The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Organization and Significant Accounting Policies
Organization
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 Companys financial statements contemplate the conduct of the Companys
operations in the normal course of business. The Company has incurred an accumulated deficit of $518.3 million since inception and there can be no assurance that the Company will attain profitability. The Company had net income of
$16.4 million and net cash provided by operations of $37.0 million for the year ended December 31, 2016. Cash, cash equivalents and investments increased to $163.9 million at December 31, 2016 from $111.6 million at
December 31, 2015. 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 Companys 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 and convertible preferred stock, 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, 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 Companys 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 Companys 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 Companys 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. 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. 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
93
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation
The consolidated financial statements include the accounts of Cytokinetics and its wholly owned subsidiary and have been
prepared in accordance with U.S. generally accepted accounting principles (US GAAP). Intercompany transactions and balances have been eliminated in consolidation.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash and cash
equivalents, investments, long term debt and accounts receivable.
The Companys cash, cash equivalents and
investments are invested in deposits with three major financial institutions in the United States. Deposits in these banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any realized losses on its
deposits of cash, cash equivalents or investments.
The economic turmoil in the United States in recent years, the
extraordinary volatility in the stock markets and other current negative macroeconomic indicators could negatively impact the Companys ability to raise the funds necessary to support its business and may materially adversely affect its
business, operating results and financial condition.
The Company performs an ongoing credit evaluation of its strategic
partners financial conditions and generally does not require collateral to secure accounts receivable from its strategic partners. The Companys exposure to credit risk associated with
non-payment
will be affected principally by conditions or occurrences within Amgen Inc. (Amgen) and Astellas Pharma Inc. (Astellas), its strategic partners. Approximately 26%, 9% and 10% of total revenues for the years ended
December 31, 2016, 2015 and 2014, respectively, were derived from Amgen. There were no accounts receivable due from Amgen at December 31, 2016 and 2015. Approximately 73%, 91% and 90% of total revenues for the years ended December 31,
2016, 2015 and 2014, respectively, were derived from Astellas. There were no accounts receivable due from Astellas at December 31, 2016 and 2015. See also Note 7, Related Party Transactions, regarding the collaboration
agreements with Amgen and Astellas.
Drug candidates developed by the Company may require approvals or clearances from the
U.S. Food and Drug Administration (FDA) or international regulatory agencies prior to commercial sales. There can be no assurance that the Companys drug candidates will receive any of the required approvals or clearances. If
the Company was to be denied approval or clearance or any such approval or clearance was to be delayed, it would have a material adverse impact on the Company.
The Companys operations and employees are located in the United States. In the year ended December 31, 2016, 27% of
the Companys revenues were received from entities located in the United States and 73% were received from a Japanese entity. In the year ended December 31, 2015, 9% of the Companys revenues were received from entities located in the
United States and 91% were received from a Japanese entity. In the year ended December 31, 2014, 10% of the Companys revenues were received from entities located in the United States and 90% were received from a Japanese entity.
94
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash
equivalents.
Investments
Available-for-sale
investments.
The Companys investments consist of U.S. Treasury securities, and money market funds. The Company designates all investments as
available-for-sale
and therefore reports them at fair value, based on quoted marked prices, with unrealized gains and losses recorded in accumulated other comprehensive
loss. The cost of securities sold is based on the specific-identification method. Investments with original maturities greater than three months and remaining maturities of one year or less are classified as short-term investments. Investments with
remaining maturities greater than one year are classified as long-term investments. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Recognized gains and losses and declines in value judged to be other-than-temporary, if any, on
available-for-sale
securities are included in other
income or expense. Interest and dividends on securities classified as
available-for-sale
are included in Interest and other, net.
Other-than-temporary impairment.
All of the Companys
available-for-sale
investments are subject to a periodic impairment review. The Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be
other-than-temporary. Factors considered by management in assessing whether an other-than-temporary impairment has occurred include: the nature of the investment; whether the decline in fair value is attributable to specific adverse conditions
affecting the investment; the financial condition of the investee; the severity and the duration of the impairment; and whether the Company has the intent and ability to hold the investment to maturity. When the Company determines that an
other-than-temporary impairment has occurred, the investment is written down to its market value at the end of the period in which it is determined that an other-than-temporary decline has occurred.
Fair Value of Financial Instruments
The fair value of financial instruments reflects the amounts that would be received upon the sale of an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
Cash, accounts
payable and accrued liabilities are carried at cost, which approximates fair value given their short-term nature. Marketable securities and cash equivalents, are carried at fair value.
Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation and are depreciated on a straight-line basis over the
estimated useful lives of the related assets, which are generally three years for computer equipment and software, five years for laboratory equipment and office equipment, and seven years for furniture and fixtures. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the related assets, typically ranging from three to seven years. Upon sale or retirement of assets, the costs and
related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.
95
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Impairment of Long-lived Assets
In accordance with the accounting guidance for the impairment or disposal of long-lived assets, the Company reviews long-lived
assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Under the accounting guidance, an impairment loss would be
recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a
long-lived asset exceeds its fair value.
Revenue Recognition
The accounting guidance for revenue recognition requires that the following criteria must be met before revenue can be
recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. Determination of
whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been rendered are based on managements judgments regarding the fixed nature of the fee charged for research performed and milestones met,
and the collectability of those fees. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.
Revenue under the Companys license and collaboration arrangements is recognized based on the performance requirements of
the contract. Research and development revenues, which are earned under agreements with third parties for agreed research and development activities, may include
non-refundable
license fees, research and
development funding, cost reimbursements and contingent milestones and royalties. The Companys collaborations prior to January 1, 2011 with multiple elements were evaluated and divided into separate units of accounting if certain criteria
are met, including whether the delivered element has stand-alone value to the customer and whether there was vendor-specific objective and reliable evidence (VSOE) of the fair value of the undelivered items. The consideration the Company
received was allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria were applied to each of the separate units. The consideration the Company received was combined and recognized as
a single unit of accounting when criteria for separation were not met. On January 1, 2011, ASC Topic
605-25,
Revenue Recognition Multiple-Element Arrangements
(ASC
605-25)
on the recognition of revenues for agreements with multiple deliverables became effective and applies to any agreements the Company entered into on or after January 1, 2011. Under this updated
guidance, revenue is allocated to each element using a selling price hierarchy, where the selling price for an element is based on VSOE if available; third-party evidence (TPE), if available and VSOE is not available; or the best
estimate of selling price, if neither VSOE nor TPE is available.
Upfront,
non-refundable
licensing payments are assessed to determine whether or not the licensee is able to obtain stand-alone value from the license. Where the license does not have stand-alone value,
non-refundable
license fees are recognized as revenue as the Company performs under the applicable agreement. Where the level of effort is relatively consistent over the performance period, the Company recognizes
total fixed or determined revenue on a straight-line basis over the estimated period of expected performance. Where the license has stand-alone value, the Company recognizes total license revenue at the time all revenue recognition criteria have
been met.
ASC Topic
605-28,
Revenue Recognition Milestone Method
(ASC
605-28),
established the milestone method as an acceptable method of revenue recognition for certain contingent event-based payments under research and development arrangements. Under the
milestone method, a payment that is contingent upon the
96
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can be achieved based in whole or in
part on either the Companys performance or on the occurrence of a specific outcome resulting from the Companys performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event
will be achieved, and (iii) that would result in additional payments being due to the Company. The determination that a milestone is substantive is judgmental and is made at the inception of the arrangement. Milestones are considered
substantive when the consideration earned from the achievement of the milestone is (i) commensurate with either the Companys performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific
outcome resulting from the Companys performance to achieve the milestone, (ii) relates solely to past performance and (iii) is reasonable relative to all deliverables and payment terms in the arrangement.
Other contingent event-based payments received for which payment is either contingent solely upon the passage of time or the
results of a collaborative partners performance are not considered milestones under ASC
605-28.
Such payments will be recognized as revenue when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) price is fixed or determinable, and (iv) collectability is reasonably assured.
The Company accounts for milestone payments under the provisions of
ASC 605-28.
The Company considers an event to be a milestone if there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, if the event can only be achieved with the Companys performance, and if the
achievement of the event results in payment to the Company. If the Company determines a milestone is substantive, the Company recognizes revenue when payment is earned and becomes payable. For a milestone to be considered substantive, it must be
achieved with the Companys performance, be reasonable relative to the terms of the arrangement and be commensurate with the Companys effort to achieve the milestone or commensurate with the enhanced value of the delivered item(s) as a
result of the milestone achievement. If the Company determines a milestone is not substantive, the Company defers the payment and recognizes revenue over the estimated remaining period of performance as the Company completes its performance
obligations, if any.
Research and development revenues and cost reimbursements are based upon negotiated rates for the
Companys full-time employee equivalents (FTE) and actual
out-of-pocket
costs. FTE rates are negotiated rates that are based upon the Companys
costs, and which the Company believes approximate fair value. Any amounts received in advance of performance are recorded as deferred revenue. None of the revenues recognized to date are refundable if the relevant research effort is not successful.
In revenue arrangements in which both parties make payments to each other, the Company evaluates the payments in accordance with the accounting guidance for arrangements under which consideration is given by a vendor to a customer, including a
reseller of the vendors products, to determine whether payments made by us will be recognized as a reduction of revenue or as expense. In accordance with this guidance, revenue recognized by the Company may be reduced by payments made to the
other party under the arrangement unless the Company receives a separate and identifiable benefit in exchange for the payments and the Company can reasonably estimate the fair value of the benefit received. In arrangements in which the Company is
the primary obligor, the Company records expense reimbursements from the other party as research and development revenue. If the Company is not the primary obligor, the Company records payments as a reduction of revenue.
Funds received from third parties under grant arrangements are recorded as revenue if the Company is deemed to be the
principal participant in the grant arrangement as the activities under the grant are part of the Companys development program. If the Company is not the principal participant, the grant funds are recorded as
97
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
a reduction to research and development expense. Grant funds received are not refundable and are recognized when the related qualified research and development costs are incurred and when there
is reasonable assurance that the funds will be received. Funds received in advance are recorded as deferred revenue.
Preclinical
Studies and Clinical Trial Accruals
A substantial portion of the Companys preclinical studies and all of the
Companys clinical trials have been performed by third-party contract research organizations (CROs) and other vendors. For preclinical studies, the significant factors used in estimating accruals include the percentage of work
completed to date and contract milestones achieved. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled, duration of enrollment and percentage of work completed to date. The
Company monitors patient enrollment levels and related activities to the extent practicable through internal reviews, correspondence and status meetings with CROs, and review of contractual terms. The Companys estimates are dependent on the
timeliness and accuracy of data provided by its CROs and other vendors. If the Company has incomplete or inaccurate data, it may under- or overestimate activity levels associated with various studies or trials at a given point in time. In this
event, it could record adjustments to research and development expenses in future periods when the actual activity level becomes known.
Research and Development Expenditures
Research and development costs are charged to operations as incurred. Research and development expenses consist primarily of
clinical manufacturing costs, preclinical study expenses, consulting and other third party costs, employee compensation, supplies and materials, allocation of overhead and occupancy costs, facilities costs and depreciation of equipment.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The
Company also follows the accounting guidance that 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.
Comprehensive Income (Loss)
The Company follows the accounting standards for the reporting and presentation of comprehensive income (loss) and its
components in a continuous statement of comprehensive income (loss). Comprehensive income (loss) includes all changes in stockholders equity during a period from
non-owner
sources. Comprehensive income
(loss) for each of the years ended December 31, 2016, 2015, and 2014 was equal to net loss adjusted for unrealized gains and losses on investments.
98
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Segment Reporting
The Company has determined that it operates in only one segment the discovery and development of
first-in-class
muscle activator therapies.
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 employees 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 managements 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 managements 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
Companys stock-based compensation expense could be materially different in the future. In addition, the Company is required 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 managements estimate, stock-based compensation expense could be significantly different from what has been recorded in the current period.
Recent Accounting Pronouncements
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.
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
2016-09,
Stock compensation (Topic 718).
ASU 2016-09
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. We do not anticipate the adoption to have
a material effect on our financial statements.
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 modified retrospective approach is required. Adoption of this new standard is not expected to have a material impact on the Companys
consolidated financial statements.
99
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 August 2014, the FASB issued ASU
2014-15,
Presentation of Financial Statements
Going Concern (Subtopic
205-40):
Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern.
ASU 2014-15
requires
management to assess an entitys ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. ASU
2014-15
is effective for annual and interim reporting
periods beginning on or after December 15, 2016 and early adoption is permitted. The Company adopted this new standard for the year ended December 31, 2016, and adoption did not have a material impact on the Companys consolidated
financial statements. In June 2014, the FASB issued ASU
2014-12,
Stock Compensation (Topic 718) an amendment to its accounting guidance related to stock-based compensation. The amendment requires that a
performance target that could be achieved after the requisite service period be treated as a performance condition that affects vesting, rather than a condition that affects the grant-date fair value. ASU
2014-12
is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The amendment can be applied on a prospective basis to all share-based payments granted
or modified on or after the effective date. Entities will also be provided an option to apply the guidance on a modified retrospective basis to existing awards. The Company adopted this new standard for the year ended December 31, 2016, and
adoption did not have a material impact on the Companys consolidated financial statements.
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. While the Company is continuing to assess all potential impacts of the standard, the Company believes
the most significant accounting impact will relate to the timing of the recognition of our license, collaboration, and milestone revenues.
100
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2 Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of vested common
shares outstanding during the period. Diluted net income (loss) per share 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. The following is the calculation of basic and diluted net income (loss) per share (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income (loss)
|
|
$
|
16,453
|
|
|
$
|
(37,501
|
)
|
|
$
|
(14,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net income (loss) per share basic
|
|
|
39,943
|
|
|
|
38,814
|
|
|
|
35,709
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
409
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
|
181
|
|
|
|
|
|
|
|
|
|
Shares issuable related to the ESPP
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
2,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net income (loss) per share diluted
|
|
|
42,561
|
|
|
|
38,814
|
|
|
|
35,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic
|
|
$
|
0.41
|
|
|
$
|
(0.97
|
)
|
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted
|
|
$
|
0.39
|
|
|
$
|
(0.97
|
)
|
|
$
|
(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following instruments were excluded from the computation of diluted net income (loss) per
share for the periods presented because their effect would have been antidilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Options to purchase common stock
|
|
|
3,688
|
|
|
|
4,835
|
|
|
|
3,298
|
|
Warrants to purchase common stock
|
|
|
|
|
|
|
5,641
|
|
|
|
6,691
|
|
Restricted and Performance stock units
|
|
|
|
|
|
|
757
|
|
|
|
63
|
|
Shares issuable related to the ESPP
|
|
|
|
|
|
|
16
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares
|
|
|
3,688
|
|
|
|
11,249
|
|
|
|
10,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3 Supplementary Cash Flow Data
Supplemental cash flow information was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash paid for interest
|
|
$
|
1,899
|
|
|
$
|
94
|
|
|
$
|
|
|
Cash paid for income taxes
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Significant
non-cash
investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount netted against proceeds from long term debt, recorded in equity
|
|
|
288
|
|
|
|
282
|
|
|
|
|
|
Interest paid on the long-term debt, at inception
|
|
|
63
|
|
|
|
41
|
|
|
|
|
|
Purchases of property and equipment through accounts payable
|
|
|
(320
|
)
|
|
|
(147
|
)
|
|
|
170
|
|
Purchases of property and equipment through accrued
liabilities
|
|
|
(747
|
)
|
|
|
(2
|
)
|
|
|
27
|
|
101
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4 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 December 31, 2016 and 2015
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Maturity
Dates
|
|
Cash equivalents money market funds
|
|
$
|
63,136
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments U.S. Treasury securities
|
|
$
|
46,395
|
|
|
$
|
1
|
|
|
$
|
(30
|
)
|
|
$
|
46,366
|
|
|
|
2/2016 8/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments equity securities
|
|
$
|
|
|
|
$
|
179
|
|
|
$
|
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 and December 31, 2015, the Companys U.S. Treasury
securities classified as short-term investments had unrealized losses of approximately $23,000 and $30,000, respectively. The net unrealized loss at December 31, 2016 and December 31, 2015 was primarily caused by increases in short-term
interest rates subsequent to the purchase dates of the related securities. At December 31, 2016 there were no investments that had been in a continuous unrealized loss position for 12 months or longer. The Company collected the contractual cash
flows on its U.S. Treasury securities that matured from January 1, 2017 through February 23, 2017 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest income
|
|
$
|
449
|
|
|
$
|
156
|
|
|
$
|
101
|
|
Note 5 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
102
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 December 31, 2016 and 2015 are classified in the table below in one of the three categories described above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Fair Value Measurements Using
|
|
|
Assets
At Fair Value
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Fair Value Measurements Using
|
|
|
Assets
At Fair Value
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
63,136
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,136
|
|
U.S. Treasury securities
|
|
|
46,366
|
|
|
|
|
|
|
|
|
|
|
|
46,366
|
|
Equity securities
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,681
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
109,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,136
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,136
|
|
Short-term investments
|
|
|
46,366
|
|
|
|
|
|
|
|
|
|
|
|
46,366
|
|
Long-term investments
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,681
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
109,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 December 31, 2016 and 2015, the Company had no financial assets measured at fair value on a
recurring basis using significant Level 2 or Level 3 inputs. The carrying amount of the Companys accounts receivable and accounts payable approximates fair value due to the short-term nature of these instruments.
Long Term Debt:
As of December 31, 2016 and December 31, 2015, the fair value of the long-term debt, payable in installments through
year ended 2020, approximated its carrying value of $29.9 million and $14.6 million, respectively, because it is carried at a market observable interest rate, which are considered Level 2.
Note 6 Balance Sheet Components
Property and equipment balances were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Laboratory equipment
|
|
$
|
16,742
|
|
|
$
|
15,713
|
|
Computer equipment and software
|
|
|
2,699
|
|
|
|
2,510
|
|
Office equipment, furniture and fixtures
|
|
|
856
|
|
|
|
945
|
|
Leasehold improvements
|
|
|
4,458
|
|
|
|
3,425
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
24,755
|
|
|
|
22,593
|
|
Less: Accumulated depreciation and amortization
|
|
|
(21,118
|
)
|
|
|
(20,842
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
3,637
|
|
|
$
|
1,751
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $0.7 million, $0.6 million and $0.5 million for the
years ended December 31, 2016, 2015 and 2014 respectively.
Accrued liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Clinical and preclinical costs
|
|
$
|
10,092
|
|
|
$
|
3,446
|
|
Bonus
|
|
|
3,800
|
|
|
|
2,720
|
|
Other payroll related
|
|
|
1,888
|
|
|
|
1,464
|
|
Other accrued expenses
|
|
|
1,595
|
|
|
|
791
|
|
Leasehold improvements
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
18,047
|
|
|
$
|
8,421
|
|
|
|
|
|
|
|
|
|
|
Interest receivable on cash equivalents and investments of $0.2 million and
$0.2 million is included in prepaid and other current assets at December 31, 2016 and 2015, respectively.
The
Company sponsors a 401(k) defined contribution plan covering all employees. In 2016, 2015 and 2014, employer contributions to the 401(k) plan were $0.5 million, $0.4 million and $0.3 million, respectively.
104
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7 Related Parties and Related Party Transactions
Research and Development Arrangements
Amgen Inc. (Amgen)
In December 2006, the Company entered into a collaboration and option agreement with Amgen 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 (the Amgen Agreement). The agreement granted Amgen an
option to obtain an exclusive license worldwide, except Japan, to develop and commercialize omecamtiv mecarbil and other drug candidates arising from the collaboration. In May 2009, Amgen exercised its option. As a result, Amgen became responsible
for the development and commercialization of omecamtiv mecarbil and related compounds at its expense worldwide (excluding Japan), subject to the Companys development and commercialization participation rights. Amgen reimburses the Company for
certain research and development activities it performs under the collaboration.
In June 2013, Cytokinetics and Amgen
executed an amendment to the Amgen Agreement to include Japan, resulting in a worldwide collaboration (the Amgen Agreement Amendment). Under the terms of the Amgen Agreement Amendment, the Company received a
non-refundable
upfront license fee of $15.0 million in June 2013. Under the Amgen Agreement Amendment, the Company conducted a Phase 1 pharmacokinetic study intended to support inclusion of Japan in a potential
Phase 3 clinical development program and potential global registration dossier for omecamtiv mecarbil. Amgen reimbursed the Company for the costs of this study. In addition, the Company is eligible to receive additional
pre-commercialization
milestone payments relating to the development of omecamtiv mecarbil and royalties on sales of omecamtiv mecarbil in Japan.
In conjunction with the Amgen Agreement Amendment, the Company also entered into a common stock purchase agreement which
provided for the sale of 1,404,100 shares of its common stock to Amgen at a price per share of $7.12 and an aggregate purchase price of $10.0 million, which was received in June 2013. The Company determined the fair value of the stock issued to
Amgen to be $7.5 million. The excess of cash received over fair value of $2.5 million was initially deferred and allocated between the license and services based on their relative selling prices using best estimate of selling price. The
allocated consideration was recognized as revenue as revenue criteria were satisfied, or as services were performed over approximately 12 months. Pursuant to this agreement, Amgen agreed to certain trading and other restrictions with respect to the
Companys common stock.
The Company determined that the license to the Japan territory granted under the Amgen
Agreement Amendment was a separate,
non-contingent
deliverable under the amendment. The Company determined that the license has stand-alone value based on Amgens internal product development capabilities
since all relevant manufacturing
know-how
related to omecamtiv mecarbil was previously delivered to Amgen.
In October 2013, the Company determined that the revenue recognition requirements under ASC
605-10
had been met and accordingly, recognized $17.2 million in license revenue attributable to the Amgen Agreement Amendment in the fourth quarter of 2013. In year ended December 31, 2014, the
Company recognized the remaining $0.3 million of the previously deferred consideration attributable to the Amgen Agreement Amendment as research and development revenues from related parties.
Amgen and the Company continued the research program in 2016. Under the amended Amgen Agreement, the Company is entitled to
receive reimbursements of internal costs of certain full-time employee equivalents during 2016, as well as potential additional milestone payments related to the research activities.
Under the Amgen Agreement, as amended, the Company is eligible to receive over $300.0 million in additional development
milestone payments which are based on various clinical milestones, including the
105
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
initiation of certain clinical studies, the submission of a drug candidate to certain regulatory authorities for marketing approval 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 would become due. The achievement of each of these milestones is dependent solely upon the results of Amgens development and commercialization activities.
During the year ended December 31, 2016, the Company recognized $26.7 million in development milestone payments
related to the start of
GALACTIC-HF,
the Phase 3 cardiovascular outcomes clinical trial of omecamtiv mecarbil which is being conducted by Amgen as the Company has no remaining deliverables under the Amgen
Agreement. During the years ended December 31, 2015 and 2014, no milestones were achieved under the Amgen Agreement.
The Amgen Agreement also provides for the Company to receive increased royalties by
co-funding
Phase 3 development costs of omecamtiv mecarbil and other drug candidates under the collaboration. If the Company elects to
co-fund
such costs at the
$40.0 million level, it would be entitled to
co-promote
the
co-funded
drug in North America and participate in agreed commercialization activities in institutional
care settings, at Amgens expense.
In July 2013, Amgen announced that it had granted an option to commercialize
omecamtiv mecarbil in Europe to Servier, with the Companys consent, pursuant to an Option, License and Collaboration Agreement (the Servier Agreement).
In August 2016, the Company entered into a Letter Agreement with Amgen and Servier (the Letter Agreement), which
(i) expands the territory of the sublicense to Servier to include specified countries in the Commonwealth of Independent States (CIS) and (ii) provides that, if Amgens rights under the Amgen Agreement, as amended, are
terminated with respect to the territory of such sublicense, the sublicensed rights previously granted by Amgen to Servier under the Servier Agreement will remain in effect and become a direct license or sublicense of such rights by us to Servier,
on substantially the same terms as set forth in the Servier Agreement, including but not limited to Serviers payment of its share of agreed development costs and future milestone and royalty payments to us. The Letter Agreement does not
otherwise modify our rights and obligations under the Amgen Agreement, as amended, or create any additional financial obligations of the Company, unless we otherwise agree in writing.
In September 2016, Amgen and Servier announced Serviers decision to exercise its option to commercialize omecamtiv
mecarbil in Europe as well as the CIS, including Russia. The option and related commercialization sublicense to Servier is subject to the terms and conditions of the Amgen Agreement. Amgen remains responsible for the performance of its obligations
under the Amgen Agreement relating to Europe and the CIS, including the payment of milestones and royalties relating to the development and commercialization of omecamtiv mecarbil in Europe and the CIS.
In December 2016, the Company provided notice of its exercise of its option under the Amgen Agreement to
co-invest
in the Phase 3 development program of omecamtiv mecarbil at the level of $10.0 million in exchange for an incremental royalty from Amgen of up to 1% on increasing worldwide sales of omecamtiv mecarbil
outside Japan. The payment of $10.0 million is due to Amgen in eight quarterly installments with the first payment due at the time of providing notice of the option exercise and is contingent on Amgen continuing the Phase 3 development
program of omecamtiv mecarbil. As of December 31, 2016, the Company recorded a payment of $1.3 million as a reduction in collaboration revenue, related to the option to
co-invest
in the Phase 3
development program of omecamtiv mecarbil, as it concluded the benefit to be received in exchange for the
106
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
co-investment
payment to Amgen, was not sufficiently separable from Amgen Agreement. In February 2017, the Company provided notice of its further exercise
of its
co-invest
option in the additional amount of $30.0 million (i.e. to fully
co-invest
$40.0 million) in the Phase 3 development program of
omecamtiv mecarbil. See Note 15 Subsequent Events in the Notes to Consolidated Financial Statements for additional information.
Pursuant to 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 of other costs related to that research program. These
reimbursements were recorded as research and development revenues from related parties. During the years ended December 31, 2016, 2015 and 2014, the Company recorded net research and development revenue from Amgen of $27.9 million,
$2.5 million and $4.5 million, respectively, under the Amgen Agreement. There were no accounts receivable due from Amgen during the years ended December 31, 2016 and 2015.
Revenue from Amgen was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research and development revenues from related parties, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of internal costs
|
|
$
|
2,466
|
|
|
$
|
2,460
|
|
|
$
|
4,260
|
|
Research and development milestone fees
|
|
|
26,666
|
|
|
|
|
|
|
|
|
|
Co-invest
option payment
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
Allocated consideration
|
|
|
|
|
|
|
21
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Research and development revenues from related parties, net
|
|
|
27,882
|
|
|
|
2,481
|
|
|
|
4,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues from Amgen
|
|
$
|
27,882
|
|
|
$
|
2,481
|
|
|
$
|
4,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no accounts receivable due from Amgen at December 31, 2016 and 2015.
Astellas Pharma Inc. (Astellas)
Original Astellas Agreement
(Non-neuromuscular
license)
In June 2013, the Company entered into a license and collaboration agreement with Astellas (the Original Astellas
Agreement). The primary objective of the collaboration with Astellas is to advance novel therapies for diseases and medical conditions associated with muscle weakness.
Under the Original Astellas Agreement, the Company granted Astellas an exclusive license to
co-develop
and jointly commercialize
CK-2127107,
a fast skeletal troponin activator, for potential application in
non-neuromuscular
indications worldwide. The Company was primarily responsible for the conduct of Phase 1 clinical trials and certain Phase 2 readiness activities for
CK-2127107
and Astellas was primarily responsible for the conduct of subsequent development and commercialization activities for
CK-2127107.
In July 2013, the Company received an upfront,
non-refundable
license fee of
$16.0 million in connection with the execution of the Original Astellas Agreement. Under the agreement, the Company was eligible to potentially receive over $24.0 million in reimbursement of sponsored research and development activities
during the initial two years of the collaboration. The Original Astellas Agreement also provided for research and early and late stage development milestone payments based on various research and clinical milestones, including the initiation of
certain clinical studies, the submission for approval of a drug candidate to certain regulatory authorities for marketing approval and the commercial launch of collaboration products, and royalties on sales of commercialized products.
107
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At the inception of the Original Astellas Agreement, the Company deferred
revenue related to the Original Astellas Agreement in accordance with ASC
605-25.
The Company evaluated whether the delivered elements under the arrangement have value on a stand-alone basis. Upfront,
non-refundable
licensing payments are assessed to determine whether or not the licensee is able to obtain stand-alone value from the license. Where this is not the case, the Company does not consider the license
deliverable to be a separate unit of accounting, and the revenue for the license fee is deferred and recognized in conjunction with the other deliverables that constitute the combined unit of accounting.
The Company determined that the license and the research and development services are a single unit of accounting as the
license was determined to not have stand-alone value. Accordingly, the Company is recognizing this revenue using the proportional performance model over the initial research term of the Original Astellas Agreement. During the years ended
December 31, 2016, 2015 and 2014, the Company recorded zero, $2.3 million and $9.8 million, respectively, in license revenue based on the proportional performance model under the Original Astellas Agreement. No license revenue remains
deferred under the Original Astellas Agreement as of December 31, 2016.
Pursuant to the Original Astellas Agreement,
the Company 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. During the years ended December 31, 2016, 2015 and 2014, the Company recorded research and development revenue from Astellas of zero, $3.5 million and $15.4 million, respectively, under the Original Astellas Agreement.
2014 Astellas Agreement (Expansion to include neuromuscular indications)
In December 2014, the Company entered into an amended and restated license and collaboration agreement with Astellas (the
2014 Astellas Agreement). This agreement superseded the Original Astellas Agreement. The 2014 Astellas Agreement expanded the objective of the collaboration of advancing novel therapies for diseases and medical conditions associated with
muscle weakness to include spinal muscular atrophy (SMA) and potentially other neuromuscular indications for
CK-2127107
and other fast skeletal troponin activators, in addition to the
non-neuromuscular
indications provided for in the Original Astellas Agreement.
Under
the 2014 Astellas Agreement, the Company received a
non-refundable
upfront license fee of $30.0 million in January 2015. Concurrently, the Company received $15.0 million as a milestone payment
relating to Astellas decision to advance
CK-2127107
into Phase 2 clinical development. Under the 2014 Astellas Agreement, the Company is conducting the initial Phase 2 clinical trial of
CK-2127107
in patients with SMA.
The Company determined that the license and the
research and development services relating to the 2014 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
2014 Astellas Agreement using the proportional performance model.
During the years ended December 31, 2016 and 2015,
the Company recorded $12.1 million and $11.6 million, respectively, in license revenue based on the proportional performance model under the 2014 Astellas Agreement. No such revenues were recognized during the year ended December 31,
2014. As of December 31, 2016, $7.2 million license revenue remains deferred under the 2014 Astellas Agreement. Pursuant to the 2014 Astellas Agreement, the Company 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 Company was eligible to potentially
108
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
receive over $20.0 million in reimbursement of sponsored research and development activities during the two years of the collaboration following the execution of the 2014 Astellas Agreement.
During the years ended December 31, 2016 and 2015, the Company recorded research and development revenue from Astellas of $13.0 million and $8.7 million, respectively, under the 2014 Astellas Agreement. No such revenues were
recognized during the year ended December 31, 2014.
In conjunction with the 2014 Astellas Agreement, the Company
also entered into a common stock purchase agreement which provided for the sale of 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 which was received in December
2014. Pursuant to this agreement, Astellas agreed to certain trading and other restrictions with respect to the Companys common stock. The Company determined the fair value of the stock issued to Astellas to be $9.1 million. The excess of
cash received over fair value of $0.9 million was deferred along with the license and research and development services. Allocated consideration will be recognized as revenue for the single unit of accounting above, as services are performed
following the proportional performance model over the research term of the 2014 Astellas Agreement. Following the common stock purchase, Astellas was determined to be a related party. As such, all revenue earned following the common stock purchase
is classified as related party revenue.
2016 Astellas Amendment (Inclusion of ALS as an Added Indication and Option on Tirasemtiv)
In 2016, Cytokinetics and Astellas further amended the collaboration agreement to expand our collaboration to include
the development of
CK-2127107
for the potential treatment of ALS (2016 Astellas Amendment), as well as the possible development in ALS of other fast skeletal regulatory activators previously
licensed by us to Astellas. The 2016 Astellas Amendment became effective in September 2016 (collectively with the 2014 Astellas Agreement, the Current Astellas Agreement).
Under the 2016 Astellas Amendment, the Company granted Astellas the Option on Tirasemtiv. If Astellas exercises the option,
Astellas will receive exclusive worldwide commercialization rights outside of the Companys commercialization territory of North America, Europe and other select countries. Tirasemtiv is the Companys fast skeletal troponin activator being
evaluated in the ongoing Phase 3 clinical trial,
VITALITY-ALS,
in people living with amyotrophic lateral sclerosis (ALS).
In addition, the 2016 Astellas Amendment expands the Companys collaboration with Astellas to include the development of
CK-2127107,
a next-generation fast skeletal troponin activator, for the potential treatment of ALS, as well the possible development in ALS of other fast skeletal regulatory activators licensed to Astellas under the
2014 Astellas Agreement (ALS License). Finally, the 2016 Astellas Amendment extends the existing joint research program focused on the discovery of additional next-generation skeletal muscle activators through 2017, including sponsored
research at Cytokinetics.
Astellas Option on Tirasemtiv
In connection with the execution of the 2016 Astellas Amendment, the Company received a $15.0 million
non-refundable
option fee for the grant of the Option on Tirasemtiv in October 2016. Prior to Astellas exercise of the option, the Company will continue the development of tirasemtiv, including the
VITALITY-ALS
trial, 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. If Astellas
exercises the option, the Company will grant Astellas an exclusive license to develop and commercialize tirasemtiv outside the Companys own commercialization territory of North America, Europe and other select countries (License on
tirasemtiv) under a tirasemtiv License and Collaboration Agreement (tirasemtiv License Agreement). Each party would be
109
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
primarily responsible for the further development of tirasemtiv in its territory and have the exclusive right to commercialize tirasemtiv in its territory.
If Astellas exercises its option for a global collaboration for the development and commercialization of tirasemtiv, the
Company will receive an option exercise payment ranging from $25.0 million (if exercise occurs following receipt of data from the
VITALITY-ALS
trial) 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 Companys initiation of the open-label extension trial for tirasemtiv
(VIGOR-ALS).
The Company will
be responsible for the development costs of tirasemtiv during the option period, but 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.
If Astellas exercises the option for tirasemtiv, 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 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 Companys territory, in each case subject to various possible adjustments.
The Company concluded that the option to obtain the License 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 Tirasemtiv License Agreement 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 either until the option is exercised, or until the option expires unexercised. 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. The Option on Tirasemtiv expires, if not exercised by Astellas,
following the receipt of the approval letter for tirasemtiv from the FDA.
Prior to Astellas exercise of the option,
the Company will continue the development of tirasemtiv, including the
VITALITY-ALS
trial, at its own expense to support regulatory approval in the U.S., EU and certain other jurisdictions, and the Company has
complete discretion to continue to conduct clinical trials, 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.
Addition of ALS as an Added Indication
(CK-2127107
and other fast
skeletal activators)
In connection with the execution of the 2016 Astellas Amendment, the Company received a
non-refundable
upfront amendment fee of $35 million. In addition, the Company received an accelerated $15.0 million milestone payment that would have been payable upon the initiation of the first Phase 2
clinical trial of
CK-2127107
as the lead compound in ALS, as if such milestone had been achieved upon the execution of the 2016 Astellas Amendment.
110
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company and Astellas are collaborating to develop CK-2127107 in ALS.
Astellas is primarily responsible for the development of CK-2127107 in ALS, but the Company will conduct the Phase 2 clinical trial of CK-2127107 in ALS and will share in the operational responsibility for later clinical trials. Subject to specified
guiding principles, decision making will be by consensus, subject to escalation and, if necessary, Astellas final decision making authority on the development (including regulatory affairs), manufacturing, medical affairs and commercialization
of CK-2127107 and other fast skeletal regulatory activators in ALS. The Company and Astellas will share equally the costs of developing
CK-2127107
in ALS for potential registration and marketing authorization
in the U.S. and Europe, provided that (i) Astellas has agreed to solely fund Phase 2 development costs of
CK-2127107
in ALS subject to a right to recoup the Companys share of such costs plus a 100%
premium by reducing future milestone and royalty payments to the Company and (ii) the Company may defer (but not eliminate) a portion of its
co-funding
obligation for development activities after Phase 2
for up to 18 months, subject to certain conditions. The Company has the right to
co-fund
its share of such Phase 2 development costs on a current basis, in which case there would not be a premium due to
Astellas. Cytokinetics will also receive approximately $41.8 million in additional sponsored research and development funding through 2018 which includes Astellas funding of Cytokinetics conduct of the Phase 2 clinical development
of
CK-2127107
in ALS (approximately $36.6 million) as well as the continuing research collaboration (approximately $5.2 million).
Pursuant to the 2016 Astellas Amendment, the Company and Astellas will collaborate to develop
CK-2127107
in ALS. Astellas will be primarily responsible for the development of
CK-2127107
in ALS, but the Company will conduct the Phase 2 clinical trial of
CK-2127107
in ALS and will share in the operational responsibility for later clinical trials. Subject to specified guiding principles, decision making will be by consensus, subject to escalation and, if necessary,
Astellas final decision making authority on the development (including regulatory affairs), manufacturing, medical affairs and commercialization of
CK-2127107
and other fast skeletal regulatory
activators in ALS.
The Company determined that the deliverables under the 2016 Astellas Amendment included (1) the
ALS License,
(2) CK-2127107
development services in ALS through Phase 2 activities (ALS Development Services), and (3) research services added (Additional Research Services).
Deliverables that do not provide standalone value have been combined with other deliverables to form a unit of accounting that collectively has standalone value, with revenue being recognized on the combined unit of accounting, rather than the
individual deliverables. There are no rights of return provisions for the delivered items in the Current Astellas Agreement.
The Company considered the 2016 Astellas Amendment to be a modification of the 2014 Astellas Agreement. The remaining
deliverables under the 2014 Astellas Agreement are: (1) the SMA license; (2) Research Services in connection with the Research Plan (through 2016); and (3) SMA Development Services in connection with the Development Plan. The Company
evaluated the components and consideration of the 2016 Astellas Amendment against other Phase 2 collaboration arrangements, and determined that the new 2016 deliverables had standalone value and are delivered at fair value. Therefore no reallocation
of consideration to the 2014 deliverables was performed.
The Company concluded that there are two units of accounting;
the ALS License, and the Additional Research Services and ALS Development Services (Research and ALS Development Services). The Company also determined that the ALS License has standalone value since (1) Astellas received a
worldwide license for ALS, to perform further research in the field of ALS, to develop and use
CK-2127107
to make, have make, sell or otherwise commercialize
CK-2127107
in ALS; (2) Astellas has the right to sublicense the rights to
CK-2127107
in ALS to a third party; and (3) Astellas has the technical capabilities to advance further development on
CK-2127107
in ALS, without the continued involvement of the Company.
111
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Arrangement Consideration under the 2016 Astellas Amendment related to
CK-2127107
and research is comprised of the following (in millions):
|
|
|
|
|
|
|
Arrangement
Consideration
|
|
Amendment Fee
|
|
$
|
35.0
|
|
Accelerated milestone payment
|
|
|
15.0
|
|
|
|
|
|
|
Total Upfront Consideration
|
|
|
50.0
|
|
Additional Research Services
|
|
|
5.1
|
|
ALS Development Services
|
|
|
39.1
|
|
|
|
|
|
|
Total Committed Consideration
|
|
|
44.2
|
|
|
|
|
|
|
Total Consideration
|
|
$
|
94.2
|
|
|
|
|
|
|
The Company allocated the $50.0 million in upfront consideration along with the
$44.2 million in then committed research and development consideration, among the two units of accounting, on a relative fair value basis, using the best estimated selling price (BESP). The BESP of the ALS License was determined
using a discounted cash flow, risk adjusted for probability of success; while the BESP of the research and development services were determined using estimated research and development cost, included in the research and development programs approved
by Astellas. Based on this allocation of consideration, the Company stands to recognize $74.9 million in license revenue and $19.3 in research and development revenue, under the 2016 Astellas Amendment. Since the upfront consideration of
$50.0 million is less than the allocated consideration of the ALS License, the Company recognized $50.0 million in license revenue on the Amendment Effective Date, in September 2016, and record the remaining $24.9 million as an
allocation from research and development services, when those services are performed.
Allocation of arrangement
consideration, and revenue recognition (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated
Consideration
|
|
|
Upfront
Revenue
Recognition
|
|
|
Revenue
Recognition
over
Performance
Period
|
|
Units of Accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
ALS License
|
|
$
|
74.9
|
|
|
$
|
50.0
|
|
|
$
|
24.9
|
|
Research and ALS Development Services
|
|
|
19.3
|
|
|
|
|
|
|
|
19.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
$
|
94.2
|
|
|
$
|
50.0
|
|
|
$
|
44.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2016, the Company recorded $50.1 million in
license revenue under the 2016 Astellas Amendment.
The Company will recognize the research and development services using
the proportional performance model over the initial development term, through the completion of the ALS Development Services. Pursuant to the 2016 Astellas Amendment, the Company receives payment for 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.
During the year ended December 31, 2016, the Company recorded $0.1 million research and development revenue from
Astellas, under the 2016 Astellas Amendment.
112
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company believes that each of the milestones related to research under
the Current Astellas Agreement is substantive and can only be achieved with the Companys past and current performance and each milestone will result in additional payments to the Company. During the year ended December 31, 2016, the
Company recorded $2.0 million in milestone revenue for research under this agreement, related to the initiation of
IND-enabling
studies for a fast skeletal muscle activator. 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 achievement of each of the late stage development milestones and the commercialization milestones are dependent solely
upon the results of Astellas development activities and therefore these milestones were not deemed to be substantive.
Under the Current 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 for approval of a drug candidate to certain regulatory authorities for marketing approval 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 SMA, ALS and other neuromuscular indications. Additionally, $200.0 million in commercial milestones could be received under the Current Astellas
Agreement 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 become due.
In the event Astellas commercializes any collaboration products, the Company will receive
royalties on sales of such collaboration products, including royalties ranging from the high single digits to the high teens on sales of products containing
CK-2127107.
Cytokinetics can
co-fund
certain development costs for
CK-2127107
and other compounds in exchange for increased milestone payments and royalties; such royalties may increase under certain
scenarios to exceed twenty percent. Under the Current Astellas Agreement, Cytokinetics retains an option to
co-promote
collaboration products containing fast skeletal troponin activators for neuromuscular
indications in the U.S., Canada and Europe, in addition to its option to
co-promote
other collaboration products in the U.S. and Canada as provided for in the Original Astellas Agreement. Astellas will
reimburse Cytokinetics for certain expenses associated with its
co-promotion
activities.
Research and development revenue from Astellas was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
License Revenues from Related Parties
|
|
$
|
62,171
|
|
|
$
|
13,918
|
|
|
$
|
9,835
|
|
Research and development revenues with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of internal costs
|
|
|
6,111
|
|
|
|
6,210
|
|
|
|
|
|
Reimbursement of other costs
|
|
|
6,999
|
|
|
|
5,974
|
|
|
|
|
|
Research and development milestone fees
|
|
|
2,000
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development revenue with related parties from Astellas
|
|
$
|
15,110
|
|
|
$
|
12,184
|
|
|
$
|
15,000
|
|
Research and development revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursement of internal costs
|
|
|
|
|
|
|
|
|
|
|
8,939
|
|
Reimbursement of other costs
|
|
|
|
|
|
|
|
|
|
|
6,452
|
|
Research and development milestone fees
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development revenue from Astellas
|
|
|
|
|
|
|
|
|
|
|
17,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue from Astellas
|
|
$
|
77,281
|
|
|
$
|
26,102
|
|
|
$
|
42,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2016 and December 31, 2015, the Company had
$23.1 million and $20.4 million, respectively, of deferred revenue under the Current Astellas Agreement, reflecting the unrecognized portion of the license revenue, option fee and payment of expenses. There were no accounts receivable due
from Astellas at December 31, 2016 and 2015.
Note 8 Other Research and Development Revenue Arrangements Grants
In July 2015, The ALS Association (the ALSA Grant) awarded to the Company a $1.5 million grant to support the
conduct of
VITALITY-ALS
as well as the collection of clinical data and plasma samples from patients in
VITALITY-ALS
in order to help advance the discovery of potentially
useful biomarkers in ALS. On August 28, 2015 the Company achieved its first milestone under the ALSA Grant which triggered a payment of $0.5 million in accordance with the ALSA Grant. The Company recorded $1.1 million and
$0.1 million, as grant revenue as qualified expenses were incurred, for years ended December 31, 2016 and 2015, respectively. At December 31, 2016, the Company had no deferred revenue under the ALSA Grant, reflecting the unrecognized
portion of the grant revenue.
Total grant revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
ALSA grant revenue
|
|
$
|
1,084
|
|
|
$
|
75
|
|
|
$
|
|
|
Other grant revenue
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total grant revenue
|
|
$
|
1,084
|
|
|
$
|
75
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MyoKardia, Inc.
In August 2012, the Company entered into a collaboration agreement with MyoKardia, Inc. Under an agreed research plan,
scientists from MyoKardia and our FTEs conduct research focused on small molecule therapeutics that inhibit cardiac sarcomere proteins. The Company provided to MyoKardia access to certain research facilities, and continues to provide FTEs and other
resources at agreed reimbursement rates that approximate our costs. The research plan terminated as planned in August 2013. The Company may receive development milestone payments which are based on various clinical milestones.
Research and development revenue from MyoKardia was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research and development milestone fees
|
|
$
|
150
|
|
|
$
|
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue from Myokardia
|
|
$
|
150
|
|
|
$
|
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9 Long-Term Debt
Long-term debt and unamortized debt discount balances are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Notes payable, gross
|
|
$
|
30,000
|
|
|
$
|
15,000
|
|
Less: Unamortized debt discount
|
|
|
(472
|
)
|
|
|
(389
|
)
|
Accretion of final exit fee
|
|
|
353
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Carrying value of notes payable
|
|
|
29,881
|
|
|
|
14,639
|
|
Less: Current portion of long-term debt
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
27,381
|
|
|
$
|
14,639
|
|
|
|
|
|
|
|
|
|
|
In October 2015, the Company entered into a loan and security agreement (the Loan
Agreement) with Oxford Finance LLC (Oxford,) as the collateral agent and a lender, and Silicon Valley Bank (SVB,) as a lender (Oxford and SVB collectively the Lenders) to fund its working capital and other
general corporate needs. The Loan Agreement provided for (1) term loans of up to $40.0 million in aggregate, (2) warrants to purchase 65,189 shares of the Companys common stock at an exercise price of $6.90 per share under the
first term loan, and (3) additional warrants to purchase shares of the Companys common stock to be based on the amount of the additional term loans and a price per share determined on the day of funding in accordance with the Grant
Agreement, which is also the exercise price per share for the warrants.
The Company drew down $15.0 million in funds
under the Loan Agreement in October 2015 at the time of the first draw down, and at that time, could at its sole discretion draw down an additional $25.0 million under the Loan Agreement in two term loans, provided certain specified conditions
stipulated in the Loan Agreement are met preceding those draws.
During February 2016, the Company drew down an additional
$15.0 million in funds under the Loan Agreement and issued warrants to purchase 68,285 shares of the Companys common stock at an exercise price of $6.59 per share under the second term loan. As of December 31, 2016, there were
133,474 warrants outstanding and exercisable and are classified under stockholders equity. In January 2017, the Company issued 33,368 shares of common stock related to the cashless exercise of 16,126 warrants issued under the Loan Agreement.
As of December 31, 2016 the Company received $29.8 million from this loan and security agreement, net of issuance cost. The Company can at its sole discretion draw down an additional $10.0 million under the Loan Agreement from the
Lenders, at any time prior to March 31, 2017, subject to the Companys satisfaction of specified conditions precedent related to the earlier of (i) the occurrence of an equity event as described in the Loan Agreement, or
(ii) specified results from the Companys
VITALITY-ALS
Phase 3 trial of tirasemtiv, each as specified in the Loan Agreement. The Company is required to repay the outstanding principal in 36 equal
installments beginning October 2017 and is due in full in in October 2020. The first and second term loans bear interest at a rate of 7.5% per annum, respectively. The remaining term loans, if drawn, will bear interest at a rate fixed at the
time of draw, equal to the greater of (i) 7.50% and (ii) the sum of the three month U.S. LIBOR rate plus 7.31%. The Company is required to make a final payment fee of 4.00% of the amounts of the Term Loans drawn payable on the earlier of
(i) the prepayment of the Term Loans or (ii) the Maturity Date. The loan carries prepayment penalties of 3% and 2% for prepayment within one and two years, respectively, of the loan origination and 1% thereafter. The warrants issued in the
Loan Agreement became exercisable upon issuance and will remain exercisable for five years from issuance or the closing of a merger consolidation transaction in which the Company is not the surviving entity.
In accordance with the accounting guidance, the Company allocated a portion of the gross proceeds from each draw down under
the Loan Agreement to the underlying warrants, using the relative fair value method. This
115
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
resulted in the allocation of $0.6 million of the draw down proceeds to the warrants, which was accounted for as debt discount. Debt discount is being amortized over the term of the debt,
and recorded in interest expense in the statement of operations. The fair value of the warrants was determined using the Black-Scholes pricing model and are classified as equity.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants
applicable to the Company and its subsidiaries, including, among other things, restrictions on dispositions, changes in business, management, ownership or business locations, mergers or acquisitions, indebtedness, encumbrances, distributions,
investments, transactions with affiliates and subordinated debt. The Agreement also includes customary events of default, including but not limited to the nonpayment of principal or interest, violations of covenants, material adverse changes,
attachment, levy, restraint on business, cross-defaults on material indebtedness, bankruptcy, material judgments, misrepresentations, subordinated debt, governmental approvals, lien priority and delisting. Upon an event of default, the Lenders may,
among other things, accelerate the loans and foreclose on the collateral. The Companys obligations under the Agreement are secured by substantially all of the Companys current and future assets, other than its intellectual property.
The Company recorded interest expense related to the long-term debt of $2.7 million and $0.3 million for the years
ended December 31, 2016 and 2015, respectively. Included in interest expense for this period was interest on principal, amortization of the debt discount and debt issuance costs, and the accretion of the final exit fee. For the years ended
December 31, 2016 and 2015, the effective interest rate on the amounts borrowed under the Agreement, including the amortization of the debt discount and issuance cost, and the accretion of the final payment, was 9.3%.
Future minimum payments under the Loan, as of December 31, 2016 are as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
4,768
|
|
2018
|
|
|
11,743
|
|
2019
|
|
|
10,982
|
|
2020
|
|
|
8,938
|
|
|
|
|
|
|
Total minimum payments
|
|
|
36,431
|
|
Less: Interest and final payment
|
|
|
(6,431
|
)
|
|
|
|
|
|
Notes payable, gross
|
|
$
|
30,000
|
|
|
|
|
|
|
Note 10 Commitments and Contingencies
Commitments
Operating Lease
The Company leases office space and equipment under a
non-cancelable
operating lease
that expires in 2018, with an option to extend the lease for an additional three-year period. The lease terms provide for rental payments on a graduated scale and the Companys payment of certain operating expenses. During March 2016, the
Company amended the lease agreement to include certain additional operating expenses, related to the replacement of two boilers. The Company recognizes rent expense on a straight-line basis over the lease period.
Rent expense was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Rent expense
|
|
$
|
3,448
|
|
|
$
|
3,297
|
|
|
$
|
3,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2016, future minimum lease payments under
noncancelable operating leases were as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
3,703
|
|
2018
|
|
|
1,860
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,563
|
|
|
|
|
|
|
Co-investment
option
In December 2016, the Company has agreed to exercise its option to
co-invest
$10.0 million in the Phase 3 development program of omecamtiv mecarbil under the Amgen Agreement with Amgen. In connection with exercising its
co-investment
option at $10.0 million, the Company will
be eligible to receive an incremental royalty of up to 1% on increasing worldwide net sales of omecamtiv mecarbil outside of Japan. The payment of $10.0 million is due to Amgen in eight quarterly installments with the first payment due at the
time of providing notice of the option exercise and is contingent on Amgen continuing the Phase 3 development program of omecamtiv mecarbil.
As of December 31, 2016, future minimum payments due to Amgen were as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
5,000
|
|
2018
|
|
|
3,750
|
|
|
|
|
|
|
Total
|
|
$
|
8,750
|
|
|
|
|
|
|
In February 2017, the Company provided notice of its further exercise of its
co-invest
option in the additional amount of $30.0 million (i.e. to fully
co-invest
$40.0 million) in the Phase 3 development program of omecamtiv mecarbil. See Note 15
Subsequent Events.
Contingencies
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors,
business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Companys breach of such agreements, services to be provided by or on behalf of the Company, or from intellectual
property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will require the Company, among other things, to indemnify
them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to
indemnify its directors and certain of its officers and employees, and former officers and directors in certain circumstances. The Company maintains product liability insurance and comprehensive general liability insurance, which may cover certain
liabilities arising from its indemnification obligations. It is not possible to determine the maximum potential amount of exposure under these indemnification obligations due to the limited history of prior indemnification claims and the unique
facts and circumstances involved in each particular indemnification obligation. Such indemnification
117
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
obligations may not be subject to maximum loss clauses. Management is not currently aware of any matters that could have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
In December 2014, the Company filed a lawsuit alleging fraudulent inducement, breach of
contract and negligence on the part of a contract research organization for
BENEFIT-ALS.
The Company was seeking monetary damages. On June 7, 2016 the Company entered into a settlement agreement with the
contract research organization for $4.5 million. The Company received payment related to the settlement agreement in July 2016 and the full settlement amount was classified as a reduction of R&D expense in June 2016.
Note 11 Stockholders Equity
Preferred Stock
As of December 31, 2016 and 2015, respectively, there were 10,000,000 shares of preferred stock authorized and no shares
outstanding.
Common Stock
As of December 31, 2016 and 2015, respectively, there were 163,000,000 shares and 81,500,000 shares of common stock
authorized and 40,646,595 and 39,581,692 shares outstanding.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income
(loss) is comprised of unrealized holding gains and losses on the Companys
available-for-sale
securities that are excluded from net loss and reported separately in
stockholders equity.
In 2016 and 2015, the Company recorded insignificant amounts of unrealized gains (losses) in
available-for-sale
securities in accumulated other comprehensive loss.
Common Stock Outstanding
In June 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 sold,
through December 31, 2014, 2,397,278 shares of common stock through MLV for net proceeds of approximately $15.2 million.
On June 25, 2012, pursuant to the June 2012 Public Offerings, in aggregate the Company issued to various investors
(i) 9,320,176 shares of common stock for a purchase price of $4.56 per share, (ii) 23,026 shares of the Series B Preferred Stock for a purchase price of $760.00 per share, and (iii) warrants to purchase 7,894,704 shares of the
Companys common stock at an exercise price of $5.28 per share, for aggregate gross proceeds of approximately $60.0 million. After issuance costs of approximately $4.0 million, the net proceeds from the June 2012 Public Offerings were
approximately $56.0 million. Through December 31, 2016, the Company issued 4,104.966 shares of common stock related to exercises of warrants in accordance with the June 2012 Public Offerings.
In conjunction with the Amgen Agreement Amendment (see Note 7), in June 2013, Amgen purchased 1,404,100 shares of the
Companys common stock at a price per share of $7.12 and an aggregate purchase price of $10.0 million, which was received in June 2013. Under the terms of this agreement, Amgen agreed to certain
118
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
trading and other restrictions with respect to the Companys common stock. The Company determined the fair value of the stock issued to Amgen to be $7.5 million. The excess of cash
received over fair value of $2.5 million was deferred and is being allocated between the license and services based on their relative selling prices using best estimate of selling price.
In February 2014, the Company closed an underwritten public offering for the issuance and sale of 5,031,250 shares of its
common stock. The gross public offering proceeds were approximately $40.3 million. The net proceeds from the sale of the shares were approximately $37.5 million, after deducting the underwriting discount and offering expenses.
In December 2014, the Company also entered into a common stock purchase agreement which provided for the sale of 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, which was received in December 2014.
On September 4, 2015, the Company entered into an Committed Equity Offering (an CE Offering) that is an
at-the-market
issuance sales agreement (the Cantor Fitzgerald Agreement) with Cantor Fitzgerald & Co. (Cantor Fitzgerald), pursuant to which
the Company may issue and sell shares of common stock having an aggregate offering price of up to $40.0 million, from time to time through Cantor Fitzgerald as its sales agent. The issuance and sale of these shares by the Company under the
Cantor Fitzgerald 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 September 17, 2015.
Sales of the Companys common stock, through Cantor Fitzgerald, 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 Cantor Fitzgerald. Subject to the terms and conditions of the Cantor Fitzgerald Agreement, Cantor Fitzgerald 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 Cantor Fitzgerald Agreement. The offering of shares of common stock pursuant to the Cantor Fitzgerald Agreement will terminate upon the earlier of (1) the sale of all common stock subject to the Cantor Fitzgerald Agreement or
(2) termination of the Cantor Fitzgerald Agreement. The Cantor Fitzgerald Agreement may be terminated by Cantor Fitzgerald at any time upon ten days notice to the Company or may be terminated by the Company at any time upon five day
s notice to Cantor Fitzgerald, or by Cantor Fitzgerald at any time in certain circumstances, including the occurrence of a material adverse change in the Companys business. The Company will pay Cantor Fitzgerald a commission rate equal to 3.0%
of the gross proceeds of the sales price per share of any common stock sold through Cantor Fitzgerald under the Cantor Fitzgerald Agreement. The Company has also provided Cantor Fitzgerald with customary indemnification and contribution rights. As
of December 31, 2016, 808,193 shares have been issued through Cantor Fitzgerald under the Cantor Fitzgerald Agreement for total net proceeds of approximately $8.9 million. Through February 23, 2017, the Company issued and sold 993,408
shares for total net proceeds of approximately $11.0 million and $28.7 million remains available to us under the September 2015 Registration Statement.
Warrants
As of December 31, 2016, the Company had warrants outstanding to purchase 4.2 million shares of the Companys
common stock.
In June 2012, warrants were issued pursuant to the June 2012 underwriting agreements the Company entered
into in connection with two separate, concurrent offerings for our securities (the June 2012 Public
119
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Offerings). In accordance with the accounting guidance for valuing stock and warrants when stock is issued in conjunction with other securities, and the stock and other securities are to be
accounted for as equity, the Company allocated the gross purchase proceeds using the relative fair value method. For accounting purposes, the June 2012 Public Offerings were considered to be one transaction. The fair value of the common stock issued
in the June 2012 Public Offerings was calculated based on the closing price of the stock on the commitment date as quoted on The NASDAQ Global Market.
In October 2015, warrants to purchase 65,189 shares of the Companys common stock at an exercise price of $6.90 per share
were issued in accordance with the Loan Agreement. Refer to Note 9 Long-Term Debt, for further details regarding the Loan Agreement.
In February 2016, warrants to purchase 68,285 shares of the Companys common stock at an exercise price of $6.59 per
share were issued in accordance with the Loan Agreement. The Company valued the warrants as of the date of issuance at $288,000 using the Black-Scholes option pricing model and the following assumptions: a contractual term of five years, a risk-free
interest rate of 1.7%, volatility of 75%, and the fair value of the Companys common stock of $7.00.
In August 2016,
warrants to purchase 104,533 shares of the Companys common stock at an exercise price of $5.28 per share were cash exercised in accordance with the June 2012 public offerings underwriting agreements.
In September 2016, the Company issued 690,580 shares of common stock related to cashless exercises of warrants in accordance
with the June 2012 public offerings.
In December 2016, the Company issued 28,569 shares of common stock related to
cashless exercises of warrants in accordance with the June 2012 public offerings.
Outstanding warrants as of
December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Exercise
Price
|
|
|
Expiration
Date
|
|
Issued 6/25/2012
|
|
|
4,104,966
|
|
|
$
|
5.28
|
|
|
|
06/25/17
|
|
Issued 10/19/2015
|
|
|
65,189
|
|
|
$
|
6.90
|
|
|
|
10/19/20
|
|
Issued 02/10/2016
|
|
|
68,285
|
|
|
$
|
6.59
|
|
|
|
02/10/21
|
|
Equity Incentive Plan
Total employee stock-based compensation expenses were $7.1 million, $4.6 million and $3.3 million for the years
ended December 31, 2016, 2015 and 2014, respectively.
Stock Option Plans
2004 Plan
In January 2004, the Board of Directors adopted the 2004 Equity Incentive Plan (the 2004 Plan), which was approved
by the stockholders in February 2004. The 2004 Plan provides for the granting of incentive stock options, nonstatutory stock options, restricted stock, stock appreciation rights, stock performance units and stock performance shares to employees,
directors and consultants. Under the 2004 Plan, options may be granted at prices not lower than 100% of the fair market value of the common stock on the date of grant for nonstatutory stock options and incentive stock options and may be granted for
terms of up to ten years from the date of grant.
120
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Options granted to new employees generally vest 25% after one year and monthly thereafter over a period of four years. Options granted to existing employees generally vest monthly over a period
of four years. At the May 2013 Annual Meeting of Stockholders, the number of shares of common stock authorized for issuance under the 2004 Plan was increased by 2,000,000. At the May 2015 Annual Meeting of Stockholders, the number of shares of
common stock authorized for issuance under the 2004 Plan was increased by 3,130,000. As of December 31, 2016, there were 1,588,300 shares of common stock reserved for issuance under the 2004 Plan.
Stock Options
Activity under the Equity Incentive Plan was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Available for
Grant of Option
or Award
|
|
|
Stock Options
Outstanding
|
|
|
Weighted
Average Exercise
Price per Share -
Stock Options
|
|
|
Weighted
Average Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Balance at December 31, 2013
|
|
|
2,161,829
|
|
|
|
2,449,365
|
|
|
$
|
15.15
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(944,831
|
)
|
|
|
944,831
|
|
|
|
8.80
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted
|
|
|
(43,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(390
|
)
|
|
|
6.00
|
|
|
|
|
|
|
|
|
|
Options forfeited/expired
|
|
|
95,980
|
|
|
|
(95,980
|
)
|
|
|
39.74
|
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
1,270,478
|
|
|
|
3,297,826
|
|
|
$
|
12.62
|
|
|
|
|
|
|
|
|
|
Increase in authorized shares
|
|
|
3,130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(1,175,730
|
)
|
|
|
1,175,730
|
|
|
|
7.62
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted
|
|
|
(739,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(68,635
|
)
|
|
|
6.22
|
|
|
|
|
|
|
|
|
|
Options forfeited/expired
|
|
|
326,762
|
|
|
|
(326,762
|
)
|
|
|
16.83
|
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
2,816,010
|
|
|
|
4,078,159
|
|
|
$
|
10.94
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(1,446,675
|
)
|
|
|
1,446,675
|
|
|
|
7.10
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted
|
|
|
(47,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(74,556
|
)
|
|
|
6.75
|
|
|
|
|
|
|
|
|
|
Options forfeited/expired
|
|
|
257,465
|
|
|
|
(257,465
|
)
|
|
|
24.25
|
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
8,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
1,588,300
|
|
|
|
5,192,813
|
|
|
$
|
9.27
|
|
|
|
6.83
|
|
|
$
|
21,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
|
|
|
|
3,364,286
|
|
|
$
|
10.24
|
|
|
|
5.83
|
|
|
$
|
12,771
|
|
Vested and expected to vest as of December 31,
2016
|
|
|
|
|
|
|
5,147,387
|
|
|
$
|
9.29
|
|
|
|
6.81
|
|
|
$
|
21,075
|
|
Total intrinsic value of stock options exercised was $202,000, $94,000, and $1,000 during the
years ended December 31, 2016, 2015 and 2014, respectively. The intrinsic value is calculated as the difference between the market value at the date of exercise and the exercise price of the shares. The market value as of December 31, 2016
was $12.15 per share as reported by NASDAQ. The weighted average grant date fair value of stock options granted was $4.77, $5.35 and $6.01 per share during the years ended December 31, 2016, 2015 and 2014, respectively.
The number of option shares vested was 970,241, 713,078 and 601,647 in 2016, 2015 and 2014, respectively. The grant date fair
value of option shares vested was $4.9 million, $3.6 million and $3.0 million in 2016, 2015 and 2014, respectively.
121
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Stock Units
Restricted stock unit activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Award
Date Fair Value
per Share
|
|
Restricted stock units outstanding at December 31, 2013
|
|
|
41,663
|
|
|
$
|
6.00
|
|
Restricted stock units granted
|
|
|
43,500
|
|
|
|
9.65
|
|
Restricted stock units vested
|
|
|
(20,833
|
)
|
|
|
6.00
|
|
Restricted stock units forfeited
|
|
|
(1,000
|
)
|
|
|
6.00
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units outstanding at December 31, 2014
|
|
|
63,330
|
|
|
|
8.51
|
|
Restricted stock units granted
|
|
|
54,000
|
|
|
|
7.96
|
|
Restricted stock units vested
|
|
|
(42,078
|
)
|
|
|
7.82
|
|
Restricted stock units forfeited
|
|
|
(3,500
|
)
|
|
|
8.68
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units outstanding at December 31, 2015
|
|
|
71,752
|
|
|
|
8.49
|
|
Restricted stock units granted
|
|
|
47,000
|
|
|
|
6.67
|
|
Restricted stock units vested
|
|
|
(45,750
|
)
|
|
|
8.69
|
|
Restricted stock units forfeited
|
|
|
(8,500
|
)
|
|
|
7.20
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units outstanding at December 31, 2016
|
|
|
64,502
|
|
|
|
7.19
|
|
|
|
|
|
|
|
|
|
|
Restricted stock activities were limited to
non-executive
employees for years ended December 31, 2016 and 2015.
For the
years ended December 31, 2016, 2015 and 2014, the total fair value of restricted stock units vested was $0.4 million, $0.3 million and $0.1 million, respectively. The Company measures compensation expense for restricted stock
units at fair value on the grant date and recognizes the expense over the expected vesting period. The fair value for restricted stock units is based on the closing price of the Companys common stock on the grant date. Unvested restricted
stock units are subject to repurchase at no cost to the Company.
Restricted Stock Units that Contain Performance Conditions
Performance stock unit activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Award
Date Fair Value
per Share
|
|
Performance stock units outstanding at December 31, 2014
|
|
|
|
|
|
$
|
|
|
Restricted stock units granted
|
|
|
685,000
|
|
|
|
7.00
|
|
Restricted stock units vested
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units outstanding at December 31, 2015
|
|
|
685,000
|
|
|
|
7.00
|
|
Restricted stock units granted
|
|
|
|
|
|
|
|
|
Restricted stock units vested
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested restricted stock units outstanding at December 31, 2016
|
|
|
685,000
|
|
|
$
|
7.00
|
|
|
|
|
|
|
|
|
|
|
122
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2015, the Company granted
685,000 performance stock unit awards with a grant date fair value of $7.00 per share that contain performance conditions. As of December 31, 2016, all these performance stock units remain unvested.
No performance stock units vested during the years ended December 31, 2016, 2015 and 2014 respectively. The Company
measures compensation expense for performance stock units at fair value on the grant date and recognizes the expense over the expected vesting period once it is probable that the performance conditions will be achieved. The fair value for
performance stock units is based on the closing price of the Companys common stock on the grant date. Unvested performance stock awards are subject to repurchase at no cost to the Company.
Stock-Based Compensation
The Company applies the accounting guidance for stock compensation, which establishes accounting for share-based payment awards
made to employees,
non-employees
and directors, including employee stock options and employee stock purchases. Under this guidance, stock-based compensation cost is measured at the grant date based on the
calculated fair value of the award, and is recognized as an expense on a straight-line basis over the employees requisite service period, generally the vesting period of the award.
The following table summarizes stock-based compensation related to stock options, restricted stock awards, restricted stock
unit, and employee stock purchases (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research and development
|
|
$
|
4,252
|
|
|
$
|
1,828
|
|
|
$
|
1,361
|
|
General and administrative
|
|
|
2,894
|
|
|
|
2,739
|
|
|
|
1,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation included in operating expenses
|
|
$
|
7,146
|
|
|
$
|
4,567
|
|
|
$
|
3,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Assumptions
Employee Stock-Based Compensation
The Company uses the Black-Scholes option pricing model to determine the fair value of stock option grants to employees and
directors and employee stock purchase plan shares. The key input assumptions used to estimate fair value of these awards include the exercise price of the award, the expected option term, the expected volatility of the Companys stock over the
options expected term, the risk-free interest rate over the options expected term, and the Companys expected dividend yield, if any.
The fair value of share-based payments was estimated on the date of grant using the Black-Scholes option pricing model based
on the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2016
|
|
|
Year Ended
December 31, 2015
|
|
|
Year Ended
December 31, 2014
|
|
|
|
Employee
Stock Options
|
|
|
ESPP
|
|
|
Employee
Stock Options
|
|
|
ESPP
|
|
|
Employee
Stock Options
|
|
|
ESPP
|
|
Risk-free interest rate
|
|
|
1.9
|
%
|
|
|
0.5
|
%
|
|
|
1.7
|
%
|
|
|
0.3
|
%
|
|
|
1.9
|
%
|
|
|
0.2
|
%
|
Volatility
|
|
|
74.0
|
%
|
|
|
74.0
|
%
|
|
|
79.4
|
%
|
|
|
75.3
|
%
|
|
|
77.1
|
%
|
|
|
86.0
|
%
|
Expected term in years
|
|
|
6.44
|
|
|
|
0.50
|
|
|
|
6.38
|
|
|
|
0.56
|
|
|
|
6.30
|
|
|
|
1.25
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
123
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The risk-free interest rate that the Company uses in the option pricing model
is based on the U.S. Treasury
zero-coupon
issues with remaining terms similar to the expected terms of the options. The Company does not anticipate paying dividends in the foreseeable future and therefore
uses an expected dividend yield of zero in the option pricing model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical
data is used to estimate
pre-vesting
option forfeitures and record stock-based compensation expense only on those awards that are expected to vest.
The Company uses its own historical exercise activity and extrapolates the life cycle of options outstanding to arrive at its
estimated expected term for new option grants. The Company uses its own volatility history based on its stocks trading history for the expected term. The Company measures compensation expense for awards of restricted stock and restricted stock
units at fair value on the date of grant and recognizes the expense over the expected vesting period. The fair value for restricted stock and restricted stock unit awards is based on the closing price of the Companys common stock on the date
of grant.
As of December 31, 2016, there was $8.5 million of unrecognized compensation cost related to unvested
stock options, which is expected to be recognized over a weighted-average period of 2.4 years, and there was $3.1 million of unrecognized compensation cost related to unvested restricted stock and performance stock units, which is expected
to be recognized over a weighted-average period of 1.2 years. The fair value for restricted stock units is based on the closing price of the Companys common stock on the grant date.
Non-employee
Stock-Based Compensation
The Company records stock option grants to
non-employees,
excluding directors, at their
fair value on the measurement date. The measurement of stock-based compensation is subject to adjustment as the underlying equity instruments vest.
There were no stock option grants to
non-employees
in the years ended
December 31, 2016, 2015 or 2014. When terminating, if employees continue to provide service to the Company as consultants and their grants are permitted to continue to vest, the expense associated with the continued vesting of the related stock
options is classified as
non-employee
stock compensation expense after the status change.
In connection with services rendered by
non-employees,
the Company recorded
stock-based compensation expense of $147,000, $27,000, and $50,000 in 2016, 2015 and 2014, respectively.
ESPP
In January 2004, the Board of Directors adopted the 2004 ESPP, which was approved by the stockholders in February 2004. Under
the 2004 ESPP, statutory employees may purchase common stock of the Company up to a specified maximum amount through payroll deductions. The stock is purchased semi-annually at a price equal to 85% of the fair market value at certain plan-defined
dates. The 2004 ESPP was terminated in October 2015.
In May 2015, the Board of Directors adopted the 2015 ESPP, which was
approved by the stockholders in May 2015. The first purchase period under the 2015 ESPP commenced on November 2, 2015. Under the 2015 ESPP, statutory employees may purchase common stock of the Company up to a specified maximum amount through
payroll deductions. The stock is purchased semi-annually at a price equal to 85% of the fair market value at certain plan-defined dates.
124
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company issued 129,604, 21,167and 19,726 shares of common stock during
2016, 2015 and 2014, respectively, pursuant to the 2004 ESPP at an average price of $7.08, $3.24 and $3.38 per share, in 2016, 2015 and 2014, respectively.
At December 31, 2016 the Company had 519,339 shares of common stock reserved for issuance under the 2015 ESPP.
Note 12 Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized. The Company did not record an income tax provision in the years ended December 31, 2016, 2015, or 2014 because the Company
either had net taxable losses in these periods or was able to utilize tax attributes to offset taxable income.
For
financial statement purposes, income (loss) before taxes includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
$
|
16,453
|
|
|
$
|
(37,501
|
)
|
|
$
|
(14,646
|
)
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,453
|
|
|
$
|
(37,501
|
)
|
|
$
|
(14,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded the following income tax provision as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Companys deferred tax assets and liabilities were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
766
|
|
|
$
|
769
|
|
|
$
|
780
|
|
Capitalized R&D
|
|
|
11,675
|
|
|
|
13,150
|
|
|
|
15,176
|
|
Reserves and accruals
|
|
|
10,258
|
|
|
|
12,899
|
|
|
|
6,217
|
|
Net operating losses
|
|
|
146,961
|
|
|
|
153,251
|
|
|
|
148,184
|
|
Tax credits
|
|
|
46,998
|
|
|
|
38,742
|
|
|
|
34,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
216,658
|
|
|
|
218,811
|
|
|
|
204,900
|
|
Less: Valuation allowance
|
|
|
(216,658
|
)
|
|
|
(218,811
|
)
|
|
|
(204,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and
amount of which are uncertain. Based upon the weight of available evidence, which includes the Companys historical operating performance, reported cumulative net losses since inception, expected future losses, and difficulty in accurately
forecasting the Companys future results, the Company maintained a full valuation allowance on the net deferred tax assets as of December 31, 2016, 2015 and 2014. The valuation allowance was determined pursuant to the accounting guidance
for income taxes, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. The Company intends to maintain a full valuation allowance on the
U.S. deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. The valuation allowance decreased by $2.2 million in 2016 and increased by $13.9 million in 2015 and $1.0 million
in 2014.
As a result of certain realization requirements of accounting guidance for stock compensation, the table of
deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2016, 2015 and 2014 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for
financial reporting. Approximately $2.0 million of Federal and California net operating losses are related to tax stock option deductions in excess of book deductions. This amount will be credited to stockholders equity when it is
realized.
The following are the Companys valuation and qualifying accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning of
Period
|
|
|
Charged to
Expenses
|
|
|
Charged to
Other Accounts
|
|
|
Deductions
|
|
|
Balance at
End of Period
|
|
Year Ended December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax valuation allowance
|
|
$
|
203,863
|
|
|
$
|
1,037
|
|
|
|
|
|
|
|
|
|
|
$
|
204,900
|
|
Year Ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax valuation allowance
|
|
$
|
204,900
|
|
|
$
|
13,911
|
|
|
|
|
|
|
|
|
|
|
$
|
218,811
|
|
Year Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax valuation allowance
|
|
$
|
218,811
|
|
|
$
|
(2,153
|
)
|
|
|
|
|
|
|
|
|
|
$
|
216,658
|
|
126
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a reconciliation of the statutory federal income tax rate to
the Companys effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Tax at federal statutory tax rate
|
|
|
34%
|
|
|
|
(34)%
|
|
|
|
(34)%
|
|
State income tax, net of federal tax benefit
|
|
|
2%
|
|
|
|
0%
|
|
|
|
(1)%
|
|
State Apportionment
|
|
|
(7)%
|
|
|
|
0%
|
|
|
|
28%
|
|
Tax credits (net)
|
|
|
(32)%
|
|
|
|
(7)%
|
|
|
|
(7)%
|
|
Deferred tax assets (utilized) not benefited
|
|
|
(15)%
|
|
|
|
37%
|
|
|
|
7%
|
|
Stock-based compensation
|
|
|
7%
|
|
|
|
2%
|
|
|
|
5%
|
|
NOL Expiration
|
|
|
9%
|
|
|
|
2%
|
|
|
|
2%
|
|
Other
|
|
|
2%
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had federal net operating loss carryforwards of approximately $388.1 million
and apportioned state net operating loss carryforwards of approximately $249.9 million before federal benefit at December 31, 2016. If not utilized, the federal and state operating loss carryforwards will begin to expire in various amounts
beginning 2020 and 2017, respectively. The net operating loss carryforwards include deductions for stock options.
The
Company had general business credit of approximately $44.4 million and $13.6 million for federal and state income tax purposes, respectively, at December 31, 2016. Amounts are comprised of Research and Development Credits and Orphan
Drug Credits. If not utilized, the federal carryforwards will expire in various amounts beginning in 2021. The California state credit can be carried forward indefinitely. Since its filing of its 2011 tax return, the Company has claimed the orphan
drug credit. For qualifying expenses, the orphan drug credit offers an increased benefit relative to the research and development credit taken in years prior.
As required by California state law, the Company apportions income to California based on a market-based sourcing
approach. Accordingly, the Companys California apportionment formula is sensitive to changes in the source of the Companys mix of revenue.
In general, under Section 382 of the Internal Revenue Code (Section 382), a corporation that undergoes
an ownership change is subject to limitations on its ability to utilize its
pre-change
net operating losses and tax credits to offset future taxable income. The Company has performed a section 382
analysis for the year ended December 31, 2016 and has not experienced an ownership change since 2006. A portion of the Companys existing net operating losses and tax credits are subject to limitations arising from previous ownership
changes. Future changes in the Companys stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 and result in additional limitations.
Section 59(e) of the Internal Revenue Code allows a Company to capitalize R&D expenses. The Company did not elect to
capitalize R&D expenses in its 2014 tax return as they did not anticipate an ownership change under Section 382. For 2016 and 2015, the Company anticipates foregoing the election in its 2016 and 2015 tax return, respectively, as they do not
anticipate an ownership change under Section 382.
The Company follows the accounting guidance that prescribes a
comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Tax positions are initially recognized in the financial
statements when it is
127
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The significant jurisdictions in which the Company files income tax returns are the United States and California. For
jurisdictions in which tax filings are made, the Company is subject to income tax examination for all fiscal years since inception. The IRSs Large Business and International Division concluded its audit of the 2009 tax year with no material
adjustments. However, in general, the statute of limitations for tax liabilities for all years remains open for the purpose of adjusting the amounts of the losses and credits carried forward from those years.
The following table summarizes the activity related to our gross unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at the beginning of the year
|
|
$
|
6,715
|
|
|
$
|
6,274
|
|
Decrease related to prior year tax positions
|
|
|
5
|
|
|
|
|
|
Increase related to current year tax positions
|
|
|
845
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
7,565
|
|
|
$
|
6,715
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits as of December 31, 2016, 2015 and
2014 are $6.3 million, $5.5 million and $5.1 million of tax benefits, respectively, that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to
the unrecognized tax benefits noted above, the Company did not accrue any penalties or interest during 2016, 2015 or 2014. The Company does not expect its unrecognized tax benefit to change materially over the next twelve months.
Note 13 Interest and Other Income, Net
Interest and other income, net for the years ended December 31, 2016, 2015 and 2014, primarily consisted of interest
income generated from the Companys cash, cash equivalents and investments. In 2015, interest income also included net gains realized upon disposal of equipment.
128
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14 Quarterly Financial Data (Unaudited)
Quarterly results were as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
8,421
|
|
|
$
|
5,802
|
|
|
$
|
59,047
|
|
|
$
|
33,138
|
|
Net income (loss)
|
|
|
(12,455
|
)
|
|
|
(11,611
|
)
|
|
|
33,362
|
|
|
|
7,157
|
|
Net income (loss) per share basic
|
|
$
|
(0.31
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
0.84
|
|
|
$
|
0.18
|
|
Net income (loss) per share diluted
|
|
$
|
(0.31
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
0.77
|
|
|
$
|
0.16
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,414
|
|
|
$
|
6,542
|
|
|
$
|
7,945
|
|
|
$
|
9,757
|
|
Net loss
|
|
|
(8,872
|
)
|
|
|
(10,551
|
)
|
|
|
(8,849
|
)
|
|
|
(9,229
|
)
|
Net (loss) per share basic and diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.24
|
)
|
Note 15
Subsequent Events
On February 1, 2017, the Company entered into a Royalty Purchase Agreement (the
Royalty Agreement) with RPI Finance Trust (RPI), an entity related to Royalty Pharma. Under the Royalty Agreement, the Company sold a 4.5 percent royalty on potential worldwide sales of omecamtiv mecarbil (and potentially
other compounds with the same mechanism of action) that are subject to the Amgen Agreement (as amended) to RPI for a payment of $90.0 million. The royalty rate purchased may increase up to an additional 1 percent under certain circumstances. In
addition, RPI has agreed to purchase $10.0 million of Cytokinetics common stock pursuant to a concurrently executed Common Stock Purchase Agreement with RPI.
In February 2017, the Company provided notice to Amgen of its further exercise of its
co-invest
option in the additional amount of $30.0 million (i.e. to
co-invest
$40.0 million) in the Phase 3 development program of omecamtiv mecarbil under the
Amgen Agreement. As a result, the Company is eligible to receive an incremental royalty of up to 4% on increasing worldwide sales of omecamtiv mecarbil outside of Japan. Exercising its option and fully
co-funding
$40.0 million will afford the Company the right to
co-promote
omecamtiv mecarbil in institutional care settings in North America, with reimbursement by
Amgen for certain sales force activities.
From January 1, 2017 to February 23, 2017, the Company sold 185,215
shares pursuant to its CE offering with a weighted average sale price of $11.24 for net proceeds of $2.1 million.
129