of
specific indications and monitor safety throughout the clinical development process and following
approval. None of our drug candidates have yet been demonstrated to be safe and effective in
clinical trials and they may never be. In addition, for each of our current preclinical compounds,
we or our partners must adequately demonstrate satisfactory chemistry, formulation, stability and
toxicity in order to submit an investigational new drug application (IND) to the FDA, or an
equivalent application in foreign jurisdictions, that would allow us to advance that compound into
clinical trials. Furthermore, we or our partners may need to submit separate INDs (or foreign
equivalent) to different divisions within the FDA (or foreign regulatory authorities) in order to
pursue clinical trials in different therapeutic areas. Each new IND (or foreign equivalent) must be
reviewed by the new division before the clinical trial under its jurisdiction can proceed,
entailing all the risks of delay inherent to regulatory review. If our or our partners current or
future preclinical studies or clinical trials are unsuccessful, our business will be significantly
harmed and our stock price could be negatively affected.
All of our drug candidates are prone to the risks of failure inherent in drug development.
Preclinical studies may not yield results that would adequately support the filing of an IND (or a
foreign equivalent) with respect to our potential drug candidates. Even if the results of
preclinical studies for a drug candidate are sufficient to support such a filing, the results of
preclinical studies do not necessarily predict the results of clinical trials. As an example,
because the physiology of animal species used in preclinical studies may vary substantially from
other animal species and from humans, it may be difficult to assess with certainty whether a
finding from a study in a particular animal species will result in similar findings in other animal
species or in humans. For any of our drug candidates, the results from Phase I clinical trials in
healthy volunteers and clinical results from Phase I and II trials in patients are not necessarily
indicative of the results of larger Phase III clinical trials that are necessary to establish
whether the drug candidate is safe and effective for the applicable indication. Likewise, interim
results from a clinical trial may not be indicative of the final results from that trial.
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In addition, while the clinical trials of our drug candidates are designed based on the
available relevant information, in view of the uncertainties inherent in drug development, such
clinical trials may not be designed with focus on indications, patient populations, dosing
regimens, safety or efficacy parameters or other variables that will provide the necessary safety
or efficacy data to support regulatory approval to commercialize the resulting drugs. For example,
in previously conducted two-stage Phase II clinical trials designed to evaluate the safety and
efficacy of ispinesib as monotherapy in the first- or second-line treatment of patients with
different forms of cancer, ispinesib did not satisfy the criteria for advancement to Stage 2. In
addition, individual patient responses to the dose administered of a drug may vary in a manner that
is difficult to predict. Also, the methods we select to assess particular safety or efficacy
parameters may not yield the same statistical precision in estimating our drug candidates effects
as may other alternative methodologies. Even if we believe the data collected from clinical trials
of our drug candidates are promising, these data may not be sufficient to support approval by the
FDA or foreign regulatory authorities. Preclinical and clinical data can be interpreted in
different ways. Accordingly, the FDA or foreign regulatory authorities could interpret these data
in different ways than we or our partners do, which could delay, limit or prevent regulatory
approval.
Administering any of our drug candidates or potential drug candidates may produce undesirable
side effects, also known as adverse effects. Toxicities and adverse effects observed in preclinical
studies for some compounds in a particular research and development program may also occur in
preclinical studies or clinical trials of other compounds from the same program. Potential toxicity
issues may arise from the effects of the active pharmaceutical ingredient itself or from impurities
or degradants that are present in the active pharmaceutical ingredient or could form over time in
the formulated drug candidate or the active pharmaceutical ingredient. These toxicities or adverse
effects could delay or prevent the filing of an IND (or a foreign equivalent) with respect to our
drug candidates or potential drug candidates or cause us or our partners to modify, suspend or
terminate clinical trials with respect to any drug candidate at any time during the development
program. The FDA, other regulatory authorities, our partners or we may modify, suspend or terminate
clinical trials with our drug candidates at any time. If these or other adverse effects are severe
or frequent enough to outweigh the potential efficacy of a drug candidate, the FDA or other
regulatory authorities could deny approval of that drug candidate for any or all targeted
indications. Even if one or more of our drug candidates were approved for sale as drugs, the
occurrence of even a limited number of toxicities or adverse effects when used in large populations
may cause the FDA to impose restrictions on, or stop, the further marketing of those drugs.
Indications of potential adverse effects or toxicities which do not seem significant during the
course of clinical trials may later turn out to actually constitute serious adverse effects or
toxicities when a drug is used in large populations or for extended periods of time.
We have observed certain adverse effects in the clinical trials conducted with our drug
candidates. For example, in clinical trials of omecamtiv mecarbil, doses that exceeded the maximum
tolerated dose were associated with complaints of chest discomfort, palpitations, dizziness and
feeling hot, increases in heart rate, declines in blood pressure, electrocardiographic changes
consistent with acute myocardial ischemia and transient rises in the MB fraction of creatine kinase
and cardiac troponins I and T, which are indicative of myocardial infarction. In Phase IIa clinical
trials of CK-2017357, adverse events of dizziness, fatigue, headache, somnolence (sleepiness),
euphoric mood, muscle spasms, gait disturbance, pain in extremity, feeling drunk, blurred vision,
muscular weakness, nausea, balance disorder, asthenia (loss of strength and energy), abnormal
coordination and dysarthria (difficulty speaking) occurred more frequently during treatment with
CK-2017357 than with placebo, with a possible trend for their frequencies to increase with
increasing doses of CK-2017357. In clinical trials of ispinesib, the most commonly observed
dose-limiting toxicity was neutropenia, a decrease in the number of a certain type of white blood
cell that results in an increase in susceptibility to infection.
Further, the administration of two or more drugs contemporaneously can lead to interactions
between them, and in clinical trials, our drug candidates may interact with other drugs that the
trial subjects are taking. For example, many ALS patients take riluzole, a commercially available
treatment for ALS. In a Phase IIa clinical trial of CK-2017357 in ALS patients, we observed in the
patients taking riluzole increases in the blood plasma concentration of riluzole associated with
the administration of CK-2017357. Accordingly, we are conducting a Phase I drug-drug interaction
clinical trial intended to evaluate the effects of CK-2017357 on the pharmacokinetics of riluzole
and other drugs to better understand the significance of this finding. If this drug-drug
interaction trial produces materially adverse findings, it may call into question the feasibility
of developing CK-2017357 as a treatment for ALS.
In addition, clinical trials of omecamtiv mecarbil and CK-2017357 enroll patients who
typically suffer from serious diseases which put them at increased risk of death. These patients
may die while receiving our drug candidates. In such circumstances, it may not be possible to
exclude with certainty a causal relationship to our drug candidate, even though the responsible
clinical investigator may view such an event as not study drug-related. For example, in a Phase IIa
clinical trial designed to evaluate and compare the oral pharmacokinetics of both modified and
immediate release formulations of omecamtiv mecarbil in patients with stable heart failure, a
patient died suddenly after receiving the immediate release formulation of omecamtiv mecarbil,
without having reported any preceding adverse events. The clinical investigator assessed the
patients death as not related to omecamtiv mecarbil. However, the
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event was reported to the appropriate regulatory authorities as possibly related to omecamtiv
mecarbil because the immediate cause of the patients death could not be determined, and therefore,
a relationship to omecamtiv mecarbil could not be excluded definitively.
Any failure or significant delay in completing preclinical studies or clinical trials for our
drug candidates, or in receiving and maintaining regulatory approval for the sale of any resulting
drugs, may significantly harm our business and negatively affect our stock price.
Clinical trials are expensive, time-consuming and subject to delay.
Clinical trials are subject to rigorous regulatory requirements and are very expensive,
difficult and time-consuming to design and implement. The length of time and number of trial sites
and patients required for clinical trials vary substantially based on the type, complexity,
novelty, intended use of the drug candidate and safety concerns. We estimate that the clinical
trials of our current drug candidates will each continue for several more years. However, the
clinical trials for all or any of these drug candidates may take significantly longer to complete.
The commencement and completion of our clinical trials could be delayed or prevented by many
factors, including, but not limited to:
| delays in obtaining, or inability to obtain, regulatory or other approvals to commence and conduct clinical trials in the manner we or our partners deem necessary for the appropriate and timely development of our drug candidates and commercialization of any resulting drugs; |
| delays in identifying and reaching agreement, or inability to identify and reach agreement, on acceptable terms, with prospective clinical trial sites and other entities involved in the conduct of our clinical trials; |
| delays or additional costs in developing, or inability to develop, appropriate formulations of our drug candidates for clinical trial use, including an appropriate modified release oral formulation for omecamtiv mecarbil; |
| slower than expected rates of patient recruitment and enrollment, including as a result of competition for patients with other clinical trials; limited numbers of patients that meet the enrollment criteria; patients, investigators or trial sites reluctance to agree to the requirements of a protocol; or the introduction of alternative therapies or drugs by others; |
| for those drug candidates that are the subject of a strategic alliance, delays in reaching agreement with our partner as to appropriate development strategies; |
| a regulatory authority may require changes to a protocol for a clinical trial that then may require approval from regulatory agencies in other jurisdictions where the trial is being conducted; |
| an institutional review board (IRB) or its foreign equivalent may require changes to a protocol that then require approval from regulatory agencies and other IRBs and their foreign equivalents, or regulatory authorities may require changes to a protocol that then require approval from the IRBs or their foreign equivalents; |
| for clinical trials conducted in foreign countries, the time and resources required to identify, interpret and comply with foreign regulatory requirements or changes in those requirements, and political instability or natural disasters occurring in those countries; |
| lack of effectiveness of our drug candidates during clinical trials; |
| unforeseen safety issues; |
| inadequate supply of clinical trial materials; |
| uncertain dosing issues; |
| failure by us, our partners, or clinical research organizations, investigators or site personnel engaged by us or our partners to comply with good clinical practices and other applicable laws and regulations, including those concerning informed consent; |
| inability or unwillingness of investigators or their staffs to follow clinical protocols; |
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| inability to monitor patients adequately during or after treatment; |
| introduction of new therapies or changes in standards of practice or regulatory guidance that render our drug candidates or their clinical trial endpoints obsolete; and |
| results from non-clinical studies that may adversely impact the timing or further development of our drug candidates. |
We do not know whether planned clinical trials will begin on time, or whether planned or
currently ongoing clinical trials will need to be restructured or will be completed on schedule, if
at all. Significant delays in clinical trials will impede our ability to commercialize our drug
candidates and generate revenue and could significantly increase our development costs.
If we fail to enter into and maintain successful strategic alliances for our drug candidates,
potential drug candidates or research and development programs, we will have to reduce, delay or
discontinue our advancement of those drug candidates, potential drug candidates and programs or
expand our research and development capabilities and increase our expenditures.
Drug development is complicated and expensive. We currently have limited financial and
operational resources to carry out drug development. Our strategy for developing, manufacturing and
commercializing our drug candidates and potential drug candidates currently requires us to enter
into and successfully maintain strategic alliances with pharmaceutical companies or other industry
participants to advance our programs and reduce our expenditures on each program. Accordingly, the
success of our development activities depends in large part on our current and future strategic
partners performance, over which we have little or no control.
We have retained all rights to develop and commercialize CK-2017357, ispinesib, SB-743921 and
GSK-923295. We currently do not have a strategic partner for these drug candidates. We are relying
on GSK to complete its Phase I clinical trial for GSK-923295. We expect to rely on one or more
strategic partners or other arrangements with third parties to advance and develop CK-2017357 and
other compounds from our skeletal muscle contractility program; ispinesib, SB-743921 and
GSK-923295; and our smooth muscle myosin inhibitors. However, we may not be able to negotiate and
enter into such strategic alliances or arrangements on acceptable terms, if at all, or in
accordance with our planned timelines.
We rely on Amgen to conduct non-clinical and clinical development for omecamtiv mecarbil for
the potential treatment of heart failure. If Amgen elects to terminate its development activities
with respect to omecamtiv mecarbil, we currently do not have an alternative strategic partner for
this drug candidate.
Our ability to commercialize drugs that we develop with our partners and that generate
royalties from product sales depends on our partners abilities to assist us in establishing the
safety and efficacy of our drug candidates, obtaining and maintaining regulatory approvals and
achieving market acceptance of the drugs once commercialized. Our partners may elect to delay or
terminate development of one or more drug candidates, independently develop drugs that could
compete with ours or fail to commit sufficient resources to the marketing and distribution of drugs
developed through their strategic alliances with us. Our partners may not proceed with the
development and commercialization of our drug candidates with the same degree of urgency as we
would because of other priorities they face. In addition, new business combinations or changes in a
partners business strategy may adversely affect its willingness or ability to carry out its
obligations under a strategic alliance.
If we are not able to successfully maintain our existing strategic alliances or establish and
successfully maintain additional strategic alliances, we will have to limit the size or scope of,
or delay or discontinue, one or more of our drug development programs or research programs, or
undertake and fund these programs ourselves. Alternatively, if we elect to continue to conduct any
of these drug development programs or research programs on our own, we will need to expand our
capability to conduct clinical development by bringing additional skills, technical expertise and
resources into our organization. This would require significant additional funding, which may not
be available to us on acceptable terms, or at all.
We depend on contract research organizations to conduct our clinical trials and have limited
control over their performance.
We have used and intend to continue to use contract research organizations (CROs) within and
outside of the United States to conduct clinical trials of our drug candidates, such as CK-2017357.
We do not have control over many aspects of our CROs activities, and cannot fully control the
amount, timing or quality of resources that they devote to our programs. CROs may not assign as
high a priority to our programs or pursue them as diligently as we would if we were undertaking
these programs ourselves. The activities conducted by our CROs therefore may not be completed on
schedule or in a satisfactory manner. CROs may also give higher
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priority to relationships with our competitors and potential competitors than to their
relationships with us. Outside of the United States, we are particularly dependent on our CROs
expertise in communicating with clinical trial sites and regulatory authorities and ensuring that
our clinical trials and related activities and regulatory filings comply with applicable laws. Our
CROs failure to carry out development activities on our behalf according to our and the FDAs or
other regulatory agencies requirements and in accordance with applicable U.S. and foreign laws, or
our failure to properly coordinate and manage these activities, could increase the cost of our
operations and delay or prevent the development, approval and commercialization of our drug
candidates. In addition, if a CRO fails to perform as agreed, our ability to collect damages may be
contractually limited. If we fail to effectively manage the CROs carrying out the development of
our drug candidates or if our CROs fail to perform as agreed, the commercialization of our drug
candidates will be delayed or prevented.
We have no manufacturing capacity and depend on our strategic partners and contract manufacturers
to produce our clinical trial drug supplies for each of our drug candidates and potential drug
candidates, and anticipate continued reliance on contract manufacturers for the development and
commercialization of our potential drugs.
We do not currently operate manufacturing facilities for clinical or commercial production of
our drug candidates or potential drug candidates. We have limited experience in drug formulation
and manufacturing, and we lack the resources and the capabilities to manufacture any of our drug
candidates or potential drug candidates on a clinical or commercial scale. Amgen has assumed
responsibility to conduct these activities for the ongoing clinical development of omecamtiv
mecarbil worldwide, except Japan. We have relied on GSK to conduct these activities for the
clinical development of GSK-923295. For CK-2017357 and our other drug candidates and potential drug
candidates, we rely (and for omecamtiv mecarbil, ispinesib and SB-743921, we have relied) on a
limited number of contract manufacturers. In particular, we rely on single-source contract
manufacturers for the active pharmaceutical ingredient and the drug product supply for our clinical
trials. We expect to rely on contract manufacturers to supply all future drug candidates for which
we conduct clinical development. If any of our existing or future contract manufacturers fail to
perform satisfactorily, it could delay clinical development or regulatory approval of our drug
candidates or commercialization of our drugs, producing additional losses and depriving us of
potential product revenues. In addition, if a contract manufacturer fails to perform as agreed, our
ability to collect damages may be contractually limited.
Our drug candidates and potential drug candidates require precise high-quality manufacturing.
The failure to achieve and maintain high manufacturing standards, including failure to detect or
control anticipated or unanticipated manufacturing errors or the frequent occurrence of such
errors, could result in patient injury or death, discontinuance or delay of ongoing or planned
clinical trials, delays or failures in product testing or delivery, cost overruns, product recalls
or withdrawals and other problems that could seriously hurt our business. Contract drug
manufacturers often encounter difficulties involving production yields, quality control and quality
assurance and shortages of qualified personnel. These manufacturers are subject to stringent
regulatory requirements, including the FDAs current good manufacturing practices regulations and
similar foreign laws and standards. Each contract manufacturer must pass a pre-approval inspection
before we can obtain marketing approval for any of our drug candidates and following approval will
be subject to ongoing periodic unannounced inspections by the FDA, the U.S. Drug Enforcement Agency
and other regulatory agencies, to ensure strict compliance with current good manufacturing
practices and other applicable government regulations and corresponding foreign laws and standards.
We seek to ensure that our contract manufacturers comply fully with all applicable regulations,
laws and standards. However, we do not have control over our contract manufacturers compliance
with these regulations, laws and standards. If one of our contract manufacturers fails to pass its
pre-approval inspection or maintain ongoing compliance at any time, the production of our drug
candidates could be interrupted, resulting in delays or discontinuance of our clinical trials,
additional costs and potentially lost revenues. In addition, failure of any third party
manufacturers or us to comply with applicable regulations, including pre-or post-approval
inspections and the current good manufacturing practice requirements of the FDA or other comparable
regulatory agencies, could result in sanctions being imposed on us. These sanctions could include
fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval
of our products, delay, suspension or withdrawal of approvals, license revocation, product seizures
or recalls, operational restrictions and criminal prosecutions, any of which could significantly
and adversely affect our business.
In addition, our existing and future contract manufacturers may not perform as agreed or may
not remain in the contract manufacturing business for the time required to successfully produce,
store and distribute our drug candidates. If a natural disaster, business failure, strike or other
difficulty occurs, we may be unable to replace these contract manufacturers in a timely or
cost-effective manner and the production of our drug candidates would be interrupted, resulting in
delays and additional costs.
Switching manufacturers or manufacturing sites would be difficult and time-consuming because
the number of potential manufacturers is limited. In addition, before a drug from any replacement
manufacturer or manufacturing site can be commercialized, the FDA and, in some cases, foreign
regulatory agencies, must approve that site. These approvals would require regulatory testing and
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compliance inspections. A new manufacturer or manufacturing site also would have to be
educated in, or develop substantially equivalent processes for, production of our drugs and drug
candidates. It may be difficult or impossible to transfer certain elements of a manufacturing
process to a new manufacturer or for us to find a replacement manufacturer on acceptable terms
quickly, or at all, either of which would delay or prevent our ability to develop drug candidates
and commercialize any resulting drugs.
We may not be able to successfully scale-up manufacturing of our drug candidates in sufficient
quality and quantity, which would delay or prevent us from developing our drug candidates and
commercializing resulting approved drugs, if any.
To date, our drug candidates have been manufactured in small quantities for preclinical
studies and early-stage clinical trials. In order to conduct larger scale or late-stage clinical
trials for a drug candidate and for commercialization of the resulting drug if that drug candidate
is approved for sale, we will need to manufacture it in larger quantities. We may not be able to
successfully increase the manufacturing capacity for any of our drug candidates, whether in
collaboration with third-party manufacturers or on our own, in a timely or cost-effective manner or
at all. If a contract manufacturer makes improvements in the manufacturing process for our drug
candidates, we may not own, or may have to share, the intellectual property rights to those
improvements. Significant scale-up of manufacturing may require additional validation studies,
which are costly and which the FDA must review and approve. In addition, quality issues may arise
during those scale-up activities because of the inherent properties of a drug candidate itself or
of a drug candidate in combination with other components added during the manufacturing and
packaging process, or during shipping and storage of the finished product or active pharmaceutical
ingredients. If we are unable to successfully scale-up manufacture of any of our drug candidates in
sufficient quality and quantity, the development of that drug candidate and regulatory approval or
commercial launch for any resulting drugs may be delayed or there may be a shortage in supply,
which could significantly harm our business.
The mechanisms of action of our drug candidates and potential drug candidates are unproven, and we
do not know whether we will be able to develop any drug of commercial value.
We have discovered and are currently developing drug candidates and potential drug candidates
that have what we believe are novel mechanisms of action directed against cytoskeletal targets, and
intend to continue to do so. Because no currently approved drugs appear to operate via the same
biochemical mechanisms as our compounds, we cannot be certain that our drug candidates and
potential drug candidates will result in commercially viable drugs that safely and effectively
treat the indications for which we intend to develop them. The results we have seen for our
compounds in preclinical models may not translate into similar results in humans, and results of
early clinical trials in humans may not be predictive of the results of larger clinical trials that
may later be conducted with our drug candidates. Even if we are successful in developing and
receiving regulatory approval for a drug candidate for the treatment of a particular disease, we
cannot be certain that we will also be able to develop and receive regulatory approval for that or
other drug candidates for the treatment of other diseases. If we or our partners are unable to
successfully develop and commercialize our drug candidates, our business will be materially harmed.
Our success depends substantially upon our ability to obtain and maintain intellectual property
protection relating to our drug candidates, potential drug candidates and research technologies.
We own, or hold exclusive licenses to, a number of U.S. and foreign patents and patent
applications directed to our drug candidates, potential drug candidates and research technologies.
Our success depends on our ability to obtain patent protection both in the United States and in
other countries for our drug candidates and potential drug candidates, their methods of manufacture
and use, and our technologies. Our ability to protect our drug candidates, potential drug
candidates and technologies from unauthorized or infringing use by third parties depends
substantially on our ability to obtain and enforce our patents. If our issued patents and patent
applications, if granted, do not adequately describe, enable or otherwise provide coverage of our
technologies and drug candidates and potential drug candidates, including omecamtiv mecarbil,
CK-2017357, ispinesib, SB-743921 and GSK-923295, we or our licensees would not be able to exclude
others from developing or commercializing these drug candidates. Furthermore, the degree of future
protection of our proprietary rights is uncertain because legal means may not adequately protect
our rights or permit us to gain or keep our competitive advantage.
Due to evolving legal standards relating to the patentability, validity and enforceability of
patents covering pharmaceutical inventions and the claim scope of these patents, our ability to
enforce our existing patents and to obtain and enforce patents that may issue from any pending or
future patent applications is uncertain and involves complex legal, scientific and factual
questions. The standards which the U.S. Patent and Trademark Office and its foreign counterparts
use to grant patents are not always applied predictably or uniformly and are subject to change. To
date, no consistent policy has emerged regarding the breadth of claims allowed in biotechnology and
pharmaceutical patents. Thus, we cannot be sure that any patents will issue from any pending or
future patent applications owned by or licensed to us. Even if patents do issue, we cannot be sure
that the claims of these patents will be held valid
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or enforceable by a court of law, will provide us with any significant protection against
competitive products, or will afford us a commercial advantage over competitive products. In
particular:
| we or our licensors might not have been the first to make the inventions covered by each of our pending patent applications and issued patents; |
| we or our licensors might not have been the first to file patent applications for the inventions covered by our pending patent applications and issued patents; |
| others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
| some or all of our or our licensors pending patent applications may not result in issued patents or the claims that issue may be narrow in scope and not provide us with competitive advantages; |
| our and our licensors issued patents may not provide a basis for commercially viable drugs or therapies or may be challenged and invalidated by third parties; |
| our or our licensors patent applications or patents may be subject to interference, opposition or similar administrative proceedings that may result in a reduction in their scope or their loss altogether; |
| we may not develop additional proprietary technologies or drug candidates that are patentable; or |
| the patents of others may prevent us or our partners from discovering, developing or commercializing our drug candidates. |
Patent protection is afforded on a country-by-country basis. Some foreign jurisdictions do not
protect intellectual property rights to the same extent as in the United States. Many companies
have encountered significant difficulties in protecting and defending intellectual property rights
in foreign jurisdictions. Some of our development efforts are performed in countries outside of the
United States through third party contractors. We may not be able to effectively monitor and assess
intellectual property developed by these contractors. We therefore may not be able to effectively
protect this intellectual property and could lose potentially valuable intellectual property
rights. In addition, the legal protection afforded to inventors and owners of intellectual property
in countries outside of the United States may not be as protective of intellectual property rights
as in the United States. Therefore, we may be unable to acquire and protect intellectual property
developed by these contractors to the same extent as if these development activities were being
conducted in the United States. If we encounter difficulties in protecting our intellectual
property rights in foreign jurisdictions, our business prospects could be substantially harmed.
We rely on intellectual property assignment agreements with our corporate partners, employees,
consultants, scientific advisors and other collaborators to grant us ownership of new intellectual
property that is developed. These agreements may not result in the effective assignment to us of
that intellectual property. As a result, our ownership of key intellectual property could be
compromised.
Changes in either the patent laws or their interpretation in the United States or other
countries may diminish the value of our intellectual property or our ability to obtain patents. For
example, the U.S. Congress is currently considering bills that could change U.S. law regarding,
among other things, post-grant review of issued patents and the calculation of damages once patent
infringement has been determined by a court of law. If enacted into law, these provisions could
severely weaken patent protection in the United States.
If one or more products resulting from our drug candidates is approved for sale by the FDA and
we do not have adequate intellectual property protection for those products, competitors could
duplicate them for approval and sale in the United States without repeating the extensive testing
required of us or our partners to obtain FDA approval. Regardless of any patent protection, under
current law, an application for a generic version of a new chemical entity cannot be approved until
at least five years after the FDA has approved the original product. When that period expires, or
if that period is altered, the FDA could approve a generic version of our product regardless of our
patent protection. An applicant for a generic version of our product may only be required to
conduct a relatively inexpensive study to show that its product is bioequivalent to our product,
and may not have to repeat the lengthy and expensive clinical trials that we or our partners
conducted to demonstrate that the product is safe and effective. In the absence of adequate patent
protection for our products in other countries, competitors may similarly be able to obtain
regulatory approval in those countries of generic versions of our products.
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We also rely on trade secrets to protect our technology, particularly where we believe patent
protection is not appropriate or obtainable. However, trade secrets are often difficult to protect,
especially outside of the United States. While we endeavor to use reasonable efforts to protect our
trade secrets, our or our partners employees, consultants, contractors or scientific and other
advisors may unintentionally or willfully disclose our information to competitors. In addition,
confidentiality agreements, if any, executed by those individuals may not be enforceable or provide
meaningful protection for our trade secrets or other proprietary information in the event of
unauthorized use or disclosure. Pursuing a claim that a third party had illegally obtained and was
using our trade secrets would be expensive and time-consuming, and the outcome would be
unpredictable. Even if we are able to maintain our trade secrets as confidential, if our
competitors independently develop information equivalent or similar to our trade secrets, our
business could be harmed.
If we are not able to defend the patent or trade secret protection position of our
technologies and drug candidates, then we will not be able to exclude competitors from developing
or marketing competing drugs, and we may not generate enough revenue from product sales to justify
the cost of development of our drugs or to achieve or maintain profitability.
If we are sued for infringing third party intellectual property rights, it will be costly and
time-consuming, and an unfavorable outcome would have a significant adverse effect on our
business.
Our ability to commercialize drugs depends on our ability to use, manufacture and sell those
drugs without infringing the patents or other proprietary rights of third parties. Numerous U.S.
and foreign issued patents and pending patent applications owned by third parties exist in the
therapeutic areas in which we are developing drug candidates and seeking new potential drug
candidates. In addition, because patent applications can take several years to issue, there may be
currently pending applications, unknown to us, which could later result in issued patents that our
activities with our drug candidates could infringe. There may also be existing patents, unknown to
us, that our activities with our drug candidates could infringe.
Currently, we are aware of an issued U.S. patent and at least one pending U.S. patent
application assigned to Curis, Inc., relating to certain compounds in the quinazolinone class.
Ispinesib falls into this class of compounds. The Curis U.S. patent claims a method of inhibiting
signaling by what is called the hedgehog pathway using certain quinazolinone compounds. Curis also
has pending applications in Europe, Japan, Australia and Canada with claims covering certain
quinazolinone compounds, compositions thereof and methods of their use. Two of the Australian
applications have been allowed and two of the European applications have been granted. We have
opposed the granting of certain of these patents to Curis in Europe and in Australia. Curis has
withdrawn one of the Australian applications. One of the European patents that we opposed was
recently revoked and is no longer valid in Europe. Curis has appealed this decision.
Curis or a third party may assert that the manufacture, use, importation or sale of ispinesib
may infringe one or more of its patents. We believe that we have valid defenses against the issued
U.S. patent owned by Curis if it were to be asserted against us. However, we cannot guarantee that
a court would find these defenses valid or that any additional defenses would be successful. We
have not attempted to obtain a license to these patents. If we decide to seek a license to these
patents, we cannot guarantee that such a license would be available on acceptable terms, if at all.
Other future products of ours may be impacted by patents of companies engaged in competitive
programs with significantly greater resources (such as Merck & Co., Inc., Eli Lilly and Company,
Bristol-Myers Squibb Company, Novartis and AstraZeneca AB). Further development of these products
could be impacted by these patents and result in significant legal fees.
If a third party claims that our actions infringe its patents or other proprietary rights, we
could face a number of issues that could seriously harm our competitive position, including, but
not limited to:
| infringement and other intellectual property claims that, even if meritless, can be costly and time-consuming to litigate, delay the regulatory approval process and divert managements attention from our core business operations; |
| substantial damages for past infringement which we may have to pay if a court determines that our drugs or technologies infringe a third partys patent or other proprietary rights; |
| a court prohibiting us from selling or licensing our drugs or technologies unless the holder licenses the patent or other proprietary rights to us, which it is not required to do; and |
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| if a license is available from a holder, we may have to pay substantial royalties or grant cross-licenses to our patents or other proprietary rights. |
If any of these events occur, it could significantly harm our business and negatively affect
our stock price.
We may undertake infringement or other legal proceedings against third parties, causing us to
spend substantial resources on litigation and exposing our own intellectual property portfolio to
challenge.
Third parties may infringe our patents. To prevent infringement or unauthorized use, we may
need to file infringement suits, which are expensive and time-consuming. In an infringement
proceeding, a court may decide that one or more of our patents is invalid, unenforceable, or both.
In this case, third parties may be able to use our technology without paying licensing fees or
royalties. Even if the validity of our patents is upheld, a court may refuse to stop the other
party from using the technology at issue on the ground that the other partys activities are not
covered by our patents. Policing unauthorized use of our intellectual property is difficult, and we
may not be able to prevent misappropriation of our proprietary rights, particularly in countries
where the laws may not protect such rights as fully as in the United States. In addition, third
parties may affirmatively challenge our rights to, or the scope or validity of, our patent rights.
We may become involved in disputes with our strategic partners over intellectual property
ownership, and publications by our research collaborators and clinical investigators could impair
our ability to obtain patent protection or protect our proprietary information, either of which
would have a significant impact on our business.
Inventions discovered under our current or future strategic alliance agreements may become
jointly owned by our strategic partners and us in some cases, and the exclusive property of one of
us in other cases. Under some circumstances, it may be difficult to determine who owns a particular
invention or whether it is jointly owned, and disputes could arise regarding ownership or use of
those inventions. These disputes could be costly and time-consuming, and an unfavorable outcome
could have a significant adverse effect on our business if we were not able to protect or license
rights to these inventions. In addition, our research collaborators and clinical investigators
generally have contractual rights to publish data arising from their work. Publications by our
research collaborators and clinical investigators relating to our research and development
programs, either with or without our consent, could benefit our current or potential competitors
and may impair our ability to obtain patent protection or protect our proprietary information,
which could significantly harm our business.
We may be subject to claims that we or our employees have wrongfully used or disclosed trade
secrets of their former employers.
Many of our employees were previously employed at universities or other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although no claims
against us are currently pending, we may be subject to claims that these employees or we have
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend against these claims. If we fail in
defending these claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel. A loss of key research personnel or their work product could hamper
or prevent our ability to develop and commercialize certain potential drugs, which could
significantly harm our business. Even if we are successful in defending against these claims,
litigation could result in substantial costs and distract management.
Our competitors may develop drugs that are less expensive, safer or more effective than ours,
which may diminish or eliminate the commercial success of any drugs that we may commercialize.
We compete with companies that have developed drugs or are developing drug candidates for
cardiovascular diseases, cancer and other diseases for which our drug candidates may be useful
treatments. For example, if omecamtiv mecarbil is approved for marketing by the FDA for heart
failure, that drug candidate would compete against other drugs used for the treatment of heart
failure. These include generic drugs, such as milrinone, dobutamine or digoxin and newer marketed
drugs such as nesiritide. Omecamtiv mecarbil could also potentially compete against other novel
drug candidates in development, such as bucindolol, which is being developed by ARCA biopharma,
Inc.; relaxin, which is being developed by Novartis; CD-NP, which is being developed by Nile
Therapeutics, Inc., and glial growth factor (GGF-2) which is being developed by Acorda
Therapeutics, Inc. In addition, there are a number of medical devices being developed for the
potential treatment of heart failure.
With respect to CK-2017357 and other compounds that may arise from our skeletal muscle
contractility program, potential competitors include Ligand Pharmaceuticals, Inc., which is
developing LGD-4033, a selective androgen receptor modulator, for
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muscle wasting; and GTx, Inc., which is developing ostarine, a selective androgen receptor
modulator, for cancer cachexia. Acceleron Pharma, Inc. is conducting clinical development with
ACE-031, a myostatin inhibitor, and related compounds to evaluate their ability to treat diseases
involving the loss of muscle mass, strength and function. We are aware that other companies are
developing potential new therapies for ALS, such as Biogen Idec, Inc., Mitsubishi Tanabe Pharma
Corporation, Eisai Inc., Trophos SA, Neuraltus Pharmaceuticals, Inc., and Isis Pharmaceuticals, Inc. If CK-2017357 or
other of our skeletal muscle sarcomere activators are approved for the treatment of claudication
associated with peripheral artery disease, they will compete with currently approved therapies for
the treatment of peripheral artery disease. We are also aware that a number of companies are
developing potential new treatments for peripheral artery disease or associated symptoms of
claudication. If CK-2017357 or other of our skeletal muscle sarcomere activators are approved for
the treatment of myasthenia gravis, they will compete with currently approved therapies for the
treatment of myasthenia gravis, including but not limited to anticholinesterase agents, such as
pyridostigmine bromide and neostigmine bromide, corticosteroids, such as prednisone, and
immunomodulatory drugs, such as azathiaprine and cyclosporine. We are also aware that a number of
companies are developing or commercializing in certain markets potential new treatments for
myasthenia gravis, such as Benesis Corp. (GB-0998), Alexion Pharmaceuticals, Inc. (eculizumab) and
Astellas (tacrolimus).
Our competitors may:
| develop drug candidates and market drugs that are less expensive or more effective than our future drugs; |
| commercialize competing drugs before we or our partners can launch any drugs developed from our drug candidates; |
| hold or obtain proprietary rights that could prevent us from commercializing our products; |
| initiate or withstand substantial price competition more successfully than we can; |
| more successfully recruit skilled scientific workers and management from the limited pool of available talent; |
| more effectively negotiate third-party licenses and strategic alliances; |
| take advantage of acquisition or other opportunities more readily than we can; |
| develop drug candidates and market drugs that increase the levels of safety or efficacy that our drug candidates will need to show in order to obtain regulatory approval; or |
| introduce therapies or market drugs that render the market opportunity for our potential drugs obsolete. |
We will compete for market share against large pharmaceutical and biotechnology companies and
smaller companies that are collaborating with larger pharmaceutical companies, new companies,
academic institutions, government agencies and other public and private research organizations.
Many of these competitors, either alone or together with their partners, may develop new drug
candidates that will compete with ours. These competitors may, and in certain cases do, operate
larger research and development programs or have substantially greater financial resources than we
do. Our competitors may also have significantly greater experience in:
| developing drug candidates; |
| undertaking preclinical testing and clinical trials; |
| building relationships with key customers and opinion-leading physicians; |
| obtaining and maintaining FDA and other regulatory approvals of drug candidates; |
| formulating and manufacturing drugs; and |
| launching, marketing and selling drugs. |
If our competitors market drugs that are less expensive, safer or more efficacious than our
potential drugs, or that reach the market sooner than our potential drugs, we may not achieve
commercial success. In addition, the life sciences industry is characterized by
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rapid technological change. If we fail to stay at the forefront of technological change, we
may be unable to compete effectively. Our competitors may render our technologies obsolete by
improving existing technological approaches or developing new or different approaches, potentially
eliminating the advantages in our drug discovery process that we believe we derive from our
research approach and proprietary technologies.
Our failure to attract and retain skilled personnel could impair our drug development and
commercialization activities.
Our business depends on the performance of our senior management and key scientific and
technical personnel. The loss of the services of any member of our senior management or key
scientific or technical staff may significantly delay or prevent the achievement of drug
development and other business objectives by diverting managements attention to transition matters
and identifying suitable replacements. We also rely on consultants and advisors to assist us in
formulating our research and development strategy. All of our consultants and advisors are either
self-employed or employed by other organizations, and they may have conflicts of interest or other
commitments, such as consulting or advisory contracts with other organizations, that may affect
their ability to contribute to us. In addition, if and as our business grows, we will need to
recruit additional executive management and scientific and technical personnel. There is currently
intense competition for skilled executives and employees with relevant scientific and technical
expertise, and this competition is likely to continue. Our inability to attract and retain
sufficient scientific, technical and managerial personnel could limit or delay our product
development activities, which would adversely affect the development of our drug candidates and
commercialization of our potential drugs and growth of our business.
Any future workforce and expense reductions may have an adverse impact on our internal programs
and our ability to hire and retain skilled personnel.
In light of our continued need for funding and cost control, we may be required to implement
future workforce and expense reductions, which may negatively affect our productivity and limit our
research and development activities. For example, as part of our strategic restructuring and
workforce reduction in 2008, we discontinued our early research activities in oncology. Our future
success will depend in large part upon our ability to attract and retain highly skilled personnel.
We may have difficulty retaining and attracting such personnel as a result of a perceived risk of
future workforce reductions. In addition, the implementation of workforce or expense reduction
programs may divert the efforts of our management team and other key employees, which could
adversely affect our business.
We may expand our development and clinical research capabilities and, as a result, we may
encounter difficulties in managing our growth, which could disrupt our operations.
We may have growth in our expenditures, the number of our employees and the scope of our
operations, in particular with respect to those drug candidates that we elect to develop or
commercialize independently or together with a partner. To manage our anticipated future growth, we
must continue to implement and improve our managerial, operational and financial systems, expand
our facilities and continue to recruit and train additional qualified personnel. Due to our limited
resources, we may not be able to effectively manage the expansion of our operations or recruit and
train additional qualified personnel. The physical expansion of our operations may lead to
significant costs and may divert our management and business development resources. Any inability
to manage growth could delay the execution of our business plans or disrupt our operations.
We currently have no sales or marketing staff and, if we are unable to enter into or maintain
strategic alliances with marketing partners or to develop our own sales and marketing
capabilities, we may not be successful in commercializing our potential drugs.
We currently have no sales, marketing or distribution capabilities. We plan to commercialize
drugs that can be effectively marketed and sold in concentrated markets that do not require a large
sales force to be competitive. To achieve this goal, we will need to establish our own specialized
sales force and marketing organization with technical expertise and supporting distribution
capabilities. Developing such an organization is expensive and time-consuming and could delay a
product launch. In addition, we may not be able to develop this capacity efficiently,
cost-effectively or at all, which could make us unable to commercialize our drugs. If we determine
not to market our drugs on our own, we will depend on strategic alliances with third parties, such
as Amgen, which have established distribution systems and direct sales forces to commercialize
them. If we are unable to enter into such arrangements on acceptable terms, we may not be able to
successfully commercialize these drugs. To the extent that we are not successful in commercializing
any drugs ourselves or through a strategic alliance, our product revenues and business will suffer
and our stock price would decrease.
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Risks Related To Our Industry
The regulatory approval process is expensive, time-consuming and uncertain and may prevent our
partners or us from obtaining approvals to commercialize some or all of our drug candidates.
The research, testing, manufacturing, selling and marketing of drugs are subject to extensive
regulation by the FDA and other regulatory authorities in the United States and other countries,
and regulations differ from country to country. Neither we nor our partners are permitted to market
our potential drugs in the United States until we receive approval of a new drug application
(NDA) from the FDA. Neither we nor our partners have received marketing approval for any of
Cytokinetics drug candidates.
Obtaining NDA approval is a lengthy, expensive and uncertain process. In addition, failure to
comply with FDA and other applicable foreign and U.S. regulatory requirements may subject us to
administrative or judicially imposed sanctions. These include warning letters, civil and criminal
penalties, injunctions, product seizure or detention, product recalls, total or partial suspension
of production, and refusal to approve pending NDAs or supplements to approved NDAs.
Regulatory approval of an NDA or NDA supplement is never guaranteed, and the approval process
typically takes several years and is extremely expensive. The FDA and foreign regulatory agencies
also have substantial discretion in the drug approval process. Despite the time and efforts
exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon
clinical trials or to repeat or perform additional preclinical testing and clinical trials. The
number and focus of preclinical studies and clinical trials that will be required for approval by
the FDA and foreign regulatory agencies varies depending on the drug candidate, the disease or
condition that the drug candidate is designed to address, and the regulations applicable to any
particular drug candidate. In addition, the FDA may require that a proposed Risk Evaluation and
Mitigation Strategy, also known as a REMS, be submitted as part of an NDA if the FDA determines
that it is necessary to ensure that the benefits of the drug outweigh its risks. The FDA and
foreign regulatory agencies can delay, limit or deny approval of a drug candidate for many reasons,
including, but not limited to:
| they might determine that a drug candidate is not safe or effective; |
| they might not find the data from preclinical testing and clinical trials sufficient and could request that additional trials be performed; |
| they might not approve our, our partners or the contract manufacturers processes or facilities; or |
| they might change their approval policies or adopt new regulations. |
Even if we receive regulatory approval to manufacture and sell a drug in a particular
regulatory jurisdiction, other jurisdictions regulatory authorities may not approve that drug for
manufacture and sale. If we or our partners fail to receive and maintain regulatory approval for
the sale of any drugs resulting from our drug candidates, it would significantly harm our business
and negatively affect our stock price.
If we or our partners receive regulatory approval for our drug candidates, we or they will be
subject to ongoing obligations to and continued regulatory review by the FDA and foreign
regulatory agencies, and may be subject to additional post-marketing obligations, all of which may
result in significant expense and limit commercialization of our potential drugs.
Any regulatory approvals that we or our partners receive for our drug candidates may be
subject to limitations on the indicated uses for which the drug may be marketed or require
potentially costly post-marketing follow-up studies or compliance with a REMS. In addition, if the
FDA or foreign regulatory agencies approves any of our drug candidates, the labeling, packaging,
adverse event reporting, storage, advertising, promotion and record-keeping for the drug will be
subject to extensive regulatory requirements. The subsequent discovery of previously unknown
problems with the drug, including adverse events of unanticipated severity or frequency, or the
discovery that adverse effects or toxicities observed in preclinical research or clinical trials
that were believed to be minor actually constitute much more serious problems, may result in
restrictions on the marketing of the drug or withdrawal of the drug from the market.
The FDA and foreign regulatory agencies may change their policies and additional government
regulations may be enacted that could prevent or delay regulatory approval of our drug candidates.
We cannot predict the likelihood, nature or extent of adverse government regulation that may arise
from future legislation or administrative action, either in the United States or abroad. If we are
not able to maintain regulatory compliance, we might not be permitted to market our drugs and our
business would suffer.
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If physicians and patients do not accept our drugs, we may be unable to generate significant
revenue, if any.
Even if our drug candidates obtain regulatory approval, the resulting drugs, if any, may not
gain market acceptance among physicians, healthcare payors, patients and the medical community.
Even if the clinical safety and efficacy of drugs developed from our drug candidates are
established for purposes of approval, physicians may elect not to recommend these drugs for a
variety of reasons including, but not limited to:
| introduction of competitive drugs to the market; |
| clinical safety and efficacy of alternative drugs or treatments; |
| cost-effectiveness; |
| availability of coverage and reimbursement from health maintenance organizations and other third-party payors; |
| convenience and ease of administration; |
| prevalence and severity of adverse side effects; |
| other potential disadvantages relative to alternative treatment methods; or |
| insufficient marketing and distribution support. |
If our drugs fail to achieve market acceptance, we may not be able to generate significant
revenue and our business would suffer.
The coverage and reimbursement status of newly approved drugs is uncertain and failure to obtain
adequate coverage and reimbursement could limit our ability to market any drugs we may develop and
decrease our ability to generate revenue.
Even if one or more of our drug candidates is approved for sale, the commercial success of our
drugs in both domestic and international markets will be substantially dependent on whether
third-party coverage and reimbursement is available for our drugs by the medical profession for use
by their patients, which is highly uncertain. Medicare, Medicaid, health maintenance organizations
and other third-party payors are increasingly attempting to contain healthcare costs by limiting
both coverage and the level of reimbursement of new drugs. As a result, they may not cover or
provide adequate payment for our drugs. They may not view our drugs as cost-effective and
reimbursement may not be available to consumers or may be insufficient to allow our drugs to be
marketed on a competitive basis. If we are unable to obtain adequate coverage and reimbursement for
our drugs, our ability to generate revenue will be adversely affected. Likewise, current and future
legislative or regulatory efforts to control or reduce healthcare costs or reform government
healthcare programs, such as the Patient Protection Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010, could result in lower prices or rejection of coverage and
reimbursement for our potential drugs. Changes in coverage and reimbursement policies or healthcare
cost containment initiatives that limit or restrict reimbursement for any of our drug candidates
that are approved could cause our potential future revenues to decline.
We may be subject to costly product liability or other liability claims and may not be able to
obtain adequate insurance.
The use of our drug candidates in clinical trials may result in adverse effects. We cannot
predict all the possible harms or adverse effects that may result from our clinical trials. We
currently maintain limited product liability insurance. We may not have sufficient resources to pay
for any liabilities resulting from a personal injury or other claim excluded from, or beyond the
limit of, our insurance coverage. Our insurance does not cover third parties negligence or
malpractice, and our clinical investigators and sites may have inadequate insurance or none at all.
In addition, in order to conduct clinical trials or otherwise carry out our business, we may have
to contractually assume liabilities for which we may not be insured. If we are unable to look to
our own or a third partys insurance to pay claims against us, we may have to pay any arising costs
and damages ourselves, which may be substantial.
In addition, if we commercially launch drugs based on our drug candidates, we will face even
greater exposure to product liability claims. This risk exists even with respect to those drugs
that are approved for commercial sale by the FDA and foreign regulatory agencies and manufactured
in licensed and regulated facilities. We intend to secure additional limited product liability
insurance coverage for drugs that we commercialize, but may not be able to obtain such insurance on
acceptable terms with adequate coverage,
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or at reasonable costs. Even if we are ultimately successful in product liability litigation,
the litigation would consume substantial amounts of our financial and managerial resources and may
create adverse publicity, all of which would impair our ability to generate sales of the affected
product and our other potential drugs. Moreover, product recalls may be issued at our discretion or
at the direction of the FDA and foreign regulatory agencies, other governmental agencies or other
companies having regulatory control for drug sales. Product recalls are generally expensive and
often have an adverse effect on the reputation of the drugs being recalled and of the drugs
developer or manufacturer.
We may be required to indemnify third parties against damages and other liabilities arising
out of our development, commercialization and other business activities, which could be costly and
time-consuming and distract management. If third parties that have agreed to indemnify us against
damages and other liabilities arising from their activities do not fulfill their obligations, then
we may be held responsible for those damages and other liabilities.
To the extent we elect to fund the development of a drug candidate or the commercialization of a
drug at our expense, we will need substantial additional funding.
The discovery, development and commercialization of new drugs is costly. As a result, to the
extent we elect to fund the development of a drug candidate or the commercialization of a drug, we
will need to raise additional capital to:
| expand our research and development capabilities; |
| fund clinical trials and seek regulatory approvals; |
| build or access manufacturing and commercialization capabilities; |
| implement additional internal systems and infrastructure; |
| maintain, defend and expand the scope of our intellectual property; and |
| hire and support additional management and scientific personnel. |
Our future funding requirements will depend on many factors, including, but not limited to:
| the rate of progress and costs of our clinical trials and other research and development activities; |
| the costs and timing of seeking and obtaining regulatory approvals; |
| the costs associated with establishing manufacturing and commercialization capabilities; |
| the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; |
| the costs of acquiring or investing in businesses, products and technologies; |
| the effect of competing technological and market developments; and |
| the status of, payment and other terms, and timing of any strategic alliance, licensing or other arrangements that we have entered into or may establish. |
Until we can generate a sufficient amount of product revenue to finance our cash requirements,
which we may never do, we expect to continue to finance our future cash needs primarily through
strategic alliances, public or private equity offerings and debt financings. We cannot be certain
that additional funding will be available on acceptable terms, or at all. If we are not able to
secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one
or more of our clinical trials or research and development programs or future commercialization
initiatives.
Responding to any claims relating to improper handling, storage or disposal of the hazardous
chemicals and radioactive and biological materials we use in our business could be time-consuming
and costly.
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Our research and development processes involve the controlled use of hazardous materials,
including chemicals and radioactive and biological materials. Our operations produce hazardous
waste products. We cannot eliminate the risk of accidental contamination or discharge and any
resultant injury from those materials. Federal, state and local laws and regulations govern the
use, manufacture, storage, handling and disposal of hazardous materials. We may be sued for any
injury or contamination that results from our or third parties use of these materials. Compliance
with environmental laws and regulations is expensive, and current or future environmental
regulations may impair our research, development and production activities.
Our facilities in California are located near an earthquake fault, and an earthquake or other
types of natural disasters, catastrophic events or resource shortages could disrupt our operations
and adversely affect our results.
All of our facilities and our important documents and records, such as hard copies of our
laboratory books and records for our drug candidates and compounds and our electronic business
records, are located in our corporate headquarters at a single location in South San Francisco,
California near active earthquake zones. If a natural disaster, such as an earthquake or flood, a
catastrophic event such as a disease pandemic or terrorist attack, or a localized extended outage
of critical utilities or transportation systems occurs, we could experience a significant business
interruption. Our partners and other third parties on which we rely may also be subject to business
interruptions from such events. In addition, California from time to time has experienced shortages
of water, electric power and natural gas. Future shortages and conservation measures could disrupt
our operations and cause expense, thus adversely affecting our business and financial results.
Risks Related To an Investment in Our Securities
We expect that our stock price will fluctuate significantly, and you may not be able to resell
your shares at or at or above your investment price.
The stock market, particularly in recent years, has experienced significant volatility,
particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks,
which often does not relate to the operating performance of the companies represented by the stock.
Factors that could cause volatility in the market price of our common stock include, but are not
limited to:
| announcements concerning any of the clinical trials for our compounds, such as omecamtiv mecarbil for heart failure and CK-2017357 for the potential treatment of diseases associated with aging, muscle wasting and neuromuscular dysfunction (including, but not limited to, the timing of initiation or completion of such trials and the results of such trials, and delays or discontinuations of such trials, including delays resulting from slower than expected or suspended patient enrollment or discontinuations resulting from a failure to meet pre-defined clinical end-points); |
| announcements concerning our strategic alliance with Amgen or future strategic alliances; |
| failure or delays in entering additional drug candidates into clinical trials; |
| failure or discontinuation of any of our research programs; |
| issuance of new or changed securities analysts reports or recommendations; |
| failure or delay in establishing new strategic alliances, or the terms of those alliances; |
| market conditions in the pharmaceutical, biotechnology and other healthcare-related sectors; |
| actual or anticipated fluctuations in our quarterly financial and operating results; |
| developments or disputes concerning our intellectual property or other proprietary rights; |
| introduction of technological innovations or new products by us or our competitors; |
| issues in manufacturing our drug candidates or drugs; |
| market acceptance of our drugs; |
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| third-party healthcare coverage and reimbursement policies; |
| FDA or other U.S. or foreign regulatory actions affecting us or our industry; |
| litigation or public concern about the safety of our drug candidates or drugs; |
| additions or departures of key personnel; |
| substantial sales of our common stock by our existing shareholders, whether or not related to our performance; and |
| volatility in the stock prices of other companies in our industry or in the stock market generally. |
These and other external factors may cause the market price and demand for our common stock to
fluctuate substantially, which may limit or prevent investors from readily selling their shares of
common stock and may otherwise negatively affect the liquidity of our common stock. In addition,
when the market price of a stock has been volatile, holders of that stock have instituted
securities class action litigation against the company that issued the stock. If any of our
stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit.
Such a lawsuit could also divert our managements time and attention.
If the ownership of our common stock continues to be highly concentrated, it may prevent you and
other stockholders from influencing significant corporate decisions and may result in conflicts of
interest that could cause our stock price to decline.
As of July 29, 2011, our executive officers, directors and their affiliates beneficially owned
or controlled approximately 12.8% of the outstanding shares of our common stock (after
giving effect to the exercise of all outstanding vested and unvested options and warrants).
Accordingly, these executive officers, directors and their affiliates, acting as a group, will have
substantial influence over the outcome of corporate actions requiring stockholder approval,
including the election of directors, any merger, consolidation or sale of all or substantially all
of our assets or any other significant corporate transactions. These stockholders may also delay or
prevent a change of control of us, even if such a change of control would benefit our other
stockholders. The significant concentration of stock ownership may adversely affect the trading
price of our common stock due to investors perception that conflicts of interest may exist or
arise.
Volatility in the stock prices of other companies may contribute to volatility in our stock price.
The stock market in general, and the NASDAQ Global Market (NASDAQ) and the market for
technology companies in particular, have experienced significant price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of those companies.
Further, there has been particular volatility in the market prices of securities of early stage and
development stage life sciences companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a companys securities, securities class
action litigation has often been instituted. A securities class action suit against us could result
in substantial costs, potential liabilities and the diversion of managements attention and
resources, and could harm our reputation and business.
Our common stock is thinly traded and there may not be an active, liquid trading market for our
common stock.
There is no guarantee that an active trading market for our common stock will be maintained on
NASDAQ, or that the volume of trading will be sufficient to allow for timely trades. Investors may
not be able to sell their shares quickly or at the latest market price if trading in our stock is
not active or if trading volume is limited. In addition, if trading volume in our common stock is
limited, trades of relatively small numbers of shares may have a disproportionate effect on the
market price of our common stock.
Evolving regulation of corporate governance and public disclosure may result in additional
expenses, use of resources and continuing uncertainty.
Changing laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 and new Securities and Exchange Commission (SEC) regulations and
NASDAQ Stock Market LLC rules are creating uncertainty for public companies. We are presently
evaluating and monitoring developments with respect to new and proposed rules and cannot predict or
estimate the amount of the additional costs we may incur or the timing of these costs. For example,
compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act has to
date required the commitment of significant resources to document and test the
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adequacy of our internal control over financial reporting. We can provide no assurance as to
conclusions of management or by our independent registered public accounting firm with respect to
the effectiveness of our internal control over financial reporting in the future. In addition, the
SEC has adopted regulations that will require us to file corporate financial statement information
in a new interactive data format known as XBRL beginning in 2011. We may incur significant costs
and need to invest considerable resources to implement and to remain in compliance with these new
requirements.
These new or changed laws, regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices. We intend to maintain high standards of corporate
governance and public disclosure. As a result, we intend to invest the resources necessary to
comply with evolving laws, regulations and standards, and this investment may result in increased
general and administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities. If our efforts to comply with new or
changed laws, regulations and standards differ from the activities intended by regulatory or
governing bodies, due to ambiguities related to practice or otherwise, regulatory authorities may
initiate legal proceedings against us, which could be costly and time-consuming, and our reputation
and business may be harmed.
We have never paid dividends on our capital stock, and we do not anticipate paying any cash
dividends in the foreseeable future.
We have paid no cash dividends on any of our classes of capital stock to date and we currently
intend to retain our future earnings, if any, to fund the development and growth of our businesses.
In addition, the terms of existing or any future debts may preclude us from paying these dividends.
Our common stock may be at risk for delisting from NASDAQ in the future. Delisting could
adversely affect the liquidity of our common stock and the market price of our common stock could
decrease.
Our common stock is currently listed on NASDAQ. The NASDAQ Stock Market LLC has minimum
requirements that a company must meet in order to remain listed on NASDAQ. These requirements
include maintaining a minimum closing bid price of $1.00 per share. Although the trading price of
our common stock is currently above $1.00 per share, there can be no assurance that we will
continue to meet this, or any other, requirement in the future, and, if we do not, it is possible
that The NASDAQ Stock Market LLC may notify us that we have failed to meet the minimum listing
requirements and initiate the delisting process. If our common stock were to be delisted, the
liquidity of our common stock would be adversely affected and the market price of our common stock
could decrease.
Our stockholders will experience substantial additional dilution if shares of our preferred stock
are converted into common stock.
As of the date of this report, there are 8,070 shares of our Series A Convertible Preferred
Stock outstanding, which is convertible, without payment of additional consideration, into
8,070,000 shares of our common stock. The conversion of the outstanding shares of our Series A
Convertible Preferred Stock into common stock would be substantially dilutive to the outstanding
shares of common stock. Any dilution or potential dilution may cause our stockholders to sell their
shares, which would contribute to a downward movement in the stock price of our common stock.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | RESERVED |
ITEM 5. | OTHER INFORMATION |
None.
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ITEM 6. | EXHIBITS |
Exhibit | ||
Number | Exhibit Description | |
3.1(1)
|
Amended and Restated Certificate of Incorporation. | |
3.2
|
Certificate of Amendment of Amended and Restated Certificate of Incorporation. | |
3.3(2)
|
Amended and Restated Bylaws. | |
3.4(3)
|
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock. | |
4.1(4)
|
Specimen Common Stock Certificate. | |
4.2(5)
|
Registration Rights Agreement, dated as of December 29, 2006, by and between the Company and Amgen Inc. | |
4.3(3)
|
Form of Warrant to Purchase Common Stock of Cytokinetics, Inc. | |
10.2
|
2004 Equity Incentive Plan, as amended. | |
10.67(3)
|
Securities Purchase Agreement, dated April 18, 2011, between the Company and Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited. | |
10.68(6)
|
At the Market Issuance Sales Agreement, dated June 10, 2011, between the Company and McNicoll, Lewis & Vlak LLC. | |
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). | |
101.INS *
|
XBRL Instance Document. | |
101.SCH *
|
XBRL Taxonomy Extension Schema Document. | |
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
(1) | Incorporated by reference from our registration statement on Form S-3, registration number 333-174869, declared effective by the Securities and Exchange Commission on June 23, 2011. | |
(2) | Incorporated by reference from our registration statement on Form S-1, registration number 333-112261, declared effective by the Securities and Exchange Commission on April 29, 2004. | |
(3) | Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 18, 2011. | |
(4) | Incorporated by reference from our Quarterly Report on Form 10-Q, filed with the Security and Exchange Commission on May 9, 2007. | |
(5) | Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 3, 2007. |
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(6) | Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 13, 2011. | |
* | Furnished herewith. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 4, 2011 |
||||
CYTOKINETICS, INCORPORATED (Registrant) |
||||
/s/ Robert I. Blum | ||||
Robert I. Blum | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
/s/ Sharon A. Barbari | ||||
Sharon A. Barbari | ||||
Executive Vice President, Finance and Chief Financial Officer (Principal Financial Officer) |
||||
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EXHIBIT INDEX
Exhibit | ||
Number | Exhibit Description | |
3.1(1)
|
Amended and Restated Certificate of Incorporation. | |
3.2
|
Certificate of Amendment of Amended and Restated Certificate of Incorporation. | |
3.3(2)
|
Amended and Restated Bylaws. | |
3.4(3)
|
Certificate of Designation of Preferences, Rights and Limitations of Series A convertible Preferred Stock. | |
4.1(4)
|
Specimen Common Stock Certificate. | |
4.2(5)
|
Registration Rights Agreement, dated as of December 29, 2006, by and between the Company and Amgen Inc. | |
4.3(3)
|
Form of Warrant to Purchase Common Stock of Cytokinetics, Inc. | |
10.2
|
2004 Equity Incentive Plan, as amended. | |
10.67(3)
|
Securities Purchase Agreement, dated April 18, 2011, between the Company and Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield Special Situations Fund, L.P., and Deerfield Special Situations Fund International Limited. | |
10.68(6)
|
At the Market Issuance Sales Agreement, dated June 10, 2011, between the Company and McNicoll, Lewis & Vlak LLC. | |
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). | |
101.INS *
|
XBRL Instance Document. | |
101.SCH *
|
XBRL Taxonomy Extension Schema Document. | |
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
(1) | Incorporated by reference from our registration statement on Form S-3, registration number 333-174869, declared effective by the Securities and Exchange Commission on June 23, 2011. | |
(2) | Incorporated by reference from our registration statement on Form S-1, registration number 333-112261, declared effective by the Securities and Exchange Commission on April 29, 2004. | |
(3) | Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 18, 2011. | |
(4) | Incorporated by reference from our Quarterly Report on Form 10-Q, filed with the Security and Exchange Commission on May 9, 2007. | |
(5) | Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 3, 2007. |
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(6) | Incorporated by reference from our Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 13, 2011. | |
* | Furnished herewith. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
50