Cytokinetics(CYTK) - 2022 Q4 - Annual Report

Part I Business Cytokinetics is a late-stage biopharmaceutical company specializing in muscle biology, developing treatments for diseases with compromised muscle performance, with a strategic focus on regulatory approvals, commercial capabilities, and pipeline expansion - The company is a late-stage biopharmaceutical firm focused on discovering and developing first-in-class muscle activators and next-in-class muscle inhibitors for diseases involving compromised muscle function[33] - The company's "Vision 2025" strategic plan aims to achieve regulatory approvals for at least two drugs, build commercial capabilities, generate sustainable revenue, double the development pipeline to ten programs, and expand its discovery platform[36][37][39] - Cytokinetics has no manufacturing capabilities and is entirely dependent on third-party contract manufacturing organizations (CMOs) for the supply of raw materials, active pharmaceutical ingredients, and finished drug products for both clinical trials and potential commercial supply[107] Research and Development Programs The company's R&D programs are segmented into cardiac and skeletal muscle contractility, featuring lead candidates like omecamtiv mecarbil, aficamten, and reldesemtiv, with R&D expenses significantly increasing to $240.8 million in 2022 Research and Development Expenses (2020-2022) | Year | R&D Expenses (in millions) | | :--- | :--- | | 2022 | $240.8 | | 2021 | $159.9 | | 2020 | $97.0 | - The cardiac muscle program focuses on modulating the cardiac sarcomere with activators like omecamtiv mecarbil for heart failure and inhibitors like aficamten for hypertrophic cardiomyopathy (HCM)[44][45] - The skeletal muscle program leverages expertise from the cardiac program to develop activators for the skeletal sarcomere, targeting conditions like ALS and SMA associated with muscle weakness and fatigue[88][89] Competition Cytokinetics faces substantial competition from major pharmaceutical and biotechnology companies across its therapeutic areas, including established and emerging treatments for HFrEF, HCM, and ALS - If approved, omecamtiv mecarbil will compete with a crowded HFrEF market including generics (milrinone, digoxin), branded drugs (Entresto®, Verquvo®), and SGLT2 inhibitors (Forxiga®, Jardiance®)[113] - Aficamten's main competitor for HCM is Camzyos™ (mavacamten) from Bristol Myers Squibb, with other companies like Novartis, Eli Lilly, and Gilead also active in this space[114] - In the ALS market, reldesemtiv would compete with approved drugs Radicava™ (edaravone) and Relyvrio™ (AMX0035), as well as other therapies in development by companies like Biogen and Ionis[118] Intellectual Property Resources The company's intellectual property strategy is built on patents, trade secrets, and technical know-how, with a portfolio including 73 U.S. and over 650 foreign patents, and key U.S. composition of matter patents expiring between 2027 and 2039 - As of year-end 2022, the company's portfolio included 73 issued U.S. patents, over 650 issued foreign patents, and over 430 pending applications worldwide[119] Key U.S. Patent Expiration Dates | Drug Candidate | U.S. Patent Expiration Year | | :--- | :--- | | Omecamtiv mecarbil | 2027 | | Reldesemtiv | 2031 | | Aficamten | 2039 | Human Capital As of December 31, 2022, Cytokinetics had 409 employees and 167 consultants, maintaining a 9% turnover rate and demonstrating leadership diversity with significant representation from ethnic or racial minorities and women - The company employed 409 people and 167 consultants as of December 31, 2022, with an employee turnover rate of 9% for the year[146] - Leadership diversity is a focus, with employees identifying as ethnic or racial minorities holding 43% of director-level and above roles, and women holding 44% of such positions[150] Risk Factors The company faces substantial risks in its R&D and commercial operations, including the FDA's Complete Response Letter for omecamtiv mecarbil, potential clinical trial failures, reliance on third parties, intense competition, and the ongoing need for significant capital due to historical losses - The FDA issued a Complete Response Letter (CRL) for the omecamtiv mecarbil New Drug Application (NDA), stating that an additional clinical trial is required to establish substantial evidence of effectiveness, and the company has no plans to conduct another trial[159][160][161] - Clinical trials for key drug candidates aficamten and reldesemtiv may fail to demonstrate the required safety and efficacy, which could prevent or significantly delay their development and regulatory approval[162] - The company has a history of significant financial losses and will require substantial additional capital to fund its operations, with no guarantee of achieving or sustaining profitability[253][254] - Cytokinetics is entirely dependent on contract research organizations (CROs) to conduct clinical trials and contract manufacturing organizations (CMOs) for product supply, creating risks related to performance, quality, and timelines[194][221] Properties The company's primary facilities comprise 234,892 square feet of leased office and laboratory space in South San Francisco, California, with the lease expiring in 2033, deemed adequate for current operations - The company's material facilities are comprised of 234,892 square feet of leased office and laboratory space in South San Francisco, California, with the lease expiring in 2033[321] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Cytokinetics' common stock trades on the Nasdaq Global Select Market under "CYTK," with the company having never paid cash dividends and intending to retain future earnings for business operations - The company's common stock is listed on the Nasdaq Global Select Market under the trading symbol "CYTK"[327] - Cytokinetics has never declared or paid cash dividends and does not plan to in the foreseeable future, retaining earnings for business growth[332] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Cytokinetics reported increased revenues of $94.6 million, driven by a one-time royalty sale, but incurred a net loss of $389.0 million due to rising R&D and G&A expenses, ending the year with $829.3 million in cash and investments Key Financial Results (in millions) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenues | $94.6 | $70.5 | $55.8 | | R&D Expenses | $240.8 | $159.9 | $97.0 | | G&A Expenses | $178.0 | $96.8 | $52.8 | | Net Loss | $(389.0) | $(215.3) | $(127.3) | - The increase in 2022 revenue was primarily driven by the recognition of $87.0 million related to the full extinguishment of the Mavacamten Royalty obligation following a tripartite agreement with RTW ICAV and MyoKardia, Inc[357] - The company's cash, cash equivalents, and investments increased to $829.3 million at the end of 2022 from $623.8 million at the end of 2021, mainly due to net cash of $516.2 million provided by financing activities[380][384] - Due to the FDA's CRL for omecamtiv mecarbil, the company does not expect to satisfy the conditions for the disbursement of $75 million in term loans (tranche 2 and 3) under its RP Loan Agreement[387][532] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its $829.3 million investment portfolio and fixed-rate convertible notes, while foreign currency risk is considered immaterial due to U.S. dollar-denominated transactions - The company is exposed to interest rate risk on its $829.3 million portfolio of cash and investments, where a 10% change in interest rates is not expected to have a material effect on financial results[404] - The company's outstanding convertible notes ($21.1 million due 2026 and $540.0 million due 2027) have fixed interest rates, exposing them to fair value risk from market changes but not cash flow risk from interest rate fluctuations[405] - Foreign currency exchange risk is minimal as the majority of the company's transactions are conducted in U.S. dollars[406] Financial Statements and Supplementary Data The consolidated financial statements for 2022 show total assets of $1.01 billion, liabilities of $1.12 billion, a stockholders' deficit of $107.9 million, and a net loss of $389.0 million, with a critical audit matter identified regarding revenue participation right estimates Consolidated Balance Sheet Summary (as of Dec 31, 2022, in millions) | Account | Amount | | :--- | :--- | | Total Assets | $1,014.8 | | Total Liabilities | $1,122.7 | | Total Stockholders' (Deficit) Equity | $(107.9) | Consolidated Statement of Operations Summary (for year ended Dec 31, 2022, in millions) | Account | Amount | | :--- | :--- | | Total Revenues | $94.6 | | Total Operating Expenses | $418.8 | | Net Loss | $(389.0) | - The independent auditor, Ernst & Young LLP, identified 'Estimates Related to Revenue Participation Right Purchase Agreements' as a critical audit matter due to the significant and subjective judgments required by management in forecasting future royalty payments[416][417] - A significant subsequent event noted was the receipt of a Complete Response Letter (CRL) from the FDA on February 28, 2023, regarding the NDA for omecamtiv mecarbil, stating an additional clinical trial is required[624] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, a conclusion affirmed by an unqualified opinion from Ernst & Young LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[633] - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[634] - The independent registered public accounting firm, Ernst & Young LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting[635][639] Part III Directors, Executive Compensation, and Corporate Governance Information on directors, executive compensation, and corporate governance is incorporated by reference from the 2023 Proxy Statement, with the company maintaining a Code of Ethics applicable to all personnel - Detailed information for Items 10 through 14 is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement[654][655][656] - The company has a Code of Ethics that applies to all directors, officers, and employees, and is available on its website[654] Part IV Exhibits and Financial Statement Schedules This section provides an index of all financial statements and exhibits filed with the Form 10-K, including consolidated financials, omitted schedules, and detailed agreements - This section contains the index of all financial statements and exhibits filed with the Form 10-K[659]