DEAR SHAREHOLDER,
“Resilience is the capacity of a system,
enterprise or person to maintain its core
purpose and integrity in the face of
dramatically changed circumstances,”
wrote Andrew Zolli, noted author and
social scientist. Like the courageous
(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:3)(cid:564)(cid:74)(cid:75)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:72)(cid:89)(cid:68)(cid:86)(cid:87)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:86)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:3)
ALS, SMA and heart failure who inspire
us with their hope and optimism and
who personify resilience every day,
Cytokinetics demonstrated extraordinary resilience in 2017. Despite
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to our fundamental mission and values and advanced and expanded
our innovative pipeline of muscle biology directed drug candidates.
In 2017, we suspended development of tirasemtiv, our
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(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:57)(cid:918)(cid:55)(cid:36)(cid:47)(cid:918)(cid:55)(cid:60)(cid:16)(cid:36)(cid:47)(cid:54)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:22)(cid:3)(cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:72)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:72)(cid:909)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3)
in patients with ALS. We were profoundly disappointed that
VITALITY-ALS did not deliver on either its primary or secondary
endpoints. However, we believe that data from VITALITY-ALS validate
the mechanism of action and that our next-generation skeletal muscle
activator, reldesemtiv (CK-2127107), may address certain limitations of
tirasemtiv. Recently published Phase 1 data demonstrate reldesemtiv
may be more potent and potentially better tolerated than tirasemtiv.
Like patients battling diseases of muscle dysfunction, we push
forward with renewed hope and resilience. Reldesemtiv is the
subject of a broad clinical trials program under our collaboration
with Astellas. Cytokinetics is conducting neuromuscular trials and
Astellas is conducting non-neuromuscular trials. In 2017, we began
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SVC and other measures of muscle function after treatment with
reldesemtiv in patients living with ALS. We also continued conduct
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measures of muscle function in ambulatory and non-ambulatory
patients with SMA. In 2017, Astellas conducted clinical trials of
reldesemtiv in patients with COPD as well as in elderly adults with
limited mobility, in both cases, to assess measures of physical function
and exercise stamina. Maintaining muscle strength and endurance
are essentials to sustain independence and minimize risks of
disability. We and Astellas share a commitment to investigate
the potential of reldesemtiv to increase healthspan for an aging
demographic. We remain enthusiastic about the potential of
reldesemtiv to increase muscle force, power and the time to muscle
fatigue in rare diseases and conditions associated with aging.
Furthermore, we continue to conduct joint research activities with
Astellas and expect to advance yet another skeletal muscle
activator potential drug candidate into development in 2018.
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omecamtiv mecarbil, our cardiac muscle activator, continued to
enroll patients in 2017 and is proceeding on schedule. This
8,000-patient clinical trial is designed to determine if omecamtiv
mecarbil, when added to standard of care, can reduce the risk of
cardiovascular death or heart failure events in patients with high
risk heart failure. GALACTIC-HF is being conducted by Amgen in
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in 2017 prompting a $10 million milestone payment from Amgen to
Cytokinetics. Additionally, in 2017, we sold to Royalty Pharma a 4.5%
royalty on potential worldwide sales of omecamtiv mecarbil in a $100
million transaction. We had previously exercised our option to
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mecarbil in exchange for an incremental royalty of up to 4% on
(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:45)(cid:68)(cid:83)(cid:68)(cid:81)(cid:17)(cid:3)(cid:36)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:74)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
right to co-promote omecamtiv mecarbil in institutional care settings
in North America, with reimbursement by Amgen for certain sales
force activities. A joint operating team comprising representatives
of both companies will be responsible to plan commercialization
activities. Our 2017 deal with Royalty Pharma provided important
non-dilutive capital to fund our continuing operations. With Amgen,
we also continued joint research activities and recently advanced a
next-generation cardiac muscle activator into early development.
2017 was a year that tested our resolve. The enduring power of our
(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:564)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:564)(cid:72)(cid:71)(cid:3)(cid:83)(cid:76)(cid:83)(cid:72)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:3)(cid:70)(cid:68)(cid:80)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)
clear focus during the past year. We now press forward with two
(cid:564)(cid:85)(cid:86)(cid:87)(cid:16)(cid:76)(cid:81)(cid:16)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:3) (cid:80)(cid:88)(cid:86)(cid:70)(cid:79)(cid:72)(cid:3) (cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:68)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3) (cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:15)(cid:3) (cid:81)(cid:72)(cid:91)(cid:87)(cid:16)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
compounds proceeding
in early development, productive
collaborations with Astellas and Amgen, and a reinforced balance
sheet, all of which provide a solid foundation on which we are planning
for a prosperous future. Like patients with ALS and other diseases of
severe muscle dysfunction, we persevere, remain resilient and
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that we aim to serve. We look forward to updating you on our
continued progress and remain grateful for your persistent support.
Robert I. Blum
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)
PRE-CLINICAL
PHASE 1
PHASE 2
PHASE 3
SKELETAL MUSCLE
Tirasemtiv (ALS)
Reldesemtiv (SMA)
Reldesemtiv (COPD)
Reldesemtiv (ALS)
Reldesemtiv (Frailty)
Next-Generation FSTA
CARDIAC MUSCLE
Omecamtiv Mecarbil (heart failure)
Next-Generation Cardiac Sarcomere Activator
Cardiac Sarcomere Directed Compound
RESEARCH
Next Generation Skeletal Muscle Activators
Other Muscle Biology Directed Research
SUSPENDED*
ASTELLAS COLLABORATION
ASTELLAS COLLABORATION
ASTELLAS COLLABORATION
ASTELLAS COLLABORATION
ASTELLAS COLLABORATION
ST
AMGEN COLLABORATION
AMGEN COLLABORATION
M
UNPARTNERED
N
ASTELLAS COLLABORATION
A
*Astellas Option Outside North America & Europe
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission file number: 000-50633
CYTOKINETICS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
280 East Grand Avenue
South San Francisco, CA
(Address of principal executive offices)
94-3291317
(I.R.S. Employer
Identification No.)
94080
(Zip Code)
(650) 624-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Name of each exchange on which registered
The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:4) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No (cid:3)
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 (cid:3) No (cid:4)
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to
be submitted and posted 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 and post such files). Yes (cid:3) No (cid:4)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:4)
Emerging growth company (cid:4)
Accelerated filer (cid:3)
Non-accelerated filer (cid:4)
Smaller reporting company (cid:4)
(Do not check if a smaller reporting 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. (cid:3)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:4) No (cid:3)
The aggregate market value of the voting and non-voting common equity held by non-affiliates was $630.8 million, computed by reference to the last sales price
of $12.10 as reported by the NASDAQ Market as of June 30, 2017. This calculation does not reflect a determination that certain persons are affiliates of the Registrant
for any other purpose. The number of shares of common stock held by non-affiliates excluded 452,562 shares of common stock held by directors, officers and affiliates
of directors. The number of shares owned by affiliates of directors was determined based upon information supplied by such persons and upon Schedules 13D and 13G,
if any, filed with the SEC. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct
or cause the direction of the management or policies of the Registrant, that such person is controlled by or under common control with the Registrant, or that such
persons are affiliates for any other purpose.
The number of shares outstanding of the Registrant’s common stock on February 23, 2018 was 54,008,113 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission, no later
than 120 days after the end of the fiscal year, are incorporated by reference into Part III of this Annual Report on Form 10-K.
[THIS PAGE INTENTIONALLY LEFT BLANK]
CYTOKINETICS, INCORPORATED
FORM 10-K
Year Ended December 31, 2017
INDEX
PART I
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business...............................................................................................................................................................
2
Risk Factors ......................................................................................................................................................... 16
Unresolved Staff Comments................................................................................................................................ 42
Properties............................................................................................................................................................. 42
Legal Proceedings ............................................................................................................................................... 42
Mine Safety Disclosures...................................................................................................................................... 42
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ............................................................................................................................................................. 43
Selected Financial Data ....................................................................................................................................... 45
Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................. 45
Quantitative and Qualitative Disclosures About Market Risk ............................................................................ 54
Financial Statements and Supplementary Data ................................................................................................... 55
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................. 82
Controls and Procedures...................................................................................................................................... 82
Other Information................................................................................................................................................ 82
PART III
Directors, Executive Officers and Corporate Governance .................................................................................. 83
Executive Compensation ..................................................................................................................................... 83
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........... 83
Certain Relationships and Related Transactions, and Director Independence.................................................... 83
Principal Accounting Fees and Services ............................................................................................................. 83
Item 15.
Item 16.
Signatures .........................................................................................................................................................................................
Exhibits and Financial Statement Schedules....................................................................................................... 84
Form 10-K Summary........................................................................................................................................... 90
91
PART IV
[THIS PAGE INTENTIONALLY LEFT BLANK]
PART I
This report contains forward-looking statements indicating expectations about future performance and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, that
involve risks and uncertainties. We intend that such statements be protected by the safe harbor created thereby. Forward-looking
statements involve risks and uncertainties and our actual results and the timing of events may differ significantly from the results
discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to, statements
about or relating to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
guidance concerning revenues, research and development expenses and general and administrative expenses for 2018;
the sufficiency of existing resources to fund our operations for at least the next 12 months;
our capital requirements and needs for additional financing;
the initiation, design, conduct, enrollment, progress, timing and scope of clinical trials and development activities for our
drug candidates conducted by ourselves or our partners, Amgen Inc. (“Amgen”) and Astellas Pharma Inc. (“Astellas”),
including the anticipated timing for initiation of clinical trials, anticipated rates of enrollment for clinical trials and
anticipated timing of results becoming available or being announced from clinical trials;
the results from the clinical trials, the non-clinical studies and chemistry, manufacturing, and controls (“CMC”) activities
of our drug candidates and other compounds, and the significance and utility of such results;
anticipated interactions with regulatory authorities;
the suspended development of tirasemtiv for the potential treatment of amyotrophic lateral sclerosis (“ALS”);
our and our partners’ plans or ability to conduct the continued research and development of our drug candidates and other
compounds;
the advancement of omecamtiv mecarbil in Phase 3 clinical development;
our expected roles in research, development or commercialization under our strategic alliances with Amgen and Astellas;
the properties and potential benefits of, and the potential market opportunities for, our drug candidates and other
compounds, including the potential indications for which they may be developed;
the sufficiency of the clinical trials conducted with our drug candidates to demonstrate that they are safe and efficacious;
our receipt of milestone payments, royalties, reimbursements and other funds from current or future partners under
strategic alliances, such as with Amgen or Astellas;
our ability to continue to identify additional potential drug candidates that may be suitable for clinical development;
our plans or ability to commercialize drugs, with or without a partner, including our intention to develop sales and
marketing capabilities;
the focus, scope and size of our research and development activities and programs;
the utility of our focus on the biology of muscle function, and our ability to leverage our experience in muscle contractility
to other muscle functions;
our ability to protect our intellectual property and to avoid infringing the intellectual property rights of others;
future payments and other obligations under loan and lease agreements;
potential competitors and competitive products;
retaining key personnel and recruiting additional key personnel; and
the potential impact of recent accounting pronouncements on our financial position or results of operations.
Such forward-looking statements involve risks and uncertainties, including, but not limited to:
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Amgen’s decisions with respect to the timing, design and conduct of research and development activities for omecamtiv
mecarbil and related compounds, including decisions to postpone or discontinue research or development activities
relating to omecamtiv mecarbil and related compounds;
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Astellas’ decisions with respect to the timing, design and conduct of research and development activities for CK-2127107
(now referred to by the generic name, reldesemtiv) and other skeletal muscle activators, including decisions to postpone or
discontinue research or development activities relating to reldesemtiv and other skeletal muscle activators, as well as
Astellas’ decisions with respect to its option to enter into a global collaboration for the development and
commercialization of tirasemtiv;
our ability to enter into strategic partnership agreements for any of our programs on acceptable terms and conditions or in
accordance with our planned timelines;
our ability to obtain additional financing on acceptable terms, if at all;
our receipt of funds and access to other resources under our current or future strategic alliances;
difficulties or delays in the development, testing, manufacturing or commercialization of our drug candidates;
difficulties or delays, or slower than anticipated patient enrollment, in our or partners’ clinical trials;
difficulties or delays in the manufacture and supply of clinical trial materials;
failure by our contract research organizations, contract manufacturing organizations and other vendors to properly fulfill
their obligations or otherwise perform as expected;
results from non-clinical studies that may adversely impact the timing or the further development of our drug candidates
and other compounds;
the possibility that the FDA or foreign regulatory agencies may delay or limit our or our partners’ ability to conduct
clinical trials or may delay or withhold approvals for the manufacture and sale of our products;
changing standards of care and the introduction of products by competitors or alternative therapies for the treatment of
indications we target that may limit the commercial potential of our drug candidates;
difficulties or delays in achieving market access and reimbursement for our drug candidates and the potential impacts of
health care reform;
changes in laws and regulations applicable to drug development, commercialization or reimbursement;
the uncertainty of protection for our intellectual property, whether in the form of patents, trade secrets or otherwise;
potential infringement or misuse by us of the intellectual property rights of third parties;
activities and decisions of, and market conditions affecting, current and future strategic partners;
accrual information provided by our contract research organizations (“CROs”), contract manufacturing organizations
(“CMOs”), and other vendors;
potential ownership changes under Internal Revenue Code Section 382; and
the timeliness and accuracy of information filed with the U.S. Securities and Exchange Commission (the “SEC”) by third
parties.
In addition, such statements are subject to the risks and uncertainties discussed in the “Risk Factors” section and elsewhere in
this document. Such statements speak only as of the date on which they are made, and, except as required by law, we undertake no
obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or
to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which
factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Item 1.
Business
When used in this report, unless otherwise indicated, “Cytokinetics,” “the Company,” “we,” “our” and “us” refers to
Cytokinetics, Incorporated. CYTOKINETICS, and our logo used alone and with the mark CYTOKINETICS, are registered service
marks and trademarks of Cytokinetics. Other service marks, trademarks and trade names referred to in this report are the property of
their respective owners.
2
Overview
We were incorporated in Delaware in August 1997 as Cytokinetics, Incorporated. We are a late-stage biopharmaceutical
company focused on the discovery and development of first-in-class muscle activators as potential treatments for debilitating diseases
in which muscle performance is compromised and/or declining. Our research and development activities relating to the biology of
muscle function have evolved from our knowledge and expertise regarding the cytoskeleton, a complex biological infrastructure that
plays a fundamental role within every human cell. Our most advanced research and development programs relate to the biology of
muscle function and are directed to small molecule modulators of the contractility of cardiac muscle or skeletal muscle. We are also
conducting earlier-stage research directed to other compounds with the potential to modulate muscle contractility and other muscle
functions.
Our drug candidates currently in clinical development are omecamtiv mecarbil, a novel cardiac myosin activator, and
reldesemtiv, a next-generation fast skeletal muscle troponin activator (“FSTA”) with orphan drug designation from FDA for the
potential treatment of spinal muscular atrophy (“SMA”). In November 2017, we announced that VITALITY-ALS (Ventilatory
Investigation of Tirasemtiv and Assessment of Longitudinal Indices after Treatment for a Year in ALS), the international Phase 3
clinical trial of our first-generation FSTA, tirasemtiv, in patients with ALS, did not meet its primary endpoint or secondary endpoints
and that we decided to suspend development of tirasemtiv. We believe that VITALITY-ALS demonstrated pharmacologic activity for
the mechanism of action and that limitations of tirasemtiv may be addressed with our next-generation FSTA, reldesemtiv.
Omecamtiv mecarbil is being evaluated for the potential treatment of heart failure under a strategic alliance with Amgen
established in 2006 to discover, develop, and commercialize novel small molecule therapeutics designed to activate cardiac muscle,
including omecamtiv mecarbil, for the potential treatment of heart failure (the “Amgen Agreement”). Amgen, in collaboration with
Cytokinetics, is conducting GALACTIC-HF (Global Approach to Lowering Adverse Cardiac Outcomes Through Improving
Contractility in Heart Failure), a Phase 3 cardiovascular outcomes clinical trial of omecamtiv mecarbil in heart failure. Cytokinetics
and Amgen are also planning a second Phase 3 clinical trial intended to evaluate its potential to increase exercise performance, a trial
to be conducted by Cytokinetics.
Reldesemtiv is structurally distinct from tirasemtiv and selectively activates the fast skeletal muscle troponin complex in the
sarcomere by increasing its sensitivity to calcium, leading to an increase in skeletal muscle contractility. Cytokinetics and Astellas are
developing reldesemtiv under the Amended and Restated License and Collaboration Agreement dated December 22, 2014, as further
amended in 2016 and 2017 (the “Astellas Agreement”). Astellas holds an exclusive license to develop and commercialize reldesemtiv
worldwide, subject to our development and commercialization participation rights. We conducted five Phase 1 clinical trials of
reldesemtiv. In collaboration with Astellas, we are conducting two Phase 2 clinical trials of reldesemtiv, one in patients with spinal
muscular atrophy (“SMA”) and one in patients with amyotrophic lateral sclerosis (“ALS”), called FORTITUDE-ALS (Functional
Outcomes in a Randomized Trial of Investigational Treatment with CK-2127107 to Understand Decline in Endpoints – in ALS).
Astellas, in collaboration with Cytokinetics, is conducting a Phase 2 clinical trial of reldesemtiv in patients with chronic obstructive
pulmonary disease (“COPD”) and a Phase 1b clinical trial of reldesemtiv in elderly subjects with limited mobility. We and Astellas
are continuing to conduct a joint research program through 2019 focused on next-generation skeletal muscle activators. In 2016, we
granted Astellas an option to enter into a pre-negotiated agreement for a global collaboration for the development and
commercialization of tirasemtiv (the “Option on Tirasemtiv”).
All of our drug candidates have demonstrated evidence of potentially clinically relevant pharmacodynamic activity in humans.
We expect to continue to focus on translating the observed pharmacodynamic activity of these compounds into potentially meaningful
clinical benefits for patients. All of our drug candidates have arisen from our cytoskeletal research activities. Our focus on the biology
of the cytoskeleton distinguishes us from other biopharmaceutical companies, and potentially positions us to discover and develop
novel therapeutics that may be useful for the treatment of severe diseases and medical conditions. Each of our drug candidates has a
novel mechanism of action compared to currently marketed drugs, which we believe validates our focus on the cytoskeleton as a
productive area for drug discovery and development. We intend to leverage our experience in muscle contractility in order to expand
our current pipeline, and expect to identify additional potential drug candidates that may be suitable for clinical development.
As we mark our 20th anniversary, our research continues to drive innovation and leadership in muscle biology, evidenced by
three novel mechanistic compounds that have recently advanced in development: a next-generation cardiac muscle activator under our
collaboration with Amgen, a next-generation skeletal muscle activator under our collaboration with Astellas, and an unpartnered
cardiac sarcomere-directed compound. We and Astellas have recently agreed to extend our joint research program through 2019 while
our scientists continue independent research activities directed to our other muscle biology programs.
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Corporate Strategy
We are a late-stage biopharmaceutical company focused on discovering, developing and commercializing first-in-class muscle
activators as potential treatments for debilitating diseases in which muscle performance is compromised and/or declining. As a leader
in muscle biology and the mechanics of muscle performance, we are developing small molecule drug candidates specifically
engineered to increase muscle function and contractility. Our goal is to discover, develop and commercialize novel drug products that
modulate muscle function that may benefit people living with serious diseases or medical conditions, with the intent of establishing a
fully-integrated biopharmaceutical company.
The key components of our Corporate Strategy, “Vision 2020: Empowering Our Future,” are:
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Progress proprietary research programs focused on muscle into development under new collaborations. We believe that
our extensive understanding of muscle biology and our proprietary research technologies should enable us to discover and
potentially to develop drug candidates with novel mechanisms of action that may offer potential benefits not provided by
existing drugs and which may have application across a broad array of diseases and medical conditions. We expect that
we may be able to leverage our expertise in muscle contractility to expand programs related to other areas of muscle
function and which may extend to the potential treatment of other serious medical diseases and conditions under new
collaborations. Progressing related programs in parallel may afford us an opportunity to build a broader business that
could benefit from multiple products that serve related clinical and commercial needs associated with impaired muscle
function, muscle weakness and fatigue. In addition, this strategy may enable us to diversify certain technical, financial and
operating risks by advancing several drug candidates in parallel.
Advance next-generation skeletal and cardiac muscle activator compounds into clinical development by leveraging
existing research collaborations. We take a purpose-driven approach by leveraging our extensive muscle biology
expertise to engineer compounds with specific characteristics aimed at treating diseases that impact muscle function. By
increasing muscle strength and performance, our drug candidates may preserve and extend independence and self-reliance
in people suffering from debilitating diseases. We have established select strategic alliances to support our drug
development programs while preserving significant development and commercialization rights. We believe that such
alliances may allow us to obtain financial support and to capitalize on the therapeutic area expertise and resources of our
partners that can potentially accelerate the development and commercialization of our drug candidates. Where we deem
appropriate, we plan to retain certain rights to participate in the development and commercialization of drug candidates
arising from our programs and alliances, so that we can expand and capitalize on our own internal development
capabilities and build our commercialization capabilities.
Conduct late-stage clinical development of novel, first-in-class muscle activators for the potential treatment of ALS, SMA,
heart failure and other diseases impacting muscle function. Our portfolio consists of products that are in mid to late
stage clinical development in three therapeutic areas, namely ALS, SMA, heart failure and other diseases impacting
muscle function. We believe that by focusing on these disease areas characterized by well-organized physician-
investigator groups, significant unmet clinical needs, and strong patient and disease advocacy, we may enhance our
effectiveness in enrolling and conducting clinical trials to answer important questions about the dosing, tolerability,
pharmacokinetics and pharmacodynamics as well as the potential safety and efficacy of our drug candidates. We believe
that our considered clinical trial designs and well-executed development programs can improve our ability to realize value
from our and our partners’ clinical development activities. As we advance our drug candidates into later-stage clinical
development, we extensively evaluate previous clinical trial designs and results to assess key learnings that may be
applied to our late-stage clinical development activities. We believe this may result in more successful later-stage clinical
development activities that may increase the likelihood of developing effective therapies that can address the needs of
people living with these devastating diseases.
Collaborate with patient communities to support the urgent development of new medicines for diseases of impaired
muscle function with pressing unmet medical needs. Central to our corporate strategy are the people living with a disease
or medical condition characterized by impaired muscle function. We focus our development and commercialization
activities on diseases that lack effective therapies and, in some cases, those with no approved medicines. We recognize
that by applying our extensive knowledge of muscle biology towards the development of novel therapies for the people
living with these diseases, we aim to improve lives of not only patients but also their caregivers and families. We
collaborate with these individuals and their communities to ensure our potential drugs address their urgent needs and that
we understand and appreciate the issues associated with these diseases and conditions. We work collaboratively with
entities, such as patient advocacy groups, that focus on policies, guidelines and practices to accelerate development and
commercialization of novel therapies, when possible and appropriate, and on ensuring that the voice of their
constituencies are heard.
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Mature our company’s operations to enable development, registration and commercialization of muscle biology drug
candidates across North America and Europe. With a focus on disease areas for which there are serious unmet medical
needs, we direct our activities to potential commercial opportunities in concentrated and tractable customer segments,
such as hospital specialists and disease-specific centers of excellence, which may be addressed by smaller, targeted sales
forces. In preparing for the potential commercialization of our drug candidates directed to these markets, we are focusing
our activities on a broad range of issues facing patients and payors, including the principal drivers of clinical and
economic burdens associated with these diseases. We also focus on opportunities that the multiple constituencies and
stakeholders for these markets may recognize as creating value. Accordingly, targeting unmet medical needs in these areas
may provide us competitive opportunities and support development of a franchise in diseases involving muscle weakness,
wasting and fatigue. In these markets, we believe that a company with limited resources may be able to compete
effectively against larger, more established companies with greater financial and commercial resources. For these
opportunities, we intend to develop clinical development and sales and marketing capabilities in North America and
Europe with the goal of becoming a fully-integrated biopharmaceutical company.
Research and Development Programs
Our long-standing interest in the cytoskeleton has led us to focus our research and development activities on the biology of
muscle function and, in particular, small molecule modulation of muscle contractility. We believe that our expertise in the modulation
of muscle contractility is an important differentiator for us. Our preclinical and clinical experience in muscle contractility may position
us to discover and develop additional novel therapies that have the potential to improve the health of patients with severe and
debilitating diseases or medical conditions.
Small molecules that affect muscle contractility may have several applications for a variety of serious diseases and medical
conditions. For example, heart failure is a disease often characterized by impaired cardiac muscle contractility which may be treated
by modulating the contractility of cardiac muscle. Similarly, certain diseases and medical conditions associated with muscle weakness
may be amenable to treatment by enhancing the contractility of skeletal muscle. Because the modulation of the contractility of
different types of muscle, such as cardiac and skeletal muscle, may be relevant to multiple diseases or medical conditions, we believe
we can leverage our expertise in these areas to more efficiently discover and develop potential drug candidates that modulate the
applicable muscle type for multiple indications.
We segment our research and development activities related to muscle contractility by our cardiac muscle contractility program
and our skeletal muscle contractility program. We also conduct research and development on novel treatments for disorders involving
muscle function beyond muscle contractility.
Our research and development expenses were $90.3 million, $59.9 million and $46.4 million for 2017, 2016 and 2015,
respectively.
Cardiac Muscle Contractility Program
Our cardiac muscle contractility program is focused on the cardiac sarcomere, the basic unit of muscle contraction in the heart.
The cardiac sarcomere is a highly ordered cytoskeletal structure composed of cardiac myosin, actin and a set of regulatory proteins.
Cardiac myosin is the cytoskeletal motor protein in the cardiac muscle cell. It is directly responsible for converting chemical energy
into the mechanical force, resulting in cardiac muscle contraction. This program is based on the hypothesis that activators of cardiac
myosin may address certain adverse properties of existing positive inotropic agents. Current positive inotropic agents, such as beta-
adrenergic receptor agonists or inhibitors of phosphodiesterase activity, increase the concentration of intracellular calcium, thereby
increasing cardiac sarcomere contractility. The effect on calcium levels, however, also has been linked to potentially life-threatening
side effects. In contrast, our novel cardiac myosin activators work by a mechanism that directly stimulates the activity of the cardiac
myosin motor protein, without increasing the intracellular calcium concentration. They accelerate the rate-limiting step of the myosin
enzymatic cycle and shift it in favor of the force-producing state. Rather than increasing the velocity of cardiac contraction, this
mechanism instead lengthens the systolic ejection time, which results in increased cardiac function in a potentially more oxygen-
efficient manner.
Omecamtiv mecarbil
Our lead drug candidate from our cardiac contractility program is omecamtiv mecarbil, a novel cardiac myosin activator. We
expect omecamtiv mecarbil to be developed as a potential treatment across the continuum of care in heart failure both for use in the
hospital setting and for use in the outpatient setting. Omecamtiv mecarbil is the subject of a Phase 3 development program under our
strategic alliance with Amgen.
5
Amgen Strategic Alliance
Our strategic alliance with Amgen to discover, develop, and commercialize novel small molecule therapeutics designed to
activate cardiac muscle, including omecamtiv mecarbil, for the potential treatment of heart failure is governed by the Amgen
Agreement. Amgen has exclusive, worldwide rights to develop and commercialize omecamtiv mecarbil and related compounds
subject to our specified development and commercial participation rights. Amgen has also entered an alliance with Servier
Laboratoires (“Servier”) for exclusive commercialization rights in Europe as well as the Commonwealth of Independent States,
including Russia. Servier contributes funding for development and provides strategic support to the program.
Under the Amgen Agreement we are eligible for potential additional pre-commercialization and commercialization milestone
payments of over $600.0 million in the aggregate on omecamtiv mecarbil and other potential products arising from research under the
collaboration, and royalties that escalate based on increasing levels of annual net sales of products commercialized under the
agreement. The Amgen Agreement also provides for us to receive increased royalties by co-funding the Phase 3 development program
for omecamtiv mecarbil and other drug candidates under the collaboration.
We have exercised our option under the Amgen Agreement to fully 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 and the right to co-promote omecamtiv mecarbil in institutional care settings in North America,
with reimbursement by Amgen for certain sales force activities. A joint commercial operating team comprising representatives of
Cytokinetics and Amgen will then be responsible for the day-to-day management of the commercialization program of omecamtiv
mecarbil.
Amgen generally has discretion to elect whether to pursue or abandon the development of omecamtiv mecarbil and may
terminate our strategic alliance for any reason upon six months’ prior notice. With our consent, Amgen granted Servier an option to
commercialize omecamtiv mecarbil in Europe and the CIS, including Russia, which Servier decided to exercise. In August 2016, we
entered into a letter agreement with Amgen and Servier, which provides that if Amgen’s rights to omecamtiv mecarbil are terminated
with respect to the territory subject to Servier’s sublicense, the sublicensed rights previously granted by Amgen to Servier with respect
to omecamtiv mecarbil, will remain in effect and become a direct license or sublicense of such rights by us to Servier, on substantially
the same terms as those in the Option, License and Collaboration Agreement between Amgen and Servier.
Omecamtiv Mecarbil: Clinical Development
GALACTIC-HF: GALACTIC-HF (Global Approach to Lowering Adverse Cardiac Outcomes Through Improving
Contractility in Heart Failure) is a Phase 3 cardiovascular outcomes clinical trial of omecamtiv mecarbil which is being conducted by
Amgen, in collaboration with Cytokinetics. Coincident with the start of the trial, Amgen made a $26.7 million milestone payment to
Cytokinetics. The primary objective of this double-blind, randomized, placebo-controlled multicenter clinical trial is to determine if
treatment with omecamtiv mecarbil when added to standard of care is superior to standard of care plus placebo in reducing the risk of
cardiovascular death or heart failure events in patients with high risk chronic heart failure and reduced ejection fraction. GALACTIC-
HF is being conducted under a Special Protocol Assessment (“SPA”) with the U.S. FDA. GALACTIC-HF is planned to enroll
approximately 8,000 symptomatic chronic heart failure patients in over 900 sites in 35 countries who are either currently hospitalized
for a primary reason of heart failure or have had a hospitalization or admission to an emergency room for heart failure within one year
prior to screening. In order to be eligible to participate in GALACTIC-HF patients should have an LVEF (cid:3) 35%, be NYHA class II to
IV, and have an elevated BNP or NT-proBNP. Patients will be randomized to either placebo or omecamtiv mecarbil with dose titration
up to a maximum dose of 50 mg twice daily based on the plasma concentration of omecamtiv mecarbil after initiation of drug therapy.
The primary endpoint is a composite of time to cardiovascular death or first heart failure event, which is defined as either a
hospitalization for heart failure or other urgent treatment for worsening heart failure. Secondary endpoints include time to
cardiovascular death; patient reported outcomes as measured by the Kansas City Cardiomyopathy Questionnaire Total Symptom
Score; time to first heart failure hospitalization; and all-cause death.
Cytokinetics and Amgen are planning a second Phase 3 trial of omecamtiv mecarbil which is intended to evaluate its potential to
increase exercise performance in patients with heart failure.
In April 2016, we announced the start of a Phase 2 clinical trial of omecamtiv mecarbil in Japanese subjects with chronic heart
failure and reduced ejection fraction. In August 2017, we announced that this trial met its pharmacokinetic primary endpoint and
demonstrated statistically significant improvements in systolic ejection time, a secondary endpoint. In September 2017, we announced
the first dosing of a patient in Japan in GALACTIC-HF for which Amgen has paid us a $10.0 million milestone payment.
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Omecamtiv Mecarbil: Heart Failure Commercial Market
Heart failure is a widespread and debilitating syndrome affecting millions of people in the United States. The high and rapidly
growing prevalence of heart failure translates into significant hospitalization rates and associated societal costs. About 6.4 million
people in the United States have heart failure, resulting in nearly one million hospital discharges with the primary diagnosis of heart
failure and approximately 300,000 deaths each year. For people over 65 years of age, heart failure incidences approach 10 per 1000
and approximately 50% of people diagnosed with heart failure will die within 5 years of diagnosis. These numbers are increasing due
to the aging of the U.S. population and an increased likelihood of survival following acute myocardial infarctions.
The costs to society attributable to the prevalence of heart failure are high, especially as many chronic heart failure patients
suffer repeated acute episodes. Despite currently available therapies, readmission rates for heart failure patients remain high. In
general, the mortality following hospitalization for patients with heart failure is 10.4% at 30 days, 22% at one year and 42.3% at 5
years, despite the availability of therapeutic alternatives for treatment of these patients. These poor outcomes in the setting of current
therapies points to the need for novel therapeutics that may offer further reductions in morbidity and mortality. The annual cost of
heart failure to the U.S. health care system is estimated to be $32 billion and is predicted to grow 120% to almost $70 billion by the
year 2030. Today, a portion of that cost is attributable to drugs used to treat each of chronic and acute heart failure. Approximately
70% of those costs are due to hospitalization, home health and physician care. In the U.S., Medicare is one of the largest payors for
heart failure related costs. Approximately 50% of Medicare beneficiaries with heart failure are concentrated in the top 20% of the
hospital referral regions in the U.S. New drug therapies that could reduce the number of hospitalizations could decrease the cost to the
health care system.
Ongoing Research in Cardiac Muscle Contractility
In January 2018, we announced that, under our strategic alliance with Amgen, a next-generation cardiac muscle activator was
nominated as a development candidate by the Joint Research Committee. This milestone triggered a $1 million payment from Amgen
to Cytokinetics.
Skeletal Muscle Contractility Program
Our skeletal muscle contractility program is focused on the activation of the skeletal sarcomere, the basic unit of skeletal muscle
contraction. The skeletal sarcomere is a highly ordered cytoskeletal structure composed of skeletal muscle myosin, actin, and a set of
regulatory proteins, which include the troponins and tropomyosin. This program leverages our expertise developed in our ongoing
discovery and development of cardiac sarcomere activators, including the cardiac myosin activator, omecamtiv mecarbil.
We believe that our skeletal sarcomere activators may lead to new therapeutic options for diseases and medical conditions
associated with aging, muscle weakness and wasting and neuromuscular dysfunction. The clinical effects of muscle weakness and
wasting, fatigue and loss of mobility can range from decreased quality of life to, in some instances, life-threatening complications. By
directly improving skeletal muscle function, a small molecule activator of the skeletal sarcomere potentially could enhance functional
performance and quality of life in patients suffering from diseases or medical conditions associated with skeletal muscle weakness or
wasting, such as ALS, SMA, COPD or sarcopenia (general frailty associated with aging).
Reldesemtiv
CK-2127107 is our next-generation FSTA. It is structurally distinct from tirasemtiv and selectively activates the fast skeletal
muscle troponin complex in the sarcomere by increasing its sensitivity to calcium, leading to an increase in skeletal muscle
contractility. CK-2127107 has demonstrated pharmacological activity in preclinical models and evidence of potentially clinically
relevant pharmacodynamic effects in humans. The FDA has granted CK-2127107 orphan drug designation for the potential treatment
of SMA. We recently gained approval for use of reldesemtiv as the International Nonproprietary Name from the World Health
Organization and the United States Adopted Name Council and now refer to CK-2127107 by this generic name.
Astellas Strategic Alliance
Our strategic alliance with Astellas to advance novel therapies for diseases and medical conditions associated with muscle
impairment and weakness is governed by the Astellas Agreement. We initially exclusively licensed to Astellas rights to co-develop
and potentially co-commercialize reldesemtiv in non-neuromuscular indications. Subsequently, we and Astellas expanded the strategic
alliance to include certain neuromuscular indications, including SMA, and to advance reldesemtiv into Phase 2 clinical development,
initially in SMA. In 2016, we and Astellas further expanded the strategic alliance to include the development of reldesemtiv for the
potential treatment of ALS, as well as the possible development in ALS of other FSTAs previously licensed by us to Astellas, and
granted Astellas an option for a global collaboration for the development and commercialization of tirasemtiv (the “Option on
Tirasemtiv”).
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The strategic alliance with Astellas includes a joint research program focused on the discovery of additional next-generation
skeletal muscle activators, including sponsored research at Cytokinetics. This research program has been extended through 2019.
We have options to conduct early-stage development for certain agreed indications at our initial expense, subject to
reimbursement if development continues under the strategic alliance; to co-promote collaboration products containing FSTAs for
neuromuscular indications in the U.S., Canada and Europe; and to co-promote other collaboration products in the U.S. and Canada.
Astellas will reimburse us for certain expenses associated with our co-promotion activities.
Astellas is primarily responsible for the development of reldesemtiv in ALS, but we conduct FORTITUDE-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 reldesemtiv and other fast skeletal troponin activators in ALS. We and
Astellas share equally the costs of developing reldesemtiv 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 reldesemtiv in ALS subject to a right to
recoup our share of such costs plus a 100% premium by reducing future milestone and royalty payments to us and (ii) we may defer
(but not eliminate) a portion of our co-funding obligation for development activities after Phase 2 for up to 18 months, subject to
certain conditions. We have the right to co-fund our 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 additional development funding which includes Astellas’
funding of our conduct of the Phase 2 clinical development of reldesemtiv in ALS.
Based on the achievement of pre-specified criteria, we may receive over $600.0 million in milestone payments relating to the
development and commercial launch of collaboration products, including up to $112.0 million (of which we have received $17.0
million) relating to early development of reldesemtiv and for later-stage development and commercial launch milestones for
reldesemtiv in non-neuromuscular indications, and over $100.0 million in development and commercial launch milestones for
reldesemtiv in each of SMA and other neuromuscular indications. We may also receive up to $200.0 million in payments for
achievement of pre-specified sales milestones related to net sales of all collaboration products.
If Astellas commercializes any collaboration products, we will also 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 reldesemtiv. We can co-fund
certain development costs for reldesemtiv and other compounds in exchange for increased milestone payments and royalties; such
royalties may increase under certain scenarios to exceed twenty percent. In addition to the foregoing development, commercial launch
and sales milestones, we may also receive payments for the achievement of pre-specified milestones relating to the joint research
program.
Astellas generally has discretion to elect whether to pursue or abandon the development of reldesemtiv. Astellas may terminate
our strategic alliance in whole or in part for any reason upon six months’ prior notice at any time following expiration of the strategic
alliance’s research term, which will expire December 31, 2019.
Astellas’ Option on Tirasemtiv: If Astellas were to exercise the Option on Tirasemtiv, we would grant Astellas an exclusive
license to develop and commercialize tirasemtiv outside our commercialization territory of North America, Europe and other select
countries under a license and collaboration agreement for tirasemtiv and each party would then be primarily responsible for the further
development of tirasemtiv in its territory and have the exclusive right to commercialize tirasemtiv in its territory. Should Astellas
exercise this option, we would receive an option exercise payment ranging from $25.0 million to $80.0 million and a milestone
payment of $30.0 million from Astellas associated with the initiation of the open-label extension trial for tirasemtiv, VIGOR-ALS
(Ventilatory Investigations in Global Open-Label Research in ALS). If Astellas were to exercise the option after the defined review
period following receipt of data from VITALITY-ALS, Astellas would reimburse us for a share of any additional costs incurred after
such review period. In addition, 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 would be
solely responsible for the development costs of tirasemtiv specific to its commercialization territory. Contingent upon the successful
development of tirasemtiv, we may receive from Astellas milestone payments up to $100.0 million for the initial indication and up to
$50.0 million for each subsequent indication. If tirasemtiv is were to be commercialized, Astellas would pay us royalties (at rates
ranging from the mid-teens to twenty percent) on sales of tirasemtiv in Astellas’ territory, and we would pay Astellas royalties (at rates
up to the mid-teens) on sales of tirasemtiv in our territory, in each case subject to various possible adjustments.
Reldesemtiv: Clinical Development
SMA: We, in collaboration with Astellas, are conducting a Phase 2 double-blind, randomized, placebo-controlled clinical trial of
reldesemtiv in patients with SMA designed to assess effects of reldesemtiv on multiple measures of muscle function in both
ambulatory and non-ambulatory patients with SMA. The primary objective of this clinical trial is to determine the potential
pharmacodynamic effects of a suspension formulation of reldesemtiv following multiple oral doses in patients with Type II, Type III,
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or Type IV SMA. Secondary objectives are to evaluate the safety, tolerability and pharmacokinetics of reldesemtiv. Our objective was
to enroll seventy-two patients in two sequential, ascending dose cohorts (two cohorts of 36 patients each, stratified approximately half
ambulatory and half non-ambulatory).
The first cohort of patients, which completed enrollment in March 2017, received 150 mg of reldesemtiv dosed twice daily for
eight weeks. The second cohort of patients receives 450 mg of reldesemtiv dosed twice daily. Multiple assessments of skeletal muscle
function and fatigability will be performed including respiratory assessments, upper limb strength and functionality for non-
ambulatory patients, as well as six-minute walk and timed-up-and-go for ambulatory patients. Based on a blinded analysis of
variability for the change from baseline of several of our efficacy measures, the clinical trial appears to have sufficient statistical
power to detect differences versus placebo in the efficacy endpoints that are less than that which represents generally accepted
“clinically meaningful” differences. Therefore, in consultation with Astellas we have elected to conclude enrollment in the first
quarter of 2018 and expect results from this trial in the second quarter of 2018.
COPD: Astellas, in collaboration with Cytokinetics, is conducting a Phase 2 randomized, double-blind, placebo controlled, two
period crossover clinical trial of reldesemtiv in patients with COPD designed to assess the effect of reldesemtiv on physical function in
patients with COPD. The trial is expected to enroll approximately 40 patients in the United States and is designed to assess the effect
of reldesemtiv compared to placebo on exercise tolerance. Additionally, the trial will assess the cardiopulmonary and neuromuscular
effect of reldesemtiv relative to placebo and the effect of reldesemtiv on resting spirometry relative to placebo. The safety, tolerability
and pharmacokinetics of reldesemtiv also will be assessed. We expect results from a Phase 2 clinical trial of reldesemtiv in patients
with COPD in the second half of 2018.
Frailty: In June 2017, Astellas, in collaboration with Cytokinetics, started a Phase 1b clinical trial of reldesemtiv in elderly
subjects with limited mobility. This trial is expected to enroll at least 60 elderly adults with limited mobility. Patients will be
randomized to one of two treatment sequences in a 1:1 ratio to receive both reldesemtiv and placebo over two 14-day treatment
periods, separated by a 14-day washout period. During treatment periods, patients will receive 500 mg of reldesemtiv or placebo twice
daily, except on days 1 and 14, when they receive 500 mg of reldesemtiv once daily. The total study duration including the screening
period and follow-up visit will be approximately 12 weeks for each patient. The trial is designed to assess the effect of reldesemtiv on
skeletal muscle fatigue assessed as change from baseline versus 14 days of treatment in sum of peak torque during isokinetic knee
extensions. The trial will also assess the effects of reldesemtiv on physical performance via a short physical performance battery, stair-
climb test and 6-minute walk test as well as the safety, tolerability and pharmacokinetics of reldesemtiv. We expect results from a
Phase 1b clinical trial of reldesemtiv in adults with limited mobility in the second half of 2018.
ALS: In July 2017, in collaboration with Astellas, we started FORTITUDE-ALS. Approximately 450 eligible ALS patients will
be randomized (1:1:1:1) to receive either 150 mg, 300 mg or 450 mg of reldesemtiv dosed orally twice daily or placebo for 12 weeks.
The primary efficacy endpoint is the change from baseline in the percent predicted slow vital capacity (“SVC”) at 12 weeks.
Secondary endpoints include slope of the change from baseline in the mega-score of muscle strength measured by hand held
dynamometry (HHD) and handgrip dynamometry in patients on reldesemtiv; change from baseline in the ALS Functional Rating
Scale – Revised (“ALSFRS-R”); incidence and severity of treatment-emergent adverse events (TEAEs); and plasma concentrations of
reldesemtiv at the sampled time points during the study. Exploratory endpoints will be measured including the effect of reldesemtiv
versus placebo on self-assessments of respiratory function made at home by the patient with help as needed by the caregiver; disease
progression through quantitative measurement of speech production characteristics over time; disease progression through quantitative
measurement of handwriting abilities over time; and change from baseline in quality of life (as measured by the ALSAQ-5) in patients
on reldesemtiv. We expect results from a Phase 2 clinical trial of reldesemtiv in patients with ALS in second half of 2018.
The clinical trials program for reldesemtiv may proceed for several years, and we may not generate any revenues or material net
cash flows from sales of this drug candidate until the program is successfully completed, regulatory approval is achieved, and the drug
is commercialized. We cannot predict if or when this may occur.
Our expenditures will increase if Astellas terminates development of reldesemtiv or related compounds and we elect to develop
them independently, or if we conduct early-stage development for certain agreed indications at our initial expense, subject to
reimbursement if development continues under the collaboration.
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Ongoing Research in Skeletal Muscle Activators
Our research program with Astellas has been extended through 2019. Our research on the direct activation of skeletal muscle
continues in two areas. We are conducting translational research in preclinical models of disease and muscle function with FSTAs to
explore the potential clinical applications of this novel mechanism in diseases or conditions associated with skeletal muscle
dysfunction. We also intend to conduct preclinical research on other chemically and pharmacologically distinct mechanisms to
activate the skeletal sarcomere.
Tirasemtiv
We were awarded a $1.5 million grant from The ALS Association 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. The grant provides funding for collaboration among Cytokinetics, The ALS Association and the Barrow
Neurological Institute to enable collected plasma samples to be added to The Northeastern ALS Consortium (NEALS) Repository, a
resource for the academic research community to identify biomarkers that may help to assess disease progression and underlying
disease mechanisms in ALS. In 2017, we achieved all remaining milestones and received all $1.5 million available to us under this
grant.
In March 2017, in collaboration with Origent Data Sciences, Inc. (“Origent”) we announced the advancement of our research
collaboration to prospectively validate Origent’s computer model to predict the course of ALS disease progression using data from
VITALITY-ALS. This collaboration, funded by a grant from The ALS Association to Origent, is designed to enable the first
prospective validation of their predictive model in a clinical trial for ALS.
In November 2017, we announced that VITALITY-ALS did not meet its primary endpoint of change from baseline in slow vital
capacity which was evaluated at 24 weeks following randomization or any of the secondary endpoints in the trial which were
evaluated at 48 weeks and we suspended development of tirasemtiv. No new safety or tolerability findings related to tirasemtiv were
identified in VITALITY-ALS. Serious adverse events were similar between patients who received tirasemtiv or placebo but more
patients discontinued double-blind treatment on tirasemtiv than on placebo primarily due to non-serious adverse events related to
tolerability. The decline in SVC from baseline to 24 weeks was smaller in patients who received any dose of tirasemtiv in VITALITY-
ALS compared to the decline in patients receiving placebo. The largest differences from placebo were observed in patients
randomized to the mid- and high-dose groups of tirasemtiv who could tolerate and remain on their target dose, although those
differences were not statistically significant.
Notwithstanding suspension of development of tirasemtiv, we currently continue to conduct VIGOR-ALS (Ventilatory
Investigations in Global Open-Label Research in ALS), an open-label extension clinical trial designed to assess the long-term safety
and tolerability of tirasemtiv in patients with ALS who have completed their participation in VITALITY-ALS. We plan to continue to
consult with regulatory authorities and patient advocacy groups and others regarding future plans for VIGOR-ALS.
Commercial Market for ALS: Limited options exist for the treatment of patients with ALS, which affects as many as 30,000
Americans, with an estimated 5,600 new cases diagnosed each year in the U.S. Based on our primary market research, the per capita
prevalence and incidence appears similar in the major European markets. ALS is 20% more common in men than women; however,
with increasing age, the prevalence becomes more equal between men and women. The life expectancy of an ALS patient averages
two to five years from the time of diagnosis, mostly due to respiratory issues. Of the patients diagnosed with ALS, 5 to 10% have a
family history of the disease (familial ALS) and remaining 90 to 95% have the sporadic form. The majority of patients with ALS in
the U.S. and Europe receive treatment at a concentrated number of multidisciplinary centers that specialize in the unique needs of
these patients. In the U.S., there are approximately 150 ALS multidisciplinary clinics, according to either the ALS Association or the
Muscular Dystrophy Association. For most patients with ALS, death is usually due to respiratory failure because of diminished
strength in the skeletal muscles responsible for breathing. We believe that there is an urgent need for novel therapies to address the
unmet medical issues of this patient population which could be addressed by a small, targeted sales force.
Commercial Market for SMA: SMA is a severe neuromuscular disease that occurs in 1 in every 6,000 to 10,000 live births each
year resulting in a prevalence of 10,000 to 25,000 patients in the U.S., and is one of the most common fatal genetic disorders. SMA
manifests in various degrees of severity as progressive muscle weakness resulting in respiratory and mobility impairment. There are
four types of SMA, distinguished by the time of the initial onset of muscle weakness and the severity of related symptoms: Type I
(severe), Type II (intermediate), Type III (juvenile) and Type IV (adult onset). Life expectancy and disease severity varies by type of
SMA from Type I, who have the worst prognosis and a life expectancy of approximately two years from birth, to Type IV, who have a
normal life span but with gradual weakness in the proximal muscles of the extremities resulting in mobility issues. Type II, III and IV
patients are often characterized by their ambulatory status as it is an important driver of clinical decisions and care, and constitute 50%
of the incident patient population but as much as 90% of the prevalent patient population. Few treatment options exist for these
patients, resulting in a high unmet need for new therapeutic options to ameliorate symptoms, improve muscle function and modify
disease progression.
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Other Commercial Markets for Skeletal Muscle Activators: We are continuing to evaluate the potential commercial markets for
other potential indications for skeletal muscle activators, including COPD and frailty.
Beyond Muscle Contractility
We developed preclinical expertise in the mechanics of skeletal, cardiac and smooth muscle that extends from proteins to tissues
to intact animal models. Our translational research in muscle contractility has enabled us to better understand the potential impact of
small molecule compounds that increase skeletal or cardiac muscle contractility and to apply those findings to the further evaluation of
our drug candidates in clinical populations. In addition to contractility, other major functions of muscle play a role in certain diseases
that could benefit from novel mechanism treatments. Accordingly, our knowledge of muscle contractility may serve as an entry point
to the discovery of novel treatments for disorders involving muscle functions other than muscle contractility. We are leveraging our
current understandings of muscle biology to investigate new ways of modulating these other aspects of muscle function for other
potential therapeutic applications.
Intellectual Property
Our policy is to seek patent protection for the technologies, inventions and improvements that we develop that we consider
important to the advancement of our business. As of December 31, 2017, we owned or co-owned or licensed 88 issued U.S. patents,
over 330 issued patents in various foreign jurisdictions, and over 200 additional pending U.S. and foreign patent applications. We also
rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. Our
commercial success will depend on obtaining and maintaining patent protection and trade secret protection for our drug candidates and
technologies and our successfully defending these patents against third-party challenges. We will only be able to protect our
technologies from unauthorized use by third parties to the extent that valid and enforceable patents cover them or we maintain them as
trade secrets.
With regard to our drug candidates directed to muscle biology targets, we have a U.S. patent covering omecamtiv mecarbil and
U.S. patents covering our skeletal muscle sarcomere activators including, but not limited to, tirasemtiv and reldesemtiv, which expire
in 2027, 2027 and 2031, respectively, unless extended or otherwise adjusted. We also have issued patents in various foreign
jurisdictions and additional U.S. and foreign patent applications pending for each of our drug candidates. It is not known or
determinable whether other patents will issue from any of our other pending applications or what the expiration dates would be for any
other patents that do issue.
Our drug candidates omecamtiv mecarbil and reldesemtiv are still in clinical development and have not yet been approved by
the FDA, and development of tirasemtiv has been suspended. If either of these drug candidates is approved, then pursuant to federal
law, we may apply for an extension of the U.S. patent term for one patent covering the approved drug, which could extend the term of
the applicable patent by up to a maximum of five additional years.
The degree of future protection of our proprietary rights is uncertain because legal means may not adequately protect our rights
or permit us to gain or keep our competitive advantage. Due to evolving legal standards relating to the patentability, validity and
enforceability of patents covering pharmaceutical inventions and the claim scope of these patents, our ability to enforce our existing
patents and to obtain and enforce patents that may issue from any pending or future patent applications is uncertain and involves
complex legal, scientific and factual questions. The standards that the U.S. Patent and Trademark Office and its foreign counterparts
use to grant patents are not always applied predictably or uniformly and are subject to change. To date, no consistent policy has
emerged regarding the breadth of claims allowed in biotechnology and pharmaceutical patents. Thus, we cannot be sure that any
patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents do issue, we cannot be
sure that the claims of these patents will be held valid or enforceable by a court of law, will provide us with any significant protection
against competitive products, or will afford us a commercial advantage over competitive products. For example:
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we or our licensors might not have been the first to make the inventions covered by each of our pending patent
applications and issued patents;
we or our licensors might not have been the first to file patent applications for the inventions covered by our pending
patent applications and issued patents;
others may independently develop similar or alternative technologies or duplicate any of our technologies without
infringing our intellectual property rights;
some or all of our or our licensors’ pending patent applications may not result in issued patents or the claims that issue
may be narrow in scope and not provide us with competitive advantages;
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our and our licensors’ issued patents may not provide a basis for commercially viable drugs or therapies or may be
challenged and invalidated by third parties;
our or our licensors’ patent applications or patents may be subject to interference, post-grant proceedings, opposition or
similar administrative proceedings that may result in a reduction in their scope or their loss altogether;
we may not develop additional proprietary technologies or drug candidates that are patentable; or
the patents of others may prevent us or our partners from discovering, developing or commercializing our drug candidates.
The defense and prosecution of intellectual property infringement suits, interferences, post-grant proceedings, oppositions and
related legal and administrative proceedings are costly, time-consuming to pursue and divert resources. The outcome of these types of
proceedings is uncertain and could significantly harm our business.
Our ability to commercialize drugs depends on our ability to use, manufacture and sell those drugs without infringing the patents
or other proprietary rights of third parties. U.S. and foreign issued patents and pending patent applications owned by third parties exist
that may be relevant to the therapeutic areas and chemical compositions of our drug candidates. While we are aware of certain relevant
patents and patent applications owned by third parties, there may be issued patents or pending applications of which we are not aware
that could cover our drug candidates. Because patent applications are often not published immediately after filing, there may be
currently pending applications, unknown to us, which could later result in issued patents that our activities with our drug candidates
could infringe.
The development of our drug candidates and the commercialization of any resulting drugs may be impacted by patents of
companies engaged in competitive programs with significantly greater resources. This could result in the expenditure of significant
legal fees and management resources.
We also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are often difficult to protect, especially outside of the United States. While we believe that we use
reasonable efforts to protect our trade secrets, our employees, consultants, contractors, partners and other advisors may unintentionally
or willfully disclose our trade secrets to competitors. Enforcing a claim that a third party illegally obtained and is using our trade
secrets would be expensive and time-consuming, and the outcome would be unpredictable. Even if we are able to maintain our trade
secrets as confidential, our competitors may independently develop information that is equivalent or similar to our trade secrets.
We seek to protect our intellectual property by requiring our employees, consultants, contractors and other advisors to execute
nondisclosure and invention assignment agreements upon commencement of their employment or engagement, through which we seek
to protect our intellectual property. Agreements with our employees also preclude them from bringing the proprietary information or
materials of third parties to us. We also require confidentiality agreements or material transfer agreements from third parties that
receive our confidential information or materials.
For further details on the risks relating to our intellectual property, please see the risk factors under Item 1A of this report,
including, but not limited to, the risk factors entitled “Our success depends substantially upon our ability to obtain and maintain
intellectual property protection relating to our drug candidates and research technologies” and “If we are sued for infringing third
party intellectual property rights, it will be costly and time-consuming, and an unfavorable outcome would have a significant adverse
effect on our business.”
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial
requirements upon the clinical development, manufacture, marketing and distribution of drugs. These agencies and other federal, state
and local entities regulate research and development activities and the testing, manufacture, quality control, labeling, storage, record
keeping, approval, advertising and promotion of our drug candidates and drugs.
In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act and implementing regulations.
The process required by the FDA before our drug candidates may be marketed in the United States generally involves the following:
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completion of extensive preclinical laboratory tests, preclinical animal studies and formulation studies, all performed in
accordance with the FDA’s good laboratory practice regulations;
submission to the FDA of an investigational new drug application (“IND”), which must become effective before clinical
trials may begin;
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performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the drug candidate for
each proposed indication in accordance with good clinical practices;
submission of a new drug application (“NDA”) to the FDA, which must usually be accompanied by payment of a
substantial user fee;
satisfactory completion of an FDA preapproval inspection of the manufacturing facilities at which the product is produced
to assess compliance with current good manufacturing practice (“cGMP”) regulations and FDA audits of select clinical
investigator sites to assess compliance with good clinical practices (“GCP”); and
FDA review and approval of the NDA prior to any commercial marketing, sale or shipment of the drug.
Similar regulatory procedures generally apply in countries outside of the United States. This testing and approval process
requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our drug candidates will be
granted on a timely basis, if at all.
Nonclinical tests include laboratory evaluation of product chemistry, formulation and stability, and studies to evaluate toxicity
and pharmacokinetics in animals. The results of nonclinical tests, together with manufacturing information and analytical data, are
submitted as part of an IND application to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA,
unless the FDA, within the 30-day period, raises concerns or questions about the conduct of the clinical trial, including concerns that
human research subjects may be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical trial can begin. Our submission of an IND or a foreign equivalent, or those of our
collaborators, may not result in authorization from the FDA or its foreign equivalent to commence a clinical trial. A separate
submission to an existing IND must also be made for each successive clinical trial conducted during product development. Further, an
independent institutional review board (“IRB”) or its foreign equivalent for each medical center proposing to conduct the clinical trial
must review and approve the plan for any clinical trial before it commences at that center and it must monitor the clinical trial until
completed. The FDA, the IRB or their foreign equivalents, or the clinical trial sponsor may suspend a clinical trial at any time on
various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.
Clinical Trials. For purposes of an NDA or equivalent submission and approval, clinical trials are typically conducted in the
following three sequential phases, which may overlap:
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Phase 1: Phase 1 includes the initial introduction of a drug candidate into humans. These studies may be conducted in
patients, but are usually conducted in healthy volunteer subjects. These studies are designed to determine the metabolic
and pharmacologic actions of the drug candidate in humans, the side effects associated with increasing doses, and, if
possible, to gain early evidence on effectiveness. During Phase 1, sufficient information about the drug candidate’s
pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically
valid, Phase 2 trials.
Phase 2: Phase 2 includes the early controlled clinical studies conducted to obtain some preliminary data on the
effectiveness of the drug candidate for a particular indication or indications in patients with the disease or condition. This
phase of testing also helps determine the common short-term side effects and risks associated with the drug candidate.
These clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety
risks, to make an initial determination of potential efficacy of the drug candidate for specific targeted indications and to
determine dose tolerance and optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain
information prior to beginning larger and more expensive Phase 3 clinical trials. Phase 2a clinical trials generally are
designed to study the pharmacokinetic or pharmacodynamic properties and to conduct a preliminary assessment of safety
of the drug candidate over a measured dose response range. In some cases, a sponsor may decide to conduct a Phase 2b
clinical trial, which is a second, typically larger, confirmatory Phase 2 trial that could, if positive and accepted by a
regulatory authority, support approval of a drug candidate.
Phase 3: If the Phase 2 clinical trials demonstrate that a dose range of the drug candidate is potentially effective and has
an acceptable safety profile, Phase 3 clinical trials are then undertaken in large patient populations to further evaluate
dosage, to provide substantial evidence of clinical efficacy and to further test for safety in an expanded and diverse patient
population at multiple, geographically dispersed clinical trial sites. Phase 3 trials are also intended to provide an adequate
basis for extrapolating the results to the general population and transmitting that information in the drug labeling. Phase 3
studies usually include several hundred to several thousand people, and are usually longer in duration than Phase 2 trials.
At any time during the conduct of a clinical trial, the FDA or a foreign equivalent can impose a clinical hold on the trial if it
believes the trial is unsafe or that the protocol is clearly deficient in design in meeting its stated objectives, which requires the conduct
of the trial to cease until the clinical hold is removed. In some cases, the FDA or foreign equivalent may condition approval of
marketing approval for a drug candidate on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s
safety and effectiveness after marketing approval, known as Phase 4 clinical trials.
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The clinical trials we conduct for our drug candidates, both before and after approval, and the results of those trials, are
generally required to be included in a clinical trials registry database that is available and accessible to the public via the internet. A
failure by us to properly participate in the clinical trial database registry could subject us to significant civil monetary penalties.
Health care providers in the United States, including research institutions from which we or our partners obtain patient
information, are subject to privacy rules under the Health Insurance Portability and Accountability Act of 1996 and state and local
privacy laws. In the European Union, these entities are subject to the Directive 95/46-EC of the European Parliament on the protection
of individuals with regard to the processing of personal data and individual European Union member states implementing additional
legislation. Other countries have similar privacy legislation. We could face substantial penalties if we knowingly receive individually
identifiable health information from a health care provider that has not satisfied the applicable privacy laws. In addition, certain
privacy laws and genetic testing laws may apply directly to our operations and/or those of our partners and may impose restrictions on
the use and dissemination of individuals’ health information and use of biological samples.
New Drug/Marketing Approval Application. The results of drug candidate development, preclinical testing and clinical trials
are submitted to the FDA as part of an NDA. The NDA also must contain extensive manufacturing information. In addition, the FDA
may require that a proposed Risk Evaluation and Mitigation Strategy, also known as a REMS, be submitted as part of the NDA if the
FDA determines that it is necessary to ensure that the benefits of the drug outweigh its risks. Similar, and in some cases additional,
requirements apply in foreign jurisdictions for marketing approval applications for drugs in those jurisdictions. The FDA may refer the
NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The
FDA often, but not always, follows the advisory committee’s recommendations. The FDA may deny approval of an NDA by issuing a
complete response letter if the applicable regulatory criteria are not satisfied, or it may require additional clinical data, including data
in a pediatric population, or an additional Phase 3 clinical trial or impose other conditions that must be met in order to secure final
approval for an NDA.
Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data
from clinical trials are not always conclusive and the FDA may interpret data differently than we or our partners do. Once issued, the
FDA or foreign equivalent may withdraw a drug approval if ongoing regulatory requirements are not met or if safety problems occur
after the drug reaches the market. In addition, the FDA or its foreign counterparts may require further testing, including Phase 4
clinical trials, and surveillance or restrictive distribution programs to monitor the effect of approved drugs which have been
commercialized. The FDA and its foreign counterparts have the power to prevent or limit further marketing of a drug based on the
results of these post-marketing programs. Drugs may be marketed only for the approved indications and in accordance with the
provisions of the approved label. Further, if there are any modifications to a drug, including changes in indications, labeling or
manufacturing processes or facilities, we may be required to submit and obtain prior FDA approval of a new NDA or NDA
supplement, or the foreign equivalent, which may require us to develop additional data or conduct additional preclinical studies and
clinical trials.
Satisfaction of FDA regulations and requirements or similar requirements of state, local and foreign regulatory agencies
typically takes several years. The actual time required may vary substantially based upon the type, complexity and novelty of the drug
candidate or disease. Typically, if a drug candidate is intended to treat a chronic disease, as is the case with some of our drug
candidates, safety and efficacy data must be gathered over an extended period of time. Government regulation may delay or prevent
marketing of drug candidates for a considerable period of time and impose costly procedures upon our activities. The FDA or any
other regulatory agency may not grant approvals for new indications for our drug candidates on a timely basis, if at all. Even if a drug
candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and
dosages or restrictive distribution programs. Further, even after regulatory approval is obtained, later discovery of previously unknown
problems with a drug may result in restrictions on the drug or even complete withdrawal of the drug from the market. Delays in
obtaining, or failures to obtain, regulatory approvals for any of our drug candidates would harm our business. In addition, we cannot
predict what future U.S. or foreign governmental regulations may be implemented.
Orphan Drug Designation. Some jurisdictions, including the United States, may designate drugs for relatively small patient
populations as orphan drugs. The FDA grants orphan drug designation to drugs intended to treat a rare disease or condition, which is
generally a disease or condition that affects fewer than 200,000 individuals in the United States. For example, the FDA has granted
tirasemtiv an orphan drug designation for the treatment of ALS. In addition, the European Medicines Agency has granted tirasemtiv
orphan medicinal product status for the treatment of ALS. We have been granted orphan drug designation in the U.S. by the FDA for
reldesemtiv for the potential treatment of SMA.
An FDA orphan drug designation does not shorten the duration of the regulatory review and approval process. If a drug
candidate that has an orphan drug designation receives the first FDA marketing approval for the indication for which the designation
was granted, then the approved drug is entitled to orphan drug exclusivity. This means that the FDA may not approve another
company’s application to market the same drug for the same indication for a period of seven years, except in certain circumstances,
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such as a showing of clinical superiority to the drug with orphan exclusivity or if the holder of the orphan drug designation cannot
assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which
the designation was granted. Competitors may receive approval of different drugs or biologics for the indications for which the orphan
drug has exclusivity.
Fast Track Designation. Fast track is a process designed by the FDA to facilitate the development and expedite the review of
drugs to treat serious diseases and fill an unmet medical need. Tirasemtiv has been granted fast track designation by the FDA for the
treatment of ALS. Although fast track designation does not affect the standards for approval, the benefits of this designation include
scheduled meetings to seek FDA input into development plans, the option of submitting an NDA in sections rather than all
components simultaneously, and the potential eligibility for priority review if supported by clinical data.
Other Regulatory Requirements. Any drugs manufactured or distributed by us or our partners pursuant to FDA approvals or
their foreign counterparts are subject to continuing regulation by the applicable regulatory authority, including recordkeeping
requirements and reporting of adverse experiences associated with the drug. Drug manufacturers and their subcontractors are required
to register their establishments with the FDA and other applicable regulatory authorities, and are subject to periodic unannounced
inspections by these regulatory authorities for compliance with ongoing regulatory requirements, including cGMPs, which impose
certain procedural and documentation requirements upon us and our third-party manufacturers. Failure to comply with the statutory
and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of
manufacturing, seizure of product, injunctive action or possible civil penalties. We cannot be certain that we or our present or future
third-party manufacturers or suppliers will be able to comply with the cGMP regulations and other ongoing FDA and other regulatory
requirements. If our present or future third-party manufacturers or suppliers are not able to comply with these requirements, the FDA
or its foreign counterparts may halt our or our partners’ clinical trials, require us to recall a drug from distribution, or withdraw
approval of the NDA for that drug.
For further details on the risks relating to government regulation of our business, please see the risk factors under Item 1A of
this report, including, but not limited to, the risk factor entitled “The regulatory approval process is expensive, time-consuming and
uncertain and may prevent our partners or us from obtaining approvals to commercialize some or all of our drug candidates.”
Competition
We compete in the segments of the pharmaceutical, biotechnology and other related markets that address neuromuscular and
cardiovascular diseases and other diseases relating to muscle dysfunction, each of which is highly competitive. We face significant
competition from most pharmaceutical companies and biotechnology companies that are also researching and selling products
designed to address cardiovascular diseases and diseases and medical conditions associated with skeletal muscle weakness and
wasting. Many of our competitors have significantly greater financial, manufacturing, marketing and drug development resources than
we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory
approvals for drugs. These companies also have significantly greater research capabilities than we do. In addition, many universities
and private and public research institutes are active in research of neuromuscular and cardiovascular diseases and other diseases where
there is muscle dysfunction, some in direct competition with us.
We believe that our ability to successfully compete will depend on, among other things:
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our drug candidates’ efficacy, safety and tolerability;
the speed and cost-effectiveness with which we develop our drug candidates;
the selection of suitable indications for which to develop our drug candidates;
the successful completion of clinical development and laboratory testing of our drug candidates;
the timing and scope of any regulatory approvals we or our partners obtain for our drug candidates;
our or our partners’ ability to manufacture and sell commercial quantities of our approved drugs to meet market demand;
acceptance of our drugs by physicians and other health care providers;
the willingness of third party payors to provide reimbursement for the use of our drugs;
our ability to protect our intellectual property and avoid infringing the intellectual property of others;
the quality and breadth of our technology;
our employees’ skills and our ability to recruit and retain skilled employees;
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our cash flows under existing and potential future arrangements with licensees, partners and other parties; and
the availability of substantial capital resources to fund development and commercialization activities.
Our competitors may develop drug candidates and market drugs that are less expensive and more effective than our future drugs
or that may render our drugs obsolete. Our current or future competitors may also commercialize competing drugs before we or our
partners can launch any drugs developed from our drug candidates. These organizations also compete with us to attract qualified
personnel and potential parties for acquisitions, joint ventures or other strategic alliances.
If omecamtiv mecarbil is approved for marketing by the FDA or other regulatory authorities for the treatment of heart failure, it
would compete against other drugs used for the treatment of chronic heart failure. These include generic drugs, such as milrinone,
dobutamine or digoxin and branded drugs such as Corlanor (ivabradine), and Entresto (LCZ696). Omecamtiv mecarbil could also
potentially compete against other novel drug candidates and therapies in development, such as those being developed by ARCA
biopharma, Inc., Novartis, Bayer, Merck, Theravance Biopharma, Capricor, Cardiorentis AG, Ono Pharmaceutical Company,
ARMGO Pharma, Inc, Stealth Biotherapeutics, Bristol-Myers Squibb Company, Zensun Sci & Tech, Ltd., and Tenax Therapeutics
(formerly known as Oxygen Biotherapeutics, Inc.). In addition, there are a number of medical devices both marketed and in
development for the potential treatment of heart failure.
If reldesemtiv is approved by the FDA or other regulatory authorities for the treatment of ALS, it may then compete with other
drugs used for the treatment of ALS including Radicava (edaravone) and potential new therapies for ALS that are currently being
developed by companies such as Neuraltus Pharmaceuticals, Inc., Ionis Pharmaceuticals, Inc. (in collaboration with Biogen),
Genervon Biopharmaceuticals, LLC, Orion Pharmaceuticals, Orphazyme, Eisai Co., Ltd., Genentech, Inc. Edison Pharma, Q
Therapeutics, AB Science, VM Biopharm, Mallinckrodt Pharmaceuticals, Chronos Therapeutics, and MediciNova, Inc. In addition,
BrainStorm Cell Therapeutics and Neuralstem, Inc. are each conducting clinical development of stem cell therapies for the potential
treatment of ALS. If reldesemtiv is approved by the FDA or other regulatory authorities for the potential treatment of SMA, potential
competitors include Roche (in collaboration with PTC Therapeutics), AveXis, Inc., Biogen, Inc. (in collaboration with Ionis
Pharmaceuticals, Inc.) Novartis AG, and Bioblast Pharma, Ltd. Drugs that could compete with reldesemtiv could also compete against
tirasemtiv in ALS or other neuromuscular diseases, should the appropriate clinical trials be conducted. If reldesemtiv is approved by
the FDA for the potential treatment of non-neuromuscular indications associated with muscle weakness, potential competitors include
Ligand Pharmaceuticals, Inc., GTx, Inc., Regeneron Pharmaceuticals, Inc. (in collaboration with Sanofi), Eli Lilly & Company,
Acceleron Pharma, Stealth Biotherapeutics, Scholar Rock, Summit Therapeutics, Pfizer Inc., and Novartis (in collaboration with
Morphosys AG).
Employees
As of December 31, 2017, we had 137 full-time employees.
We have no collective bargaining agreements with our employees, and we have not experienced any work stoppages. We
believe that our relations with our employees are good.
Investor Information
We file electronically with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K pursuant to Section 13 or 15(d) of the Exchange Act. The public may read or copy any materials we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is
www.sec.gov.
You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-
K and amendments to those reports on the day of filing with the SEC on our website at www.cytokinetics.com or by contacting the
Investor Relations Department at our corporate offices by calling 650-624-3060. The information found on our website is not part of
this or any other report filed with or furnished to the SEC.
Item 1A.
Risk Factors
In evaluating our business, you should carefully consider the following risks in addition to the other information in this report.
Any of the following risks could materially and adversely affect our business, results of operations, financial condition or your
investment in our securities, and many are beyond our control. The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties not presently known to us, or that we currently see as immaterial, may also adversely
affect our business.
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Risks Related To Our Business
We have a history of significant losses and may not achieve or sustain profitability and, as a result, you may lose all or part of
your investment.
We have generally incurred operating losses in each year since our inception in 1997, due to costs incurred in connection with
our research and development activities and general and administrative costs associated with our operations. Our drug candidates are
all in early through late-stage clinical testing, and we and our partners must conduct significant additional clinical trials before we and
our partners can seek the regulatory approvals necessary to begin commercial sales of our drugs. We expect to incur increasing losses
for at least several more years, as we continue our research activities and conduct development of, and seek regulatory approvals for,
our drug candidates, and commercialize any approved drugs. If our drug candidates fail or do not gain regulatory approval, or if our
drugs do not achieve market acceptance, we will not be profitable. If we fail to become and remain profitable, or if we are unable to
fund our continuing losses, you could lose all or part of your investment.
We will need substantial additional capital in the future to sufficiently fund our operations.
We have consumed substantial amounts of capital to date, and our operating expenditures will increase over the next several
years if we expand our research and development activities. We have funded all of our operations and capital expenditures with
proceeds from private and public sales of our equity securities, strategic alliances with Amgen, Astellas and others, long term debt,
equipment financings, interest on investments, government grants and other grants. We believe that our existing cash and cash
equivalents, short-term investments and interest earned on investments should be sufficient to meet our projected operating
requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could
utilize our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated
with the development of our drug candidates and other research and development activities, including risks and uncertainties that
could impact the rate of progress of our development activities, we are unable to estimate with certainty the amounts of capital outlays
and operating expenditures associated with these activities.
For the foreseeable future, our operations will require significant additional funding, in large part due to our research and
development expenses and the absence of any revenues from product sales. For example, we will require significant additional
funding to enable us to conduct further development of our product candidates. Until we can generate a sufficient amount of product
revenue, we expect to raise future capital through strategic alliance and licensing arrangements, public or private equity offerings and
debt financings. We do not currently have any commitments for future funding other than reimbursements, milestone and royalty
payments that we may receive under our collaboration agreements with Amgen and Astellas. We may not receive any further funds
under those agreements. Our ability to raise funds may be adversely impacted by current economic conditions. As a result of these and
other factors, we do not know whether additional financing will be available when needed, or that, if available, such financing would
be on terms favorable to our stockholders or us.
To the extent that we raise additional funds through strategic alliances or licensing and other arrangements with third parties, we
will likely have to relinquish valuable rights to our technologies, research programs or drug candidates, or grant licenses on terms that
may not be favorable to us. To the extent that we raise additional funds by issuing equity securities, our stockholders will experience
additional dilution and our share price may decline. To the extent that we raise additional funds through debt financing, the financing
may involve covenants that restrict our business activities. In addition, funding from any of these sources, if needed, may not be
available to us on favorable terms, or at all, or in accordance with our planned timelines.
If we cannot raise the funds we need to operate our business, we will need to delay or discontinue certain research and
development activities, and our stock price may be negatively affected.
Covenants in our loan and security agreement restrict our business and operations in many ways and if we do not effectively
manage our covenants, our financial conditions and results of operations could be adversely affected. In addition, our
operations may not provide sufficient revenue to meet the condition required in order to access the final loan available under
the agreement and may also not provide sufficient cash to meet the repayment obligations of our debt incurred under the loan
and security agreement.
Our loan and security agreement with Oxford Finance LLC and Silicon Valley Bank provides for up to $50.0 million in term
loans due on October 1, 2022, of which $32.0 million in term loans has been borrowed to date. All of our current and future assets,
except for intellectual property, are secured for our borrowings under the loan and security agreement. The loan and security
agreement requires that we comply with certain covenants applicable to us, including among other things, covenants restricting
dispositions, changes in business, management, ownership or business locations, mergers or acquisitions, indebtedness, encumbrances,
distributions, investments, transactions with affiliates and subordinated debt, any of which could restrict our business and operations,
particularly our ability to respond to changes in our business or to take specified actions to take advantage of certain business
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opportunities that may be presented to us. Our failure to comply with any of the covenants could result in a default under the loan and
security agreement, which could permit the lenders to declare all or part of any outstanding borrowings to be immediately due and
payable, or to refuse to permit additional borrowings under the loan and security agreement. If we are unable to repay those amounts,
the lenders under the loan and security agreement could proceed against the collateral granted to them to secure that debt, which
would seriously harm our business. In addition, should we be unable to comply with these covenants or if we default on any portion of
our outstanding borrowings, the lenders can also impose a 5.0% penalty and restrict access to additional borrowings under the loan
and security agreement. Our ability to draw a second tranche of $8.0 million under the loan and security agreement was subject to our
ability to achieve certain conditions related to the outcome of the VITALITY-ALS trial, which conditions we did not satisfy. Our
ability to access the remaining $10.0 million under the loan and security agreement is subject to our ability to achieve certain
conditions related to Phase 2 data for reldesemtiv in SMA, which conditions we may not be able to meet. In addition, although we
expect to borrow additional funds under the loan and security agreement, before we do so, we must first satisfy ourselves that we will
have access to future alternate sources of capital, including cash flow from our own operations, equity capital markets or debt capital
markets in order to repay any principal borrowed, which we may be unable to do, in which case, our liquidity and ability to fund our
operations may be substantially impaired.
We have never generated, and may never generate, revenues from commercial sales of our drugs and we will not have drugs to
market for at least several years, if ever.
We currently have no drugs for sale and we cannot guarantee that we will ever develop or obtain approval to market any drugs.
To receive marketing approval for any drug candidate, we must demonstrate that the drug candidate satisfies rigorous standards of
safety and efficacy to the FDA in the United States and other regulatory authorities abroad. We and our partners will need to conduct
significant additional research and preclinical and clinical testing before we or our partners can file applications with the FDA or other
regulatory authorities for approval of any of our drug candidates. In addition, to compete effectively, our drugs must be easy to use,
cost-effective and economical to manufacture on a commercial scale, compared to other therapies available for the treatment of the
same conditions. We may not achieve any of these objectives. Currently, our only drug candidates in clinical development are
omecamtiv mecarbil for the potential treatment of heart failure and reldesemtiv for the potential treatment of SMA, COPD, limited
mobility, ALS and potentially other neuromuscular and non-neuromuscular indications associated with muscle weakness. We cannot
be certain that the clinical development of these or any future drug candidates will be successful, that they will receive the regulatory
approvals required to commercialize them, that they will ultimately be accepted by prescribers or reimbursed by insurers or that any of
our other research programs will yield a drug candidate suitable for clinical testing or commercialization. Our commercial revenues, if
any, will be derived from sales of drugs that we do not expect to be commercially marketed for at least several years, if at all. The
development of any one or all of these drug candidates may be discontinued at any stage of our clinical trials programs and we may
not generate revenue from any of these drug candidates.
Clinical trials may fail to demonstrate the desired safety and efficacy of our drug candidates, which could prevent or
significantly delay completion of clinical development and regulatory approval.
Prior to receiving approval to commercialize any of our drug candidates, we or our partners must adequately demonstrate to the
satisfaction of FDA and foreign regulatory authorities that the drug candidate is sufficiently safe and effective with substantial
evidence from well-controlled clinical trials. We or our partners will need to demonstrate efficacy in clinical trials for the treatment of
specific indications and monitor safety throughout the clinical development process and following approval. None of our drug
candidates have yet met the safety and efficacy standards required for regulatory approval for commercialization and they may never
do so. In addition, for each of our preclinical compounds, we or our partners must adequately demonstrate satisfactory chemistry,
formulation, quality, stability and toxicity in order to submit an investigational new drug application (“IND”) to the FDA, or an
equivalent application in foreign jurisdictions, that would allow us to advance that compound into clinical trials. Furthermore, we or
our partners may need to submit separate INDs (or foreign equivalent) to different divisions within the FDA (or foreign regulatory
authorities) in order to pursue clinical trials in different therapeutic areas. Each new IND (or foreign equivalent) must be reviewed by
the new division before the clinical trial under its jurisdiction can proceed, entailing all the risks of delay inherent to regulatory
review. If our or our partners’ current or future preclinical studies or clinical trials are unsuccessful, our business will be significantly
harmed and our stock price could be negatively affected.
All of our drug candidates are prone to the risks of failure inherent in drug development. Preclinical studies may not yield results
that would adequately support the filing of an IND (or a foreign equivalent) with respect to our potential drug candidates. Even if the
results of preclinical studies for a drug candidate are sufficient to support such a filing, the results of preclinical studies do not
necessarily predict the results of clinical trials. As an example, because the physiology of animal species used in preclinical studies
may vary substantially from other animal species and from humans, it may be difficult to assess with certainty whether a finding from
a study in a particular animal species will result in similar findings in other animal species or in humans. For any of our drug
candidates, the results from Phase 1 clinical trials in healthy volunteers and clinical results from Phase 1 and 2 trials in patients are not
necessarily indicative of the results of later and larger clinical trials that are necessary to establish whether the drug candidate is safe
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and effective for the applicable indication. Likewise, interim results from a clinical trial may not be indicative of the final results from
that trial, and results from early Phase 2 clinical trials may not be indicative of the results from later clinical trials. For example, early
Phase 2 clinical trials of tirasemtiv in patients with ALS showed encouraging dose-related trends in measurements of the ALS
Functional Rating Scale in its revised form (ALSFRS-R), a clinically validated instrument designed to measure disease progression
and changes in functional status, for patients receiving tirasemtiv compared to those receiving placebo. However, BENEFIT-ALS, a
Phase 2b clinical trial of tirasemtiv in patients with ALS, did not achieve its primary efficacy endpoint, the mean change from baseline
in the ALSFRS-R for patients receiving tirasemtiv compared to those receiving placebo, and in November 2017, we announced that
VITALITY-ALS, a Phase 3 clinical trial of tirasemtiv in patients with ALS, did not achieve its primary endpoint or secondary
endpoints. Following the results of VITALITY-ALS, we suspended development of tirasemtiv.
In addition, while the clinical trials of our drug candidates are designed based on the available relevant information, such
information may not accurately predict what actually occurs during the course of the trial itself, which may have consequences for the
conduct of an ongoing clinical trial or for the eventual results of that trial. For example, the number of patients planned to be enrolled
in a placebo-controlled clinical trial is determined in part by estimates relating to expected treatment effect and variability about the
primary endpoint. These estimates are based upon earlier nonclinical and clinical studies of the drug candidate itself and clinical trials
of other drugs thought to have similar effects in a similar patient population. If information gained during the conduct of the trial
shows these estimates to be inaccurate, we may elect to adjust the enrollment accordingly, which may cause delays in completing the
trial, additional expense or a statistical penalty to apply to the evaluation of the trial results.
Furthermore, in view of the uncertainties inherent in drug development, such clinical trials may not be designed with focus on
indications, patient populations, dosing regimens, endpoints, safety, efficacy or pharmacokinetic parameters or other variables that
will provide the necessary safety or efficacy data to support regulatory approval to commercialize the resulting drugs. For example,
we believe that effects on respiratory function, including SVC, may be appropriate as a clinical endpoint for reldesemtiv; however,
regulatory authorities may not accept these effects as a clinical endpoint to support registration of reldesemtiv for the treatment of
ALS. Clinical trials of our drug candidates are designed based on guidance or advice from regulatory agencies, which is subject to
change during the development of the drug candidate at any time. Such a change in a regulatory agency’s guidance or advice may
cause that agency to deem results from trials to be insufficient to support approval of the drug candidate and require further clinical
trials of that drug candidate to be conducted. In addition, individual patient responses to the dose administered of a drug may vary in a
manner that is difficult to predict. Also, the methods we select to assess particular safety, efficacy or pharmacokinetic parameters may
not yield the same statistical precision in estimating our drug candidates’ effects as may other methodologies. Even if we believe the
data collected from clinical trials of our drug candidates are promising, these data may not be sufficient to support approval by the
FDA or foreign regulatory authorities. Non-clinical and clinical data can be interpreted in different ways. Accordingly, the FDA or
foreign regulatory authorities could interpret these data in different ways from us or our partners, which could delay, limit or prevent
regulatory approval.
Administering any of our drug candidates or potential drug candidates may produce undesirable side effects, also known as
adverse events. Toxicities and adverse events observed in preclinical studies for some compounds in a particular research and
development program may also occur in preclinical studies or clinical trials of other compounds from the same program. Potential
toxicity issues may arise from the effects of the active pharmaceutical ingredient itself or from impurities or degradants that are
present in the active pharmaceutical ingredient or could form over time in the formulated drug candidate or the active pharmaceutical
ingredient. These toxicities or adverse events could delay or prevent the filing of an IND (or a foreign equivalent) with respect to our
drug candidates or potential drug candidates or cause us, our partners or the FDA or foreign regulatory authorities to modify, suspend
or terminate clinical trials with respect to any drug candidate at any time during the development program. Further, the administration
of two or more drugs contemporaneously can lead to interactions between them, and our drug candidates may interact with other drugs
that trial subjects are taking. If the adverse events are severe or frequent enough to outweigh the potential efficacy of a drug candidate,
the FDA or other regulatory authorities could deny approval of that drug candidate for any or all targeted indications. Even if one or
more of our drug candidates were approved for sale as drugs, the occurrence of even a limited number of toxicities or adverse events
when used in large populations may cause the FDA or foreign regulatory authorities to impose restrictions on, or stop, the further
marketing of those drugs. Indications of potential adverse events or toxicities which do not seem significant during the course of
clinical trials may later turn out to actually constitute serious adverse events or toxicities when a drug is used in large populations or
for extended periods of time.
We have observed certain adverse events in the clinical trials conducted with our drug candidates. For example, in clinical trials
of omecamtiv mecarbil, adverse events of chest discomfort, palpitations, dizziness and feeling hot, increases in heart rate, declines in
blood pressure, electrocardiographic changes consistent with acute myocardial ischemia and transient rises in the MB fraction of
creatine kinase and cardiac troponins I and T, which are indicative of myocardial infarction were observed during treatment with
omecamtiv mecarbil.
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In addition, clinical trials of reldesemtiv and omecamtiv mecarbil enroll patients who typically suffer from serious diseases
which put them at increased risk of death. These patients may die while receiving our drug candidates. In such circumstances, it may
not be possible to exclude with certainty a causal relationship to our drug candidate, even though the responsible clinical investigator
may view such an event as not study drug-related.
Any failure or significant delay in completing preclinical studies or clinical trials for our drug candidates, or in receiving and
maintaining regulatory approval for the sale of any resulting drugs, may significantly harm our business and negatively affect our
stock price.
The failure of a number of Phase 3 clinical trials evaluating other compounds as potential treatments for patients with ALS
may suggest an increased risk that our clinical development program of reldesemtiv in patients with ALS will also fail.
In recent years, a number of Phase 3 clinical trials of potential treatments for ALS have failed to demonstrate the requisite
efficacy for approval or for their continued development. These include our trial of tirasemtiv known as VITALITY-ALS, Biogen’s
trial of dexpramipexole, known as EMPOWER, the National Institute of Neurological Disorders and Stroke’s trial of ceftriaxone, and
Trophos SA’s trial of olesoxime. Reldesemtiv, like these compounds, may fail in clinical development if it does not show a
statistically significant level of clinical efficacy or if the adverse event profile is too great compared to it benefits. Further, even if we
believe the data collected from Astellas’ planned clinical development program of reldesemtiv are promising and should support
approval, the FDA or other regulatory authorities may not deem these data to be sufficient to support approval.
Clinical trials are expensive, time-consuming and subject to delay.
Clinical trials are subject to rigorous regulatory requirements and are very expensive, difficult and time-consuming to design
and implement. The length of time and number of trial sites and patients required for clinical trials vary substantially based on the
type, complexity, novelty, intended use of the drug candidate and safety concerns. We estimate that the clinical trials of our current
drug candidates will each continue for several more years. However, the clinical trials for all or any of our drug candidates may take
significantly longer to complete. The commencement and completion of our or our partners’ clinical trials could be delayed or
prevented by many factors, including, but not limited to:
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delays in obtaining, or inability to obtain, regulatory or other approvals to commence and conduct clinical trials in the
manner we or our partners deem necessary for the appropriate and timely development of our drug candidates and
commercialization of any resulting drugs;
delays in identifying and reaching agreement, or inability to identify and reach agreement, on acceptable terms, with
prospective clinical trial sites and other entities involved in the conduct of our or our partners’ clinical trials;
delays or additional costs in developing, or inability to develop, appropriate formulations of our drug candidates for
clinical trial use;
slower than expected rates of patient recruitment and enrollment;
for those drug candidates that are the subject of a strategic alliance, delays in reaching agreement with our partner as to
appropriate development strategies;
a regulatory authority may require changes to a protocol for a clinical trial that then may require approval from regulatory
agencies in other jurisdictions where the trial is being conducted;
an institutional review board (“IRB”) or its foreign equivalent may require changes to a protocol that then require
approval from regulatory agencies and other IRBs and their foreign equivalents, or regulatory authorities may require
changes to a protocol that then require approval from the IRBs or their foreign equivalents;
for clinical trials conducted in foreign countries, the time and resources required to identify, interpret and comply with
foreign regulatory requirements or changes in those requirements, and political instability or natural disasters occurring in
those countries;
lack of effectiveness of our drug candidates during clinical trials;
unforeseen safety issues;
inadequate supply, or delays in the manufacture or supply, of clinical trial materials;
uncertain dosing issues;
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failure by us, our partners, or clinical research organizations, investigators or site personnel engaged by us or our partners
to comply with good clinical practices and other applicable laws and regulations, including those concerning informed
consent;
inability or unwillingness of investigators or their staffs to follow clinical protocols;
failure by our clinical research organizations, clinical manufacturing organizations and other third parties supporting our
or our partners’ clinical trials to fulfill their obligations;
inability to monitor patients adequately during or after treatment;
introduction of new therapies or changes in standards of practice or regulatory guidance that render our drug candidates or
their clinical trial endpoints obsolete; and
results from non-clinical studies that may adversely impact the timing or further development of our drug candidates.
We do not know whether planned clinical trials will begin on time, or whether planned or currently ongoing clinical trials will
need to be restructured or will be completed on schedule, if at all. Significant delays in clinical trials will impede our ability to
commercialize our drug candidates and generate revenue and could significantly increase our development costs.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or
otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a
sufficient number of patients who remain in the study until its conclusion. We may experience difficulties in patient enrollment in
clinical trials for a variety of reasons. The enrollment of patients depends on many factors, including:
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the patient eligibility criteria defined in the protocol;
the size of the patient population required for analysis of the trial’s primary endpoints;
the proximity of patients to study sites;
the design of the trial;
the ability to recruit clinical trial investigators with the appropriate competencies and experience;
clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to
other available therapies or clinical trials, including any new drugs that may be approved for the indications we are
investigating or clinical trial results;
the ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will drop out of the trials before completion.
In addition, our and our partners’ clinical trials will compete with other clinical trials for product candidates that are in the same
therapeutic areas as our and our partners’ product candidates, and this competition will reduce the number and types of patients
available to us, because some patients who might have opted to enroll in our or our partners’ trials may instead opt to enroll in a trial
being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some
of our or our partners’ clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of
patients who are available for our clinical trials in such clinical trial site.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials,
which could prevent completion of these trials and adversely affect our and our partners’ ability to advance the development of
product candidates.
We depend on Amgen for the conduct and funding of the development and commercialization of omecamtiv mecarbil.
Under our strategic alliance, Amgen holds an exclusive worldwide license to our drug candidate omecamtiv mecarbil. As a
result, Amgen is responsible for the development and obtaining and maintaining regulatory approval of omecamtiv mecarbil for the
potential treatment of heart failure worldwide.
While we announced in December 2016 that Amgen started GALACTIC-HF, a Phase 3 clinical trial of omecamtiv mecarbil, we
do not control the development activities being conducted or that may be conducted in the future by Amgen, including, but not limited
to, the timing of initiation, termination or completion of clinical trials, the analysis of data arising out of those clinical trials or the
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timing of release of data concerning those clinical trials, which may impact our ability to report on Amgen’s results. Amgen may
conduct these activities more slowly or in a different manner than we would if we controlled the development of omecamtiv mecarbil.
Amgen is responsible for submitting future applications with the FDA and other regulatory authorities for approval of omecamtiv
mecarbil and will be the owner of marketing approvals issued by the FDA or other regulatory authorities for omecamtiv mecarbil,
subject to Servier’s exclusive rights for the commercialization of omecamtiv mecarbil in Europe, as well as the CIS, including Russia.
If the FDA or other regulatory authorities approve omecamtiv mecarbil, Amgen will also be responsible for the marketing and sale of
the resulting drug, subject to our right to co-promote omecamtiv mecarbil in North America in connection with the exercise of our
option to co-fund Phase 3 development costs of omecamtiv mecarbil under the collaboration and subject to Servier’s exclusive rights
for the commercialization of omecamtiv mecarbil in Europe, as well as the CIS, including Russia. However, we cannot control
whether Amgen will devote sufficient attention and resources to the development of omecamtiv mecarbil or will proceed in an
expeditious manner, even with our exercise of our option and co-funding of the Phase 3 development program of omecamtiv mecarbil.
Even if the FDA or other regulatory agencies approve omecamtiv mecarbil, Amgen or Servier may elect not to proceed with the
commercialization of the resulting drug in one or more countries.
Disputes may arise between us and Amgen, which may delay or cause the termination of any clinical trials of omecamtiv
mecarbil, result in significant litigation or cause Amgen to act in a manner that is not in our best interest. The costs associated with the
continuing development of omecamtiv mecarbil may cause Amgen to reconsider the terms of its investment and seek to amend or
terminate our collaboration agreement or to suspend the development of omecamtiv mecarbil. If development of omecamtiv mecarbil
does not progress for these or any other reasons, we would not receive further milestone payments or royalties on product sales from
Amgen with respect to omecamtiv mecarbil. If the results of one or more clinical trials with omecamtiv mecarbil do not meet Amgen’s
expectations at any time, Amgen may elect to terminate further development of omecamtiv mecarbil or certain of the potential clinical
trials for omecamtiv mecarbil, even if the actual number of patients treated at that time is relatively small. In addition, Amgen
generally has discretion to elect whether to pursue or abandon the development of omecamtiv mecarbil and may terminate our
strategic alliance for any reason upon six months prior notice. With our consent, Amgen granted Servier an option to commercialize
omecamtiv mecarbil in Europe and the CIS, including Russia, which Servier decided to exercise. In August 2016, we entered into a
letter agreement with Amgen and Servier, which provides that if Amgen’s rights to omecamtiv mecarbil are terminated with respect to
the territory subject to Servier’s sublicense, the sublicensed rights previously granted by Amgen to Servier with respect to omecamtiv
mecarbil, will remain in effect and become a direct license or sublicense of such rights by us to Servier, on substantially the same
terms as those in the Option, License and Collaboration Agreement between Amgen and Servier. If Amgen abandons omecamtiv
mecarbil, it would result in a delay in or could prevent us from commercializing omecamtiv mecarbil, and would delay and could
prevent us from obtaining revenues for this drug candidate. In addition, we would be required to provide Servier with a direct license
or sublicense and the rights to commercialize omecamtiv mecarbil in Europe and the CIS, including Russia on terms that were not
negotiated by us. There can be no assurance that we would be able to negotiate and enter into a definitive agreement with Servier on
terms favorable or acceptable to us, or at all.
If Amgen abandons development of omecamtiv mecarbil prior to regulatory approval or if it elects not to proceed with
commercialization of the resulting drug following regulatory approval, we would have to seek a new partner for development or
commercialization, curtail or abandon that development or commercialization, or undertake and fund the development of omecamtiv
mecarbil or commercialization of the resulting drug ourselves. If we seek a new partner but are unable to do so on acceptable terms, or
at all, or do not have sufficient funds to conduct the development or commercialization of omecamtiv mecarbil ourselves, we would
have to curtail or abandon that development or commercialization, which could harm our business.
We depend on Astellas for the conduct and funding of the development and commercialization of reldesemtiv.
In December 2014, we expanded our strategic alliance with Astellas focused on the research, development and
commercialization of skeletal muscle activators, other than tirasemtiv and certain related compounds. The primary objective of the
strategic alliance is to advance novel therapies for indications associated with muscle weakness.
Under this strategic alliance, we have granted Astellas an exclusive license to co-develop and commercialize reldesemtiv for
potential application in certain neuromuscular and non-neuromuscular indications worldwide. We are conducting a Phase 2 clinical
trial in patients with SMA and Astellas is conducting a Phase 2 clinical trial of reldesemtiv in patients with COPD as well as a Phase
1b clinical trial in elderly subjects with limited mobility.
In 2016, we expanded our collaboration with Astellas and granted Astellas an option to enter into a pre-negotiated agreement for
a global collaboration for the development and commercialization of tirasemtiv, including worldwide commercialization rights for
Astellas outside our commercialization territory in North America, Europe and other select countries. In addition, under this 2016
expansion, we will collaborate with Astellas to develop reldesemtiv in ALS. Astellas will be primarily responsible for the
development of reldesemtiv in ALS, and we are responsible for conducting the Phase 2 clinical trial of reldesemtiv in ALS, which we
commenced in July 2017.
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We do not control the development activities that may be conducted by Astellas, including, but not limited to, the timing of
initiation, termination or completion of clinical trials, the analysis of data arising out of those clinical trials or the timing of release of
data concerning those clinical trials, which may impact our ability to report on Astellas’ results. Astellas may conduct these activities
more slowly or in a different manner than we would. In general, Astellas is responsible for submitting future applications with the
FDA or other regulatory authorities for approval of reldesemtiv and will be the owner of any marketing approvals issued by the FDA
or other regulatory authorities for reldesemtiv. If the FDA or other regulatory authorities approve reldesemtiv, Astellas will also be
responsible for the marketing and sale of the resulting drug, subject to our right to co-promote the drug in the United States, Canada
and, for neuromuscular indications, Europe. However, we cannot control whether Astellas will devote sufficient attention and
resources to the development of reldesemtiv or will proceed in an expeditious manner. Even if the FDA or other regulatory agencies
approve reldesemtiv, Astellas may elect not to proceed with the commercialization of the resulting drug in one or more countries.
If the results of one or more clinical trials with reldesemtiv do not meet Astellas’ expectations at any time, Astellas may elect to
terminate further development of reldesemtiv or certain of the potential clinical trials for reldesemtiv, even if the actual number of
patients treated at that time is relatively small. In addition, Astellas generally has discretion to elect whether to pursue or abandon the
development of reldesemtiv. Astellas may terminate our strategic alliance in whole or in part for any reason upon six months prior
notice at any time following expiration of the strategic alliance’s research term, which will expire December 31, 2019. If Astellas
abandons reldesemtiv, it would result in a delay in or could prevent us from further developing or commercializing reldesemtiv, and
would delay and could prevent us from obtaining revenues for this drug candidate. Disputes may arise between us and Astellas, which
may delay or cause the termination of any reldesemtiv clinical trials, result in significant litigation or cause Astellas to act in a manner
that is not in our best interest. If development of reldesemtiv does not progress for these or any other reasons, we would not receive
further milestone payments or royalties on product sales from Astellas with respect to reldesemtiv. If Astellas abandons development
of reldesemtiv prior to regulatory approval or if it elects not to proceed with commercialization of the resulting drug following
regulatory approval, we would have to seek a new partner for development or commercialization, curtail or abandon that development
or commercialization, or undertake and fund the development of reldesemtiv or commercialization of the resulting drug ourselves. If
we seek a new partner but are unable to do so on acceptable terms, or at all, or do not have sufficient funds to conduct the
development or commercialization of reldesemtiv ourselves, we would have to curtail or abandon that development or
commercialization, which could harm our business.
If we do not enter into strategic alliances for our unpartnered drug candidates or research and development programs or fail to
successfully maintain our current or future strategic alliances, we may have to reduce, delay or discontinue our advancement of
our drug candidates and programs or expand our research and development capabilities and increase our expenditures.
Drug development is complicated and expensive. We currently have limited financial and operational resources to carry out
drug development. Our strategy for developing, manufacturing and commercializing our drug candidates currently requires us to enter
into and successfully maintain strategic alliances with pharmaceutical companies or other industry participants to advance our
programs and reduce our expenditures on each program. Accordingly, the success of our development activities depends in large part
on our current and future strategic partners’ performance, over which we have little or no control.
Our ability to commercialize drugs that we develop with our partners and that generate royalties from product sales depends on
our partners’ abilities to assist us in establishing the safety and efficacy of our drug candidates, obtaining and maintaining regulatory
approvals and achieving market acceptance of the drugs once commercialized. Our partners may elect to delay or terminate
development of one or more drug candidates, independently develop drugs that could compete with ours or fail to commit sufficient
resources to the marketing and distribution of drugs developed through their strategic alliances with us. Our partners may not proceed
with the development and commercialization of our drug candidates with the same degree of urgency as we would because of other
priorities they face. In addition, new business combinations or changes in a partner’s business strategy may adversely affect its
willingness or ability to carry out its obligations under a strategic alliance.
If we are not able to successfully maintain our existing strategic alliances or establish and successfully maintain additional
strategic alliances, we will have to limit the size or scope of, or delay or discontinue, one or more of our drug development programs
or research programs, or undertake and fund these programs ourselves. Alternatively, if we elect to continue to conduct any of these
drug development programs or research programs on our own, we will need to expand our capability to conduct clinical development
by bringing additional skills, technical expertise and resources into our organization. This would require significant additional
funding, which may not be available to us on acceptable terms, or at all.
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To the extent we elect to fund the development of a drug candidate, such as reldesemtiv, or omecamtiv mecarbil, or the
commercialization of a drug at our expense, we will need substantial additional funding.
The discovery, development and commercialization of new drugs is costly. As a result, to the extent we elect to fund the
development of a drug candidate, such as reldesemtiv or omecamtiv mecarbil, or the commercialization of a drug, we will need to
raise additional capital to:
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fund clinical trials and seek regulatory approvals;
expand our development capabilities;
engage third party manufacturers for such drug candidate or drug;
build or access commercialization capabilities;
implement additional internal systems and infrastructure;
maintain, defend and expand the scope of our intellectual property; and
hire and support additional management and scientific personnel.
Our future funding requirements will depend on many factors, including, but not limited to:
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the rate of progress and costs of our or our partners’ clinical trials and other research and development activities;
the costs and timing of seeking and obtaining regulatory approvals;
the costs associated with establishing manufacturing and commercialization capabilities;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
the costs of acquiring or investing in businesses, products and technologies;
the effect of competing technological and market developments; and
the status of, payment and other terms, and timing of any strategic alliance, licensing or other arrangements that we have
entered into or may establish.
Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we
expect to continue to finance our future cash needs primarily through strategic alliances, public or private equity offerings and debt
financings. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are not able to secure
additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research
and development programs or future commercialization initiatives.
We depend on contract research organizations (“CROs”) to conduct our clinical trials and have limited control over their
performance. If these CROs do not successfully carry out their contractual duties or meet expected deadlines, or if we lose any
of our CROs, we may not be able to obtain regulatory approval for or commercialize our product candidates on a timely basis, if
at all.
We have used and intend to continue to use a limited number of CROs within and outside of the United States to conduct
clinical trials of our drug candidates, such as reldesemtiv and omecamtiv mecarbil, and related activities. We do not have control over
many aspects of our CROs’ activities, and cannot fully control the amount, timing or quality of resources that they devote to our
programs. CROs may not assign as high a priority to our programs or pursue them as diligently as we would if we were undertaking
these programs ourselves. The activities conducted by our CROs therefore may not be completed on schedule or in a satisfactory
manner. CROs may also give higher priority to relationships with our competitors and potential competitors than to their relationships
with us. Outside of the United States, we are particularly dependent on our CROs’ expertise in communicating with clinical trial sites
and regulatory authorities and ensuring that our clinical trials and related activities and regulatory filings comply with applicable laws.
Our CROs’ failure to carry out development activities on our behalf as agreed and in accordance with our and the FDA’s or
other regulatory agencies’ requirements and applicable U.S. and foreign laws, or our failure to properly coordinate and manage these
activities, could increase the cost of our operations and delay or prevent the development, approval and commercialization of our drug
candidates. For example, in June 2013, we learned from our data management vendor for BENEFIT-ALS that a programming error in
the electronic data capture system controlling study drug assignment caused 58 patients initially randomized to and treated with
tirasemtiv to receive placebo instead at a certain trial visit and for the remainder of the trial. In order to maintain the originally
intended statistical power of the trial, we amended the protocol to permit enrollment of approximately 680 patients, or 180 patients in
addition to the 500 patients allowed under the existing protocol. This protocol amendment resulted in additional costs and delays in
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conducting BENEFIT-ALS. Further, for the quarter ended September 30, 2016, we determined that there was an error in the
accounting for the recognition of clinical research and development expenses related to the information received from one of our
CROs, which resulted in a restatement of our clinical research and development expenses, related clinical accrual accounts and related
financial disclosures as of and for the three and nine month periods ended September 30, 2016. In addition, if a CRO fails to perform
as agreed, our ability to collect damages may be contractually limited. If we fail to effectively manage the CROs carrying out the
development of our drug candidates or if our CROs fail to perform as agreed, the commercialization of our drug candidates will be
delayed or prevented. In many cases, our CROs have the right to terminate their agreements with us in the event of an uncured
material breach. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming
and cause delays in our development programs. In addition, there is a natural transition period when a new CRO commences work and
the new CRO may not provide the same type or level of services as the original provider. If any of our relationships with our third-
party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so timely or on commercially
reasonable terms.
We have no manufacturing capacity and depend on our strategic partners and contract manufacturers to produce our clinical
trial materials, including our drug candidates, and anticipate continued reliance on contract manufacturers for the
development and commercialization of our potential drugs.
We do not currently operate manufacturing facilities for clinical or commercial production of our drug candidates. We have
limited experience in drug formulation and manufacturing, and we lack the resources and the capabilities to manufacture any of our
drug candidates on a clinical or commercial scale. Amgen has assumed responsibility to conduct these activities for the ongoing
development of omecamtiv mecarbil worldwide. Following our conduct of the early development of reldesemtiv, including the
ongoing Phase 2 clinical trial in patients with SMA and ALS, Astellas will assume primary responsibility to conduct the
manufacturing for the ongoing development of reldesemtiv worldwide. We expect to rely on contract manufacturers to supply all
future drug candidates for which we conduct development, as well as other materials required to conduct our clinical trials. If any of
our existing or future contract manufacturers fail to perform satisfactorily, it could delay development or regulatory approval of our
drug candidates or commercialization of our drugs, producing additional losses and depriving us of potential product revenues. In
addition, if a contract manufacturer fails to perform as agreed, our ability to collect damages may be contractually limited.
Our drug candidates require precise high-quality manufacturing. The failure to achieve and maintain high manufacturing
standards, including failure to detect or control anticipated or unanticipated manufacturing errors or the frequent occurrence of such
errors, could result in patient injury or death, discontinuance or delay of ongoing or planned clinical trials, delays or failures in product
testing or delivery, cost overruns, product recalls or withdrawals and other problems that could seriously hurt our business. Contract
drug manufacturers often encounter difficulties involving production yields, quality control and quality assurance and shortages of
qualified personnel. These manufacturers are subject to stringent regulatory requirements, including the FDA’s current good
manufacturing practices regulations and similar foreign laws and standards. Each contract manufacturer must pass a pre-approval
inspection before we can obtain marketing approval for any of our drug candidates and following approval will be subject to ongoing
periodic unannounced inspections by the FDA, the U.S. Drug Enforcement Agency and other regulatory agencies, to ensure strict
compliance with current good manufacturing practices and other applicable government regulations and corresponding foreign laws
and standards. We seek to ensure that our contract manufacturers comply fully with all applicable regulations, laws and standards.
However, we do not have control over our contract manufacturers’ compliance with these regulations, laws and standards. If one of
our contract manufacturers fails to pass its pre-approval inspection or maintain ongoing compliance at any time, the production of our
drug candidates could be interrupted, resulting in delays or discontinuance of our clinical trials, additional costs and potentially lost
revenues. In addition, failure of any third party manufacturers or us to comply with applicable regulations, including pre- or post-
approval inspections and the current good manufacturing practice requirements of the FDA or other comparable regulatory agencies,
could result in sanctions being imposed on us. These sanctions could include fines, injunctions, civil penalties, failure of regulatory
authorities to grant marketing approval of our products, delay, suspension or withdrawal of approvals, license revocation, product
seizures or recalls, operational restrictions and criminal prosecutions, any of which could significantly and adversely affect our
business.
In addition, our existing and future contract manufacturers may not perform as agreed or may not remain in the contract
manufacturing business for the time required to successfully produce, store and distribute our drug candidates. If a natural disaster,
business failure, strike or other difficulty occurs, we may be unable to replace these contract manufacturers in a timely or cost-
effective manner and the production of our drug candidates would be interrupted, resulting in delays and additional costs.
Switching manufacturers or manufacturing sites would be difficult and time-consuming because the number of potential
manufacturers is limited. In addition, before a drug from any replacement manufacturer or manufacturing site can be commercialized,
the FDA and, in some cases, foreign regulatory agencies, must approve that site. These approvals would require regulatory testing and
compliance inspections. A new manufacturer or manufacturing site also would have to be educated in, or develop substantially
equivalent processes for, production of our drugs and drug candidates. It may be difficult or impossible to transfer certain elements of
a manufacturing process to a new manufacturer or for us to find a replacement manufacturer on acceptable terms quickly, or at all,
either of which would delay or prevent our ability to develop drug candidates and commercialize any resulting drugs.
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We may not be able to successfully manufacture our drug candidates in sufficient quality and quantity, which would delay or
prevent us from developing our drug candidates and commercializing resulting approved drugs, if any.
To date, our drug candidates have been manufactured in quantities adequate for preclinical studies and early through late-stage
clinical trials. In order to conduct large scale clinical trials for a drug candidate and for commercialization of the resulting drug if that
drug candidate is approved for sale, we will need to manufacture some drug candidates in larger quantities. We may not be able to
successfully repeat or increase the manufacturing capacity for any of our drug candidates, whether in collaboration with third-party
manufacturers or on our own, in a timely or cost-effective manner or at all. If a contract manufacturer makes improvements in the
manufacturing process for our drug candidates, we may not own, or may have to share, the intellectual property rights to those
improvements. Significant changes or scale-up of manufacturing may require additional validation studies, which are costly and which
regulatory authorities must review and approve. In addition, quality issues may arise during those changes or scale-up activities
because of the inherent properties of a drug candidate itself or of a drug candidate in combination with other components added during
the manufacturing and packaging process, or during shipping and storage of the finished product or active pharmaceutical ingredients.
If we are unable to successfully manufacture of any of our drug candidates in sufficient quality and quantity, the development of that
drug candidate and regulatory approval or commercial launch for any resulting drugs may be delayed or there may be a shortage in
supply, which could significantly harm our business. In addition, data demonstrating the stability of both drug substance and drug
product, using the commercial manufacturing process and at commercial scale, are required for marketing applications. Failure to
produce drug substance and drug products in a timely manner and obtain stability data could result in delay of submission of
marketing applications.
The mechanisms of action of our drug candidates are unproven, and we do not know whether we will be able to develop any
drug of commercial value.
We have discovered and are currently developing drug candidates that have what we believe are novel mechanisms of action
directed against cytoskeletal targets, and intend to continue to do so. Because no currently approved drugs appear to operate via the
same biochemical mechanisms as our compounds, we cannot be certain that our drug candidates will result in commercially viable
drugs that safely and effectively treat the indications for which we intend to develop them. The results we have seen for our
compounds in preclinical models may not translate into similar results in humans, and results of early clinical trials in humans may not
be predictive of the results of larger clinical trials that may later be conducted with our drug candidates. Even if we are successful in
developing and receiving regulatory approval for a drug candidate for the treatment of a particular disease, we cannot be certain that it
will be accepted by prescribers or be reimbursed by insurers or that we will also be able to develop and receive regulatory approval for
that or other drug candidates for the treatment of other diseases. If we or our partners are unable to successfully develop and
commercialize our drug candidates, our business will be materially harmed.
Our success depends substantially upon our ability to obtain and maintain intellectual property protection relating to our drug
candidates, compounds and research technologies.
We own, or hold exclusive licenses to, a number of U.S. and foreign patents and patent applications directed to our drug
candidates, compounds and research technologies. Our success depends on our ability to obtain patent protection both in the United
States and in other countries for our drug candidates, their methods of manufacture and use, and our technologies. Our ability to
protect our drug candidates, compounds and technologies from unauthorized or infringing use by third parties depends substantially on
our ability to obtain and enforce our patents. If our issued patents and patent applications, if granted, do not adequately describe,
enable or otherwise provide coverage of our technologies and drug candidates, including reldesemtiv and omecamtiv mecarbil, we or
our licensees would not be able to exclude others from developing or commercializing these drug candidates. Furthermore, the degree
of future protection of our proprietary rights is uncertain because legal means may not adequately protect our rights or permit us to
gain or keep our competitive advantage.
Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical
inventions and the claim scope of these patents, our ability to enforce our existing patents and to obtain and enforce patents that may
issue from any pending or future patent applications is uncertain and involves complex legal, scientific and factual questions. The
standards which the U.S. Patent and Trademark Office and its foreign counterparts use to grant patents are not always applied
predictably or uniformly and are subject to change. To date, no consistent policy has emerged regarding the breadth of claims allowed
in biotechnology and pharmaceutical patents. Thus, we cannot be sure that any patents will issue from any pending or future patent
applications owned by or licensed to us. Even if patents do issue, we cannot be sure that the claims of these patents will be held valid
or enforceable by a court of law, will provide us with any significant protection against competitive products, or will afford us a
commercial advantage over competitive products. In particular:
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we or our licensors might not have been the first to make the inventions covered by each of our pending patent
applications and issued patents;
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we or our licensors might not have been the first to file patent applications for the inventions covered by our pending
patent applications and issued patents;
others may independently develop similar or alternative technologies or duplicate any of our technologies without
infringing our intellectual property rights;
some or all of our or our licensors’ pending patent applications may not result in issued patents or the claims that issue
may be narrow in scope and not provide us with competitive advantages;
our and our licensors’ issued patents may not provide a basis for commercially viable drugs or therapies or may be
challenged and invalidated by third parties;
our or our licensors’ patent applications or patents may be subject to interference, opposition or similar administrative
proceedings that may result in a reduction in their scope or their loss altogether;
we may not develop additional proprietary technologies or drug candidates that are patentable; or
the patents of others may prevent us or our partners from discovering, developing or commercializing our drug candidates.
Patent protection is afforded on a country-by-country basis. Some foreign jurisdictions do not protect intellectual property rights
to the same extent as in the United States. Many companies have encountered significant difficulties in protecting and defending
intellectual property rights in foreign jurisdictions. Some of our development efforts are performed in countries outside of the United
States through third party contractors. We may not be able to effectively monitor and assess intellectual property developed by these
contractors. We therefore may not be able to effectively protect this intellectual property and could lose potentially valuable
intellectual property rights. In addition, the legal protection afforded to inventors and owners of intellectual property in countries
outside of the United States may not be as protective of intellectual property rights as in the United States. Therefore, we may be
unable to acquire and protect intellectual property developed by these contractors to the same extent as if these development activities
were being conducted in the United States. If we encounter difficulties in protecting our intellectual property rights in foreign
jurisdictions, our business prospects could be substantially harmed.
We rely on intellectual property assignment agreements with our corporate partners, employees, consultants, scientific advisors
and other collaborators to grant us ownership of new intellectual property that is developed. These agreements may not result in the
effective assignment to us of that intellectual property. As a result, our ownership of key intellectual property could be compromised.
Changes in either the patent laws or their interpretation in the United States or other countries may diminish the value of our
intellectual property or our ability to obtain patents. For example, the America Invents Act of 2011 may affect the scope, strength and
enforceability of our patent rights in the United States or the nature of proceedings which may be brought by us related to our patent
rights in the United States.
If one or more products resulting from our drug candidates is approved for sale by the FDA and we do not have adequate
intellectual property protection for those products, competitors could duplicate them for approval and sale in the United States without
repeating the extensive testing required of us or our partners to obtain FDA approval. Regardless of any patent protection, under
current law, an application for a generic version of a new chemical entity cannot be approved until at least five years after the FDA
has approved the original product. When that period expires, or if that period is altered, the FDA could approve a generic version of
our product regardless of our patent protection. An applicant for a generic version of our product may only be required to conduct a
relatively inexpensive study to show that its product is bioequivalent to our product, and may not have to repeat the lengthy and
expensive clinical trials that we or our partners conducted to demonstrate that the product is safe and effective. In the absence of
adequate patent protection for our products in other countries, competitors may similarly be able to obtain regulatory approval in those
countries of generic versions of our products.
We also rely on trade secrets to protect our technology, particularly where we believe patent protection is not appropriate or
obtainable. However, trade secrets are often difficult to protect, especially outside of the United States. While we endeavor to use
reasonable efforts to protect our trade secrets, our or our partners’ employees, consultants, contractors or scientific and other advisors
may unintentionally or willfully disclose our information to competitors. In addition, confidentiality agreements, if any, executed by
those individuals may not be enforceable or provide meaningful protection for our trade secrets or other proprietary information in the
event of unauthorized use or disclosure. Pursuing a claim that a third party had illegally obtained and was using our trade secrets
would be expensive and time-consuming, and the outcome would be unpredictable. Even if we are able to maintain our trade secrets
as confidential, if our competitors independently develop information equivalent or similar to our trade secrets, our business could be
harmed.
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If we are not able to defend the patent or trade secret protection position of our technologies and drug candidates, then we will
not be able to exclude competitors from developing or marketing competing drugs, and we may not generate enough revenue from
product sales to justify the cost of development of our drugs or to achieve or maintain profitability.
If we are sued for infringing third party intellectual property rights, it will be costly and time-consuming, and an unfavorable
outcome could have a significant adverse effect on our business.
Our ability to commercialize drugs depends on our ability to use, manufacture and sell those drugs without infringing the patents
or other proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned by third
parties exist in the therapeutic areas in which we are developing drug candidates and seeking new potential drug candidates. In
addition, because patent applications can take several years to issue, there may be currently pending applications, unknown to us,
which could later result in issued patents that our activities with our drug candidates could infringe. There may also be existing
patents, unknown to us, that our activities with our drug candidates could infringe.
Other future products of ours may be impacted by patents of companies engaged in competitive programs with significantly
greater resources. Further development of these products could be impacted by these patents and result in significant legal fees.
If a third party claims that our actions infringe its patents or other proprietary rights, we could face a number of issues that could
seriously harm our competitive position, including, but not limited to:
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infringement and other intellectual property claims that, even if meritless, can be costly and time-consuming to litigate,
delay the regulatory approval process and divert management’s attention from our core business operations;
substantial damages for past infringement which we may have to pay if a court determines that our drugs or technologies
infringe a third party’s patent or other proprietary rights;
a court prohibiting us from selling or licensing our drugs or technologies unless the holder licenses the patent or other
proprietary rights to us, which it is not required to do; and
if a license is available from a holder, we may have to pay substantial royalties or grant cross-licenses to our patents or
other proprietary rights.
If any of these events occur, it could significantly harm our business and negatively affect our stock price.
We may undertake infringement or other legal proceedings against third parties, causing us to spend substantial resources on
litigation and exposing our own intellectual property portfolio to challenge.
Third parties may infringe our patents. To prevent infringement or unauthorized use, we may need to file infringement suits,
which are expensive and time-consuming. In an infringement proceeding, a court may decide that one or more of our patents is
invalid, unenforceable, or both. In this case, third parties may be able to use our technology without paying licensing fees or royalties.
Even if the validity of our patents is upheld, a court may refuse to stop the other party from using the technology at issue on the
ground that the other party’s activities are not covered by our patents. Policing unauthorized use of our intellectual property is
difficult, and we may not be able to prevent misappropriation of our proprietary rights, particularly in countries where the laws may
not protect such rights as fully as in the United States. In addition, third parties may affirmatively challenge our rights to, or the scope
or validity of, our patent rights.
We may become involved in disputes with our strategic partners over intellectual property ownership, and publications by our
research collaborators and clinical investigators could impair our ability to obtain patent protection or protect our proprietary
information, either of which would have a significant impact on our business.
Inventions discovered under our current or future strategic alliance agreements may become jointly owned by our strategic
partners and us in some cases, and the exclusive property of one of us in other cases. Under some circumstances, it may be difficult to
determine who owns a particular invention or whether it is jointly owned, and disputes could arise regarding ownership or use of those
inventions. These disputes could be costly and time-consuming, and an unfavorable outcome could have a significant adverse effect
on our business if we were not able to protect or license rights to these inventions. In addition, our research collaborators and clinical
investigators generally have contractual rights to publish data arising from their work. Publications by our research collaborators and
clinical investigators relating to our research and development programs, either with or without our consent, could benefit our current
or potential competitors and may impair our ability to obtain patent protection or protect our proprietary information, which could
significantly harm our business.
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We may be subject to claims that we or our employees have wrongfully used or disclosed trade secrets of their former employers.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims
that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their
former employers. Litigation may be necessary to defend against these claims. If we fail in defending these claims, in addition to
paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their
work product could hamper or prevent our ability to develop and commercialize certain potential drugs, which could significantly
harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and distract
management.
Our competitors may develop drugs that are less expensive, safer or more effective than ours, which may diminish or eliminate
the commercial success of any drugs that we may commercialize.
We compete with companies that have developed drugs or are developing drug candidates for cardiovascular diseases, diseases
and conditions associated with muscle weakness or wasting and other diseases for which our drug candidates may be useful
treatments. For example, if reldesemtiv is approved for marketing by the FDA or other regulatory authorities for the treatment of ALS,
it may then compete with other potential new therapies for ALS that are currently being developed by companies including, but not
limited to, Neuraltus Pharmaceuticals, Inc., Ionis Pharmaceuticals, Inc. (in collaboration with Biogen Inc.), AB Science, Mitsubishi
Tanabe Pharma Corporation and Treeway, Genentech, Inc., and BrainStorm Cell Therapeutics. In addition, in May 2017, the FDA
approved Mitsubishi Tanabe Pharma America, Inc.’s RADICAVATM (edaravone), a free radical scavenger, as an intravenous infusion
treatment for ALS, which was the first FDA approved drug for the treatment of ALS since riluzole in 1995. If reldesemtiv is approved
by the FDA or other regulatory authorities for the treatment of SMA, potential competitors include, but are not limited to, Roche (in
collaboration with PTC Therapeutics and Trophos SA), AveXis, Inc., and Ionis Pharmaceuticals, Inc. (in collaboration with Biogen
Inc.). If reldesemtiv is approved by the FDA for the potential treatment of non-neuromuscular indications associated with muscle
weakness, potential competitors include, but are not limited to, Regeneron Pharmaceuticals, Inc. (in collaboration with Sanofi), Eli
Lilly and Company, Acceleron Pharma, Stealth Biotherapeutics, and Novartis (in collaboration with Morphosys AG). In addition, in
December 2016, the FDA approved SPINRAZA® (nusinersen), a survival motor neuron-2 (SMN2)-directed antisense oligonucleotide
indicated for the treatment of SMA in pediatric and adult patients. SPINRAZA is the first FDA approved drug for the treatment of
SMA. Biogen Inc. licensed the global rights to develop, manufacture and commercialize SPINRAZA from Ionis Pharmaceuticals, Inc.
If omecamtiv mecarbil is approved for marketing by the FDA or other regulatory authorities for the treatment of heart failure, it
would compete against other drugs used for the treatment of acute and chronic heart failure. These include generic drugs, such as
milrinone, dobutamine or digoxin and branded drugs such as Natrecor® (nesiritide), Corlanor® (ivabradine), and Entresto®
(sacubitril/valsartan). Omecamtiv mecarbil could also potentially compete against other novel drug candidates and therapies in
development, such as those being developed by, but not limited to, Novartis; Bayer; Stealth Biotherapeutics; and MyoKardia. In
addition, there are a number of medical devices both marketed and in development for the potential treatment of heart failure.
Our competitors may:
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develop drug candidates and market drugs that are less expensive or more effective than our future drugs;
commercialize competing drugs before we or our partners can launch any drugs developed from our drug candidates;
hold or obtain proprietary rights that could prevent us from commercializing our products;
initiate or withstand substantial price competition more successfully than we can;
more successfully recruit skilled scientific workers and management from the limited pool of available talent;
more effectively negotiate third-party licenses and strategic alliances;
take advantage of acquisition or other opportunities more readily than we can;
develop drug candidates and market drugs that increase the levels of safety or efficacy that our drug candidates will need
to show in order to obtain regulatory approval; or
introduce therapies or market drugs that render the market opportunity for our potential drugs obsolete.
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We will compete for market share against large pharmaceutical and biotechnology companies and smaller companies that are
collaborating with larger pharmaceutical companies, new companies, academic institutions, government agencies and other public and
private research organizations. Many of these competitors, either alone or together with their partners, may develop new drug
candidates that will compete with ours. Many of these competitors have larger research and development programs or substantially
greater financial resources than we do. Our competitors may also have significantly greater experience in:
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developing drug candidates;
undertaking preclinical testing and clinical trials;
building relationships with key customers and opinion-leading physicians;
obtaining and maintaining FDA and other regulatory approvals of drug candidates;
formulating and manufacturing drugs; and
launching, marketing and selling drugs.
If our competitors market drugs that are less expensive, safer or more efficacious than our potential drugs, or that reach the
market sooner than our potential drugs, we may not achieve commercial success. In addition, the life sciences industry is characterized
by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively.
Our competitors may render our technologies obsolete by improving existing technological approaches or developing new or different
approaches, potentially eliminating the advantages in our drug discovery process that we believe we derive from our research
approach and proprietary technologies.
We have been granted orphan designations in the U.S. for reldesemtiv; however, there can be no guarantee that we will receive
orphan approval for reldesemtiv, nor that we will be able to prevent third parties from developing and commercializing products
that are competitive to reldesemtiv.
We have been granted orphan drug designation in the U.S. by the FDA for reldesemtiv for the potential treatment of SMA. In
the U.S., upon approval from the FDA of an NDA, products granted orphan drug approval are generally provided with seven years of
marketing exclusivity in the U.S., meaning the FDA will generally not approve applications for other product candidates for the same
orphan indication that contain the same active ingredient. Even if we are the first to obtain approval of an orphan product and are
granted exclusivity in the U.S., there are limited circumstances under which a later competitor product may be approved for the same
indication during the seven-year period of marketing exclusivity, such as if the later product is shown to be clinically superior to our
product or due to an inability to assure a sufficient quantity of the orphan drug.
Orphan medicinal product status in Europe Union can provide up to 10 years of marketing exclusivity, meaning that another
application for marketing authorization of a later similar medicinal product for the same therapeutic indication will generally not be
approved in the European Union. Although we may have drug candidates that may obtain orphan drug exclusivity in Europe, the
orphan approval and associated exclusivity period may be modified for several reasons, including a significant change to the orphan
medicinal product designations or approval criteria after-market authorization of the orphan product (e.g., product profitability
exceeds the criteria for orphan drug designation), problems with the production or supply of the orphan drug or a competitor drug,
although similar, is safer, more effective or otherwise clinically superior than the initial orphan drug.
We are not guaranteed to maintain orphan status for reldesemtiv or to receive orphan status for reldesemtiv for any other
indication or for any of our other drug candidates for any indication. If our drug candidates that are granted orphan status were to lose
their status as orphan drugs or the marketing exclusivity provided for them in the U.S. or the European Union, our business and results
of operations could be materially adversely affected. While orphan status for any of our products, if granted or maintained, would
provide market exclusivity in the U.S. and the European Union for the time periods specified above, we would not be able to exclude
other companies from manufacturing and/or selling products using the same active ingredient for the same indication beyond the
exclusivity period applicable to our product on the basis of orphan drug status. Moreover, we cannot guarantee that another company
will not receive approval before we do of an orphan drug application in the U.S. or the European Union for a product candidate that
has the same active ingredient or is a similar medicinal product for the same indication as any of our drug candidates for which we
plan to file for orphan designation and status. If that were to happen, our orphan drug applications for our drug candidate for that
indication may not be approved until the competing company’s period of exclusivity has expired in the U.S. or the European Union, as
applicable. Further, application of the orphan drug regulations in the U.S. and Europe is uncertain, and we cannot predict how the
respective regulatory bodies will interpret and apply the regulations to our or our competitors’ products.
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Our failure to attract and retain skilled personnel could impair our drug development and commercialization activities.
Our business depends on the performance of our senior management and key scientific and technical personnel. The loss of the
services of any member of our senior management or key scientific or technical staff may significantly delay or prevent the
achievement of drug development and other business objectives by diverting management’s attention to transition matters and
identifying suitable replacements. We also rely on consultants and advisors to assist us in formulating our research and development
strategy. All of our consultants and advisors are either self-employed or employed by other organizations, and they may have conflicts
of interest or other commitments, such as consulting or advisory contracts with other organizations, that may affect their ability to
contribute to us. In addition, if and as our business grows, we will need to recruit additional executive management and scientific and
technical personnel. There is intense competition for skilled executives and employees with relevant scientific and technical expertise,
and this competition is likely to continue. Our inability to attract and retain sufficient scientific, technical and managerial personnel
could limit or delay our product development activities, which would adversely affect the development of our drug candidates and
commercialization of our potential drugs and growth of our business.
Any future workforce and expense reductions may have an adverse impact on our internal programs and our ability to hire and
retain skilled personnel.
Our future success will depend in large part upon our ability to attract and retain highly skilled personnel. In light of our
continued need for funding and cost control, we may be required to implement future workforce and expense reductions, which could
further limit our research and development activities. For example, in October 2011, we reduced our workforce by approximately 18%
in order to reduce expenses and to focus resources primarily on our later-stage development programs for tirasemtiv and omecamtiv
mecarbil and certain other research and development programs also directed to muscle biology. These headcount reductions and the
cost control measures we have implemented may negatively affect our productivity and limit our research and development activities.
We may have difficulty retaining and attracting such personnel as a result of a perceived risk of future workforce reductions. In
addition, the implementation of any additional workforce or expense reduction programs may divert the efforts of our management
team and other key employees, which could adversely affect our business.
We may expand our development and clinical research capabilities and, as a result, we may encounter difficulties in managing
our growth, which could disrupt our operations.
We may have growth in our expenditures, the number of our employees and the scope of our operations, in particular with
respect to those drug candidates that we elect to develop or commercialize independently or together with a partner. To manage our
anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our
facilities and continue to recruit and train additional qualified personnel. Due to our limited resources, we may not be able to
effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our
operations may lead to significant costs and may divert our management and business development resources. Any inability to manage
growth could delay the execution of our business plans or disrupt our operations.
We currently have no sales or marketing capabilities and, if we are unable to enter into or maintain strategic alliances with
marketing partners or to develop our own sales and marketing capabilities, we may not be successful in commercializing our
potential drugs.
We currently have no sales, marketing or distribution capabilities. We plan to commercialize drugs that can be effectively
marketed and sold in concentrated markets that do not require a large sales force to be competitive. To achieve this goal, we will need
to establish our own specialized sales force and marketing organization with technical expertise and supporting distribution
capabilities. Developing such an organization is expensive and time-consuming and could delay a product launch. In addition, we may
not be able to develop this capacity efficiently, cost-effectively or at all, which could make us unable to commercialize our drugs. If
we determine not to market our drugs on our own, we will depend on strategic alliances with third parties, such as Amgen and
Astellas, which have established distribution systems and direct sales forces to commercialize them. If we are unable to enter into such
arrangements on acceptable terms, we may not be able to successfully commercialize these drugs. To the extent that we are not
successful in commercializing any drugs ourselves or through a strategic alliance, our product revenues and business will suffer and
our stock price would decrease.
Our internal computer systems, or those of our CROs, CMOs, supply chain partners, collaboration partners or other contractors
or consultants, may fail or suffer security breaches, which could result in a material disruption of our drug development
programs.
Despite the implementation of security measures, our internal computer systems and those of our CROs, CMOs, supply chain
partners, collaboration partners and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized
access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such
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system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could
result in a material disruption of our drug development programs. For example, the loss of clinical study data from completed or
ongoing clinical studies for any of our drug candidates could result in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or
damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and
the further development of our product candidates could be delayed.
We are obligated to develop and maintain proper and effective internal control over financial reporting. In the future, we may
not complete our execution of our internal control over financial reporting in a timely manner, or these internal controls may
not be determined to be effective, which may result in additional material misstatements in our consolidated financial
statements and may adversely affect investor confidence in our company and, as a result, the value of our common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things,
the effectiveness of our internal control over financial reporting.
Complying with Section 404 requires a rigorous compliance program as well as adequate time and resources. We may not be
able to complete our internal control evaluation, testing and any required remediation in a timely fashion. Additionally, if we identify
one or more material weaknesses in our internal control over financial reporting, we will not be able to assert that our internal controls
are effective. For example, our management concluded that our internal controls over financial reporting were not effective as of
September 30, 2016, because a material weakness existed in our internal control over financial reporting related to research and
development expenses associated with the review of clinical trial expenses incurred under our clinical research organization trial
agreements, including in part, our review of information received from third party service providers that is used in the operation of this
control. Even though we remediated this material weakness as of December 31, 2016, if other material weaknesses are identified in
the future or we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could
be materially misstated, we would receive an adverse opinion regarding our internal controls over financial reporting from our
independent registered public accounting firm, and we could be subject to investigations or sanctions by regulatory authorities, which
would require additional financial and management resources, and the value of our common stock could decline. In addition, because
we concluded that our internal control over financial reporting were not effective as of September 30, 2016, and to the extent we
identify future weaknesses or deficiencies, there could be material misstatements in our consolidated financial statements and we
could fail to meet our financial reporting obligations. As a result, our ability to obtain additional financing, or obtain additional
financing on favorable terms, could be materially and adversely affected which, in turn, could materially and adversely affect our
business, our financial condition and the value of our common stock. If we are unable to assert that our internal control over financial
reporting is effective in the future, or if our independent registered public accounting firm is unable to express an opinion or expresses
an adverse opinion on the effectiveness of our internal controls in the future, investor confidence in the accuracy and completeness of
our financial reports could be further eroded, which would have a material adverse effect on the price of our common stock.
Significant disruptions of information technology systems or breaches of data security could adversely affect our business.
Our business is increasingly dependent on complex and interdependent information technology systems, including internet-
based systems, databases and programs, to support our business processes as well as internal and external communications. As use of
information technology systems has increased, deliberate attacks and attempts to gain unauthorized access to computer systems and
networks have increased in frequency and sophistication. Our information technology, systems and networks are potentially
vulnerable to breakdown, malicious intrusion and computer viruses which may result in the impairment of production and key
business processes or loss of data or information. We are also potentially vulnerable to data security breaches—whether by employees
or others—which may expose sensitive data to unauthorized persons. We have in the past and may in the future be subject to security
breaches. For example, in February 2018, we discovered that our e-mail server suffered unauthorized intrusions in which proprietary
business information was accessed. Although we do not believe that we have experienced any material losses related to security
breaches, including recent cybersecurity incidents, there can be no assurance that we will not suffer such losses in the
future. Breaches and other inappropriate access can be difficult to detect and any delay in identifying them could increase their harm.
While we have implemented security measures to protect our data security and information technology systems, such measures may
not prevent such events. Any such breaches of security and inappropriate access could disrupt our operations, harm our reputation or
otherwise have a material adverse effect on our business, financial condition and results of operations.
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Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the U.S.
We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting
principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”) and the SEC. A change in these
policies or interpretations could have a significant effect on our reported financial results, may retroactively affect previously reported
results, could cause unexpected financial reporting fluctuations, and may require us to make costly changes to our operational
processes and accounting systems.
Our revenue to date has been primarily derived from our research and license agreements, which can result in significant
fluctuation in our revenue from period to period, and our past revenue is therefore not necessarily indicative of our future
revenue.
Our revenue is primarily derived from our research and license agreements, from which we receive upfront fees, contract
research payments, milestone and other contingent payments based on clinical progress, regulatory progress or net sales achievements
and royalties. Significant variations in the timing of receipt of cash payments and our recognition of revenue can result from
significant payments based on the execution of new research and license agreements, the timing of clinical outcomes, regulatory
approval, commercial launch or the achievement of certain annual sales thresholds. The amount of our revenue derived from research
and license agreements in any given period will depend on a number of unpredictable factors, including our ability to find and
maintain suitable collaboration partners, the timing of the negotiation and conclusion of collaboration agreements with such partners,
whether and when we or our collaboration partners achieve clinical, regulatory and sales milestones, the timing of regulatory
approvals in one or more major markets, reimbursement levels by private and government payers, and the market introduction of new
drugs or generic versions of the approved drug, as well as other factors. The application of ASC 606, Revenue from Contracts with
Customers, which applies beginning in the first quarter of 2018, may have a material impact on revenue recognition under our
research and license agreements. Our past revenue generated from these agreements is not necessarily indicative of our future revenue.
If any of our existing or future collaboration partners fails to develop, obtain regulatory approval for, manufacture or ultimately
commercialize any product candidate under our collaboration agreement, our business, financial condition, and results of operations
could be materially and adversely affected.
Risks Related To Our Industry
The regulatory approval process is expensive, time-consuming and uncertain and may prevent our partners or us from
obtaining approvals to commercialize some or all of our drug candidates.
The research, testing, manufacturing, selling and marketing of drugs are subject to extensive regulation by the FDA and other
regulatory authorities in the United States and other countries, and regulations differ from country to country. Neither we nor our
partners are permitted to market our potential drugs in the United States until we receive approval of a new drug application (“NDA”)
from the FDA. Neither we nor our partners have received NDA or other marketing approval for any of our drug candidates.
Obtaining NDA approval is a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other
applicable foreign and U.S. regulatory requirements may subject us to administrative or judicially imposed sanctions. These include
warning letters, civil and criminal penalties, injunctions, product seizure or detention, product recalls, total or partial suspension of
production, and refusal to approve pending NDAs or supplements to approved NDAs.
Regulatory approval of an NDA or NDA supplement is never guaranteed, and the approval process typically takes several years
and is extremely expensive. The FDA and foreign regulatory agencies also have substantial discretion in the drug approval process,
and the guidance and advice issued by such agencies is subject to change at any time. Despite the time and efforts exerted, failure can
occur at any stage, and we may encounter problems that cause us to abandon clinical trials or to repeat or perform additional
preclinical testing and clinical trials. The number and focus of preclinical studies and clinical trials that will be required for approval
by the FDA and foreign regulatory agencies varies depending on the drug candidate, the disease or condition that the drug candidate is
designed to address, and the regulations applicable to any particular drug candidate. In addition, the FDA may require that a proposed
Risk Evaluation and Mitigation Strategy (“REMS”) be submitted as part of an NDA if the FDA determines that it is necessary to
ensure that the benefits of the drug outweigh its risks. The FDA and foreign regulatory agencies can delay, limit or deny approval of a
drug candidate for many reasons, including, but not limited to:
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they might determine that a drug candidate is not safe or effective;
they might not find the data from nonclinical testing and clinical trials sufficient and could request that additional trials be
performed;
they might not approve our, our partner’s or the contract manufacturer’s processes or facilities; or
they might change their approval policies or adopt new regulations.
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Even if we receive regulatory approval to manufacture and sell a drug in a particular regulatory jurisdiction, other jurisdictions’
regulatory authorities may not approve that drug for manufacture and sale. If we or our partners fail to receive and maintain regulatory
approval for the sale of any drugs resulting from our drug candidates, it would significantly harm our business and negatively affect
our stock price.
If we or our partners receive regulatory approval for our drug candidates, we or they will be subject to ongoing obligations to
and continued regulatory review by the FDA and foreign regulatory agencies, and may be subject to additional post-marketing
obligations, all of which may result in significant expense and limit commercialization of our potential drugs.
Any regulatory approvals that we or our partners receive for our drug candidates may be subject to limitations on the indicated
uses for which the drug may be marketed or require potentially costly post-marketing follow-up studies or compliance with a REMS.
In addition, if the FDA or foreign regulatory agencies approves any of our drug candidates, the labeling, packaging, adverse event
reporting, storage, advertising, promotion and record-keeping for the drug will be subject to extensive regulatory requirements. The
subsequent discovery of previously unknown problems with the drug, including adverse events of unanticipated severity or frequency,
or the discovery that adverse events or toxicities observed in preclinical research or clinical trials that were believed to be minor
actually constitute much more serious problems, may result in restrictions on the marketing of the drug or withdrawal of the drug from
the market.
The FDA and foreign regulatory agencies may change their policies and additional government regulations may be enacted that
could prevent or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or extent of adverse
government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are
not able to maintain regulatory compliance, we might not be permitted to market our drugs and our business would suffer.
If physicians and patients do not accept our drugs, we may be unable to generate significant revenue, if any.
Even if our drug candidates obtain regulatory approval, the resulting drugs, if any, may not gain market acceptance among
physicians, healthcare payors, patients and the medical community. Even if the clinical safety and efficacy of drugs developed from
our drug candidates are established for purposes of approval, physicians may elect not to recommend these drugs for a variety of
reasons including, but not limited to:
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introduction of competitive drugs to the market;
clinical safety and efficacy of alternative drugs or treatments;
cost-effectiveness;
availability of coverage and reimbursement from health maintenance organizations and other third-party payors;
convenience and ease of administration;
prevalence and severity of adverse events;
other potential disadvantages relative to alternative treatment methods; or
insufficient marketing and distribution support.
If our drugs fail to achieve market acceptance, we may not be able to generate significant revenue and our business would
suffer.
Recently enacted and future legislation, including potentially unfavorable pricing regulations or other healthcare reform
initiatives, may increase the difficulty and cost for us to obtain regulatory approval of and commercialize our product
candidates and affect the prices we may obtain.
The regulations that govern, among other things, regulatory approvals, coverage, pricing and reimbursement for new drug
products vary widely from country to country. In the United States and some foreign jurisdictions, there have been a number of
legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay regulatory
approval of our product candidates, restrict or regulate post-approval activities and affect our ability to successfully sell any product
candidates for which we obtain regulatory approval. In particular, in March 2010, the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act, collectively, the Affordable Care Act, was enacted, which
substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S.
pharmaceutical industry. The Affordable Care Act and its implementing regulations, among other things, addressed a new
methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and
biologics, including our product candidates, that are inhaled, infused, instilled, implanted or injected, increased the minimum
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Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate Program to
utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual
fees and taxes for certain branded prescription drugs, provided incentives to programs that increase the federal government’s
comparative effectiveness research and established a new Medicare Part D coverage gap discount program, in which manufacturers
must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In
August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint
Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years
2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in April
2013, and will remain in effect through 2025 unless additional Congressional action is taken. In January 2013, President Obama
signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, further reduced Medicare
payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the
government to recover overpayments to providers from three to five years.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels
directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives
that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and
other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
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the demand for our product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our products;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.
Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments
from private payors, which may adversely affect our future profitability.
Since its enactment, there have been judicial and Congressional challenges to numerous provisions of the Affordable Care Act,
as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. Since January
2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the Affordable
Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. Concurrently,
Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has
not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the Affordable Care Act
have been enacted. The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared
responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for
all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22, 2018, President Trump
signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain mandated fees under
the Affordable Care Act, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual
fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical
devices. Congress may consider other legislation to repeal and replace elements of the Affordable Care Act. Any repeal and replace
legislation may have the effect of limiting the amounts that government agencies will pay for healthcare products and services, which
could result in reduced demand for our products or additional pricing pressure, or may lead to significant deregulation, which could
make the introduction of competing products and technologies much easier. Policy changes, including potential modification or repeal
of all or parts of the Affordable Care Act or the implementation of new health care legislation could result in significant changes to the
health care system, which could have a material adverse effect on our business, results of operations and financial condition.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional
activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA
regulations, guidance or interpretations will be changed, or what the impact of such changes on the regulatory approvals of our
product candidates, if any, may be.
In the United States, the European Union and other potentially significant markets for our product candidates, government
authorities and third-party payors are increasingly attempting to limit or regulate the price of medical products and services,
particularly for new and innovative products and therapies, which has resulted in lower average selling prices. For example, in the
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United States, there have been several recent Congressional inquiries and proposed bills designed to, among other things, bring more
transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drugs. Further, Congress and the Trump administration have each indicated that it will
continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly
passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or
patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures, and, in some cases, to encourage importation from other countries and bulk purchasing. Furthermore, the increased
emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the European
Union will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales
and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and
governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and
pricing in general.
We may be subject to costly product liability or other liability claims and may not be able to obtain adequate insurance.
The use of our drug candidates in clinical trials may result in adverse events. We cannot predict all the possible harms or
adverse events that may result from our clinical trials. We currently maintain limited product liability insurance. We may not have
sufficient resources to pay for any liabilities resulting from a personal injury or other claim excluded from, or beyond the limit of, our
insurance coverage. Our insurance does not cover third parties’ negligence or malpractice, and our clinical investigators and sites may
have inadequate insurance or none at all. In addition, in order to conduct clinical trials or otherwise carry out our business, we may
have to contractually assume liabilities for which we may not be insured. If we are unable to look to our own or a third party’s
insurance to pay claims against us, we may have to pay any arising costs and damages ourselves, which may be substantial.
In addition, if we commercially launch drugs based on our drug candidates, we will face even greater exposure to product
liability claims. This risk exists even with respect to those drugs that are approved for commercial sale by the FDA and foreign
regulatory agencies and manufactured in licensed and regulated facilities. We intend to secure additional limited product liability
insurance coverage for drugs that we commercialize, but may not be able to obtain such insurance on acceptable terms with adequate
coverage, or at reasonable costs. Even if we are ultimately successful in product liability litigation, the litigation would consume
substantial amounts of our financial and managerial resources and may create adverse publicity, all of which would impair our ability
to generate sales of the affected product and our other potential drugs. Moreover, product recalls may be issued at our discretion or at
the direction of the FDA and foreign regulatory agencies, other governmental agencies or other companies having regulatory control
for drug sales. Product recalls are generally expensive and often have an adverse effect on the reputation of the drugs being recalled
and of the drug’s developer or manufacturer.
We may be required to indemnify third parties against damages and other liabilities arising out of our development,
commercialization and other business activities, which could be costly and time-consuming and distract management. If third parties
that have agreed to indemnify us against damages and other liabilities arising from their activities do not fulfill their obligations, then
we may be held responsible for those damages and other liabilities.
Our relationships with customers, healthcare providers, clinical trial sites and professionals and third-party payors will be
subject to applicable anti-kickback, fraud and abuse and other laws and regulations, which could expose us to criminal
sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any drug
candidates for which we may obtain marketing approval. Our arrangements with customers, healthcare providers and professionals
and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may
constrain the business or financial arrangements and relationships through which we develop, and may market, sell and distribute, our
products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations,
include, but are not limited to, the following:
•
•
The federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward
either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which
payment may be made under federally funded healthcare programs such as Medicare and Medicaid. This statute has been
broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers and formulary managers, among
others. Several other countries, including the United Kingdom, have enacted similar anti-kickback, fraud and abuse, and
healthcare laws and regulations.
The federal False Claims Act imposes civil penalties, including civil whistleblower or qui tam actions, against individuals
or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are
36
•
•
•
false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal
government. The government and qui tam relators have brought False Claims Act actions against pharmaceutical
companies on the theory that their practices have caused false claims to be submitted to the government. There is also a
separate false claims provision imposing criminal penalties.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health
Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a
scheme to defraud any healthcare benefit program. HIPAA also imposes obligations, including mandatory contractual
terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
HIPAA also imposes criminal liability for knowingly and willfully falsifying, concealing or covering up a material fact or
making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or
services.
The federal Physician Payments Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies to
report to the Department of Health and Human Services information related to payments and other transfers of value made
to or at the request of covered recipients, such as physicians and teaching hospitals, and physician ownership and
investment interests in such manufacturers. Payments made to physicians and research institutions for clinical trials are
included within the ambit of this law.
Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors,
including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government
in addition to requiring drug manufacturers to report information related to payments to physicians and other health care
providers or marketing expenditures.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations
will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply
with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If
our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare
programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. Exclusion, suspension and
debarment from government funded healthcare programs would significantly impact our ability to commercialize, sell or distribute
any drug. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded
healthcare programs.
In addition, health care providers in the United States, including research institutions from which we or our partners obtain
patient information, are subject to privacy rules under HIPAA and state and local privacy laws. In the European Union, these entities
are subject to the Directive 95/46-EC of the European Parliament on the protection of individuals with regard to the processing of
personal data and individual European Union member states implementing additional legislation. Other countries have similar privacy
legislation. We could face substantial penalties if we knowingly receive individually identifiable health information from a health care
provider that has not satisfied the applicable privacy laws. In addition, certain privacy laws and genetic testing laws may apply directly
to our operations and/or those of our partners and may impose restrictions on the use and dissemination of individuals’ health
information and use of biological samples.
Responding to any claims relating to improper handling, storage or disposal of the hazardous chemicals and radioactive and
biological materials we use in our business could be time-consuming and costly.
Our research and development processes involve the controlled use of hazardous materials, including chemicals and radioactive
and biological materials. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination
or discharge and any resultant injury from those materials. Federal, state and local laws and regulations govern the use, manufacture,
storage, handling and disposal of hazardous materials. We may be sued for any injury or contamination that results from our or third
parties’ use of these materials. Compliance with environmental laws and regulations is expensive, and current or future environmental
regulations may impair our research, development and production activities.
Our facilities in California are located near an earthquake fault, and an earthquake or other types of natural disasters,
catastrophic events or resource shortages could disrupt our operations and adversely affect our results.
All of our facilities and our important documents and records, such as hard and electronic copies of our laboratory books and
records for our drug candidates and compounds and our electronic business records, are located in our corporate headquarters at a
37
single location in South San Francisco, California near active earthquake zones. If a natural disaster, such as an earthquake, fire or
flood, a catastrophic event such as a disease pandemic or terrorist attack, or a localized extended outage of critical utilities or
transportation systems occurs, we could experience a significant business interruption. Our partners and other third parties on which
we rely may also be subject to business interruptions from such events. In addition, California from time to time has experienced
shortages of water, electric power and natural gas. Future shortages and conservation measures could disrupt our operations and cause
expense, thus adversely affecting our business and financial results.
Risks Related To an Investment in Our Securities
We expect that our stock price will fluctuate significantly, and you may not be able to resell your shares at or at or above your
investment price.
The stock market, particularly in recent years, has experienced significant volatility, particularly with respect to pharmaceutical,
biotechnology and other life sciences company stocks, which often does not relate to the operating performance of the companies
represented by the stock. Factors that could cause volatility in the market price of our common stock include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
announcements concerning any of the clinical trials for our drug candidates, such as reldesemtiv for the potential
treatment of SMA, COPD, limited mobility, ALS or other indications associated with muscle weakness and omecamtiv
mecarbil for the potential treatment of heart failure (including, but not limited to, the timing of initiation or completion of
such trials and the results of such trials, and delays or discontinuations of such trials, including delays resulting from
slower than expected or suspended patient enrollment or discontinuations resulting from a failure to meet pre-defined
clinical end points);
announcements concerning our strategic alliance with Amgen or Astellas or future strategic alliances;
failure or delays in entering additional drug candidates into clinical trials;
failure or discontinuation of any of our research programs;
issuance of new or changed securities analysts’ reports or recommendations;
failure or delay in establishing new strategic alliances, or the terms of those alliances;
market conditions in the pharmaceutical, biotechnology and other healthcare-related sectors;
actual or anticipated fluctuations in our quarterly financial and operating results;
developments or disputes concerning our intellectual property or other proprietary rights;
introduction of technological innovations or new products by us or our competitors;
issues in manufacturing, packaging, labeling and distribution of our drug candidates or drugs;
market acceptance of our drugs;
third-party healthcare coverage and reimbursement policies;
FDA or other U.S. or foreign regulatory actions affecting us or our industry;
litigation or public concern about the safety of our drug candidates or drugs;
additions or departures of key personnel;
substantial sales of our common stock by our existing stockholders, whether or not related to our performance;
automated trading activity by algorithmic and high-frequency trading programs; and
volatility in the stock prices of other companies in our industry or in the stock market generally.
These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which
may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of
our common stock. In addition, when the market price of a stock has been volatile, holders of that stock have instituted securities class
action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur
substantial costs defending the lawsuit. Such a lawsuit could also divert our management’s time and attention.
38
If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price and trading
volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish
about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable
research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to
publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to
decline.
In addition, as required by the new revenue recognition standards under ASC 606, Revenue from Contracts with Customers,
which applies beginning in the first quarter of 2018, we will disclose the aggregate amount of transaction price allocated to
performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period. Market practices
surrounding the calculation of this measure are still evolving. It is possible that analysts and investors could misinterpret our
disclosure or that the terms of our research or license agreements or other circumstances could cause our methods for preparing this
disclosure to differ significantly from others, which could lead to inaccurate or unfavorable forecasts by analysts and investors.
Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a
negative impact on our stock price. If our financial performance fails to meet analyst estimates, for any of the reasons discussed above
or otherwise, or one or more of the analysts who cover us downgrade our common stock or change their opinion of our common stock,
our stock price would likely decline.
If the ownership of our common stock continues to be highly concentrated, it may prevent you and other stockholders from
influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.
As of February 23, 2018, our executive officers, directors and their affiliates beneficially owned or controlled approximately
8.4% of the outstanding shares of our common stock (after giving effect to the exercise of all outstanding vested and unvested options,
restricted stock units and warrants). Accordingly, these executive officers, directors and their affiliates, acting as a group, will have
substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any
merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These stockholders
may also delay or prevent a change of control of us, even if such a change of control would benefit our other stockholders. The
significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception
that conflicts of interest may exist or arise.
Volatility in the stock prices of other companies may contribute to volatility in our stock price.
The stock market in general, and the NASDAQ stock exchanges and the market for technology companies in particular, have
experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance
of those companies. Further, there has been particular volatility in the market prices of securities of early stage and clinical stage life
sciences companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class
action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities
and the diversion of management’s attention and resources, and could harm our reputation and business.
Our common stock is thinly traded and there may not be an active, liquid trading market for our common stock.
There is no guarantee that an active trading market for our common stock will be maintained on NASDAQ, or that the volume
of trading will be sufficient to allow for timely trades. Investors may not be able to sell their shares quickly or at the latest market price
if trading in our stock is not active or if trading volume is limited. In addition, if trading volume in our common stock is limited, trades
of relatively small numbers of shares may have a disproportionate effect on the market price of our common stock.
Our stockholders will experience substantial additional dilution if outstanding equity awards are exercised or settled for
common stock.
The exercise of stock options or settlement of equity awards for common stock would be substantially dilutive to the
outstanding shares of common stock. Any dilution or potential dilution may cause our stockholders to sell their shares, which would
contribute to a downward movement in the stock price of our common stock.
39
The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law new tax legislation, or the Tax Act, which significantly reforms the
Internal Revenue Code of 1986, as amended (the “Code”). The Tax Act, among other things, contains significant changes to corporate
taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%; limitation of the tax
deduction for interest expense to 30% of adjusted earnings (except for certain small businesses); limitation of the deduction for net
operating losses generated after 2017 to 80% of current year taxable income, indefinite carryforward of net operating losses and
elimination of net operating loss carrybacks; changes in the treatment of offshore earnings regardless of whether they are repatriated;
mandatory capitalization of research and development expenses beginning in 2022; immediate deductions for certain new investments
instead of deductions for depreciation expense over time; further deduction limits on executive compensation; and modifying,
repealing and creating many other business deductions and credits, including the reduction in the orphan drug credit from 50% to 25%
of qualifying expenditures. Federal net operating loss carryovers generated after 2017 will be carried forward indefinitely pursuant to
the Tax Act. We continue to examine the impact this tax reform legislation may have on our business. Notwithstanding the reduction
in the corporate income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be
adversely affected. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. This periodic
report does not discuss any such tax legislation or the manner in which it might affect us or our stockholders in the future. We urge our
stockholders to consult with their legal and tax advisors with respect to such legislation.
Our ability to use net operating loss carryforwards to offset future taxable income, and our ability to use tax credit
carryforwards, may be subject to certain limitations, and Ownership changes may limit our ability to use our net operating
losses and tax credits in the future.
Our ability to use our federal and state net operating losses, or NOLs, to offset potential future taxable income and related
income taxes that would otherwise be due is dependent upon our generation of future taxable income, and we cannot predict with
certainty when, or whether, we will generate sufficient taxable income to use all of our NOLs.
As of December 31, 2017, we reported U.S. federal and state NOLs of approximately $382.8 million, $244.8 million,
respectively. These federal NOLs generated prior to 2018 will continue to be governed by the NOL tax rules as they existed prior to
the adoption of the new Tax Act, which means that generally they will expire 20 years after they were generated if not used prior
thereto. Many states have similar laws. Accordingly, these federal and state NOLs could expire unused and be unavailable to offset
future income tax liabilities. Under the newly enacted Tax Act, federal NOLs incurred in 2018 and in future years may be carried
forward indefinitely, but the deductibility of such federal NOLs is limited to 80% of current year taxable income. It is uncertain if and
to what extent various states will conform to the newly enacted federal tax law.
In addition, under the Code, our ability to utilize these NOLs and other tax attributes, such as federal tax credits, in any taxable
year may be limited if we have experienced an “ownership change.” Generally, a Section 382 ownership change occurs if one or more
stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50
percentage points over its lowest ownership percentage within a three-year testing period. Similar rules may apply under state tax
laws. We do not believe that we have experienced an ownership change that we believe under Section 382 of the Code will result in
limitations in our ability to use certain of our NOLs and credits since 2006. However, we may experience future ownership changes as
a result of future offerings or other changes in the ownership of our stock, some of which are beyond our control. As a result, the
amount of the NOLs and tax credit carryforwards presented in our financial statements could be limited and, in the case of NOLs
generated in 2017 and before, may expire unused. Any such material limitation or expiration of our NOLs may harm our future
operating results by effectively increasing our future tax obligations.
Evolving regulation of corporate governance and public disclosure may result in additional expenses, use of resources and
continuing uncertainty.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley
Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and new SEC regulations and NASDAQ
Stock Market LLC rules create uncertainty for public companies. We regularly evaluate and monitor developments with respect to
new and proposed laws, regulations and standards. We cannot accurately predict or estimate the amount of the additional costs we
may incur in connection with complying with such laws, regulations and standards or the timing of these costs. For example,
compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act has to date required us to commit
significant resources to document and test the adequacy of our internal control over financial reporting. We can provide no assurance
as to conclusions of management or by our independent registered public accounting firm with respect to the effectiveness of our
internal control over financial reporting in the future. In addition, the SEC has adopted regulations that require us to file corporate
financial statement information in an interactive data format known as XBRL. We may incur significant costs and need to invest
considerable resources to remain in compliance with these regulations.
40
These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of
specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and
governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices.
We intend to maintain high standards of corporate governance and public disclosure. As a result, we intend to invest the
resources necessary to comply with evolving laws, regulations and standards, and this investment may result in increased general and
administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or
governing bodies, due to ambiguities related to practice or otherwise, regulatory authorities may initiate legal proceedings against us,
which could be costly and time-consuming, and our reputation and business may be harmed.
We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable
future.
We have paid no cash dividends on any of our classes of capital stock to date and we currently intend to retain our future
earnings, if any, to fund the development and growth of our businesses. In addition, the terms of existing or any future debts may
preclude us from paying these dividends.
41
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our facilities consist of approximately 81,587 square feet of leased research and office space in South San Francisco, California.
Our lease expires in June 2021. We believe that these facilities are suitable and adequate for our current needs.
Item 3.
Legal Proceedings
We are not currently subject to any material legal proceedings.
Item 4.
Mine Safety Disclosures
Not applicable.
42
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following table sets forth the high and low closing sales price per share of our common stock as reported on the NASDAQ
Capital Market for the periods indicated.
PART II
2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Closing Sale Price
High
Low
$
$
$
$
$
$
$
$
10.60 $
9.49 $
12.26 $
12.55 $
13.65 $
17.00 $
15.00 $
15.65 $
6.17
7.18
8.55
8.83
10.05
11.20
12.00
7.25
On February 23, 2018, the last reported sale price for our common stock on the NASDAQ Capital Market was $7.90 per share.
We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and have not paid and do
not in the foreseeable future anticipate paying any cash dividends. As of February 23, 2018, there were 56 holders of record of our
common stock.
Equity Compensation Information
Information regarding our equity compensation plans and the securities authorized for issuance thereunder is set forth in Part III,
Item 12.
43
Comparison of Historical Cumulative Total Return Among Cytokinetics, Incorporated, the NASDAQ Stock Market (U.S.)
Index and the NASDAQ Biotechnology Index (*)
$350.00
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
$-
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Cytokinetics, Incorporated
NASDAQ Composite Index
NASDAQ Biotechnology Index
(*)
The above graph shows the cumulative total stockholder return of an investment of $100 in cash from December 31, 2012
through December 31, 2017 for: (i) our common stock; (ii) the NASDAQ Stock Market (U.S.) Index; and (iii) the NASDAQ
Biotechnology Index. All values assume reinvestment of the full amount of all dividends. Stockholder returns over the indicated
period should not be considered indicative of future stockholder returns.
Cytokinetics, Incorporated
NASDAQ Composite Index
NASDAQ Biotechnology Index
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
$
$
$
100.00 $
100.00 $
100.00 $
164.15 $
138.32 $
165.61 $
202.28 $
156.85 $
222.08 $
264.15 $
165.84 $
247.44 $
306.83 $
178.28 $
193.79 $
205.81
228.63
234.60
The information contained under this caption “Comparison of Historical Cumulative Total Return Among Cytokinetics,
Incorporated, the NASDAQ Stock Market (U.S.) Index and the NASDAQ Biotechnology Index” shall not be deemed to be soliciting
material or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities
Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
44
Item 6.
Selected Financial Data
The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplemental Data” of this report on Form 10-K.
2017
Year Ended December 31,
2016
2014
2015
(In thousands, except per share amounts)
2013
Statement of Operations Data:
Revenues:
Research and development, grant and other
revenues, net
License revenues
Total revenues
Operating expenses:
Research and development
General and administrative
Total operating expenses
Operating (loss) income
Interest expense
Non-cash interest expense on liability related to sale of
future royalties
Interest and other income, net
Net (loss) income
Net (loss) income per share:
$
$
4,569 $
8,799
13,368
44,236 $
62,171
106,407
14,740 $
13,918
28,658
37,104 $
9,836
46,940
90,296
36,468
126,764
(113,396)
(3,016)
59,897
27,823
87,720
18,687
(2,698)
46,398
19,667
66,065
(37,407)
(268)
44,426
17,268
61,694
(14,754)
—
(13,980)
2,602
(127,790) $
—
464
16,453 $
—
174
(37,501) $
—
108
(14,646) $
9,566
21,082
30,648
49,450
15,092
64,542
(33,894)
—
—
177
(33,717)
Basic
Diluted
$
$
(2.59) $
(2.59) $
0.41 $
0.39 $
(0.97) $
(0.97) $
(0.41) $
(0.41) $
(1.24)
(1.24)
Weighted average shares used in computing net
(loss) income per share:
Basic
Diluted
49,404
49,404
39,943
42,561
38,814
38,814
35,709
35,709
27,275
27,275
2017
2016
As of December 31,
2015
(In thousands)
2014
2013
Balance Sheet Data:
Cash and cash equivalents, and investments
Working capital
Total assets
Long-term debt
Liability related to the sale of future royalties, net
Accumulated deficit
Total stockholders’ equity
$
285,409 $
241,850
294,810
31,777
104,650
(646,081)
109,842
163,921 $
125,375
170,142
27,381
—
(518,291)
94,361
111,621 $
81,458
115,237
14,639
—
(534,744)
68,590
83,228 $
107,276
132,968
—
—
(497,243)
92,064
80,230
52,634
83,188
—
—
(482,597)
54,442
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included
elsewhere in this report. Operating results are not necessarily indicative of results that may occur in future periods.
45
Overview
We were incorporated in Delaware in August 1997 as Cytokinetics, Incorporated. We are a late-stage biopharmaceutical
company focused on the discovery and development of first-in-class muscle activators as potential treatments for debilitating diseases
in which muscle performance is compromised and/or declining. Our research and development activities relating to the biology of
muscle function have evolved from our knowledge and expertise regarding the cytoskeleton, a complex biological infrastructure that
plays a fundamental role within every human cell. Our most advanced research and development programs relate to the biology of
muscle function and are directed to small molecule modulators of the contractility of cardiac muscle or skeletal muscle. We are also
conducting earlier-stage research directed to other compounds with the potential to modulate muscle contractility and other muscle
functions.
Our drug candidates currently in clinical development are omecamtiv mecarbil, a novel cardiac myosin activator, and
reldesemtiv, a next-generation fast skeletal muscle troponin activator (“FSTA”) with orphan drug designation from FDA for the
potential treatment of spinal muscular atrophy (“SMA”). In November 2017, we announced that VITALITY-ALS (Ventilatory
Investigation of Tirasemtiv and Assessment of Longitudinal Indices after Treatment for a Year in ALS), the international Phase 3
clinical trial of our first-generation FSTA, tirasemtiv, in patients with ALS, did not meet its primary endpoint or secondary endpoints
and that we decided to suspend development of tirasemtiv. We believe that VITALITY-ALS demonstrated pharmacologic activity for
the mechanism of action and that limitations of tirasemtiv may be addressed with our next-generation FSTA, reldesemtiv.
Omecamtiv mecarbil is being evaluated for the potential treatment of heart failure under a strategic alliance with Amgen
established in 2006 to discover, develop, and commercialize novel small molecule therapeutics designed to activate cardiac muscle,
including omecamtiv mecarbil, for the potential treatment of heart failure (the “Amgen Agreement”). Amgen, in collaboration with
Cytokinetics, is conducting GALACTIC-HF (Global Approach to Lowering Adverse Cardiac Outcomes Through Improving
Contractility in Heart Failure), a Phase 3 cardiovascular outcomes clinical trial of omecamtiv mecarbil in heart failure. Cytokinetics
and Amgen are also planning a second Phase 3 clinical trial intended to evaluate its potential to increase exercise performance, a trial
to be conducted by Cytokinetics.
Reldesemtiv is structurally distinct from tirasemtiv and selectively activates the fast skeletal muscle troponin complex in the
sarcomere by increasing its sensitivity to calcium, leading to an increase in skeletal muscle contractility. Cytokinetics and Astellas are
developing reldesemtiv under the Amended and Restated License and Collaboration Agreement dated December 22, 2014, as further
amended in 2016 and 2017 (the “Astellas Agreement”). Astellas holds an exclusive license to develop and commercialize reldesemtiv
worldwide, subject to our development and commercialization participation rights. We conducted five Phase 1 clinical trials of
reldesemtiv. In collaboration with Astellas, we are conducting two Phase 2 clinical trials of reldesemtiv, one in patients with spinal
muscular atrophy (“SMA”) and one in patients with amyotrophic lateral sclerosis (“ALS”), called FORTITUDE-ALS (Functional
Outcomes in a Randomized Trial of Investigational Treatment with CK-2127107 to Understand Decline in Endpoints – in ALS).
Astellas, in collaboration with Cytokinetics, is conducting a Phase 2 clinical trial of reldesemtiv in patients with chronic obstructive
pulmonary disease (“COPD”) and a Phase 1b clinical trial of reldesemtiv in elderly subjects with limited mobility. We and Astellas
are continuing to conduct a joint research program through 2019 focused on next-generation skeletal muscle activators. In 2016, we
granted Astellas an option to enter into a pre-negotiated agreement for a global collaboration for the development and
commercialization of tirasemtiv (the “Option on Tirasemtiv”).
All of our drug candidates have demonstrated evidence of potentially clinically relevant pharmacodynamic activity in humans.
We expect to continue to focus on translating the observed pharmacodynamic activity of these compounds into potentially meaningful
clinical benefits for patients. All of our drug candidates have arisen from our cytoskeletal research activities. Our focus on the biology
of the cytoskeleton distinguishes us from other biopharmaceutical companies, and potentially positions us to discover and develop
novel therapeutics that may be useful for the treatment of severe diseases and medical conditions. Each of our drug candidates has a
novel mechanism of action compared to currently marketed drugs, which we believe validates our focus on the cytoskeleton as a
productive area for drug discovery and development. We intend to leverage our experience in muscle contractility in order to expand
our current pipeline, and expect to identify additional potential drug candidates that may be suitable for clinical development.
As we mark our 20th anniversary, our research continues to drive innovation and leadership in muscle biology, evidenced by
three novel mechanistic compounds that have recently advanced in development: a next-generation cardiac muscle activator under
our collaboration with Amgen, a next-generation skeletal muscle activator under our collaboration with Astellas, and an unpartnered
cardiac sarcomere-directed compound. We and Astellas have recently agreed to extend our joint research program through 2019 while
our scientists continue independent research activities directed to our other muscle biology programs.
Critical Accounting Polices and Significant Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses
and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may
46
differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more
detail in the notes to our financial statements included in this Annual Report on Form 10-K, we believe the following accounting
policies to be critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
We recognize revenue when the following criteria have been met: persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; the fee is fixed or determinable; and 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
management’s 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 our 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. Our license and collaboration arrangements with multiple elements were evaluated to determine whether the
delivered elements under these arrangements have value to our collaboration partner on a stand-alone basis and whether objective and
reliable evidence of fair value of the undelivered item exists. If we determine that multiple deliverables exist, the consideration is
allocated to one or more units of accounting based upon the best estimate of the selling price of each deliverable. The selling price
used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. A
delivered item or items that do not qualify as a separate unit of accounting within the arrangement shall be combined with the other
applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue then
shall be determined for those combined deliverables as a single unit of accounting. A delivered item or items that do not have stand-
alone value to our collaboration partner shall be combined with the other applicable undelivered items within the arrangement. The
allocation of arrangement consideration and the recognition of revenue then shall be determined for those combined deliverables as a
single unit of accounting. For a combined unit of accounting, non-refundable upfront fees and milestones are recognized in a manner
consistent with the final deliverable, which has generally been ratably over the period of the research and development obligation. For
certain arrangements, the period of time over which certain deliverables will be provided is not contractually defined. Accordingly,
management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes.
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
we perform under the applicable agreement. Where the level of effort is relatively consistent over the performance period, we
recognize total fixed or determined revenue on a straight-line basis over the estimated period of expected performance. Where the
license has stand-alone value, we recognize total license revenue at the time all revenue recognition criteria have been met.
We account for milestone payments under the provisions of ASC 605-28. We consider 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 our performance, and if the achievement of the event results in payment to us. If we determine a milestone is substantive, we
recognize revenue when payment is earned and becomes payable. For a milestone to be considered substantive, it must be achieved
with our performance, be reasonable relative to the terms of the arrangement and be commensurate with our effort to achieve the
milestone or commensurate with the enhanced value of the delivered item(s) as a result of the milestone achievement. If we determine
a milestone is not substantive, we defer the payment and recognize revenue over the estimated period of performance as we complete
our performance obligations, if any.
Research and development revenues and cost reimbursements are based upon negotiated rates for our FTEs and actual out-of-
pocket costs. FTE rates are negotiated rates that are based upon our costs, and which we believe 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, we evaluate the
payments to determine whether payments made by us will be recognized as a reduction of revenue or as expense. Revenue we
recognize may be reduced by payments made to the other party under the arrangement unless we receive a separate and identifiable
benefit in exchange for the payments and we can reasonably estimate the fair value of the benefit received. In arrangements in which
we are the primary obligor, we record expense reimbursements from the other party as research and development revenue. If we are
not the primary obligor, we record payments as a reduction of revenue.
Funds received from third parties under grant arrangements are recorded as revenue if we are deemed to be the principal
participant in the grant arrangement as the activities under the grant are part of our development programs. If we are not the principal
47
participant, the grant funds are recorded as 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 Study and Clinical Trial Accruals
We use third-party contract research organizations (“CROs”) and other vendors to conduct a substantial portion of our
preclinical studies and all of our clinical trials. 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. We
monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence and status
meetings with CROs and review of contractual terms. Our estimates are dependent on the timeliness and accuracy of data provided by
our CROs and other vendors. If we have incomplete or inaccurate data, we may under- or overestimate activity levels associated with
various studies or clinical trials at a given point in time. In this event, we could record adjustments to research and development
expenses in future periods when the actual activity levels become known.
Stock-Based Compensation
We account for share-based awards made to employees and directors, including employee stock options and employee stock
awards. We measure stock-based compensation cost at the grant date based on the calculated fair value of the award, and recognize
this compensation as a non-cash expense on a straight-line basis over the requisite service period, generally the vesting period of the
award.
We measure the fair value of share-based awards to non-employees each period until the award is fully vested.
We measure compensation for restricted stock awards that contain performance conditions on the grant date fair value of the
award and recognize this compensation as non-cash expense over the implicit or explicit requisite service period based on our best
estimate as to whether it is probable that the award is expected to vest.
We review our valuation assumptions at each grant date and the valuation assumptions we use to value share based awards
granted in future periods may differ from those used for grants made in prior periods. The assumptions used in calculating stock-based
compensation are based on management estimates and judgment and involve inherent uncertainties. For example, we estimate an
expected forfeiture rate for stock options and restricted stock awards and recognize expense only for those shares we expect to vest. If
we use different assumptions in a future period, future stock-based compensation expense could be materially different that the
expense we have recognized to date.
Non-Cash Interest Expense on Liability Related to Sale of Future Royalties
We account for the Liability related to sale of future royalties as a debt financing. We have a significant continuing involvement
in the generation of related royalty streams. We accrete this liability and recognize non-cash interest expense using the effective
interest rate method over the life of the related royalty stream, based on our current estimates of future royalty payments. These
estimates include projections we make and projections from outside the Company and involve significant judgement and involve
inherent uncertainties. We periodically re-assess the projections and, to the extent our future estimates of future royalty payments are
greater or less than its previous estimates or the estimated timing of such payments is materially different than its previous estimates,
we will adjust the Liability related to sale of future royalties and prospectively recognize related non-cash interest expense.
Income Taxes
We account for income taxes under the asset and liability method and determine deferred tax assets and liabilities based on the
difference between the financial statement and tax basis of assets and liabilities using enacted tax rates for the year in which the
differences are expected to be realized. We did not record an income tax provision in the years ended December 31, 2017, 2016, and
2015 because the Company either had net taxable losses or was able to utilize tax attributes to offset taxable income
We establish valuation allowances when necessary to reduce the deferred tax assets to the amounts expected to be realized.
Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses, and
expected future losses we recognized a valuation allowance to fully offset net deferred tax assets as of December 31, 2017, 2016 and
2015. We assessed both positive and negative evidence to determine whether it is more likely than not our deferred tax assets are
48
recoverable. We intend 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.
Results of Operations
Revenues
Our revenue since inception has been generated primarily from our strategic alliances, including with Amgen and Astellas, and
grant revenues from the ALS Association (the “ALSA”). We have not generated any revenue from commercial product sales to date.
Under our agreements with Amgen and Astellas, we received payments including non-refundable upfront license fees,
reimbursements of internal costs of certain full-time employee equivalents and costs to support research and development programs,
and milestone payments.
We may also be entitled to additional milestone payments and other contingent payments upon the occurrence of specific
events. Due to the nature of these collaboration agreements and the nonlinearity of the earnings process associated with certain
payments and milestones, we expect that our revenue will continue to fluctuate in future periods.
Research and development, grant and other revenues,
net
License revenues
Total revenues
$
$
4.6 $
8.8
13.4 $
44.2 $
62.2
106.4 $
14.8 $
13.9
28.7 $
(39.6) $
(53.4)
(93.0) $
29.4
48.3
77.7
2017
Years Ended December 31,
2016
2015
(In millions)
Increase (Decrease)
2017
2016
Our revenues are primarily from our strategic alliances with Astellas and Amgen. Research and development revenues from
Astellas were $11.9 million, $15.1 million, and $12.2 million for years ended December 31, 2017, 2016 and 2015, respectively, and
consisted of reimbursements of internal costs for certain full-time employee equivalents, and other research and development
expenses. Revenues from Astellas in 2016 included $2.0 million in milestone revenues. Research and development revenues from
Amgen during the year ended December 31, 2017 included $11.0 million in milestones earned as well as $1.3 million of research and
development revenues. These revenues were offset by $20.0 million (out of the total $40.0 million) for payments to Amgen related to
our option to co-fund the Phase 3 development program of omecamtiv mecarbil in exchange for an increased royalty upon potential
commercialization. Research and development revenues related to Amgen in 2016 and 2015 were $27.9 million and $2.5 million,
respectively. Revenues from Amgen in 2016 included $26.7 million in milestone revenues.
License revenues come from our strategic alliances with Astellas and Amgen. License revenues from Astellas were $8.8 million,
$62.2 million, and $13.9 million for the years ended December 31, 2017, 2016, and 2015, respectively. License revenue from Astellas
in 2016 consisted of the recognition of the $50.0 million upfront license fee received from Astellas under the 2016 Astellas
Amendment, and the recognition of a portion of the $30.0 million upfront license fee received from Astellas in January 2015. License
revenue from Astellas in 2015 consisted of the recognition of a portion of the $30.0 million upfront license fee received from Astellas
in January 2015 and the recognition of a portion of the $16.0 million upfront license fee received from Astellas in July 2013. The
upfront license fees were recognized using the proportional performance model and continued to be recognized through December 31,
2017.
Prior to April 1, 2017, we considered Astellas and Amgen to be a related party, due in part to their equity ownership percentage,
and reported revenue under the Astellas Agreement and the Amgen Agreement to be revenues from a related party. Effective April 1,
2017, in part due to a decrease in each of Astellas’ and Amgen’s equity ownership percentage, the Company no longer considers
either Astellas or Amgen to be a related party.
Research and development expenses
We incur research and development expenses associated with both partnered and our own research activities.
Research and development expenses related to any development we elect to fund consist primarily of employee compensation,
supplies and materials, costs for consultants and contract research and manufacturing, facilities costs and depreciation of equipment.
Research and development expenses
$
90.3 $
59.9 $
46.4 $
30.4 $
13.5
2017
Years Ended December 31,
2016
2015
(In millions)
Increase (Decrease)
2017
2016
49
The increase in research and development expenses in 2017 as compared to 2016 was primarily due to increased clinical
activity, including activity for VITALITY-ALS and other activities intended to support potential regulatory filings and registration of
tirasemtiv in North America and Europe, increased clinical trials activity for reldesemtiv, as well as increased personnel.
The increase in research and development expenses in 2016 compared to 2015 was primarily due to an increase in outsourced
clinical and research costs, personnel related expenses and non-cash stock compensation expense, partially offset by a decrease in
outsourced preclinical costs mainly associated with clinical manufacturing activities.
Research and development expenses by program for the years ended December 31, 2017, 2016, and 2015 were:
Cardiac muscle contractility
Skeletal muscle contractility
Smooth muscle contractility
All other research programs
2017
$
Total research and development expenses
$
Years Ended December 31,
2016
2015
(In millions)
Increase (Decrease)
2017
2016
10.6 $
75.4
—
4.3
90.3 $
8.1 $
49.2
—
2.6
59.9 $
5.8 $
36.3
0.2
4.1
46.4 $
2.5 $
26.2
—
1.7
30.4 $
2.3
12.9
(0.2)
(1.5)
13.5
From a program perspective, the increase in research and development expenses for the year ended December 31, 2017,
compared to the same periods in each of 2016 and 2015 was primarily due to increased activity for our skeletal muscle contractility
program, which included our skeletal muscle contractility program for tirasemtiv for the treatment of ALS and the clinical program for
reldesemtiv under our collaboration with Astellas.
We expect our research and development expenditures to decrease in 2018 compared to 2017 primarily because in November
2017 we suspended development of tirasemtiv. Under our strategic alliance with Astellas, we expect to continue development of our
drug candidate reldesemtiv for the potential treatment of SMA and ALS and potentially other diseases and medical conditions
associated with muscle weakness or wasting. Under our strategic alliance with Amgen, we expect to continue the Phase 3
development of our drug candidate omecamtiv mecarbil for the potential treatment of heart failure.
Clinical development timelines, the likelihood of success and total completion costs vary significantly for each drug candidate
and are difficult to estimate. We anticipate that we will determine on an ongoing basis which research and development programs to
pursue and how much funding to direct to each program, taking into account the scientific and clinical success of each drug candidate.
The lengthy process of seeking regulatory approvals and subsequent compliance with applicable regulations requires the expenditure
of substantial resources. Any failure by us to obtain and maintain, or any delay in obtaining, regulatory approvals could cause our
research and development expenditures to increase and, in turn, could have a material adverse effect on our results of operations.
General and administrative expenses
General and administrative expenses consist primarily of compensation for employees in executive and administrative functions,
including, but not limited to, finance, human resources, legal, business and commercial development and strategic planning. Other
significant costs include facilities costs, consulting costs and professional fees for accounting and legal services, including legal
services associated with obtaining and maintaining patents and regulatory compliance.
General and administrative expenses for the years ended December 31, 2017 were:
2017
Years Ended December 31,
2016
2015
(In millions)
Increase (Decrease)
2017
2016
General and administrative expenses
$
36.5 $
27.8 $
19.7 $
8.7 $
8.1
The increase in general and administrative expenses in 2017 as compared to 2016 was primarily due to increased personnel,
non-cash stock compensation expense, increased commercial readiness activities, and accounting and finance and recruitment related
costs.
50
General and administrative expenses increased 2016 compared to 2015 primarily due to increased spending in personnel-related
expenses due to increased headcount and non-cash stock compensation expense, an increase in corporate and patent legal fees, and an
increase in outsourced costs related to commercial development, grants and sponsorships, and accounting and finance and recruitment
related costs.
We expect that general and administrative expenses in 2018 will decrease compared to 2017, primarily because we expect lower
commercial development expenses in 2018 as compared to 2017 following suspension of commercial development of tirasemtiv.
Interest expense
Interest expense for 2015, 2016 and 2017 primarily consisted of interest expense related to the loan and security agreement with
the Loan and Security Agreement, dated as of October 19, 2015 and amended on October 27, 2017 by and among the Company,
Oxford Finance LLC and Silicon Valley Bank, as amended (the “Loan Agreement”). Interest expense increased in 2017 compared to
2016 primarily due to higher average loan balances outstanding in 2017 compared to 2016. Interest expense increased in 2016
compared to 2015 due to interest expense related to the long-term debt obligations which commenced in fourth quarter 2015.
Non-cash interest expense on liability related to sale of future royalties
Non-cash interest expense related to Liability related to sale of future royalties in 2017 results from accretion of the liability
related to sale of future royalties in 2017. We anticipate that this non-cash interest expense will increase in the future primarily due to
accretion of the liability over time.
Interest and Other Income, net
Interest and other income, net for the years ended December 31, 2017, 2016 and 2015, primarily consisted of interest income
generated from our cash, cash equivalents and investments. Other income consisted of net gains on upon disposal of certain
equipment.
Liquidity and Capital Resources
At December 31, 2017, our cash, cash equivalents and marketable securities totaled $285.4 million.
Sources and Uses of Cash
From inception, we funded our operations through the sale of equity securities, non-equity payments from collaborators, a
royalty monetization agreement, long term debt, capital equipment financings, grants and interest income. We have generated
significant operating losses since our inception. Our expenditures are primarily related to research and development activities.
In February 2017, we entered into the Royalty Agreement by and between the Company and RPI Finance Trust (“RPI”), dated
February 1, 2017 (the “Royalty Agreement”). Under the Royalty Agreement, we sold a portion of our right to receive royalties on
future net sales of omecamtiv mecarbil (and potentially other compounds with the same mechanism of action) under the Amgen
Agreement to RPI for a payment of $90.0 million. In addition, RPI purchased $10.0 million of our common stock pursuant to a
concurrently executed Common Stock Purchase Agreement with RPI.
In June 2017, we completed a public offering of our common stock and issued 6,049,000 shares for net proceeds of $82.8
million, before expenses.
Net cash used in operating activities was $101.8 million in the year ended December 31, 2017 and was largely due to our net
loss of $127.8 million less noncash charges such as stock-based compensation expense and non-cash interest expense on liability
related to sale of future royalties of $9.0 million and $14.0 million, respectively.
Net cash provided by operating activities was $37.0 million in the year ended December 31, 2016 and was largely due to the
receipt of $65.0 million from Astellas in October 2016, the receipt of a $26.7 million milestone payment from Amgen in December
2016, partially offset by cash used by operations due to the ongoing research and development activities, and general and
administrative spend to support those activities. Net income for the year ended December 31, 2016 included non-cash stock based
compensation of $7.1 million. At December 31, 2016, deferred revenue of $23.1 million related primarily to the deferral of revenue
for Astellas’ Option on Tirasemtiv.
51
Net cash provided by operating activities was $4.9 million in the year ended December 31, 2015 and was largely due to the
receipt of $45.0 million from Astellas in January 2015, partially offset by cash used by operations due to the ongoing research and
development activities. The net loss for the year ended December 31, 2015 included non-cash stock based compensation of
$4.6 million. At December 31, 2015, deferred revenue of $20.9 million related primarily to the deferral of revenue for Astellas based
on the proportional performance model.
Net cash used in investing activities of $65.8 million in the year ended December 31, 2017 was primarily due to purchases of
investments of $240.4 million and purchases of property and equipment of $2.9 million, partially offset by cash proceeds from the
maturities of investments of $177.5 million.
Net cash used in investing activities of $52.1 million in the year ended December 31, 2016 was primarily due to purchases of
investments of $145.2 million and purchases of property and equipment of $1.6 million, partially offset by cash proceeds from the
maturities of investments of $94.6 million. Net cash provided by investing activities of $16.1 million in the year ended December 31,
2015 was primarily due to proceeds from the maturity of investments of $132.2 million which exceeded purchases of investments by
$16.6 million, partially offset by cash used by investing activities for purchases of property and equipment.
Net cash provided by financing activities was $226.0 million in the year ended December 31, 2017 was primarily due to net
proceeds from the public offering of our Common Stock with net proceeds to us of $82.4 million, net proceeds from the liability
related to sales of future royalties of $90.6 million, net proceeds pursuant to the Committed Equity Offering (“CE Offering”) of $29.9
million, net proceeds from the issuance of common stock to RPI of $7.6 million, and proceeds from common stock issuances from
warrant exercises of $14.3 million.
Net cash provided by financing activities was $16.9 million in the year ended December 31, 2016 was primarily due to net
proceeds from the Loan Agreement of $14.9 million, proceeds from common stock purchases under our employee stock purchase plan
of $0.9 million, proceeds from common stock issuances from warrant exercises of $0.6 million, and net proceeds from issuances of
restricted stock to employees and employee stock option exercises of $0.4 million. Net cash provided by financing activities was
$23.9 million in the year ended December 31, 2015 was primarily due to net proceeds from the Loan Agreement of $14.9 million, net
proceeds pursuant to the CE Offering of $8.7 million, and net proceeds from issuances of restricted stock to employees and employee
stock option exercises of $0.4 million.
Contractual Obligations and Commitments
Our contractual obligations for the next five years and thereafter are as follows (in thousands):
2018
2019
2020
2021
2022
Beyond
Total
Payments Due by Period
Long-term debt
Interest obligation on long-term debt
Operating lease obligations (1)
Co-investment option (2)
Liability related to sale of future royalties (3) $
Total obligations
— $
$
2,615 $
$
$
3,789 $
$ 18,750 $
— $
— $ 32,000
9,366 $ 7,805 $
— $ 10,358
1,051 $ 2,371 $
— $ 15,782
2,465 $ — $
— $ — $
— $ 18,750
— $ — $104,650 $ 104,650
$ 25,154 $ 12,645 $ 16,033 $ 12,882 $ 10,176 $104,650 $ 181,540
9,366 $
1,821 $
4,846 $
— $
— $
5,463 $
2,500 $
4,682 $
— $
— $
(1) Operating lease obligations relates to future payments under our facility lease in South San Francisco, California, which expires
in 2021.
(2)
(3)
Payments for our co-invest option in the Phase 3 development program of omecamtiv mecarbil under the Amgen Agreement.
Liability related to sale of future royalties represents the carrying value at the latest balance sheet date of payments we would
make to RPI under the Royalty Agreement, based on estimated future sales of omecamtiv mecarbil. Actual payments may be
significantly higher or lower based on actual future sales of omecamtiv mecarbil, assuming omecamtiv mecarbil is approved and
commercialized. For further discussion regarding the liability related to the sale of future royalties, see Note 9 – Liability
Related to Sale of Future Royalties of the Notes to the Condensed Consolidated Financial Statements.
In future periods, we expect to incur substantial costs as we continue to expand our research programs and related research and
development activities. We expect to incur significant research and development expenses as we advance the research and
development of compounds from our other muscle biology programs through research to candidate selection to clinical development.
52
Our future capital uses and requirements depend on numerous factors. These factors include, but are not limited to, the
following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the initiation, progress, timing, scope and completion of preclinical research, non-clinical development, chemistry,
manufacturing, and controls (“CMC”), and clinical trials for our drug candidates and other compounds;
the time and costs involved in obtaining regulatory approvals;
delays that may be caused by requirements of regulatory agencies;
Amgen’s decisions with regard to funding of development and commercialization of omecamtiv mecarbil or other
compounds for the potential treatment of heart failure under the Amgen Agreement;
Astellas’ decisions with regard to funding of development and commercialization of reldesemtiv or other skeletal muscle
activators under the Astellas Agreement;
our level of funding for the development of current or future drug candidates;
the number of drug candidates we pursue;
the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;
our ability to establish and maintain selected strategic alliances required for the development of drug candidates and
commercialization of our potential drugs;
our plans or ability to expand our drug development capabilities, including our capabilities to conduct clinical trials for
our drug candidates;
our plans or ability to engage third party manufacturers for our drug candidates and potential drugs;
our plans or ability to build or access sales and marketing capabilities and to achieve market acceptance for potential
drugs;
the expansion and advancement of our research programs;
the hiring of additional employees and consultants;
the expansion of our facilities;
the acquisition of technologies, products and other business opportunities that require financial commitments; and
our revenues, if any, from successful development of our drug candidates and commercialization of potential drugs.
We have incurred an accumulated deficit of $646.1 million since inception and there can be no assurance that we will attain
profitability. We are subject to risks common to clinical-stage 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, if at all. To date, we have funded our
operations primarily through sales of our common stock and convertible preferred stock, contract payments under our collaboration
agreements, debt financing arrangements, 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 obtain additional capital by entering into new strategic collaborations and/or through equity
or debt financings, and ultimately on our and our collaborators’ ability to successfully develop and market one or more of our drug
candidates. We cannot be certain that sufficient funds will be available from such collaborators or financings when needed or on
satisfactory terms. Additionally, there can be no assurance that any of drugs based on 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 development plans, we believe that our existing cash and cash equivalents, investments and
interest earned on investments will be sufficient to meet our projected operating requirements for at least the next 12 months. If, at any
time, our prospects for internally financing our research and development programs decline, we may decide to reduce research and
development expenses by delaying, discontinuing or reducing our funding of development of one or more of our drug candidates or of
other research and development programs. Alternatively, we might raise funds through strategic relationships, public or private
financings or other arrangements. There can be no assurance that funding, if needed, will be available on attractive terms, or at all, or
in accordance with our planned timelines. Furthermore, financing obtained through future strategic relationships may require us to
forego certain commercialization and other rights to our drug candidates. Similarly, any additional equity financing may be dilutive to
stockholders and debt financing, if available, may involve restrictive covenants. Our failure to raise capital as and when needed could
have a negative impact on our financial condition and our ability to pursue our business strategy.
53
Off-balance Sheet Arrangements
We are not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future
effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 1, “Organization and Significant Accounting Policies” in the Notes to
Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and accounting pronouncements
not yet adopted, and their expected impact on our financial position and results of operations.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate and Market Risk
Cash, Cash Equivalents and Investments
As of December 31, 2017, we had cash, cash equivalents and investments of $285.4 million, which consisted of bank deposits,
money market funds, agency bonds, U.S. government bonds and equity. Such interest-earning instruments carry a degree of interest
rate risk.
We do not invest for trading or speculative purposes. We do not have any derivative financial instruments to manage our interest
rate risk exposure. The average duration of all of our investments held as of December 31, 2017 was less than 12 months. We believe
there is no material exposure to interest rate risk or market, arising from our financial instruments at December 31, 2017. A
hypothetical 10% change in interest rates at December 31, 2017 would not result in a significant change in the fair market value of our
portfolio.
Long Term Debt
At December 31, 2017, our long-term debt was $31.8 million, which approximated the fair value of the debt. Principal payments
on our debt are made in 41 equal monthly installments beginning on June 2019. Our debt carries a fixed interest rate of 8.05% per
year. Changes in market interest rates may affect the fair value of the debt, but will not impact earnings or cash flows.
The following are future payments for our long-term debt (in thousands):
2018
2019
2020
2021
2022
Total minimum payments
Less: Interest and final payment
Future payments
$
$
2,615
7,964
11,187
10,416
10,176
42,358
(10,358)
32,000
54
Item 8.
Financial Statements and Supplementary Data
CYTOKINETICS, INCORPORATED
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ......................................................................................................... 56
Consolidated Balance Sheets......................................................................................................................................................... 57
Consolidated Statement of Operations and Comprehensive (Loss) Income ................................................................................. 58
Consolidated Statements of Stockholders’ Equity ........................................................................................................................ 59
Consolidated Statements of Cash Flows ....................................................................................................................................... 60
Notes to Consolidated Financial Statements ................................................................................................................................. 61
Page
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Cytokinetics, Incorporated:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Cytokinetics, Incorporated and its subsidiary as of December
31, 2017 and 2016, and the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity and
cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as
the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December
31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions
on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 5, 2018
We have served as the Company’s auditor since 1999.
56
CYTOKINETICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
$
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable
Prepaid and other current assets
Total current assets
Long-term investments
Property and equipment, net
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue, current
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Liability related to the sale of future royalties, net
Deferred revenue, non-current
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.001 par value:
Authorized: 10,000,000 shares; Issued and outstanding: none
Common stock, $0.001 par value:
Authorized: 163,000,000
Issued and outstanding: 53,960,832 shares at December 31, 2017
and 40,646,595 shares at December 31, 2016
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2017
2016
(In thousands, except
share and per share data)
125,206 $
143,685
1,112
4,292
274,295
16,518
3,568
429
294,810 $
5,253 $
17,392
9,572
—
227
32,444
31,777
104,650
15,000
1,097
184,968
66,874
89,375
24
2,360
158,633
7,672
3,637
200
170,142
4,236
18,047
8,060
2,500
415
33,258
27,381
—
15,000
142
75,781
—
—
54
755,526
343
(646,081)
109,842
294,810 $
41
612,474
137
(518,291)
94,361
170,142
$
$
The accompanying notes are an integral part of these consolidated financial statements.
57
CYTOKINETICS, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
2017
Years Ended December 31,
2016
(In thousands, except per share data)
2015
Revenues:
Research and development, grant and other revenues, net
License revenues
Total revenues
$
4,569 $
8,799
13,368
44,236 $
62,171
106,407
Operating expenses:
Research and development
General and administrative
Total operating expenses
Operating (loss) income
Interest expense
Non-cash interest expense on liability related to sale of future
royalties
Interest and other income, net
Net (loss) income
Net (loss) income per share — basic
Net (loss) income per share — diluted
Weighted-average number of shares used in computing net
(loss) income per share — basic
Weighted-average number of shares used in computing net
(loss) income per share — diluted
Other comprehensive (loss) income:
90,296
36,468
126,764
(113,396)
(3,016)
(13,980)
2,602
(127,790) $
(2.59) $
(2.59) $
59,897
27,823
87,720
18,687
(2,698)
—
464
16,453 $
0.41 $
0.39 $
$
$
$
14,740
13,918
28,658
46,398
19,667
66,065
(37,407)
(268)
—
174
(37,501)
(0.97)
(0.97)
49,404
39,943
38,814
49,404
42,561
38,814
Unrealized (losses) gains on available-for-sale securities, net
Comprehensive (loss) income
206
(127,584) $
$
(12)
16,441 $
153
(37,348)
The accompanying notes are an integral part of these consolidated financial statements.
58
CYTOKINETICS, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Balance, December 31, 2014
Exercise of stock options
Issuance of common stock under Employee
Stock Purchase Plan
Vesting of restricted stock
units, net of taxes withheld
Exercise of warrants
Issuance of common stock under CE Offering at
net of commission and issuance costs of $205
Issuance of warrants
Stock-based compensation
Other comprehensive income
Net loss
Balance, December 31, 2015
Exercise of stock options
Issuance of common stock under Employee
Stock Purchase Plan
Vesting of restricted stock
units, net of taxes withheld
Exercise of warrants
Issuance of warrants
Stock-based compensation
Other comprehensive loss
Net income
Balance, December 31, 2016
Exercise of stock options
Issuance of common stock under Employee
Stock Purchase Plan
Vesting of restricted stock
units, net of taxes withheld
Exercise of warrants
Issuance of common stock under secondary offering
net of issuance costs of $3,400
Issuance of common stock under CE Offering at
net of commission and issuance costs of $992
Issuance of common stock pursuant to
Royalty Purchase Agreement
Stock-based compensation
Other comprehensive loss
Net loss
Balance, December 31, 2017
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss)
Income
Accumulated
Deficit
Total
Stockholders’
Equity
38,659,738 $
68,635
(In thousands, except share and per share data)
(4) $
39 $
—
—
589,272 $
427
(497,243) $
—
92,064
427
21,167
23,725
234
808,193
—
—
—
—
39,581,692 $
74,556
—
—
—
1
—
—
—
—
40 $
—
69
(144)
—
8,672
282
4,567
—
—
603,145 $
503
—
—
—
—
—
—
153
—
149 $
—
—
—
—
—
—
—
—
(37,501)
(534,744) $
—
69
(144)
—
8,673
282
4,567
153
(37,501)
68,590
503
129,604
—
917
—
—
917
25,745
834,998
—
—
—
—
40,646,595 $
264,164
—
1
—
—
—
—
41 $
—
(135)
610
288
7,146
—
—
612,474 $
1,918
120,959
—
1,167
128,711
3,450,122
—
3
(904)
12,068
6,049,000
6
82,364
2,425,625
3
29,852
—
—
—
—
(12)
—
137 $
—
—
—
—
—
—
—
—
—
—
—
16,453
(518,291) $
—
(135)
611
288
7,146
(12)
16,453
94,361
1,918
—
1,167
—
—
(904)
12,071
—
82,370
—
29,855
875,656
—
—
—
53,960,832 $
1
—
—
—
54 $
7,559
9,028
—
—
755,526 $
—
—
206
—
343 $
—
—
—
(127,790)
(646,081) $
7,560
9,028
206
(127,790)
109,842
The accompanying notes are an integral part of these consolidated financial statements.
59
CYTOKINETICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
2017
Years Ended December 31,
2016
(In thousands)
2015
$
(127,790) $
16,453 $
(37,501)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization of property and equipment
Net gain on disposal of equipment
Non-cash interest expense related to long-term debt
Non-cash interest expense on liability related to sale of future
royalties
Non-cash stock-based compensation
Gain on sale of investments
Changes in operating assets and liabilities:
Accounts receivable
Prepaid and other assets
Accounts payable
Accrued and other liabilities
Deferred revenue
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchases of investments
Sales and maturities of investments
Purchases of property and equipment
Sales of property and equipment
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from public offerings of common stock, net of issuance
costs
Proceeds from sale of future royalties, net of issuance costs
Proceeds from issuance of common stock related to sale of future royalties,
net of issuance costs
Net proceeds from long term debt, net of debt discount and issuance costs
Proceeds from stock based award activities and warrants, net
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information
Cash paid for interest
Cash paid for taxes
$
1,920
(67)
635
14,028
9,028
—
(1,088)
(2,161)
1,457
766
1,513
(101,759)
(240,413)
177,462
(2,877)
—
(65,828)
112,224
90,621
7,560
1,261
14,253
225,919
58,332
66,874
125,206 $
741
(18)
534
—
7,146
—
(12)
(707)
1,698
8,945
2,202
36,982
(145,158)
94,645
(1,596)
33
(52,076)
—
—
—
14,996
1,896
16,892
1,798
65,076
66,874 $
2,128
1
1,899
1
589
(18)
3
—
4,567
(3)
46,634
(396)
755
2,995
(12,742)
4,883
(115,566)
132,190
(562)
1
16,063
8,673
—
—
14,890
352
23,915
44,861
20,215
65,076
94
1
The accompanying notes are an integral part of these consolidated financial statements.
60
CYTOKINETICS, INCORPORATED
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 Company’s financial statements contemplate the conduct of the Company’s operations in the normal course of business.
The Company has incurred an accumulated deficit of $646.1 million since inception and there can be no assurance that the Company
will attain profitability. The Company had a net loss of $127.8 million and net cash used in operations of $101.8 million for the year
ended December 31, 2017. Cash, cash equivalents and investments increased to $285.4 million at December 31, 2017 from
$163.9 million at December 31, 2016. 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 Company’s 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, sale of future royalties, 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 Company’s 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
Company’s 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 Company’s 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 after the issuance of the consolidated
financial statements. If, at any time, the Company’s 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 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.
61
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s 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’s exposure to credit risk associated with non-payment is limited to its strategic partners Amgen Inc., (“Amgen”)
and Astellas Pharma Inc., (“Astellas”) and any material non-payment from our partners would result in a material breach of the
agreements underlying the strategic partnerships.
Drug candidates developed by the Company may require approvals or clearances from the U.S. Food and Drug Administration
(“FDA”) or other regulatory agencies prior to commercial sales. There can be no assurance that the Company’s 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.
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 Company’s investments consist of U.S. Treasury securities, agency bonds, 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 Company’s 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.
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.
Impairment of Long-lived Assets
Long-lived assets, the Company reviews long-lived assets, including property and equipment, are reviewed for impairment
whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.
Impairment is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. The Company would
recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset and its
eventual disposition are materially less than its carrying amount.
62
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue Recognition
The Company recognizes revenue after the following criteria are met: (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 management’s 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 Company’s strategic alliances are recognized based on the performance requirements of the alliance.
Revenues may include research and development revenues earned for research and development activities, non-refundable license
fees, milestones and royalties.
In order to account for multiple element arrangements, we identify the deliverables at the inception of the arrangement and each
deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following
criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that
includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered
probable and substantially in our control. A delivered item or items that do not qualify as a separate unit of accounting within the
arrangement is combined with the other applicable undelivered items within the arrangement. For a combined unit of accounting, non-
refundable upfront payments are recognized in a manner consistent with the final deliverable, generally ratably over the period we
provide research and development services. If we determine that multiple deliverables exist for consideration received, the
consideration is allocated to one or more units of accounting based upon the best estimate of the selling price (“BESP”), third-party
evidence (“TPE”), or vendors specific objective evidence (“VSOE”) of each deliverable. The selling price used for each deliverable is
based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or
estimated selling price if neither vendor-specific or third-party evidence is available.
Amounts received in advance of our service performance are recorded as deferred revenue and are recognized as revenue as we
perform services over estimated performance period. We review the estimated periods of performance. Our estimates of our
performance period may change over the course of the collaboration term. Such a change in a current period could have a material
impact on the amount of revenue we recognize in current and future periods.
Payments that are contingent upon achievement of a substantive event that can only be achieved based on our performance and
there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement, commonly referred to as
a milestone, are recognized as revenue in their entirety in the period in which the milestone is achieved. Payments for a milestone
must relate solely to prior performance, be reasonable relative to all of the deliverables and payment terms within the agreement and
commensurate with our performance to achieve the milestone after commencement of the agreement. Payments contingent upon
achievement of events that are not considered substantive milestones are allocated to the respective arrangements unit of accounting
when received and recognized as revenue based on the revenue recognition policy for that unit of accounting. Other contingent event-
based payments received for which payments are the result of a collaborative partner’s performance are not considered milestones and
recognized when the four criteria are met.
Research and development revenues and cost reimbursements are based upon negotiated rates for the Company’s full-time
employee equivalents (“FTE”) and actual out-of-pocket costs. FTE rates are set based upon the Company’s costs, and which the
Company believes approximate fair value. None of the revenues recognized to date are refundable if the relevant research effort is not
successful. In arrangements in which both parties make payments to each other, the Company evaluates the payments for
arrangements under which consideration is given to determine whether payments made by us will be recognized as a reduction of
revenue or as expense. Revenue may be reduced by payments made by us to another party 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 payments 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 may be treated as revenue if the Company is deemed to be the
principal participant in the grant arrangement where the activities under the grant are part of the Company’s development program.
Otherwise, the funds received are recognized as a reduction to research and development expense. Non-refundable grant funds
received are recognized when the related qualified research and development costs are incurred. Funds received in advance are
deferred revenue.
63
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Preclinical Studies and Clinical Trial Accruals
A substantial portion of the Company’s preclinical studies and all of the Company’s clinical trials have been performed by third-
party contract research organizations (“CROs”) and other vendors and our accruals for expenses for preclinical studies and clinical
trials may be significant. 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, milestones achieved 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 Company depends on the timeliness and accuracy of data
provided by its CROs and other vendors to accrue expenses. If the Company receives and relies on incomplete or inaccurate data
accruals and expenses may be too high or too low at a given point in time and corresponding adjustments to accruals and expenses
would be made in future periods when the actual expense 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 recognizes uncertain tax positions taken or expected to be taken on a tax return. Tax positions are initially
recognized when it is 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 more likely than not of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense.
Stock-Based Compensation
The Company calculates non-cash stock-based compensation for stock-based awards made to employees and directors, at the
grant date based on the calculated fair value of the award, and recognizes expense on a straight-line basis over the 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 management’s 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, assumptions used to value awards in one
period may differ significantly from another period. The assumptions used in estimating the fair value of share-based payment awards
involve inherent uncertainties and the application of management judgment and represent management’s best estimates at the time the
Company estimates the expected forfeiture rate and recognizes expense only for those shares expected to vest. If the actual forfeiture
rate in the future is materially different from our estimate, stock-based compensation expense could be significantly different from
what has been recorded in the current period.
During 2017, the Company adopted ASU No. 2016-09, Stock Compensation on a modified retrospective approach. the
Company recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and
recognizes previously unrecognized excess tax benefits upon adoption as a cumulative-effect adjustment in retained earnings. As of
January 1, 2017, the Company recognized excess tax benefit of $0.7 million as an increase to deferred tax assets. This increase was
fully offset by a valuation allowance. Accordingly, no cumulative-effect adjustment to retained earnings was recorded as of December
31, 2017. The Company estimates forfeitures expected to occur to determine stock-based compensation expense. The adoption of this
aspect of the guidance did not have a material impact on our financial statements and disclosures.
64
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non-Cash Interest Expense on Liability Related to Sale of Future Royalties
The Company treated the Liability related to sale of future royalties as a debt financing, to be amortized under the effective
interest rate method over the life of the related royalty stream.
The Liability related to sale of future royalties and the debt amortization are based on the Company’s current estimates of future
royalties expected to be paid over the life of the arrangement. The Company will periodically assess the expected royalty payments
using a combination of internal projections and forecasts from external sources. To the extent the Company’s future estimates of
future royalty payments are greater or less than its previous estimates or the estimated timing of such payments is materially different
than its previous estimates, the Company will adjust the Liability related to sale of future royalties and prospectively recognize related
non-cash interest expense.
Prior Year’s Presentations
Certain amounts in the prior year’s presentations have been reclassified to conform to the current presentation. These
reclassifications had no effect on previously reported net income.
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 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 the modified retrospective approach is required. 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. During the three months ended March 31, 2017, the
Company adopted ASU No. 2016-09 on a modified retrospective approach. The guidance requires us to recognize all excess tax
benefits and tax deficiencies as income tax expense or benefit in the income statement and recognize previously unrecognized excess
tax benefits upon adoption as a cumulative-effect adjustment in retained earnings, which eliminates the need to track unrecognized
excess tax benefits for both new and existing awards. As of January 1, 2017, the Company recognized excess tax benefit of $0.7
million as an increase to deferred tax assets related to tax loss carryover. However, the entire amount was offset by a full valuation
allowance. Accordingly, no cumulative-effect adjustment to retained earnings was recorded as of December 31, 2017. The Company
will maintain its current forfeiture policy to estimate forfeitures expected to occur to determine stock-based compensation
expense. The adoption of this aspect of the guidance did not have a material impact on our financial statements and disclosures.
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. The Company is in the
process of evaluating the impact the adoption of this standard would have on its financial statements and disclosures.
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 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. The new standard will
become effective and the Company will adopt the standard on January 1, 2018. The standard permits the use of either the modified
65
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
retrospective method or full retrospective approach for all periods presented. The Company currently anticipates adopting the standard
using the modified retrospective method. The Company has performed a preliminary assessment and continues to evaluate the impact
of the pending adoption of the new revenue standard on its consolidated financial statements and has determined that the
collaborations with both Amgen and Astellas are within its scope. Upon completion of the Company’s analysis, the Company will
determine the cumulative effect of initially applying the new standard, including areas we expect to be impacted such as license-
related revenue and payments in connection with the Co-invest Option. The Company is also currently updating its accounting policy
and designing and implementing the necessary changes to processes and controls to account for revenue under the new standard and
anticipates completing its implementation in connection with its first quarter 2018 interim financial statements.
Note 2 — Net (Loss) Income Per Share
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of vested common
shares outstanding during the period. Diluted net (loss) income 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 Company’s Employee Stock Purchase Plan (“ESPP”), by applying the treasury stock method. The following is the
calculation of basic and diluted net (loss) income per share (in thousands, except per share data):
Net (loss) income
Weighted-average shares used in computing net
(loss) income per share — basic
Effect of dilutive securities:
Warrants to purchase common stock
Options to purchase common stock
Restricted stock units
Shares issuable related to the ESPP
Dilutive potential common shares
Weighted-average shares used in computing net
(loss) income per share — diluted
Net (loss) income per share — basic
Net (loss) income per share — diluted
Years Ended December 31,
2016
2017
(127,790) $
$
16,453 $
2015
(37,501)
49,404
39,943
38,814
—
—
—
—
—
2,019
409
181
9
2,618
—
—
—
—
—
49,404
(2.59) $
(2.59) $
42,561
0.41 $
0.39 $
38,814
(0.97)
(0.97)
$
$
The following instruments were excluded from the computation of diluted net (loss) income per share for the periods presented
because their effect would have been antidilutive (in thousands):
Options to purchase common stock
Warrants to purchase common stock
Restricted and Performance stock units
Shares issuable related to the ESPP
Total shares
2017
December 31,
2016
5,957
100
457
20
6,534
3,688
—
—
—
3,688
2015
4,835
5,641
757
16
11,249
66
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 3 — 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, 2017 and 2016 were as
follows (in thousands):
Cash equivalents —
U. S. Treasury securities
and money market funds
Short-term investments —
U.S. Treasury securities
and Agency bonds
Long-term investments — Equity
and U.S. Treasury securities
Cash equivalents —
U. S. Treasury securities
and money market funds
Short-term investments —
U.S. Treasury securities
Long-term investments — Equity
and U.S. Treasury securities
Amortized
Cost
December 31, 2017
Unrealized
Gains
Unrealized
Losses
Fair
Value
$
111,501 $
— $
— $
111,501
$
$
$
$
$
143,895 $
16,538 $
— $
— $
(210) $
143,685
(20) $
16,518
Amortized
Cost
December 31, 2016
Unrealized
Gains
Unrealized
Losses
Fair
Value
55,658 $
89,396 $
— $
2 $
— $
55,658
(23) $
89,375
7,513 $
176 $
(17) $
7,672
As of December 31, 2017, the Company’s long-term investments in U.S. Treasury securities have maturity dates less than 1.5
years. As of December 31, 2017, none of the investments were other-than temporarily impaired, no investment was in a continuous
unrealized loss position for more than one year, unrealized losses were not due to change in credit risk and the Company believes
investments with an unrealized loss would be held until maturity.
Note 4 — Fair Value Measurements
The Company values its 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). 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 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
67
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2017 and 2016 are classified in the table below
in one of the three categories described above (in thousands):
December 31, 2017
Fair Value Measurements Using
Level 2
Level 3
Level 1
Assets:
Money market funds
U.S. Treasury securities
Agency bonds
Equity securities
Total
Amounts included in:
Cash and cash equivalents
Short-term investments
Long-term investments
Total
Assets:
Money market funds
U.S. Treasury securities
Equity securities
Total
Amounts included in:
Cash and cash equivalents
Short-term investments
Long-term investments
Total
$
$
$
$
$
$
$
$
51,001 $
165,801
—
573
217,375 $
111,501 $
89,356
16,518
217,375 $
— $
—
54,329
—
54,329 $
— $
54,329
—
54,329 $
December 31, 2016
Fair Value Measurements Using
Level 2
Level 3
Level 1
52,657 $
99,872
176
152,705 $
55,658 $
89,375
7,672
152,705 $
— $
—
—
— $
— $
—
—
— $
Assets
At Fair Value
— $
—
—
— $
— $
—
—
— $
51,001
165,801
54,329
573
271,704
111,501
143,685
16,518
271,704
Assets
At Fair Value
— $
—
—
— $
— $
—
—
— $
52,657
99,872
176
152,705
55,658
89,375
7,672
152,705
The carrying amount of the Company’s accounts receivable and accounts payable approximates fair value due to the short-term
nature of these instruments.
Fair value of financial liabilities:
As of December 31, 2017 and December 31, 2016, the fair value of the long-term debt, payable in installments through year
ended 2020, approximated its carrying value of $31.8 million and $29.9 million, respectively, because it is carried at a market
observable interest rate, which are considered Level 2.
As of December 31, 2017, the fair value of liability related to the sale of future royalties is based on the Company’s current
estimates of future royalties expected to be paid to RPI Finance Trust (“RPI”), an entity related to Royalty Pharma, over the life of the
arrangement, which are considered Level 3 (See Note 9 – “Liability Related to Sale of Future Royalties”).
There were no transfers between Level 1, Level 2, and Level 3 during the periods presented.
68
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 5 — Balance Sheet Components
Property and equipment balances were as follows (in thousands):
Property and equipment, net:
Laboratory equipment
Computer equipment and software
Office equipment, furniture and fixtures
Leasehold improvements
Total property and equipment
Less: Accumulated depreciation and amortization
Total property and equipment, net
December 31,
2017
2016
$
$
17,100 $
2,890
1,137
5,067
26,194
(22,626)
3,568 $
16,742
2,699
856
4,458
24,755
(21,118)
3,637
Depreciation expense was $1.9 million, $0.7 million and $0.6 million for the years ended December 31, 2017, 2016, and 2015
respectively.
Accrued liabilities were as follows (in thousands):
Accrued liabilities:
Clinical and preclinical costs
Bonus
Other payroll related
Other accrued expenses
Consulting and professional fees
Leasehold improvements
Total accrued liabilities
December 31,
2017
2016
$
$
8,370 $
4,054
2,207
1,426
1,335
—
17,392 $
10,092
3,800
1,888
897
698
672
18,047
The Company sponsors a 401(k) defined contribution plan covering all employees. In 2017, 2016 and 2015, employer
contributions to the 401(k) plan were $0.5 million, $0.5 million and $0.4 million, respectively.
Note 6 — Research and Development Arrangements
Amgen Inc. (“Amgen”)
The Company and Amgen collaborate on a worldwide basis 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 under the Collaboration and Option Agreement dated December 29, 2006, as amended (the “Amgen Agreement”).
Amgen is responsible for the development and commercialization of omecamtiv mecarbil and related compounds at its expense
worldwide, subject to the Company’s development and commercialization participation rights. The Company recognizes research and
development revenue from Amgen for reimbursement 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 the
development program for omecamtiv mecarbil, and other costs related to the research and development program.
In 2016, Amgen and Les Laboratories Servier and Institut de Researches Servier (“Servier”) announced Servier’s decision to
exercise its option to commercialize omecamtiv mecarbil in Europe as well as the Commonwealth of Independent States (“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, including the payment of
milestones and royalties relating to the development and commercialization of omecamtiv mecarbil in Europe and the CIS.
69
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Under the Amgen Agreement, the Company is eligible to receive development milestone payments which are 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, the Company is eligible to receive
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 could be achieved or become due. The achievement of each of these milestones is dependent upon the results of
Amgen’s development and commercialization activities.
The Company provided notice of its exercise of its option 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”). Through December 31, 2017, the Company paid $21.3 million of the $40.0 million
co-investment and the remaining $18.8 million is scheduled to be paid quarterly through the third calendar quarter of 2018. Because
these Co-Investment Option payments are contingent on Amgen continuing the development program of omecamtiv mecarbil and the
benefit to be received in exchange for these payments are not sufficiently separable from the Amgen Agreement, the payments made
are recorded as contra-revenue to research and development revenues.
Revenue from Amgen
Revenue from Amgen for the years ended December 31, 2017, 2016, and 2015 was as follows (in thousands):
Research and development revenues
Reimbursement of internal costs
Research and development milestone fees
Co-invest option payment
Allocated consideration
Total net revenues from Amgen
Years Ended December 31,
2016
2015
2017
$
$
1,279 $
11,000
(20,000)
—
(7,721) $
2,466 $
26,666
(1,250)
—
27,882 $
2,460
—
—
21
2,481
Accounts receivable due from Amgen was $1.0 million at December 31, 2017 and zero at December 31, 2016.
During the year ended December 31, 2017, the Company recognized $11.0 million in milestone fees, consisting of $10.0 million
related to the start in Japan of GALACTIC-HF, the Phase 3 cardiovascular outcomes clinical trial of omecamtiv mecarbil and $1.0
million related to a next-generation cardiac muscle activator that was nominated as a development candidate by the Joint Research
Committee. During the year ended December 31, 2016, the Company recognized $26.7 million in development milestone fees related
to the start of GALACTIC-HF as the Company has no remaining deliverables under the Amgen Agreement.
Prior to April 1, 2017, the Company considered Amgen to be a related party, due in part to Amgen’s equity ownership
percentage, and reported revenue under the Amgen Agreement as revenues from a related party. Effective April 1, 2017, in part due to
a decrease in Amgen’s equity ownership percentage, the Company no longer considers Amgen to be a related party.
Astellas Pharma Inc. (“Astellas”)
In 2013, the Company and Astellas entered into a license and collaboration agreement under which the Company granted
Astellas an exclusive license to co-develop and jointly commercialize reldesemtiv, a fast skeletal muscle troponin activator (“FSTA”),
for potential application in non-neuromuscular indications worldwide (the “Original Astellas Agreement”). In 2014, the Company and
Astellas amended and restated the license and collaboration agreement and expanded the objective of the collaboration to include
spinal muscular atrophy (“SMA”) and potentially other neuromuscular indications for reldesemtiv and other FSTAs, in addition to the
non-neuromuscular indications provided for in the Original Astellas Agreement (the “2014 Astellas Agreement”). In 2016,
Cytokinetics and Astellas further amended the collaboration agreement to expand the collaboration to include the development of
reldesemtiv for the potential treatment of ALS, as well as the possible development in ALS of other FSTAs previously licensed by us
to Astellas (“2016 Astellas Amendment”). Together, these agreements and amendments are referred to as the Astellas Agreement.
In collaboration with Astellas, the Company is conducting two Phase 2 clinical trials of reldesemtiv, one in patients with spinal
muscular atrophy (“SMA”) and one in patients with amyotrophic lateral sclerosis (“ALS”), called FORTITUDE-ALS (Functional
Outcomes in a Randomized Trial of Investigational Treatment with CK-2127107 to Understand Decline in Endpoints – in ALS).
70
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company and Astellas share equally the costs of developing reldesemtiv 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 reldesemtiv in
ALS subject to a right to recoup the Company’s 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.
In the years ended December 31, 2017, 2016 and 2015, the Company has 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.
In 2015, in connection with the 2014 Astellas Agreement, Astellas paid the Company a $30 million non-refundable upfront
license fee and a $15.0 million milestone payment relating to Astellas’ decision to advance reldesemtiv into Phase 2 clinical
development. The Company determined that the license and did not have stand-alone value and that the research and development
services relating to the 2014 Astellas Agreement are a single unit of accounting. Accordingly, the Company recognizes this license fee
as revenue over the specified term of the deliverables using the proportional performance model.
In 2016, in connection with the 2016 Astellas Amendment, Astellas paid the Company $50.0 million, consisting of a $35.0
million non-refundable upfront amendment fee (the “ALS License”) and an accelerated $15.0 million milestone payment for the
initiation of the first Phase 2 clinical trial of reldesemtiv in ALS and committed consideration for additional research services
(“Additional Research Services”) of $5.1 million and consideration for development services in ALS through Phase 2 activities (“ALS
Development Services”) of $39.1 million, for total arrangement consideration of $94.2 million (the “Arrangement Consideration”).
In 2016, the Company considered the 2016 Astellas Amendment to be a modification of the 2014 Astellas Agreement. At that
time, the remaining deliverables under the 2014 Astellas Agreement were: (1) the SMA license; (2) Research Services in connection
with the Research Plan; and (3) SMA Development Services in connection with the Development Plan. The Company evaluated the
components and consideration of the 2016 Astellas Amendment and determined that the 2016 deliverables had standalone value and
are delivered at fair value. Therefore, no reallocation of consideration to the 2014 deliverables was performed.
The Company determined that the deliverables under the 2016 Astellas Amendment included the ALS License, the ALS
Development Services and the Additional Research Services and that these three deliverables were two units of accounting with stand-
alone value: (1) the ALS License and (2) the Additional Research Services and ALS Development Services (“Research and ALS
Development Services”). The ALS License had stand-alone value because (i) Astellas received a worldwide license for ALS to
perform further research in the field of ALS, to develop and use reldesemtiv and to make, have make, sell or otherwise commercialize
reldesemtiv in ALS; (ii) Astellas received the right to sublicense the rights to reldesemtiv in ALS to a third party; and (iii) Astellas had
the technical capabilities to advance further development on reldesemtiv in ALS without the continued involvement of the Company.
The Company determined that the ALS Development Services and the Additional Research Services did not have standalone value
and combined these two deliverables into one unit of accounting.
The Company allocated the Arrangement Consideration among the two units of accounting on a relative fair value basis using
the best estimated selling price (“BESP”), as follows (in millions):
Units of Accounting:
ALS License
Research and ALS Development Services
Total consideration
Allocated
Consideration
Upfront
Revenue
Recognition
Revenue
Recognition
over
Performance
Period
$
$
74.9 $
19.3
94.2 $
50.0 $
—
50.0 $
24.9
19.3
44.2
The BESP of the ALS License was determined using a discounted cash flow, risk adjusted for probability of success. The BESP
of the Research and ALS Development Services was determined using estimated research and development costs included in a
research and development program plan approved by the Company and Astellas.
Since the $50 million upfront consideration was less than the $74.9 million consideration allocated to the ALS License, the
Company recognized $50.0 million of upfront consideration as license revenue in 2016 and records license revenue for the remaining
$24.9 million as an allocation from research and development services and $19.3 million as research and development revenues, as
those research and development services are performed, using the proportional performance model over the development term,
through the completion of the ALS Development Services.
71
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Astellas’ Option on Tirasemtiv
In 2016, Astellas paid the Company a $15.0 million non-refundable option fee for an option for a global collaboration for the
development and commercialization of tirasemtiv (the “Option on Tirasemtiv”).
While Astellas holds the Option on Tirasemtiv, the Company is responsible for the development of tirasemtiv at its own expense
and retains the final decision making authority on the development of tirasemtiv. Therefore, the Company concluded that it had no
obligation to Astellas related to any development services pursuant to the Option on Tirasemtiv.
If Astellas exercises the Option on Tirasemtiv:
•
•
•
the Company will grant Astellas an exclusive license to develop and commercialize tirasemtiv outside the Company’s
own commercialization territory of North America, Europe and other select countries under a license and collaboration
agreement for tirasemtiv (the “License on Tirasemtiv”). Each party would be primarily responsible for the further
development of tirasemtiv in its territory and have the exclusive right to commercialize tirasemtiv in its territory.
the Company will receive an option exercise payment ranging from $25.0 million (if exercise occurs following receipt of
data from VITALITY-ALS) 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 Company’s initiation of the open-label extension trial for
tirasemtiv (VIGOR-ALS). 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.
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 from Astellas 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 Company’s territory,
in each case subject to various possible adjustments.
In 2016, the Company concluded that the Option on Tirasemtiv was a substantive option, and is therefore not considered a
deliverable at the execution of the 2016 Astellas Amendment. The Company determined that the License on Tirasemtiv 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 of the option fee either until the Option on Tirasemtiv is exercised or expires
unexercised. Unless exercised, the Option on Tirasemtiv expires following the receipt of the approval letter for tirasemtiv from the
FDA. 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.
Revenue and deferred revenue from Astellas
Research and development revenue from Astellas in the years ended December 31, 2017, 2016 and 2015 was as follows (in
thousands):
License revenues
Research and development revenues
Total Revenue from Astellas
December 31,
2017
Year Ended
December 31,
2016
December 31,
2015
$
$
8,799 $
11,934
20,733 $
62,171 $
15,110
77,281 $
13,918
12,184
26,102
72
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred Revenue reflecting the unrecognized portion of the license revenue, option fee and payment of expenses from the
Astellas Agreement was as follows (in thousands):
Deferred revenue, current
Deferred revenue, non-current
December 31,
2017
December 31,
2016
$
$
9,572 $
15,000 $
8,060
15,000
Under the 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 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, including 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. The achievement of
each of the late stage development milestones and the commercialization milestones were determined to be dependent solely upon the
results of Astellas’ development activities and therefore these potential milestone payments were not deemed to be substantive. 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 Company believes that each of the milestones related to research under the Astellas Agreement is substantive and can
only be achieved with the Company’s past and current performance. 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.
Note 7 — 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 $0.3 million,
$1.1 million, and $0.1 million, as grant revenue as qualified expenses were incurred, for years ended December 31, 2017, 2016 and
2015, respectively. At December 31, 2017, the Company had no deferred revenue under the ALSA Grant, reflecting the unrecognized
portion of the grant revenue.
Note 8 — Long-Term Debt
Long-term debt and unamortized debt discount balances are as follows (in thousands):
Notes payable, gross
Less: Unamortized debt discount
Accretion of final exit fee
Carrying value of notes payable
Less: Current portion of long-term debt
Long-term debt
December 31,
2017
2016
32,000 $
(325)
102
31,777
—
31,777 $
30,000
(472)
353
29,881
(2,500)
27,381
$
$
In October 2017, the Company entered into a Second Amendment to Loan and Security Agreement (the “Amended Loan
Agreement”) with Oxford Finance LLC and Silicon Valley Bank to amend the Loan Agreement entered into in October 2015. Per the
terms of the Amended Loan Agreement, upon closing, the Company immediately drew $32.0 million and retired the Company’s existing
debt outstanding of $30.0 million under the existing Loan Agreement, and approximately $0.5 million related to the accrued portion of
the final payment fee under the Loan Agreement. Payments on the new outstanding loan balance of $32.0 million will be interest only
through May 2019, followed by 41 months of equal monthly payments of interest and principal. The Company will be required to make a
final payment upon loan maturity of 6.5% of the amounts advanced. The interest rate under the Amended Loan Agreement is the greater
of (a) 8.05% or (b) the sum of 6.81% plus the 30-day U.S. LIBOR rate.
In October 2015, the Company issued warrants to purchase 65,189 shares of the Company’s common stock at an exercise price
of $6.90 and in February 2016, the Company issued warrants to purchase 68,285 shares of the Company’s common stock at an
exercise price of $6.59 per share. In January 2017, the Company issued 16,126 shares of common stock related to cashless exercises
of some of these warrants. 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
73
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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 Company’s obligations under the Agreement are secured by substantially all of the Company’s current
and future assets, other than its intellectual property.
Future minimum payments under the Loan, as of December 31, 2017 are as follows (in thousands):
2018
2019
2020
2021
2022
Total minimum payments
Less: Interest and final payment
Notes payable, gross
$
$
2,615
7,963
11,187
10,417
10,176
42,358
(10,358)
32,000
Note 9 - Liability Related to Sale of Future Royalties
In February 2017, the Company entered into a Royalty Purchase Agreement (the “Royalty Agreement”) with RPI, an entity
related to Royalty Pharma. Under the Royalty Agreement, the Company sold a portion of the Company’s right to receive royalties on
potential net sales of omecamtiv mecarbil (and potentially other compounds with the same mechanism of action) under the Amgen
Agreement to RPI for a payment of $90.0 million (the “Royalty Monetization”). The Royalty Monetization is non-refundable, even if
omecamtiv mecarbil is never commercialized. The Company accounts for the Royalty Monetization as a liability reported as Liability
related to sale of future royalties, primarily because the Company has significant continuing involvement in generating the royalty
stream under the Amgen Agreement, including the Company’s option to co-invest in the Phase 3 development program of omecamtiv
mecarbil. The Liability related to sale of future royalties is accreted to the expected future cash flows using the interest method at an
effective pre-tax annual interest rate of approximately 17%.
Also in February 2017, pursuant to a concurrently-executed Common Stock Purchase Agreement with RPI, the Company issued
875,656 shares of its common stock to RPI for $10.0 million (the “RPI Common Stock”). The Company determined the fair value of
the RPI Common Stock at March 31, 2017 to be $8.1 million, based on the closing stock price at the transaction date and adjusted for
the trading restrictions.
The Company concluded that there are two units of accounting for the Royalty Monetization and the RPI Common Stock: (1)
the liability related to sale of future royalties and (2) the RPI Common Stock. The Company allocated the $90 million from the
Royalty Monetization and the $10 million from the RPI Common Stock among the two units of accounting on a relative fair value
basis. The Company determined the fair value for the liability related to sale of future royalties at the time of the Royalty Monetization
to be $96.7 million, including the then statutory tax rate of 35%. As of December 31, 2017, the Company determined the fair value
should be increased to $131.6 million due to the new statutory effective tax rate of 21%.
74
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At the time of the Royalty Monetization, the Company allocated the transaction consideration on a relative fair value basis to the
liability and the common stock, as follows (in millions):
Units of Accounting:
Liability related to sale of future royalties
Common stock
Total consideration
Allocated
Consideration
$
$
92.3
7.7
100.0
The Company allocated $1.8 million of transaction costs incurred in connection with the Royalty Monetization and the RPI
Common Stock to the liability and common stock in proportion to the allocation of proceeds to those components. The transaction
costs allocated to the liability will be amortized to non-cash interest expense over the estimated term of the Royalty Agreement.
The following table shows the activity within liability related to sale of future royalties during the year ended December 31,
2017 (in thousands):
Liability related to sale of future royalties at
February 1, 2017
Non-cash interest expense recognized
Liability related to sale of future royalties at
December 31, 2017
Less: Unamortized transaction costs
Carrying value of liability related to sale of future
royalties at December 31, 2017
$
92,300
13,980
106,280
(1,630)
104,650
Note 10 — Commitments and Contingencies
Commitments
Operating Lease
The Company leases office space under a non-cancelable operating lease that expires in 2021. The lease terms provide for rental
payments on a graduated scale and the Company’s payment of certain operating expenses. The Company recognizes rent expense on a
straight-line basis over the lease period.
Rent expense was as follows (in thousands):
Rent expense
Years Ended December 31,
2016
2015
2017
$
3,627 $
3,448 $
3,297
As of December 31, 2017, future minimum lease payments under noncancelable operating leases were as follows (in
thousands):
2018
2019
2020
2021
Total
$
$
3,789
4,682
4,846
2,465
15,782
75
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Co-investment option
The Company provided notice to Amgen of its exercise of its option under the Amgen Agreement to fully 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 and the right to co-promote omecamtiv mecarbil in
institutional care settings in North America, with reimbursement by Amgen for certain sales force activities. Quarterly co-investment
payments are contingent on Amgen continuing the Phase 3 development program of omecamtiv mecarbil. As of December 31, 2017, a
total of $18.8 million is scheduled to be paid through the third calendar quarter of 2018.
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 Company’s
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
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. In 2016, the Company received $4.5 million related to the settlement with that
contract research organization and classified the payment as a reduction of R&D expense.
Note 11 — Stockholders’ Equity
Committed Equity Offering
In September 2015, the Company entered into a Committed Equity Offering (an “CE Offering”) that is an at-the-market
issuance sales agreement (the “Cantor Fitzgerald Agreement”) with Cantor Fitzgerald & Co. During 2015, the Company issued
808,193 shares under the CE Offering for total net proceeds of $8.9 million. During 2017, the Company issued 2,425,625 shares of
common stock under the Cantor Fitzgerald Agreement for net proceeds totaling $29.9 million and completed the CE offering.
Warrants
Pursuant to the Loan Agreement described in Note 8 “Long Term Debt,” the Company issued warrants to purchase 65,189
shares of the Company’s common stock at an exercise price of $6.90 per share and additional warrants to purchase 68,285 shares of
the Company’s common stock at an exercise price of $6.59 per share. In January 2017, the Company issued 16,126 shares of common
stock related to cashless exercises of some of these warrants. At December 31, 2017, 100,106 warrants with a weighted average
exercise price of $6.74 per share were outstanding.
In June 2012, the Company issued warrants with expiration in June 2017 pursuant to public offerings of our securities in
2012. In 2017 and 2016, the Company issued 3,450,122 and 834,998 shares of common stock for exercises of these warrants,
respectively.
Equity Incentive Plan
The Company’s amended and restated 2004 Equity Incentive Plan (the “2004 Plan”) provides for the granting of incentive stock
options, nonstatutory stock options, restricted stock, stock appreciation rights, restricted stock units, performance shares and
performance units to employees, directors and consultants. 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. 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 2017 Annual Meeting of Stockholders, the number of shares of common stock authorized for issuance under the 2004 Plan was
76
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
increased by 3.9 million. As of December 31, 2017, there were 3.8 million shares of common stock reserved and available for issuance
under the 2004 Plan.
Stock Options
Stock Option Activity under the Equity Incentive Plan was as follows:
Balance at December 31, 2016
Options granted
Options exercised
Options forfeited/expired
Balance at December 31, 2017
Exercisable at December 31, 2017
Vested and expected to vest as of
December 31, 2017
Stock Options
Outstanding
Weighted
Average Exercise
Price per Share -
Stock Options
Weighted
Average Remaining
Contractual Life
Aggregate
Intrinsic
Value
(in thousands)
5,192,813 $
1,310,674
(264,164)
(281,865)
5,957,458 $
4,019,836 $
9.27
11.74
7.26
24.45
9.19
9.01
6.61 $
5.65 $
4,287
3,300
5,866,326 $
9.18
6.57 $
4,250
Total intrinsic value of stock options exercised, calculated as the difference between the market value at the date of exercise and
the exercise price of the shares, was $1.8 million, $0.2 million, and $0.1 million during the years ended December 31, 2017, 2016, and
2015, respectively. The market value as of December 31, 2017 was $8.15 per share as reported by NASDAQ. The weighted average
grant date fair value of stock options granted was $7.95, $4.77 and $5.35 per share during the years ended December 31, 2017, 2016,
and 2015, respectively.
The grant date fair value of option shares vested was $6.5 million, $4.9 million and $3.6 million in 2017, 2016 and 2015,
respectively.
Restricted Stock Units
Restricted stock unit activity in 2017 was as follows:
Unvested restricted stock units outstanding at December 31, 2016
Restricted stock units granted
Restricted stock units released
Restricted stock units forfeited
Unvested restricted stock units outstanding at December 31, 2017
Weighted
Average Award
Date Fair Value
per Share
Number of
Shares
64,502
269,000
(43,500)
(4,500)
285,502
7.19
10.60
6.67
9.73
10.44
Restricted stock units generally vest monthly over 48 months. For 2017, the fair value of restricted stock units vested, calculated
based on the units vested multiplied by the closing price of the Common Stock on the date of vesting, was $1.5 million.
Share-based Awards that Contain Performance Conditions (“Performance Units”)
Performance unit activity in 2017 was as follows:
Performance units outstanding at December 31, 2016
Performance units granted
Performance units released
Performance units forfeited
Performance units outstanding at December 31, 2017
77
Weighted
Average Award
Date Fair Value
per Share
7.00
—
7.00
7.00
7.00
Number of
Shares
685,000 $
—
(171,250)
(342,500)
171,250 $
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2015, the Company granted 685,000 Performance units with a grant date fair value of $7.00 per share. In 2017,
performance criteria for the 342,500 Performance units were met, 171,250 of those units vested, and while remaining 171,250 are
expected to vest in March 2018. In 2017, 342,500 Performance units were forfeited when the Company determined that the
performance criteria for those units would not be met.
Valuation Assumptions
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 Company’s stock over the option’s expected term,
the risk-free interest rate over the option’s expected term, and the Company’s 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:
Risk-free interest rate
Volatility
Expected term in years
Expected dividend yield
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Employee
Stock Options
ESPP
Employee
Stock Options
ESPP
Employee
Stock Options
ESPP
2.2%
74.0%
6.52
0.0%
1.3%
74.0%
0.50
0.0%
1.9%
74.0%
6.44
0.0%
0.5%
74.0%
0.50
0.0%
1.7%
79.4%
6.38
0.0%
0.3%
75.3%
0.56
0.0%
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 stock’s 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 Company’s common stock on the date of grant.
As of December 31, 2017, there was $11.1 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 $2.1 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 1.3 years. The fair value for restricted stock units is based on the closing price of the Company’s common stock on the grant
date.
Employee Stock Purchase Plans
Under the Company’s terminated 2004 Employee Stock Purchase Plan, employees purchased common stock of the Company up
to a specified maximum amount at a price equal to 85% of the fair market value at certain plan-defined dates.
Under the Company’s 2015 Employee Stock Purchase Plan (the “2015 ESPP”) employees may purchase common stock of the
Company up to a specified maximum amount at a price equal to 85% of the fair market value at certain plan-defined dates.
The Company issued 120,959, 129,604 and 21,167 shares of common stock during 2017, 2016 and 2015, respectively, pursuant
to these plans at an average price of $9.65, $7.08 and $3.24 per share, in 2017, 2016 and 2015, respectively.
At December 31, 2017 the Company had 398,439 shares of common stock reserved for issuance under the 2015 ESPP.
78
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non-cash Stock-Based Compensation
The Company recognizes non-cash stock-based compensation expense 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 employee’s requisite service period, generally the vesting period of the award.
The following table summarizes non-cash stock-based compensation related to stock options, restricted stock unit, and restricted
stock units that contain performance criteria, as well as activity under the 2004 (in thousands):
Research and development
General and administrative
Stock-based compensation included in operating
expenses
Years Ended December 31,
2016
2015
2017
$
5,656 $
3,372
4,252 $
2,894
1,828
2,739
$
9,028 $
7,146 $
4,567
In connection with services rendered by non-employees, the Company recorded stock-based compensation expense of $532,000,
$147,000, and $27,000 in 2017, 2016 and 2015, respectively.
Note 12 — Income Taxes
The Company did not record an income tax provision in the years ended December 31, 2017, 2016, and 2015 because the
Company either had net taxable losses or was able to utilize tax attributes to offset taxable income.
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:
Tax at federal statutory tax rate
State income tax, net of federal tax benefit
State Apportionment
Tax credits (net)
Federal statutory rate reduction
Deferred tax assets (utilized) not benefited
Stock-based compensation
NOL Expiration
Other
Total
Years Ended December 31,
2016
2015
2017
(34)%
—
—
(8)%
51%
(10)%
—
—
1%
0%
34%
2%
(7)%
(32)%
—
(15)%
7%
9%
2%
0%
(34)%
0%
0%
(7)%
—
37%
2%
2%
0%
0%
The significant jurisdictions in which the Company files income tax returns are the United States and California. The Company
is subject to income tax examination for all fiscal years since inception. Income (loss) before taxes includes the following components
(in thousands):
Years Ended December 31,
2016
2017
(127,235) $
(555)
(127,790) $
16,453 $
—
16,453 $
2015
(37,501)
—
(37,501)
United States
Foreign
Total
$
$
79
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred tax assets 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 Company’s deferred
tax assets and liabilities were as follows (in thousands):
Deferred tax assets:
Net operating loss ("NOL") carryforwards
Tax credits
Liability related to sale of future royalties
Reserves and accruals
Capitalized R&D
Depreciation and amortization
Total deferred tax assets
Less: Valuation allowance
Net deferred tax assets
2017
As of December 31,
2016
2015
$
$
98,630 $
64,185
24,593
10,524
6,432
546
204,910
(204,910)
— $
146,961 $
46,998
—
10,258
11,675
766
216,658
(216,658)
— $
153,251
38,742
—
12,899
13,150
769
218,811
(218,811)
—
At December 31, 2017, federal NOL carryforwards were $382.8 million and apportioned state NOL carryforwards before
federal benefits were $244.8 million. If not utilized, the federal and state operating loss carryforwards will begin to expire in various
amounts beginning 2022 and 2028, respectively.
At December 31, 2017, tax credits were $61.1 million and $14.7 million for federal and state income tax purposes, respectively
and consisted of Research and Development Credits and Orphan Drug Credits. If not utilized, the federal carryforwards will expire in
various amounts beginning in 2021. California based credit carryforwards do not expire.
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 Company’s historical operating performance, reported cumulative
net losses since inception, expected future losses, and difficulty in accurately forecasting the Company’s future results and 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 maintained a full valuation allowance on the net deferred tax assets as of December 31, 2017, 2016, and
2015. The valuation allowance decreased by $11.7 million in 2017, decreased by $2.1 million in 2016, and increased by $13.9 million
in 2015.
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 does not believe it has experienced an ownership change since 2006. The Company expects a portion of its
NOLs and tax credits from prior to 2007 will be subject to limitations under Section 382.
Activity related to the Company’s gross unrecognized tax benefits were (in thousands):
Balance at the beginning of the year
Decrease related to prior year tax positions
Increase related to current year tax positions
Balance at the end of the year
Years Ended December 31,
2017
2016
$
$
7,565 $
-
1,800
9,365 $
6,715
5
845
7,565
The significant jurisdictions in which the Company files income tax returns are the United States and California. The Company
is subject to income tax examination for all fiscal years since inception. Included in the balance of unrecognized tax benefits as of
December 31, 2017, 2016, and 2015 are $8.1 million, $6.3 million and $5.5 million of tax benefits, respectively, that, if recognized,
would result in adjustments to other tax accounts, primarily deferred taxes.
80
CYTOKINETICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to
the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 34% to 21% (the “Rate
Reduction”) effective for tax years beginning after December 31, 2017. The Company reduced deferred tax assets at December 31,
2017 for the effect of the Rate Reduction. The Rate Reduction did not impact the Company's provision for income taxes for 2017 due
to the full valuation allowance on deferred tax assets.
Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a
registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to
complete the accounting for certain income tax effects of the Act. The Company determined that $68.3 million of the reduction in
deferred tax assets resulting from Rate Reduction was both provisional and a reasonable estimate at December 31, 2017. Additionally,
the Company is still in the process of analyzing certain provisions of the Act including the application of new executive compensation
limitation provisions under Internal Revenue Section 162(m). These items are subject to revisions from further analysis of the Tax Act
and interpretation of any additional guidance issued by the U.S. Treasury Department, IRS, FASB, and other standard-setting and
regulatory bodies.
Note 13 — Interest and Other Income, Net
Interest and other income, net for the years ended December 31, 2017, 2016, and 2015, primarily consisted of interest income
generated from the Company’s cash, cash equivalents and investments.
Note 14 — Quarterly Financial Data (Unaudited)
Quarterly results were as follows (in thousands, except per share data):
2017
Total revenues, net
Net loss
Net loss per share — basic and diluted
2016
Total revenues, net
Net income (loss)
Net income (loss) per share — basic
Net income (loss) per share —diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
4,153 $
(25,867)
(0.62) $
3,053 $
(29,081)
(0.60) $
6,180 $
(32,357)
(0.60) $
(18)
(40,484)
(0.75)
8,421 $
(12,455)
(0.31) $
(0.31) $
5,802 $
(11,611)
(0.29) $
(0.29) $
59,047 $
33,362
0.84 $
0.77 $
33,138
7,157
0.18
0.16
81
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management evaluated, with the participation of our Chief Executive
Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief
Executive Officer and our Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective
as of December 31, 2017.
Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this
assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control-Integrated Framework 2013. Our management has concluded that, as of December 31, 2017, our internal control
over financial reporting is effective based on these criteria.
Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of our internal
control over financial reporting as of December 31, 2017, as stated in their report, which is included herein.
Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting
that occurred during the quarter ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls. Our management, including our Chief Executive Officer, Chief Financial
Officer, and Chief Accounting Officer does not expect that our disclosure controls and procedures or our internal controls, will
prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, within Cytokinetics have been detected.
Item 9B.
Other Information
None.
82
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information regarding our directors and executive officers, our director nominating process and our audit committee is
incorporated by reference from our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, where it appears under the
headings “Board of Directors” and “Executive Officers.”
Section 16(a) Beneficial Ownership Reporting Compliance
The information regarding our Section 16 beneficial ownership reporting compliance is incorporated by reference from our
definitive Proxy Statement described above, where it appears under the headings “Section 16(a) Beneficial Ownership Reporting
Compliance.”
Code of Ethics
We have adopted a Code of Ethics that applies to all directors, officers and employees of the Company. We publicize the Code
of Ethics through posting the policy on our website, www.cytokinetics.com. We will disclose on our website any waivers of, or
amendments to, our Code of Ethics within four business days following the date of such amendment or waiver.
Item 11.
Executive Compensation
The information required by this Item is incorporated by reference from our definitive Proxy Statement referred to in Item 10
above, where it appears under the headings “Executive Compensation” and “Compensation Committee Interlocks and Insider
Participation.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference from the applicable information set forth in “Certain
Relationships and Related Party Transactions” and “Corporate Governance” which will be included in our definitive Proxy Statement
for our 2018 Annual Meeting of Stockholders to be filed with the SEC.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference from our definitive Proxy Statement referred to in Item 10
above where it appears under the headings “Certain Business Relationships and Related Party Transactions” and “Board of Directors.”
Item 14.
Principal Accounting Fees and Services
The information required by this Item is incorporated by reference from our definitive Proxy Statement referred to in Item 10
above, where it appears under the heading “Principal Accountant Fees and Services.”
83
Item 15.
Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this Form 10-K:
(1)
Financial Statements (included in Part II of this report):
PART IV
•
•
•
•
•
•
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
None — All financial statement schedules are omitted because the information is inapplicable or presented in the
notes to the financial statements.
(3)
Exhibits:
Item 16.
Form 10-K Summary
None.
Exhibit
No.
Exhibits
Amended and Restated
Certificate of Incorporation.
Certificate of Amendment of
Amended and Restated Certificate
of Incorporation.
Certificate of Amendment of
Amended and Restated Certificate
of Incorporation.
Certificate of Amendment of
Amended and Restated Certificate
of Incorporation
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
Form
S-3
10-Q
Incorporated by Reference
File No.
Filing Date
333-174869
June 13, 2011
Filed
Herewith
Exh.
No.
3.1
000-50633
August 4, 2011
3.2
8-K
000-50633
June 25, 2013
5.1
8-K
000-50633
May 20, 2016
3.1
Amended and Restated Bylaws.
S-1
333-112261
January 27, 2004
Specimen
Certificate.
Common
Stock
10-Q
000-50633
May 9, 2007
10-Q
10-K
000-50633
August 6, 2012
000-50633
March 3, 2016
Form of Warrant
Form of Common Stock Warrant
Issued Pursuant to that certain
Loan and Security Agreement,
dated as of October 19, 2015, by
and among the Company, Oxford
Finance LLC and Silicon Valley
Bank
3.2
4.1
4.6
4.6
84
Exhibit
No.
10.1+
10.2+
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Exhibits
Amended and Restated 2004
Equity Incentive Plan
2015 Employee Stock Purchase
Plan
Lease,
Build-to-Suit
dated
May 27, 1997, by and between
Britannia Pointe Grand Limited
Partnership and Metaxen, LLC
First Amendment to Lease, dated
April 13, 1998, by and between
Britannia Pointe Grand Limited
Partnership and Metaxen, LLC
Agreement,
Sublease
dated
May 1, 1998, by and between
the Company and Metaxen, LLC
Sublease Agreement, dated
March 1, 1999, by and between
Metaxen,
and
Exelixis Pharmaceuticals, Inc.
LLC
Assignment
and Assumption
Agreement and Consent, dated
July 11, 1999, by and among
Exelixis
Pharmaceuticals,
Metaxen, LLC, Xenova Group
PLC and Britannia Pointe Grande
Limited Partnership
Second Amendment
to Lease,
dated July 11, 1999, by and
between Britannia Pointe Grand
Limited Partnership and Exelixis
Pharmaceuticals, Inc.
First Amendment
to Sublease
Agreement, dated July 20, 1999,
by and between the Company and
Metaxen
Agreement and Consent, dated
July 20, 1999, by and among
Exelixis Pharmaceuticals, Inc., the
Company
Britannia
and
Pointe Grand Limited Partnership
Amendment to Agreement and
Consent, dated July 31, 2000, by
the Company,
and
Exelixis,
and Britannia
Pointe Grande Limited Partnership
between
Inc.,
Assignment and Assumption of
Lease, dated September 28, 2000,
by and between the Company and
Exelixis, Inc.
Form
10-Q
10-Q
Incorporated by Reference
File No.
Filing Date
000-50633
August 5, 2015
Filed
Herewith
Exh.
No.
10.2
000-50633
August 5, 2015
10.42
S-1
333-112261
January 27, 2004
10.5
S-1
333-112261
January 27, 2004
10.6
S-1
S-1
333-112261
January 27, 2004
10.7
333-112261
January 27, 2004
10.8
S-1
333-112261
January 27, 2004
10.9
S-1
333-112261
January 27, 2004
10.10
S-1
333-112261
January 27, 2004
10.11
S-1
333-112261
January 27, 2004
10.12
S-1
333-112261
January 27, 2004
10.13
S-1
333-112261
January 27, 2004
10.14
85
Exhibit
No.
10.13
10.14*
10.15
10.17+
10.18+
10.19*
10.20*
10.21*
10.22*
10.23+
10.24
Exhibits
Agreement,
Sublease
September 28, 2000, by
between
the Company
Exelixis, Inc.
dated
and
and
and
dated
Option
Collaboration
of
Agreement,
as
December 29, 2006, by
and
between the Company and Amgen
Inc.
of
Form
Indemnification
Agreement between the Company
and each of its directors and
executive officers
Amended and Restated Executive
Employment Agreement, dated
May 21, 2007, by and between the
Company and Robert Blum
Form of Executive Employment
Agreement between the Company
and its executive officers
Amendment No. 1, dated June 17,
2008, to the Collaboration and
and
Option Agreement
between the Company and Amgen
Inc.
by
dated
Amendment
the
September 30,
Collaboration
Option
Agreement by and between the
Company and Amgen Inc.
No. 2,
2008,
and
to
No. 3,
dated
Amendment
the
October 31,
Collaboration
Option
Agreement by and between the
Company and Amgen Inc.
2008,
and
to
No. 4,
2009,
and
dated
Amendment
the
February 20,
Option
Collaboration
Agreement by and between the
Company and Amgen Inc.
to
Form of Amendment No. 1 to
Amended and Restated Executive
Employment Agreements
Third Amendment to Lease, dated
December 10, 2010, by
and
and
the Company
between
Britannia Pointe Grand Limited
Partnership
Form
S-1
Incorporated by Reference
File No.
Filing Date
Exh.
No.
Filed
Herewith
333-112261
January 27, 2004
10.15
10-K
000-50633
March 12, 2007
10.63
10-Q
000-50633
August 5, 2008
10.1
10-Q
000-50633
August 5, 2008
10.69
10-Q
000-50633
August 5, 2008
10.68
10-K
000-50633
March 12, 2009
10.62
10-K
000-50633
March 12, 2009
10.63
10-K
000-50633
March 12, 2009
10.65
10-K
000-50633
March 12, 2009
10.67
10-K
000-50633
March 12, 2009
10.68
10-K
000-50633
March 11, 2011
10.65
86
Form
10-K
Incorporated by Reference
File No.
Filing Date
Exh.
No.
Filed
Herewith
000-50633
March 11, 2011
10.66
8-K
000-50633
March 2, 2015
10.1
10-K
10-K
8-K
000-50633
March 15, 2013
000-50633
March 15, 2013
10.46
10.47
000-50633
June 12, 2013
10.48
10-Q
000-50633
August 7, 2013
10.46
10-K
000-50633
March 7, 2014
10.39
8-K
000-50633
December 23, 2014
10.46
10-K
000-50633
March 6, 2015
10.40
10-Q
000-50633
May 4, 2015
10.41
8-K
000-50633
September 4, 2015
10.43
Exhibit
No.
10.25*
Exhibits
No. 5,
2010,
and
dated
Amendment
the
November 1,
Collaboration
Option
Agreement by and between the
Company and Amgen Inc.
to
10.26+
2015 Compensation Information
for
the Company’s Named
Executive Officers
10.27+
Form of Option Agreement
Form of Restricted Stock Unit
Award Agreement
Common
Purchase
Stock
Agreement dated June 11, 2013,
by and between the Company and
Amgen Inc.
Amendment No. 6, dated June 11,
2013, to the Collaboration and
Option Agreement
and
between the Company and Amgen
Inc.
by
Form of Executive Employment
Agreement between the Company
and its executive officers
Common
Purchase
Stock
Agreement by and between the
Company and Astellas Pharma
Inc. dated December 22, 2014
Amended and Restated License
and Collaboration Agreement,
dated December 22, 2014, by and
between
and
Astellas Pharma Inc.
the Company
2015,
No. 7,
dated
Amendment
the
March 19,
Collaboration
Option
Agreement by and between the
Company and Amgen Inc.
and
to
Controlled Equity Offering Sales
Agreement,
of
September 4,
and
between the Company and Cantor
Fitzgerald & Co.
dated
2015,
as
by
10.28+
10.29
10.30*
10.31+
10.32
10.33*
10.34*
10.35
10.36*
Loan and Security Agreement,
dated as of October 19, 2015, by
and among the Company, Oxford
Finance LLC and Silicon Valley
Bank
10-K
000-50633
March 3, 2016
10.40
87
Form
10-Q
Incorporated by Reference
File No.
Filing Date
Exh.
No.
Filed
Herewith
000-50633
May 5, 2016
10.41
10-Q/A
000-50633
January 20, 2017
10.42
10-Q
000-50633
November 3, 2016
10.43
10-K
000-50633
March 6, 2017
10.44
10-K
000-50633
March 6, 2017
10.45
10-Q
000-50633
August 4, 2017
10.1
10-Q
000-50633
November 3, 2017
10.1
8-K
000-50633
November 6, 2017
10.1
Exhibits
Fourth Amendment to Build to
Suit Lease, dated March 1, 2016,
by and between the Company and
Britannia Pointe Grand Limited
Partnership
License
Amendment to the Amended and
Restated
and
Collaboration Agreement between
the Company and Astellas Pharma
Inc., dated July 27, 2016
Letter of Agreement by and
between the Company and Amgen
Inc. and Les Laboratoires Servier
de Recherches
and
Institut
Internationales
dated
Servier,
August 29, 2016
Royalty Purchase Agreement by
and between the Company and
RPI
dated
Finance
February 1, 2017
Trust,
Common
Purchase
Stock
Agreement by and between the
Company and RPI Finance Trust,
dated February 1, 2017
Amendment
to Collaboration
Agreement between the Company
and Astellas Pharma Inc., dated
April 11, 2017
Amendment to the Amended and
Restated 2004 Equity Incentive
Plan
Controlled Equity Offering Sales
Agreement, dated as of November
3, 2017, by and between the
Company and Cantor Fitzgerald &
Co.
Second Amendment to Loan and
Security Agreement by and among
the Company, Oxford Finance
LLC and Silicon Valley Bank,
dated as of October 27, 2017
Exhibit
No.
10.37
10.38*
10.39*
10.40*
10.41
10.42*
10.43
10.44
10.45
10.46
10.47
X
X
Compensation
Named Executive Officers
Information
for
8-K
000-50633
February 28, 2017
10.1
Fifth Amendment to Lease, dated
December 18, 2017, by and
and
between
Britannia Pointe Grand Limited
Partnership
the Company
88
Exhibit
No.
Exhibits
Form
File No.
Filing Date
Exh.
No.
Filed
Herewith
Incorporated by Reference
X
X
X
X
X
X
X
X
X
X
X
X
X
10.48** Amendment
to Collaboration
Agreement between the Company
and Astellas Pharma Inc., dated
December 21, 2017
23.1
24.1
31.1
31.2
31.3
32.1
Consent of Independent registered
public accounting firm
Power of Attorney (included in the
signature page to this report)
Certification of Principal Executive
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Certification of Principal Financial
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
of
Certification
Principal
Accounting Officer pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002
Certifications of
the Principal
Executive Officer, the Principal
Financial Officer,
the
Principal Accounting Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18
U.S.C. Section 1350) (1)
and
101.INS XBRL Instance Document
101.SCH
XBRL
Schema Document
Taxonomy
Extension
101.CAL
Taxonomy
XBRL
Calculation Linkbase Document
Extension
101.DEF
XBRL
Taxonomy
Definition Linkbase Document
Extension
101.LAB
XBRL
Label Linkbase Document
Taxonomy
Extension
101.PRE
Taxonomy
XBRL
Presentation Linkbase Document
Extension
*
**
+
Portions of this Exhibit are subject to a confidential treatment order.
Registrant has requested confidential treatment for portions of this Exhibit.
Management contract or compensatory plan.
89
(1)
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K),
irrespective of any general incorporation language contained in such filing.
(b)
Exhibits
The exhibits listed under Item 15(a)(3) hereof are filed as part of this Form 10-K, other than Exhibit 32.1 which shall be
deemed furnished.
(c)
Financial Statement Schedules
None — All financial statement schedules are omitted because the information is inapplicable or presented in the notes to
the financial statements.
Item 16.
Form 10-K Summary
None.
90
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CYTOKINETICS, INCORPORATED
By:
/ S / ROBERT I. B LUM
Robert I. Blum
President, Chief Executive Officer and Director
Dated: March 5, 2018
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Robert I. Blum, Ching Jaw, and Peter S. Roddy, and each of them, his true and lawful attorneys-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ ROBERT I. BLUM
Robert I. Blum
/s/ CHING JAW
Ching Jaw
/s/ PETER S. RODDY
Peter S. Roddy
/s/ L. PATRICK GAGE, PHD.
L. Patrick Gage, Ph.D.
/s/ ROBERT CALIFF, M.D.
Robert Califf, M.D.
/s/ SANTO J. COSTA
Santo J. Costa
/s/ JOHN T. HENDERSON, M.B. CH.B.
John T. Henderson, M.B. Ch.B.
/s/ EDWARD KAYE, M.D.
Edward Kaye, M.D.
/s/ B. LYNNE PARSHALL, ESQ.
B. Lynne Parshall, Esq.
/s/ SANDFORD D. SMITH
Sandford D. Smith
/s/ WENDELL WIERENGA, PH.D.
Wendell Wierenga, Ph.D.
President, Chief Executive Officer and
Director (Principal Executive Officer)
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)
Date
March 5, 2018
March 5, 2018
Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer)
March 5, 2018
Chairman of the Board of Directors
March 5, 2018
March 5, 2018
March 5, 2018
March 5, 2018
March 5, 2018
March 5, 2018
March 5, 2018
March 5, 2018
Director
Director
Director
Director
Director
Director
Director
91
[THIS PAGE INTENTIONALLY LEFT BLANK]
EXECUTIVE MANAGEMENT
Robert I. Blum
President and Chief Executive Officer
Daniel R. Casper
Vice President, Information Technology
Bonnie A. Charpentier, Ph.D.
Senior Vice President, Regulatory Affairs
and Compliance
Bettina M. Cockroft, M.D., M.B.A
Vice President, Clinical Research, Neurology
David W. Cragg
Senior Vice President, Human Resources
Ching W. Jaw
Senior Vice President,
Chief Financial Officer
Scott R. Jordan
Vice President, New Product Planning
and Commercial Development
Fady I. Malik, M.D., Ph.D., F.A.C.C.
Executive Vice President,
Research and Development
Caryn G. McDowell, J.D.
General Counsel and Chief Compliance Officer
Bradley P. Morgan, Ph.D.
Senior Vice President, Research and
Non-Clinical Development
Peter S. Roddy
Senior Vice President, Chief Accounting Officer
Joel M. Rothman
Vice President, Development Operations
Elisabeth A. Schnieders, Ph.D.
Senior Vice President, Business Development
Whittemore G. Tingley, M.D., Ph.D.
Vice President, Clinical Research, Cardiology
Diane Weiser
Vice President, Corporate Communications
and Investor Relations
Andrew A. Wolff, M.D., F.A.C.C.
Senior Vice President and Chief Medical Officer
CORPORATE PROFILE
BOARD OF DIRECTORS
L. Patrick Gage, Ph.D.
Chairman, Cytokinetics, Inc.
Industry Consultant
Robert I. Blum
President and Chief Executive Officer,
Cytokinetics, Inc.
Robert, Califf, M.D.
Vice Chancellor, Health Data Science,
Duke Health; Director, Duke University Center
for Health Data Science.
Santo J. Costa
Of Counsel, Smith, Anderson, Blount,
Dorsett, Mitchell and Jernigan, L.L.P.
John T. Henderson, M.D.
Industry Consultant
Edward M. Kaye, M.D.
Chief Executive Officer,
Stoke Therapeutics
B. Lynne Parshall, Esq.
Director and Chief Operating Officer,
Ionis Pharmaceuticals, Inc.
Sandford D. Smith
Industry Consultant
Wendell Wierenga, Ph.D.
Industry Consultant
CORPORATE SECRETARY
Caryn G. McDowell
Cytokinetics, Inc.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
San Jose, California
CORPORATE COUNSEL
Cooley LLP
Palo Alto, California
REGISTRAR AND TRANSFER AGENT
Inquiries regarding change of address, lost stock
certificates, changes in stock ownership and
other matters related to stock ownership should
be directed to the transfer agent.
(Standard USPS)
Computershare
P. O. Box 30170
College Station TX 77842
(Overnight)
Computershare
211 Quality Circle, Suite 210
College Station TX 77845
Phone (800) 837-8091
TDD for Hearing Impaired (800) 952-9245
Foreign Shareholders (201) 680-6578
computershare.com/investor
ANNUAL MEETING
The annual meeting of stockholders will be
held at 10:30 am on May 16, 2018 at the:
Embassy Suites Hotel
250 Gateway Boulevard
South San Francisco, California
COMMON STOCK
The company’s common stock is traded on the
NASDAQ Exchange, symbol: CYTK
FORM 10-K AND ADDITIONAL
INFORMATION
A copy of the Company’s Annual Report on Form
10-K, as filed with the Securities and Exchange
Commission, is available without charge by
calling or writing the Investor Relations
Department as listed under Stockholder Inquiries.
STOCKHOLDER INQUIRIES
Stockholder and investor inquiries and requests
for information should be directed to:
Investor Relations
Cytokinetics, Inc.
280 East Grand Avenue
South San Francisco, CA 94080
(650) 624-3060
investor@cytokinetics.com
CORPORATE INFORMATION
Cytokinetics, Inc.
280 East Grand Avenue
South San Francisco, CA 94080
Tel: (650) 624-3000
Fax: (650) 624-3010
cytokinetics.com
FORWARD-LOOKING STATEMENTS
This letter contains forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995 (the “Act”). Cytokinetics disclaims any intent or obligation
to update these forward-looking statements, and claims the protection of the Act's Safe Harbor for forward-looking statements. Examples of such statements include, but
are not limited to, statements relating to Cytokinetics’ and its partners’ research and development activities; the design, timing, results, significance and utility of preclinical
and clinical results, including Cytokinetics’ expectations regarding the timing or results from its clinical trials of reldesemtiv, enrollment of patients in GALACTIC-HF and
pipeline expansion in 2018; and the properties and potential benefits of reldesemtiv and Cytokinetics’ other drug candidates. Such statements are based on management's
current expectations, but actual results may differ materially due to various risks and uncertainties, including, but not limited to, potential difficulties or delays in the develop-
ment, testing, regulatory approvals for trial commencement, progression or product sale or manufacturing, or production of Cytokinetics’ drug candidates that could slow
or prevent clinical development or product approval, including risks that current and past results of clinical trials or preclinical studies may not be indicative of future clinical
trial results, patient enrollment for or conduct of clinical trials may be difficult or delayed, Cytokinetics’ drug candidates may have adverse side effects or inadequate
therapeutic efficacy, the FDA or foreign regulatory agencies may delay or limit Cytokinetics’ or its partners’ ability to conduct clinical trials, and Cytokinetics may be unable to
obtain or maintain patent or trade secret protection for its intellectual property; Astellas’ decisions with respect to the design, initiation, conduct, timing and continuation of
development activities for reldesemtiv; Amgen’s decisions with respect to the design, initiation, conduct, timing and continuation of development activities for omecamtiv
mecarbil; Cytokinetics may incur unanticipated research and development and other costs or be unable to obtain additional financing necessary to conduct development of
its products; standards of care may change, rendering Cytokinetics’ drug candidates obsolete; competitive products or alternative therapies may be developed by others for
the treatment of indications Cytokinetics’ drug candidates and potential drug candidates may target; and risks and uncertainties relating to the timing and receipt of
payments from its partners, including milestones and royalties on future potential product sales under Cytokinetics’ collaboration agreements with such partners. For further
information regarding these and other risks related to Cytokinetics’ business, investors should consult Cytokinetics’ filings with the Securities and Exchange Commission.
280 East Grand Avenue
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cytokinetics.com
With appreciation to Corey Reich, LTC (retired) Chuck Schretzman, Tomas Llorence, Logan Ragland,
and Lindsay Abromaitis-Smith for contributing their images to the cover.