e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT UNDER
SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number:
000-50633
CYTOKINETICS,
INCORPORATED
(Exact name of registrant as
specified in its charter)
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Delaware
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94-3291317
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification
Number)
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Robert I.
Blum
President and Chief Executive Officer
280 East Grand Avenue
South San Francisco, CA 94080
(650) 624-3000
(Address, including zip code, or
registrants principal executive offices and telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value
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The NASDAQ Global Market
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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 o No þ
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 o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants 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. o
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. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates was $129.7 million computed
by reference to the last sales price of $3.71 as reported by the
NASDAQ Global Market, as of the last business day of the
Registrants most recently completed second fiscal quarter,
June 30, 2008. This calculation does not reflect a
determination that certain persons are affiliates of the
Registrant for any other purpose.
The number of shares outstanding of the Registrants common
stock on February 27, 2009 was 53,219,291 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2009
Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission, are incorporated by reference to
Part III of this Annual Report on
Form 10-K.
CYTOKINETICS,
INCORPORATED
FORM 10-K
Year Ended December 31, 2008
INDEX
1
PART I
This report contains forward-looking statements that are based
upon current expectations within the meaning of the Private
Securities Litigation Reform Act of 1995. 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:
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guidance concerning revenues, research and development expenses
and general and administrative expenses for 2009;
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the sufficiency of existing resources to fund our operations for
at least the next 12 months;
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our capital requirements and needs for additional financing;
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the results from the clinical trials that we have conducted with
CK-1827452, and whether such results may result in Amgen Inc.
(Amgen) exercising its option with respect to
CK-1827452;
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the initiation, progress, timing and scope of clinical trials
and development activities for our drug candidates and potential
drug candidates by ourselves or our partners, including the
anticipated timing for initiation of clinical trials and
anticipated dates of data becoming available or being announced
from clinical trials;
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the advancement of potential drug candidates into preclinical
studies and clinical trials;
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our and our partners plans or ability for the continued
research and development of our drug candidates and potential
drug candidates, such as CK-1827452, ispinesib, SB-743921,
GSK-923295 and CK-2017357;
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our expected roles in research, development or commercialization
under our strategic alliances, such as with Amgen and
GlaxoSmithKline (GSK);
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the properties and potential benefits of, and the potential
market opportunities for, our drug candidates and potential drug
candidates;
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the focus, scope and size of our research and development
activities and programs;
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the sufficiency of the clinical trials conducted with our drug
candidates to demonstrate that they are safe and efficacious;
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our plans or ability to commercialize drugs with or without a
partner, including our intention to develop sales and marketing
capabilities;
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our receipt of milestone payments, royalties and other funds
from our partners under strategic alliances, such as with Amgen
and GSK;
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the issuance of shares of our common stock under our committed
equity financing facility entered into with Kingsbridge Capital
Limited (Kingsbridge) in 2007;
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our ability to protect our intellectual property and to avoid
infringing the intellectual property rights of others;
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expected future sources of revenue and capital;
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losses, costs, expenses and expenditures;
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future payments under lease obligations and equipment financing
lines;
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potential competitors and competitive products;
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increasing the number of our employees and recruiting additional
key personnel;
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expected future amortization of employee stock-based
compensation; and
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our ability to sell equipment held for sale and the timing of
such sales.
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Such forward-looking statements involve risks and uncertainties,
including, but not limited to, those risks and uncertainties
relating to:
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our ability to obtain additional financing;
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difficulties or delays in the development, testing, production
or commercialization of our drug candidates, including decisions
by GSK to postpone or discontinue research or development
activities relating to GSK-923295;
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difficulties or delays in or slower than anticipated patient
enrollment in our or our partners clinical trials;
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unexpected adverse side effects or inadequate therapeutic
efficacy of our drug candidates that could slow or prevent
product approval (including the risk that current and past
results of preclinical studies or clinical trials may not be
indicative of future clinical trials results);
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the possibility that the U.S. Food and Drug Administration
(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;
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our receipt of funds under our strategic alliances, including
those funds dependent upon Amgens potential exercise of
its option with respect to CK-1827452;
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activities and decisions of, and market conditions affecting,
current and future strategic partners;
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our ability to maintain the effectiveness of our registration
statement permitting resale of securities to be issued to
Kingsbridge by us under, and in connection with, our 2007
committed equity financing facility;
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changing standards of care and the introduction of products by
competitors or alternative therapies for the treatment of
indications we target that may make our drug candidates
commercially unviable;
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the uncertainty of protection for our intellectual property,
whether in the form of patents, trade secrets or otherwise; and
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potential infringement by us of the intellectual property rights
or trade secrets of third parties.
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In addition such statements are subject to the risks and
uncertainties discussed in the Risk Factors section
and elsewhere in this document. Operating results reported are
not necessarily indicative of results that may occur in future
periods.
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.
Overview
We were incorporated in Delaware in August 1997 as Cytokinetics,
Incorporated. We are a clinical-stage biopharmaceutical company
focused on the discovery and development of novel small molecule
therapeutics that modulate muscle function for the potential
treatment of serious diseases and medical conditions. Our
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
current research and development programs relating to the
biology of muscle function are directed to small molecule
modulators of the contractility of cardiac, skeletal and smooth
muscle. Our cardiac muscle contractility program is focused on
cardiac muscle myosin, a motor protein that powers cardiac
muscle contraction. Our lead drug candidate from this program,
CK-1827452, is a novel cardiac muscle myosin activator.
CK-1827452 entered Phase IIa clinical trials for the treatment
of heart failure in 2007. We have granted Amgen an option for an
exclusive license to develop and commercialize CK-1827452
world-wide, except Japan, subject to our development and
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commercialization participation rights. Further details
regarding our strategic alliance with Amgen can be found below
in Item 1 of this report under Muscle Contractility
Focus Cardiac Muscle Contractility
Program Amgen Collaboration and Option
Agreement.
In April 2008, we announced the selection of a potential drug
candidate, CK-2017357, an activator of the skeletal muscle
sarcomere, the basic unit of skeletal muscle contraction. We
believe CK-2017357 may be useful in treating diseases or medical
conditions associated with skeletal muscle weakness or wasting.
We have also designated a second, structurally distinct skeletal
muscle sarcomere activator for development as a backup compound
to CK-2017357. Both of these compounds activate the skeletal
muscle troponin complex, which is a set of regulatory proteins
that modulates the contractility of the skeletal sarcomere.
In January 2009, we announced the selection of a potential drug
candidate that modulates smooth muscle contractility. This
compound is a direct inhibitor of smooth muscle myosin, the
motor protein central to the contraction of smooth muscle, that
causes the relaxation of contracted smooth muscle. Specifically
intended for inhaled delivery applications, this compound may be
developed as a potential treatment for pulmonary arterial
hypertension and diseases associated with bronchoconstriction.
Our initial research activities were directed to mitotic
kinesins, a family of cytoskeletal motor proteins involved in
the process of cell division, or mitosis. This research produced
three drug candidates currently in clinical testing for the
potential treatment of cancer: ispinesib, SB-743921 and
GSK-923295. Ispinesib and SB-743921 are structurally distinct
inhibitors of kinesin spindle protein and GSK-923295 is an
inhibitor of centromere-associated protein E. We are currently
conducting the Phase I portion of a Phase I/II clinical trial of
ispinesib as monotherapy as a first-line treatment in
chemotherapy-naïve patients with locally advanced or
metastatic breast cancer and the Phase I portion of a Phase I/II
trial of SB-743921 in patients with non-Hodgkin or Hodgkin
lymphoma. Under a strategic alliance established in 2001, GSK is
conducting a Phase I clinical trial with GSK-923295. Further
details regarding our strategic alliance with GSK can be found
below in Item 1 of this report under Oncology
Program: Mitotic Kinesin Inhibitors GSK Strategic
Alliance.
Following is a summary of the status of our drug candidates and
potential drug candidates. All development is being conducted by
Cytokinetics, except where otherwise noted:
Muscle
Contractility Programs
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Mode of
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Compound
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Administration
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Development Stage
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Potential Indication(s)
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Planned 2009 Activities
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CK-1827452 *
(cardiac muscle myosin activator)
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oral, intravenous
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Phase II
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heart failure
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initiate a Phase IIa pharmacokinetic
clinical trial of a modified release and an immediate release
formulation in Q2 2009
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initiate 1st Phase IIb clinical trial in
mid-2009
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continue Phase IIa clinical trial in
heart failure patients undergoing cardiac catheterization
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CK-2017357 (skeletal sarcomere activator)
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oral
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IND-enabling studies
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Diseases and conditions associated with muscle weakness or
wasting, e.g., amyotrophic lateral sclerosis, sarcopenia,
cachexia
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submit IND
initiate Phase I clinical trial in
healthy volunteers
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smooth muscle myosin inhibitor
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inhaled
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IND-enabling studies
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pulmonary arterial hypertension, asthma, chronic obstructive
pulmonary disease
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continue IND-enabling studies
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*
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CK-1827452 is being developed by
Cytokinetics, subject to Amgens option to develop and
commercialize world-wide, except Japan.
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Oncology
Programs
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Mode of
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Compound
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Administration
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Development Stage
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Potential Indication(s)
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Planned 2009 Activities
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ispinesib (kinesin spindle protein inhibitor)
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intravenous
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Phase I
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breast cancer
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continue Phase I of a Phase I/II
clinical trial
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SB-743921 (kinesin spindle protein inhibitor)
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intravenous
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Phase I
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Hodgkin and non-Hodgkin lymphomas
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continue Phase I of a Phase I/II
clinical trial
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GSK-923295 ** (centromere-associated protein E inhibitor)
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intravenous
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Phase I
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cancer
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GSK to continue Phase I clinical trial
in patients with advanced, refractory solid tumors
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GSK anticipated to initiate a
Phase II clinical trial
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**
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GSK-923295 is being developed by
GSK under our strategic alliance.
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All of our drug candidates and potential drug candidates have
grown out of 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. We
believe that this focus and the resulting knowledge and
expertise that we have developed, especially with our
proprietary technologies that permit us to evaluate the function
of cytoskeletal proteins in high information content biological
assays, has allowed us to increase the efficiency of our drug
discovery activities. Our research and development activities
since our inception in 1997 have produced four drug candidates
currently in clinical testing and three potential drug
candidates currently in preclinical development. Each of has a
novel mechanism of action compared to currently marketed drugs,
which we believe validates our focus on the cytoskeleton as a
robust area for drug discovery. We intend to leverage our
experience in muscle contractility in order to expand our
current pipeline, and expect to continue to be able to identify
additional potential drug candidates that may be suitable for
clinical development.
Our
Corporate Strategy
Our strategy is to discover, develop and commercialize novel
drug products that modulate muscle function in ways that may
benefit patients with disorders that cause serious diseases or
medical conditions, with the goal of establishing a fully
integrated biopharmaceutical company. We intend to achieve this
by:
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Focusing on drug discovery and development activities
relating to the biology of muscle function. We
intend to capitalize on the knowledge and expertise we acquired
in each of our cardiac, smooth and skeletal muscle research and
development programs. In these programs, we are investigating
potential treatments for diseases or medical conditions where
dysregulation of the contractile function of muscle plays a key
role and may be amenable to treatment by modulation of muscle
contractility, such as heart failure and medical conditions
associated with skeletal muscle weakness or wasting.
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Leveraging our cytoskeletal expertise and proprietary
technologies to increase the speed, efficiency and yield of our
drug discovery and development processes. We
believe that our unique understanding of the cytoskeleton 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. We expect that we may be able to
leverage our expertise in muscle contractility to develop
programs that relate to other muscle functions and similarly may
impact serious medical diseases and conditions. This may
facilitate our building a diversified pipeline of drug
candidates in a cost-effective way while managing risk.
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Building development and commercialization capabilities
directed at concentrated markets. We focus our
drug discovery and development activities on disease areas where
there are serious unmet medical needs. In particular, we direct
our activities to potential commercial opportunities in
concentrated and tractable customer segments, such as hospital
specialists, that may be addressed by a smaller, targeted sales
force. In
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this manner, 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 with
the goal of becoming a fully-integrated biopharmaceutical
company.
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Establishing 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 of drug candidates and commercialization of
potential drugs arising from our alliances, so that we can
expand and capitalize on our internal development capabilities
and build our commercialization capabilities.
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Muscle
Contractility Focus
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 the contractility of each of cardiac, skeletal and
smooth muscle is an important differentiator for us. Our
established preclinical and clinical expertise 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; certain neuromuscular diseases and medical conditions
associated with muscle weakness may be amenable to treatment by
enhancing the contractility of skeletal muscle; hypertension is
a disease in which elevated blood pressure may be decreased by
relaxation of the arterial smooth muscle; and asthma is a
disease in which constriction of the airways may be treated by
relaxation of the airway smooth muscle.
Because each muscle type may be relevant to multiple diseases or
medical conditions, we believe we can leverage our expertise in
each of cardiac, skeletal and smooth muscle contractility to
more efficiently discover and develop as potential drugs
compounds that modulate the applicable muscle type for multiple
indications. In addition, muscle has biological functions other
than contractility. Accordingly, our knowledge and expertise
could also serve as an entry point to the discovery of novel
treatments for disorders involving muscle functions other than
muscle contractility, such as muscle metabolism and energetics.
We are currently developing four small molecule compounds
arising from our muscle contractility programs. CK-1827452, a
novel cardiac muscle myosin activator, is currently in Phase IIa
clinical trials for the potential treatment of heart failure.
CK-2017357 is our lead potential drug candidate from our
skeletal muscle contractility program. We are evaluating the
potential indications for which this compound may be useful.
These may include skeletal muscle weakness associated with
neuromuscular diseases and other medical conditions
characterized by skeletal muscle weakness or wasting. We plan to
submit an investigational new drug application (IND)
with the FDA to initiate a Phase I clinical trial for CK-2017357
in 2009. We have selected a second potential drug candidate from
this program that may serve as a backup compound to CK-2017357.
We are also developing an inhaled inhibitor of smooth muscle
myosin as a bronchodilator, which is currently in IND-enabling
studies. We are continuing to conduct discovery,
characterization and lead optimization activities for other
compounds with the potential to modulate muscle contractility
and other muscle functions.
Cardiac
Muscle Contractility Program
Overview. 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 muscle
myosin, actin and a set of regulatory proteins. This program is
currently directed towards the discovery and development of
small molecule cardiac muscle myosin activators with the goal of
developing novel drugs to treat acute and chronic heart failure.
Cardiac muscle myosin is the cytoskeletal motor protein in the
cardiac
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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 muscle 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. However, the increase in
calcium levels increases the velocity of cardiac muscle
contraction and shortens systolic ejection time, which has been
linked to potentially life-threatening side effects. In
contrast, our novel cardiac muscle myosin activators work by a
mechanism that directly stimulates the activity of the cardiac
muscle 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 muscle contractility and cardiac output in a potentially
more oxygen-efficient manner.
Background on Heart Failure 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. It is
estimated that in 2006, 5.5 million patients in the United
States suffered from chronic heart failure. Approximately
4.5 million patients in the United States had a hospital
discharge diagnosis of heart failure in 2007, of which over
2.4 million had a primary or secondary diagnosis of heart
failure. 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 over the age of 65
are as high as 42% within one year of hospital discharge.
Mortality rates over the five-year period following a diagnosis
of heart failure are approximately 60%. The limited
effectiveness of current therapies points to the need for
therapeutics that offer improved efficacy without increased
adverse events, thus decreasing morbidity and mortality rates
among this patient population. The annual cost of heart failure
to the U.S. health care system is estimated to be
$35 billion dollars. A portion of that cost is attributable
to drugs used to treat each of chronic and acute heart failure.
Sales of drugs to treat chronic heart failure reached almost
$2.5 billion in 2006 while sales of drugs to treat acute
heart failure reached over $350 million in 2007.
CK-1827452. Our lead drug candidate from this
program is CK-1827452, a novel cardiac muscle myosin activator.
CK-1827452 has been the subject of a clinical trials program,
initiated in 2007, comprised of Phase I and Phase IIa clinical
trials designed to evaluate the safety, tolerability,
pharmacodynamics and pharmacokinetic profile of both intravenous
and oral formulations of this drug candidate in a diversity of
patients, including patients with stable heart failure and
patients with ischemic cardiomyopathy. Our goal is to develop
CK-1827452 as a potential treatment across the continuum of care
in heart failure both as an intravenous formulation for use in
the hospital setting and as an oral formulation for use in the
outpatient setting.
In 2006, we reported that in the first-time-in-humans Phase I
clinical trial of CK-1827452 administered intravenously in
healthy volunteers, CK-1827452 demonstrated statistically
significant and concentration-dependent increases in indices of
left ventricular function over a range of well-tolerated doses
and plasma concentrations. In addition, CK-1827452 exhibited
generally linear, dose-proportional pharmacokinetics across the
dose range studied. The adverse effects observed at intolerable
doses in humans appeared similar to the adverse findings which
occurred in preclinical safety studies at similar plasma
concentrations. These effects are believed to be related to the
mechanism of action of this drug candidate which, at intolerable
doses, resulted in an excessive prolongation of the systolic
ejection time. However, these effects resolved promptly with
discontinuation of the infusions of CK-1827452.
A Phase I oral bioavailability study of CK-1827452 in healthy
volunteers conducted in 2006 demonstrated an oral
bioavailability of approximately 100%, with no first-pass
metabolism by the liver observed. Because the oral formulation
of CK-1827452 used in this study was found to be rapidly
absorbed, we are pursuing the development of modified release
oral formulations of CK-1827452 to achieve a reduced rate of
drug absorption without significantly affecting the overall
bioavailability.
7
The following clinical trials of CK-1827452 were conducted or
completed during 2008:
CK-1827452
(intravenous)
Phase IIa stable heart failure (safety and
tolerability): Throughout 2008, we continued to
conduct our ongoing Phase IIa clinical trial of CK-1827452
administered intravenously to patients with stable heart
failure. The trials primary objective is to evaluate the
safety and tolerability of CK-1827452. Its secondary objectives
are to establish a relationship between the plasma concentration
and the pharmacodynamic effects of CK-1827452 and to determine
its pharmacokinetics in stable heart failure patients. This
clinical trial was planned to consist of five cohorts of eight
patients with stable heart failure. We have completed treatment
of Cohort 5 of this trial. In the first four cohorts, patients
underwent four treatment periods, receiving three escalating
active doses of CK-1827452, with one placebo treatment
randomized into the dose escalation sequence to maintain
blinding. In Cohort 5, patients had two treatment periods,
receiving an active dose of CK-1827452 in one treatment period
and a placebo treatment in the other.
We presented interim data from this trial at several scientific
meetings in 2008, most recently at the Scientific Sessions of
the American Heart Association in November 2008. The
presentation included data from 28 patients (eight patients
from each of Cohorts 1, 2 and 3 and four patients from Cohort
4), and showed statistically significant effects in measures of
cardiac function. Specifically, these interim analyses
demonstrated statistically significant increases in systolic
ejection time and fractional shortening at CK-1827452 plasma
concentrations greater than 100 ng/mL, and statistically
significant increases in stroke volume at CK-1827452 plasma
concentrations greater than 200 ng/mL. There were also
statistically significant increases in ejection fraction at
CK-1827452 plasma concentrations greater than 300 ng/mL when
ejection fraction was calculated by a hybrid method in which
stroke volume, measured using Doppler technology, was divided by
the left ventricular end-diastolic volume, measured using
two-dimensional echocardiography. In addition, the data
demonstrated statistically significant correlations between
increasing CK-1827452 plasma concentration and increases in
systolic ejection time, stroke volume, fractional shortening,
ejection fraction and cardiac output and between increasing
CK-1827452 plasma concentration and decreases in supine and
standing heart rate and left ventricular end-systolic volume. In
this trial, CK-1827452 was well-tolerated in stable heart
failure patients over a range of plasma concentrations during
continuous intravenous administration. These data reflect what
we believe is the clinically relevant activity of this novel
drug candidate. We anticipate presenting final data from this
clinical trial at the Annual Meeting of the American College of
Cardiology in March 2009.
Phase IIa stable heart failure (cardiac
catheterization): Preclinical studies have
suggested that CK-1827452 increases ventricular performance in
the absence of substantial changes in cardiac muscle oxygen
consumption, thereby increasing cardiac muscle efficiency. In
2008, we initiated an open-label, non-randomized Phase IIa
clinical trial designed to evaluate CK-1827452 administered
intravenously to patients with stable heart failure undergoing
clinically indicated coronary angiography in order to
corroborate this preclinical finding in humans. In September
2008, a poster outlining the design of this clinical trial was
presented at the annual Heart Failure Society of America
Conference. The first cohort, consisting of six patients, is
planned to undergo a dose-escalation phase, beginning with a
target plasma concentration of approximately 280 ng/mL. Based on
the tolerability and pharmacodynamic effects observed in this
initial cohort, the investigators will select a single dosing
regimen for the second and final cohort of twelve patients. We
are continuing to enroll patients in the first cohort of this
trial.
CK-1827452
(oral):
Phase I drug-drug interaction: In June 2008
and December 2008, we announced results from a Phase I clinical
trial in healthy male subjects evaluating the potential for
certain drug-drug interactions mediated by the drug-metabolizing
enzymes cytochrome P450 3A4 and cytochrome P450 2D6. Results
showed that there were no clinically important differences
observed between subjects who were extensive or poor
metabolizers with respect to their defined genotype for
cytochrome P450 2D6. No clinically meaningful pharmacokinetic
drug-drug interactions with either ketoconazole, a potent
inhibitor of cytochrome P450 3A4, or diltiazem, a moderate
inhibitor of cytochrome P450 3A4, were identified in either
extensive metabolizer or poor metabolizer subjects with respect
to cytochrome P450 2D6.
8
Phase I oral single to multi-dose: In June
2008, we announced final results from a Phase I clinical trial
evaluating CK-1827452 administered as a single oral dose and as
multiple oral doses of 10 mg and 30 mg strength
capsules. The primary objective of this study was to evaluate
the safety and tolerability of CK-1827452 after a single oral
dose and after multiple oral doses to steady-state in healthy
men and women. The secondary objectives of this study were to
evaluate the pharmacokinetics of CK-1827452 after a single oral
dose and after multiple oral doses to steady-state and to
compare the pharmacokinetic parameters between healthy men and
women. CK-1827452 was well-tolerated in the trial, with no
drug-related serious adverse events. Dose-proportionality
between the 10 mg and 30 mg dose levels was observed
in both men and women, both after a single dose and after
multiple doses to steady-state, with similar pharmacokinetics
observed in men and women.
Phase I modified release: In June 2008, we
announced results from a Phase I clinical trial evaluating the
pharmacokinetics and relative bioavailability of three different
oral modified release prototype formulations of CK 1827452, as
compared to the immediate release formulation, in healthy male
subjects. The single-dose pharmacokinetics of each of these
formulations, in both the fasted and fed states, demonstrated
that, as compared to the immediate release formulation, they
reduced the maximum CK-1827452 plasma concentration and elevated
the trough plasma concentration without a substantial effect on
overall bioavailability. This resulted in a smaller range of
fluctuation in plasma concentrations as compared to oral dosing
with the immediate release formulation. We have selected one
prototype modified release formulation to proceed forward into
further clinical testing.
CK-1827452
(intravenous-to-oral):
Phase IIa ischemic cardiomyopathy and angina (safety and
tolerability): In April 2008 we initiated, and in
December 2008 we announced, results from a double-blind,
randomized, placebo-controlled Phase IIa clinical trial designed
to evaluate an intravenous and an oral formulation of CK-1827452
in patients with ischemic cardiomyopathy and angina. The primary
objective of this trial was to assess the effect of intravenous
CK-1827452 on symptom-limited treadmill exercise tolerance. The
secondary objective of this trial was to assess the tolerability
and resulting plasma concentrations of CK-1827452 administered
as an oral formulation. The trial was designed to evaluate two
cohorts of 45 patients, each with ischemic cardiomyopathy
and angina and an ejection fraction of less than or equal to
35 percent. In each cohort, patients whose symptom-limited
exercise tolerance during an infusion of double-blind study drug
did not deteriorate relative to a baseline treadmill exercise
test received either CK-1827452 or placebo administered orally
for seven days. CK-1827452 plasma levels were measured during
the infusions and before and one hour after the final oral dose.
Patients in the first cohort were randomized in a 2-to-1 ratio
to CK-1827452 versus placebo, at a dose level intended to target
a maximum plasma concentration of 295 ng/ml during the infusion
and 184 ng/ml during oral dosing. Patients in the second cohort
were randomized in a 2-to-1 ratio to CK-1827452 versus placebo,
at a dose level intended to target a plasma concentration of 550
ng/ml during the infusion and 368 ng/ml during oral dosing.
A total of 94 patients were enrolled and treated in this
clinical trial; 29 patients received placebo, 31 received
CK-1827452 at the lower dose level, and 34 received CK-1827452
at the higher dose level. The primary safety endpoint was
defined as stopping an exercise treadmill test during
double-blind treatment with CK-1827452 or placebo due to
unacceptable angina at an exercise stage earlier than at
baseline. This endpoint was observed in one patient receiving
placebo and did not occur in any patient receiving CK-1827452 at
either dose level. Twenty-one of 27 unique adverse events
observed in this trial were reported as mild in severity, 4 were
reported as moderate and 2 were reported as severe. Of the
94 patients treated, 19 reported at least one unique
adverse event at any time during the trial: 5 patients on
placebo; 2 patients on the lower dose level of CK-1827452;
and 12 patients on the higher dose level of CK-1827452, who
reported a total of 18 unique adverse events (15 of which were
reported as mild in severity). The 2 severe adverse events were
the only serious adverse events reported. Both occurred in the
same patient, who received intravenous CK-1827452 in Cohort 2.
Both these events were judged by the investigator to have been
unrelated to treatment with CK-1827452. We anticipate that final
data from this clinical trial will be presented in 2009.
Planned Clinical Development. We believe the
safety data from our Phase IIa clinical trial evaluating the
safety and tolerability of CK-1827452 in patients with ischemic
cardiomyopathy and angina, together with the improvements in
systolic function observed in our Phase IIa clinical trial
evaluating the safety and tolerability of CK-1827452 in stable
heart failure patients, support the progression of CK-1827452
into Phase IIb clinical
9
development. In mid-2009, we anticipate the initiation of a
Phase IIb clinical trial of CK-1827452 in chronic heart failure
outpatients at increased risk for death and hospitalization. In
the second quarter of 2009, we anticipate initiating an
additional Phase IIa clinical trial designed to evaluate the
pharmacokinetics of both a modified release and an immediate
release formulation of CK-1827452 in patients with heart failure.
Amgen Collaboration and Option Agreement. In
December 2006, we entered into a collaboration and option
agreement with Amgen to discover, develop and commercialize
novel small-molecule therapeutics that activate cardiac muscle
contractility for potential applications in the treatment of
heart failure, including CK-1827452. The agreement provides
Amgen with a non-exclusive license and access to certain
technology. The agreement also granted Amgen an option to obtain
an exclusive license world-wide, except Japan, to develop and
commercialize CK-1827452 and other drug candidates arising from
the collaboration. Amgens option is exercisable during a
defined period, the ending of which is dependent upon the
satisfaction of certain conditions, primarily our delivery of
certain Phase I and Phase IIa clinical data for CK-1827452 in
accordance with an agreed development plan, the results of which
may reasonably support its progression into Phase IIb clinical
development. In February 2009, we announced that we believe we
completed delivery of this data to Amgen. Prior to the exercise
or expiration of Amgens option, we are responsible for
conducting all development activities for CK-1827452, at our own
expense.
To exercise its option, Amgen would pay an exercise fee of
$50.0 million and thereafter would be responsible for the
development and commercialization of CK-1827452 and related
compounds, at its expense, subject to Cytokinetics
development and commercialization participation rights.
Following exercise of the option, the agreement provides for
potential pre-commercialization and commercialization milestone
payments of up to $600.0 million in the aggregate on
CK-1827452 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 agreement also provides for us to
receive increased royalties by co-funding Phase III
development costs of drug candidates under the collaboration. If
we elect to co-fund such costs, we would be entitled to
co-promote CK-1827452 in North America and participate in agreed
commercialization activities in institutional care settings, at
Amgens expense. If Amgen elects not to exercise its option
to CK-1827452, we may then independently proceed to develop and
commercialize CK-1827452, ourselves or with one or more other
partners.
Skeletal
Muscle Contractility Program
Overview. 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 muscle myosin activator CK-1827452.
Our skeletal sarcomere activators have demonstrated
pharmacological activity that 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
characterized or complicated by muscle weakness or wasting.
These could include, but are not limited to, neuromuscular
diseases such as amyotrophic lateral sclerosis, also known as
ALS or Lou Gehrigs disease, cachexia in connection with
heart failure or cancer, claudication, sarcopenia and general
frailty associated with aging.
Potential drug candidates. In April 2008, we
announced that we had selected CK-2017357 as the lead potential
drug candidate from this program. We expect to submit an IND
with the FDA to initiate a Phase I clinical trial of CK-2017357
in healthy volunteers in 2009. In January 2009, we announced
that we had selected another compound from this program as a
backup development compound to CK-2017357. CK-2017357 and its
backup development compound are structurally distinct small
molecule activators of the skeletal sarcomere. These potential
drug candidates act on the troponin regulatory complex of the
skeletal sarcomere. Activation of the
10
troponin complex increases its sensitivity to calcium, leading
to an increase in skeletal muscle contractility. This mechanism
of action has demonstrated encouraging pharmacological activity
in preclinical models.
Ongoing research in skeletal muscle
activators. Our research on the direct activation
of skeletal muscle continues in two areas. We are conducting
translational research with our existing series of skeletal
sarcomere activators to explore the potential applications of
this novel approach in preclinical studies. In addition, we have
a research program aimed at the discovery and validation of
other chemically and pharmacologically distinct mechanisms to
activate the skeletal sarcomere.
Smooth
Muscle Contractility Program
Overview. Smooth muscle is a non-striated form
of muscle that is found in the circulatory, respiratory,
digestive and genitourinary organ systems and is responsible for
the contractile properties of these tissues. Because the
contractile elements in non-striated muscle are not arranged
into sarcomeres, the regulation of smooth muscle is different
from that in cardiac and skeletal muscles. Smooth muscle
contractility is driven by smooth muscle myosin, a cytoskeletal
motor protein that is directly responsible for converting
chemical energy into mechanical force. Our smooth muscle
contractility program is focused on the discovery and
development of small molecule smooth muscle myosin inhibitors,
and leverages our expertise in muscle function and its
application to drug discovery. Our inhaled smooth muscle myosin
inhibitors have demonstrated pharmacological activity in
preclinical models of bronchoconstriction and pulmonary vascular
constriction and may have application for indications such as
pulmonary arterial hypertension, asthma or chronic obstructive
pulmonary disease. Our smooth muscle myosin inhibitors,
administered orally or intravenously, have demonstrated
pharmacological activity in preclinical models of systemic
vascular constriction. Smooth muscle myosin inhibitors
administered orally may have application in systemic hypertension
Potential drug candidate. In January 2009, we
announced that we had selected a lead potential drug candidate
from this program for advancement. This compound is a small
molecule direct inhibitor of smooth muscle myosin. By inhibiting
the function of the myosin motor protein central to smooth
muscle contraction, this compound directly leads to the
relaxation of contracted smooth muscle. Specifically intended
for inhaled delivery applications, this potential drug candidate
has demonstrated encouraging pharmacological activity in
preclinical models as a novel mechanism vasodilator and
bronchodilator. This data suggests that it may be useful as a
potential treatment of diseases such as pulmonary arterial
hypertension, asthma or chronic obstructive pulmonary disease.
This potential drug candidate is currently in IND-enabling
studies.
Ongoing research in smooth muscle myosin
inhibitors. We are continuing to conduct early
research activities to develop direct smooth muscle myosin
inhibitor compounds for systemic administration for potential
use in acute or chronic settings. Our research focus is to
differentiate our compounds from existing drugs that are
vasodilators that act by indirectly causing smooth muscle
relaxation, such as commonly used calcium channel blockers. We
are particularly interested in potential applications for our
compounds where the benefits of currently available treatments
are constrained by adverse side effects or limited
effectiveness. For example, we are exploring the possible
benefits of our smooth muscle inhibitors with respect to
end-organ damage in the context of the potential treatment of
systemic hypertension.
Oncology
Program: Mitotic Kinesin Inhibitors
We currently have three drug candidates in clinical trials for
the potential treatment of cancer: ispinesib, SB-743921 and
GSK-923295. All of these arose from our earlier research
activities directed to the role of the cytoskeleton in cell
division and were progressed under our strategic alliance with
GSK. This strategic alliance was established in 2001 to
discover, develop and commercialize novel small molecule
therapeutics targeting mitotic kinesins for applications in the
treatment of cancer and other diseases. Mitotic kinesins are a
family of cytoskeletal motor proteins involved in the process of
cell division, or mitosis. Under this strategic alliance, we
focused primarily on two mitotic kinesins: kinesin spindle
protein (KSP) and centromere-associated
protein E
(CENP-E).
We are currently conducting a Phase I/II clinical trial for each
of ispinesib and SB-743921. Each of these is a structurally
distinct small molecule that specifically inhibits KSP,
interrupting cancer cell division and causing cell
11
death. GSKs option to acquire a license to ispinesib and
SB-743921 expired at the end of 2008. As a result, we have
retained all rights to develop and commercialize ispinesib and
SB-743921, subject to certain royalty obligations to GSK. We
intend to complete the Phase I portion of our clinical trials
for each of ispinesib and SB-743921. We are seeking a strategic
partner for the future development and commercialization of
these drug candidates.
GSK-923295 specifically inhibits CENP-E, interrupting cancer
cell division and causing cell death. GSK is currently
conducting a Phase I clinical trial of GSK-923295 in connection
with our strategic alliance. We are conducting translational
research directed to CENP-E jointly with GSK.
Background on Anti-Cancer Market. The market
for anti-cancer drugs in the United States in 2006 was estimated
to be approximately $18.1 billion. Within this market, we
estimate that sales of drugs that inhibit mitosis, or
anti-mitotic drugs, comprise a large portion of the commercial
market for anti-cancer drugs. Taxanes, an important subset of
anti-mitotic drugs, include paclitaxel from Bristol-Myers
Squibb, and docetaxel from Sanofi-Aventis Pharmaceuticals Inc.
Sales in the United States of taxanes alone were estimated to be
$2.8 billion in 2006.
Mitotic Kinesin Inhibitors. Since their
introduction over 40 years ago, anti-mitotic drugs such as
taxanes and vinca alkaloids have advanced the treatment of
cancer and are commonly used for the treatment of several tumor
types. However, these drugs have demonstrated limited treatment
benefit against certain cancers. In addition, these drugs target
tubulin, a cytoskeletal protein involved not only in mitosis and
cell proliferation, but also in other important cellular
functions. Inhibition of these other cellular functions produces
dose-limiting toxicities such as peripheral neuropathy, an
impairment of peripheral nervous system function.
Mitotic kinesins are also essential to mitosis, and, unlike
tubulin, are not believed to be present in non-dividing cells.
We believe that drugs that inhibit KSP, CENP-E and other mitotic
kinesins may represent the next generation of anti-mitotic
cancer drugs by arresting mitosis and cell proliferation without
impacting unrelated, normal cellular functions, thereby avoiding
many of the toxicities commonly experienced by patients treated
with existing anti-mitotic drugs. We believe that our
anti-cancer drug candidates may be safer and, in certain tumor
types, more effective than current anti-mitotic drugs.
Preclinical testing of ispinesib, SB-743921 and GSK-923295 and
clinical trials of ispinesib and SB-743921 indicate that these
drug candidates may have fewer toxicities than many existing
anti-cancer drugs. Preclinical studies of ispinesib, SB-743921
and GSK-923295 indicate that the primary toxicities are limited
to gastrointestinal side effects and a reduction in bone marrow
function. In clinical trials of ispinesib and SB-743921, the
major dose-limiting toxicity observed was neutropenia, a
decrease in the number of a certain type of white blood cell,
which was generally reversible. Limited or no evidence of
drug-related toxicities to the nervous system, heart, lung,
kidney or liver was observed. We believe that this safety
profile could potentially increase the therapeutic value of our
mitotic kinesin inhibitors relative to other anti-mitotic drugs,
and that a mitotic kinesin inhibitor drug candidate that is
shown to have efficacy in one tumor type may also potentially
have applications in other tumor types.
GSK Strategic Alliance. In 2001, we entered
into a collaboration and license agreement with GSK which
established a strategic alliance directed to the discovery,
development and commercialization of novel small molecule drugs
targeting KSP, CENP-E and certain other mitotic kinesins for
applications in the treatment of cancer and other diseases.
Under the strategic alliance, GSK, in collaboration with the
National Cancer Institute (NCI), conducted a broad
Phase II clinical trials program designed to evaluate
ispinesib across multiple tumor types. GSK also conducted a
Phase I clinical trial of SB-743921. In November 2006, we
amended the agreement and assumed responsibility, at our
expense, for the continued research, development and
commercialization of inhibitors of KSP, including ispinesib and
SB-743921, and other mitotic kinesins, other than CENP-E. GSK
retained an option to resume responsibility for the development
and commercialization of either or both of ispinesib and
SB-743921. This option expired at the end of 2008. Accordingly,
we retain all rights to both ispinesib and SB-743921, subject to
certain royalty obligations to GSK.
GSK is currently conducting a Phase I clinical trial of
GSK-923295. We will receive royalties from GSKs sales of
any drugs developed under the strategic alliance. For those drug
candidates that GSK develops under the strategic alliance, we
can elect to co-fund certain later-stage development activities
which would increase our potential royalty rates on sales of
resulting drugs and provide us with the option to secure
co-promotion rights in North America. If we elect to co-fund
later-stage development, the royalties to be paid to us on
future sales of GSK-923295 could potentially increase based on
increasing product sales and our anticipated level of
co-funding. If we
12
exercise our co-promotion option, then we are entitled to
receive reimbursement from GSK for certain sales force costs we
incur in support of our commercialization activities.
In each of June 2006, 2007 and 2008, we amended the agreement to
extend the research term of the GSK strategic alliance for an
additional year to continue joint translational research
directed to CENP-E.
Development
Programs
Ispinesib
GSK and the NCI sponsored the initial clinical trials program
for ispinesib, which consisted of nine Phase II clinical
trials and eight Phase I or Ib clinical trials evaluating
ispinesib in a variety of both solid and hematologic cancers. To
date, we believe clinical activity for ispinesib has been
observed in non-small cell lung, ovarian and breast cancers,
with the most clinical activity observed in a Phase II
clinical trial evaluating ispinesib in the treatment of patients
with locally advanced or metastatic breast cancer that had
failed treatment with taxanes and anthracyclines. In addition,
preclinical and Phase Ib clinical data on ispinesib indicate
that it may have an additive effect when combined with certain
existing chemotherapeutic agents. As a result of the expiration
of GSKs option relating to ispinesib, we have retained all
development and commercialization rights to ispinesib. We are
conducting a Phase I/II clinical trial for ispinesib to further
define its clinical activity profile in chemotherapy-naïve
locally advanced or metastatic breast cancer patients on a more
dose-dense schedule than was previously evaluated to determine
if the overall response to ispinesib can be increased while
maintaining its existing safety profile. We intend to complete
the Phase I portion of this trial. We are seeking a strategic
partner for the future development and commercialization of
ispinesib.
The following clinical trials for ispinesib were conducted or
completed in 2008:
Breast Cancer: In December 2007, we initiated
an open-label, non-randomized Phase I/II clinical trial designed
to evaluate ispinesib as monotherapy administered as a
first-line treatment in chemotherapy-naïve patients with
locally advanced or metastatic breast cancer. This trial is
designed to be a
proof-of-concept
study to potentially amplify the signals of clinical activity
seen in GSKs Phase II monotherapy trial of ispinesib
in breast cancer that had failed to respond or progressed after
treatment with an anthracycline and a taxane. The primary
objectives of the Phase I portion of this clinical trial are to
determine the dose-limiting toxicities and maximum tolerated
dose, and to assess the safety and tolerability of ispinesib
administered as a
1-hour
intravenous infusion on days 1 and 15 of a
28-day
cycle. The secondary objectives are to characterize the
pharmacokinetics of ispinesib on this schedule and to evaluate
the effect of ispinesib on biomarkers of cell proliferation in
patients with accessible tumors. In September 2008, at the
American Society of Clinical Oncology Breast Cancer Symposium,
we presented interim results from this trial. These data
demonstrated that ispinesib was well-tolerated on this dosing
schedule, with the most frequent adverse event being
neutropenia. The best responses observed to date were
investigator-reported tumor reductions of 30% or greater in the
sum of the target lesion diameters, reported in 3 patients.
One of these patients had an investigator-reported partial
response according to the Response Evaluation Criteria in Solid
Tumors. We presented additional data related to ispinesib at the
San Antonio Breast Cancer Symposium in December 2008. We
continue to enroll and dose-escalate patients in the Phase I
portion of this trial.
Ispinesib with capecitabine: In June 2008, we
announced the results of a Phase Ib clinical trial sponsored by
GSK designed to evaluate ispinesib in combination with
capecitabine, an oral chemotherapy agent commonly used in the
treatment of breast cancer. The investigators in this clinical
trial concluded that the combination of ispinesib with
capecitabine had an acceptable tolerability profile on the
21-day
schedule investigated in the trial. The dose-limiting toxicities
in this combination regimen were consistent with the monotherapy
toxicities of ispinesib (prolonged neutropenia) and capecitabine
(rash). In this trial, the best response observed among the
24 patients treated was a partial response in a patient
with advanced breast cancer. In addition, 11 patients had a
response of stable disease.
Pediatric Solid Tumors: In June 2008, at the
American Society of Clinical Oncology annual meeting, the NCI
presented final data from a Phase I clinical trial designed to
evaluate the safety, tolerability, pharmacodynamics and
pharmacokinetic profile of ispinesib as monotherapy administered
to pediatric patients with relapsed or refractory solid tumors
on days 1, 8 and 15 of a
28-day
cycle. The authors concluded that the maximum tolerated
13
dose on this schedule for this patient population was
9 mg/m2.
The best response observed was stable disease at 7 courses.
Three patients experienced stable disease for longer than 3
courses of therapy. Ispinesib was well-tolerated, with
neutropenia and hepatotoxicity representing the most commonly
observed dose-limiting toxicities.
SB-743921
SB-743921 was studied by GSK in a dose-escalating Phase I
clinical trial evaluating its safety, tolerability and
pharmacokinetics in advanced cancer patients when administered
intravenously on a once every
21-day
schedule. The observed toxicities at the recommended
Phase II dose were manageable. Dose-limiting toxicities in
this clinical trial consisted predominantly of neutropenia and
elevations in hepatic enzymes and bilirubin. Disease
stabilization, ranging from 9 to 45 weeks, was observed in
seven patients; one patient with cholangiocarcinoma had a
confirmed partial response at the maximum tolerated dose. As a
result of the expiration of GSKs option relating to
SB-743921, we have retained all development and
commercialization rights to SB-743921. We are conducting a Phase
I/II clinical trial evaluating SB-743921 in patients with
Hodgkin or non-Hodgkin lymphoma on a more dose-dense schedule
than was previously evaluated by GSK. We intend to complete the
Phase I portion of this trial. We intend to seek a strategic
partner for the future development and commercialization of
SB-743921.
Phase I/II Hodgkin and Non-Hodgkin
Lymphoma: We are continuing to conduct the Phase
I portion of a Phase I/II clinical trial of SB-743921. The
primary objectives of the Phase I portion of this trial are to
determine the dose-limiting toxicities and maximum tolerated
dose and to assess the safety and tolerability of SB-743921
administered as a
1-hour
intravenous infusion on days 1 and 15 of a
28-day
cycle, a more dose-dense schedule than was previously evaluated,
first without and then with the prophylactic administration of
granulocyte colony-stimulating factor (G-CSF). The
secondary objectives are to characterize the pharmacokinetics of
SB-743921 administered on this schedule and to evaluate the
effect of SB-743921 on biomarkers of cell proliferation in
patients with accessible tumors. In 2008, we presented interim
data from this trial at several scientific conferences, most
recently at the December 2008 American Society of Hematology
meeting. At this interim analysis point, 51 patients had
been treated; all were evaluable for safety and 43 were
evaluable for efficacy. The maximum tolerated dose of SB-743921
was
6 mg/m2
when given days 1 and 15 every 28 days without prophylactic
G-CSF support. This represents a greater dose density
(0.43 mg/m2/day)
than was achieved on the previously studied schedule;
i.e., 4 mg/m2
once every 21 days
(0.19 mg/m2/day).
The main dose-limiting toxicity observed without G-CSF was
neutropenia; therefore, further dose escalation with empiric,
prophylactic G-CSF was initiated and is ongoing. The trial is
currently enrolling at
9 mg/m2
with prophylactic G-CSF support. Grade 3 and 4 toxicities other
than neutropenia were uncommon; in particular, no evidence of
neuropathy or alopecia greater than Grade 1 have been observed.
As of March 2009, three partial responses have been reported at
doses at or above
6 mg/m2,
two in patients with Hodgkin lymphoma and one in a patient with
non-Hodgkin lymphoma.
GSK-923295
GSK-923295, an inhibitor of CENP-E, is the third drug candidate
to arise from our strategic alliance with GSK. CENP-E is
directly involved in certain biological processes essential for
cancer cells to proliferate. GSK-923295 causes partial and
complete shrinkages of human tumors in animal models and has
exhibited properties in these studies distinguishing it from
ispinesib and SB-743921.
Phase I First-Time-in-Humans: During 2008, GSK
continued to enroll patients and dose-escalate in an ongoing
Phase I clinical trial of GSK-923295. The primary objective of
this dose-escalation and pharmacokinetic Phase I clinical trial
is to determine the maximum tolerated dose, dose-limiting
toxicities, safety and pharmacokinetics of GSK-923295 in
advanced, refractory solid tumors. Interim results from this
trial were presented in October 2008 at the EORTC
NCI-AACR International Symposium. GSK-923295 was well-tolerated
at doses evaluated to date, ranging from 10
to105 mg/m2.
Of the adverse events observed, nausea and fatigue (all less
than or equal to Grade 2) were the most frequent
non-hematological toxicities. Anemia (all less than or equal to
Grade 2) was the most frequent hematological toxicity. In
addition, no neurotoxicity was observed. To date, the maximum
tolerated dose has not been reached. One reversible
dose-limiting toxicity was observed in the form of aspartate
aminotransferase elevation. The plasma pharmacokinetics of
GSK-923295 were dose-proportional and exhibited low
intra-patient and modest inter-patient variability.
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Preclinical: At the October 2008
EORTC NCI-AACR International Symposium, GSK
presented two posters containing preclinical data relating to
GSK-923295. The first poster concluded that positron emission
tomography using 2-[18F] fluoro-s-deoxy-d-glucose imaging may
provide a means of evaluating pharmacodynamic activity in
patients treated with GSK-923295. The second poster concluded
that GSK-923295 has dose-dependent pharmacodynamic activity in
Colo205 human xenografts.
We anticipate that GSK will initiate a Phase II clinical
trial of GSK-923295 in 2009.
Research
and Development Expense
Our research and development expense was $54.0 million,
$53.4 million and $49.2 million for 2008, 2007 and
2006, respectively, and $337.4 million for the period from
August 5, 1997 (date of inception) through
December 31, 2008. Total operating expense was
$71.5 million, $70.1 million and $64.5 million
for 2008, 2007 and 2006, respectively, and $440.4 million
for the period from date of inception through December 31,
2008.
Our
Patents and Other 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, 2008, we had 127 issued U.S. patents and
over 200 additional pending U.S. and foreign patent
applications. In addition, we have an exclusive license from the
University of California and Stanford University to 13 issued
U.S. patents and an issued European patent. 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 oncology drug candidates currently in
clinical trials, we have a U.S. patent covering ispinesib
that will expire in 2020, unless extended, and a
U.S. patent covering SB-743921 will expire in 2023, unless
extended. However, both ispinesib and SB-743921 are still in
clinical development and have not yet been approved by the FDA.
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 a patent covering the approved drug,
which extension could extend the term of the applicable patent
by up to a maximum of five additional years. We have
U.S. and foreign patent applications pending for
GSK-923295. At present, it is not known or determinable whether
patents will issue from any of these applications or what the
expiration dates would be for any patents that do issue.
With regard to our drug candidates directed to muscle biology
targets, we have U.S. and foreign patent applications
pending for each of our drug candidates and potential drug
candidates. We have received a notice of patent allowance from
the U.S. Patent and Trademark Office for a patent relating
to our cardiac muscle myosin activators. 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 patents that do issue.
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
15
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;
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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;
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others may independently develop similar or alternative
technologies or duplicate any of our technologies without
infringing our intellectual property rights;
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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;
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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;
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we may not develop additional proprietary technologies or drug
candidates that are patentable; or
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the patents of others may prevent us or our partners from
discovering, developing or commercializing our drug candidates.
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The defense and prosecution of intellectual property
infringement suits, interferences, oppositions and related legal
and administrative proceedings are costly, time-consuming to
pursue and result in diversion of 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 and potential 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.
Currently, we are aware of an issued U.S. patent and at
least one pending U.S. patent application assigned to
Curis, Inc. (Curis), relating to certain compounds
in the quinazolinone class. Ispinesib falls into this class of
compounds. The Curis U.S. patent claims a method of use for
inhibiting signaling by what is called the hedgehog pathway
using certain quinazolinone compounds. Curis also has pending
applications in Europe, Japan, Australia and Canada with claims
covering certain quinazolinone compounds, compositions thereof
and/or
methods of their use. Two of the Australian applications have
been allowed and two of the European applications have been
granted. We have opposed the granting of certain of these
patents to Curis in Europe and in Australia. Curis has withdrawn
one of the Australian applications. One of the European patents
which we opposed was recently revoked and is no longer valid in
Europe. Curis has appealed this decision.
Curis or its licensee may assert that the manufacture, use,
importation or sale of ispinesib may infringe one or more of
these patents. We believe that we have valid defenses against
the issued U.S. patent owned by Curis if it were to be
asserted against us. However, we cannot guarantee that a court
would find these defenses valid or that any additional
oppositions would be successful. We have not attempted to obtain
a license to these patents. If we decide to seek a license to
these patents, we cannot guarantee that such a license would be
available on acceptable terms, if at all.
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.
16
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 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 FDAs good laboratory
practice regulations;
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submission to the FDA of an 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;
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submission of a new drug application (NDA) to the
FDA;
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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
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FDA review and approval of the NDA prior to any commercial
marketing, sale or shipment of the drug.
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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.
Preclinical tests include laboratory evaluation of product
chemistry, formulation and stability, and studies to evaluate
toxicity in animals. The results of preclinical 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. Similar regulatory
procedures generally apply in those countries outside of the
United States where we conduct
17
clinical trials. 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
submission and approval, clinical trials are typically conducted
in the following three sequential phases, which may overlap:
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Phase I: These clinical trials are initially
conducted in a limited population to test the drug candidate for
safety, dose tolerance, absorption, metabolism, distribution and
excretion in healthy humans or, on occasion, in patients, such
as cancer patients. In some cases, particularly in cancer
trials, a sponsor may decide to conduct a Phase Ib
clinical trial, which is a second, safety-focused Phase I trial
typically designed to evaluate the impact of the drug candidate
in combination with currently approved drugs.
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Phase II: 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 II clinical trials may
be conducted by the sponsor to obtain information prior to
beginning larger and more expensive Phase III clinical
trials. Phase IIa clinical trials generally are designed to
study the pharmacokinetic or pharmacodynamic properties and
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 IIb clinical trial, which is a
second, typically larger, confirmatory Phase II trial that
could, if positive and accepted by the FDA, serve as a pilot or
pivotal clinical trial in the approval of a drug candidate.
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Phase III: These clinical trials are commonly
referred to as pivotal clinical trials. If the Phase II
clinical trials demonstrate that a dose range of the drug
candidate is effective and has an acceptable safety profile,
Phase III 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.
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In some cases, the FDA may condition approval of an NDA for a
drug candidate on the sponsors agreement to conduct
additional clinical trials to further assess the drugs
safety and effectiveness after NDA approval, known as
Phase IV clinical trials.
The Food and Drug Amendments Act of 2007 generally requires that
the clinical trials we conduct for our drug candidates, both
before and after approval, and the results of those trials, 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 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. Once the submission
has been accepted for filing, by law the FDA has 180 days
to review the application and respond to the applicant. The
review process is often significantly extended by FDA requests
for additional information or
18
clarification. 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 boards recommendations.
The FDA may deny approval of an NDA if the applicable regulatory
criteria are not satisfied, or it may require additional
clinical data, including data in a pediatric population, or an
additional pivotal Phase III 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 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 may require further testing, including Phase IV
clinical trials, and surveillance or restrictive distribution
programs to monitor the effect of approved drugs which have been
commercialized. The FDA has 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, 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.
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 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 cardiovascular diseases
and other diseases relating to muscle dysfunction and cancer,
each of which is highly competitive. We face significant
competition from most pharmaceutical companies and biotechnology
companies
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that are also researching and selling products designed to
address cardiovascular diseases, diseases and medical conditions
associated with skeletal muscle weakness and wasting, and
cancer. 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 cardiovascular diseases,
diseases where there is muscle dysfunction, and cancer, 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 reliability;
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the speed and cost-effectiveness at which we develop our drug
candidates;
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the selection of suitable indications for which to develop our
drug candidates;
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the successful completion of clinical development and laboratory
testing of our drug candidates;
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the timing and scope of any regulatory approvals we or our
partners obtain for our drug candidates;
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our or our partners ability to manufacture and sell
commercial quantities of our approved drugs to meet market
demand;
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acceptance of our drugs by physicians and other health care
providers;
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the willingness of third party payors to provide reimbursement
for the use of our drugs;
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our ability to protect our intellectual property and avoid
infringing the intellectual property of others;
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the quality and breadth of our technology;
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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
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the availability of substantial capital resources to fund
development and commercialization activities.
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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 CK-1827452 is approved for marketing by the FDA for heart
failure, that compound would compete against current generically
available therapies, such as milrinone, dobutamine or digoxin or
newer branded drugs such as nesiritide, and potentially against
other drug candidates in development. If approved for marketing
by the FDA, depending on the approved clinical indication, our
anti-cancer drug candidates such as ispinesib, SB-743921 and
GSK-923295 would compete against existing cancer treatments such
as paclitaxel (and its generic equivalents), docetaxel,
vincristine, vinorelbine, navelbine, ixabepilone and potentially
against other anti-cancer drug candidates that are currently in
development such as those that are reformulated taxanes, other
tubulin binding compounds or epothilones. We are also aware that
other companies are conducting research and development focused
on KSP and other mitotic kinesins, and other approaches to
inhibiting mitosis.
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 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.
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Employees
As of December 31, 2008, our workforce consisted of
110 full-time employees, 30 of whom hold Ph.D. or M.D.
degrees, or both, and 23 of whom hold other advanced degrees. Of
our total workforce, 81 are engaged in research and development
and 29 are engaged in business development, finance and
administration functions.
In September 2008, we announced a restructuring plan to realign
our workforce and operations in line with a strategic
reassessment of our research and development activities and
corporate objectives. As a result, we have focused our research
activities to our muscle contractility programs while continuing
our ongoing clinical trials in heart failure and cancer and
discontinued early research activities directed to oncology. To
implement this plan, we reduced our workforce by approximately
29%, or 45 employees, to 112 employees. The affected
employees were provided with severance payments and outplacement
assistance.
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.
Available
Information
We file electronically with the Securities and Exchange
Commission (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(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. The
public may read or copy any materials we file with the SEC at
the SECs 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
http://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
http://www.cytokinetics.com
or by contacting the Investor Relations Department at our
corporate offices by calling
650-624-3000.
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. It is not possible to predict or identify
all such factors and, therefore, you should not consider any of
these risk factors to be a complete statement of all the
potential risks or uncertainties that we face.
Risks
Related To Our Business
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 GSK, Amgen and others, equipment
financings, interest on investments and government grants. We
believe that our existing cash and cash equivalents, short-term
investments, interest earned on investments, proceeds from our
loan with UBS Bank USA and proceeds from our 2007 committed
equity financing facility with Kingsbridge 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.
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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. Until we can generate a sufficient
amount of product revenue, we expect to raise future capital
through public or private equity offerings, debt financings and
strategic alliance and licensing arrangements. We do not
currently have any commitments for future funding other than
milestone and royalty payments that we may receive under our
collaboration and license agreement with GSK and, if Amgen
exercises its option with respect to CK-1827452, option fees and
milestone and royalty payments that we may receive under our
collaboration and option agreement with Amgen. We may not
receive any further funds under either of these agreements. Our
ability to raise funds may be adversely impacted by current
economic conditions, including the effects of the recent
disruptions to the credit and financial markets in the United
States and worldwide. In particular, the pool of third-party
capital that in the past has been available to development-stage
companies such as ours has decreased significantly in recent
months, and such decreased availability may continue for a
prolonged period. 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 by issuing equity
securities, our stockholders will experience additional
dilution. To the extent that we raise additional funds through
strategic alliance and licensing arrangements, 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 through debt financing, the financing may involve
covenants that restrict our business activities. In addition,
such funding, if needed, may not be available to us on favorable
terms, or at all.
If we can not raise the funds we need to operate our business,
we will need to discontinue certain research and development
activities and our stock price likely would be negatively
affected.
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 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 in the early stages of clinical testing, and we
must conduct significant additional clinical trials before we
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 are significantly delayed in
clinical trials 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
have never generated, and may never generate, revenues from
commercial sales of our drugs and we may 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 have marketable drugs. We must demonstrate that our
drug candidates satisfy 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. CK-1827452, our drug candidate
for the potential treatment of heart failure, and ispinesib,
SB-743921 and GSK-923295, our drug candidates for the potential
treatment of cancer, are currently our only drug candidates in
clinical trials. We cannot be certain that the clinical
development of these or any future drug candidate will be
successful, that they will receive the regulatory approvals
required to commercialize them, 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 several years, if at all.
The
22
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 must adequately demonstrate to the FDA and
foreign regulatory authorities that the drug candidate is
sufficiently safe and effective with substantial evidence from
well-controlled clinical trials. In clinical trials we will need
to demonstrate efficacy for the treatment of specific
indications and monitor safety throughout the clinical
development process and possibly following approval. None of our
drug candidates have yet been demonstrated to be safe and
effective in clinical trials and they may never be. In addition,
for each of our current preclinical compounds, we must
adequately demonstrate satisfactory chemistry, formulation,
stability and toxicity in order to submit an IND to the FDA, or
an equivalent application in foreign jurisdictions, that would
allow us to advance that compound into clinical trials. If our
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 these applications are or have been filed
with respect to our drug candidates, the results of preclinical
studies do not necessarily predict the results of clinical
trials. For example, although preclinical testing indicated that
ispinesib causes tumor regression in a variety of tumor types,
to date, Phase II clinical trials of ispinesib have not
shown clinical activity in a number of different tumor types.
Similarly, for any of our drug candidates, the results from
Phase I clinical trials in healthy volunteers and clinical
results from Phase I and II trials in patients are not
necessarily indicative of the results of larger Phase III
clinical trials that are necessary to establish whether the drug
candidate is safe and effective for the applicable indication.
In addition, the clinical trials for any of our drug candidates
may not be designed with focus on the appropriate indications,
tumor types, patient populations, dosing regimens, safety or
efficacy parameters or other variables to provide the necessary
safety or efficacy data to support regulatory approval to
commercialize the resulting drugs. For example, in a number of
two-stage Phase II clinical trials designed to evaluate the
safety and efficacy of ispinesib as monotherapy in the first- or
second-line treatment of patients with different forms of
cancer, ispinesib did not satisfy the criteria for advancement
to Stage 2. Also, the methods we select to assess particular
safety or efficacy parameters may not yield the same statistical
precision in estimating our drug candidates effects as may
other alternative 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. Preclinical and
clinical data can be interpreted in different ways. Accordingly,
the FDA or foreign regulatory authorities could interpret these
data in different ways than we or our partners do, 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 effects. Toxicities and adverse effects 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 effects 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 to cease
clinical trials with respect to any drug candidate. If these or
other adverse effects 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. The FDA, other
regulatory authorities, our partners or we may suspend or
terminate clinical trials with our drug candidates at any time.
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 effects when used in large populations may
cause the FDA to impose restrictions on, or stop, the further
marketing of those drugs. Indications of potential adverse
effects or toxicities
23
which do not seem significant during the course of clinical
trials may later turn out to actually constitute serious adverse
effects or toxicities when a drug is used in large populations
or for extended periods of time.
We have observed certain adverse effects in the clinical trials
conducted with our drug candidates. For example, in clinical
trials of ispinesib, the most commonly observed dose-limiting
toxicity was neutropenia, a decrease in the number of a certain
type of white blood cell that results in an increase in
susceptibility to infection. In a Phase I clinical trial of
SB-743921, the dose-limiting toxicities observed were: prolonged
neutropenia, with or without fever and with or without
infection; elevated transaminases and hyperbilirubinemia, both
of which are abnormalities of liver function; and hyponatremia,
which is a low concentration of sodium in the blood. In a Phase
I clinical trial of CK-1827452, intolerable doses of CK-1827452
were associated with complaints 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
cardiac troponins I and T, which are markers of possible
myocardial injury.
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.
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 years. However, the clinical trials for all or any of
these drug candidates may take significantly longer to complete.
The commencement and completion of our 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;
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delays in identifying and reaching agreement, or inability to
identify and reach agreement, on acceptable terms, with
prospective clinical trial sites;
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delays or additional costs in developing, or inability to
develop, appropriate formulations of our drug candidates for
clinical trial use, including an appropriate modified release
formulation for CK-1827452;
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slower than expected rates of patient recruitment and
enrollment, including as a result of competition for patients
with other clinical trials; limited numbers of patients that
meet the enrollment criteria; patients,
investigators or trial sites reluctance to agree to
the requirements of a protocol; or the introduction of
alternative therapies or drugs by others;
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for those drug candidates that are the subject of a strategic
alliance, delays in reaching agreement with our partner as to
appropriate development strategies;
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an 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;
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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;
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lack of effectiveness of our drug candidates during clinical
trials;
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unforeseen safety issues;
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inadequate supply of clinical trial materials;
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24
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uncertain dosing issues;
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introduction of new therapies or changes in standards of
practice or regulatory guidance that render our clinical trial
endpoints or the targeting of our proposed indications obsolete;
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failure by us, our clinical research organizations,
investigators or site personnel to comply with good clinical
practices and other applicable laws and regulations;
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inability to monitor patients adequately during or after
treatment; and
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inability or unwillingness of medical investigators to follow
our clinical protocols.
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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.
We
have limited capacity to carry out our own clinical trials in
connection with the development of our drug candidates and, to
the extent we elect to develop a drug candidate without a
strategic partner, we will need to expand our development
capabilities and will require additional funding.
The development of drug candidates is complicated and expensive,
and we currently have limited financial and operational
resources to carry out drug development. In order to expand our
capability to conduct clinical development we will need to bring
additional skills, technical expertise and resources into our
organization, which will require significant additional funding.
Pursuant to our collaboration and option agreement with Amgen,
we are responsible for conducting Phase IIa clinical development
for our drug candidate CK-1827452. We cannot engage another
strategic partner for CK-1827452, except in Japan, until Amgen
elects not to exercise its option to conduct later-stage
clinical development for CK-1827452 or its option expires,
whichever is earlier. We intend to initiate a Phase IIb clinical
trial for CK-1827452 regardless of whether Amgen exercises its
option, which will require significant operational and financial
resources.
We have retained all rights to develop and commercialize
ispinesib and SB-743921. We currently do not have a strategic
partner for these drug candidates. Currently, we are conducting
the Phase I portion of a Phase I/II clinical trial for each of
ispinesib in breast cancer and SB-743921 in Hodgkin and
non-Hodgkin lymphoma. We intend to complete the Phase I portion
of each of these clinical trials. We rely on GSK to conduct
preclinical and clinical development for GSK-923295 in cancer.
If GSK elects to terminate its development activities with
respect to GSK-923295, we currently do not have an alternative
strategic partner for this drug candidates.
We intend to seek strategic partners or other third party
sources of funding for the future development and
commercialization of ispinesib and SB-743921, for CK-1827452 if
Amgen does not exercise its option and for GSK-923295 should GSK
terminate its development activities. We may be unable to enter
into an agreement with a third party that would provide
sufficient operational support and funding for the further
clinical development of these drug candidates on acceptable
terms, or at all. In that case, we would have to curtail or
abandon development of one or more of these drug candidates.
If we
fail to enter into and maintain successful strategic alliances
for our drug candidates, potential drug candidates or research
and development programs, we will have to reduce, delay or
discontinue our advancement of those drug candidates, potential
drug candidates and programs or increase our
expenditures.
Our strategy for developing, manufacturing and commercializing
our drug candidates and potential 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. We currently have strategic alliances with
Amgen relating to CK-1827452 and with GSK relating to
GSK-923295. Similarly, we expect to rely on one or more
strategic partners to advance and develop ispinesib and
SB-743921 and our potential drug candidates directed towards
skeletal sarcomere and smooth muscle contractility. However, we
may not be able to negotiate and enter into such strategic
alliances on acceptable terms, if at all. If we are not able to
25
maintain our existing strategic alliances or establish and
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. If we elect to continue to
conduct any of these drug development programs or research
programs on our own, we will need to obtain significant
additional capital, which may not be available to us on
acceptable terms or at all.
If
Amgen does not exercise its option for CK-1827452, we will have
to reduce, delay or discontinue our development of CK-1827452 or
increase our expenditures.
Our collaboration and option agreement with Amgen grants it an
option to obtain an exclusive license for the development and
commercialization rights for CK-1827452 world-wide, except
Japan. Amgens option is exercisable during a defined
period, the ending of which is dependent upon the satisfaction
of certain conditions, primarily the delivery of certain Phase I
and Phase IIa clinical trials data for CK-1827452 in accordance
with an agreed development plan, the results of which reasonably
support its progression into Phase IIb clinical development. We
believe we have completed delivery of this data to Amgen, which
can exercise its option by paying us a specified option fee
within the pre-defined option exercise period.
Amgen may elect not to exercise its option, irrespective of the
data that we provide, may dispute whether we have provided
sufficient information and data to require it to decide whether
to exercise its option, or may seek to require us to conduct
additional clinical trial activities prior to deciding whether
to exercise its option. If Amgen elects not to exercise its
option for CK-1827452, we would have to seek an alternative
strategic partner for the CK-1827452 development program.
However, we may not be able to negotiate and enter into such a
strategic alliance on acceptable terms, if at all. Without a
strategic partner, we would have to limit the size or scope of,
or delay or discontinue, development of CK-1827452 or undertake
and fund that development ourselves. If we elect to continue to
conduct development on our own, we will need to obtain
additional capital, which may not be available to us on
acceptable terms, or at all. Further, a decision by Amgen not to
exercise its option could negatively affect our stock price.
We
depend on GSK for the conduct, completion and funding of the
clinical development and commercialization of
GSK-923295.
Under our strategic alliance, GSK is responsible for the
clinical development and obtaining and maintaining regulatory
approval of our drug candidate GSK-923295 for cancer and other
indications. GSK is responsible for filing applications with the
FDA or other regulatory authorities for approval of GSK-923295
and will be the owner of any marketing approvals issued by the
FDA or other regulatory authorities for GSK-923295. If the FDA
or other regulatory authorities approve GSK-923295, GSK will
also be responsible for the marketing and sale of the resulting
drug, subject to our right to co-promote GSK-923295 in North
America if we exercise our option to co-fund certain later-stage
development activities for GSK-923295. However, even if we do
exercise our option to co-fund the development of GSK-923295, we
cannot control whether GSK will devote sufficient attention and
resources to the clinical trials program for GSK-923295 or will
proceed in an expeditious manner. Even if the FDA or other
regulatory agencies approve GSK-923295, GSK may elect not to
proceed with the commercialization of the resulting drug. GSK
generally has discretion to elect whether to pursue or abandon
the development of GSK-923295 and may terminate our strategic
alliance for any reason upon six months prior notice. These
decisions are outside our control. We do not control the
clinical development being conducted or that may be conducted in
the future by GSK, including 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 GSKs results.
If the initial results of one or more of its early clinical
trials do not meet GSKs expectations, GSK may elect to
terminate further development of GSK-923295 or certain of the
potential clinical trials for GSK-923295, even if the actual
number of patients treated at that time is relatively small. If
GSK abandons GSK-923295, it would result in a delay in or could
prevent us from commercializing GSK-923295, and would delay and
could prevent us from obtaining revenues for this drug
candidate. Disputes may arise between us and GSK, which may
delay or cause the termination of any GSK-923295 clinical
trials, result in significant litigation or arbitration, or
cause GSK to act in a manner that is not in our best interest.
If development of GSK-923295 does not progress for these or any
other
26
reasons, we would not receive further milestone payments or
royalties on product sales from GSK with respect to GSK-923295.
If GSK abandons development of GSK-923295 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 clinical development or
commercialization, curtail or abandon that clinical development
or commercialization, or undertake and fund the clinical
development of GSK-923295 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 GSK-923295
ourselves, we would have to curtail or abandon that development
or commercialization, which could harm our business.
The
success of our development activities depends in part on the
performance of our strategic partners, 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
particular, we are relying on GSK to conduct clinical
development of GSK-923295. GSK may modify its plans to conduct
that clinical development or may not proceed diligently with
that clinical development. In addition, if Amgen exercises its
option with respect to CK-1827452, it will then be responsible
for the clinical development of CK-1827452. We do not control
the clinical development of GSK-923295 being conducted by GSK or
that may be conducted in the future by GSK for GSK-923295 or by
Amgen for CK-1827452, including 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 their results. If our partners
fail to perform diligently, our potential for revenue from drugs
developed through our strategic alliances, if any, could be
dramatically reduced.
We
depend on contract research organizations to conduct our
clinical trials and have limited control over their
performance.
We utilize contract research organizations (CROs)
for our clinical trials of CK-1827452, ispinesib and SB-743921
within and outside of the United States. We do not have
operational 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 local
laws. Our CROs failure to carry out development activities
on our behalf according to our requirements and the FDAs
or other regulatory agencies standards and in accordance
with applicable 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. In addition, if a CRO
fails to perform as agreed, our ability to collect damages may
be contractually limited.
If we fail to develop the additional skills, technical expertise
and resources necessary to carry out the development of our drug
candidates or to effectively manage our CROs carrying out this
development or if our CROs fail to perform as agreed, the
commercialization of our drug candidates will be delayed or
prevented.
27
We
have no manufacturing capacity and depend on our strategic
partners or contract manufacturers to produce our clinical trial
drug supplies for each of our drug candidates and potential 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 or
potential 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. As a result, we rely on GSK to
conduct these activities for the ongoing clinical development of
GSK-923295. For CK-1827452, ispinesib and SB-743921, we rely on
a limited number of contract manufacturers, and, in particular,
we rely on single-source contract manufacturers for the active
pharmaceutical ingredient and the drug product supply for our
clinical trials. We expect to rely on contract manufacturers to
supply all future drug candidates for which we conduct clinical
development. If any of our existing or future contract
manufacturers fail to perform satisfactorily, it could delay
clinical 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 FDAs 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 may 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
scale-up
manufacturing of 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 small
quantities for preclinical studies and early-stage clinical
trials. In order to conduct larger scale or late-stage 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 it in larger quantities. We may not be
able to successfully 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
scale-up of
manufacturing may require additional validation studies, which
are costly and which the FDA must review and approve. In
addition, quality issues may arise during those
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
scale-up
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.
The
mechanisms of action of our drug candidates and potential 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
and potential drug candidates with 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 and
potential 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 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 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 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 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 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 CK-1827452, ispinesib, SB-743921 and
GSK-923295, we 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
29
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;
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others may independently develop similar or alternative
technologies or duplicate any of our technologies without
infringing our intellectual property rights;
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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;
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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;
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we may not develop additional proprietary technologies or drug
candidates that are patentable; or
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the patents of others may prevent us or our partners from
discovering, developing or commercializing our drug candidates.
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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;
therefore, we may not appropriately protect this intellectual
property and could thus lose 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.
Under our license agreement with the University of California
and Stanford University, we have obtained an exclusive license
to certain issued U.S. and European patents relating to
certain of our research activities. If we fail to fulfill our
obligations under this license agreement, including certain
diligence obligations, this agreement may be terminated, in
which case we would no longer have a license to these patents or
to future patents that may issue from the pending applications.
This may impair our ability to continue to practice the research
methods covered by the issued patents, which could harm our
business. Alternatively, our license rights may become
non-exclusive, which would allow the University of California
and Stanford University to grant third parties the right to
practice those patents.
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 U.S. Congress is currently considering bills
that could change U.S. law regarding, among other things,
post-grant review of issued patents and the calculation of
damages once patent infringement has been determined by a court
of law. If enacted into law, these provisions could severely
weaken patent protection in the United States. In addition, the
U.S. Patent and Trademark Office adopted new rules that
were to become effective on November 1, 2007, regarding
processes for
30
obtaining patents in the United States. However, a permanent
injunction preventing implementation of the new rules has been
issued. This decision is now being appealed. The new rules are
numerous and complex and, if made effective, generally are
expected to make it more difficult for patent applicants to
obtain patents, especially with regard to pharmaceutical
products and processes. If these rules changes become effective,
they would likely make it more difficult for us and others to
obtain patent protection in the United States for any future
drug candidates.
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 Sates
without repeating the extensive testing required of us or our
partners to obtain FDA approval. Regardless of any patent
protection, under current law, unless certain requirements are
met an application for a generic version of a new chemical
entity cannot be submitted to for five years after the FDA has
approved the original product. When that period expires, or if
it 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
products 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.
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 would 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.
Currently, we are aware of an issued U.S. patent and at
least one pending U.S. patent application assigned to
Curis, Inc., relating to certain compounds in the quinazolinone
class. Ispinesib falls into this class of compounds. The Curis
U.S. patent claims a method of use for inhibiting signaling
by what is called the hedgehog pathway using certain
quinazolinone compounds. Curis also has pending applications in
Europe, Japan, Australia and Canada with claims covering certain
quinazolinone compounds, compositions thereof
and/or
methods of their use. Two of the Australian applications have
been allowed and two of the European applications have been
granted. We have opposed the granting of certain of these
patents to Curis in Europe and in Australia. Curis has withdrawn
one of the Australian applications. One of the European patents
which we opposed was recently revoked and is no longer valid in
Europe. Curis has appealed this decision.
31
Curis or a third party may assert that the manufacture, use,
importation or sale of ispinesib may infringe one or more of
these patents. We believe that we have valid defenses against
the issued U.S. patent owned by Curis if it were to be
asserted against us. However, we cannot guarantee that a court
would find these defenses valid or that any additional
oppositions would be successful. We have not attempted to obtain
a license to these patents. If we decide to seek a license to
these patents, we cannot guarantee that such a license would be
available on acceptable terms, if at all.
Other future products of ours may be impacted by patents of
companies engaged in competitive programs with significantly
greater resources (such as Bayer AG, Merck & Co.,
Inc., Merck GmbH, Eli Lilly and Company, Bristol-Myers Squibb
and AstraZeneca). 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 on 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
managements attention from our core business operations;
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substantial damages for past infringement which we may have to
pay if a court determines that our drugs or technologies
infringe a competitors patent or other proprietary rights;
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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
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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.
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If any of these events occur, it could significantly harm our
business and negatively affect our stock price.
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, which, in either case, would have a
significant impact on our business.
Inventions discovered under our 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 would 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,
subject to our prior review. 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.
We may
be subject to claims that we or our employees have wrongfully
used or disclosed alleged 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 commercialize certain potential drugs, which
could significantly harm our business.
32
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, cancer
and other diseases for which our drug candidates may be useful
treatments. For example, if CK-1827452 is approved for marketing
by the FDA for heart failure, that drug candidate would compete
against other drugs used for the treatment of heart failure.
These include generic drugs, such as milrinone, dobutamine or
digoxin and newer marketed drugs such as nesiritide. CK-1827452
could also potentially compete against other novel drug
candidates in development, such as levosimendan, which is
marketed by Abbott Laboratories in a number of countries outside
of the United States; istaroxamine, which is being developed by
Debiopharm Group; rolofylline, which is being developed by
Merck & Co. Inc.; bucindolol, which is being developed
by ARCA biopharma, Inc.; BG9928, which is being developed by
Biogen Idec Inc.; and CD-NP, which is being developed by Nile
Therapeutics, Inc. In addition, there are a number of medical
devices being developed for the potential treatment of heart
failure.
Similarly, if approved for marketing by the FDA, depending on
the approved clinical indication, our anti-cancer drug
candidates such as ispinesib, SB-743921 and GSK-923295 would
compete against existing cancer treatments such as paclitaxel
(and its generic equivalents), docetaxel, vincristine,
vinorelbine, navelbine, ixabepilone and potentially against
other novel anti-cancer drug candidates that are currently in
development such as those that are reformulated taxanes, other
tubulin binding compounds or epothilones. We are also aware that
Merck & Co., Inc., Eli Lilly and Company,
Bristol-Myers Squibb, AstraZeneca AB, Array Biopharma Inc.,
ArQule, Inc., Anylam, Inc. and others are conducting research
and development focused on KSP and other mitotic kinesins. In
addition, Bristol-Myers Squibb, Merck & Co., Inc.,
Novartis, Genentech, Hoffman-La Roche Ltd., Eisai, Inc. and
other pharmaceutical and biopharmaceutical companies are
developing other approaches to inhibiting mitosis.
Our competitors may:
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develop drug candidates and market drugs that are less expensive
or more effective than our future drugs;
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commercialize competing drugs before we or our partners can
launch any drugs developed from our drug candidates;
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hold or obtain proprietary rights that could prevent us from
commercializing our products;
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initiate or withstand substantial price competition more
successfully than we can;
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more successfully recruit skilled scientific workers and
management from the limited pool of available talent;
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more effectively negotiate third-party licenses and strategic
alliances;
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take advantage of acquisition or other opportunities more
readily than we can;
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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
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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. These
competitors may, and in certain cases do, operate larger
research and development programs or have substantially greater
financial resources than we do. Our competitors may also have
significantly greater experience in:
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developing drug candidates;
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undertaking preclinical testing and clinical trials;
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33
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building relationships with key customers and opinion-leading
physicians;
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obtaining and maintaining FDA and other regulatory approvals of
drug candidates;
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formulating and manufacturing drugs; and
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launching, marketing and selling drugs.
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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 the
development of 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 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 staff 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
with 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 on our drugs on our own, we will depend on strategic
alliances with third parties, such as GSK and Amgen, 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
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 managements 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
34
and scientific and technical personnel. There is currently
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.
Our
workforce reductions in September 2008 and any future workforce
and expense reductions may have an adverse impact on our
internal programs and our ability to hire and retain skilled
personnel.
In September 2008, we reduced our workforce by approximately 29%
in order to reduce expenses and to focus on research activities
in our muscle contractility programs and advancing drug
candidates in our clinical pipeline. These headcount reductions
and the cost control measures we have implemented may negatively
affect our productivity and limit our research and development
activities. For example, as part of this strategic
restructuring, we have discontinued our early research
activities in oncology. Our future success will depend in large
part upon our ability to attract and retain highly skilled
personnel. We may have difficulty retaining and attracting such
personnel as a result of a perceived risk of future workforce
reductions. 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. 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.
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,
which 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 an NDA from the FDA.
Neither we nor our partners have received marketing approval for
any of Cytokinetics 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. Despite the time and efforts exerted, failure can occur
at any stage, and we could 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. 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 be safe or
effective;
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they might not find the data from preclinical testing and
clinical trials sufficient;
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they might not approve our, our partners or the contract
manufacturers processes or facilities; or
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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
35
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, such as continued safety reporting
requirements, and may also 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. 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 effects 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;
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clinical safety and efficacy of alternative drugs or treatments;
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cost-effectiveness;
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availability of coverage and reimbursement from health
maintenance organizations and other third-party payors;
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convenience and ease of administration;
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prevalence and severity of adverse side effects;
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other potential disadvantages relative to alternative treatment
methods; or
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insufficient marketing and distribution support.
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If our drugs fail to achieve market acceptance, we may not be
able to generate significant revenue and our business would
suffer.
The
coverage and reimbursement status of newly approved drugs is
uncertain and failure to obtain adequate coverage and
reimbursement could limit our ability to market any drugs we may
develop and decrease our ability to generate
revenue.
Even if one or more of our drugs is approved for sale, the
commercial success of our drugs in both domestic and
international markets will be substantially dependent on whether
third-party coverage and reimbursement is available for our
drugs by the medical profession for use by their patients, which
is highly uncertain. Medicare, Medicaid, health maintenance
organizations and other third-party payors are increasingly
attempting to contain
36
healthcare costs by limiting both coverage and the level of
reimbursement of new drugs. As a result, they may not cover or
provide adequate payment for our drugs. They may not view our
drugs as cost-effective and reimbursement may not be available
to consumers or may be insufficient to allow our drugs to be
marketed on a competitive basis. If we are unable to obtain
adequate coverage and reimbursement for our drugs, our ability
to generate revenue will be adversely affected. Likewise,
legislative or regulatory efforts to control or reduce
healthcare costs or reform government healthcare programs could
result in lower prices or rejection of coverage and
reimbursement for our potential drugs. Changes in coverage and
reimbursement policies or healthcare cost containment
initiatives that limit or restrict reimbursement for our drugs
would cause our revenue to decline.
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 effects. We cannot predict all the possible harms or
adverse effects 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
partys 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 limited product
liability insurance coverage, but may not be able to obtain such
insurance on acceptable terms with adequate coverage, or at
reasonable costs. There is also a risk that third parties that
we have agreed to indemnify could incur liability, or that third
parties that have agreed to indemnify us do not fulfill their
obligations. 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. If product recalls occur, they are
generally expensive and often have an adverse effect on the
reputation of the drugs being recalled and of the drugs
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.
To the
extent we elect to fund the development of a drug candidate or
the commercialization of a drug at our expense, we will need
substantial additional funding.
The discovery, development and commercialization of new drugs
for the treatment of a wide array of diseases is costly. As a
result, to the extent we elect to fund the development of a drug
candidate or the commercialization of a drug, we will need to
raise additional capital to:
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expand our research and development capabilities;
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fund clinical trials and seek regulatory approvals;
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build or access manufacturing and commercialization capabilities;
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implement additional internal systems and infrastructure;
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maintain, defend and expand the scope of our intellectual
property; and
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hire and support additional management and scientific personnel.
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37
Our future funding requirements will depend on many factors,
including, but not limited to:
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the rate of progress and cost of our clinical trials and other
research and development activities;
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the costs and timing of seeking and obtaining regulatory
approvals;
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the costs associated with establishing manufacturing and
commercialization capabilities;
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the costs of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights;
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the costs of acquiring or investing in businesses, products and
technologies;
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the effect of competing technological and market developments;
and
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the payment and other terms and timing of any strategic
alliance, licensing or other arrangements that we may establish.
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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
public or private equity offerings, debt financings and
strategic alliances. 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.
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 use or the use by third
parties 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 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 single
location in South San Francisco, California near active
earthquake zones. If a natural disaster, such as an earthquake
or flood, a catastrophic event such as a disease pandemic or
terrorist attack or localized extended outages 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 months and years, has
experienced significant volatility, particularly with respect to
pharmaceutical, biotechnology and other life sciences company
stocks, which often does not relate
38
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:
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results from, delays in, or discontinuation of, any of the
clinical trials for our drug candidates, such as CK-1827452 for
heart failure, ispinesib for breast cancer, SB-743921 for
Hodgkin and non-Hodgkin lymphoma and GSK-923295 for cancer,
including delays resulting from slower than expected or
suspended patient enrollment or discontinuations resulting from
a failure to meet pre-defined clinical end-points;
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announcements concerning our strategic alliances with Amgen, GSK
or future strategic alliances, including, but not limited to,
announcements concerning Amgens option relating to
CK-1827452;
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announcements concerning clinical trials for our drug candidates;
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failure or delays in entering additional drug candidates into
clinical trials;
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failure or discontinuation of any of our research programs;
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issuance of new or changed securities analysts reports or
recommendations;
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failure or delay in establishing new strategic alliances, or the
terms of those alliances;
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market conditions in the pharmaceutical, biotechnology and other
healthcare-related sectors;
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actual or anticipated fluctuations in our quarterly financial
and operating results;
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developments or disputes concerning our intellectual property or
other proprietary rights;
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introduction of technological innovations or new products by us
or our competitors;
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issues in manufacturing our drug candidates or drugs;
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market acceptance of our drugs;
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third-party healthcare coverage and reimbursement policies;
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FDA or other U.S. or foreign regulatory actions affecting
us or our industry;
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litigation or public concern about the safety of our drug
candidates or drugs;
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additions or departures of key personnel; or
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volatility in the stock prices of other companies in our
industry or in the stock market generally.
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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
managements time and attention.
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 28, 2009, our executive officers, directors
and their affiliates beneficially owned or controlled
approximately 25.4% of the outstanding shares of our common
stock (after giving effect to the exercise of all outstanding
vested and unvested options 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.
39
Volatility
in the stock prices of other companies may contribute to
volatility in our stock price.
The stock market in general, and The NASDAQ Global Market
(NASDAQ) 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 development 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 companys 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
managements 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.
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, new Securities and Exchange Commission
(SEC) regulations and NASDAQ Stock Market LLC rules
are creating uncertainty for public companies. We are presently
evaluating and monitoring developments with respect to new and
proposed rules and cannot predict or estimate the amount of the
additional costs we may incur 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
the commitment of significant resources to document and test the
adequacy of our internal control over financial reporting. Our
assessment, testing and evaluation of the design and operating
effectiveness of our internal control over financial reporting
resulted in our conclusion that, as of December 31, 2008,
our internal control over financial reporting was effective to
ensure that information we are required to disclose in reports
that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in SEC rules and forms, and that such information is
accumulated and communicated to management as appropriate to
allow timely decisions regarding required disclosures. However,
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 will require us to file corporate
financial statement information in a new interactive data format
known as XBRL beginning in 2011. We will incur significant costs
and need to invest considerable resources to implement and to
remain in compliance with these new requirements.
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 are
committed to maintaining 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.
40
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.
Risks
Related To Our Financing Vehicles and Investments
Our
committed equity financing facility with Kingsbridge may not be
available to us if we elect to make a draw down, may require us
to make additional blackout or other payments to
Kingsbridge, and may result in dilution to our
stockholders.
In October 2007, we entered into a committed equity financing
facility with Kingsbridge. This committed equity financing
facility entitles us to sell and obligates Kingsbridge to
purchase, from time to time over a period of three years, shares
of our common stock for cash consideration up to an aggregate of
$75.0 million, subject to certain conditions and
restrictions. Kingsbridge will not be obligated to purchase
shares under this committed equity financing facility unless
certain conditions are met, which include a minimum volume
weighted average price of $2.00 for our common stock; the
accuracy of representations and warranties made to Kingsbridge;
compliance with laws; effectiveness of the registration
statement registering for resale the shares of common stock to
be issued in connection with this committed equity financing
facility; and the continued listing of our stock on NASDAQ. In
addition, Kingsbridge is permitted to terminate this committed
equity financing facility if it determines that a material and
adverse event has occurred affecting our business, operations,
properties or financial condition and if such condition
continues for a period of 10 days from the date Kingsbridge
provides us notice of such material and adverse event. If we are
unable to access funds through this committed equity financing
facility, we may be unable to access capital on reasonable terms
or at all.
We are entitled, in certain circumstances, to deliver a blackout
notice to Kingsbridge to suspend the use of the resale
registration statement and prohibit Kingsbridge from selling
shares under the resale registration statement. If we deliver a
blackout notice in the 15 trading days following the settlement
of a draw down, or if the registration statement is not
effective in circumstances not permitted by the agreement, then
we must make a payment to Kingsbridge, or issue Kingsbridge
additional shares in lieu of this payment. This payment or
issuance of shares is calculated based on the number of shares
actually held by Kingsbridge pursuant to the most recent draw
down under the committed equity financing facility and the
change in the market price of our common stock during the period
in which the use of the registration statement is suspended. If
the trading price of our common stock declines during a
suspension of the registration statement, the blackout or other
payment could be significant.
When we choose to sell shares to Kingsbridge under this
committed equity financing facility, or issue shares in lieu of
a blackout payment, it will have a dilutive effect on our
current stockholders holdings, and may result in downward
pressure on the price of our common stock. If we draw down under
this committed equity financing facility, we will issue shares
to Kingsbridge at a discount of up to 10% from the volume
weighted average price of our common stock. If we draw down
amounts under this committed equity financing facility when our
share price is decreasing, we will need to issue more shares to
raise the same amount of cash than if our stock price was
higher. Issuances in the face of a declining share price will
have an even greater dilutive effect than if our share price
were stable or increasing, and may further decrease our share
price.
We may
be required to record impairment charges in future quarters as a
result of the decline in value of our investments in auction
rate securities.
We hold interest-bearing student loan auction rate securities
(ARS) that represent investments in pools of assets.
These ARS were intended to provide liquidity via an auction
process that resets the applicable interest rate at
predetermined calendar intervals, allowing investors to either
roll over their holdings or gain immediate liquidity by selling
such interests at par value. The recent uncertainties in the
credit markets have affected all of our holdings in ARS and
auctions for our investments in these securities have failed to
settle on their respective settlement dates. Consequently, these
investments are not currently liquid and we will not be able to
access these funds until a future auction of these investments
is successful, the issuer redeems the outstanding securities,
the securities mature or a
41
buyer is found outside of the auction process. Maturity dates
for these ARS range from 2036 to 2045. To date, we have recorded
$3.4 million of unrealized loss in Statement of Operations
related to the ARS that we hold in our investment portfolio.
However, if the current market conditions deteriorate further,
or the anticipated recovery in market values does not occur, we
may be required to record additional unrealized losses due to
further declines in value in future quarters. This could
adversely impact our results of operations and financial
condition. Furthermore, in light of auction failures associated
with our ARS, we re-classified our ARS as long-term investments
due to the uncertainty associated with the timing of our ability
to access the funds underlying these investments. We have
entered into a settlement agreement with UBS AG relating to the
failed auctions of our ARS through which UBS AG and its
affiliates may provide us with additional funds based on these
ARS. However, if we are unable to access the funds underlying or
secured by these investments in a timely manner, we may need to
find alternate sources of funding for certain of our operations,
which may not be available on favorable terms, or at all, and
our business could be adversely affected.
We may not be able to recover the value of our ARS under
our settlement agreement with UBS AG.
We have entered into a settlement agreement with UBS AG relating
to the failed auctions of our ARS through which UBS AG and its
affiliates may provide us with additional funds based on these
ARS. In accepting the settlement offer, we agreed to give up
certain rights and accept certain risks. Under this settlement,
UBS AG has issued to us
Series C-2
Auction Rate Securities Rights (the ARS Rights). The
ARS Rights entitle us to require UBS AG to purchase our ARS,
through UBS Securities LLC and UBS Financial Services Inc. (the
UBS Entities) as agents for UBS AG, from
June 30, 2010 through July 2, 2012 at par value, i.e.,
at a price equal to the liquidation preference of the ARS plus
accrued but unpaid interest, if any. In connection with the ARS
Rights, we granted to the UBS Entities the right to sell or
otherwise dispose of,
and/or enter
orders in the auction process with respect to, our ARS on our
behalf at its discretion, so long as we receive a payment of par
value upon any sale or disposition. The ARS Rights are not
transferable, tradable or marginable, and will not be listed or
quoted on any securities exchange or any electronic
communications network. If our ARS are sold through the UBS
Entities, we will cease to receive interest on these ARS. We may
not be able to reinvest the cash proceeds of any sale of these
ARS at the same interest rate currently being paid to us with
respect to our ARS.
In connection with the settlement, we entered into a loan
agreement with UBS Bank USA and UBS Financial Services Inc., and
on January 5, 2009 borrowed approximately
$12.4 million under the loan agreement. We have drawn down
the full amount available under the loan agreement. The
borrowings under the loan agreement are payable upon demand,
subject to UBS Financial Services obligations to arrange
alternative financing for us under certain circumstances.
While we entered into the settlement in expectation that UBS AG
will fulfill its obligations in connection with the ARS Rights,
UBS AG may not have sufficient financial resources to satisfy
these obligations. The United States and worldwide financial
markets have recently experienced unprecedented volatility,
particularly in the financial services sector. UBS AG may not be
able to maintain the financial resources necessary to satisfy
its obligations with respect to the ARS Rights in a timely
manner or at all. UBS AGs obligations in connection with
the ARS Rights are not secured by UBS AGs assets or
otherwise, nor guaranteed by any other entity. UBS AG is not
required to obtain any financing to support its obligations. If
UBS AG is unable to perform its obligations in connection with
the ARS Rights, we will have no certainty as to the liquidity or
value for our ARS. In addition, UBS AG is a Swiss bank and all
or a substantial portion of its assets are located outside the
United States. As a result, it may be difficult for us to serve
legal process on UBS AG or its management or cause any of them
to appear in a U.S. court. Judgments based solely on
U.S. securities laws may not be enforceable in Switzerland.
As a result, if UBS AG fails to fulfill its obligations, we may
not be able to effectively seek recourse against it.
In consideration for the ARS Rights, we agreed to release UBS
AG, the UBS Entities,
and/or their
affiliates, directors, and officers from any claims directly or
indirectly relating to the marketing and sale of our ARS, other
than consequential damages. Even if UBS AG fails to fulfill its
obligations in connection with ARS Rights, this release may
still be held to be enforceable.
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Item 1B.
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Unresolved
Staff Comments
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None.
42
Our facilities consist of approximately 81,587 square feet
of research and office space. We lease 50,195 square feet
located at 280 East Grand Avenue in South San Francisco,
California until 2013 with an option to renew that lease over
that timeframe. We also lease 31,392 square feet at 256
East Grand Avenue in South San Francisco, California until
2011. We believe that these facilities are suitable and adequate
for our current needs.
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Item 3.
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Legal
Proceedings
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We are not a party to any material legal proceedings.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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There were no matters submitted to a vote of the security
holders during the fourth quarter of 2008.
43
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Our common stock is quoted on the NASDAQ Global Market under the
symbol CYTK, and has been quoted on such market
since our initial public offering on April 29, 2004. Prior
to such date, there was no public market for our common stock.
The following table sets forth the high and low closing sales
price per share of our common stock as reported on the NASDAQ
Global Market for the periods indicated.
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Closing Sale Price
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High
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Low
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Fiscal 2007:
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First Quarter
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$
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8.60
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$
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6.56
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Second Quarter
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$
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7.38
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$
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5.65
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Third Quarter
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$
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5.77
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$
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4.58
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Fourth Quarter
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$
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6.25
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$
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4.40
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Fiscal 2008:
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First Quarter
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$
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4.73
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$
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3.00
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Second Quarter
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$
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4.17
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$
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2.81
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Third Quarter
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$
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5.69
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$
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3.61
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Fourth Quarter
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$
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4.43
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$
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2.00
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On February 27, 2009, the last reported sale price for our
common stock on the NASDAQ Global Market was $1.58 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 27, 2009, there were 133 holders
of record of our common stock.
On December 29, 2006, in connection with entering into a
collaboration and option agreement with Amgen, we
contemporaneously entered into a common stock purchase agreement
with Amgen, which provided for the sale of 3,484,806 shares
of our common stock at a price per share of $9.47, an aggregate
purchase price of approximately $33.0 million, and a
registration rights agreement that provides Amgen with certain
registration rights with respect to these shares. The shares
were issued to Amgen on January 2, 2007. Pursuant to the
common stock purchase agreement, Amgen has agreed to certain
trading and other restrictions with respect to our common stock.
We relied on the exemption from registration contained in
Section 4(2) of the Securities Act in connection with the
issuance and sale of the shares to Amgen.
The following table summarizes stock repurchase activity for the
quarter ended December 31, 2008:
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Total Number
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Maximum
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of Shares
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Number of
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Purchased as
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Shares That
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Part of Publicly
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May Yet Be
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Total Number
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Average
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Announced
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Purchased
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of Shares
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Price Paid per
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Plans or
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Under the Plans
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Period
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Repurchased
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Share
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Programs
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|
|
or Programs
|
|
|
October 1 to October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1 to November 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1 to December 31, 2008
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The shares repurchased were unvested registered common stock
that we repurchased from employees upon termination of
employment. As December 31, 2008, 396,460 shares of
common stock held by employees were subject to repurchase by us.
44
Equity
Compensation Information
Information regarding our equity compensation plans and the
securities authorized for issuance thereunder is set forth in
Part III, Item 12.
Comparison of Historical Cumulative Total Return Among
Cytokinetics, Incorporated, the NASDAQ Stock Market (U.S.) Index
and the NASDAQ Biotechnology Index(*)
|
|
|
(*) |
|
The above graph shows the cumulative total stockholder return of
an investment of $100 in cash on April 29, 2004, the date
our common stock began to trade on the NASDAQ Global Market,
through December 31, 2008 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. |
|
|
|
|
|
|
|
|
|
|
|
4/29/04
|
|
|
12/31/08
|
|
|
Cytokinetics, Incorporated
|
|
$
|
100.00
|
|
|
$
|
17.70
|
|
NASDAQ Stock Market (U.S.) Index
|
|
$
|
100.00
|
|
|
$
|
65.20
|
|
NASDAQ Biotechnology Index
|
|
$
|
100.00
|
|
|
$
|
90.49
|
|
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 Securities and
Exchange Commission (SEC), nor shall such
information be incorporated by reference into any future filing
under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that we
specifically incorporate it by reference into such filing.
Sales of
Unregistered Securities
None.
45
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data should be read in
conjunction with Item 7, Managements 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenues from related party
|
|
$
|
186
|
|
|
$
|
1,388
|
|
|
$
|
1,622
|
|
|
$
|
4,978
|
|
|
$
|
9,338
|
|
Research and development, grant and other revenues
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
1,134
|
|
|
|
1,304
|
|
License revenues from related parties
|
|
|
12,234
|
|
|
|
12,234
|
|
|
|
1,501
|
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
12,420
|
|
|
|
13,622
|
|
|
|
3,127
|
|
|
|
8,912
|
|
|
|
13,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
53,950
|
|
|
|
53,388
|
|
|
|
49,225
|
|
|
|
40,570
|
|
|
|
39,885
|
|
General and administrative
|
|
|
15,076
|
|
|
|
16,721
|
|
|
|
15,240
|
|
|
|
12,975
|
|
|
|
11,991
|
|
Restructuring charges
|
|
|
2,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
71,499
|
|
|
|
70,109
|
|
|
|
64,465
|
|
|
|
53,545
|
|
|
|
51,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(59,079
|
)
|
|
|
(56,487
|
)
|
|
|
(61,338
|
)
|
|
|
(44,633
|
)
|
|
|
(38,434
|
)
|
Interest and other, net
|
|
|
2,705
|
|
|
|
7,593
|
|
|
|
4,223
|
|
|
|
2,381
|
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(56,374
|
)
|
|
$
|
(48,894
|
)
|
|
$
|
(57,115
|
)
|
|
$
|
(42,252
|
)
|
|
$
|
(37,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted(2)
|
|
$
|
(1.14
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
(1.56
|
)
|
|
$
|
(1.48
|
)
|
|
$
|
(1.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net loss per common
share basic and diluted(1)(2)
|
|
|
49,392
|
|
|
|
47,590
|
|
|
|
36,618
|
|
|
|
28,582
|
|
|
|
19,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short- and long-term investments(1)
|
|
$
|
73,503
|
|
|
$
|
139,764
|
|
|
$
|
109,542
|
|
|
$
|
76,212
|
|
|
$
|
110,253
|
|
Restricted cash
|
|
|
2,750
|
|
|
|
5,167
|
|
|
|
6,034
|
|
|
|
5,172
|
|
|
|
5,980
|
|
Working capital
|
|
|
36,033
|
|
|
|
95,568
|
|
|
|
127,228
|
|
|
|
67,600
|
|
|
|
98,028
|
|
Total assets
|
|
|
87,454
|
|
|
|
155,370
|
|
|
|
169,516
|
|
|
|
91,461
|
|
|
|
128,101
|
|
Long-term portion of equipment financing lines
|
|
|
2,615
|
|
|
|
4,639
|
|
|
|
7,144
|
|
|
|
6,636
|
|
|
|
8,106
|
|
Deficit accumulated during the development stage
|
|
|
(335,907
|
)
|
|
|
(279,533
|
)
|
|
|
(230,639
|
)
|
|
|
(173,524
|
)
|
|
|
(131,272
|
)
|
Total stockholders equity(1)
|
|
|
49,766
|
|
|
|
99,916
|
|
|
|
106,313
|
|
|
|
73,561
|
|
|
|
107,556
|
|
|
|
|
(1) |
|
Our initial public offering was declared effective by the SEC
and our common stock commenced trading on April 29, 2004.
We sold 7,935,000 shares of common stock in the offering
for net proceeds of approximately $94.0 million. In
addition, we sold 538,461 shares of our common stock to
GlaxoSmithKline (GSK) |
46
|
|
|
|
|
immediately prior to the closing of the initial public offering
for net proceeds of approximately $7.0 million. Also in
conjunction with the initial public offering, all of the
outstanding shares of our convertible preferred stock were
converted into 17,062,145 shares of our common stock. In
December 2005, we sold 887,576 shares of common stock to
Kingsbridge Capital Limited (Kingsbridge) pursuant
to the committed equity financing facility we entered into with
Kingsbridge in 2005 for net proceeds of $5.5 million. In
2006, we sold 10,285,715 shares in two registered direct
offerings for net proceeds of approximately $66.9 million,
and sold 2,740,735 shares of common stock to Kingsbridge
pursuant to the 2005 committed equity financing facility for net
proceeds of $17.0. In 2007, we sold 2,075,177 shares of
common stock to Kingsbridge pursuant to the 2005 committed
equity financing facility for net proceeds of $9.5 million.
In January 2007, we issued 3,484,806 shares of Cytokinetics
common stock to Amgen for net proceeds of $32.9 million in
connection with a common stock purchase agreement with Amgen. |
|
(2) |
|
All share and per share amounts have been retroactively adjusted
to give effect to the
1-for-2
reverse stock split that occurred on April 26, 2004. |
|
|
Item 7.
|
Managements
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.
Overview
We are a clinical-stage biopharmaceutical company focused on the
discovery and development of novel small molecule therapeutics
that modulate muscle function for the potential treatment of
serious diseases and medical conditions. Our research and
development activities are founded on our knowledge and
expertise regarding the cytoskeleton, a complex biological
infrastructure that plays a fundamental role within every human
cell. These activities initially focused on inhibitors of cell
division, and are now directed to the biology of muscle
function, and in particular, to small molecule modulators of the
contractility of cardiac, smooth and skeletal muscle. We intend
to leverage our experience in muscle contractility in order to
expand our current pipeline into new therapeutic areas, and
expect to continue to be able to identify additional potential
drug candidates that may be suitable for clinical development.
We have four drug candidates currently in human clinical trials:
CK-1827452 is in Phase IIa clinical trials for the potential
treatment of heart failure; ispinesib is the subject of a Phase
I/II clinical trial in breast cancer patients; SB-743921 is the
subject of a Phase I/II clinical trial in patients with Hodgkin
or non-Hodgkin lymphoma; and GSK-923295 is the subject of Phase
I clinical trial in patients with advanced solid tumors. We also
have three potential drug candidates currently in preclinical
development: CK-2017357, a skeletal sarcomere activator which
may be developed for diseases or medical conditions associated
with muscle weakness or wasting; a
back-up
development compound for CK-2017357; and an inhibitor of smooth
muscle myosin intended for inhaled delivery that may be useful
as a potential treatment of diseases such as pulmonary arterial
hypertension, asthma or chronic obstructive pulmonary disease.
Muscle
Contractility Programs
Cardiac
Muscle Contractility
Our lead drug candidate, CK-1827452, a novel cardiac muscle
myosin activator for the potential treatment of heart failure,
is currently in Phase IIa clinical development to evaluate the
safety, tolerability, pharmacodynamics and pharmacokinetic
profile of this drug candidate in both an intravenous and oral
formulation.
In December 2008, we announced top-line results from a Phase IIa
clinical trial evaluating the safety of
CK-1827452
in patients with ischemic cardiomyopathy and angina. The primary
safety endpoint was defined as stopping an exercise test during
double-blind treatment with CK-1827452 or placebo due to
unacceptable angina at an earlier exercise stage than at
baseline. This endpoint was observed in one patient receiving
placebo and did not occur in any patient receiving CK-1827452.
We anticipate presenting final data from this clinical trial in
2009.
47
At the November 2008 Scientific Sessions of the American Heart
Association, we reported interim results from a Phase IIa
clinical trial evaluating CK-1827452 administered intravenously
to patients with stable heart failure. The interim results
showed that CK-1827452 demonstrated statistically significant
increases in systolic ejection time and fractional shortening at
plasma concentrations greater than 100 ng/mL and statistically
significant increases in stroke volume at plasma concentrations
greater than 200 ng/mL. There were also statistically
significant increases in ejection fraction at CK-1827452 plasma
concentrations greater than 300 ng/mL when ejection fraction was
calculated by a hybrid method in which stroke volume, measured
using Doppler technology, was divided by the left ventricular
end-diastolic volume, measured using two-dimensional
echocardiography. In addition, these data demonstrated
statistically significant correlations between increasing
CK-1827452 plasma concentration and increases in systolic
ejection time, stroke volume, fractional shortening, ejection
fraction and cardiac output. The results also showed
statistically significant correlations between increasing
CK-1827452 concentrations and decreases in supine and standing
heart rate and left ventricular end-systolic volume. This trial
was planned to consist of 5 cohorts. We recently completed
treatment of Cohort 5 of this trial. We anticipate presenting
final data from this clinical trial at the Annual Meeting of the
American College of Cardiology in March 2009.
We are continuing to conduct an open-label, non-randomized Phase
IIa clinical trial designed to evaluate an intravenous
formulation of CK-1827452 administered to patients with stable
heart failure undergoing clinically indicated coronary
angiography. In addition, we have conducted five Phase I
clinical trials of CK-1827452 in healthy subjects: a
first-time-in-humans study evaluating an intravenous
formulation, an oral bioavailability study evaluating both
intravenous and oral formulations, and three studies of oral
formulations: a drug-drug interaction study, a dose
proportionality study and a study evaluating modified-release
formulations.
We believe the safety data from our Phase IIa clinical trial
evaluating the safety and tolerability of CK-1827452 in patients
with ischemic cardiomyopathy and angina, together with the
improvements in systolic function observed in our Phase IIa
clinical trial evaluating CK-1827452 in stable heart failure
patients, support the progression of
CK-1827452
into Phase IIb clinical development. In mid-2009, we anticipate
the initiation of a Phase IIb clinical trial of CK-1827452 in
chronic heart failure outpatients at increased risk for death
and hospitalization. In the second quarter of 2009, we
anticipate initiating an additional Phase IIa clinical trial
designed to evaluate the pharmacokinetics of both a modified
release and an immediate release formulation of CK-1827452 in
patients with heart failure.
In December 2006, we entered into a collaboration and option
agreement with Amgen Inc. to discover, develop and commercialize
novel small-molecule therapeutics that activate cardiac muscle
contractility for potential applications in the treatment of
heart failure, including CK-1827452. The agreement provides
Amgen with a non-exclusive license and access to certain
technology. The agreement also granted Amgen an option to obtain
an exclusive license world-wide, except Japan, to develop and
commercialize CK-1827452 and other drug candidates arising from
the collaboration. Amgens option is exercisable during a
defined period, the ending of which is dependent upon the
satisfaction of certain conditions, primarily our delivery of
certain Phase I and Phase IIa clinical trials data for
CK-1827452 in accordance with an agreed development plan, the
results of which may reasonably support its progression into
Phase IIb clinical development. In February 2009, we announced
that we believe we completed delivery of this data to Amgen.
Prior to the exercise or expiration of Amgens option, we
are responsible for conducting all development activities for
CK-1827452, at our own expense.
To exercise its option, Amgen would pay an exercise fee of
$50.0 million and thereafter would be responsible for the
development and commercialization of CK-1827452 and related
compounds, at its expense, subject to Cytokinetics
development and commercialization participation rights.
Following exercise of the option, the agreement provides for
potential pre-commercialization and commercialization milestone
payments of up to $600.0 million in the aggregate on
CK-1827452 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 agreement also provides for us to
receive increased royalties by co-funding Phase III
development costs of drug candidates under the collaboration. If
we elect to co-fund such costs, we would be entitled to
co-promote CK-1827452 in North America and participate in agreed
commercialization activities in institutional care settings, at
Amgens expense. If Amgen elects not to exercise its option
to CK-1827452, we may then independently proceed to develop and
commercialize CK-1827452, ourselves or with another partner.
48
The clinical trials program for CK-1827452 may proceed for
several years, and we will not be in a position to generate any
revenues or material net cash flows from this drug candidate
until the program is successfully completed, regulatory approval
is achieved, and a drug is commercialized. CK-1827452 is at too
early a stage of development for us to predict when or if this
may occur. We currently fund all research and development costs
associated with this program. We recorded research and
development expenses for activities relating to our cardiac
muscle contractility program of approximately
$20.9 million, $22.4 million and $18.1 million in
the years ended December 31, 2008, 2007 and 2006,
respectively. We anticipate that our expenditures relating to
the research and development of compounds in our cardiac muscle
contractility program will increase significantly as we advance
CK-1827452 through clinical development. Our expenditures will
also increase if Amgen does not exercise its option and we elect
to develop CK-1827452 or related compounds independently, or if
we elect to co-fund later-stage development of CK-1827452 or
other compounds in our cardiac muscle contractility program
under our collaboration and option agreement with Amgen
following Amgens exercise of its option.
Skeletal
Muscle Contractility
In April 2008, we announced that we had selected CK-2017357 as
the lead potential drug candidate from this program. We expect
to submit an investigational new drug application
(IND) with the U.S. Food and Drug
Administration (FDA) to initiate a Phase I clinical
trial of CK-2017357 in healthy volunteers in 2009. In January
2009, we announced that we had selected another compound from
this program as a backup development compound to CK-2017357.
CK-2017357 and its backup development compound are structurally
distinct small molecule activators of the skeletal sarcomere.
These potential drug candidates act on the troponin regulatory
complex of the skeletal sarcomere. Activation of the troponin
complex increases its sensitivity to calcium, leading to an
increase in skeletal muscle contractility. This mechanism of
action has demonstrated encouraging pharmacological activity in
preclinical models. We are evaluating the potential indications
for which CK-2017357 may be useful. These may include diseases
and medical conditions associated with skeletal muscle weakness
or wasting, such as amyotrophic lateral sclerosis, also known as
ALS or Lou Gehrigs disease, cachexia in connection with
heart failure or cancer, sarcopenia and general frailty
associated with aging.
CK-2017357 is at too early a stage of development for us to
predict if or when we will be in a position to generate any
revenues or material net cash flows from its commercialization.
We currently fund all research and development costs associated
with this program. We recorded research and development expenses
for activities relating to our skeletal muscle contractility
program of approximately $10.5 million, $5.9 million
and $2.1 million in the years ended December 31, 2008,
2007 and 2006, respectively. We anticipate that our expenditures
relating to the research and development of compounds in our
skeletal muscle contractility program will increase
significantly if and as we advance CK-2017357, its
back-up
compound or other compounds from this program through clinical
development.
Smooth
Muscle Contractility
In January 2009, we announced that we had selected a lead
potential drug candidate from this program for advancement. This
compound is a small molecule direct inhibitor of smooth muscle
myosin. By inhibiting the function of the myosin motor central
to the contraction of smooth muscle, this small molecule
directly leads to the relaxation of contracted smooth muscle.
Specifically intended for inhaled delivery applications, this
potential drug candidate has demonstrated encouraging
pharmacological activity in preclinical models as a novel
mechanism vasodilator and bronchodilator. This data suggests
that it may be useful as a potential treatment of diseases such
as pulmonary arterial hypertension, asthma or chronic
obstructive pulmonary disease. This potential drug candidate is
currently in IND-enabling studies. This potential drug candidate
is at too early a stage of development for us to predict if or
when we will be in a position to generate any revenues or
material net cash flows from its commercialization. We currently
fund all research and development costs associated with this
program. We recorded research and development expenses for
activities relating to our smooth muscle contractility program
of approximately $7.3 million, $7.0 million and
$7.0 million in the years ended December 31, 2008,
2007 and 2006, respectively. We anticipate that our expenditures
relating to the research and development of compounds in our
smooth muscle contractility program will increase significantly
if and as we advance this smooth muscle myosin inhibitor or
other compounds from this program through clinical development.
49
Oncology
Program: Mitotic Kinesin Inhibitors
We currently have three drug candidates in clinical trials for
the potential treatment of cancer: ispinesib,
SB-743921
and GSK-923295. All of these arose from our earlier research
activities directed to the role of the cytoskeleton in cell
division and have been progressed under our strategic alliance
with GSK. This strategic alliance was established in 2001 to
discover, develop and commercialize novel small molecule
therapeutics targeting mitotic kinesins for applications in the
treatment of cancer and other diseases. Mitotic kinesins are a
family of cytoskeletal motor proteins involved in the process of
cell division, or mitosis. Under that strategic alliance, we
have focused primarily on two mitotic kinesins: kinesin spindle
protein (KSP) and centromere-associated protein E
(CENP-E).
In November 2006, we amended the agreement and assumed
responsibility, at our expense, for the continued research,
development and commercialization of inhibitors of KSP,
including ispinesib and
SB-743921,
and other mitotic kinesins, other than CENP-E. GSK retained an
option to resume responsibility for the development and
commercialization of either or both of ispinesib and SB-743921.
This option expired at the end of 2008. Accordingly, we retain
all rights to both ispinesib and SB-743921, subject to certain
royalty obligations to GSK. In each of June 2006, 2007 and 2008,
we amended the agreement to extend the research term of the GSK
strategic alliance for an additional year to continue joint
translational research directed to CENP-E.
Ispinesib
Under our strategic alliance, GSK, in collaboration with the
National Cancer Institute, conducted a broad Phase II
clinical trials program designed to evaluate ispinesib across
multiple tumor types. To date, we believe some clinical activity
for ispinesib has been observed in non-small cell lung, ovarian
and breast cancers, with the most clinical activity observed in
a Phase II clinical trial evaluating ispinesib in the
treatment of patients with locally advanced or metastatic breast
cancer that had failed treatment with taxanes and
anthracyclines. In addition, preclinical and Phase Ib clinical
data relating to ispinesib indicate that it may have an additive
effect when combined with certain existing chemotherapeutic
agents.
As a result of GSKs option expiring, we have retained all
development and commercialization rights to ispinesib. We are
conducting a Phase I/II clinical trial for ispinesib to further
define its clinical activity profile in chemotherapy-naïve
locally advanced or metastatic breast cancer patients. This
clinical trial is using a more dose-dense schedule than was
previously evaluated to determine if the overall response to
ispinesib can be increased while maintaining its existing safety
profile. We intend to complete the Phase I portion of this trial
and to seek a strategic partner for the future development and
commercialization of ispinesib.
SB-743921
SB-743921 was studied by GSK in a dose-escalating Phase I
clinical trial evaluating its safety, tolerability and
pharmacokinetics in advanced cancer patients when administered
intravenously on a once every
21-day
schedule. The observed toxicities at the recommended
Phase II dose were manageable. As a result of GSKs
option expiring, we have retained all development and
commercialization rights to SB-743921. We are conducting a Phase
I/II clinical trial evaluating SB-743921 in patients with
Hodgkin and non-Hodgkin lymphoma on a more dose-dense schedule
than was previously evaluated. We intend to complete the Phase I
portion of this trial and to seek a strategic partner for the
future development and commercialization of SB-743921.
GSK-923295
Under our strategic alliance, GSK is responsible, at its
expense, for the development of and commercialization of
GSK-923295. GSK is currently conducting a first-time-in-humans
Phase I clinical trial of GSK-923295 in patients with advanced,
refractory solid tumors. We anticipate that GSK will initiate a
Phase II clinical trial of
GSK-923295
in 2009. We will receive royalties from GSKs sales of any
drugs developed under the strategic alliance. For those drug
candidates that GSK develops under the strategic alliance, we
can elect to co-fund certain later-stage development activities
which would increase our potential royalty rates on sales of
resulting drugs and provide us with the option to secure
co-promotion rights in North America. If we elect to co-fund
later-stage development, we expect that the royalties to be paid
on future sales of GSK-923295 could potentially increase based
on increasing product sales and our anticipated level of
co-funding. If we exercise our co-promotion option, then we
50
are entitled to receive reimbursement from GSK for certain sales
force costs we incur in support of our commercialization
activities.
The clinical trials program for each of ispinesib, SB-743921 and
GSK-923295 may proceed for several years, and we will not be in
a position to generate any revenues or material net cash flows
from any of these drug candidates until its clinical trials
program is successfully completed, regulatory approval is
achieved and a drug is commercialized. Each of these drug
candidates is at too early a stage of development for us to
predict when or if this may occur. We currently fund all
research and development costs associated with ispinesib and
SB-743921. If we continue to conduct our Phase I/II clinical
trials for either or both of ispinesib and SB-743921, our
expenditures relating to research and development of these drug
candidate will increase significantly. We recorded research and
development expenses for activities relating to our mitotic
kinesins oncology program of approximately $7.0 million,
$5.8 million and $6.1 million in the years ended
December 31, 2008, 2007 and 2006, respectively. We received
and recognized as revenue reimbursements from GSK of FTE and
other expenses related to our mitotic kinesins oncology program
of $0.2 million, $0.4 million and $1.6 million
for the years ended December 31, 2008, 2007 and 2006,
respectively,
Development
Risks
The successful development of any of our drug candidates is
highly uncertain. We cannot estimate with certainty or know the
exact nature, timing and costs of the activities necessary to
complete the development of any of our drug candidates or the
date of completion of these development activities due to
numerous risks and uncertainties, including, but not limited to:
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the uncertainty of the timing of the initiation and completion
of patient enrollment and treatment in our clinical trials;
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the possibility of delays in the collection of clinical trial
data and the uncertainty of the timing of the analyses of our
clinical trial data after these trials have been initiated and
completed;
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our potential inability to obtain additional funding and
resources for our development activities on acceptable terms, if
at all, including, but not limited to, our potential inability
to obtain or retain partners to assist in the design,
management, conduct and funding of clinical trials;
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delays or additional costs in manufacturing of our drug
candidates for clinical trial use, including developing
appropriate formulations of our drug candidates;
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the uncertainty of clinical trial results;
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the uncertainty of obtaining FDA or other foreign regulatory
agency approval required for the clinical investigation of our
drug candidates;
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the uncertainty related to the development of commercial scale
manufacturing processes and qualification of a commercial scale
manufacturing facility; and
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possible delays in the characterization, synthesis or
optimization of potential drug candidates.
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If we fail to complete the development of any of our drug
candidates in a timely manner, it could have a material adverse
effect on our operations, financial position and liquidity. In
addition, any failure by us or our partners to obtain, or any
delay in obtaining, regulatory approvals for our drug candidates
could have a material adverse effect on our results of
operations. A further discussion of the risks and uncertainties
associated with completing our programs on schedule, or at all,
and certain consequences of failing to do so are discussed
further in the risk factors entitled We have never
generated, and may never generate, revenues from commercial
sales of our drugs and we may not have drugs to market for at
least several years, if ever, 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
and Clinical trials are expensive, time-consuming and
subject to delay, and other risk factors.
51
Revenues
Our current revenue sources are limited, and we do not expect to
generate any revenue from product sales for several years, if at
all. We have recognized revenues from our strategic alliances
with Amgen and GSK for license fees and contract research
activities.
Under our collaboration and option agreement with Amgen, we
received an upfront, non-refundable license and technology
access fee of $42.0 million. In connection with entering
into the agreement, we also entered into a common stock purchase
agreement with Amgen. In January 2007, we issued
3,484,806 shares of our common stock to Amgen for net
proceeds of $32.9 million, of which the $6.9 million
purchase premium was recorded as deferred revenue. We are
amortizing the upfront fee and stock premium to license revenue
ratably over the maximum term of the non-exclusive license,
which is four years. We may receive additional payments from
Amgen upon achieving certain precommercialization and
commercialization milestones. Milestone payments are
non-refundable and are recognized as revenue when earned, as
evidenced by achievement of the specified milestones and the
absence of ongoing performance obligations.
We may also be eligible to receive reimbursement for contract
development activities subsequent to Amgens option
exercise, which we will record as revenue if and when the
related expenses are incurred. We record amounts received in
advance of performance as deferred revenue.
Revenues from GSK in 2006 were based on negotiated rates
intended to approximate the costs for our full-time employee
equivalents (FTEs) performing research under the
strategic alliance and our
out-of-pocket
expenses, which we recorded as the related expenses were
incurred. GSK paid us an upfront licensing fee, which we
recognized ratably over the strategic alliances initial
five-year research term, which ended in June 2006. In 2007, we
received a $1.0 million milestone payment from GSK relating
to its initiation of a Phase I clinical trial of
GSK-923295.
We may receive additional payments from GSK upon achieving
certain precommercialization milestones. Milestone payments are
non-refundable and are recognized as revenue when earned, as
evidenced by achievement of the specified milestones and the
absence of ongoing performance obligations. We record amounts
received in advance of performance as deferred revenue. The
revenues recognized to date are non-refundable, even if the
relevant research effort is not successful. In December 2008,
GSKs option to license ispinesib and SB-743291 expired and
all rights to these drug candidates remain with us under the
collaboration and license agreement, subject to our royalty
obligations to GSK. GSK continues to conduct the development of
GSK-923295 under the agreement.
Because a substantial portion of our revenues for the
foreseeable future will depend on achieving development and
other precommercialization milestones under our strategic
alliances with GSK and, if Amgen exercises its option, Amgen,
our results of operations may vary substantially from year to
year.
We expect that our future revenues will most likely be derived
from royalties on sales from drugs licensed to GSK or Amgen
under our strategic alliances and from those licensed to future
partners, and from direct sales of our drugs. If Amgen exercises
its option, we will retain a
product-by-product
option to co-fund certain later-stage development activities
under our strategic alliance with Amgen, thereby potentially
increasing our royalties and affording us co-promotion rights in
North America. For those products being developed by GSK under
our strategic alliance, we also retain a
product-by-product
option to co-fund certain later-stage development activities,
thereby potentially increasing our royalties and affording us
co-promotion rights in North America. If we exercise our
co-promotion rights under either strategic alliance, we are
entitled to receive reimbursement for certain sales force costs
we incur in support of our commercial activities.
Research
and Development
We incur research and development expenses associated with both
partnered and unpartnered research activities. Research and
development expenses related to our strategic alliance with GSK
consisted primarily of costs related to research and screening,
lead optimization and other activities relating to the
identification of compounds for development as mitotic kinesin
inhibitors for the treatment of cancer. Prior to June 2006,
certain of these costs were reimbursed by GSK on an FTE basis.
From 2001 through November 2006, GSK funded the majority of the
costs related to the clinical development of ispinesib and
SB-743921. Under our amended
52
collaboration and license agreement with GSK, we assumed
responsibility for the continued research, development and
commercialization of inhibitors of KSP, including ispinesib and
SB-743921, and other mitotic kinesins other than CENP-E, at our
sole expense. We also have the option to co-fund certain
later-stage development activities for GSK-923295. Our conduct
of the development of ispinesib and SB-743921 and the potential
exercise of our co-funding option for GSK-923295 would result in
a significant increase in research and development expenses. We
expect to incur research and development expenses in the
continued conduct of preclinical studies and clinical trials
for: CK-1827452 for the potential treatment of heart failure;
CK-2017357 and other skeletal sarcomere activators for the
potential treatment of diseases and medical conditions
associated with muscle weakness or wasting; our smooth muscle
myosin inhibitor potential drug candidate and other smooth
muscle myosin inhibitor compounds for the potential treatment of
pulmonary arterial hypertension and diseases and medical
conditions associated with bronchoconstriction; ispinesib for
the potential treatment of breast cancer; SB-743921 for the
potential treatment of Hodgkin and non-Hodgkin lymphoma; and in
connection with our research programs in other disease areas.
Research and development expenses related to any development and
commercialization activities we elect to fund would consist
primarily of employee compensation, supplies and materials,
costs for consultants and contract research, facilities costs
and depreciation of equipment. From our inception through
December 31, 2008, we incurred costs of approximately
$119.8 million for research and development activities
relating to our cardiac muscle contractility program,
$18.4 million for our skeletal muscle contractility
program, $26.5 million for our smooth muscle contractility
program, $67.2 million for our mitotic kinesin inhibitors,
$52.7 million for our proprietary technologies and
$52.8 million for other research programs.
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 and professional fees for accounting and legal services,
including legal services associated with obtaining and
maintaining patents and regulatory compliance. We expect that
general and administrative expenses will increase in 2009.
Restructuring
In September 2008, we announced a restructuring plan to realign
our workforce and operations in line with a strategic
reassessment of our research and development activities and
corporate objectives. As a result, we have focused our research
activities to our muscle contractility programs while continuing
our ongoing clinical trials in heart failure and cancer and have
discontinued early research activities directed to oncology. To
implement this plan, we reduced our workforce by approximately
29%, or 45 employees, to 112 employees. The affected
employees were provided with severance payments and outplacement
assistance.
We have completed substantially all restructuring activities and
recognized all anticipated restructuring charges. All severance
payments were made as of December 31, 2008. We expect to
record only immaterial charges to the accrued restructuring
costs during 2009, primarily related to employee benefits and
outplacement services.
As a result of the restructuring plan, in 2008, we recorded
total restructuring charges of $2.2 million for employee
severance and benefit related costs and a $0.3 million
charge related to the impairment of lab equipment that is held
for sale. We expect to sell the
held-for-sale
equipment by September 2009.
53
Stock
Compensation
The following table summarizes stock-based compensation related
to employee stock options, restricted stock awards and employee
stock purchases for 2008, 2007 and 2006, which was allocated as
follows (in thousands):
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|
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|
|
|
|
|
|
|
|
Years Ended December 31,
|
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2008
|
|
|
2007
|
|
|
2006
|
|
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Research and development
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$
|
2,794
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|
|
$
|
2,932
|
|
|
$
|
2,532
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|
General and administrative
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|
|
2,812
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|
|
|
2,621
|
|
|
|
2,111
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation included in operating expenses
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|
$
|
5,606
|
|
|
$
|
5,553
|
|
|
$
|
4,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, there was $7.9 million of
total unrecognized compensation cost related to non-vested stock
options compensation arrangements granted under our stock plans.
That cost is expected to be recognized over a weighted-average
period of 2.4 years. The total unrecognized compensation
expense related to restricted stock awards as of
December 31, 2008 was $0.8 million and is expected to
be recognized over a weighted-average period of 1.7 years.
In addition, through 2008, we continued to amortize deferred
stock-based compensation recorded prior to adoption of Statement
of Financial Accounting Standards (SFAS)
No. 123R, Accounting for Stock-Based
Compensation, for stock options granted prior to the
initial public offering. The remaining balance became fully
amortized in the fourth quarter of 2008 and the balance of
deferred stock based compensation was zero at December 31,
2008.
Income
Taxes
We account for income taxes in accordance with
SFAS No. 109, Accounting for Income
Taxes, which is the asset and liability method for
accounting and reporting for income taxes. 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. We have not recorded an income tax provision in the
years ended December 31, 2008, 2007 and 2006 because we had
a net taxable loss in each of those periods. Given that we have
a history of recurring losses, we have recorded a full valuation
allowance against our deferred tax assets. We had federal net
operating loss carryforwards of approximately
$292.1 million and state net operating loss carryforwards
of approximately $95.4 million at December 31, 2008.
If not utilized, the federal and state operating loss
carryforwards will expire in various amounts beginning 2018 and
2010, respectively. Due to California states temporary
suspension of net operating losses in 2008 and 2009, the state
carryover period will be extended by two additional years for an
net operating losses sustained in pre-2008 tax years. The net
operating loss carryforwards include deductions for stock
options. When utilized, the portion related to stock options
deductions will be accounted for as a credit to
stockholders equity rather than as a reduction of the
income tax provision.
We had research credit carryforwards of approximately
$9.2 million and $10.6 million for federal and state
income tax purposes, respectively, at December 31, 2008. If
not utilized, the federal carryforwards will expire in various
amounts beginning in 2018. The California state credit can be
carried forward indefinitely.
The Tax Reform Act of 1986 limits the use of net operating loss
and tax credit carryforwards in certain situations where equity
transactions resulted in a change of ownership as defined by
Internal Revenue Code Section 382. During the year ended
December 31, 2007, we conducted a study and determined that
our use of our federal research credit is subject to such a
restriction. Accordingly, we reduced our deferred tax assets and
the corresponding valuation allowance by $0.8 million. As a
result, the research credit amount as of December 31, 2007
reflects the restriction on our ability to use the credit.
On January 1, 2007, we adopted the provisions of Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of SFAS 109
(FIN 48). The new standard defines the
threshold for recognizing the benefits of tax return positions
in the financial statements as more-likely-than-not
to be sustained by the taxing authorities based solely on the
technical merits of the position. If the recognition threshold
is met, the tax benefit is measured and recognized as the
largest amount of tax benefit, in
54
our judgment, which is greater than 50% likely to be realized.
The cumulative effect of adopting FIN 48 on January 1,
2007 resulted in no FIN 48 liability on the Balance Sheet.
The total amount of unrecognized tax benefits as of the date of
adoption was $3.1 million. We are currently not subject to
income tax examinations. In general, the statute of limitations
for tax liabilities for these years remains open for purpose of
adjusting the amounts of the losses and credits carried forward
from those years.
Interest and penalties were zero for 2008. We account for
interest and penalties by classifying both as income tax expense
in the Financial Statements. Because we have recorded a full
valuation allowance on all our deferred tax assets, FIN 48
has had no impact on our effective tax rate. We do not expect
our unrecognized tax benefits to change materially over the next
12 months.
Results of Operations
Years ended December 31, 2008, 2007 and 2006
Revenues
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|
|
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Years Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Research and development revenues from related party
|
|
$
|
0.2
|
|
|
$
|
1.4
|
|
|
$
|
1.6
|
|
|
$
|
(1.2
|
)
|
|
$
|
(0.2
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)
|
License revenues from related parties
|
|
|
12.2
|
|
|
|
12.2
|
|
|
|
1.5
|
|
|
|
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
12.4
|
|
|
$
|
13.6
|
|
|
$
|
3.1
|
|
|
$
|
(1.2
|
)
|
|
$
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
We recorded total revenues of $12.4 million,
$13.6 million, and $3.1 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Research and development revenues from related party refers to
revenues from our partner GSK, which is also a stockholder of
Cytokinetics. Research and development revenues from GSK of
$0.2 million in 2008 consisted of patent expense
reimbursements. Research and development revenues from GSK of
$1.4 million in 2007 consisted of a $1.0 milestone
payment for GSKs initiation of a Phase I clinical trial of
GSK-923295 in patients with solid tumors, and patent expense
reimbursements of $0.4 million. Research and development
revenues from GSK of $1.6 million in 2006 consisted of
$1.4 million for the reimbursement of FTEs and
approximately $0.2 million for patent expense
reimbursements. FTE reimbursements from GSK terminated in June
2006 due to the conclusion of the initial five-year research
term under the GSK Agreement for all mitotic kinesins except
CENP-E. The FTE sponsorship was determined annually by GSK and
us in accordance with the annual research plan and contractually
predefined FTE support levels. In each of June 2006, 2007, and
2008, the research term of our strategic alliance with GSK was
extended for an additional year under an updated research plan
focused only on CENP-E without corresponding FTE reimbursement.
In December 2008, GSKs option to license each of
ispinesib and SB-743921 as provided under the
parties collaboration and license agreement expired.
Accordingly, we retain all rights to both ispinesib and
SB-743921, subject to certain royalty obligations to GSK.
License revenues from related parties represents license revenue
from our strategic alliances with Amgen and GSK. License revenue
from Amgen was $12.2 million in 2008, $12.2 million in
2007 and $0.1 million in 2006, and represented recognition
of the upfront license fee and the premium paid on the common
stock purchase by Amgen. As of December 31, 2008, our
remaining balance of Amgen deferred revenue was
$24.5 million. We are amortizing the Amgen deferred revenue
on a straight-line basis over the maximum term of the
non-exclusive license granted to Amgen under the collaboration
and option agreement, which is four years. License revenue from
GSK was zero in each of 2008 and 2007 and $1.4 million in
2006. The license revenue from GSK was amortized on a
straight-line basis over the agreements initial research
term, which ended in June 2006.
55
Research
and development expenses
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|
|
|
|
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|
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|
Increase
|
|
|
|
Years Ended December 31,
|
|
|
(Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Research and development expenses
|
|
$
|
54.0
|
|
|
$
|
53.4
|
|
|
$
|
49.2
|
|
|
$
|
0.6
|
|
|
$
|
4.2
|
|
Research and development expenses increased $0.6 million in
2008 compared to 2007, and increased $4.2 million in 2007
compared to 2006. The slight increase in 2008 research and
development expenses, compared to 2007, was primarily due to an
increase of $3.7 million related to our cardiac muscle
contractility and mitotic kinesin inhibitors clinical trial
programs, partially offset by decreases of $1.7 million in
personnel expenses, $0.8 million in laboratory expense and
$0.5 million in facilities expenses. The increase in 2007
R&D expenses, compared to 2006, was primarily due to
increases of $2.5 million related to our cardiac muscle
contractility and mitotic kinesin inhibitors clinical trial
programs and preclinical outsourcing costs, $1.5 million
for personnel expenses and $0.3 million for facility
expense.
From a program perspective, the increase in research and
development spending in 2008, compared to 2007, was due to
increases of $4.6 million for our skeletal muscle
contractility program and $1.2 million for our mitotic
kinesin inhibitors development program, $0.3 million for
our smooth muscle contractility program, partially offset by the
decreases in spending for $1.5 million for our cardiac
muscle contractility program, $3.0 million for our other
research programs and $1.0 million for proprietary
technologies. The increase in research and development spending
in 2007, compared to 2006, was due to increases of
$4.3 million for our cardiac muscle contractility program
and $3.8 million for our skeletal muscle contractility
program, partially offset by decreases of $0.3 million in
spending for our mitotic kinesin inhibitors development program,
$1.9 million for our proprietary technologies and
$1.7 million of our other research programs.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Cardiac muscle contractility
|
|
$
|
20.9
|
|
|
$
|
22.4
|
|
|
$
|
18.1
|
|
|
$
|
(1.5
|
)
|
|
$
|
4.3
|
|
Skeletal muscle contractility
|
|
|
10.5
|
|
|
|
5.9
|
|
|
|
2.1
|
|
|
|
4.6
|
|
|
|
3.8
|
|
Smooth muscle contractility
|
|
|
7.3
|
|
|
|
7.0
|
|
|
|
7.0
|
|
|
|
0.3
|
|
|
|
|
|
Mitotic kinesin inhibitors
|
|
|
7.0
|
|
|
|
5.8
|
|
|
|
6.1
|
|
|
|
1.2
|
|
|
|
(0.3
|
)
|
Proprietary technologies
|
|
|
2.9
|
|
|
|
3.9
|
|
|
|
5.8
|
|
|
|
(1.0
|
)
|
|
|
(1.9
|
)
|
All other research programs
|
|
|
5.4
|
|
|
|
8.4
|
|
|
|
10.1
|
|
|
|
(3.0
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
54.0
|
|
|
$
|
53.4
|
|
|
$
|
49.2
|
|
|
$
|
0.6
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2007, and 2006, GSK
reimbursed costs of $0.2 million, $0.4 million and
$1.6 million, respectively, of research and development
activities relating to the discovery of mitotic kinesin
inhibitors. We recorded these reimbursements as related party
revenue.
Clinical development timelines, likelihood of success and total
completion costs vary significantly for each drug candidate and
are difficult to estimate. We anticipate that we will make
determinations as to which early research programs to pursue and
how much funding to direct to each program on an ongoing basis
in response to 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.
We expect our research and development expenditures to decrease
in 2009, as a result of our restructuring in September 2008. We
expect to continue development of our drug candidate CK-1827452
for the potential treatment of heart failure and our potential
drug candidates CK-2017357 for the potential treatment of
diseases and medical conditions associated with muscle weakness
or wasting, and our smooth muscle myosin inhibitor for the
potential treatment of pulmonary arterial hypertension and
diseases and medical conditions associated with
56
bronchoconstriction, and our Phase I clinical development of our
drug candidates ispinesib and SB-743921 for the potential
treatment of cancer. For 2009, we anticipate research and
development expenses to be in the range of $42.5 million to
$46.5 million. Non-cash expenses such as stock-based
compensation and depreciation of approximately $4.5 million
are included in the 2009 research and development expenses.
General
and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
General and administrative expenses
|
|
$
|
15.1
|
|
|
$
|
16.7
|
|
|
$
|
15.2
|
|
|
$
|
(1.6
|
)
|
|
$
|
1.5
|
|
General and administrative expenses decreased $1.6 million
in 2008, compared with 2007, and increased $1.5 million in
2007, compared with 2006. The decrease in general and
administrative expenses in 2008, compared to 2007, was primarily
due to decreases of $0.9 million in personnel expenses and
$0.8 million in legal expenses. The increase in general and
administrative expenses in 2007, compared to 2006 expenses, was
primarily due to increases in personnel expenses of
$1.5 million, outside services, including audit, accounting
and tax fees, of $0.4 million, and facilities costs of
$0.4 million. These increases were partially offset by a
$0.8 million decrease in legal expenses.
We expect that general and administrative expenses will increase
in 2009. For 2009, we anticipate general and administrative
expenses to be in the range of $17.0 million to
$18.0 million. Non-cash expenses such as stock-based
compensation and depreciation of approximately $3.0 million
are included in the 2009 general and administrative expenses.
Interest
and Other, Net
Components of interest and other, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Years Ended December 31,
|
|
|
(Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Unrealized gain on put option
|
|
$
|
3.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.4
|
|
|
$
|
|
|
Unrealized loss on trading securities
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
|
|
Interest income and other income
|
|
|
3.2
|
|
|
|
8.3
|
|
|
|
4.7
|
|
|
|
(5.1
|
)
|
|
|
3.6
|
|
Interest expense and other expense
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other, net
|
|
$
|
2.7
|
|
|
$
|
7.6
|
|
|
$
|
4.2
|
|
|
$
|
(4.9
|
)
|
|
$
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments that we designate as trading securities are reported
at fair value, with gains or losses resulting from changes in
fair value recognized in earnings and are included in interest
and other, net. We classified our investments in auction rate
securities (ARS) as trading securities as of
December 31, 2008.
In connection with the failed auctions of our ARS, which were
marketed and sold by UBS AG and its affiliates, in October 2008,
we accepted a settlement with UBS AG pursuant to which UBS AG
has issued to us
Series C-2
Auction Rate Securities Rights (the ARS Rights). The
ARS Rights provide us the right to receive the par value of our
ARS, i.e., the liquidation preference of the ARS plus accrued
but unpaid interest. We elected to measure the ARS Rights at
fair value under SFAS No. 159, The Fair Value
Option for Financial Assets and Liabilities
(SFAS 159) to mitigate volatility in
reported earnings due to its linkage to the ARS. As of
December 31, 2008, we recorded $3.4 million as fair
value of the put option assets, classified as long-term assets
on the Balance Sheet as December 31, 2008, with a
corresponding credit to interest and other, net. The ARS Rights
are discussed in detail below under the heading Liquidity
and Capital Resources.
Interest income and other income consists primarily of interest
income generated from our cash, cash equivalents and
investments. The decrease in interest and other income in 2008,
compared to 2007, was due to lower average balances of cash,
cash equivalents and investments and lower market interest
rates. The increase in interest
57
and other income in 2007, compared to 2006, was primarily due to
higher average balances of cash, cash equivalents and short-term
investments.
Interest expense and other expense primarily consists of
interest expense on borrowings under our equipment financing
lines. The decrease in interest and other expense in 2008,
compared to 2007, was due to lower average outstanding balances,
partially offset by higher average effective interest rates. The
increase in interest and other expense in 2007, compared to
2006, was due to higher average effective interest rates and
higher average outstanding balances. The total balance
outstanding under our equipment financing lines was
$4.6 million at December 31, 2008 and
$8.7 million at December 31, 2007, respectively.
Liquidity
and Capital Resources
From August 5, 1997, our date of inception, through
December 31, 2008, we funded our operations through the
sale of equity securities, equipment financings, non-equity
payments from collaborators, government grants and interest
income.
Our cash, cash equivalents and investments, excluding restricted
cash, totaled $73.5 million at December 31, 2008, down
$66.3 million from $139.8 million at December 31,
2007. The decrease was primarily due to the use of cash to fund
operations.
We have received net proceeds from the sale of equity securities
of $315.3 million from August 5, 1997, the date of our
inception, through December 31, 2008, excluding sales of
equity to GSK and Amgen. Included in these proceeds are
$94.0 million received upon closing of the initial public
offering of our common stock in May 2004. In connection with
execution of our collaboration and license agreement in 2001,
GSK made a $14.0 million equity investment in Cytokinetics.
GSK made additional equity investments in Cytokinetics in 2003
and 2004 of $3.0 million and $7.0 million,
respectively.
In 2005, we entered into our first committed equity financing
facility with Kingsbridge pursuant to which Kingsbridge
committed to finance up to $75.0 million of capital for a
three-year period. Subject to certain conditions and
limitations, from time to time under this committed equity
financing facility, at our election, Kingsbridge purchased
newly-issued shares of our common stock at a price between 90%
and 94% of the volume weighted average price on each trading day
during an eight day, forward-looking pricing period.
We received gross proceeds from draw downs and sales of our
common stock to Kingsbridge under this facility as follows:
2005 gross proceeds of $5.7 million from the
sale of 887,576 shares, before offering costs of $178,000;
2006 gross proceeds of $17.0 million from the
sale of 2,740,735 shares; and 2007 gross
proceeds of $9.5 million from the sale of
2,075,177 shares. No further draw downs are available to us
under the 2005 Kingsbridge committed equity financing facility.
In October 2007, we entered into a new committed equity
financing facility with Kingsbridge, pursuant to which
Kingsbridge committed to finance up to $75.0 million of
capital for a three-year period. Subject to certain conditions
and limitations, from time to time under this facility, at our
election, Kingsbridge is committed to purchase newly-issued
shares of our common stock at a price between 90% and 94% of the
volume weighted average price on each trading day during an
eight day, forward-looking pricing period. The maximum number of
shares we may issue in any pricing period is the lesser of 2.5%
of our market capitalization immediately prior to the
commencement of the pricing period or $15.0 million. As
part of the arrangement, we issued a warrant to Kingsbridge to
purchase 230,000 shares of our common stock at a price of
$7.99 per share, which represents a premium over the closing
price of our common stock on the date we entered into this
facility. This warrant is exercisable beginning six months after
the date of grant and for a period of three years thereafter.
Under the terms of the 2007 committed equity financing facility,
the maximum number of shares we may sell is 9,779,411 (exclusive
of the shares underlying the warrant) which, under the rules of
the NASDAQ Stock Market LLC, is approximately the maximum number
of shares we may sell to Kingsbridge without approval of our
stockholders. This limitation may further limit the amount of
proceeds we are able to obtain from this committed equity
financing facility. We are not obligated to sell any of the
$75.0 million of common stock available under this
committed equity financing facility and there are no minimum
commitments or minimum use penalties. This committed equity
financing facility does not contain any restrictions on our
operating activities, any automatic pricing resets or any
minimum market volume
58
restrictions. As of December 31, 2008, we had not made any
draw downs under the 2007 Kingsbridge committed equity financing
facility. As of March 11, 2009, we have received gross
proceeds of $6.7 million from draw downs and sold
3,439,032 shares of our common stock to Kingsbridge under
the 2007 committed equity financing facility. Kingsbridge is not
obligated to purchase any further shares under this committed
equity financing facility unless certain conditions are met,
which include a minimum volume weighted average price of $2.00
for our common stock.
In January 2006, we entered into a stock purchase agreement with
certain institutional investors relating to the issuance and
sale of 5,000,000 shares of our common stock at a price of
$6.60 per share, for gross offering proceeds of
$33.0 million. In connection with this offering, we paid an
advisory fee to a registered broker-dealer of $1.0 million.
After deducting the advisory fee and the offering costs, we
received net proceeds of approximately $32.0 million from
the offering.
In December 2006, we entered into stock purchase agreements with
selected institutional investors relating to the issuance and
sale of 5,285,715 shares of our common stock at a price of
$7.00 per share, for gross offering proceeds of
$37.0 million. In connection with this offering, we paid
placement agent fees to three registered broker-dealers totaling
$1.9 million. After deducting the placement agent fees and
the offering costs, we received net proceeds of approximately
$34.9 million from the offering.
In January 2007, we received a $42.0 million upfront
license fee from Amgen in connection with our entry into our
collaboration and option agreement in December 2006.
Contemporaneously with entering into this agreement, we entered
into a common stock purchase agreement with Amgen under which
Amgen purchased 3,484,806 shares of our common stock at a
price per share of $9.47, including a premium of $1.99 per
share, and an aggregate purchase price of approximately
$33.0 million. After deducting the offering costs, we
received net proceeds of approximately $32.9 million. These
shares were issued, and the related proceeds received, in
January 2007.
As of December 31, 2008, we have received
$54.4 million in non-equity payments from GSK and
$42.0 million in non-equity payments from Amgen.
We received zero, $1.7 million, and $4.3 million under
equipment financing arrangements in 2008, 2007 and 2006,
respectively. Under equipment financing arrangements, we
received $23.7 million from August 5, 1997, the date
of our inception, through December 31, 2008. Interest
earned on investments, excluding non-cash amortization/accretion
of purchase premiums/discounts was $2.9 million,
$4.6 million, and $2.7 million in 2008, 2007 and 2006,
respectively. Interest earned on investments, excluding non-cash
amortization/accretion of purchase premiums/discounts was
$26.4 million from August 5, 1997, the date of our
inception, through December 31, 2008.
Net cash used by operating activities in 2008 was
$61.3 million and primarily resulted from our net loss of
$56.4 million. Deferred revenue decreased
$12.1 million in 2008 to $24.5 million at
December 31, 2008 from $36.6 million at
December 31, 2007. The decrease was primarily due to the
$12.2 million amortization of deferred Amgen license
revenue. Net cash used in operating activities was
$3.0 million in 2007 and primarily resulted from the net
loss of $48.9 million, partially offset by the receipt from
Amgen in January 2007 of the $42.0 million upfront,
non-refundable license and technology access fee under the
collaboration and option agreement entered into in December
2006. Net cash used in operating activities was
$47.2 million in 2006 and was primarily due to our net loss
of $57.1 million.
Net cash used in investing activities was $10.0 million in
2008 and primarily represented cash used in purchase of
investments, net of proceeds from the maturity of investments,
of $11.9 million. Restricted cash totaled $2.8 million
at December 31, 2008, down from $5.2 million at
December 31, 2007. This decrease was due to the contractual
semi-annual reduction in the amount of security deposit required
by our lender. Net cash provided by investing activities was
$45.5 million in 2007 and primarily represented proceeds
from the maturity of investments, net of investment purchases,
of $47.0 million, partly offset by funds used to purchase
property and equipment of $2.6 million. Net cash used in
investing activities was $13.7 million in 2006 and
primarily represented net purchases of investments in addition
to property and equipment purchases.
Net cash used by financing activities was $3.5 million in
2008 and primarily represented principal payments of
$4.1 million on our lines of credit with General Electric
Capital Corporation (GE Capital) to fund certain
equipment, partially offset by the proceeds of $0.5 million
from our employee stock purchase plan and $0.1 million
59
from the exercise of stock options. In August 2007, we secured a
new line of credit with GE Capital of up to $3.0 million to
finance certain potential equipment purchases until
September 30, 2008. The August 2007 equipment line of
credit expired as of September 30, 2008. No funds were
borrowed under this line.
Net cash provided by financing activities was $34.7 million
and $86.7 million for the years ended December 31,
2007 and 2006, respectively. Net cash provided by financing
activities in 2007 primarily represented net proceeds of
approximately $32.9 million from the issuance of common
stock to Amgen, less $6.9 million that was recorded as
deferred revenue, and $9.5 million gross proceeds from the
issuance of stock under the 2005 Kingsbridge committed equity
financing facility. Net cash provided by financing activities in
2006 was primarily due to net proceeds from our two public
offerings of $66.9 million, proceeds from draw down of the
2005 Kingsbridge committed equity financing facility of
$17.0 million and proceeds from equipment financing lines
of $4.3 million.
Auction Rate Securities (ARS). Our
long-term investments at December 31, 2008 included (at par
value) $20.0 million of ARS. These ARS were intended to
provide liquidity via an auction process that resets the
applicable interest rate at predetermined calendar intervals,
allowing investors to either roll over their holdings or gain
immediate liquidity by selling such interests at par. As of
December 31, 2007, there were no ARS in an unrealized loss
position, and there were no failed auctions associated with our
ARS through that date. Our ARS with auction reset dates prior to
February 13, 2008 had successful auctions at which their
interest rates were reset. In February 2008, we liquidated
$3.2 million of our ARS at par, which were classified as
short-term investments as of December 31, 2007. With the
liquidity issues experienced in global credit and capital
markets, these ARS have experienced multiple failed auctions
since February 2008, as the amount of securities submitted for
sale has exceeded the amount of purchase orders. As a result,
these affected securities are currently not liquid.
All of our ARS are secured by student loans. Up to approximately
92% of the value of these student loans are backed by the full
faith and credit of the federal government. Additionally, all of
our ARS had the highest credit rating of AAA as of
December 31, 2008. In February 2009, the rating of certain
of our ARS with $4.7 million in par value was reduced to
A3. All of these securities continue to pay interest according
to their stated terms (generally 120 basis points over the
ninety-one day U.S. Treasury bill rate) with interest rates
resetting every 28 days. These ARS are scheduled to
ultimately mature between 2036 and 2045, although we do not
intend to hold them until maturity.
The valuation of our ARS investment portfolio is subject to
uncertainties that are difficult to predict. The fair value of
these ARS were estimated utilizing a discounted cash flow
analysis as of December 31, 2008. The significant
assumptions of this valuation model were discount margins
ranging from 375 to 410 basis points which are based on
industry recognized student loan sector indices, an additional
liquidity discount of approximately 150 basis points and an
estimated term to liquidity of 2 to 5 years. Other items
this analysis considers are the collateralization underlying the
ARS, the creditworthiness of the counterparty, and the timing of
expected future cash flows. These ARS were also compared, when
possible, to other observable market data with similar
characteristics as the securities held by us. Although the ARS
continue to pay interest according to their stated terms, based
on valuation models of the individual securities, we have
recognized in the Statement of Operations an unrecognized loss
of approximately $3.4 million in interest and other, net
for ARS for which we have concluded that an
other-than-temporary
impairment exists. The fair value in long-term investments for
these ARS at December 31, 2008 was estimated
$16.6 million.
In connection with the failed auctions of our ARS, which were
marketed and sold by UBS AG and its affiliates, in October 2008,
we accepted a settlement with UBS AG pursuant to which UBS AG
has issued to us
Series C-2
Auction Rate Securities Rights (the ARS Rights). The
ARS Rights provide us the right to receive the par value of our
ARS, i.e., the liquidation preference of the ARS plus accrued
but unpaid interest. Pursuant to the ARS Rights, we may require
UBS to purchase our ARS at par value at any time between
June 30, 2010 and July 2, 2012. In addition, UBS or
its affiliates may sell or otherwise dispose of some or all of
the ARS at its discretion at any time prior to expiration of the
ARS Rights, subject to the obligation to pay us the par value of
such ARS. The ARS Rights are not transferable, tradable or
marginable, and will not be listed or quoted on any securities
exchange or any electronic communications network. As
consideration for ARS Rights, we agreed to release UBS AG, UBS
Securities LLC and UBS Financial Services, Inc.,
and/or their
affiliates, directors, and officers from any claims
60
directly or indirectly relating to the marketing and sale of the
ARS, other than for consequential damages. UBSs
obligations in connection with the ARS Rights are not secured by
its assets and UBS is not required to obtain any financing to
support these obligations. UBS has disclaimed any assurance that
it will have sufficient financial resources to satisfy its
obligations in connection with the ARS Rights. If UBS has
insufficient funding to buy back the ARS and the auction process
continues to fail, we may incur further losses on the carrying
value of the ARS.
The ARS Rights represent a firm agreement in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133), which
defines a firm agreement as an agreement with an unrelated
party, binding on both parties and usually legally enforceable,
with the following characteristics: a) the agreement
specifies all significant terms, including the quantity to be
exchanged, the fixed price and the timing of the transaction;
and b) the agreement includes a disincentive for
nonperformance that is sufficiently large to make performance
probable. The enforceability of the ARS Rights results in a put
option, which we recognized as a separate freestanding
instrument that is accounted for separately from the ARS
investment. As of December 31, 2008, we recorded
$3.4 million as fair value of the put option assets,
classified as long-term assets on the Balance Sheet as
December 31, 2008, with a corresponding credit to interest
and other, net in the Statement of Operations for the year ended
December 31, 2008. The put option does not meet the
definition of a derivative instrument under SFAS 133.
Therefore, we elected to measure the ARS Rights at fair value
under SFAS 159 to mitigate volatility in reported earnings
due to its linkage to the ARS. We valued the put option using a
Black-Scholes option pricing model that included estimates of
interest rates, based on data available as of December 31,
2008, and was adjusted for any bearer risk associated with
UBSs financial ability to repurchase the ARS beginning
June 30, 2010. Any change in the assumptions on which these
estimates are based or market conditions would affect the value
of the ARS Rights.
Prior to accepting the UBS settlement offer, we recorded our ARS
as investments
available-for-sale.
We recorded unrealized gains and losses on our
available-for-sale
debt securities, in accumulated other comprehensive income in
the shareholders equity section of our Balance Sheet. Such
an unrealized loss did not reduce net income for the applicable
accounting period. Simultaneously, due to the ARS Rights granted
by UBS, we made a one-time election to transfer the related ARS
holdings from
available-for-sale
securities to trading securities. As a result of this transfer,
we recognized an
other-than-temporary
loss of approximately $3.4 million, and reversed the
related recognized loss that was previously recorded in other
comprehensive loss on the Balance Sheet. The recording of the
ARS Rights under SFAS 159 and the recognition of the
other-than-temporary
impairment loss resulted in no net impact to the Statement of
Operations for the year ended December 31, 2008. We
anticipate that any future changes in the fair value of the ARS
Rights will be offset by the changes in the fair value of the
related ARS with no material net impact to the Statement of
Operations, subject to the continued expected performance by the
financial institution of its obligations under the agreement.
The ARS Rights will continue to be measured at fair value under
SFAS 159 until the earlier of our exercise of the ARS
Rights, UBSs purchase of the ARS in connection with the
ARS Rights or the maturity of the ARS underlying the ARS Rights.
In connection with the settlement, we entered into a loan
agreement with UBS Bank USA and UBS Financial Services Inc. On
January 5, 2009, we borrowed approximately
$12.4 million under the loan agreement, with our ARS held
in accounts with UBS and its affiliates as collateral. The loan
amount was based on 75% of the fair value as assessed by UBS at
the time of the loan. We have drawn down the full amount
available under the loan agreement. The amount of interest we
will pay under the loan agreement is intended to equal the
amount of interest we would otherwise receive with respect to
our ARS. The borrowings under the loan agreement are payable
upon demand. However, UBS Financial Services Inc. or its
affiliates will provide to us alternative financing on terms and
conditions substantially the same as those under the loan
agreement, unless the demand right was exercised as a result of
certain specified events or the customer relationship between
UBS and us is terminated for cause by UBS. If such alternative
financing cannot be established, then a UBS affiliate will
purchase the pledged ARS at par value. Proceeds of sales of our
ARS will first be applied to repayment of the loan with the
balance, if any, for our account.
We continue to monitor the market for ARS and consider its
impact (if any) on the fair market value of our investments. If
the market conditions deteriorate further, we may be required to
record additional unrealized losses in earnings, offset by
corresponding increases in the put option. At present, if we
need to access the funds that are in an illiquid state, we may
not be able to do so without the possible loss of principal
until a future auction for these investments is successful,
another secondary market evolves for these securities, they are
redeemed by the issuer or
61
they mature. If we are unable to sell these securities in the
market or they are not redeemed, we could be required to hold
them to maturity. We will continue to monitor and evaluate these
investments on an ongoing basis for impairment.
Shelf Registration Statement. In November
2008, we filed a shelf registration statement with the SEC,
which was declared effective in November 2008. The shelf
registration statement allows us to issue shares of our common
stock from time to time for an aggregate initial offering price
of up to $100 million. The specific terms of offerings, if
any, under the shelf registration statement would be established
at the time of such offerings.
In August 2007, we secured a new line of credit with GE Capital
of up to $3.0 million to finance certain equipment until
September 30, 2008. The line of credit was subject to the
terms of a master security agreement between us and GE Capital,
dated February 2001 and as amended on March 24, 2005 and
related term sheet. As of December 31, 2008, this line of
credit had expired and we had not borrowed any funds under this
line.
As of December 31, 2008, future minimum payments under
lease obligations and equipment financing lines were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
Two to
|
|
|
Four to
|
|
|
After
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
|
Operating leases
|
|
$
|
2,984
|
|
|
$
|
5,716
|
|
|
$
|
3,406
|
|
|
$
|
|
|
|
$
|
12,106
|
|
Equipment financing line
|
|
|
2,025
|
|
|
|
2,463
|
|
|
|
152
|
|
|
|
|
|
|
|
4,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,009
|
|
|
$
|
8,179
|
|
|
$
|
3,558
|
|
|
$
|
|
|
|
$
|
16,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our long-term commitments under operating leases relate to
payments under our two facility leases in South
San Francisco, California, which expire in 2011 and 2013.
Under the provisions of our amended collaboration and facilities
agreement with Portola Pharmaceuticals, Inc.
(Portola), we were obligated to reimburse Portola
for certain equipment costs incurred by Portola in connection
with research and related services that Portola provided to us.
We began to incur these costs when the equipment became
available for use in the second quarter of 2006. Our payments to
Portola for such equipment costs, totaling $285,000, were made
in eight quarterly installments commencing in the first quarter
of 2006 and through the fourth quarter of 2007. No further
payments are due under this agreement.
In future periods, we expect to incur substantial costs as we
continue to expand our research programs and related research
and development activities. We also plan to continue to conduct
clinical development of our cardiac muscle myosin activator
CK-1827452 for the potential treatment of heart failure, of
ispinesib for the potential treatment of breast cancer and of
SB-743921 for the potential treatment of Hodgkin and non-Hodgkin
lymphoma. We intend to continue to progress our skeletal
sarcomere activator CK-2017357 and our smooth muscle myosin
inhibitor through IND-enabling studies and to conduct clinical
development of these potential drug candidates. We expect to
incur significant research and development expenses as we
advance the research and development of our other muscle
contractility programs through research to candidate selection.
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, development and clinical trials for our
drug candidates and potential drug candidates;
|
|
|
|
the time and costs involved in obtaining regulatory approvals;
|
|
|
|
delays that may be caused by requirements of regulatory agencies;
|
|
|
|
Amgens decision with respect to its option for CK-1827452,
and if Amgen exercises its option, Amgens decisions with
regard to funding of development and commercialization of
CK-1827452 or other cardiac muscle myosin activators for the
treatment of heart failure under our collaboration;
|
|
|
|
GSKs decisions with regard to future funding of
development of our drug GSK-923295;
|
|
|
|
our level of funding for the development of current or future
drug candidates;
|
62
|
|
|
|
|
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 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 establish sales, marketing or
manufacturing capabilities and to achieve market acceptance for
potential drugs;
|
|
|
|
expanding and advancing our research programs;
|
|
|
|
hiring of additional employees and consultants;
|
|
|
|
expanding 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 believe that our existing cash and cash equivalents,
short-term investments, interest earned on investments, proceeds
from our loan with UBS, and the proceeds from the 2007
Kingsbridge committed equity financing facility will be
sufficient to meet our projected operating requirements for at
least the next 12 months. While Amgen may choose to
exercise its option for an exclusive license to develop and
commercialize CK-1827452, there is no certainty this will occur.
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 potential drug candidates or of
other research and development programs. Alternatively, we might
raise funds through public or private financings, strategic
relationships or other arrangements. There can be no assurance
that funding, if needed, will be available on attractive terms,
or at all. Furthermore, any additional equity financing may be
dilutive to stockholders and debt financing, if available, may
involve restrictive covenants. Similarly, financing obtained
through future strategic alliances may require us to forego
certain commercialization and other rights to our drug
candidates. 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.
Off-balance
Sheet Arrangements
As of December 31, 2008, we did not have any relationships
with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, which would have been established for the
purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. In addition, we do not
engage in trading activities involving non-exchange traded
contracts. Therefore, we are not materially exposed to
financing, liquidity, market or credit risk that could arise if
we had engaged in these relationships. We do not have
relationships or transactions with persons or entities that
derive benefits from their non-independent relationship with us
or our related parties.
Critical
Accounting Policies and 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
63
assumptions that we believe to be reasonable under the
circumstances. Actual results may 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
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.
Investments
Available-for-sale
and trading investments. Our investments consist
of ARS, municipal and government agency bonds, commercial paper,
U.S. government treasury securities, and money market
funds. We designated all investments, except for ARS held by
UBS, as
available-for-sale
and are therefore reported at fair value, with unrealized gains
and losses recorded in accumulated other comprehensive income.
During the fourth quarter of fiscal 2008, we reclassified ARS
held by UBS from
available-for-sale
to trading securities. Investments that we designate as trading
assets are reported at fair value, with gains or losses
resulting from changes in fair value recognized in earnings. See
Notes to Financial Statements
Note 3 Cash Equivalents, Investments and Fair
Value Measurements for further detailed discussion.
Investments with original maturities greater than approximately
three months and remaining maturities less than one year are
classified as short-term investments. Investments with remaining
maturities greater than one year are classified as long-term
investments. In addition, we classify investments as short-term
or long-term based upon whether such assets are reasonably
expected to be realized in cash or sold or consumed during the
normal operating cycle of the business.
Other-than-temporary
impairment. All of our
available-for-sale
investments are subject to a periodic impairment review. We
recognize an impairment charge when a decline in the fair value
of our 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 we have the intent and ability to hold
the investment to maturity. When we determine 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 we determine that
an
other-than-temporary
decline had occurred. 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. Realized 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. The cost of
securities sold is based on the specific identification method.
Interest and dividends on securities classified as
available-for-sale
are included in interest and other, net.
The par value of our investments in ARS totaled
$20.0 million at December 31, 2008 and
$23.2 million at December 31, 2007. We determined that
no impairment of our investments existed at December 31,
2007. Due to the resetting variable rates of these securities,
their fair value generally approximated cost until February
2008. There were no realized gains or losses from these
investments during the years ended December 31, 2008, 2007
or 2006. There had been no failed auctions on any of our ARS
through December 31, 2007 and we deemed that no impairment
existed as of that date. The unrealized loss on these
investments was zero at December 31, 2007. At
December 31, 2007, we classified $20.0 million of its
investment in ARS as long-term due to the uncertainty as to
whether such securities will be available for current
operations. At December 31, 2008, we classified our
investment in ARS as long-term investment trading securities,
where unrealized gains and losses are recorded in current period
earnings.
Revenue
Recognition
We recognize revenue in accordance with SEC Staff Accounting
Bulletin (SAB) No. 104, Revenue
Recognition. SAB No. 104 requires that
certain criteria must be met before revenue can be recognized:
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 managements judgments regarding the
fixed nature of the fee charged for research performed and
milestones met, and the collectability of those fees. Should
changes in conditions cause management to determine these
criteria are not met for certain future transactions, revenue
recognized for any reporting period could be adversely affected.
64
Research and development revenues, which are earned under
agreements with third parties for contract research and
development activities, may include non-refundable license fees,
research and development funding, cost reimbursements and
contingent milestones and royalties. Our revenue arrangements
with multiple elements are evaluated under Emerging Issues Task
Force (EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple
Deliverables, and are divided into separate units of
accounting if certain criteria are met, including whether the
delivered element has stand-alone value to the customer and
whether there is objective and reliable evidence of the fair
value of the undelivered items. The consideration we receive is
allocated among the separate units based on their respective
fair values, and the applicable revenue recognition criteria are
applied to each of the separate units. 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.
We recognize milestone payments as revenue upon achievement of
the milestone, provided the milestone payment is non-refundable,
substantive effort and risk is involved in achieving the
milestone and the amount of the milestone is reasonable in
relation to the effort expended or risk associated with the
achievement of the milestone. If these conditions are not met,
we defer the milestone payment and recognize it as revenue over
the estimated period of performance under the contract as we
complete our performance obligations.
Research and development revenues and cost reimbursements are
based upon negotiated rates for our FTEs and actual
out-of-pocket
costs. FTE rates are intended to approximate our anticipated
costs. 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 in accordance
with the provisions of EITF Issue
No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors
Products) to determine whether payments made by us
will be recognized as a reduction of revenue or as expense. In
accordance with EITF Issue
No. 01-9,
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. The
application of EITF Issue
No. 01-9
has not impacted us.
Preclinical
Study and Clinical Trial Accruals
A substantial portion of our preclinical studies and all of our
clinical trials have been performed by third-party contract
research organizations (CROs), and other vendors.
For preclinical studies, the significant factors used in
estimating accruals include the percentage of work completed to
date and contract milestones achieved. For clinical trial
expenses, the significant factors used in estimating accruals
include the number of patients enrolled, duration of enrollment
and percentage of work completed to date. 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. No material adjustments to preclinical
study and clinical trial expenses have been recognized to date.
Stock-Based
Compensation
We apply the provisions of SFAS 123R, Accounting
for Stock-Based Compensation, which establishes
accounting for share-based payment awards made to employees and
directors including employee stock options and employee stock
purchases. Under SFAS No. 123R, stock-based
compensation cost is measured at the grant date based on the
calculated fair value of the award, and is recognized as an
expense on a straight-line basis over the employees
requisite service period, generally the vesting period of the
award. We elected the modified prospective transition method for
awards granted subsequent to April 29, 2004, the date of
our initial public offering, and the prospective transition
method for awards granted prior to our initial public offering.
Prior periods are not revised for comparative purposes under
either transition method. Prior to January 1, 2006, we
accounted for stock-based compensation to employees in
accordance with Accounting Principles Board Opinion No. 25
and related interpretations. We also followed the disclosure
requirements of SFAS No. 123, Accounting for
Stock-Based
65
Compensation, and complied with the disclosure
requirements of SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure:
an Amendment of FASB Statement No. 123.
We account for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123R and
EITF Issue
No. 96-18,
Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with
Selling Goods, or Services.
As required under the accounting rules, we review our valuation
assumptions at each grant date and, as a result, from time to
time we will likely change the valuation assumptions we use to
value stock based awards granted in future periods. The
assumptions used in calculating the fair value of share-based
payment awards represent managements best estimates at the
time, but these estimates involve inherent uncertainties and the
application of management judgment. As a result, if conditions
change and we use different assumptions, our stock-based
compensation expense could be materially different in the
future. In addition, we are required to estimate the expected
forfeiture rate and recognize expense only for those shares
expected to vest. If our actual forfeiture rate is materially
different from our estimate, the stock-based compensation
expense could be significantly different from what we have
recorded in the current period.
Income taxes
We record the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and
amounts reported in the financial statements and operating loss
and tax credit carry forwards. We have recorded a full valuation
allowance to reduce our deferred tax asset to zero, because we
believe that, based upon a number of factors, it is more likely
than not that the deferred tax asset will not be realized. If we
were to determine that we would be able to realize our deferred
tax assets in the future, an adjustment to the deferred tax
asset would increase net income in the period such determination
was made.
In July 2006, the FASB issued FIN 48. FIN 48
prescribes a comprehensive model for how companies should
recognize, measure, present, and disclose in their financial
statements uncertain tax positions taken or expected to be taken
on a tax return. Under FIN 48, tax positions must initially
be recognized in the financial statements when it is more likely
than not the position will be sustained upon examination by the
tax authorities. Such tax positions must initially and
subsequently be measured as the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate
settlement with the tax authority assuming full knowledge of the
position and relevant facts. We adopted FIN 48 on
January 1, 2007. The cumulative effect of adopting
FIN 48 was recorded net in deferred tax assets, which
resulted in no FIN 48 liability on the Balance Sheet. The
total amount of unrecognized tax benefits as of the date of
adoption was $3.1 million. See Notes to Financial
Statements, Note 11 Income Taxes for
additional information. As of December 31, 2008, our
unrecognized tax benefits were $4.2 million.
Recent
Accounting Pronouncements
In November 2007, the EITF issued a consensus on EITF Issue
No. 07-01,
Accounting for Collaboration Arrangements Related to
the Development and Commercialization of Intellectual
Property, which is focused on how the parties to a
collaborative agreement should account for costs incurred and
revenue generated on sales to third parties, how shared payments
pursuant to a collaboration agreement should be presented in the
income statement and certain related disclosure questions. EITF
Issue
No. 07-01
is to be applied retrospectively for collaboration arrangements
in fiscal years beginning after December 15, 2008. We will
adopt EITF Issue
No. 07-1
in the first quarter of 2009 and currently do not believe the
adoption of EITF Issue
No. 07-1
will have a material impact on its financial position or results
of operations.
We adopted SFAS No. 157, Fair Value
Measurements (SFAS 157) and
SFAS No. 157-3,
Determining the Value of a Financial Asset When the
Market for That Asset Is Not Active
(SFAS 157-3).
SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value
measurements.
SFAS 157-3
expanded on the implementation guidance in SFAS 157 for
estimating the present value of future cash flows for some
hard-to-value
financial instruments such as auction rate securities. The
adoption of SFAS 157 and
SFAS 157-3
did not have a material impact on our results of operations and
financial position.
In February 2008, the FASB issued FASB Staff Position
(FSP)
157-1,
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements
66
for Purposes of Lease Classification or Measurement under
Statement 13 and
FSP 157-2,
Effective Date of FASB Statement No. 157
.
FSP 157-1
amends SFAS 157 to remove certain leasing transactions from
its scope, and was effective upon initial adoption of
SFAS 157.
FSP 157-2
delays the effective date of SFAS 157 for all non-financial
assets and non-financial liabilities, except for items that are
recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), until the
beginning of the first quarter of 2009. The adoption of
SFAS 157 is not expected to have a material impact on our
financial statements when it is applied to non-financial assets
and non-financial liabilities that are not measured at fair
value on a recurring basis, beginning in the first quarter of
2009.
We adopted SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities-Including an
amendment of FASB Statement No. 115.
SFAS 159 permits companies to choose to measure certain
financial assets and liabilities at fair value (the fair
value option). If the fair value option is elected, any
upfront costs and fees related to the item, e.g., debt
issue costs, must be recognized in earnings and cannot be
deferred. The fair value option election is irrevocable and may
generally be made on an
instrument-by-instrument
basis, even if a company has similar instruments that it elects
not to fair value. At the adoption date, unrealized gains and
losses on existing items for which fair value has been elected
are reported as a cumulative adjustment to beginning retained
earnings. The adoption of SFAS 159 did not have a material
impact on our results of operations and financial position as
the fair value option was not elected for any of our financial
assets or financial liabilities at the date of adoption, nor for
any of our financial assets and liabilities transacted in the
year ended December 31, 2008 except the put option
resulting from UBSs ARS right offering. See Notes to
Financial Statements Note 3, Cash Equivalents,
Investments and Fair Value Measurements.
We adopted EITF Issue
No. 07-3,
Accounting for Non-Refundable Advance Payments for
Goods or Services to Be Used in Future Research and Development
Activities. EITF Issue
No. 07-3 states
that non-refundable advance payments for future research and
development activities should be deferred and recognized as an
expense as the goods are delivered or the related services are
performed. Entities should then continue to evaluate whether
they expect the goods to be delivered or services to be
rendered. If an entity does not expect the goods to be delivered
or services to be rendered, the capitalized advance payment
should be charged to expense. The adoption of EITF Issue
No. 07-3
did not have a material effect on our results of operations and
financial condition.
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate and Market Risk
Our exposure to market risk is limited to interest rate
sensitivity, which is affected by changes in the general level
of U.S. interest rates, particularly because the majority
of our investments are in short-term debt securities. The
primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we
receive without significantly increasing risk. We are exposed to
the impact of interest rate changes and changes in the market
values of our investments. Our interest income is sensitive to
changes in the general level of U.S. interest rates. Our
exposure to market rate risk for changes in interest rates
relates primarily to our investment portfolio. We have not used
derivative financial instruments in our investment portfolio. We
invest a portion of our excess cash in debt instruments of
high-quality issuers and, by policy, limit the amount of credit
exposure in any one issuer and investment class. We protect and
preserve our invested funds by attempting to limit default,
market and reinvestment risk. Investments in both fixed-rate and
floating-rate interest-earning instruments carry a degree of
interest rate risk. Fixed-rate securities may have their fair
market value adversely impacted due to a rise in interest rates,
while floating-rate securities may produce less income than
expected if interest rates fall. Due in part to these factors,
our future investment income may fall short of expectations due
to changes in interest rates.
To minimize risk, we maintain our portfolio of cash and cash
equivalents and short- and long-term investments in a variety of
interest-bearing instruments, including U.S. government and
agency securities, high grade municipal and U.S. bonds and
money market funds. Our investment portfolio of short-term
investments is subject to interest rate risk, and will fall in
value if market interest rates increase.
At December 31, 2008, we held approximately
$16.6 million of ARS classified as long-term investments,
whose underlying assets are student loans which are
substantially backed by the federal government. In February
2008, auctions began to fail for these securities and each
auction since then has failed. Consequently, the
67
investments are not currently liquid and we will not be able to
access these funds until a future auction of these investments
is successful, a buyer is found outside of the auction process,
they are redeemed by the issuers or the investments mature. As a
result, our ability to liquidate our investment and fully
recover the carrying value of our investment in the near term
may be limited or not exist. As of December 31, 2008, all
our ARS were AAA-rated, the highest rating by a rating agency.
In February 2009, the rating for certain of our ARS with a par
value of $4.7 million was reduced to A3. At
December 31, 2008, our investment advisors provided a
valuation for the ARS investments utilizing a discounted cash
flow approach to arrive at the valuation of our ARS, which was
corroborated by a separate and comparable discounted cash flow
analysis we prepared. Based on this Level 3 valuation
defined by SFAS 157, we valued the ARS investments at
$16.6 million, which represents a decline in value of
$3.4 million from par. The assumptions used in preparing
the discounted cash flow model include estimates of, based on
data available as of December 31, 2008, interest rates,
timing and amount of cash flows, credit and liquidity premiums,
and expected holding periods of the ARS. These assumptions are
volatile and subject to change as the underlying sources of
these assumptions and market conditions change, thereby could
result in significant changes to the fair value of our ARS.
In connection with the failed auctions of our ARS, which were
marketed and sold by UBS AG and its affiliates, in October 2008,
we accepted a settlement with UBS AG pursuant to which UBS AG
has issued to us the ARS Rights. The ARS Rights provide us the
right to receive the par value of our ARS, i.e., the liquidation
preference of the ARS plus accrued but unpaid interest. Pursuant
to the ARS Rights, we may require UBS to purchase our ARS at par
value at any time between June 30, 2010 and July 2,
2012. In addition, UBS or its affiliates may sell or otherwise
dispose of some or all of the ARS at its discretion at any time
prior to expiration of the ARS Rights, subject to the obligation
to pay us the par value of such ARS. The ARS Rights are not
transferable, tradable or marginable, and will not be listed or
quoted on any securities exchange or any electronic
communications network. As consideration for ARS Rights, we
agreed to release UBS AG, UBS Securities LLC and UBS Financial
Services, Inc.,
and/or their
affiliates, directors, and officers from any claims directly or
indirectly relating to the marketing and sale of the ARS, other
than for consequential damages. UBSs obligations in
connection with the ARS Rights are not secured by its assets and
do not require UBS to obtain any financing to support these
obligations. UBS has disclaimed any assurance that it will have
sufficient financial resources to satisfy its obligations in
connection with the ARS Rights. If UBS has insufficient funding
to purchase the ARS and the auction process continues to fail,
we may incur further losses on the carrying value of the ARS. We
valued the put option using a Black-Scholes option pricing model
that included estimates of interest rates, based on data
available as of December 31, 2008, and was adjusted for any
bearer risk associated with UBSs financial ability to
repurchase the ARS beginning June 30, 2010. Any change in
these assumptions and market conditions would affect the value
of the ARS Rights. A decline in fair value of the ARS would be
largely offset by an increase in fair value of the ARS Rights.
Prior to accepting the UBS offer, we recorded our ARS as
investments
available-for-sale.
We recorded unrealized gains and losses on our
available-for-sale
debt securities, in accumulated other comprehensive income in
the shareholders equity section of our Balance Sheet. Such
an unrealized loss did not reduce net income for the applicable
accounting period. Simultaneously, due to the ARS Rights granted
by UBS, we made a one-time election to transfer the related ARS
holdings from
available-for-sale
securities to trading securities. As a result of this transfer,
we recognized an
other-than-temporary
loss of approximately $3.4 million, and reversed the
related temporary valuation allowance that was previously
recorded in other comprehensive loss on the Balance Sheet. The
recording of the ARS Rights under SFAS 159 and the
recognition of the
other-than-temporary
impairment loss resulted in no net impact to the Statement of
Operations for the year ended December 31, 2008. We
anticipate that any future changes in the fair value of the ARS
Rights will be offset by the changes in the fair value of the
related ARS with no material net impact to the Statement of
Operations, subject to UBSs continued expected performance
of its obligations in connection with the ARS Rights. The ARS
Rights will continue to be measured at fair value under
SFAS 159 until the earlier of our exercise of the ARS
Rights, UBSs purchase of the ARS in connection with the
ARS Rights, or the maturity of the ARS underlying the ARS Rights.
Our cash and cash equivalents are invested in highly liquid
securities with original maturities of three months or less at
the time of purchase. Consequently, we do not consider our cash
and cash equivalents to be subject to significant interest rate
risk and have therefore excluded them from the table below. On
the liability side, our
68
equipment financing lines carry fixed interest rates and
therefore also may be subject to changes in fair value if market
interest rates fluctuate. We do not have any foreign currency or
derivative financial instruments.
The table below presents the principal amounts and weighted
average interest rates by year of maturity for our investment
portfolio, except ARS, and equipment financing lines (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Beyond 2013
|
|
|
Total
|
|
|
2008
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
15,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,048
|
|
|
$
|
15,048
|
|
Average interest rate
|
|
|
0.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.96
|
%
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment financing lines
|
|
$
|
2,025
|
|
|
$
|
1,630
|
|
|
$
|
833
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
$
|
4,640
|
|
|
$
|
4,205
|
|
Average interest rate
|
|
|
6.39
|
%
|
|
|
6.82
|
%
|
|
|
7.31
|
%
|
|
|
7.25
|
%
|
|
|
|
|
|
|
|
|
|
|
6.73
|
%
|
|
|
|
|
69
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
70
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Cytokinetics,
Incorporated:
In our opinion, the accompanying balance sheets and the related
statement of operations, stockholders equity (deficit) and
cash flows present fairly, in all material respects, the
financial position of Cytokinetics, Incorporated (a development
stage company) at December 31, 2008 and 2007, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 2008 and
cumulatively, for the period from August 5, 1997 (date of
inception) to December 31, 2008 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, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these 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 the
accompanying Managements Report on Internal Control over
Financial Reporting under Item 9A. Our responsibility is to
express opinions on these financial statements and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. 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.
A companys 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 companys
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
companys 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, CA
March 12, 2009
71
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,819
|
|
|
$
|
116,564
|
|
Short-term investments
|
|
|
15,048
|
|
|
|
3,175
|
|
Related party accounts receivable
|
|
|
221
|
|
|
|
87
|
|
Related party notes receivable short-term portion
|
|
|
40
|
|
|
|
127
|
|
Prepaid and other current assets
|
|
|
1,782
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
58,910
|
|
|
|
122,016
|
|
Investments in auction rate securities
|
|
|
16,636
|
|
|
|
20,025
|
|
Investment put option
|
|
|
3,389
|
|
|
|
|
|
Property and equipment, net
|
|
|
5,087
|
|
|
|
7,728
|
|
Assets held for sale
|
|
|
325
|
|
|
|
|
|
Related party notes receivable long-term portion
|
|
|
9
|
|
|
|
99
|
|
Restricted cash
|
|
|
2,750
|
|
|
|
5,167
|
|
Other assets
|
|
|
348
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
87,454
|
|
|
$
|
155,370
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,382
|
|
|
$
|
1,584
|
|
Accrued liabilities
|
|
|
7,174
|
|
|
|
8,558
|
|
Related party payables and accrued liabilities
|
|
|
|
|
|
|
22
|
|
Short-term portion of equipment financing lines
|
|
|
2,025
|
|
|
|
4,050
|
|
Short-term portion of deferred revenue
|
|
|
12,296
|
|
|
|
12,234
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
22,877
|
|
|
|
26,448
|
|
Long-term portion of equipment financing lines
|
|
|
2,615
|
|
|
|
4,639
|
|
Long-term portion of deferred revenue
|
|
|
12,196
|
|
|
|
24,367
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
37,688
|
|
|
|
55,454
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock:
|
|
|
|
|
|
|
|
|
Authorized: 10,000,000 shares in 2008 and 2007
|
|
|
|
|
|
|
|
|
Issued and outstanding: zero shares in 2008 and 2007
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value:
|
|
|
|
|
|
|
|
|
Authorized: 170,000,000 shares in 2008 and
120,000,000 shares in 2007
|
|
|
|
|
|
|
|
|
Issued and outstanding: 49,939,069 shares in 2008 and
49,282,362 shares in 2007
|
|
|
50
|
|
|
|
49
|
|
Additional paid-in capital
|
|
|
385,605
|
|
|
|
379,730
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
(329
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
18
|
|
|
|
(1
|
)
|
Deficit accumulated during the development stage
|
|
|
(335,907
|
)
|
|
|
(279,533
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
49,766
|
|
|
|
99,916
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
87,454
|
|
|
$
|
155,370
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
August 5, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception) to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenues from related party
|
|
$
|
186
|
|
|
$
|
1,388
|
|
|
$
|
1,622
|
|
|
$
|
40,439
|
|
Research and development, grant and other revenues
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
2,955
|
|
License revenues from related parties
|
|
|
12,234
|
|
|
|
12,234
|
|
|
|
1,501
|
|
|
|
38,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
12,420
|
|
|
|
13,622
|
|
|
|
3,127
|
|
|
|
81,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
53,950
|
|
|
|
53,388
|
|
|
|
49,225
|
|
|
|
337,438
|
|
General and administrative(1)
|
|
|
15,076
|
|
|
|
16,721
|
|
|
|
15,240
|
|
|
|
100,537
|
|
Restructuring charges
|
|
|
2,473
|
|
|
|
|
|
|
|
|
|
|
|
2,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
71,499
|
|
|
|
70,109
|
|
|
|
64,465
|
|
|
|
440,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(59,079
|
)
|
|
|
(56,487
|
)
|
|
|
(61,338
|
)
|
|
|
(358,486
|
)
|
Interest and other, net
|
|
|
2,705
|
|
|
|
7,593
|
|
|
|
4,223
|
|
|
|
22,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(56,374
|
)
|
|
$
|
(48,894
|
)
|
|
$
|
(57,115
|
)
|
|
$
|
(335,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(1.14
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
(1.56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares used in computing net loss per
common share basic and diluted
|
|
|
49,392
|
|
|
|
47,590
|
|
|
|
36,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes the following stock-based compensation charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,794
|
|
|
$
|
2,932
|
|
|
$
|
2,532
|
|
|
$
|
11,106
|
|
General and administrative
|
|
|
2,812
|
|
|
|
2,621
|
|
|
|
2,111
|
|
|
|
9,247
|
|
The accompanying notes are an integral part of these financial
statements.
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
During the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Stock-Based
|
|
|
Income
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
(Loss)
|
|
|
Stage
|
|
|
Equity (Deficit)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Issuance of common stock upon exercise of stock options for cash
at $0.015 per share
|
|
|
147,625
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
Issuance of common stock to founders at $0.015 per share in
exchange for cash in January 1998
|
|
|
563,054
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,015
|
)
|
|
|
(2,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 1998
|
|
|
710,679
|
|
|
|
1
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
(2,015
|
)
|
|
|
(2,005
|
)
|
Issuance of common stock upon exercise of stock options for cash
at $0.015-$0.58 per share
|
|
|
287,500
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
Issuance of warrants, valued using Black-Scholes model
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
237
|
|
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,341
|
)
|
|
|
(7,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 1999
|
|
|
998,179
|
|
|
|
1
|
|
|
|
356
|
|
|
|
(114
|
)
|
|
|
(8
|
)
|
|
|
(9,356
|
)
|
|
|
(9,121
|
)
|
Issuance of common stock upon exercise of stock options for cash
at $0.015-$0.58 per share
|
|
|
731,661
|
|
|
|
1
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
86
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,079
|
)
|
|
|
(13,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2000
|
|
|
1,729,840
|
|
|
|
2
|
|
|
|
643
|
|
|
|
(106
|
)
|
|
|
78
|
|
|
|
(22,435
|
)
|
|
|
(21,818
|
)
|
Issuance of common stock upon exercise of stock options for cash
at $0.015-$1.20 per share
|
|
|
102,480
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
Repurchase of common stock
|
|
|
(33,334
|
)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
Compensation expense for acceleration of options
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
190
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,874
|
)
|
|
|
(15,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2001
|
|
|
1,798,986
|
|
|
|
2
|
|
|
|
745
|
|
|
|
(58
|
)
|
|
|
268
|
|
|
|
(38,309
|
)
|
|
|
(37,352
|
)
|
Issuance of common stock upon exercise of stock options for cash
at $0.015-$1.20 per share
|
|
|
131,189
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Repurchase of common stock
|
|
|
(3,579
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228
|
)
|
|
|
|
|
|
|
(228
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,080
|
)
|
|
|
(23,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
During the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Stock-Based
|
|
|
Income
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
(Loss)
|
|
|
Stage
|
|
|
Equity (Deficit)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Balances, December 31, 2002
|
|
|
1,926,596
|
|
|
|
2
|
|
|
$
|
809
|
|
|
$
|
(50
|
)
|
|
$
|
40
|
|
|
$
|
(61,389
|
)
|
|
$
|
(60,588
|
)
|
Issuance of common stock upon exercise of stock options for cash
at $0.20-$1.20 per share
|
|
|
380,662
|
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,369
|
|
|
|
(4,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
768
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,685
|
)
|
|
|
(32,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2003
|
|
|
2,307,258
|
|
|
|
2
|
|
|
|
5,646
|
|
|
|
(3,651
|
)
|
|
|
46
|
|
|
|
(94,074
|
)
|
|
|
(92,031
|
)
|
Issuance of common stock upon initial public offering at $13.00
per share, net of issuance costs of $9,151
|
|
|
7,935,000
|
|
|
|
8
|
|
|
|
93,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,004
|
|
Issuance of common stock to related party for $13.00 per share
|
|
|
538,461
|
|
|
|
1
|
|
|
|
6,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
Issuance of common stock to related party
|
|
|
37,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock upon initial
public offering
|
|
|
17,062,145
|
|
|
|
17
|
|
|
|
133,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,172
|
|
Issuance of common stock upon cashless exercise of warrants
|
|
|
115,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options for cash
at $0.20-$6.50 per share
|
|
|
404,618
|
|
|
|
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430
|
|
Issuance of common stock pursuant to ESPP at $8.03 per share
|
|
|
69,399
|
|
|
|
|
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
557
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
2,198
|
|
|
|
(2,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
1,598
|
|
Repurchase of unvested stock
|
|
|
(16,548
|
)
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234
|
)
|
|
|
|
|
|
|
(234
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,198
|
)
|
|
|
(37,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004
|
|
|
28,453,173
|
|
|
|
28
|
|
|
|
243,239
|
|
|
|
(4,251
|
)
|
|
|
(188
|
)
|
|
|
(131,272
|
)
|
|
|
107,556
|
|
Issuance of common stock upon exercise of stock options for cash
at $0.58-$7.10 per share
|
|
|
196,703
|
|
|
|
1
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371
|
|
Issuance of common stock pursuant to ESPP at $4.43 per share
|
|
|
179,520
|
|
|
|
|
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
763
|
|
Issuance of common stock upon cashless exercise of warrants
|
|
|
14,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon drawdown of committed equity
financing facility at $6.13-$7.35 per share, net of issuance
costs of $178
|
|
|
887,576
|
|
|
|
1
|
|
|
|
5,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,547
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
Amortization of deferred stock-based compensation, net of
cancellations
|
|
|
|
|
|
|
|
|
|
|
(439
|
)
|
|
|
1,799
|
|
|
|
|
|
|
|
|
|
|
|
1,360
|
|
Repurchase of unvested stock
|
|
|
(20,609
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174
|
|
|
|
|
|
|
|
174
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,252
|
)
|
|
|
(42,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
During the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Stock-Based
|
|
|
Income
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
(Loss)
|
|
|
Stage
|
|
|
Equity (Deficit)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Balances, December 31, 2005
|
|
|
29,710,895
|
|
|
$
|
30
|
|
|
$
|
249,521
|
|
|
$
|
(2,452
|
)
|
|
$
|
(14
|
)
|
|
$
|
(173,524
|
)
|
|
$
|
73,561
|
|
Issuance of common stock upon exercise of stock options for cash
at $0.20-$7.10 per share
|
|
|
354,502
|
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559
|
|
Issuance of common stock pursuant to ESPP at a weighted price of
$4.43 per share
|
|
|
193,248
|
|
|
|
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
856
|
|
Issuance of common stock pursuant to registered direct offerings
at $6.60 and $7.00 per share, net of issuance costs of $3,083
|
|
|
10,285,715
|
|
|
|
10
|
|
|
|
66,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,917
|
|
Issuance of common stock upon drawdown of committed equity
financing facility at $5.53-$7.02 per share
|
|
|
2,740,735
|
|
|
|
3
|
|
|
|
16,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,957
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,421
|
|
Amortization of deferred stock-based compensation, net of
cancellations
|
|
|
|
|
|
|
|
|
|
|
(138
|
)
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
1,220
|
|
Repurchase of unvested stock
|
|
|
(1,537
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
(61
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,115
|
)
|
|
|
(57,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
|
43,283,558
|
|
|
|
43
|
|
|
|
338,078
|
|
|
|
(1,094
|
)
|
|
|
(75
|
)
|
|
|
(230,639
|
)
|
|
|
106,313
|
|
Issuance of common stock upon exercise of stock options for cash
at $0.58-$7.10 per share
|
|
|
259,054
|
|
|
|
1
|
|
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Issuance of common stock pursuant to ESPP at a weighted price of
$4.49 per share
|
|
|
179,835
|
|
|
|
|
|
|
|
807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
807
|
|
Issuance of common stock upon drawdown of committed equity
financing facility at $4.43-$4.81 per share
|
|
|
2,075,177
|
|
|
|
2
|
|
|
|
9,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,542
|
|
Issuance of common stock to related party for $9.47 per share,
net of issuance costs of $57
|
|
|
3,484,806
|
|
|
|
3
|
|
|
|
26,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,009
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
Amortization of deferred stock-based compensation, net of
cancellations
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
|
720
|
|
Repurchase of unvested stock
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
74
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,894
|
)
|
|
|
(48,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
49,282,362
|
|
|
|
49
|
|
|
|
379,730
|
|
|
|
(329
|
)
|
|
|
(1
|
)
|
|
|
(279,533
|
)
|
|
|
99,916
|
|
Issuance of common stock upon exercise of stock options for cash
at $0.58-$3.37 per share
|
|
|
95,796
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
Issuance of common stock pursuant to ESPP at a weighted price of
$2.85 per share
|
|
|
164,451
|
|
|
|
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468
|
|
Issuance of restricted stock at a price of $0.001 per share
|
|
|
397,960
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of restricted stock
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,277
|
|
Amortization of deferred stock-based compensation, net of
cancellations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
329
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,374
|
)
|
|
|
(56,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
49,939,069
|
|
|
$
|
50
|
|
|
$
|
385,605
|
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
(335,907
|
)
|
|
$
|
49,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
August 5,
|
|
|
|
|
|
|
|
|
|
|
|
|
1997
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception) to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(56,374
|
)
|
|
$
|
(48,894
|
)
|
|
$
|
(57,115
|
)
|
|
$
|
(335,907
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
2,456
|
|
|
|
2,829
|
|
|
|
2,927
|
|
|
|
23,445
|
|
(Gain) loss on disposal of equipment
|
|
|
3
|
|
|
|
13
|
|
|
|
(8
|
)
|
|
|
351
|
|
Non-cash restructuring expenses
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
Non-cash interest expense
|
|
|
77
|
|
|
|
92
|
|
|
|
92
|
|
|
|
504
|
|
Non-cash forgiveness of loan to officer
|
|
|
51
|
|
|
|
116
|
|
|
|
107
|
|
|
|
415
|
|
Stock-based compensation
|
|
|
5,606
|
|
|
|
5,553
|
|
|
|
4,643
|
|
|
|
20,353
|
|
Other non-cash expenses
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
182
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party accounts receivable
|
|
|
(145
|
)
|
|
|
41,959
|
|
|
|
(41,515
|
)
|
|
|
(572
|
)
|
Prepaid and other assets
|
|
|
192
|
|
|
|
(275
|
)
|
|
|
413
|
|
|
|
(2,158
|
)
|
Accounts payable
|
|
|
(6
|
)
|
|
|
(969
|
)
|
|
|
852
|
|
|
|
1,388
|
|
Accrued liabilities
|
|
|
(1,540
|
)
|
|
|
2,005
|
|
|
|
2,419
|
|
|
|
6,982
|
|
Related party payables and accrued liabilities
|
|
|
(22
|
)
|
|
|
(142
|
)
|
|
|
(485
|
)
|
|
|
|
|
Deferred revenue
|
|
|
(12,109
|
)
|
|
|
(5,299
|
)
|
|
|
40,500
|
|
|
|
24,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(61,328
|
)
|
|
|
(3,005
|
)
|
|
|
(47,170
|
)
|
|
|
(260,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(24,462
|
)
|
|
|
(51,700
|
)
|
|
|
(143,046
|
)
|
|
|
(669,365
|
)
|
Proceeds from sales and maturities of investments
|
|
|
12,607
|
|
|
|
98,729
|
|
|
|
135,527
|
|
|
|
634,393
|
|
Purchases of property and equipment
|
|
|
(658
|
)
|
|
|
(2,563
|
)
|
|
|
(5,370
|
)
|
|
|
(29,550
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
50
|
|
(Increase) decrease in restricted cash
|
|
|
2,417
|
|
|
|
867
|
|
|
|
(862
|
)
|
|
|
(2,750
|
)
|
Issuance of related party notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,146
|
)
|
Proceeds from repayments of notes receivable
|
|
|
130
|
|
|
|
129
|
|
|
|
63
|
|
|
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(9,966
|
)
|
|
|
45,462
|
|
|
|
(13,682
|
)
|
|
|
(67,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public offering, sale of common stock to
related party and public offerings, net of issuance costs
|
|
|
|
|
|
|
26,012
|
|
|
|
66,917
|
|
|
|
193,934
|
|
Proceeds from draw down of Committed Equity Financing Facility,
net of issuance costs
|
|
|
|
|
|
|
9,542
|
|
|
|
16,957
|
|
|
|
32,046
|
|
Proceeds from other issuances of common stock
|
|
|
599
|
|
|
|
1,312
|
|
|
|
1,378
|
|
|
|
6,157
|
|
Proceeds from issuance of preferred stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,172
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(68
|
)
|
Proceeds from equipment financing lines
|
|
|
|
|
|
|
1,742
|
|
|
|
4,347
|
|
|
|
23,696
|
|
Repayment of equipment financing lines
|
|
|
(4,050
|
)
|
|
|
(3,888
|
)
|
|
|
(2,873
|
)
|
|
|
(19,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(3,451
|
)
|
|
|
34,720
|
|
|
|
86,724
|
|
|
|
369,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(74,745
|
)
|
|
|
77,177
|
|
|
|
25,872
|
|
|
|
41,819
|
|
Cash and cash equivalents, beginning of period
|
|
|
116,564
|
|
|
|
39,387
|
|
|
|
13,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
41,819
|
|
|
$
|
116,564
|
|
|
$
|
39,387
|
|
|
$
|
41,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
77
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO 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 clinical-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 is a development stage enterprise and has been primarily
engaged in conducting research, developing drug candidates and
technologies, and raising capital.
On April 26, 2004 the Company effected a one for two
reverse stock split. All share and per share amounts for all
periods presented in the accompanying financial statements have
been retroactively adjusted to give effect to the reverse stock
split. The Companys registration statement for its initial
public offering (IPO) was declared effective by the
Securities and Exchange Commission (SEC) on
April 29, 2004. The Companys common stock commenced
trading on the NASDAQ National Market, now the NASDAQ Global
Market, on April 29, 2004 under the trading symbol
CYTK.