Quarterly Report (10-q)

Date : 08/09/2019 @ 8:09PM
Source : Edgar (US Regulatory)
Stock : Cytokinetics Inc (CYTK)
Quote : 9.42  -0.4 (-4.07%) @ 4:59AM
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Last Trade
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Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2019

or

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

For the transition period from                      to                     

Commission file number: 000-50633

 

CYTOKINETICS, INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Delaware

94-3291317

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

280 East Grand Avenue

South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 624-3000

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Common Stock, $0.001 par value

Trading symbol

 

CYTK

Name of each exchange on which registered

 

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

Number of shares of common stock, $0.001 par value, outstanding as of August 1, 2019: 58,678,894

 

 

 

 


Table of Contents

 

CYTOKINETICS, INCORPORATED

TABLE OF CONTENTS FOR FORM 10-Q

FOR THE three and six MONTHS ENDED JUNE 30, 2019

 

 

Page

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements (Unaudited)  

3

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018

4

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

6

Notes to Condensed Consolidated Financial Statements

7

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

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

27

Item 4. Controls and Procedures

27

 

 

PART II. OTHER INFORMATION

28

Item 1. Legal Proceedings

28

Item 1A. Risk Factors

28

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

59

Item 3. Defaults Upon Senior Securities

59

Item 4. Mine Safety Disclosures

59

Item 5. Other Information

59

Item 6. Exhibits

60

 

 

SIGNATURES

61

 

 

 

 

 

 

2


Table of Contents

 

PART I. FINANCI AL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,361

 

 

$

42,256

 

Short-term investments

 

 

138,507

 

 

 

156,475

 

Accounts receivable

 

 

8,993

 

 

 

2,231

 

Contract assets

 

 

575

 

 

 

4,554

 

Prepaid and other current assets

 

 

2,515

 

 

 

2,158

 

Total current assets

 

 

184,951

 

 

 

207,674

 

Long-term investments

 

 

2,254

 

 

 

 

Property and equipment, net

 

 

2,945

 

 

 

3,204

 

Other assets

 

 

8,068

 

 

 

300

 

Total assets

 

$

198,218

 

 

$

211,178

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,194

 

 

$

3,764

 

Accrued liabilities

 

 

11,828

 

 

 

15,757

 

Current portion of long-term debt

 

 

 

 

 

2,607

 

Short-term lease liability

 

 

4,538

 

 

 

 

Other current liabilities

 

 

399

 

 

 

66

 

Total current liabilities

 

 

21,959

 

 

 

22,194

 

Long-term debt, net

 

 

44,473

 

 

 

39,806

 

Liability related to the sale of future royalties, net

 

 

132,388

 

 

 

122,473

 

Long-term lease liability

 

 

4,294

 

 

 

 

Other long-term liabilities

 

 

 

 

 

771

 

Total liabilities

 

 

203,114

 

 

 

185,244

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value

 

 

 

 

 

 

Common stock, $0.001 par value

 

 

58

 

 

 

55

 

Additional paid-in capital

 

 

799,088

 

 

 

768,703

 

Accumulated other comprehensive income

 

 

761

 

 

 

500

 

Accumulated deficit

 

 

(804,803

)

 

 

(743,324

)

Total stockholders’ equity (deficit)

 

 

(4,896

)

 

 

25,934

 

Total liabilities and stockholders’ equity (deficit)

 

$

198,218

 

 

$

211,178

 

 

 

 

 

 

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

 

3


Table of Contents

 

CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development revenues

 

$

7,137

 

 

$

4,680

 

 

$

15,601

 

 

$

8,265

 

License revenues

 

 

 

 

 

1,535

 

 

 

 

 

 

3,218

 

Total revenues

 

 

7,137

 

 

 

6,215

 

 

 

15,601

 

 

 

11,483

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

24,017

 

 

 

21,582

 

 

 

47,562

 

 

 

43,717

 

General and administrative

 

 

9,836

 

 

 

8,046

 

 

 

19,273

 

 

 

17,310

 

Total operating expenses

 

 

33,853

 

 

 

29,628

 

 

 

66,835

 

 

 

61,027

 

Operating loss

 

 

(26,716

)

 

 

(23,413

)

 

 

(51,234

)

 

 

(49,544

)

Interest expense

 

 

(1,377

)

 

 

(898

)

 

 

(2,547

)

 

 

(1,761

)

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

 

 

(5,064

)

 

 

(4,338

)

 

 

(9,883

)

 

 

(8,467

)

Interest income

 

 

1,044

 

 

 

1,126

 

 

 

2,185

 

 

 

1,968

 

Net loss

 

$

(32,113

)

 

$

(27,523

)

 

$

(61,479

)

 

$

(57,804

)

Net loss per share — basic and diluted

 

$

(0.56

)

 

$

(0.51

)

 

$

(1.09

)

 

$

(1.07

)

Weighted-average shares in net loss per share — basic and diluted

 

 

57,648

 

 

 

54,293

 

 

 

56,242

 

 

 

54,178

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities, net

 

 

155

 

 

 

(39

)

 

 

261

 

 

 

107

 

Comprehensive loss

 

$

(31,958

)

 

$

(27,562

)

 

$

(61,218

)

 

$

(57,697

)

 

 

 

 

 

 

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

 

4


Table of Contents

 

CYTOKINETICS, INCORPORATED

condensed CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ Equity (Deficit)

(In thousands, except share data) (Unaudited)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Accumulated

Other Comprehensive Income

 

 

Accumulated

Deficit

 

 

Total

Stockholders' Equity (Deficit)

 

 

 

 

 

Balance, December 31, 2018

 

 

54,717,906

 

 

$

55

 

 

$

768,703

 

 

$

500

 

 

$

(743,324

)

 

$

25,934

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,282

 

 

 

 

 

 

 

 

 

2,282

 

Exercise of stock options

 

 

5,116

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

31

 

Vesting of restricted stock units, net of taxes withheld

 

 

165,347

 

 

 

 

 

 

(732

)

 

 

 

 

 

 

 

 

(732

)

Issuance of common stock under at-the-market offering, net of issuance costs

 

 

562,811

 

 

 

 

 

 

5,117

 

 

 

 

 

 

 

 

 

5,117

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

106

 

 

 

 

 

 

106

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,366

)

 

 

(29,366

)

Balance, March 31, 2019

 

 

55,451,180

 

 

$

55

 

 

$

775,401

 

 

$

606

 

 

$

(772,690

)

 

$

3,372

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,819

 

 

 

 

 

 

 

 

 

2,819

 

Exercise of stock options

 

 

62,356

 

 

 

 

 

 

441

 

 

 

 

 

 

 

 

 

441

 

Issuance of common stock under at-the-market offering, net of issuance costs

 

 

2,449,984

 

 

 

3

 

 

 

19,694

 

 

 

 

 

 

 

 

 

19,697

 

Issuance of common stock under Employee Stock Purchase Plan

 

 

92,975

 

 

 

 

 

 

548

 

 

 

 

 

 

 

 

 

548

 

Issuance of warrants

 

 

 

 

 

 

 

 

185

 

 

 

 

 

 

 

 

 

185

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

155

 

 

 

 

 

 

155

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,113

)

 

 

(32,113

)

Balance, June 30, 2019

 

 

58,056,495

 

 

$

58

 

 

$

799,088

 

 

$

761

 

 

$

(804,803

)

 

$

(4,896

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Accumulated

Other Comprehensive Income

 

 

Accumulated

Deficit

 

 

Total

Stockholders' Equity (Deficit)

 

 

 

 

 

Balance, December 31, 2017

 

 

53,960,832

 

 

$

54

 

 

$

755,526

 

 

$

343

 

 

$

(646,081

)

 

$

109,842

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,403

 

 

 

 

 

 

 

 

 

2,403

 

Exercise of stock options

 

 

59,112

 

 

 

 

 

 

342

 

 

 

 

 

 

 

 

 

342

 

Vesting of restricted stock units, net of taxes withheld

 

 

177,602

 

 

 

 

 

 

(866

)

 

 

 

 

 

 

 

 

(866

)

ASC 606 Adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,013

 

 

 

18,013

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

146

 

 

 

 

 

 

146

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,281

)

 

 

(30,281

)

Balance, March 31, 2018

 

 

54,197,546

 

 

$

54

 

 

$

757,405

 

 

$

489

 

 

$

(658,349

)

 

$

99,599

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,505

 

 

 

 

 

 

 

 

 

2,505

 

Exercise of stock options

 

 

306,027

 

 

 

1

 

 

 

2,441

 

 

 

 

 

 

 

 

 

2,442

 

Vesting of restricted stock units, net of taxes withheld

 

 

11,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under Employee Stock Purchase Plan

 

 

75,992

 

 

 

 

 

 

536

 

 

 

 

 

 

 

 

 

536

 

ASC 606 Adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,350

)

 

 

(2,350

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(39

)

 

 

 

 

 

(39

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,523

)

 

 

(27,523

)

Balance, June 30, 2018

 

 

54,591,396

 

 

$

55

 

 

$

762,887

 

 

$

450

 

 

$

(688,222

)

 

$

75,170

 

 

 

 

 

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

 

 

5


Table of Contents

 

CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(61,479

)

 

$

(57,804

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

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

 

 

9,883

 

 

 

8,467

 

Non-cash equity-related expense

 

 

5,101

 

 

 

4,908

 

Depreciation of property and equipment

 

 

566

 

 

 

1,291

 

Interest receivable and amortization on investments

 

 

(1,208

)

 

 

(500

)

Non-cash interest expense related to debt

 

 

516

 

 

588

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,762

)

 

 

876

 

Contract assets

 

 

3,979

 

 

 

9,038

 

Prepaid and other assets

 

 

(266

)

 

 

2,188

 

Operating lease right-of-use assets

 

 

1,733

 

 

 

 

Accounts payable

 

 

1,430

 

 

 

(3,918

)

Accrued and other liabilities

 

 

(3,223

)

 

 

(1,597

)

Contract liabilities

 

 

 

 

 

(10,618

)

Operating lease liabilities

 

 

(1,854

)

 

 

 

Deferred revenue

 

 

 

 

 

(9,572

)

Net cash used in operating activities

 

 

(51,584

)

 

 

(56,653

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(100,161

)

 

 

(132,208

)

Sales and maturities of investments

 

 

117,345

 

 

 

108,477

 

Purchases of property and equipment

 

 

(307

)

 

 

(321

)

Net cash provided by (used in) investing activities

 

 

16,877

 

 

 

(24,052

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock under at the market offering, net of issuance costs

 

 

24,814

 

 

 

 

Proceeds from stock based award activities, net

 

 

288

 

 

 

 

Net proceeds from long-term debt, net of debt discount and issuance cost

 

 

1,710

 

 

 

2,454

 

Net cash provided by financing activities

 

 

26,812

 

 

 

2,454

 

Net decrease in cash and cash equivalents

 

 

(7,895

)

 

 

(78,251

)

Cash and cash equivalents, beginning of period

 

 

42,256

 

 

 

125,206

 

Cash and cash equivalents, end of period

 

$

34,361

 

 

$

46,955

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosure - non-cash investing and financing activity:

 

 

 

 

 

 

 

 

Right-of-use assets recognized in exchange for lease obligations

 

$

10,687

 

 

$

 

Issuance of warrants in connection with long-term debt

 

 

185

 

 

 

 

 

 

 

 

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

 

6


Table of Contents

 

CYTOKINETICS, INCORPORATED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization and Significant Accounting Policies

Cytokinetics, Incorporated (the “Company”, “we” or “our”) was incorporated under the laws of the state of Delaware on August 5, 1997. The Company is a late stage biopharmaceutical company focused on the discovery and development of novel small molecule therapeutics that modulate muscle function for the potential treatment of serious diseases and medical conditions.

Our financial statements contemplate the conduct of our operations in the normal course of business. We have incurred an accumulated deficit of $804.8 million since inception and there can be no assurance that we will attain profitability. The Company anticipates that it will have operating losses and net cash outflows in future periods.

We are 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 our future plans. Our liquidity will be impaired if sufficient additional capital is not available on terms acceptable to us. To date, we have funded operations primarily through sales of our common stock, contract payments under our collaboration agreements, sale of future royalties, debt financing arrangements, government grants and interest income. Until we achieve profitable operations, we intend to continue to fund operations through payments from strategic collaborations, additional sales of equity securities, grants and debt financings. We have never generated revenues from commercial sales of our drugs and may not have drugs to market for at least several years, if ever. Our success is dependent on our ability to enter into new strategic collaborations and/or raise additional capital and to successfully develop and market one or more of our drug candidates. As a result, we may choose to raise additional capital through equity or debt financings to continue to fund operations in the future. We 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 our 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 our future financial results, financial position and cash flows.

Based on the current status of our research and development activities, we believe that our existing cash, cash equivalents and investments will be sufficient to fund cash requirements for at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q. If, at any time, our prospects for financing research and development programs decline, we may decide to reduce research and development expenses by delaying, discontinuing or reducing funding of one or more of our research or development programs. Alternatively, we 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. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis of Presentation

Our condensed consolidated financial statements include the accounts of Cytokinetics and our wholly-owned subsidiary. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The financial statements include all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for the fair statement of our financial information. These interim results are not necessarily indicative of results to be expected for the full fiscal year or any future interim period. The balance sheet as of December 31, 2018 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. The financial statements and related disclosures have been prepared with the presumption that users of the interim financial statements have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us 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 condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, investments, accrued research and development expenses, other long-lived assets, stock-based compensation, operating lease assets and liabilities, and the valuation of deferred tax assets. We base our estimates on our historical experience and also on assumptions that we believe are reasonable; however, actual results could significantly differ from those estimates.

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Leases

We adopted Accounting Standards Update No. 2016-02, Leases (“ASC 842”) on January 1, 2019 using the modified retrospective approach. There was no cumulative-effect adjustment as of January 1, 2019. Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, ASC 840, Lease Accounting.

We elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allowed us to carry forward the historical lease classification of those leases in place as of January 1, 2019. We also elected to exclude from our condensed consolidated balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for our long-term facilities lease.

In adopting ASC 842, we recognized a right-of-use asset in other assets and a short-term and long-term lease liability on our condensed consolidated balance sheets for our facilities lease that expires in 2021 (the “Lease”). The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent. We determined the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. In determining the present value of lease payments, we estimated our incremental borrowing rate based on information available when we adopted ASC 842. We base the lease liability on the present value of remaining lease payments over the remaining term of the Lease, using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date.

We evaluated our other contracts and determined that, except for the Lease, none of our contracts contained a lease as defined in ASC 842. The impact on the condensed consolidated balance sheets as of January 1, 2019 of adopting ASC 842 is as follows (in thousands):

 

Balance sheet account description

 

ASC 840

January 1, 2019

 

 

ASC 842

January 1, 2019

 

 

Impact of adoption

 

Deferred rent classified as accrued liabilities

 

$

(323

)

 

 

 

 

$

323

 

Deferred rent classified as other long-term liabilities

 

 

(773

)

 

 

 

 

 

773

 

Short-term lease liability

 

 

 

 

 

(4,460

)

 

 

(4,460

)

Long-term lease liability

 

 

 

 

 

(6,227

)

 

 

(6,227

)

Other assets

 

 

 

 

 

9,591

 

 

 

9,591

 

 

We recognize rent expense for the operating lease on a straight-line basis over the lease term in operating expenses on the condensed consolidated statements of operations.

Revenue Recognition

On January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method. On January 1, 2018, for contracts within the scope of ASC 606, we recognized a contract asset or liability and reduced our accumulated deficit for the effect of adopting ASC 606 and did not revise our prior period financial statements. Pursuant to ASC 606, to recognize revenue from a contract with a customer, we:

(i) identify our contracts with our customers;

(ii) identify our distinct performance obligations in each contract;

(iii) determine the transaction price of each contract;

(iv) allocate the transaction price to the performance obligations; and

(v) recognize revenue as we satisfy our performance obligations.

At contract inception, we assess the goods or services promised within each contract and assess whether each promised good or service is distinct and determine those that are performance obligations. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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Collaborative Arrangements

We enter into collaborative arrangements with partners that typically include payment to us for one of more of the following: (i) license fees; (ii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; (iii) royalties on net sales of licensed products; and (iv) research and development cost reimbursements. Each of these payments results in collaboration or other revenues. Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied.

As part of the accounting for these arrangements, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. The stand-alone selling price may include such items as, forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, to determine the transaction price to allocate to each performance obligation.

For our collaboration agreements that include more than one performance obligation, such as a license combined with a commitment to perform research and development services, we make judgments to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate our progress each reporting period and, if necessary, adjust the measure of a performance obligation and related revenue recognition.

License Fees : If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Milestone Payments : We use judgment to determine whether a milestone is considered probable of being reached. Using the most likely amount method, we include the value of a milestone payment in the consideration for a contract at inception if we then conclude achieving the milestone is more likely than not. Otherwise, we exclude the value of a milestone payment from contract consideration at inception and recognize revenue for a milestone at a later date, when we judge that it is probable the milestone will be achieved. If we conclude it is probable that a significant revenue reversal would not occur, the associated milestone is included in the transaction price. We then allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment.

Royalties : For contracts that include sales-based royalties, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. To date, we have not recognized any royalty revenues resulting from contracts.

Research and Development Cost Reimbursements : Our arrangement with Astellas Pharma Inc. (“Astellas”) and Amgen Inc. (“Amgen”) include promises of research and development services. We have determined that these services collectively are distinct from the licenses provided to Astellas and Amgen and as such, these promises are accounted for as a separate performance obligation recorded over time. We record revenue for these services as the performance obligations are satisfied, which we estimate using internal development costs incurred.

Recent Accounting Pronouncements

In November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”), which make targeted improvements to clarify the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of adopting ASU 2018-18.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses — Measurement of Credit Losses on Financial Instruments . ASU 2 016-13 changes the impairment model for most financial assets and certain other instruments and is effective for annual and interim reporting periods beginning after December 15, 2019. We are currently evaluati ng the impact of adopting ASU 2016-13 .

Note 2 — Net Loss Per Share

We excluded the following from diluted net loss per share because inclusion would have been antidilutive (in thousands):

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

Options to purchase common stock

 

 

7,693

 

 

 

5,421

 

Warrants to purchase common stock

 

 

165

 

 

 

100

 

Restricted Stock and Performance units

 

 

876

 

 

 

581

 

Shares issuable related to the ESPP

 

 

31

 

 

 

28

 

 

 

 

8,765

 

 

 

6,130

 

 

Note 3 — Research and Development Arrangements

Amgen

We and Amgen continue activities related to novel small molecule therapeutics, including omecamtiv mecarbil, that activate cardiac muscle contractility for potential applications in the treatment of heart failure under the collaboration and option agreement between the Company and Amgen, as amended (the “Amgen Agreement”).

We recognize research and development revenue for reimbursements from Amgen of both internal costs of certain full-time employee equivalents and other costs related to the Amgen Agreement. Research and development revenue from Amgen of $2.8 million and $6.9 million   in the second quarter and first half of 2019, respectively, consists of reimbursement of costs we incurred related to METEORIC-HF ( M ulticenter E xercise T olerance E valuation of O mecamtiv Mecarbil R elated to I ncreased C ontractility in H eart F ailure), a Phase 3 clinical trial intended to evaluate the potential of omecamtiv mecarbil to increase exercise performance. We had no research and development revenue from Amgen in the first half of 2018.

We had accounts receivable of $2.8 million as of June 30, 2019 and $1.9 million as of December 31, 2018.

In 2018, we paid Amgen $18.8 million and completed the exercise of our option under the Amgen Agreement to co-invest $40.0 million in the Phase 3 development program of omecamtiv mecarbil in exchange for a total incremental royalty from Amgen of up to 4% on increasing worldwide sales of omecamtiv mecarbil outside Japan (the “Co-Invest Option”).

Under the Amgen Agreement, we are eligible to receive over $300.0 million in additional development milestone payments based on various clinical milestones, including the initiation of certain clinical studies, the submission of an application for marketing authorization for a drug candidate to certain regulatory authorities and the receipt of such approvals. Additionally, we are 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, we cannot estimate if and when these milestone payments could be achieved or become due and, accordingly, we consider the milestone payments to be constrained and exclude the milestone payments from the transaction price.

Astellas

Cytokinetics and Astellas are parties to the Amended and Restated License and Collaboration Agreement dated December 22, 2014, as amended (the “Astellas Agreement”) focused on the research, development, and commercialization of skeletal muscle activators.

We have 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. Revenue from Astellas included research and development revenues of $4.4 million and $4.7 million for the three months ended June 30, 2019 and 2018, respectively, and $8.7 million and $8.3 million for the six months ended June 30, 2019 and 2018, respectively, and no license revenues for the three and six months ended June 30, 2019 and $1.5 million and $3.2 million for the three and six months ended June 30, 2018, respectively .

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In 2014, we and Astellas amended and restated the Astellas Agreement (the “2014 Astellas Amendment”) and expanded the objective of the collaboration to include spinal muscular atrophy (“SMA”) and potentially other neuromuscular indications for reldesemtiv and other fast skeletal muscle troponin activators (“FSTAs”) . License revenues in 2018 related to our performance obligations under the 2014 Astellas Amendment. In 2018, we completed all our deliverables for the 2014 Astellas Amendment.

In 2016, we and Astellas amended the Astellas Agreement (the “2016 Astellas Amendment”) to expand the collaboration to include the development of reldesemtiv for the potential treatment of amyotrophic lateral sclerosis (“ALS”), as well as the possible development in ALS of other FSTAs previously licensed by us to Astellas, and Astellas paid us a $35.0 million non-refundable upfront amendment fee and an accelerated $15.0 million milestone payment for the initiation of the first Phase 2 clinical trial of reldesemtiv in ALS that was otherwise provided for in the Astellas Agreement, as if such milestone had been achieved upon the execution of the 2016 Astellas Amendment, and committed research and development consideration of $44.2 million, for total consideration of $94.2 million. We allocated the consideration to the license and to the research and development services, and recognized license revenue and research and development revenue using the proportional performance model.

Our contract asset from the 2016 Astellas Amendment of $4.6 million as of December 31, 2018 increased by $5.3 million as we performed services during the first half of 2019 , offset by payments we received from Astellas of $9.3 million during the first half of 2019, to $0.6 million as of June 30, 2019. We expect to complete all of our deliverables for the 2016 Astellas Amendment in 2019. We had accounts receivable from Astellas of $6.2 million as of June 30, 2019 and $0.3 million   as of December 31, 2018 .

Currently under the Astellas Agreement, additional research and early and late state development milestone payments for research and clinical milestones, including the initiation of certain clinical studies, the submission of an application for marketing authorization for a drug candidate to certain regulatory authorities and the commercial launch of collaboration products could total over $600.0 million and includes up to $95.0 million relating to reldesemtiv in non-neuromuscular indications, and over $100.0 million related to reldesemtiv in each of SMA, ALS and other neuromuscular indications. Additionally, $200.0 million in commercial milestones could be received under the Astellas Agreement provided certain sales targets are met. We are eligible to receive up to $2.0 million in research mil estone payments under the collaboration for each future potential drug candidate. We are currently in discussions with Astellas regarding amending the terms of our collaboration agreement that may lead to the reduction of payments for such research, clinical and commercial milestones. Due to the nature of drug development, including the inherent risk of development and approval of drug candidates by regulatory authorities, it is not possible to estimate if and when these milestone payments could be achieved or become due, and accordingly, are constrained and not included in the transaction price.

Note 4 — Cash Equivalents and Investments

The amortized cost, unrealized gains, unrealized losses and fair value of cash equivalents and available for sale investments as of June 30, 2019 and December 31, 2018 were as follows (in thousands):

 

 

June 30, 2019

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Money market funds

 

$

26,560

 

 

$

 

 

$

 

 

$

26,560

 

U.S. Treasury securities

 

 

60,495

 

 

 

82

 

 

 

 

 

 

60,577

 

Agency bonds

 

 

47,273

 

 

 

52

 

 

 

 

 

 

47,325

 

Commercial paper

 

 

18,152

 

 

 

14

 

 

 

 

 

 

18,166

 

Corporate obligations

 

 

13,971

 

 

 

40

 

 

 

 

 

 

14,011

 

 

 

$

166,451

 

 

$

188

 

 

$

 

 

$

166,639

 

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Money market funds

 

$

34,771

 

 

$

 

 

$

 

 

$

34,771

 

U.S. Treasury securities

 

 

56,999

 

 

 

 

 

 

(41

)

 

 

56,958

 

Agency bonds

 

 

61,792

 

 

 

1

 

 

 

(14

)

 

 

61,779

 

Commercial paper

 

 

19,448

 

 

 

 

 

 

(13

)

 

 

19,435

 

Corporate obligations

 

 

17,644

 

 

 

2

 

 

 

(8

)

 

 

17,638

 

 

 

$