10-Q 1 cytk-20220331.htm 10-Q 10-Q
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Table of Contents

 

 

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 March 31, 2022

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.)

 

 

350 Oyster Point Blvd.

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 May 4, 2022: 85,652,213

 

 

 


Table of Contents

 

CYTOKINETICS, INCORPORATED

TABLE OF CONTENTS FOR FORM 10-Q

FOR THE three months ended March 31, 2022

 

 

Page

PART I. FINANCIAL INFORMATION

3

Item 1. Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations and Comprehensive Loss

4

Condensed Consolidated Statements of Stockholders’ Equity

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

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

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

45

Item 4. Controls and Procedures

45

 

 

PART II. OTHER INFORMATION

45

Item 1. Legal Proceedings

45

Item 1A. Risk Factors

45

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

83

Item 3. Defaults Upon Senior Securities

83

Item 4. Mine Safety Disclosures

83

Item 5. Other Information

83

Item 6. Exhibits

84

 

 

SIGNATURES

87

 

2


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

March 31, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

115,422

 

 

$

112,666

 

Short-term investments

 

 

493,552

 

 

 

358,972

 

Accounts receivable

 

 

6,056

 

 

 

51,819

 

Prepaid expenses and other current assets

 

 

8,496

 

 

 

12,215

 

Total current assets

 

 

623,526

 

 

 

535,672

 

Long-term investments

 

 

77,083

 

 

 

152,050

 

Property and equipment, net

 

 

75,740

 

 

 

73,271

 

Operating lease right-of-use assets

 

 

72,646

 

 

 

73,138

 

Other assets

 

 

7,258

 

 

 

7,188

 

Total assets

 

$

856,253

 

 

$

841,319

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

19,836

 

 

$

21,087

 

Accrued liabilities

 

 

29,477

 

 

 

34,370

 

Short-term operating lease liabilities

 

 

14,490

 

 

 

14,863

 

Other current liabilities

 

 

3,044

 

 

 

1,540

 

Total current liabilities

 

 

66,847

 

 

 

71,860

 

Term loan, net

 

 

61,165

 

 

 

47,367

 

Convertible notes, net

 

 

134,511

 

 

 

95,471

 

Liabilities related to revenue participation right purchase agreements, net

 

 

275,235

 

 

 

179,072

 

Long-term deferred revenue

 

 

87,000

 

 

 

87,000

 

Long-term operating lease liabilities

 

 

112,023

 

 

 

112,229

 

Other non-current liabilities

 

 

3,211

 

 

 

4,457

 

Total liabilities

 

 

739,992

 

 

 

597,456

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value

 

 

 

 

 

 

Common stock, $0.001 par value

 

 

85

 

 

 

84

 

Additional paid-in capital

 

 

1,406,249

 

 

 

1,452,268

 

Accumulated other comprehensive loss

 

 

(3,589

)

 

 

(869

)

Accumulated deficit

 

 

(1,286,484

)

 

 

(1,207,620

)

Total stockholders’ equity

 

 

116,261

 

 

 

243,863

 

Total liabilities and stockholders’ equity

 

$

856,253

 

 

$

841,319

 

 

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

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Revenues:

 

 

 

 

 

 

Research and development revenues

 

$

1,148

 

 

$

6,548

 

Total revenues

 

 

1,148

 

 

 

6,548

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

45,935

 

 

 

31,561

 

General and administrative

 

 

33,070

 

 

 

15,598

 

Total operating expenses

 

 

79,005

 

 

 

47,159

 

Operating loss

 

 

(77,857

)

 

 

(40,611

)

Interest expense

 

 

(2,746

)

 

 

(3,988

)

Loss on extinguishment of debt

 

 

(2,693

)

 

 

 

Non-cash interest expense on liabilities related to revenue participation right purchase agreements

 

 

(6,564

)

 

 

(2,795

)

Interest and other income, net

 

 

415

 

 

 

290

 

Net loss

 

$

(89,445

)

 

$

(47,104

)

Net loss per share — basic and diluted

 

$

(1.05

)

 

$

(0.66

)

Weighted-average number of shares used in computing net loss per share — basic and diluted

 

 

84,996

 

 

 

71,195

 

Other comprehensive loss:

 

 

 

 

 

 

Unrealized loss on available-for-sale securities, net

 

 

(2,720

)

 

 

(99

)

Comprehensive loss

 

$

(92,165

)

 

$

(47,203

)

 

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

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CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ Equity

(In thousands, except share data) (Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2021

 

 

84,799,542

 

 

$

84

 

 

$

1,452,268

 

 

$

(869

)

 

$

(1,207,620

)

 

$

243,863

 

ASU 2020-06 adoption

 

 

 

 

 

 

 

 

(49,476

)

 

 

 

 

 

10,581

 

 

 

(38,895

)

Exercise of stock options

 

 

374,242

 

 

 

1

 

 

 

4,074

 

 

 

 

 

 

 

 

 

4,075

 

Vesting of restricted stock units,
   net of taxes withheld

 

 

403,169

 

 

 

 

 

 

(9,602

)

 

 

 

 

 

 

 

 

(9,602

)

Stock-based compensation

 

 

 

 

 

 

 

 

8,985

 

 

 

 

 

 

 

 

 

8,985

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(2,720

)

 

 

 

 

 

(2,720

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(89,445

)

 

 

(89,445

)

Balance, March 31, 2022

 

 

85,576,953

 

 

$

85

 

 

$

1,406,249

 

 

$

(3,589

)

 

$

(1,286,484

)

 

$

116,261

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2020

 

 

71,015,183

 

 

$

70

 

 

$

1,105,470

 

 

$

149

 

 

$

(992,306

)

 

$

113,383

 

Exercise of stock options

 

 

187,807

 

 

 

1

 

 

 

1,271

 

 

 

 

 

 

 

 

 

1,272

 

Vesting of restricted stock units,
   net of taxes withheld

 

 

360,050

 

 

 

 

 

 

(4,449

)

 

 

 

 

 

 

 

 

(4,449

)

Net share settlement

 

 

 

 

 

 

 

 

(418

)

 

 

 

 

 

 

 

 

(418

)

Stock-based compensation

 

 

 

 

 

 

 

 

5,261

 

 

 

 

 

 

 

 

 

5,261

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(99

)

 

 

 

 

 

(99

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,104

)

 

 

(47,104

)

Balance, March 31, 2021

 

 

71,563,040

 

 

$

71

 

 

$

1,107,135

 

 

$

50

 

 

$

(1,039,410

)

 

$

67,846

 

 

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

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CYTOKINETICS, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(89,445

)

 

$

(47,104

)

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

 

 

 

 

 

 

Non-cash interest expense on liabilities related to revenue participation right purchase agreements

 

 

6,592

 

 

 

2,822

 

Non-cash stock-based compensation expense

 

 

8,985

 

 

 

5,261

 

Non-cash lease expense

 

 

227

 

 

 

1,124

 

Depreciation and amortization of property and equipment

 

 

1,341

 

 

 

537

 

Interest receivable and amortization on investments

 

 

1,004

 

 

 

933

 

Non-cash interest expense related to debt

 

 

1,300

 

 

 

1,676

 

Loss on extinguishment of debt

 

 

2,693

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

50,763

 

 

 

(94

)

Prepaid and other assets

 

 

(1,422

)

 

 

2,677

 

Accounts payable

 

 

(3,080

)

 

 

(4,047

)

Accrued and other liabilities

 

 

(3,522

)

 

 

(3,120

)

Operating lease liabilities

 

 

(579

)

 

 

9,816

 

Other non-current liabilities

 

 

(1,668

)

 

 

 

Net cash used in operating activities

 

 

(26,811

)

 

 

(29,519

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of investments

 

 

(193,127

)

 

 

(66,200

)

Maturities of investments

 

 

129,790

 

 

 

64,250

 

Sales of investments

 

 

 

 

 

3,300

 

Purchases of property and equipment

 

 

(942

)

 

 

(6,626

)

Net cash used in investing activities

 

 

(64,279

)

 

 

(5,276

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayment of finance lease liabilities

 

 

(148

)

 

 

 

Repayment of term loan

 

 

(47,651

)

 

 

 

Debt extinguishment costs

 

 

(2,409

)

 

 

 

Proceeds from 2020 RPI Transactions, net

 

 

149,581

 

 

 

 

Proceeds from and payments for stock-based award activities, net

 

 

(5,527

)

 

 

(3,596

)

Net cash provided by (used in) financing activities

 

 

93,846

 

 

 

(3,596

)

Net increase in cash and cash equivalents

 

 

2,756

 

 

 

(38,391

)

Cash and cash equivalents, beginning of period

 

 

112,666

 

 

 

82,985

 

Cash and cash equivalents, end of period

 

$

115,422

 

 

$

44,594

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Cash paid for interest

 

 

2,714

 

 

 

868

 

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

 

 

 

 

 

77,887

 

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

 

 

703

 

 

 

 

Amounts unpaid for purchases of property and equipment

 

 

1,829

 

 

 

3,763

 

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

 

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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 $1,286.5 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, sales of future revenues and 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. 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 our research and development programs decline, we may decide to reduce research and development expenses by delaying, discontinuing or reducing our 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. The 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, 2021 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, 2021, 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. We evaluate our estimates on an ongoing basis. 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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Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). Under ASU 2020-06 the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate. ASU 2020-06 also provides for certain disclosures with regard to convertible instruments and associated fair values. ASU 2020-06 is effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. ASU 2020-06 provides companies with the option to adopt the new standard using either the full retrospective or modified retrospective method.

We adopted this new guidance using the modified retrospective method as of January 1, 2022, with respect to our convertible senior notes due 2026 (the “2026 Notes”). The cumulative effect of initially applying the new standard was recognized as an adjustment to accumulated deficit. The following table summarizes the adjustments made to our condensed consolidated balance sheet as of January 1, 2022, upon adoption of the new standard:

 Balance sheet account description

 

Ending Balance
 as of December 31, 2021

 

 

ASU 2020-06 Adjustments

 

 

Beginning Balance
as of January 1, 2022

 

 

 Convertible notes, net

 

$

95,471

 

 

$

38,895

 

 

$

134,366

 

 

 Additional paid-in capital

 

 

1,452,268

 

 

 

(49,476

)

 

 

1,402,792

 

 

 Accumulated deficit

 

 

(1,207,620

)

 

 

10,581

 

 

 

(1,197,039

)

 

The adoption of this new guidance resulted in an increase in the carrying value of the 2026 Notes to reflect the full principal amount of the convertible notes outstanding, net of issuance costs, a decrease in additional paid-in capital to remove the equity component separately recorded for the conversion feature associated with the convertible notes, a cumulative-effect adjustment to the beginning balance of our accumulated deficit as of January 1, 2022 to reverse the accretion of discount that resulted from the bifurcation of the equity component of the 2026 Notes, and a reversal of the related deferred tax liability of $8.3 million with a corresponding increase in our deferred tax asset valuation allowance. The adoption of this new guidance has reduced non-cash interest expense for the year ending December 31, 2022 and will continue to do so until the 2026 Notes have been settled. The remaining debt issuance costs will continue to be amortized over the term of the notes.

We have recognized $1.5 million of interest expense of the 2026 Notes for the three months ended March 31, 2022, which is $1.4 million less than under the previous accounting standards. Without the adoption of ASU 2020-06, our reported net loss and net loss per share would increase by $1.4 million and $0.02 per share, respectively.

Note 2 — Net Loss Per Share

The following instruments were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been antidilutive (in thousands):

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Options to purchase common stock

 

 

10,855

 

 

 

9,508

 

Warrants to purchase common stock

 

 

47

 

 

 

48

 

Restricted stock and performance units

 

 

1,520

 

 

 

1,154

 

Shares issuable related to the ESPP

 

 

31

 

 

 

45

 

Shares issuable upon conversion of convertible notes

 

 

16,675

 

 

 

16,675

 

Total shares

 

 

29,128

 

 

 

27,430

 

 

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Note 3 — Research and Development Arrangements

2021 Ji Xing and RTW Transactions

The Ji Xing OM License Agreement, as defined below, and the sales of common stock to the RTW Investors, as defined below, in December 2021, as described below, (together the “2021 RTW Transactions”) were entered into with parties that were at the time of our entry into the 2021 RTW Transactions affiliated and in contemplation of one another and, accordingly, we have assessed the accounting for these transactions in the aggregate. Unconstrained arrangement consideration under the 2021 RTW Transactions totaled $70.0 million and was allocated in accordance with ASC 820 and ASC 606 as follows (in thousands):

 

 

Allocated
Consideration

 

Units of Accounting:

 

 

 

License and collaboration

 

$

54,856

 

Common stock (fair value)

 

 

15,144

 

Total consideration

 

$

70,000

 

Ji Xing Omecamtiv Mecarbil License and Collaboration Agreement

On December 20, 2021, we entered into a License and Collaboration Agreement (the “Ji Xing OM License Agreement”) with Ji Xing Pharmaceuticals Limited (“Ji Xing”), pursuant to which we granted to Ji Xing an exclusive license to develop and commercialize omecamtiv mecarbil in the People's Republic of China (including the Hong Kong and Macau Special Administrative Districts) (together “China”) and Taiwan. Under the terms of the Ji Xing OM License Agreement, we are the beneficiary of a nonrefundable $50.0 million payment obligation from Ji Xing comprised of a $40.0 million payment as consideration for the rights granted by us to Ji Xing and $10.0 million attributable to our having submitted to the U.S. Food and Drug Administration (the “FDA”) a new drug application (“NDA”) for omecamtiv mecarbil. The $50 million payment was received by the Company in January 2022. We may be eligible to receive from Ji Xing additional payments totaling up to $330.0 million for the achievement of certain commercial milestone events in connection to omecamtiv mecarbil. In addition, Ji Xing will pay us tiered royalties in the mid-teens to the low twenties range on the net sales of pharmaceutical products containing omecamtiv mecarbil in China and Taiwan, subject to certain reductions for generic competition, patent expiration and payments for licenses to third party patents.

Ji Xing will be responsible for the development and commercialization of omecamtiv mecarbil at its own cost and is required to use diligent efforts to develop and commercialize omecamtiv mecarbil in China and Taiwan. The development of omecamtiv mecarbil will be initially focused on heart failure with reduced ejection fraction (“HFrEF”), and Ji Xing will have the opportunity to participate in Cytokinetics’ global clinical trials of omecamtiv mecarbil. Cytokinetics will supply omecamtiv mecarbil to Ji Xing either as a finished product or as an active pharmaceutical ingredient.

The Ji Xing OM License Agreement, unless terminated earlier, will continue on a market-by-market basis until expiration of the relevant royalty term. Ji Xing has the right to terminate the Ji Xing OM License Agreement for convenience. Each party may terminate the Ji Xing OM License Agreement for the other party’s uncured material breach, insolvency, or failure to perform due to extended force majeure events. Cytokinetics may also terminate the Ji Xing OM License Agreement if Ji Xing challenges Cytokinetics’ patents or undergoes certain change of control transactions. Rights granted to Ji Xing in relation to omecamtiv mecarbil will revert to Cytokinetics upon termination, and, under certain circumstances, subject to a low single digit royalty payment by the Company to Ji Xing on the net sales of the products containing the compound omecamtiv mecarbil in China and Taiwan. We assessed this arrangement in accordance with ASC 606 and concluded that there is one performance obligation relating to the license of functional intellectual property. The performance obligation was satisfied, and we recognized the residual allocation of arrangement consideration as revenue of $54.9 million for 2021. Due to the nature of development, including the inherent risk of development and approval by regulatory authorities, we are unable to estimate if and when the development milestone payments could be achieved or become due and, accordingly, we consider the milestone payments to be fully constrained and excluded any potential milestone payments from the initial transaction price.

The consideration related to sales-based milestone payments, including royalties, will be recognized when the related sales occur under the sales- and usage-based royalty exception as these amounts have been determined to relate predominantly to the license.

We re-evaluate the probability of achievement of development milestones and any related constraints each reporting period. We will include consideration, without constraint, in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

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Common Stock Purchase Agreements

On December 20, 2021, as part of the 2021 RTW Transactions, we entered into common stock purchase agreements with each of RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Venture Fund Limited (collectively, the “RTW Investors”). These common stock purchase agreements provided for the sale and issuance of an aggregate of 511,182 shares of our common stock at a price per share of $39.125 and an aggregate purchase price of $20.0 million. The closing occurred on December 20, 2021. The RTW Investors have agreed to certain trading and other restrictions with respect to the shares of common stock they purchased pursuant to these agreements, including a restriction on sales or other transfers of the shares, subject to certain exceptions, for a period of one year from the closing date. The restrictions resulted in a premium paid by the RTW Investors of $4.9 million, which represents the excess amount paid over the fair value of the shares of common stock purchased. The premium was determined by analyzing the restrictions discount applied to the closing stock price as of December 20, 2021, which is a Level 2 fair value input. The cash received less the calculated premium is the $15.1 million fair value of the common stock recorded.

2020 Ji Xing and RTW Transactions

On July 14, 2020, we entered into a series of transactions as described below with RTW Royalty Holdings Designated Activity Company (“RTW Royalty Holdings”) and Ji Xing, related to aficamten, our proprietary small molecule cardiac myosin inhibitor product, a novel cardiac myosin inhibitor, and other assets (together, the “2020 RTW Transactions”). The 2020 RTW Transactions include entering into a licensing and collaboration agreement with Ji Xing, the sale of Cytokinetics common stock to the RTW Investors, an agreement to sell to RTW Royalty Holdings our interest in certain future royalties on net sales of products containing the compound mavacamten that is being developed by Bristol-Myers Squibb Company (formerly by MyoKardia, Inc.), and the ability for the Company to obtain additional funding in the future from RTW Royalty Holdings, upon the achievement of certain clinical trial milestones, in exchange for future royalty payments as further discussed below. As a result, we have received and expect to receive a combination of license fees, milestone revenues and sale proceeds from the RTW Investors, RTW Royalty Holdings and Ji Xing.

The 2020 RTW Transactions were entered into with parties that were at the time of our entry into the 2020 RTW Transactions affiliated and in contemplation of one another and, accordingly, we have assessed the accounting for these transactions in the aggregate. We concluded that there were three units of accounting in the 2020 RTW Transactions as further described below. The Company allocated the total consideration in accordance with ASC 820, Fair Value Measurement, and ASC 606, Revenue from Contracts with Customers, as follows (in thousands):

 

 

Allocated
Consideration

 

Units of Accounting:

 

 

 

License and collaboration (residual)

 

$

36,501

 

Royalty (fair value)

 

 

87,000

 

Common stock (fair value)

 

 

36,499

 

Total consideration

 

$

160,000

 

Ji Xing Aficamten License and Collaboration Agreement

On July 14, 2020, we entered into a License and Collaboration Agreement (the “Ji Xing Aficamten License Agreement”) with Ji Xing, pursuant to which we granted to Ji Xing an exclusive license to develop and commercialize aficamten in China and Taiwan. Under the terms of the Ji Xing Aficamten License Agreement, we received from Ji Xing a nonrefundable upfront payment of $25.0 million. We may be eligible to receive from Ji Xing milestone payments totaling up to $200.0 million for the achievement of certain development and commercial milestone events in connection to aficamten in the field of obstructive hypertrophic cardiomyopathy (“oHCM”) and/or non-obstructive hypertrophic cardiomyopathy (“nHCM”) and other indications. In addition, Ji Xing will pay us tiered royalties in the low-to-high teens range on the net sales of the products containing aficamten in China and Taiwan, subject to certain reductions for generic competition, patent expiration and payments for licenses to third party patents.

Ji Xing will be responsible for the development and commercialization of aficamten at its own cost and is required to use diligent efforts to develop and commercialize aficamten in China and Taiwan. The development of aficamten will be initially focused on hypertrophic cardiomyopathy, and Ji Xing will have the opportunity to participate in Cytokinetics’ global pivotal clinical trials of aficamten. Cytokinetics or a designated supplier will supply aficamten to Ji Xing either as a finished product or as an active pharmaceutical ingredient.

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Table of Contents

 

The Ji Xing Aficamten License Agreement, unless terminated earlier, will continue on a market-by-market basis until expiration of the relevant royalty term. Ji Xing has the right to terminate the Ji Xing Aficamten License Agreement for convenience. Each party may terminate the Ji Xing Aficamten License Agreement for the other party’s uncured material breach, insolvency, or failure to perform due to extended force majeure events. Cytokinetics may also terminate the Ji Xing Aficamten License Agreement if Ji Xing challenges Cytokinetics’ patents or undergoes certain change of control transactions. Rights granted to Ji Xing in relation to aficamten will revert to Cytokinetics upon termination, and, under certain circumstances, subject to a low single digit royalty payment by the Company to Ji Xing on the net sales of the products containing the compound aficamten in China and Taiwan.

We assessed this arrangement in accordance with ASC 606 and concluded that there is one performance obligation relating to the license of functional intellectual property. The performance obligation was satisfied, and we recognized the residual allocation of arrangement consideration as revenue of $36.5 million for 2020. No license revenue was recognized in 2021 related to the Ji Xing Aficamten License Agreement. Due to the nature of development, including the inherent risk of development and approval by regulatory authorities, we are unable to estimate if and when the development milestone payments could be achieved or become due and, accordingly, we consider the milestone payments to be fully constrained and exclude the milestone payments from the initial transaction price.

The consideration related to sales-based milestone payments, including royalties, will be recognized when the related sales occur under the sales-and usage-based royalty exception of ASC 606 as these amounts have been determined to relate predominantly to the license.

We re-evaluate the probability of achievement of development milestones and any related constraints each reporting period. We will include consideration, without constraint, in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

We recognized a $5.0 million milestone from Ji Xing during the third quarter of 2021 for initiation of a phase 3 clinical trial for aficamten in oHCM. Although our contractual right to payment had not arisen under the Ji Xing Aficamten License Agreement, we determined recognition of the milestone in accordance with ASC 606 during the third quarter of 2021 was appropriate based on our expected initiation of a phase 3 clinical trial of aficamten in oHCM and was recorded as a corresponding contract asset in other current assets in our consolidated balance sheet as of December 31, 2021. The $5.0 million was reclassed to accounts receivable since we had a contractual right to payment as of March 31, 2022.

Royalty Purchase Agreement

On July 14, 2020, we entered into a Royalty Purchase Agreement (the “RTW Royalty Purchase Agreement”) with RTW Royalty Holdings, pursuant to which we sold our right to receive certain payments on the net sales of products containing the compound mavacamten, a cardiac myosin inhibitor (the “Mavacamten Royalty”), under the Research Collaboration Agreement, dated August 24, 2012, between us and MyoKardia, Inc. to RTW Royalty Holdings for a one-time payment of $85.0 million. The RTW Royalty Purchase Agreement transaction closed on November 13, 2020. On March 31, 2021, RTW Royalty Holdings assigned its rights and obligations under the RTW Royalty Purchase Agreement to its affiliate, RTW Investments ICAV for RTW Fund 1 (“RTW ICAV”).

The allocation of the consideration for the 2020 RTW Transactions resulted in $87.0 million being allocated to the RTW Royalty Purchase Agreement representing its fair value. The fair value was determined using an income approach method based on management’s estimates of the discounted cash flows to be received over the term of the related royalty agreement, which are Level 3 fair value inputs. Management’s estimates included significant unobservable inputs. These inputs are derived using internal management estimates developed based on third party data and reflect management’s judgements, current market conditions surrounding competing products, and forecasts. The significant unobservable inputs include the estimated patient population, estimated selling price, estimated peak sales and sales ramp, the expected term of the royalty stream, and timing of the expected launch. The $87.0 million recorded as deferred revenue will be amortized using the units-of-revenue method.

We will recognize revenue related to the sale of the Mavacamten Royalty using the units-of-revenue method when the product is commercialized. Under the units-of-revenue method, the revenue to be recognized for a period is calculated by computing a ratio of the Mavacamten Royalty paid to RTW Royalty Holdings for a given period to the total payments expected to be made to RTW Royalty Holdings over the term of the agreement, and then applying that ratio to the period's cash payment. We will record any adjustments due to changes in the underlying royalties on a cumulative catch-up basis.

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Common Stock Purchase Agreements

On July 14, 2020, we entered into common stock purchase agreements with each of the RTW Investors. These common stock purchase agreements provided for the sale and issuance of an aggregate of 2.0 million shares of common stock of Cytokinetics at a price per share of $25.00 and an aggregate purchase price of $50.0 million. The closing occurred on July 14, 2020. The RTW Investors have agreed to certain trading and other restrictions with respect to the shares of common stock they purchased pursuant to these agreements, including a restriction on sales or other transfers of the shares, subject to certain exceptions, for a period of two years from the closing date, which period will be extended if certain conditions are met. The restrictions resulted in a premium paid by RTW investors of $13.5 million which represents the excess amount paid over the fair value of the shares of common stock purchased. The premium was determined by analyzing the holding period discount applied to the 30-day average stock price as of July 14, 2020, which is a Level 2 fair value input. The cash received less the calculated premium is the $36.5 million fair value of the common stock recorded.

Funding Agreement

During July 2020, we also entered into a Funding Agreement (the “Funding Agreement”) with RTW Royalty Holdings. Pursuant to the Funding Agreement, RTW Royalty Holdings had committed to provide up to $90.0 million (the “RTW Funding Commitment”) to fund our development and commercialization of aficamten in nHCM and oHCM.

On January 7, 2022, we announced that we had elected to unilaterally terminate the Funding Agreement in connection with our entry into the RP Aficamten RPA (as defined below). At the time of its termination, we had not exercised any rights to sell any revenue interest in aficamten under the Funding Agreement.

Astellas Pharma Inc. (“Astellas”)

Our strategic alliance with Astellas to advance novel therapies for diseases and medical conditions associated with skeletal muscle impairment and weakness commenced in 2013 under the License and Collaboration Agreement, dated June 21, 2013 between the parties (the “Astellas Agreement”).

On April 23, 2020, we and Astellas entered into the two agreements referenced below which, taken together, amend and restate the Company’s research, development and commercialization collaboration with Astellas under the Astellas Agreement.

Fast Skeletal Regulatory Activator Agreement

The Company and Astellas entered into a Fast Skeletal Regulatory Activator Agreement, dated April 23, 2020 (the “Astellas FSRA Agreement”). As a result of the Astellas FSRA Agreement, the Company will now have exclusive control and responsibility for the Company's future development and commercialization of reldesemtiv, CK-601 and other fast skeletal regulatory activator (collectively “FSRA”) compounds and products, and accordingly, Astellas has agreed to terminate its license to all FSRA compounds and related products.

Under the Astellas FSRA Agreement, Astellas agreed to pay one-third of the out-of-pocket clinical development costs which may be incurred in connection with the Company’s Phase 3 clinical trial of reldesemtiv in ALS, up to a maximum contribution by Astellas of $12 million. In addition, Astellas agreed to non-cash contributions to the Company, which include the transfer of its existing inventories of active pharmaceutical ingredient of reldesemtiv and CK-601. Astellas has also agreed to the continued conduct of ongoing stability studies pertaining to such existing inventories of active pharmaceutical ingredient, at Astellas’ cost. In exchange, the Company will pay Astellas a low- to mid- single digit royalty on sales of reldesemtiv in the United States, Canada, United Kingdom and the European Union until the later of (i) ten years following the first commercial sale of such product in a major market country, or (ii) December 31, 2034, subject to certain royalty reduction provisions. The Company will not owe Astellas royalties on sales of reldesemtiv in any other country, or on the sale of any FSRA compounds or related products other than reldesemtiv.

License and Collaboration Agreement for Other Skeletal Sarcomere Activators

The Company and Astellas also entered into that certain License and Collaboration Agreement for Other Skeletal Sarcomere Activators, dated April 23, 2020 (the “Astellas OSSA Agreement”), which is an amendment and restatement of the Astellas Agreement and removes the FSRA compounds and related products from the collaboration.

On April 27, 2021, we received written notice of termination from Astellas of the Astellas OSSA Agreement. The termination of the Astellas OSSA Agreement was effective November 1, 2021.

We recognized research revenue for reimbursements from Astellas of internal costs of certain full-time employee equivalents, supporting collaborative research and development programs, and of other costs related to those programs through March 31, 2021 when the research term of the Astellas OSSA Agreement expired.

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Research and development revenue from Astellas was $1.1 million and $1.7 million for the three months ended March 31, 2022 and 2021, respectively.

We had accounts receivable from Astellas of $1.1 million as of March 31, 2022 and $1.8 million as of December 31, 2021.

Amgen Inc. (“Amgen”)

On November 23, 2020, we received written notice of termination from Amgen of that certain Collaboration and Option Agreement, dated December 29, 2006, as amended (the “Amgen Agreement”) pertaining to the discovery, development and commercialization of novel small molecule therapeutics, including omecamtiv mecarbil, a novel cardiac myosin activator, and CK-136 (formerly AMG 594), a novel cardiac troponin activator. The termination of the Amgen Agreement was effective May 20, 2021.

We recognized 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, which terminated effective May 20, 2021. There was no research and development revenue from Amgen for the three months ended March 31, 2022 and 2021.

Note 4 — Fair Value Measurements

We value our financial assets and liabilities at fair value, 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). We utilize market data or assumptions that we believe 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.

We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information reasonably available. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider the security issuers’ and the third-party issuers’ credit risk in our assessment of fair value.

We classify fair value based on the observability of those inputs using a 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):

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.

Fair value of financial assets:

The follow tables set forth the fair value of our financial assets, which consists of cash equivalents and investments classified as available-for-sale securities, that were measured on a recurring basis (in thousands):

 

 

 

 

 

March 31, 2022

 

 

 

Fair Value
Hierarchy
Level

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

Money market funds

 

Level 1

 

$

65,445

 

 

$

 

 

$

 

 

$

65,445

 

U.S. Treasury securities

 

Level 1