Cytokinetics(CYTK) - 2020 Q4 - Annual Report

Forward-Looking Statements Forward-Looking Statements and Associated Risks This section outlines various forward-looking statements and associated risks, emphasizing that actual results may differ materially from projections - Key areas of uncertainty include capital requirements, clinical trial outcomes, regulatory approvals, strategic alliances, market acceptance, intellectual property, and the impact of the COVID-19 pandemic[11][13] - Specific risks include Astellas' decisions on skeletal muscle activators, Ji Xing's decisions on CK-274 development/commercialization in China/Taiwan, the ability to effectively transition omecamtiv mecarbil and CK-136 programs from Amgen, and potential delays or limitations from FDA or foreign regulatory agencies[11][13] Summary of Principal Risk Factors Overview of Key Business Risks This section summarizes key business risks: regulatory approval uncertainties, clinical trial failures, capital needs, and COVID-19 impacts - No guarantee of FDA approval for omecamtiv mecarbil despite GALACTIC-HF meeting its primary efficacy endpoint, as secondary endpoints were not met and subgroup analyses may not be sufficient for approval without additional trials[18] - All drug candidates (CK-274, reldesemtiv) are prone to failure in demonstrating desired safety and efficacy, potentially delaying or preventing regulatory approval[18] - The transition of manufacturing, development, regulatory, and commercial activities for omecamtiv mecarbil and CK-136 from Amgen to Cytokinetics may not be effective or efficient, leading to substantial delays and increased costs[18] - The company has limited sales and marketing capabilities and depends on CROs and contract manufacturers, with success relying on intellectual property protection, market acceptance, and sufficient third-party payor coverage and reimbursement[18][21][22] - Cytokinetics has a history of significant losses, requires substantial additional capital, and faces ongoing adverse impacts from the COVID-19 pandemic[22][23] PART I Item 1. Business Cytokinetics is a late-stage biopharmaceutical company developing muscle-directed medicines, focusing on regulatory approvals, commercialization, and pipeline expansion - Cytokinetics is a late-stage biopharmaceutical company focused on discovering, developing, and commercializing first-in-class muscle activators and next-in-class muscle inhibitors for debilitating diseases of impaired muscle function[27][38] - Clinical-stage drug candidates include omecamtiv mecarbil (cardiac myosin activator), CK-136 (cardiac troponin activator), reldesemtiv (fast skeletal muscle troponin activator), CK-274, and CK-271 (cardiac myosin inhibitors)[28][409] - The company's 'Vision 2025' strategy includes achieving regulatory approvals for at least two drugs, building commercial capabilities, generating sustainable revenues, doubling the development pipeline to ten therapeutic programs, and expanding the discovery platform to muscle energetics, growth, and metabolism[39][40][42] Research and Development Expenses (2018-2020) | Year | Amount (Millions USD) | | :--- | :-------------------- | | 2020 | $97.0 | | 2019 | $86.1 | | 2018 | $89.1 | - Amgen elected to terminate its collaboration agreement effective May 20, 2021, transitioning development and commercialization rights for omecamtiv mecarbil and CK-136 to Cytokinetics; Servier also terminated its sublicense for Europe/CIS, reverting rights to Amgen, then to Cytokinetics[52][53][55] - GALACTIC-HF, a Phase 3 trial for omecamtiv mecarbil in heart failure, met its primary composite efficacy endpoint (HR: 0.92; 95% CI: 0.86, 0.99, p=0.025) but no secondary endpoints; a potentially greater treatment effect was suggested in patients with lower left ventricular ejection fraction (LVEF ≤28%)[51][64][66][67][69] - CK-274, a cardiac myosin inhibitor for hypertrophic cardiomyopathy (HCM), showed substantial reductions in LVOT-G in interim Phase 2 REDWOOD-HCM data; FDA granted Orphan Drug Designation for symptomatic HCM[31][84][86] - Reldesemtiv, a fast skeletal muscle troponin activator, received orphan drug designation for SMA and ALS from FDA and EMA; Phase 2 FORTITUDE-ALS showed numerical effects favoring reldesemtiv, especially in faster-progressing patients, leading to the planned Phase 3 COURAGE-ALS trial[100][106][108][113][114] - The company relies on third-party contract manufacturers for clinical trial materials and anticipates continued reliance for commercial supply, with ongoing efforts to transition manufacturing for omecamtiv mecarbil[119][121][122][124] - As of December 31, 2020, Cytokinetics owned, co-owned, or licensed 71 issued U.S. patents, over 550 foreign patents, and over 280 additional pending U.S. and foreign patent applications, with key drug candidate patents expiring between 2027 and 2039[125][127] - The company is subject to extensive FDA and foreign regulatory requirements throughout the drug development and commercialization process, including preclinical testing, INDs, multi-phase clinical trials, NDAs, and post-marketing obligations[139][141][144][149][151] - As of December 31, 2020, Cytokinetics had 184 employees and 51 consultants, with a low turnover rate of 3.4% in 2020, and is committed to fostering a collaborative and inclusive culture[160][161][163] - The COVID-19 pandemic led to remote work for most employees and temporary suspension of enrollment in METEORIC-HF and REDWOOD-HCM, both of which have since resumed enrollment; the pandemic continues to pose risks to operations and financial markets[165][166][169][170] Item 1A. Risk Factors This section details significant risks that could materially and adversely affect Cytokinetics' business, financial condition, and stock value - The company has a history of significant operating losses since its inception in 1997 and expects increasing losses, requiring substantial additional funding which may not be available on favorable terms[176][177][178][181] - The COVID-19 pandemic continues to adversely impact business operations, potentially causing disruptions in clinical trials, supply chains, and global financial markets[183][185][187] - As of December 31, 2020, Cytokinetics had $183.0 million in aggregate principal indebtedness, including a $45.0 million Term Loan and $138.0 million in convertible senior notes, which could limit cash flow and expose the company to financial risks[189][192] - There is no guarantee of regulatory approval for omecamtiv mecarbil despite positive primary endpoint results from GALACTIC-HF, as secondary endpoints were not met, and the FDA may require additional clinical trials[212][213] - All drug candidates, including CK-274 and reldesemtiv, are subject to inherent risks of failure in clinical development, and preclinical or early-phase clinical results do not guarantee success in later, larger trials[198][199][203] - The transition of development and commercialization rights for omecamtiv mecarbil and CK-136 from Amgen (and Servier) to Cytokinetics may not be completed effectively or efficiently, leading to substantial delays and increased costs[223][224][225][228][229][230] - The company has no internal manufacturing capacity and relies on strategic partners and contract manufacturers, whose failure to perform satisfactorily could delay development or commercialization[246][247][249][251][252][254][256] - Success depends on obtaining and maintaining intellectual property protection for drug candidates and technologies, which is costly, complex, and subject to challenges, infringement claims, and evolving legal standards[259][261][262][263][265][266][267][268][269][270][272][273][274][275][277][278] - Even if drug candidates obtain regulatory approval, commercial success is not guaranteed and depends on market acceptance by physicians and patients, as well as sufficient third-party payor coverage and reimbursement, which are uncertain and subject to cost-containment pressures[325][328][329][330][331][332] - The company's stock price is expected to fluctuate significantly due to various factors, including clinical trial results, strategic alliances, market conditions, regulatory actions, and competition[366][368][372] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments - No unresolved staff comments[389] Item 2. Properties Cytokinetics leases 81,587 square feet of office and laboratory space in South San Francisco, California, with a new 234,892 square foot lease commencing in Q3 2021 - Current facilities consist of 81,587 square feet of leased office and laboratory space in South San Francisco, California, with the lease expiring in June 2021[390] - An Expansion Lease for an additional 9,350 square feet within the same office location commenced in January 2020 with an initial term of 39 months[390] - A new lease agreement for 234,892 square feet of office and laboratory space at the Oyster Point facility in South San Francisco was entered into in July 2019, with an initial term of 12 years, expected to commence in the third quarter of 2021[391] Item 3. Legal Proceedings The company is not currently subject to any material legal proceedings - The company is not currently subject to any material legal proceedings[393] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[394] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Cytokinetics' common stock is listed on Nasdaq under "CYTK," with no cash dividends paid, and its performance graph shows outperformance in 2020 - Cytokinetics' common stock is listed on the Nasdaq Global Select Market under the symbol "CYTK"[397] - As of February 23, 2021, the last reported sale price for common stock was $20.26 per share, with 49 holders of record[397][400] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future[397][402] Cumulative Total Return (12/31/2015 - 12/31/2020) | Index/Stock | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | | :---------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Cytokinetics, Inc. | $100.00 | $116.16 | $77.92 | $60.42 | $101.43 | $198.66 | | Nasdaq Composite Index | $100.00 | $107.50 | $137.86 | $132.51 | $179.19 | $257.38 | | Nasdaq Biotechnology Index | $100.00 | $78.32 | $94.81 | $85.97 | $106.95 | $134.42 | Item 6. Selected Financial Data This item is not required for the report - This item is not required[406] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and results of operations for 2020, highlighting revenue growth, increased expenses, and improved liquidity - Cytokinetics is a late-stage biopharmaceutical company with clinical-stage drug candidates including omecamtiv mecarbil, CK-136, reldesemtiv, CK-274, and CK-271[408][409] - Critical accounting policies include revenue recognition (ASC 606), accrued research and development expenditures, and the liability related to the sale of future royalties (treated as debt financing)[411][412][414][416][422][423][427] Total Revenues (2018-2020, in millions USD) | Year | Research & Development | License | Milestone | Total | | :--- | :--------------------- | :------ | :-------- | :---- | | 2020 | $16.5 | $36.5 | $2.8 | $55.8 | | 2019 | $26.9 | — | — | $26.9 | | 2018 | $26.4 | $5.1 | — | $31.5 | - Total revenues increased by $28.9 million in 2020, primarily driven by $36.5 million in license revenues from RTW Transactions and $2.8 million in milestone revenues from Ji Xing[434][436] Research and Development Expenses by Program (2018-2020, in millions USD) | Program | 2020 | 2019 | 2018 | | :-------------------------- | :--- | :--- | :--- | | Cardiac muscle contractility | $53.0 | $45.8 | $19.0 | | Skeletal muscle contractility | $17.1 | $14.6 | $50.9 | | All other research programs | $26.9 | $25.7 | $19.2 | | Total R&D Expenses | $97.0 | $86.1 | $89.1 | - Research and development expenses increased by $10.9 million to $97.0 million in 2020, mainly due to higher spending on METEORIC-HF, the cardiac myosin inhibitor program, and reldesemtiv (COURAGE-ALS)[439][440] General and Administrative Expenses (2018-2020, in millions USD) | Year | Amount | | :--- | :----- | | 2020 | $52.8 | | 2019 | $39.6 | | 2018 | $31.3 | - General and administrative expenses increased by $13.2 million to $52.8 million in 2020, primarily due to higher personnel-related costs and outside service spend[445][446] Interest Expense (2018-2020, in millions USD) | Category | 2020 | 2019 | 2018 | | :--------------- | :--- | :--- | :--- | | Term loan | $4.9 | $5.2 | $3.8 | | Convertible notes | $10.8 | $1.4 | — | | Warrants | $0.2 | — | — | | Other | $0.1 | — | — | | Total | $16.0 | $6.6 | $3.8 | - Total interest expense increased by $9.4 million to $16.0 million in 2020, mainly due to the convertible notes issued in November 2019[447][448] Cash, Cash Equivalents, Investments, Borrowings, and Working Capital (as of Dec 31, in millions USD) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :----------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $83.0 | $36.4 | | Short-term investments | $381.1 | $188.7 | | Total cash, cash equivalents & marketable securities | $464.1 | $225.1 | | Term loan, net | $46.2 | $45.1 | | Convertible notes, net | $89.5 | $84.2 | | Total borrowings | $135.7 | $129.3 | | Current assets | $474.2 | $233.8 | | Current liabilities | $31.2 | $26.0 | | Working capital | $443.0 | $207.8 | Cash Flows Summary (2018-2020, in millions USD) | Activity | 2020 | 2019 | 2018 | | :-------------------------------------------------- | :------- | :------- | :------- | | Net cash provided by (used in) operating activities | $8.9 | $(90.9) | $(101.2) | | Net cash (used in) provided by investing activities | $(196.5) | $(74.7) | $5.1 | | Net cash provided by financing activities | $234.1 | $159.8 | $13.1 | | Net increase (decrease) in cash and cash equivalents | $46.5 | $(5.8) | $(83.0) | - Net cash provided by operating activities was $8.9 million in 2020, a significant improvement from net cash used in 2019 and 2018, largely due to $87.0 million in deferred revenues from RTW Royalty Holdings[454][456] - Financing activities provided $234.1 million in 2020, primarily from a $188.9 million public offering of common stock and $50.0 million from a private placement to RTW Investors[458][460][463] - The company entered into a Funding Agreement with RTW Royalty Holdings for up to $90.0 million to fund CK-274 development, in exchange for future royalty payments[464][465] Contractual Obligations (as of Dec 31, 2020, in millions USD) | Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :-------------------------- | :---- | :--------------- | :-------- | :-------- | :---------------- | | Operating lease obligations | $221.1 | $4.6 | $28.9 | $33.9 | $153.7 | | Long-term debt obligations | $57.1 | $3.7 | $53.4 | — | — | | Convertible notes (interest) | $33.0 | $5.5 | $11.0 | $11.0 | $5.5 | | Purchase obligations | $3.7 | $3.2 | $0.5 | — | — | | Total | $314.9 | $17.0 | $93.8 | $44.9 | $159.2 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily interest rate and foreign currency, with limited material impact from hypothetical changes - As of December 31, 2020, cash and short-term investments totaled $464.1 million, primarily invested in U.S. Treasury securities, agency bonds, commercial paper, corporate debt, and money market funds[500] - A hypothetical 10% relative change in interest rates would not have a material impact on the consolidated financial statements[500] - Foreign currency risk is primarily related to transactions denominated in Euro and GBP; a 10% increase or decrease in current exchange rates would not have a material effect on financial results[501] Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements, with an unqualified opinion from Ernst & Young LLP, highlighting critical audit matters - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2020[506][507][737] - Critical audit matters include the significant judgment required for estimates related to the sale of future royalties and the complex nature of accounting for revenues from collaborative and licensing arrangements[512][514] Consolidated Balance Sheets (as of Dec 31, in thousands USD) | ASSETS | 2020 | 2019 | | :---------------------------------------------------------------------------------------------------------------- | :----- | :----- | | Current assets: | | | | Cash and cash equivalents | $82,985 | $36,433 | | Short-term investments | $381,075 | $188,679 | | Accounts receivable | $4,420 | $5,163 | | Prepaid expenses and other current assets | $5,741 | $3,477 | | Total current assets | $474,221 | $233,752 | | Long-term investments | $36,954 | $42,650 | | Property and equipment, net | $13,346 | $4,530 | | Operating lease right-of-use assets and other assets | $9,282 | $8,882 | | Total assets | $533,803 | $289,814 | | LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | Current liabilities: | | | | Accounts payable | $8,050 | $8,160 | | Accrued liabilities | $19,315 | $12,123 | | Short-term lease liability | $2,785 | $4,616 | | Other current liabilities | $1,049 | $1,124 | | Total current liabilities | $31,199 | $26,023 | | Term loan, net | $46,209 | $45,052 | | Convertible notes, net | $89,504 | $84,205 | | Liability related to the sale of future royalties, net | $166,068 | $143,276 | | Long-term deferred revenue | $87,000 | — | | Long-term lease and other non-current liabilities | $440 | $2,195 | | Total liabilities | $420,420 | $300,751 | | Total stockholders' equity (deficit) | $113,383 | $(10,937) | | Total liabilities and stockholders' equity (deficit) | $533,803 | $289,814 | Consolidated Statements of Operations and Comprehensive Loss (2018-2020, in thousands USD, except per share data) | Metric | 2020 | 2019 | 2018 | | :------------------------------------------------------------------------------------------------------------------- | :------- | :------- | :------- | | Revenues: | | | | | Research and development revenues | $16,527 | $26,868 | $26,368 | | License revenues | $36,501 | — | $5,133 | | Milestone revenues | $2,800 | — | — | | Total revenues | $55,828 | $26,868 | $31,501 | | Operating expenses: | | | | | Research and development | $96,951 | $86,125 | $89,135 | | General and administrative | $52,820 | $39,610 | $31,282 | | Total operating expenses | $149,771 | $125,735 | $120,417 | | Operating loss | $(93,943) | $(98,867) | $(88,916) | | Interest expense | $(15,963) | $(6,623) | $(3,797) | | Non-cash interest expense on liability related to sale of future royalties | $(22,713) | $(20,737) | $(17,767) | | Interest and other income, net | $5,329 | $4,535 | $4,191 | | Net loss | $(127,290) | $(121,692) | $(106,289) | | Net loss per share — basic and diluted | $(1.97) | $(2.11) | $(1.95) | | Weighted-average number of shares used in computing net loss per share — basic and diluted | 64,524 | 57,575 | 54,420 | | Other comprehensive loss: | | | | | Unrealized (losses) gains on available-for-sale securities, net | $(530) | $179 | $157 | | Comprehensive loss | $(127,820) | $(121,513) | $(106,132) | Consolidated Statements of Cash Flows (2018-2020, in thousands USD) | Activity | 2020 | 2019 | 2018 | | :-------------------------------------------------- | :------- | :------- | :------- | | Net cash provided by (used in) operating activities | $8,943 | $(90,907) | $(101,215) | | Net cash (used in) provided by investing activities | $(196,515) | $(74,707) | $5,133 | | Net cash provided by financing activities | $234,124 | $159,791 | $13,132 | | Net increase (decrease) in cash and cash equivalents | $46,552 | $(5,823) | $(82,950) | | Cash and cash equivalents, end of period | $82,985 | $36,433 | $42,256 | - The company has incurred an accumulated deficit of $992.3 million since inception and anticipates operating losses and net cash outflows in future periods, relying on strategic collaborations and financings[535][536] - The Term Loan Agreement provides $45.0 million, bearing interest at 8.05% as of December 31, 2020, with monthly interest-only payments extended through December 31, 2021, followed by principal and interest payments until maturity in December 2023[659][660] - The $138.0 million aggregate principal amount of 4.0% convertible senior notes due 2026 are unsecured obligations, convertible under certain circumstances, and were separated into liability and equity components for accounting purposes[664][665][669] - The liability related to the sale of future royalties to RPI, initially $92.3 million, is accounted for as a debt financing with an imputed interest rate of approximately 15% as of December 31, 2020, and is amortized using the effective interest method[679][681][682] Deferred Tax Assets and Liabilities (as of Dec 31, in thousands USD) | Category | 2020 | 2019 | | :-------------------------------------------------------- | :------- | :------- | | Deferred tax assets: | | | | Net operating loss carryforwards | $162,514 | $143,228 | | Tax credits | $71,976 | $67,892 | | Liability related to sale of future royalties | $36,989 | $35,213 | | Reserves and accruals | $10,876 | $8,690 | | Capitalized R&D | $2,370 | $3,949 | | Long-term lease liability | $718 | $1,674 | | Depreciation and amortization | $746 | $722 | | Other | — | $58 | | Total noncurrent deferred tax assets | $286,189 | $261,426 | | Deferred tax liabilities: | | | | Accounting method change | $(927) | $(2,047) | | Operating lease right-of-use assets | $(651) | $(1,484) | | Convertible notes | $(9,832) | $(12,011) | | Total noncurrent deferred tax liabilities | $(11,410) | $(15,542) | | Less: Valuation allowance | $(274,779)** | $(245,884)** | | Net deferred tax assets | — | — | - The company maintained a full valuation allowance on net deferred tax assets as of December 31, 2020 and 2019, due to historical operating performance and expected future losses[720] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[730] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with an unqualified opinion from Ernst & Young LLP - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020[731] - Management concluded that internal control over financial reporting was effective as of December 31, 2020, based on the COSO 2013 Framework[732] - Ernst & Young LLP, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of internal control over financial reporting[733][737] - No material changes in internal controls over financial reporting were identified during the fiscal quarter ended December 31, 2020[734] Item 9B. Other Information This item reports no other information - No other information to report[744] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement, including the company's Code of Ethics - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement[747] - The company has adopted a Code of Ethics applicable to all directors, officers, and employees, which is publicized on its website[748] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2020 Proxy Statement - Information on executive compensation is incorporated by reference from the 2020 Proxy Statement[749] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the 2020 Proxy Statement - Information on security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the 2020 Proxy Statement[749] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships and related transactions, and director independence, is incorporated by reference from the 2020 Proxy Statement - Information on certain relationships and related transactions and director independence is incorporated by reference from the 2020 Proxy Statement[750] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement[750] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed with the Form 10-K, confirming financial statements are included and schedules omitted as applicable - The consolidated financial statements are filed as part of this Form 10-K under Part II, Item 8[752] - Financial statement schedules have been omitted as they are not applicable, not required, or the information is already presented in the consolidated financial statements or related notes[752][774] - The exhibit index includes various corporate documents, warrants, indentures, collaboration agreements (Amgen, Astellas, Ji Xing, RTW), lease agreements, and certifications (Section 302, 906)[753][754][755][756][758][759][760][761][763][764][765][766][767][768][769][770] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[775] Signatures Signatures and Power of Attorney This section contains the required signatures of the registrant's authorized officers and directors, affirming the report's filing, and includes a Power of Attorney - The report is signed by Robert I. Blum (President, CEO, and Director), Ching W. Jaw (Senior VP, CFO), Robert C. Wong (VP, Chief Accounting Officer), L. Patrick Gage (Chairman of the Board), and other Directors[779][783] - The signing date for the report is February 26, 2021[780][783]