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EX-32.1 - EX-32.1 - CYTOKINETICS INCcytk-ex321_7.htm
EX-31.3 - EX-31.3 - CYTOKINETICS INCcytk-ex313_6.htm
EX-31.2 - EX-31.2 - CYTOKINETICS INCcytk-ex312_8.htm
EX-31.1 - EX-31.1 - CYTOKINETICS INCcytk-ex311_10.htm
EX-10.1 - EX-10.1 - CYTOKINETICS INCcytk-ex101_331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 000-50633

 

CYTOKINETICS, INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Delaware

94-3291317

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

280 East Grand Avenue

South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s 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      No  

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      No  

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

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

◻  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Number of shares of common stock, $0.001 par value, outstanding as of October 27, 2017: 53,884,669

 


CYTOKINETICS, INCORPORATED

TABLE OF CONTENTS FOR FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2017

 

 

Page

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 (Unaudited)

3

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2017 and 2016 (Unaudited)

4

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (Unaudited)

5

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. Controls and Procedures

34

 

 

PART II. OTHER INFORMATION

36

Item 1. Legal Proceedings

36

Item 1A. Risk Factors

36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3. Defaults Upon Senior Securities

58

Item 4. Mine Safety Disclosures

58

Item 5. Other Information

58

Item 6. Exhibits

59

 

 

EXHIBIT INDEX

60

SIGNATURES

61

 

 

 

2


 PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data) (Unaudited)

 

 

 

September 30, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

116,320

 

 

$

66,874

 

Short-term investments

 

 

191,247

 

 

 

89,375

 

Accounts receivable

 

 

10,000

 

 

 

24

 

Prepaid and other current assets

 

 

4,420

 

 

 

2,360

 

Total current assets

 

 

321,987

 

 

 

158,633

 

Long-term investments

 

 

583

 

 

 

7,672

 

Property and equipment, net

 

 

3,294

 

 

 

3,637

 

Other assets

 

 

449

 

 

 

200

 

Total assets

 

$

326,313

 

 

$

170,142

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,079

 

 

$

4,236

 

Accrued liabilities

 

 

18,455

 

 

 

18,047

 

Deferred revenue, current

 

 

9,570

 

 

 

8,060

 

Current portion of long-term debt

 

 

9,829

 

 

 

2,500

 

Other current liabilities

 

 

424

 

 

 

415

 

Total current liabilities

 

 

42,357

 

 

 

33,258

 

Long-term debt, net

 

 

20,471

 

 

 

27,381

 

Liability related to the sale of future royalties, net

 

 

100,575

 

 

 

 

Deferred revenue, non-current

 

 

15,872

 

 

 

15,000

 

Other long-term liabilities

 

 

 

 

 

142

 

Total liabilities

 

 

179,275

 

 

 

75,781

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value:

 

 

 

 

 

 

 

 

Authorized: 10,000,000 shares;

 

 

 

 

 

 

 

 

Issued and outstanding: Series A Convertible Preferred Stock — zero shares at

   September 30, 2017 and December 31, 2016

 

 

 

 

 

Common stock, $0.001 par value:

 

 

 

 

 

 

 

 

Authorized: 163,000,000 shares;

 

 

 

 

 

 

 

 

Issued and outstanding: 53,862,617 shares at September 30, 2017 and 40,646,595

   shares at December 31, 2016

 

 

54

 

 

 

41

 

Additional paid-in capital

 

 

752,154

 

 

 

612,474

 

Accumulated other comprehensive income

 

 

426

 

 

 

137

 

Accumulated deficit

 

 

(605,596

)

 

 

(518,291

)

Total stockholders’ equity

 

 

147,038

 

 

 

94,361

 

Total liabilities and stockholders’ equity

 

$

326,313

 

 

$

170,142

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands, except per share data) (Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, grant and other revenues, net

 

$

5,862

 

 

$

6,014

 

 

$

6,680

 

 

$

14,313

 

License revenues

 

 

318

 

 

 

53,033

 

 

 

6,706

 

 

 

58,956

 

Total revenues

 

 

6,180

 

 

 

59,047

 

 

 

13,386

 

 

 

73,269

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

24,947

 

 

 

17,865

 

 

 

64,045

 

 

 

41,121

 

General and administrative

 

 

9,657

 

 

 

7,217

 

 

 

26,210

 

 

 

21,149

 

Total operating expenses

 

 

34,604

 

 

 

25,082

 

 

 

90,255

 

 

 

62,270

 

Operating (loss) income

 

 

(28,424

)

 

 

33,965

 

 

 

(76,869

)

 

 

10,999

 

Interest expense

 

 

(806

)

 

 

(714

)

 

 

(2,346

)

 

 

(1,985

)

Non-cash interest expense on liability related to sale of future royalties

 

 

(3,906

)

 

 

 

 

 

(9,918

)

 

 

 

Interest and other income, net

 

 

779

 

 

 

111

 

 

 

1,828

 

 

 

282

 

Net (loss) income before income taxes

 

 

(32,357

)

 

 

33,362

 

 

 

(87,305

)

 

 

9,296

 

Income tax benefit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net (loss) income

 

$

(32,357

)

 

$

33,362

 

 

$

(87,305

)

 

$

9,296

 

Net (loss) income per share - basic

 

$

(0.60

)

 

$

0.84

 

 

$

(1.82

)

 

$

0.23

 

Net (loss) income per share - diluted

 

$

(0.60

)

 

$

0.77

 

 

$

(1.82

)

 

$

0.22

 

Weighted-average number of shares used in computing net (loss) income per

   share — basic

 

 

53,719

 

 

 

39,926

 

 

 

47,879

 

 

 

39,729

 

Weighted-average number of shares used in computing net (loss) income per

   share — diluted

 

 

53,719

 

 

 

43,217

 

 

 

47,879

 

 

 

42,247

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities, net

 

 

512

 

 

 

23

 

 

 

289

 

 

 

103

 

Comprehensive (loss) income

 

$

(31,845

)

 

$

33,385

 

 

$

(87,016

)

 

$

9,399

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(87,305

)

 

$

9,296

 

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation of property and equipment

 

 

1,310

 

 

 

517

 

(Gain) loss on disposal of equipment

 

 

(82

)

 

 

1

 

Stock-based compensation

 

 

6,588

 

 

 

5,266

 

Non-cash interest expense related to long-term debt

 

 

418

 

 

 

395

 

Non-cash interest expense on liability related to sale of future royalties

 

 

9,954

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,976

)

 

 

(66,988

)

Prepaid and other assets

 

 

(2,308

)

 

 

(922

)

Accounts payable

 

 

1,462

 

 

 

(1,334

)

Accrued and other liabilities

 

 

(132

)

 

 

7,647

 

Deferred revenue

 

 

2,383

 

 

 

5,275

 

Net cash used in operating activities

 

 

(77,688

)

 

 

(40,847

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(214,457

)

 

 

(79,969

)

Proceeds from sales and maturities of investments

 

 

119,963

 

 

 

70,572

 

Proceeds from sale of property and equipment

 

 

-

 

 

 

33

 

Purchases of property and equipment

 

 

(2,097

)

 

 

(742

)

Net cash used in investing activities

 

 

(96,591

)

 

 

(10,106

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offerings of common stock, net of issuance costs

 

 

112,224

 

 

 

 

Proceeds from sale of future royalties, net of issuance costs

 

 

90,621

 

 

 

 

Proceeds from issuance of common stock related to sale of future royalties,

   net of issuance costs

 

 

7,560

 

 

 

 

Proceeds from long term debt, net of debt discount and issuance costs

 

 

-

 

 

 

14,996

 

Proceeds from stock based award activities and warrants, net

 

 

13,320

 

 

 

1,181

 

Net cash provided by financing activities

 

 

223,725

 

 

 

16,177

 

Net increase (decrease) in cash and cash equivalents

 

 

49,446

 

 

 

(34,776

)

Cash and cash equivalents, beginning of period

 

 

66,874

 

 

 

65,076

 

Cash and cash equivalents, end of period

 

$

116,320

 

 

$

30,300

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


CYTOKINETICS, INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization and Significant Accounting Policies

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 late 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’s financial statements contemplate the conduct of the Company’s operations in the normal course of business. The Company has incurred an accumulated deficit of $605.6 million since inception and there can be no assurance that the Company will attain profitability. The Company had a net loss of $87.3 million and net cash used in operations of $77.7 million for the nine months ended September 30, 2017. Cash, cash equivalents and investments increased to $308.2 million at September 30, 2017 from $163.9 million at December 31, 2016. The Company anticipates that it will have operating losses and net cash outflows in future periods.

The Company is subject to risks common to late stage biopharmaceutical companies including, but not limited to, development of new drug candidates, dependence on key personnel, and the ability to obtain additional capital as needed to fund its future plans. The Company’s liquidity will be impaired if sufficient additional capital is not available on terms acceptable to the Company. To date, the Company has funded its operations primarily through sales of its common stock, contract payments under its collaboration agreements, sale of future royalties, debt financing arrangements, sales of its convertible preferred stock, 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, grants and debt financings. The Company has never generated revenues from commercial sales of its drugs and may not have drugs to market for at least several years, if ever. The Company’s success is dependent on its ability to enter into new strategic collaborations and/or raise additional capital and to successfully develop and market one or more of its drug candidates. As a result, the Company may choose to raise additional capital through equity or debt financings to continue to fund its operations in the future. The Company cannot be certain that sufficient funds will be available from such a financing or through a collaborator when required or on satisfactory terms. Additionally, there can be no assurance that the Company’s drug candidates will be accepted in the marketplace or that any future products can be developed or manufactured at an acceptable cost. These factors could have a material adverse effect on the Company’s future financial results, financial position and cash flows.

Based on the current status of its research and development plans, the Company believes that its existing cash, cash equivalents and investments will be sufficient to fund its cash requirements for at least the next 12 months, from the filing date of this Quarterly Report on Form 10-Q. If, at any time, the Company’s 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. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Presentation

The condensed consolidated financial statements include the accounts of Cytokinetics and its wholly owned subsidiary. The accompanying unaudited condensed consolidated 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. The financial statements include all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair statement of the Company’s position at September 30, 2017, and the results of operations for the three and nine months ended September 30, 2017 and the cash flows for the nine months ended September 30, 2017. 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, 2016 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. 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

6


with the audited financial statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 6, 2017.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

The Company accounts for stock-based payment awards made to employees and directors, including employee stock options and employee stock purchases by measuring the stock-based compensation cost at the grant date based on the calculated fair value of the award, and recognizing expense on a straight-line basis over the employee’s requisite service period, generally the vesting period of the award. Stock compensation for non-employees is measured at the fair value of the award for each period until the award is fully vested. Compensation cost for restricted stock awards that contain performance conditions is based on the grant date fair value of the award and compensation expense is recorded over the implicit or explicit requisite service period based on management’s best estimate as to whether it is probable that the shares awarded are expected to vest.

The Company reviews the valuation assumptions at each grant date and, as a result, from time to time it will likely change the valuation assumptions it uses to value stock based awards granted in future periods. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates at the time, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if conditions change and the management uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company will continue to maintain the current forfeiture policy to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If the actual forfeiture rate is materially different from management’s estimate, stock-based compensation expense could be significantly different from what has been recorded in the current period.

Non-Cash Interest Expense on Liability Related to Sale of Future Royalties

The Company accounted for the Liability related to sale of future royalties as a debt financing for accounting purposes, to be amortized under the effective interest rate method over the life of the related royalty stream when the Company has a significant continuing involvement in the generation of royalty streams.

 

          Liability related to sale of future royalties and the debt amortization are based on the Company’s current estimates of future royalties expected to be paid over the life of the arrangement. The Company will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent the Company’s future estimates of future royalty payments are greater or less than its previous estimates or the estimated timing of such payments is materially different than its previous estimates, the Company will adjust the Liability related to sale of future royalties and prospectively recognize related non-cash interest expense.

Prior Year’s Presentations

Certain amounts in the prior year’s presentations have been reclassified to conform to the current presentation. These reclassifications had no effect on previously reported net income.

Recent Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. The Company does not expect the adoption of this guidance to have a material impact on its financial statements or disclosures.

In August 2016, the FASB issued ASU 2016-15, ‘Statement of cash flows (Topic 230): Classification of certain cash receipts and cash payments’. ASU 2016-15 issued guidance to clarify how certain cash receipts and payments should be presented in the statement of cash flows. ASU 2016-15 is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company does not expect the adoption of this standard to have a material effect on its financial statements or disclosures.

7


In June 2016, the FASB issued ASU 2016-13, ‘Financial Instruments — Credit Losses — Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019. The Company is in the process of evaluating the impact the adoption of this standard would have on its financial statements and disclosures.

In March 2016, the FASB issued ASU No. 2016-09 — Improvements to Employee Share-Based Payment Accounting which simplifies various aspects of accounting for share-based payments and presentation in the financial statements. ASU 2016-09 is effective for annual and interim reporting periods beginning after December 15, 2016 and early adoption is permitted. During the three months ended March 31, 2017, the Company adopted ASU No. 2016-09 on a modified retrospective approach. The guidance requires us to recognize all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and recognize previously unrecognized excess tax benefits upon adoption as a cumulative-effect adjustment in retained earnings, which eliminates the need to track unrecognized excess tax benefits for both new and existing awards. As of January 1, 2017, the Company recognized excess tax benefit of $0.7 million as an increase to deferred tax assets related to tax loss carryover. However, the entire amount was offset by a full valuation allowance. Accordingly, no cumulative-effect adjustment to retained earnings was recorded as of September 30, 2017. The Company will maintain its current forfeiture policy to estimate forfeitures expected to occur to determine stock-based compensation expense. The adoption of this aspect of the guidance did not have a material impact on our financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires management to record right-to-use asset and lease liability on the statement of financial position for operating leases. ASU 2016-02 is effective for annual and interim reporting periods beginning on or after December 15, 2018 and the modified retrospective approach is required. The Company is in the process of evaluating the impact the adoption of this standard would have on its financial statements and disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial instruments (Subtopic 825-10). ASU 2016-01 requires management to measure equity investments at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for annual and interim reporting periods beginning on or after December 15, 2017 and early adoption is not permitted. The Company does not expect the adoption of ASU 2016-01 to have a material effect upon its financial statements or disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016, the FASB amended the principal-versus-agent implementation guidance and illustrations in the new standard. In April 2016, the FASB amended the guidance on identifying performance obligations and the implementation guidance on licensing in the new standard. In May 2016, the FASB amended the guidance on collectability, noncash consideration, presentation of sales tax and transition in the new standard. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU 2014-09. The new standard will become effective starting on January 1, 2018. Early application is permitted to the original effective date of January 1, 2017. The Company will adopt the standard on January 1, 2018. The standard permits the use of either the modified retrospective method or full retrospective approach for all periods presented. The Company currently anticipates adopting the standard using the modified retrospective method. The Company is still in the process of completing its analysis on the impact this guidance will have on its consolidated financial statements and related disclosures.

 

8


Note 2 — Net Loss Per Share

The following is the calculation of basic and diluted net (loss) income per share (in thousands, except per share data):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

Net (loss) income

 

$

(32,357

)

 

$

33,362

 

 

$

(87,305

)

 

$

9,296

 

Weighted-average shares used in computing net (loss) income per share - basic

 

 

53,719

 

 

 

39,926

 

 

 

47,879

 

 

 

39,729

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

 

 

 

 

2,395

 

 

 

 

 

 

1,942

 

Employee stock options

 

 

 

 

 

622

 

 

 

 

 

 

376

 

Restricted stock options

 

 

 

 

 

266

 

 

 

 

 

 

196

 

Employee stock purchase plan

 

 

 

 

 

8

 

 

 

 

 

 

4

 

Dilutive potential common shares

 

 

 

 

 

3,291

 

 

 

 

 

 

2,518

 

Weighted-average shares used in computing net (loss) income per share - diluted

 

 

53,719

 

 

 

43,217

 

 

 

47,879

 

 

 

42,247

 

Net loss per share — basic

 

$

(0.60

)

 

$

0.84

 

 

$

(1.82

)

 

$

0.23

 

Net loss per share — diluted

 

$

(0.60

)

 

$

0.77

 

 

$

(1.82

)

 

$

0.22

 

 

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of vested common shares outstanding during the period. Diluted net (loss) income per share is computed by giving effect to all potentially dilutive common shares, including outstanding stock options, unvested restricted stock units, warrants, and shares issuable under the Company’s Employee Stock Purchase Plan (“ESPP”), by applying the treasury stock method, if they have a dilutive effect. The following instruments were excluded from the computation of diluted net (loss) income per share because their effect would have been antidilutive (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

September 30, 2016

 

Options to purchase common stock

 

 

6,020

 

 

 

1,999

 

 

 

6,020

 

 

3,709

 

Warrants to purchase common stock

 

 

100

 

 

 

 

 

 

100

 

 

 

Restricted and Performance stock units

 

 

459

 

 

 

 

 

 

459

 

 

 

Shares issuable related to the ESPP

 

 

41

 

 

 

 

 

 

41

 

 

 

Total shares

 

 

6,620

 

 

 

1,999

 

 

 

6,620

 

 

3,709

 

 

Note 3 — Supplemental Cash Flow Data

Supplemental cash flow data was as follows (in thousands):

 

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

Cash paid for interest

 

$

1,921

 

 

$

1,527

 

Cash paid for taxes

 

 

1

 

 

 

1

 

Significant non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Debt discount netted against proceeds from long term debt,

   recorded in equity

 

 

 

 

288

 

Interest paid on the long-term debt, at inception

 

 

 

 

63

 

Purchases of property and equipment through accounts

   payable

 

 

557

 

 

 

237

 

Purchases of property and equipment through accrued

   liabilities

 

 

573

 

 

 

(343

)

 

9


Note 4 — Research and Development Arrangements

Amgen Inc. (“Amgen”)

The Company and Amgen continue activities to discover, develop and commercialize novel small molecule therapeutics, including omecamtiv mecarbil, that activate cardiac muscle contractility for potential applications in the treatment of heart failure under the collaboration and option agreement between the Company and Amgen, as amended (the “Amgen Agreement”). The Company has recognized research and development revenue from Amgen for reimbursements of internal costs of certain full-time employee equivalents, supporting a collaborative research program directed to the discovery of next-generation cardiac sarcomere activator compounds and the development program for omecamtiv mecarbil, and other costs related to the research and development program.

 The Company provided notice to Amgen of its exercise of its option under the Amgen Agreement to fully co-invest $40.0 million in the Phase 3 development program of omecamtiv mecarbil in exchange for a total incremental royalty from Amgen of up to 4% on increasing worldwide sales of omecamtiv mecarbil outside Japan.

The Company made co-investment payments of $6.3 million and $13.8 million during the three and nine months ended September 30, 2017, respectively. Because these payments are contingent on Amgen continuing the Phase 3 development program of omecamtiv mecarbil and the benefit to be received in exchange for the payments is not sufficiently separable from the Amgen Agreement the Company reduced research and development revenues by the amount of these payments.

Revenue from Amgen was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

Research and development revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reimbursement of internal costs

 

$

-

 

 

$

616

 

 

$

1,279

 

 

$

1,849

 

Research and development milestone fees

 

 

10,000

 

 

 

 

 

 

10,000

 

 

 

 

Co-investment option payment

 

 

(6,250

)

 

 

 

 

 

(13,750

)

 

 

 

Total revenues from Amgen

 

$

3,750

 

 

$

616

 

 

$

(2,471

)

 

$

1,849

 

 

As of September 30, 2017, there was $10.0 million accounts receivables due from Amgen in connection with the development milestone describe below  and no accounts receivables due from Amgen as of December 31, 2016.

 

In September 2017, the Company recognized $10.0 million for a development milestone related to the start of GALACTIC-HF in Japan, the Phase 3 cardiovascular outcomes clinical trial of omecamtiv mecarbil which is being conducted by Amgen. Under the Amgen Agreement, the Company is eligible to receive over $300.0 million in additional development milestone payments which are based on various clinical milestones, including the initiation of certain clinical studies, the submission of an application for marketing authorization for a drug candidate to certain regulatory authorities and the receipt of such approvals. Additionally, the Company is eligible to receive up to $300.0 million in commercial milestone payments provided certain sales targets are met. Due to the nature of drug development, including the inherent risk of development and approval of drug candidates by regulatory authorities, it is not possible to estimate if and when these milestone payments could be achieved or become due. The achievement of each of these milestones is dependent solely upon the results of Amgen’s development and commercialization activities. 

In 2013, in conjunction with the Amgen Agreement, the Company sold 1,404,100 shares of its common stock to Amgen, subject to certain trading restrictions. Prior to April 1, 2017, the Company considered Amgen to be a related party, due in part to Amgen’s equity ownership percentage, and reported revenue under the Amgen Agreement to be revenues from a related party. Effective April 1, 2017, in part due to a decrease in Amgen’s equity ownership percentage, the Company no longer considers Amgen to be a related party.

Astellas Pharma Inc. (“Astellas”)

The Company and Astellas continue activities focused on the research, development, and commercialization of skeletal muscle activators, including CK-2127107, as novel drug candidates for diseases and medical conditions associated with muscle weakness under the Amended and Restated License and Collaboration Agreement dated December 22, 2014, as amended (the “Astellas Agreement”).

10


The Company has recognized research and development revenue from Astellas for reimbursements of internal costs of certain full-time employee equivalents, supporting collaborative research and development programs, and of other costs related to those programs.

The Astellas Agreement expanded the existing exclusive license to include certain neuromuscular indications, such as spinal muscle atrophy (“SMA”), and Astellas paid the Company a $30 million non-refundable upfront license fee and a $15.0 million milestone payment relating to Astellas’ decision to advance CK-2127107 into Phase 2 clinical development. The Company determined that the license for the expanded SMA rights and the research and development services relating to the Astellas Agreement are a single unit of accounting as the license was determined to not have stand-alone value. Accordingly, the Company is recognizing this revenue over the research term of the Astellas Agreement using the proportional performance model.

In 2016, in connection with an amendment to the Astellas Agreement (the “2016 Astellas Amendment”), the 2016 Astellas Amendment futher expanded to include the development of CK-2127207 for the potential treatment of ALS, and Astellas paid the Company a $35.0 million non-refundable upfront amendment fee and an accelerated $15.0 million milestone payment for the initiation of the first Phase 2 clinical trial of CK-2127107 in ALS that was otherwise provided for in the Astellas Agreement, as if such milestone had been achieved upon the execution of the 2016 Astellas Amendment, and committed research and development consideration of $44.2 million (total consideration of $94.2 million), which the Company allocated between units of accounting for license fees and research and development services. The Company allocated $24.9 million of research and development consideration to the license and $19.3 million of the research and development consideration to research and development services, to be recognized as revenue as research and development services are performed.

The Company’s agreements with Astellas were further amended effective April 1, 2017 to adjust the payment mechanisms under these agreements because Astellas will also be incurring a portion of the development costs for ALS. This amendment had no effect on the accounting for these agreements.

 

Astellas’ Option on Tirasemtiv

In 2016, in connection with the 2016 Astellas Amendment, Astellas paid the Company a $15.0 million non-refundable option fee for an option for a global collaboration for the development and commercialization of tirasemtiv (the “Option on Tirasemtiv”). The Option on Tirasemtiv expires unless exercised following the receipt of the approval letter for tirasemtiv from the FDA.

Prior to Astellas’ exercise of the Option on Tirasemtiv, the Company will continue the development of tirasemtiv, including the conduct of VITALITY-ALS, at its own expense to support regulatory approval in the U.S., EU and certain other jurisdictions and will retain the final decision making authority on the development of tirasemtiv. Therefore, the Company concluded that there was no obligation related to any development services during the option period.

If Astellas exercises the Option on Tirasemtiv:

 

the Company will grant Astellas an exclusive license to develop and commercialize tirasemtiv outside the Company’s own commercialization territory of North America, Europe and other select countries under a license and collaboration agreement for tirasemtiv (the “License on Tirasemtiv”). Each party would be primarily responsible for the further development of tirasemtiv in its territory and have the exclusive right to commercialize tirasemtiv in its territory.

 

the Company will receive an option exercise payment ranging from $25.0 million (if exercise occurs following receipt of data from VITALITY-ALS) to $80.0 million (if exercise occurs following receipt of FDA approval) and a milestone payment of $30.0 million from Astellas associated with the Company’s initiation of the open-label extension trial for tirasemtiv (VIGOR-ALS). If Astellas exercises the option after the defined review period following receipt of data from VITALITY-ALS, Astellas will at the time of option exercise reimburse the Company for a share of any additional costs incurred after such review period.

 

the parties will share the future development costs of tirasemtiv in North America, Europe and certain other countries (with Cytokinetics bearing 75% of such shared costs and Astellas bearing 25% of such costs), and Astellas will be solely responsible for the development costs of tirasemtiv specific to its commercialization territory.

Contingent upon the successful development of tirasemtiv, the Company may receive from Astellas milestone payments up to $100.0 million for the initial indication and up to $50.0 million for each subsequent indication. If tirasemtiv is commercialized, Astellas will pay the Company royalties (at rates ranging from the mid-teens to twenty percent) on sales of tirasemtiv in Astellas’ territory, and the Company will pay Astellas royalties (at rates up to the mid-teens) on sales of tirasemtiv in the Company’s territory, in each case subject to various possible adjustments.

11


The Company concluded that the Option on Tirasemtiv is a substantive option, and is therefore not considered a deliverable at the execution of the 2016 Astellas Amendment. The Company determined that the License on Tirasemtiv is contingent upon the exercise of the Option on Tirasemtiv, and is therefore not effective during the periods presented, since the option has not been exercised as of the latest balance sheet date. In addition, the Company did evaluate the consideration set to be received for the License on Tirasemtiv in relation to the fair value of the License on Tirasemtiv, and determined that it was not being provided at a significant incremental discount.

The Company further determined that the option fee of $15.0 million was deemed to be a prepayment towards the License on Tirasemtiv, and therefore deferred revenue recognition of the option fee either until the Option on Tirasemtiv is exercised or expires unexercised. Unless exercised, the Option on Tirasemtiv expires following the receipt of the approval letter for tirasemtiv from the FDA. If the Option on Tirasemtiv expires unexercised, the $15.0 million received would be added to the 2016 Astellas Amendment consideration, to be allocated to the units of accounting.

Revenue and deferred revenue from Astellas

Research and development revenue from Astellas was as follows (in thousands):

 

 

 

Three Months

Ended

September 30,

2017

 

 

Three Months

Ended

September 30,

2016

 

 

Nine Months

Ended

September 30,

2017

 

 

Nine Months

Ended

September 30,

2016

 

License revenues

 

$

318

 

 

$

53,033

 

 

$

6,706

 

 

$

58,956

 

Research and development revenues

 

 

2,112

 

 

 

4,956

 

 

 

8,810

 

 

 

11,534

 

Total Revenue from Astellas

 

$

2,430

 

 

$

57,989

 

 

$

15,516

 

 

$

70,490

 

 

Deferred Revenue reflecting the unrecognized portion of the license fees, option fee and payment of expenses from Astellas was as follows (in thousands):

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Deferred revenue, current

 

$

9,570

 

 

$

8,060

 

Deferred revenue, non-current

 

$

15,872

 

 

$

15,000

 

 

There were no accounts receivable due from Astellas at September 30, 2017 and December 31, 2016. 

Under the Astellas Agreement, additional research and early and late state development milestone payments which are based on various research and clinical milestones, including the initiation of certain clinical studies, the submission of an application for marketing authorization for a drug candidate to certain regulatory authorities and the commercial launch of collaboration products could total over $600.0 million, including up to $95.0 million relating to CK-2127107 in non-neuromuscular indications, and over $100.0 million related to CK-2127107 in each of spinal muscular atrophy (“SMA”), amyotrophic lateral sclerosis (“ALS”) and other neuromuscular indications. Additionally, $200.0 million in commercial milestones could be received under the Astellas Agreement provided certain sales targets are met. The achievement of each of the late stage development milestones and the commercialization milestones was determined to be dependent solely upon the results of Astellas’ development activities and therefore these potential milestone payments were not deemed to be substantive. The Company is eligible to receive up to $2.0 million in research milestone payments under the collaboration for each future potential drug candidate. The Company believes that each of the milestones related to research under the Astellas Agreement is substantive and can only be achieved with the Company’s past and current performance and each milestone will result in additional payments to the Company. Due to the nature of drug development, including the inherent risk of development and approval of drug candidates by regulatory authorities, it is not possible to estimate if and when these milestone payments could be achieved or become due.

In conjunction with the Astellas Agreement in December 2014, the Company also sold 2,040,816 shares of its common stock to Astellas at a price per share of $4.90 and an aggregate purchase price of $10.0 million, subject to certain trading restrictions. Prior to April 1, 2017, the Company considered Astellas to be a related party, due in part to Astellas’ equity ownership percentage, and reported revenue under the Astellas Agreement to be revenues from a related party. Effective April 1, 2017, in part due to a decrease in Astellas’ equity ownership percentage, the Company no longer considers Astellas to be a related party.

12


Note 5 — 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 September 30, 2017 and December 31, 2016 were as follows (in thousands):

 

 

 

September 30, 2017

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Maturity

Dates

Cash equivalents — U.S. Treasury and money

   market funds

 

$

109,473

 

 

$

1

 

 

$

 

 

$

109,474

 

 

 

Short-term investments — U.S. Treasury

   securities and Agency bonds

 

$

191,405

 

 

$

2

 

 

$

(160

)

 

$

191,247

 

 

10/2017 - 8/2018

Long-term investments — Equity

 

$

583

 

 

$

-

 

 

$

-

 

 

$

583

 

 

 

 

 

 

December 31, 2016

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Maturity

Dates

Cash equivalents — U. S. Treasury securities

   and money market funds

 

$

55,658

 

 

$

 

 

$

 

 

$

55,658

 

 

 

Short-term investments — U.S. Treasury

   securities

 

$

89,396

 

 

$

2

 

 

$

(23

)

 

$

89,375

 

 

1/2017 – 12/2017

Long-term investments — Equity and U.S.

   Treasury securities

 

$

7,513

 

 

$

176

 

 

$

(17

)

 

$

7,672

 

 

2/2018 – 3/2018

 

At September 30, 2017 there were no investments that had been in a continuous unrealized loss position for 12 months or longer.

 

Interest income was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2017

 

 

September 30,

2016

 

 

September 30,

2017

 

 

September 30,

2016

 

Interest income

 

$

774

 

 

$

114

 

 

$

1,957

 

 

$

282

 

 

Note 6 — 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.

 

13


Fair value of financial assets:

Financial assets measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 are classified in the table below in one of the three categories described above (in thousands):

 

 

 

September 30, 2017

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Assets

At Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

60,976

 

 

$

 

 

$

 

 

$

60,976

 

U.S. Treasury securities

 

 

165,922

 

 

 

 

 

 

 

 

 

165,922

 

Agency bonds

 

 

 

 

 

73,823

 

 

 

 

 

 

73,823

 

Equity securities

 

 

583

 

 

 

 

 

 

 

 

 

583

 

Total

 

$

227,481

 

 

$

73,823

 

 

$

 

 

$

301,304

 

Amounts included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

109,474

 

 

$

-

 

 

$

 

 

$

109,474

 

Short-term investments

 

 

117,424

 

 

 

73,823

 

 

 

 

 

 

191,247

 

Long-term investments

 

 

583

 

 

 

-

 

 

 

 

 

 

583

 

Total

 

$

227,481

 

 

$

73,823

 

 

$

 

 

$

301,304

 

 

 

 

December 31, 2016

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Assets

At Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

52,657

 

 

$

 

 

$

 

 

$

52,657

 

U.S. Treasury securities

 

 

99,872

 

 

 

 

 

 

 

 

 

99,872

 

Equity securities

 

 

176

 

 

 

 

 

 

 

 

 

176

 

Total

 

$

152,705

 

 

$

 

 

$

 

 

$

152,705

 

Amounts included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,658

 

 

$

 

 

$

 

 

$

55,658

 

Short-term investments

 

 

89,375

 

 

 

 

 

 

 

 

 

89,375

 

Long-term investments

 

 

7,672

 

 

 

 

 

 

 

 

 

7,672

 

Total

 

$

152,705

 

 

$

 

 

$

 

 

$

152,705

 

 

The valuation technique used to measure fair value for the Company’s Level 1 assets is a market approach, using prices and other relevant information generated by market transactions involving identical assets. When quoted market prices are not available for the specific security, then the Company estimates fair value by using benchmark yields, reported trades, broker/dealer quotes, and issuer spreads; these securities are classified as Level 2. As of September 30, 2017 and December 31, 2016, the Company had no financial assets measured at fair value on a recurring basis using significant Level 3 inputs. The carrying amount of the Company’s accounts receivable and accounts payable approximates fair value due to the short-term nature of these instruments.

Fair value of financial liabilities:

As of September 30, 2017 and December 31, 2016, the fair value of the long-term debt, payable in installments through year ended 2020, approximated its carrying value of $30.3 million and $29.9 million, respectively, because it is carried at a market observable interest rate, which are considered Level 2.

As of September 30, 2017, the fair value of liability related to the sale of future royalties is based on the Company’s current estimates of future royalties expected to be paid to RPI Finance Trust (“RPI”), an entity related to Royalty Pharma, over the life of the arrangement, which are considered Level 3 (See Note 9 – “Liability Related to Sale of Future Royalties”).

There were no transfers between Level 1, Level 2, and Level 3 during the periods presented.

 

Note 7 — Balance Sheet Components

14


Accrued liabilities were as follows (in thousands):

 

 

 

September 30,

2017

 

 

December 31,

2016

 

Accrued liabilities: