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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, 2005
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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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James Sabry
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:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.001 par value
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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
file o Accelerated
filer þ Non-accelerated
filer o
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 $106.0 million computed
by reference to the last sales price of $6.94 as reported by the
Nasdaq National Market System, as of the last business day of
the Registrants most recently completed second fiscal
quarter, June 30, 2005. 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 28, 2006 was 35,565,952 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2006
Annual Meeting of Stockholders (the Proxy
Statement), 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, 2005
INDEX
1
PART I
This document contains forward-looking statements that are based
upon current expectations within the meaning of the Private
Securities Reform Act of 1995. It is our intent 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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the initiation, progress, timing, scope and anticipated date of
completion of preclinical research, clinical trials and
development for our drug candidates and potential drug
candidates by ourselves, our strategic partners or the National
Cancer Institute, or NCI, including potential clinical trials to
be conducted by us for our drug candidate SB-743921 under our
strategic alliance with GlaxoSmithKline, or GSK, and by us for
our drug candidate CK-1827452, the expected dates of initiation
of various clinical trials for our drug candidates, the
anticipated dates of data becoming available from various
clinical trials and completion of patient enrollment and the
numbers of patients to be enrolled in these clinical trials;
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the exercise of our options to co-fund the development of one or
both of ispinesib (formerly designated
SB-715992),
a drug candidate, and GSK-923295, a potential drug candidate;
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the extent to which we
co-fund SB-743921
for cancer indications outside of non-Hodgkins lymphoma,
Hodgkins lymphoma and multiple myeloma;
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our plans or ability to develop drug candidates, such as
CK-1827452, or commercialize drugs with or without a partner,
including our intention to build clinical development and sales
and marketing capabilities;
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the potential benefits of our drug candidates and potential drug
candidates;
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the utility of the clinical trials programs for our drug
candidates, including, but not limited to, for the treatment of
cancer;
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the size and growth of expected markets for our potential drugs;
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market acceptance of our potential drugs;
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the utility of our biological focus and, specifically, of our
focus on the cytoskeleton;
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issuance of shares of our common stock under our committed
equity financing facility, or CEFF, with Kingsbridge Capital
Limited, or Kingsbridge;
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increasing losses, costs, expenses and expenditures;
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the sufficiency of existing resources to fund our operations for
at least the next 12 months;
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the scope and size of research and development efforts and
programs;
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our ability to protect our intellectual property and avoid
infringing the intellectual property rights of others;
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potential competitors and potential competitive products;
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our financial guidance, including expected revenues, research
and development and general and administrative expenses for 2006;
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anticipated operating losses, capital requirements and our needs
for additional financing;
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future payments under lease obligations and equipment financing
lines;
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expected future sources of revenue and capital;
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our plans to obtain limited product liability insurance;
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our plans for strategic alliances;
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receipt of milestone payments and other funds from our strategic
partners under strategic alliances; and
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increasing the number of our employees and recruiting additional
key personnel.
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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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difficulties or delays in development, testing, obtaining
regulatory approval for, and undertaking production and
marketing of, our drug candidates, including decisions by GSK or
the NCI to postpone or discontinue development efforts for one
or more compounds or indications;
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difficulties or delays in patient enrollment for our 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 clinical trials or preclinical studies are not
indicative of future results of clinical trials);
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activities and decisions of, and market conditions affecting,
current and future strategic partners;
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our ability to obtain additional financing if necessary;
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the timing and receipt of funds by us under our strategic
alliances;
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our ability to maintain the effectiveness of current public
information under our registration statement permitting resale
of securities to be issued to Kingsbridge by us under, and in
connection with, the CEFF;
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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;
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the uncertainty of protection for our intellectual property or
trade secrets, through patents or otherwise; and
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potential infringement 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.
When used in this Annual Report, unless otherwise indicated,
Cytokinetics, the Company,
we, our and us refers to
Cytokinetics, Incorporated.
CYTOKINETICS, our logo used alone and with the mark
CYTOKINETICS, and CYTOMETRIX are registered service marks and
trademarks of Cytokinetics. PUMA is a trademark of Cytokinetics.
Other service marks, trademarks and trade names referred to in
this Annual Report on
Form 10-K
are the property of their respective owners.
Overview
Cytokinetics, Incorporated is a biopharmaceutical company,
incorporated in Delaware in 1997, focused on the treatment of
cancer and cardiovascular disease. We currently have three novel
small molecule drug candidates in clinical development and two
novel small molecule potential drug candidates currently in
preclinical development, including an alternative formulation of
one of our current drug candidates. We anticipate one of these
potential drug candidates will proceed to clinical development
in 2006, and the other in 2007. These drug candidates and
potential drug candidates are currently being evaluated or are
expected to be evaluated during 2006 in up to 20 human clinical
trials. Our clinical pipeline consists of two drug candidates
and a potential drug candidate for the treatment of cancer, a
drug candidate for the treatment of heart failure in an
intravenous formulation and a potential drug candidate for the
treatment of chronic heart failure via oral administration.
Our most advanced cancer drug candidate, ispinesib (formerly
designated SB-715992), is the subject of a broad Phase II
clinical trials program being conducted by our strategic
alliance partner, GSK together with the NCI, designed to
evaluate its effectiveness in multiple tumor types. Currently,
GSK is conducting three Phase II clinical trials evaluating
the effectiveness of ispinesib in non-small cell lung cancer,
breast cancer and ovarian cancer. GSK is collaborating with the
NCI in conducting six Phase II clinical trials in six other
cancer indications. SB-743921, our second drug candidate for the
treatment of cancer, is the subject of an on-going Phase I
clinical trial being conducted by GSK. We expect to initiate a
Phase I/II clinical trial of SB-743921 in
non-Hodgkins lymphoma in the
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first quarter of 2006. GSK-923295, our third potential drug
candidate for the treatment of cancer, is currently in
preclinical development under our strategic alliance. We expect
that GSK will initiate Phase I clinical trials for
GSK-923295 in 2007.
Our drug candidate for the treatment of heart failure in an
intravenous formulation, CK-1827452, entered a Phase I
clinical trial in 2005. We plan to initiate a Phase II
clinical trials program for this drug candidate beginning in the
second half of 2006. CK-1827452 is also currently in preclinical
development as a potential drug candidate for the treatment of
chronic heart failure via oral administration. We plan to
initiate an oral bioavailability Phase I clinical trial for
CK-1827452 in the second half of 2006. We retain worldwide
development and commercialization rights for CK-1827452 in both
intravenous and oral formulations.
Ispinesib, SB-743921 and GSK-923295 are being developed under
our strategic alliance with GSK, which is focused on novel small
molecule therapeutics targeting human mitotic kinesins for
applications in the treatment of cancer and other diseases. We
have options to co-fund late stage clinical development for
these drug candidates and to co-promote such co-funded products
in North America. We also have the right to conduct clinical
development of SB-743921 for non-Hodgkins lymphoma,
Hodgkins lymphoma and multiple myeloma.
Our lead development programs are focused in two significant
markets: the treatment of cancer and heart failure. Each year in
the United States, over 1.3 million people are diagnosed
with cancer and over a half a million people die from cancer.
The market for chemotherapeutic drugs used in the treatment of
cancer was estimated to be over $12.6 billion in the United
States in 2004. The anti-mitotic market, to which our cancer
drug candidates are directed, represents approximately 35% of
this market.
Heart failure is a widespread and debilitating syndrome
affecting approximately 5 million people in the
United States alone. Heart failure is one of the most
common primary discharge diagnoses identified in hospitalized
patients over the age 65 in the United States. The
worldwide market for heart failure drugs was approximately
$2.7 billion in 2001. The limited effectiveness of current
therapies points to the need for next-generation agents with
improved efficacy without increased adverse events.
All of our drug candidates and potential drug candidates were
discovered by leveraging our drug discovery expertise focused on
the cytoskeleton. We believe that our knowledge of the
cytoskeleton enables us to develop novel and potentially safer
and more effective classes of drugs directed at the treatment of
cancer, cardiovascular disease and other diseases. We have
developed a cell biology driven approach and proprietary
technologies to evaluate the function of many interacting
proteins in the complex environment of the intact human cell. We
expect to continue to identify additional potential drug
candidates that may be suitable for clinical development.
4
The following chart shows the status of our preclinical and
clinical programs as of February 28, 2006:
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Conducted by or planned to be conducted by GSK. |
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Conducted by or planned to be conducted by Cytokinetics. |
In addition to the above preclinical and clinical programs, we
also have other research programs that we believe may contribute
to our development pipeline over time.
Our drug discovery platform is based on our advanced
understanding of the cytoskeleton, a complex biological
infrastructure that plays a fundamental role within every human
cell. The cytoskeleton is one of a few biological areas with
broad potential for drug discovery and development and has been
scientifically and commercially validated in a wide variety of
human diseases. For example, the cytoskeleton plays a
fundamental role in cell proliferation, and cancer is a disease
of unregulated cell proliferation. Hence, small molecule
inhibitors of these
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cytoskeletal proteins may prevent cancer cells from
proliferating. As another example, a structure in the
cytoskeleton of the cardiac muscle cell called the cardiac
sarcomere plays a fundamental role in cardiac contraction. Heart
failure is a syndrome often caused by reduced cardiac
contractility. We have discovered and are developing small
molecules that are designed to activate the cardiac sarcomere
and to cause increased cardiac contractility as a potential new
way to manage heart failure.
However, the broad role that the cytoskeleton plays in human
cell physiology may enable our drug discovery activities to be
directed to potentially address other medical conditions. For
instance, our other research activities focused on the
cytoskeleton include the discovery and characterization of
compounds designed to inhibit selectively the cytoskeletal
structure involved in the contraction of smooth muscle cells
lining the walls of arteries. We are evaluating these compounds
in animal models for the potential treatment of hypertension, a
disease in which elevated blood pressure may be decreased by
relaxation of the arterial smooth muscle. In addition, our cell
technologies platform, one module of which is based on our
knowledge of the mechanics and regulation of cell cycle
progression, has enabled the discovery of compounds that may
have a unique mechanism for inhibiting cell proliferation and
may have future application for the treatment of cancer.
We selectively seek partners and strategic alliances that enable
us to maintain financial and operational flexibility while
retaining significant economic and commercial rights to our drug
candidates. For example, in June 2001, we formed a
strategic alliance with GSK to discover, develop and
commercialize novel small molecule drugs targeting KSP and
certain other mitotic kinesins for applications in the treatment
of cancer and other diseases. Under the terms of the
Collaboration and License Agreement, GSK made a
$14.0 million upfront cash payment and an initial
$14.0 million equity investment. GSK also committed to
reimburse our FTEs conducting research in connection with the
strategic alliance for a minimum five year research term, and to
make additional milestone payments and pay royalties based on
product sales. GSK made subsequent equity investments in our
preferred and common stock prior to our initial public offering.
GSK is generally responsible for worldwide development of drug
candidates and commercialization of drugs arising from the
strategic alliance but we retain a
product-by-product
option to co-fund certain later-stage development activities in
exchange for a higher royalty rate and a further option to
secure co-promotion rights in North America. If we exercise our
co-promotion option for a drug candidate, we are entitled to
receive reimbursement from GSK for certain sales force costs
that we may incur in support of our commercial activities. In
2005, we amended our Collaboration and License Agreement with
GSK to give us additional rights to conduct clinical trials and
to commercialize SB-743921 for non-Hodgkins lymphoma,
Hodgkins lymphoma and multiple myeloma. Under the
amendment, we exercised our co-funding option for SB-743921 and
may also receive additional pre-commercialization payments from
GSK based on the achievement of certain milestones for SB-743921
for these indications and, under certain scenarios, increased
royalties from GSK on net sales of products containing SB-743921.
In addition to our strategic alliance with GSK, we have had
joint technology development activities with each of Eisai
Research Institute, Novartis Pharma AG, Tularik Inc. and Vertex
Pharmaceuticals, Inc. that have supported the continued
development and further validated our proprietary research
technologies. In December 2003, we entered into a strategic
alliance with AstraZeneca to fund and participate in the
development of a new application of our
Cytometrix®
technologies for use by both parties. Through December 31,
2005, we received $2.4 million in FTE reimbursement
payments from AstraZeneca.
We plan to build commercial capabilities to address markets
characterized by severe illnesses, significant patient
populations and concentrated customer groups. For example,
should any of ispinesib, SB-743921 or GSK-923295 be approved for
the treatment of cancer, we would intend to establish sales and
marketing capabilities under our strategic alliance with GSK to
support the future commercialization of one or more of them in
North America. In addition, should CK-1827452 or any compounds
arising out of our cardiovascular program be approved for the
treatment of heart failure, we intend to develop the sales and
marketing capabilities necessary to support the
commercialization of these potential drugs in North America. In
markets for which customer groups are not concentrated, we
intend to seek strategic alliances for the development and
commercialization of drug candidates while retaining significant
financial interests.
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Oncology
Program
One of our major development programs is focused on cancer, a
disease of unregulated cell proliferation. Each of our cancer
drug candidates, ispinesib and SB-743921 is a structurally
distinct small molecule that interferes with cell proliferation
and promotes cancer cell death by specifically inhibiting
kinesin spindle protein, or KSP. KSP is a mitotic kinesin that
acts early in the process of cell division, or mitosis, during
cell proliferation and is responsible for the formation of a
functional mitotic spindle. Our potential drug candidate for
cancer, GSK-923295, is directed against a second mitotic
kinesin, centromere-associated protein E, or CENP-E. We
initially discovered, characterized and optimized the various
chemical series that led to ispinesib, SB-743921 and GSK-923295
in our research laboratories. They are now being developed
through our strategic alliance with GSK. Ispinesib is currently
the subject of a broad Phase II clinical trials program
being conducted by GSK and the NCI designed to evaluate efficacy
against multiple tumor types. GSK initiated a Phase I
clinical trial for SB-743921 in mid-2004, and we intend to
initiate a Phase I/II clinical trial of SB-743921 under the
strategic alliance in the first quarter of 2006. We expect GSK
to file an investigational new drug application, or IND, for
GSK-923295 in 2006. We are also pursuing other compounds for the
treatment of cancer, both within our strategic alliance with GSK
and on our own.
Market Opportunity. Each year over
1.3 million new patients are diagnosed with primary
malignant solid tumors or hematological cancers in the United
States. Five common cancer types non-small cell
lung, breast, ovarian, prostate and colorectal
cancers represent approximately 60% of all new
cases of cancer in the United States each year and account
for more than 50% of all cancer deaths in the United States.
Annually, over half a million people die from cancer. The
prognosis for some types of cancer is more severe, such as acute
myeloid leukemia, non-small cell lung and hepatocellular cancer,
where the ratio of cancer-related deaths to newly diagnosed
cases per year is greater than 75%.
The current market for cancer drugs in the United States is
estimated to be $12.6 billion. Within this market, we
estimate that sales of drugs that inhibit mitosis, or
anti-mitotic drugs, such as taxanes, most notably paclitaxel
from Bristol-Myers Squibb, or BMS, and docetaxel from
Sanofi-Aventis Pharmaceuticals Inc., comprise a large portion,
approximately 35%, of the commercial market for cancer drugs.
Sales in the United States from the taxanes alone have been
estimated to be approximately $3.4 billion in 2004.
Since their introduction over 30 years ago, anti-mitotic
drugs have advanced the treatment of cancer and are commonly
used for the treatment of several tumor types. However, these
drugs have demonstrated no treatment benefit against certain
tumor types, such as colorectal and other tumors. In addition,
these drugs target tubulin, a cytoskeletal protein that is
essential not only to cell proliferation but also to other
important cellular functions, potentially resulting in side
effects. The inhibition of these other cellular functions
produces dose-limiting toxicities such as peripheral neuropathy,
an impairment of the peripheral nervous system. Neuropathies
result when these drugs interfere with the dynamics of
microtubule filaments that are responsible for the long-distance
transport of important cellular components within nerve cells.
Our Approach. Mitotic kinesins form a diverse
family of cytoskeletal proteins that, like tubulin, facilitate
the mechanical processes required for mitosis and cell
proliferation. We have pharmaceutically characterized each of
the 14 human mitotic kinesins that function in the pathway that
enables cell division. In our oncology program directed towards
inhibitors of mitotic kinesins, we have screened each mitotic
kinesin and identified small molecule inhibitors of most of
them. We believe that this comprehensive approach to screening
the complete mitotic kinesin pathway allowed us to identify a
number of drug candidates that may have diverse clinical
utilities. The first mitotic kinesin in this pathway, and the
one upon which we have focused a majority of our research and
development efforts, is KSP. In the past few years, we also
focused our research efforts on a second mitotic kinesin, CENP-E.
We believe that drugs inhibiting KSP, CENP-E and other mitotic
kinesins represent the next generation of anti-mitotic cancer
drugs. Mitotic kinesins are essential to mitosis, and, unlike
tubulin, appear to have no role in unrelated cellular functions.
In addition, they are expressed only in proliferating cells. We
believe drugs that inhibit KSP, CENP-E and other mitotic
kinesins can arrest mitosis and cell proliferation without
significantly impacting unrelated, normal cellular functions,
avoiding many of the toxicities commonly experienced by patients
treated with existing anti-mitotic cancer drugs, and potentially
overcoming cancer resistance mechanisms commonly seen with other
marketed anti-mitotic drugs.
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Our small molecule inhibitors of KSP and CENP-E are highly
potent and specific. We have performed detailed biochemical
studies to understand the precise molecular mechanism by which
our drug candidates inhibit KSP and CENP-E activity. By
inhibiting KSP, a cell cannot undertake the early steps of
mitosis, the separation of the two poles of the mitotic spindle.
As a result, a monopolar mitotic spindle is created.
Interruption of proper cell division through this mechanism in
cancer cells results in cell death. In preclinical research, our
drug candidates caused shrinkage of tumor size or reduction in
tumor growth rates in more than ten different animal models,
including cancers of the colon, lung, breast, ovary, pancreas
and prostate and sarcomas and leukemias. These models reveal
favorable results for our drug candidates in comparison to
existing drugs such as irinotecan, topotecan, gemcitabine,
paclitaxel, vinblastine and cyclophosphamide. Based on our
preclinical data, we believe that our KSP inhibitor drug
candidates may have the potential to expand the range of tumor
types susceptible to this anti-mitotic treatment.
Alternatively, by inhibiting CENP-E, the dividing cell cannot
proceed through the later stages of mitosis. These cells then
undergo cell death. In preclinical animal models of human
cancer, GSK-923295 causes significant reductions in tumor size
when administered as monotherapy.
We have identified, characterized and optimized several distinct
structural classes of KSP and CENP-E inhibitors. We and GSK have
also characterized several other mitotic kinesin inhibitors that
may be researched further for their therapeutic potential. We
believe that our cancer drug candidates may be safer, more
effective and treat a wider variety of tumor types than current
anti-mitotic drugs. In addition, preclinical data on ispinesib
indicate that this compound may have an additive effect in
certain combination regimens with existing cancer drugs.
Potential advantages of our drug candidates and potential drug
candidate include:
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Broad therapeutic potential. Our preclinical
testing indicates that ispinesib, SB-743921 and GSK-923295 cause
tumor regression in the form of partial response, complete
response or tumor growth inhibition in a variety of tumor types.
This is consistent with the important role that mitotic kinesins
play in cell proliferation in all tumor types.
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Safety profile. Preclinical testing of
ispinesib, SB-743921 and GSK-923295 and Phase I clinical
trials of ispinesib and SB-743921 indicate that these compounds
have fewer toxicities than many existing cancer drugs. The
preclinical studies indicate that the primary toxicities are
temporary, limited to gastrointestinal side effects and a
reduction in bone marrow function. In Phase I clinical
trials of ispinesib and SB-943921, the major dose limiting
toxicity was neutropenia, a decrease in the number of a certain
type of white blood cell. We observed limited or no evidence of
drug-related toxicities to the nervous system, heart, lung,
kidney or liver. We believe that this safety profile could
enable higher dosing of ispinesib and SB-743921 and increase the
therapeutic value of our two KSP inhibitors relative to other
anti-mitotic drugs.
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Current Program Status. In 2005, in connection
with our strategic alliance with GSK, we made progress in
advancing our oncology development program for ispinesib,
SB-743921 and GSK-923295. In addition, we reported ispinesib
data from planned interim analyses from the Phase II
locally advanced or metastatic breast cancer trial and from the
platinum-refractory arm of the non-small cell lung cancer
clinical trial and enrollment continued in six other
Phase II and five other Phase I/Ib clinical trials for
ispinesib. During 2005, GSK continued to enroll patients in a
dose-escalating Phase I clinical trial of SB-743921, our
second KSP inhibitor. This trial is designed to evaluate the
safety, tolerability and pharmacokinetics of SB-743921 in
advanced cancer patients. In addition, we announced our signing
of an amendment to our Collaboration and License Agreement with
GSK regarding the development of
SB-743921
for certain hematologic cancer indications. Also, in December
2005, GSK selected a novel small molecule development candidate,
GSK-923295, directed against a second mitotic kinesin, CENP-E,
which may have therapeutic potential for the treatment of cancer
and is now in preclinical development.
Ispinesib
Ispinesib, our lead oncology drug candidate, is a novel small
molecule designed to inhibit cell proliferation and promote
cancer cell death by specifically disrupting the function of
KSP. This drug candidate is being studied in a broad clinical
trials program consisting of nine Phase II clinical trials,
eight of which are currently being conducted and one of which is
planned to be initiated in 2006, and five Phase I/Ib
clinical trials evaluating the use of ispinesib in a variety of
both solid and hematologic cancers. The breadth of this clinical
trials program reflects the potential
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of, and the complexity of developing, a drug candidate such as
ispinesib. We expect this approach should help us to identify
those tumor types that are the most promising for the continued
development of ispinesib.
Ispinesib is believed to work by inhibiting KSP, which is a
mitotic kinesin. Mitotic kinesins are cytoskeletal proteins that
are essential for cell proliferation, a process that when
unregulated results in tumor growth. KSP plays no known role
outside of cell proliferation. Current drugs that inhibit cell
proliferation, such as paclitaxel and docetaxel, are standard
treatments for many types of cancers. However, these drugs
target tubulin, a cytoskeletal protein that is essential not
only to cell proliferation but also to other important cellular
functions, potentially resulting in side effects. Because the
preclinical and clinical data collected to date suggest that
ispinesib inhibits only actively proliferating cells, we believe
it may offer a lower incidence of toxicities compared to
anti-cancer agents that affect a wider array of cellular
functions, such as paclitaxel and docetaxel. In addition,
ispinesibs novel mechanism of action may render this drug
candidate effective against a broader range of tumor types,
including chemoresistant tumors, when compared to certain
existing cancer drugs, such as paclitaxel and docetaxel.
Interim data from an ongoing Phase II clinical trial of
ispinesib were presented at the 2005 San Antonio Breast
Cancer Symposium. The presentation highlighted results from an
ongoing Phase II clinical trial that is designed to assess
the safety, tolerability and efficacy of ispinesib in patients
with locally advanced or metastatic breast cancer refractory to
anthracyclines and taxanes. At the time of the interim analysis,
the best overall responses observed with ispinesib had been
partial responses in 3 of 33 evaluable patients as measured by
RECIST criteria. These three patients had maximum decreases in
tumor size ranging from 46% to 68% with the duration of response
ranging from 7.1 weeks to 13.4 weeks. The overall
response rate for all 33 evaluable patients was 9% with a median
time to progression of 5.7 weeks. The adverse events were
manageable, predictable and consistent with the Phase I
clinical trial experience of ispinesib. The most common adverse
event was Grade 4 neutropenia. This clinical trial has
progressed to the second stage of enrollment in which an
additional 25 patients are planned to be evaluated.
Currently, ispinesib is being studied in eight of nine planned
Phase II clinical trials evaluating its safety and efficacy
in the treatment of cancer. GSK initiated the first
Phase II clinical trial in late 2003 to evaluate ispinesib
as a monotherapy in non-small cell lung cancer. In mid and late
2004, GSK initiated two additional Phase II monotherapy
clinical trials to evaluate ispinesib in other prevalent tumor
types that represent large commercial markets, specifically
breast and ovarian cancers. The NCI is conducting clinical
trials of ispinesib in conjunction with GSK. During the first
quarter of 2005, the NCI began enrollment of patients in two
Phase II clinical trials, the first of which is evaluating
ispinesib for the treatment of colorectal cancer, and the second
of which is evaluating ispinesib for the first-line treatment of
patients with hepatocellular cancer. In the second quarter of
2005, the NCI initiated two additional Phase II clinical
trials, one evaluating ispinesib for the first-line treatment of
patients with melanoma and the second evaluating ispinesib for
the first- or second-line treatment of patients with head and
neck cancer. In the third quarter of 2005, the NCI initiated a
clinical trial evaluating ispinesib for the second-line
treatment of patients with hormone-refractory prostate cancer.
We anticipate that the NCI will initiate a Phase II
clinical trial in 2006 evaluating ispinesib for the second-line
treatment of patients with metastatic renal cell carcinoma.
Furthermore, we anticipate that ispinesib may eventually be used
in combination therapy regimens utilizing existing cancer drugs.
In 2004, GSK initiated Phase Ib clinical trials to evaluate
ispinesib in combination with each of three standard anti-cancer
therapeutics: docetaxel, capecitabine and carboplatin.
We are participating in the development of ispinesib, which is
being conducted by GSK under our strategic alliance. The
clinical trials to evaluate ispinesib under the GSK alliance
include:
Breast Cancer: GSK continues to conduct an
international, Phase II, open-label, monotherapy clinical
trial, designed to enroll up to 55 patients, evaluating the
safety and efficacy of ispinesib at
18mg/m2
every 21 days in the second- or third-line treatment of
patients with locally advanced or metastatic breast cancer whose
disease has recurred or progressed despite treatment with
anthracyclines and taxanes. The clinical trials primary
endpoint is response rate as determined using the widely
accepted criteria of tumor mass known as the Response Evaluation
Criteria in Solid Tumors, or RECIST. We reported data from a
planned interim analysis for this clinical trial in September
2005. Based on the data analysis to date, the best overall
responses, as determined using the RECIST criteria, have been 3
confirmed partial responses observed among the first
33 evaluable patients. This clinical trial employs a
Green-Dahlberg design, which requires the satisfaction of
pre-defined efficacy criteria to allow advancement to the second
stage of patient enrollment and treatment. In
9
this clinical trial, ispinesib demonstrated sufficient
anti-tumor activity to satisfy the pre-defined efficacy criteria
required to move forward to the second stage. GSK is now
proceeding to full enrollment of 55 evaluable patients in this
clinical trial. Based on the current rate of patient enrollment,
we anticipate final data from this clinical trial in 2006.
Ovarian Cancer: GSK continues to conduct a
Phase II, open-label, monotherapy clinical trial, designed
to enroll up to 35 patients, evaluating the efficacy of
ispinesib at
18mg/m2
dosed every 21 days in the second-line treatment of
patients with advanced ovarian cancer previously treated with a
platinum and taxane-based regimen. The primary endpoint of this
clinical trial is response rate as determined by the RECIST
criteria and blood serum levels of the tumor mass marker CA-125.
Based on the current rate of patient enrollment, we anticipate
interim data during the first half of 2006.
Non-Small Cell Lung Cancer: GSK continues to
conduct the platinum-sensitive arm of a two-arm, international,
Phase II, open-label, monotherapy clinical trial, designed
originally to enroll up to 35 patients in each arm. This
clinical trial was designed to evaluate the safety and efficacy
of ispinesib administered at
18mg/m2
every 21 days in the second-line treatment of patients with
either platinum-sensitive or platinum-refractory non-small cell
lung cancer. The clinical trials primary endpoint is
response rate as determined using the RECIST criteria. In the
second quarter of 2005, GSK completed patient treatment in the
platinum-refractory treatment arm of this trial. We reported
data from a planned interim analysis of the platinum-refractory
treatment arm of this clinical trial in September 2005. This
clinical trial employs a Green-Dahlberg design, which requires
the satisfaction of pre-defined efficacy criteria in a treatment
arm to allow advancement to the second stage of patient
enrollment and treatment in that arm. In the platinum-refractory
treatment arm of this clinical trial, the pre-defined efficacy
criteria required to move forward to full enrollment were not
met. The best overall responses observed in the
platinum-refractory treatment arm, as determined using the
RECIST criteria, were disease stabilization observed in 5
of 20, or 25%, of evaluable patients. The median time to
disease progression for these patients was 12 weeks as
compared to 6 weeks in the overall treatment population. We
anticipate interim data from the first phase of the
platinum-sensitive treatment arm of this clinical trial in the
first quarter of 2006.
Combination of ispinesib with each of capecitabine,
carboplatin and docetaxel: In November, we and
GSK presented data from two Phase Ib combination clinical
trials of ispinesib at the 2005 AACR-NCI-EORTC International
Meeting. These data suggest ispinesib has an acceptable
tolerability profile and no pharmacokinetic interactions when
used in combination with each of two common chemotherapeutic
agents in patients suffering from advanced solid tumors. One
presentation contained data from an ongoing clinical trial that
demonstrated that the combination of ispinesib and capecitabine
appears to have an acceptable tolerability profile on the
clinical trials treatment schedule. The second
presentation contained data from a clinical trial that
demonstrated that the combination of ispinesib with docetaxel
has an acceptable tolerability profile on a once every
21 day schedule. The regimen-limiting toxicity in this
second clinical trial was prolonged Grade 4 neutropenia which
was consistent with the Phase I clinical trial experience
with ispinesib and clinical experience with docetaxel. GSK
continues to enroll patients in a third dose-escalating
Phase Ib clinical trial, designed to evaluate the safety,
tolerability and pharmacokinetics of ispinesib in combination
with carboplatin.
In parallel with these GSK-sponsored clinical trials, the NCI is
conducting five additional Phase II clinical trials and two
Phase I clinical trials that will further evaluate the
safety and efficacy of ispinesib across a variety of tumor
types. The NCI has an additional Phase II clinical trial
planned for initiation in 2006. These clinical trials include:
Colorectal Cancer: In the first quarter of
2005, the NCI initiated a Phase II clinical trial, designed
to enroll up to 76 patients, evaluating ispinesib in the
second-line treatment of patients with colorectal cancer. This
open-label, monotherapy clinical trial contains two arms that
evaluate different dosing schedules of ispinesib, either infused
at
7 mg/m2
on days 1, 8 and 15 of a
28-day
schedule or at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined using the RECIST criteria.
Prostate Cancer: In the third quarter of 2005,
the NCI initiated a Phase II clinical trial, designed to
enroll up to 40 patients, evaluating ispinesib in the
second-line treatment of patients with hormone-refractory
prostate cancer. This open-label monotherapy clinical trial will
evaluate ispinesib infused at
18mg/m2
every
10
21 days. The primary endpoint is objective response as
determined by blood serum levels of the tumor mass marker
Prostate Specific Antigen.
Hepatocellular Cancer: In the first quarter of
2005, the NCI initiated a Phase II clinical trial, designed
to enroll up to 30 patients, evaluating ispinesib in the
treatment of patients with hepatocellular cancer that have not
been treated with any systemic chemotherapy. This open-label,
monotherapy clinical trial will evaluate ispinesib infused at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined using the RECIST criteria.
Head and Neck Cancer: In the second quarter of
2005, the NCI initiated a Phase II clinical trial, designed
to enroll up to 33 patients, evaluating ispinesib in the
first- or second-line treatment of patients with head and neck
cancer. This open-label monotherapy clinical trial will evaluate
ispinesib infused at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined using the RECIST criteria.
Melanoma: In the second quarter of 2005, the
NCI initiated a Phase II clinical trial, designed to enroll
up to 25 patients, evaluating ispinesib in the treatment of
patients with melanoma who may have received adjuvant
immunotherapy but no chemotherapy. This open-label monotherapy
clinical trial will evaluate ispinesib infused at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined using the RECIST criteria.
Leukemia: In 2005, the NCI continued a
Phase I clinical trial initiated in 2004 of patients with
acute leukemia, chronic myelogenous leukemia or myelodysplastic
syndrome. This clinical trial is designed to evaluate the
safety, tolerability and pharmacokinetics of ispinesib infused
on a more dose-dense schedule than in other clinical trials
conducted by GSK or the NCI.
Advanced Solid Tumors: In 2005, the NCI
continued a Phase I clinical trial initiated in 2004 of
patients with histologically proven solid tumors that have
failed all standard therapies. This clinical trial is designed
to evaluate the safety, tolerability and pharmacokinetics of
ispinesib infused on a more dose-dense schedule than in other
clinical trials conducted to date by GSK or the NCI.
Renal Cell Cancer: The NCI is planning on
initiating in 2006 a Phase II clinical trial evaluating
ispinesib in the second-line treatment of patients with renal
cell cancer.
Based on communications with GSK, we expect the NCI will
complete one or more of these clinical trials in 2006. However,
neither we nor GSK control the timing of the NCIs clinical
trials nor the disclosure of any data in connection with these
clinical trials.
SB-743921
SB-743921, our second drug candidate, also inhibits KSP but is
structurally distinct from ispinesib. SB-743921 is also being
developed by GSK and Cytokinetics through our strategic
alliance. Though we are aware of no clinical shortcomings of
ispinesib that are addressed by SB-743921, we believe that
having two KSP inhibitors in concurrent clinical development
increases the likelihood that a commercial product will result
from this research and development program. In mid-2004, GSK
initiated a Phase I clinical trial for SB-743921 in the
United States designed as an open-label, non-randomized,
dose-finding clinical trial investigating safety, tolerability
and pharmacokinetics of this drug candidate in patients with
advanced cancer. GSK continues to enroll patients in this
clinical trial. We anticipate reporting data from this clinical
trial in the first half of 2006.
Data relating to SB-743921 were presented at the 2005 Annual
Meeting of the American Society of Clinical Oncologists in May
2005. These data were from 20 patients who collectively had
a variety of advanced solid tumors and received doses of
SB-743921 intravenously every 21 days. While determination
of the maximum tolerated dose is still ongoing, SB-743921
appears to have an acceptable tolerability profile for patients
suffering from advanced solid tumors. Notably, neurotoxicities,
mucositis, thrombocytopenia, alopecia and nausea/vomiting
requiring pre-medication were not observed. The dose-limiting
toxicities observed to date 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.
11
In September 2005, we amended our Collaboration and License
Agreement with GSK regarding the development of SB-743921. Under
the terms of the amendment, we will lead and fund development
activities to explore the potential application of SB-743921 for
the treatment of non-Hodgkins lymphoma, Hodgkins
lymphoma and multiple myeloma, subject to GSKs option to
resume responsibility for development and commercialization
activities for SB-743921 for these indications during a defined
period. Our development activities for SB-743921 will be
conducted in parallel with GSKs development activities for
SB-743921 in other cancer indications and for ispinesib and
GSK-923295. We expect to initiate a Phase I/II clinical
trial of SB-743921 in patients with non-Hodgkins lymphoma
in the first quarter of 2006.
GSK currently funds the development costs associated with
SB-743921 outside of the indications of non-Hodgkins
lymphoma, Hodgkins lymphoma and multiple myeloma.
GSK-923295
In December 2005, GSK selected a novel small molecule
development candidate, GSK-923295, directed against a second
mitotic kinesin, CENP-E, under our strategic alliance. CENP-E is
directly involved in coordinating the decision a cell makes to
divide with the actual mechanics of that division. These
processes are essential for cancer cells to grow. GSK-923295, a
specific inhibitor of CENP-E, causes partial and complete
shrinkages of human tumors in animal models and has exhibited
properties in these studies that distinguish it from ispinesib
and SB-743921. We anticipate that GSK will file an IND for
GSK-923295 in 2006 and begin clinical trials in 2007.
Commercialization. GSK is responsible for the
worldwide development and commercialization of ispinesib,
SB-743921, GSK-923295 and other drug candidates arising from the
strategic alliance, except for the development and
commercialization of SB-743921 for those hematologic cancer
indications for which we assumed responsibility under the
amendment to our Collaboration and License Agreement. We will
receive royalties from the sale of any drugs developed under the
strategic alliance. In addition, we retain an option for each of
ispinesib and
GSK-923295
to co-fund certain later-stage development activities, and
thereby increase our potential royalty rate. Pursuant to the
amendment, we have exercised this option for SB-743921 and,
under certain scenarios, may receive further increased royalties
on net sales of products containing SB-743921. Furthermore, for
those drug candidates for which we co-fund certain later-stage
development activities, we have a further option to secure
co-promotion rights in North America. We expect that the
royalties to be paid on future sales of ispinesib, SB-743921 and
GSK-923295
could potentially increase to an upper-teen percentage rate
based on increasing product sales and our anticipated level of
co-funding. If we 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 commercial activities. We
expect to develop sales and marketing capabilities to support
the North American commercialization of one or more of
ispinesib, SB-743921, GSK-923295 and other drug candidates that
may be developed under our strategic alliance with GSK. Because
cancer patients are largely treated in institutional and other
settings that can be addressed by a specialized sales force,
developing our commercial capabilities to address such treatment
centers is consistent with our corporate strategy of focusing
our commercial efforts on large, concentrated markets.
Cardiovascular
Disease Program
We have focused the majority of our cardiovascular disease
research and development activities to date on heart failure, a
disease most often characterized by compromised contractile
function of the heart that impacts its ability to effectively
pump blood throughout the body. Our heart failure program is
directed towards the discovery and development of small molecule
drug candidates that activate a specific cardiac protein known
as cardiac myosin. This program is based on the hypothesis that
activators of cardiac myosin may improve heart function by
increasing cardiac contractility without triggering common
adverse clinical effects in heart failure patients. Existing
drugs that seek to improve cardiac cell contractility typically
increase the concentration of intracellular calcium, which
indirectly activates cardiac myosin, but also has been linked to
potentially life-threatening side effects. In contrast, targeted
cardiac myosin activators have been shown to work by a novel
mechanism that directly stimulates the activity of the cardiac
myosin motor protein without increasing the concentration of
intracellular calcium, thereby potentially avoiding the
associated side effects. In animal models, our potential drug
candidates arising from this program improved cardiac
contractility without the adverse effects on heart rate or
rhythm, blood pressure and oxygen consumption often exhibited by
existing drugs. Our drug candidate for the treatment of heart
failure in
12
an intravenous formulation, CK-1827452, entered Phase I
clinical development in 2005. We plan to initiate several
Phase II clinical trials for this drug candidate beginning
in the second half of 2006. CK-1827452 is also currently in
preclinical development as a potential drug candidate for the
treatment of chronic heart failure via oral administration. We
plan to initiate an oral bioavailability Phase I clinical
trial of CK-1827452 in the second half of 2006. We retain all
commercial rights to the drug candidates in our cardiovascular
program.
Market Opportunity. Heart failure is a
widespread and rapidly growing disease affecting approximately
five million people in the United States alone. The high
prevalence of heart failure translates into significant
hospitalization rates and associated societal costs. The number
of hospital discharges in the United States identified with a
primary diagnosis of heart failure rose from 550,000 in 1989 to
1,088,000 in 2003. During 2002, heart failure was one of the
most common primary diagnoses identified in hospital discharges
for patients over 65. The annual costs of heart failure in the
United States are estimated to be $27.9 billion, including
$18.3 billion for inpatient care.
The market for heart failure drugs was approximately
$2.7 billion in 2001 and is expected to grow to
approximately $4.0 billion by 2011. Current heart failure
drugs that increase contractility may have reached a plateau in
terms of efficacy because they typically treat only the symptoms
and effects of the disease. We believe that drugs that directly
target the underlying cellular mechanisms responsible for
cardiac contraction may be more effective in the treatment of
heart failure.
Existing drugs that improve cardiac contractility, including
milrinone, dobutamine and digoxin, treat heart failure in part
by improving the contraction of cardiac cells, leading to an
improvement in overall cardiac contractility. These drugs work
by activating a complex cascade of cellular proteins, eventually
resulting in an increase in intracellular calcium and a
subsequent increase in cardiac cell contractility. However,
activation of this cascade and the elevation of calcium levels
may also impact other cell functions, producing unwanted and
potentially life threatening side effects, such as cardiac
ischemia from increased oxygen demand and cardiac arrhythmias.
Cardiac ischemia is a condition in which oxygen delivery to the
heart is limited and is frequently observed in heart failure
patients due to constriction or obstruction of blood vessels.
Cardiac arrhythmias are irregularities in the frequency of the
heart beat. In addition, these existing drugs impact tissues
apart from cardiac muscle leading to increases in heart rate and
decreases in blood pressure, which can complicate their use in
this patient population. Therefore, although existing drugs that
increase contractility may be effective in treating the symptoms
of heart failure, they often increase heart failure patient
morbidity and mortality.
Our Approach. We believe that the direct
activation of cardiac myosin is a more specific mechanism by
which to improve cardiac cell contractility. Cardiac myosin is
the cytoskeletal protein in the cardiac cell that is directly
responsible for converting chemical energy into the mechanical
force that results in contraction. Cardiac muscle cell
contractility is driven by the cardiac sarcomere, the
fundamental unit of muscle contraction in the heart. The cardiac
sarcomere is a highly ordered cytoskeletal structure composed of
cardiac myosin, actin and a set of regulatory proteins. Existing
drugs that seek to improve cardiac cell contractility increase
the concentration of intracellular calcium, which indirectly
activates cardiac myosin, but this effect on calcium levels also
produces potentially life threatening side effects. In contrast,
our drug candidate CK-1827452 increases cardiac contractility by
specifically targeting and directly activating cardiac
myosins interaction with actin to generate contractile
force in the cardiac sarcomere. We believe we are the first to
develop compounds that specifically activate cardiac myosin. We
accomplished this by leveraging our expertise in the
biochemistry, biophysics, chemistry, cell biology and
pharmacology of the cardiac sarcomere. We have developed a
series of proprietary assays that measure the integrated
function of the cardiac sarcomere. We have also developed a
suite of complementary assays for the characterization of
cardiac myosin activators in a manner that predicts their
physiological activity. As a result, we can rapidly advance and
evaluate highly potent and selective compounds in predictive
assays replicating physiologic systems, and determine the
precise mechanism of action of promising chemical compounds. We
have identified multiple chemical series of cardiac myosin
activators with attractive properties through repeated
characterization in cell and animal models. In rats and dogs,
compounds we are currently pursuing from this program
demonstrate increased cardiac contractility and improved cardiac
efficiency without accompanying adverse effects.
Our preclinical testing indicates that our cardiac myosin
activator compounds work through a novel mechanism of action
that enables the modulation of cardiac cell contraction without
increasing intracellular calcium
13
levels or interfering with other unrelated cardiac muscle
functions. As a result, we believe that these compounds may
effectively improve cardiac contractility and cardiac output for
the treatment of heart failure patients without adversely
impacting heart rate or blood pressure and minimally affecting
cardiac energy consumption. However, preclinical data on these
compounds may not be predictive of clinical results in humans,
which we would need to acquire before we can determine whether
any drug from this program is safe and effective. We believe
that our drug candidate CK-1827452 and other compounds from our
cardiovascular program could be safer and more effective than
existing heart failure drugs. Potential advantages of compounds
arising from this program may include:
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Cardiac efficiency. Our preclinical studies
indicate that CK-1827452 and other compounds arising from this
program enhance cardiac output, which is the volume of blood
pumped into circulation by the heart per minute, and may improve
cardiac efficiency, as measured by the ratio of cardiac work
divided by cardiac oxygen consumption, where cardiac work is the
product of cardiac output and blood pressure.
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Safety profile. Our preclinical studies
indicate that CK-1827452 and other compounds arising from this
program may enhance cardiac output without significantly
increasing heart rate, decreasing blood pressure or causing
cardiac arrhythmias.
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In 2005, we presented data from our cardiovascular program at
two scientific conferences. These presentations detailed the
biochemistry, enzymology and advanced cell biology for cardiac
myosin activators, and provided further support for a potential
approach to the treatment of acute and chronic heart failure. In
addition, the findings continued to support the hypothesis that
drug candidates from this program may address certain
mechanistic liabilities of existing pharmaceuticals by
increasing cardiac contractility without increasing
intracellular calcium. Currently available agents that increase
cardiac contractility, such as the beta-adrenergic agonists and
the phosphodiesterase inhibitors, act by increasing
intracellular calcium, which is associated with adverse clinical
effects. We believe that the properties of direct cardiac myosin
activators, such as CK-1827452, may result in their improved
safety over existing heart failure drugs and allow for their
potential use for the treatment of a broader spectrum of
patients with heart failure.
We are continuing to optimize and characterize several novel
cardiac myosin activators. The further characterization of
CK-1827452 indicates that it may have properties that would
allow for the development of an orally administered compound
suitable for the treatment of chronic heart failure. We believe
that cardiac myosin activators arising from our cardiovascular
disease drug discovery activities may represent improvements
relative to drugs commonly used in the treatment of acute and
chronic heart failure.
Current Program Status. In March 2005, we
selected our compound CK-1827452, a novel cardiac myosin
activator, as a drug candidate for further development as a
potential treatment of heart failure. In animal models,
CK-1827452 is orally bioavailable and has demonstrated the
ability to increase cardiac contractility without increasing
calcium within the cardiac muscle cells, or myocytes, or
inhibiting phosphodiesterase.
In September 2005, we presented preclinical data demonstrating
that CK-1827452 selectively activates cardiac myosin. In cardiac
myocytes, CK-1827452 increased the contractility of the heart
muscle without changes in the cellular calcium transient, a
finding that was consistent with the compounds mechanism
of action. In addition, CK-1827452 demonstrated an improvement
in cardiac function and output, and hemodynamics and efficiency
in a dog model of heart failure in a manner that supports our
therapeutic hypothesis.
CK-1827452
(intravenous)
In September 2005, we initiated a Phase I clinical trial of
CK-1827452. This clinical trial is a double-blind, randomized,
placebo-controlled, crossover trial designed to evaluate
escalating doses of CK-1827452 administered as an intravenous
infusion to normal healthy volunteers and to investigate its
safety, tolerability, pharmacokinetic and pharmacodynamic
profile. This clinical trial is designed to identify the maximum
tolerated dose of a
six-hour
intravenous infusion of CK-1827452. CK-1827452s effect on
the left ventricular function of these healthy volunteers is
being evaluated using serial echocardiograms. The clinical trial
is being conducted by us under a Clinical Trial Authorization at
a clinical investigative center in the United Kingdom. We
anticipate data from this clinical trial in the first half of
2006.
14
Our current development plan for this drug candidate, assuming
the successful completion of this Phase I clinical trial,
includes a Phase II clinical trials program in patients
with heart failure. We plan to initiate the first of these
Phase II clinical trials in the second half of 2006. In
addition, patients with a variety of co-morbidities that
commonly complicate acutely decompensated heart failure (for
example, coronary artery disease with inducible myocardial
ischemia, left ventricular thickening, abnormally rapid heart
rates or abnormal kidney function) are expected to be studied to
evaluate their suitability for inclusion in Phase III
clinical trials.
CK-1827452
(oral)
In December 2005, we selected CK-1827452 as a potential drug
candidate for the treatment of patients with chronic heart
failure via oral administration. Pharmacokinetic data arising
from preclinical studies and the Phase I clinical trial of
the intravenous formulation of CK-1827452 suggest that this
compound has the necessary pharmacokinetic and pharmacologic
properties to support development of a chronic oral dosing
formulation. Additional preclinical studies to support oral
dosing in humans with CK-1827452 are currently underway.
Assuming successful completion of the enabling preclinical
studies, we intend to submit a regulatory filing for the
initiation of a Phase I clinical trial in the second half
of 2006 that is intended to confirm in humans the
bioavailability seen in preclinical studies with orally
administered CK-1827452.
Commercialization. While we may seek a
strategic alliance to assist in the further funding and
expansion of our cardiovascular disease drug discovery and
development program, we expect to build capabilities to develop,
market and sell our heart failure drugs in North America.
Because acute heart failure patients are largely treated in
teaching and community-based hospitals that can be addressed by
a specialized sales force, developing our commercial
capabilities to address such treatment centers is consistent
with our corporate strategy of focusing our commercial efforts
on large, concentrated markets. We may rely on one or more
strategic alliances to further the discovery, development and
commercialization of our potential intravenous heart failure
drugs outside North America and potentially assist in the
development of our potential oral heart failure drugs worldwide.
Discovery
Programs
Our drug discovery platform is based on our advanced
understanding of the cytoskeleton, a complex biological
infrastructure that plays a fundamental role within every human
cell. The cytoskeleton is one of a few biological areas with
broad potential for drug discovery and development and has been
scientifically and commercially validated in a wide variety of
human diseases. For example, the cytoskeleton plays a
fundamental role in cell proliferation, and cancer is a disease
of unregulated cell proliferation. Hence, small molecule
inhibitors of these cytoskeletal proteins may prevent cancer
cells from proliferating. Our efforts in this area have led to
the discovery and development of our current drug candidates
ispinesib and SB-743921 and our potential drug candidate
GSK-923295
for the treatment of cancer, and we have continued to discover
and develop other compounds targeting the cytoskeleton that may
also be useful for the treatment of cancer. As another example,
a cytoskeletal structure in the cardiac muscle cell called the
cardiac sarcomere plays a fundamental role in cardiac
contraction. Heart failure is a syndrome often caused by reduced
cardiac contractility. Our efforts in this area have led to the
discovery and development of our drug candidate CK-1827452 for
the treatment of heart failure, and we have continued to
discover and develop other small molecules that increase cardiac
contractility as
back-up
compounds for our heart failure program.
However, given the broad role that the cytoskeleton plays in
human cell physiology, we expect to be able to leverage our
investments in and experience gained from our more mature
oncology and cardiovascular programs to support our drug
discovery and development activities focused on other
therapeutic areas. Currently, we are conducting drug discovery
activities on several earlier stage research programs that we
believe will continue to contribute novel drug candidates to our
pipeline over time. In each case, our decision to pursue these
programs is based on a therapeutic rationale regarding the role
of specific cytoskeletal proteins implicated in the relevant
disease and desired treatment. In each of these areas, our
research activities are directed towards the modulation of a
specific cytoskeletal protein pathway or multi-protein system
for the treatment of disease. For example, we have identified,
characterized and are now seeking to chemically optimize
compounds that inhibit selectively the cytoskeletal structure
involved in the contraction of smooth muscle cells. Our
objective for this research program is to discover potential
drug candidates for high blood pressure, asthma and other
diseases. We are evaluating certain
15
of these compounds in animal models for the potential treatment
of hypertension, a disease in which elevated blood pressure may
be decreased by relaxation of the arterial smooth muscle. In
addition, our
Cytometrix®
platform, a highly automated suite of cellular assays and
associated analytical software, augments our capabilities in the
discovery and optimization of our novel small molecule agents
through quantitative assessment of their potency, efficacy and
undesired side effects in intact cells. One of this
platforms modules which is based on our knowledge of the
mechanics and regulation of cell cycle progression has enabled
the discovery of compounds that may have a unique mechanism for
inhibiting cell proliferation, and may have future application
for the treatment of cancer.
All of our drug candidates and potential drug candidates were
discovered by leveraging our drug discovery expertise focused on
cytoskeletal pharmacology. We believe that our knowledge of the
cytoskeleton enables us to develop novel and potentially safer
and more effective classes of drugs directed at the treatment of
cancer, cardiovascular disease and other diseases. We have
developed a cell biology driven approach and proprietary
technologies to evaluate the function of many interacting
proteins in the complex environment of the intact human cell.
This approach, which we have applied specifically to the
cytoskeleton, enables increased speed, efficiency and yield not
only in our drug discovery process, but also potentially in
clinical development. We focus on developing a detailed
understanding of validated protein pathways and multi-protein
systems to allow our assay systems to more correctly represent
the natural environment of a human cell. This approach differs
from the conventional practice of concentrating on individual
protein targets assayed in a system that may not adequately
represent the complex, dynamic and variable natural environment
that is relevant to disease. As a result, we can potentially
identify multiple points of biological intervention to modulate
a specific protein pathway or multi-protein system. Our
discovery activities are thus directed at particular proteins
and biological pathways that may be better targets for the
development of potentially safer and more effective drugs. We
expect to continue to identify additional potential drug
candidates that may be suitable for clinical development.
Our
PUMAtm
system and
Cytometrix®
technologies enable early identification and prioritization of
compounds that are highly selective for their intended protein
targets without other cellular effects, and may thereby be less
likely to give rise to clinical side effects. Our
PUMAtm
system identifies compounds within our small molecule library
that are likely to target specific cytoskeletal proteins. Our
Cytometrix®
technologies enable us to simultaneously analyze and quantify
hundreds of effects of each compound on a
cell-by-cell
basis. The integrated use of these technologies enables us to
efficiently focus our efforts towards those compounds directed
at novel cytoskeletal protein targets that are more likely to
yield attractive drug candidates.
The
Cytoskeleton
The cytoskeleton is a diverse, multi-protein framework that
carries out fundamental mechanical activities of cells including
mitosis, or the division of genetic material during cell
division, intracellular transport, cell movement and contraction
and overall cell organization. It provides an ordered and
dynamic organizational scaffolding for the cell, and mediates
movement, whether of proteins within the cell or of the entire
cell itself. The cytoskeleton is comprised of a unique set of
filaments and molecular motor proteins. Filaments are long
linear structures of proteins that serve as the major
scaffolding in cells and conduits for movement of molecular
motor proteins transporting other proteins or intracellular
material. Microtubule filaments are composed of tubulin, and
actin filaments are composed of actin. Molecular motor proteins,
such as kinesins and myosins, are proteins that transport
materials within cells and are also responsible for cellular
movement. Kinesins move along microtubule filaments and myosins
move along actin filaments.
These cytoskeletal proteins organize into ordered protein
pathways or multi-protein systems that perform important
cellular functions. For example, one such structure called the
mitotic spindle organizes and divides genetic material during
cell proliferation. The mitotic spindle encompasses many
cytoskeletal proteins including tubulin, which forms microtubule
filaments, and a sub-group of kinesins known as mitotic
kinesins. The highly orchestrated action of the proteins within
this structure transports and segregates genetic material during
cell proliferation. Our most advanced cancer program, partnered
with GSK, is focused on discovering potential drugs that inhibit
human mitotic kinesins. One of our founders and scientific
advisory board members, Dr. Ron Vale, first discovered
kinesins. Another of our founders and scientific advisory board
members, Dr. Larry Goldstein, was the first scientist to
identify and characterize kinesin genes.
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Another multi-protein cytoskeletal structure, called the cardiac
sarcomere, contains a highly ordered array of cardiac myosin
interacting with actin filaments. The movement of myosin along
actin filaments generates the cell contraction responsible for
cardiac muscle function. Our program in heart failure is focused
on discovering potential drugs that activate cardiac myosin.
Another of our founders and scientific advisory board members,
Dr. James Spudich, was one of the first scientists to
characterize the functional interrelationships of the
cytoskeletal proteins in the sarcomere.
Beyond the role these specific cytoskeletal proteins play in
cell proliferation and cardiac muscle contraction, other
cytoskeletal proteins have been implicated in a variety of other
important biological processes and related human diseases. Our
drug discovery activities are focused on several of these
mechanical cellular processes, including cell proliferation,
cardiac and other muscle contraction, cellular organization and
cell motility, and are specifically directed at the cytoskeletal
proteins that play essential roles in carrying out these
functions. For instance, a unique set of cytoskeletal proteins
forms the cellular machinery that maintains blood vessel tone.
One of our research programs is focused on discovering
inhibitors of these proteins as a potential treatment for high
blood pressure.
Our Cell
Biology Driven Approach to Drug Discovery and
Development
All of our compounds in discovery and development have been
discovered using our cell biology driven approach and
proprietary automated technologies.
Cell Biology Driven Approach. We believe that
the cell is the smallest, tractable representation of a true
biological system. The outcome of a drug administered to a
patient is governed largely by biological factors. The cell,
therefore, represents a comprehensive, complex environment in
which the full complement of proteins and biological pathways
and systems operate, and is therefore the most appropriate
context for drug discovery. Unlike the conventional drug
discovery approach that typically focuses on a singular
molecular target or protein in isolation, we study our target
proteins together with their naturally occurring cellular
partners assembled in a manner that we believe faithfully
represents their interrelationship in the cell. This approach
better represents the natural environment of the cell in which
the target proteins function. Using our
PUMAtm
assays, we then seek to identify the most appropriate protein
target or targets, as well as multiple effective ways to
chemically modulate each target with small molecules.
Application of the
Cytometrix®
assay platform to small molecules identified in this way allows
us to quickly identify compounds that elicit the appropriate
cellular response without other effects and thereby more likely
achieve a desired therapeutic effect. We believe that this
approach maximizes the chance of finding the preferred protein
target implicated in a particular disease and provides multiple
opportunities for success within each target-based drug
discovery and development program. Our approach to drug
discovery and development may thereby increase the productivity
and likelihood of success of our research and development
activities compared to the more customary approach practiced by
other companies.
Proprietary Drug Discovery Technologies. Our
proprietary automated technologies, most notably our
PUMAtm
system and
Cytometrix®
technologies, enable early identification and prioritization of
drug candidates.
Our
PUMAtm
system is a high-throughput screening platform comprised of a
series of automated proprietary multi-protein biochemical assays
designed to comprehensively screen large compound libraries to
yield chemical entities that specifically modulate each of
several cytoskeletal molecular motor proteins. To date, we have
applied the
PUMAtm
system to perform more than 25 million assays against an
in-house library of more than 500,000 small molecules and a
diverse group of cytoskeletal protein targets. Unlike many
screening platforms, these technologies allow us to analyze
protein pathway activity and complexity in a high-throughput
format that we believe is more predictive of the natural
cellular environment. We complement this system with a
customized suite of secondary and supplemental biochemical
assays.
The
PUMAtm
system leverages our focus and expertise in cytoskeletal biology
and is a highly sensitive and specific screen for both
inhibitors and activators of molecular motor proteins, such as
mitotic kinesin inhibitors in our cancer program and activators
of cardiac myosin in our heart failure program. We screen small
molecules from our compound library against specific
cytoskeletal targets, as well as against related proteins that
mediate other cellular functions, to ensure that we identify
compounds that modulate our protein targets of interest in a
highly potent, specific and understandable manner.
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We have developed our
Cytometrix®
technologies as an automated cell biology platform that is an
integral part of our small molecule drug discovery process.
Cytometrix®
technologies are our suite of automated and digital microscopy
assays and analytical software that enable us to screen for
potency, efficacy and specificity against multiple biological
targets in cells, facilitating the early identification and
rejection of those compounds that may have unintended effects
and that may subsequently give rise to toxicities. By
eliminating undesirable compounds earlier in the drug discovery
process, we can focus our attention and resources on the most
promising drug candidates. As a result, we believe we minimize
investment in commercially unattractive compounds and we can
devote more resources to understanding, qualifying and
optimizing the compounds that are more likely to yield safe and
effective drug candidates.
Cytometrix®
technologies systematically and comprehensively measure
responses of individual human cells to potential drug candidates
across multiple experimental conditions. For example, in our
oncology program,
Cytometrix®
technologies measure, on a
cell-by-cell
basis, the number of cells at each stage of cell division with a
high degree of resolution. This is accomplished by combining the
same microscope-based approach that has characterized biological
research in the past with modern robotic cell handling, digital
imaging, image segmentation and analysis and information
handling software technologies. In our cardiovascular program,
Cytometrix®
technologies can also be used to examine the detailed response
of cardiac cells to our small molecules that effect
contractility of these cells. As an adjunct to all of our drug
discovery programs, a
Cytometrix®
module has been developed to identify small molecules with
undesired effects in liver cells. Often, such undesired effects
can cause small molecules to fail during the course of
development. By understanding the potential for such a liability
early, our small molecule optimization programs can be directed
to minimize the undesired effect.
Cytometrix®
technologies enable us to efficiently analyze the effects of
individual compounds against all proteins simultaneously on a
cell-by-cell
basis in contrast to assessing more simple outputs of a compound
against a single molecular target as is practiced in most other
screening systems.
Cytometrix®
technologies profile both existing drugs and small molecules
arising out of our drug discovery activities to create detailed
cell-by-cell
reports of an individual compounds biological response.
Since its incorporation into our research program,
Cytometrix®
technologies have measured hundreds of variables across each of
over 1 billion human cells. The resulting information is
quantitative and reproducible, allowing prioritization of
potential drug candidates by identifying those compounds with
certain unintended cellular effects. We believe
Cytometrix®
technologies provide additional and potentially complementary
information to gene and protein expression pattern analyses
because they measure,
cell-by-cell,
the response of a network of integrated proteins within their
natural environment, the human cell.
Attractive small molecules, first identified in primary
screening against cytoskeletal protein targets using the
PUMAtm
system, are more thoroughly profiled using
Cytometrix®
technologies for secondary screening. These technologies
generate quantifiable and reproducible cell-based profiles that
fingerprint the cellular responses of diverse molecular
mechanisms of drug action. Through the integrated use of our
PUMAtm
system and
Cytometrix®
technologies, we are able to efficiently focus our efforts
towards those compounds that are directed towards novel
cytoskeletal protein targets and that are more likely to yield
attractive drug candidates.
Advanced Small Molecule Chemistries. We have
assembled a small molecule library containing approximately
500,000 compounds. We designed this library to maximize
diversity and drug-like characteristics. We support this library
with a fully automated infrastructure for compound handling ,
quality control and housing, thus allowing rapid and accurate
robotic integration of this chemistry resource with our
PUMAtm
system and
Cytometrix®
technologies. We utilize our chemistry technologies together
with our expertise in cell biology, pharmacology, drug
metabolism and pharmacokinetics for the rapid identification and
advancement of attractive compounds and potential drug
candidates.
Discovery Informatics. We have organized our
drug discovery operations based on the principle that
aggregating informatics across biology and chemistry leads to
more effective approaches to target identification, compound
analoging and lead optimization, as well as enhances the
efficiency and yield of our drug discovery and development
process. In support of this principle, we have also created a
powerful discovery informatics infrastructure that efficiently
manages large and complex data sets representing valuable cell
biology driven and biochemical research insights across
state-of-the-art
chemoinformatics, bioinformatics and genomics resources.
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Our
Corporate Strategy
Our goal is to become a fully-integrated biopharmaceutical
company focused on discovering, developing and commercializing
novel drugs to treat cancer, cardiovascular disease and other
diseases. We intend to achieve this goal by:
Leveraging
our cytoskeletal expertise, cell biology driven approach and
proprietary technologies to increase the speed, efficiency and
yield of our drug discovery and development
processes.
We focus our drug discovery activities on the cytoskeleton
because its role in disease has been scientifically and
commercially validated. We believe that our unique understanding
of the cytoskeleton will enable us to discover drug candidates
with novel mechanisms of action and which may avoid the
limitations of current drugs. We believe that there are few, if
any, other companies that have focused specifically on the
cytoskeleton.
Because the cytoskeleton has been validated in a wide array of
human diseases, we intend to pursue drug discovery programs
across a number of therapeutic areas and we believe we can
leverage research and development investments made for a program
directed at one therapeutic area to programs directed at other
therapeutic areas. This may facilitate our building a diverse
pipeline of drug candidates in a cost-effective fashion.
Our innovative cell biology driven research approach and
proprietary technologies, including our
PUMAtm
system and
Cytometrix®
technologies, enhance the speed, efficiency and yield of the
discovery and, potentially, the development process. We believe
we can identify and focus on the most promising compounds
earlier in the drug discovery process. We do this by quickly and
efficiently eliminating those compounds that lack the desired
efficacy or exhibit potential toxicities. As a result, we may
save time and discovery and development resources and reduce the
occurrence of later-stage failures. This early intervention and
screening may result in a higher yield of drug candidates with a
greater chance of clinical success.
Continuing
to focus our drug discovery and development efforts on two core
areas: oncology and cardiovascular diseases.
We have initially focused our drug discovery and development
efforts on oncology and cardiovascular disease as these
represent large commercial markets with unmet medical needs. Our
focus to the cytoskeleton has yielded first-generation
pharmaceuticals in these therapeutic areas and has validated the
cytoskeleton as a target for our drug discovery efforts. Our
drug discovery and development programs are directed to
potential next-generation pharmaceuticals that may offer
additional opportunities in these therapeutic areas and also
address potential liabilities of existing first-generation
approaches.
Pursuing
multiple drug candidates for each cytoskeletal protein target
and extensive clinical trials for select drug
candidates.
For each of our programs, we characterize several drug
candidates for each of a number of cytoskeletal protein targets
that act together in a protein pathway or in a multi-protein
system. By leveraging our drug discovery efficiencies, we intend
to identify, for each cytoskeletal protein target, multiple
potential drug candidates that we may progress into clinical
development. We believe that this approach of pursuing a
portfolio of potential drug candidates for each cytoskeletal
protein target in parallel allows us to increase our potential
for commercial success.
Because the cytoskeleton plays a fundamental role in many
related diseases, we have an opportunity in those diseases to
conduct extensive Phase II clinical trials programs for our
drug candidates across multiple related disease areas. We
believe that by pursuing this approach we increase the
probability of these drug candidates achieving success in
clinical trials and maximize the commercial potential related to
these programs.
Establishing
select strategic alliances to accelerate our drug development
programs while preserving significant development and commercial
rights.
We intend to selectively enter into strategic alliances to
advance our drug discovery and development programs or
technologies, to obtain financial support and to leverage the
therapeutic area expertise and development and commercialization
resources of our partners to accelerate the development of our
drug candidates. Where
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appropriate, we plan to maintain certain rights in development
of potential drug candidates and commercialization of potential
drugs arising from our alliances so we can build our internal
clinical development and sales and marketing capabilities while
also maintaining a significant share of the potential revenues
for any products arising from each alliance.
Building
development and commercialization capabilities directed at large
concentrated markets.
We focus our drug discovery and development efforts on large
commercial market opportunities in concentrated markets, such as
cancer and heart failure. By focusing on concentrated markets,
we believe that a company at our stage of development can
compete effectively within these markets against larger, more
established companies with greater financial resources. For each
opportunity focused on these markets, we intend to build
clinical development and sales and marketing capabilities in
order to become a fully-integrated biopharmaceutical company
that can develop and commercialize drugs that arise from our
research programs.
Our
Strategic Alliances
GlaxoSmithKline. In June 2001, we formed a
strategic alliance with GSK to discover, develop and
commercialize novel small molecule drugs targeting KSP and
certain other mitotic kinesins for applications in the treatment
of cancer and other diseases. This strategic alliance leverages
our expertise in mitotic kinesin biology and pharmacology and
GSKs pharmaceutical research, development and
commercialization capabilities. Under the strategic alliance,
GSK made a $14.0 million upfront cash payment and an
initial $14.0 million equity investment. GSK has also
committed to reimburse our FTEs conducting research in
connection with the strategic alliance and to make additional
milestone payments and pay royalties based on product sales.
Cumulatively as of December 31, 2005, we received
$30.3 million in FTE and other expense reimbursements and
$7.0 million in pre-commercialization milestone payments.
GSK is generally responsible for worldwide development of drug
candidates and commercialization of drugs arising from the
strategic alliance, but we retain a
product-by-product
option to co-fund certain later-stage development activities in
exchange for a higher royalty rate and a further option to
secure co-promotion rights in North America. In the third
quarter of 2005, we amended our Collaboration and License
Agreement with GSK regarding the development of SB-743921. Under
this amendment, we plan to expand our role in clinical research
and development and the funding of SB-743921 for
non-Hodgkins lymphoma, Hodgkins lymphoma and
multiple myeloma. This amendment provides us the opportunity to
explore these additional indications for this drug candidate
under an expanded development program in parallel with
GSKs continuing efforts for ispinesib and GSK-923295, and
for SB-743921 for cancer indications outside these hematologic
cancer indications. Pursuant to this amendment, we exercised our
co-funding option for SB-943921 and, under certain scenarios,
may receive further increased royalties on net sales of products
containing SB-743921. If we exercise a co-promotion option for a
product, we are entitled to receive from GSK reimbursement of
certain sales force costs that we may incur in support of our
commercial activities. We are eligible to receive
pre-commercialization milestone payments ranging from
$30.0 million to $50.0 million for products directed
toward each mitotic kinesin target. In addition, our royalty
rate increases based on our level of participation in funding of
certain later-stage development activities and as total
worldwide sales escalate for each drug developed and
commercialized under the strategic alliance. We expect that the
royalties to be paid on future sales of ispinesib, SB-743921 and
GSK-923295 could potentially increase to a percentage rate in
the upper-teens based on our anticipated level of co-funding of
certain later-stage development activities of the drug
candidates and increasing product sales.
Under our strategic alliance, GSK commenced a broad
Phase II clinical trials program designed to evaluate
ispinesib in parallel clinical trials across multiple tumor
types. GSK also commenced a Phase I clinical trial of
SB-743921 in
mid-2004, which is still continuing. Additionally, through the
strategic alliance, we are performing target validation, hit
identification and lead characterization and optimization on
other mitotic kinesin targets, to select potential drug
candidates that may similarly be advanced to clinical
development.
In December 2005, GSK selected a novel small molecule
development candidate, GSK-923295, directed against a second
mitotic kinesin, CENP-E. We anticipate that GSK will file an IND
for GSK-923295 in 2006 and begin clinical trials in 2007.
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AstraZeneca. In December 2003, we formed an
exclusive strategic alliance with AstraZeneca to develop
automated imaging-based cellular phenotyping and analysis
technologies for the in vitro prediction of hepatotoxicity,
or toxicity of the liver, a common reason that drug candidates
fail in preclinical and clinical development. Under our
Collaboration and License Agreement, AstraZeneca committed to
reimburse us for FTEs in our technology department over the
two-year research term, pay annual licensing fees and make a
milestone payment to us upon the successful achievement of
certain agreed-upon performance criteria. These performance
criteria have not been met. We are currently discussing with
AstraZeneca other possible paths forward related to the
potential value of the technology created pursuant to the
collaboration, which may include our granting a license to
certain technology and intellectual property developed pursuant
to the collaboration in accordance with an option granted to
AstraZeneca under the agreement, as well as our granting a
license to other Cytokinetics intellectual property on terms to
be mutually agreed. Cumulatively, through December 31,
2005, we received $2.4 million in FTE reimbursement
payments from AstraZeneca.
Other Strategic Alliances. We have advanced
our
Cytometrix®
technologies through our
Cytometrix®
Technologies Development Partner Program with each of Eisai
Research Institute, Novartis Pharma AG, Tularik Inc. and Vertex
Pharmaceuticals, Inc. These partners provided us with research
compounds that were profiled using our
Cytometrix®
technologies. We have completed our obligations associated with
these relationships.
Our
Patents and Other Intellectual Property
Our policy is to patent the technology, inventions and
improvements that we consider important to the development of
our business. As of December 31, 2005, we had 92 issued
United States patents and over 100 additional pending
United States and foreign patent applications. In addition, we
have an exclusive license to 12 United States patents
and a number of pending United States and foreign patent
applications from the University of California and Stanford
University. We also rely on trade secrets, technical know-how
and continuing innovation to develop and maintain our
competitive position.
We seek to protect our proprietary information by requiring our
employees, consultants, contractors, partners and other advisers
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 prevent 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.
Our commercial success will depend in part on obtaining and
maintaining patent protection and trade secret protection for
our technologies and drug candidates, as well as 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 or trade secrets cover them.
The patent positions of pharmaceutical, biotechnology and other
life sciences companies can be highly uncertain and involve
complex legal and factual questions for which important legal
principles remain unresolved. No consistent policy regarding the
breadth of claims allowed in such patents has emerged to date in
the United States. The patent situation outside the United
States is even more uncertain. Changes in either the patent laws
or in interpretations of patent laws in the United States and
other countries may diminish the value of our intellectual
property. Accordingly, we cannot predict the breadth of claims
that may be allowed or enforced in our patents or in third-party
patents.
The degree of future protection for our proprietary rights is
uncertain because legal means afford only limited protection and
may not adequately protect our rights or permit us to gain or
keep our competitive advantage. 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 these inventions;
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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;
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our or our licensors issued patents may not provide a
basis for commercially viable drugs or therapies, or may not
provide us with any competitive advantages, 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;
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we may not develop additional proprietary technologies that are
patentable; or
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the patents of others may prevent or limit our ability to
conduct our business.
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The defense and prosecution of intellectual property suits,
interferences, oppositions and related legal and administrative
proceedings in the United States are costly, time consuming to
pursue and result in diversion of resources. The outcome of
these proceedings is uncertain and could significantly harm our
business.
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 difficult
to protect. 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. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Moreover, our
competitors may independently develop information that is
equivalent to our trade secrets.
The pharmaceutical, biotechnology and other life sciences
industries are characterized by the existence of a large number
of patents and frequent litigation based on allegations of
patent infringement. As our drug candidates progress toward
commercialization, the possibility of an infringement claim
against us increases. While we attempt to ensure that our drug
candidates and the methods we employ to manufacture them do not
infringe other parties patents and other proprietary
rights, competitors or other parties may still assert that we
infringe on their proprietary rights.
In particular, we are aware of an issued U.S. patent and at
least one pending U.S. patent application assigned to
Curis, Inc., or Curis, relating to certain compounds in the
quinazolinone class. Ispinesib falls into this class of
compounds. The Curis patent claims a method of use for
inhibiting signaling by what is called the hedgehog pathway
using certain such compounds. Curis has pending applications in
Europe, Japan, Australia and Canada with claims covering certain
quinazolinone compounds, compositions thereof
and/or
methods of their use. We are also aware that two of the
Australian applications have been allowed and two of the
European applications have been granted. In Europe, Australia
and elsewhere, the grant of a patent may be opposed by one or
more parties. We and GSK have each opposed the granting of
certain such patents to Curis in Europe and in Australia. Curis
or a third party may assert that the sale of ispinesib may
infringe one or more of these or other patents. We believe that
we have valid defenses against the Curis patents if asserted
against us. However, we cannot guarantee that a court would find
such defenses valid or that such oppositions would be
successful. We have not attempted to obtain a license to this
patent. If we decide to obtain a license to these patents, we
cannot guarantee that we would be able to obtain such a license
on commercially reasonable terms, or at all.
In addition, we are aware of various issued U.S. and foreign
patents and pending U.S. and foreign patent applications
assigned to Cellomics, Inc., or Cellomics, relating to an
automated method for analyzing cells. We received a letter from
Cellomics notifying us that it believes we may be practicing one
or more of the Cellomics patents and offering a use license for
such patents through its licensing program. Cellomics has since
been acquired by Fisher Scientific International, Inc., or
Fisher. Fisher or a third party may assert that our
Cytometrix®
technologies for cell analysis fall within the scope of, and
thus infringe, one or more of these patents. We believe that we
have persuasive defenses to such an assertion. Moreover, the
grant of the European Cellomics patent has been opposed by
another company. However, we cannot guarantee that a court would
find such defenses persuasive or that such opposition would be
successful. If we decide to obtain a license to these patents,
we cannot guarantee that we would be able to obtain such a
license on commercially reasonable terms, or at all.
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Other future products of ours may be impacted by patents of
companies engaged in competitive programs with significantly
greater resources (such as Merck & Co., Inc., or Merck,
and Bristol-Myers Squibb, or BMS). Further development of these
products could be impacted by these patents and result in the
expenditure of significant legal fees.
Government
Regulation
The U.S. Food and Drug Administration, or 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, safety,
effectiveness, 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, or GLP, regulations;
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submission to the FDA of an IND application 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;
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submission of a new drug application, or 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 GMP, or 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, as well as 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 time
period, raises concerns or questions about the conduct of the
clinical trial, including concerns that human research subjects
will be exposed to unreasonable health risks. In such a case,
the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin. Our submission of
an IND, or those of our collaborators, may not result in FDA
authorization 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, or IRB, 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 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 testing also
must satisfy extensive Good Clinical Practice, or GCP,
regulations and regulations for informed consent.
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: The 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 run what is referred
to as a Phase Ib evaluation, which is a second,
safety-focused Phase I clinical 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 determine the
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. In some cases, a sponsor may
decide to run what is referred to as a
Phase IIb evaluation, which is a second,
confirmatory Phase II clinical trial that could, if
positive and accepted by the FDA, serve as a 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. Such post-approval
trials are typically referred to as Phase IV clinical
trials.
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 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 is not bound by the recommendation of an advisory
committee, but it generally follows such recommendations. The
FDA may deny approval of an NDA if the applicable regulatory
criteria are not satisfied, or it may require additional
clinical data or an additional pivotal Phase III clinical
trial. 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 collaborators 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 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 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.
Fast Track Designation. The FDAs fast
track program is intended to facilitate the development and to
expedite the review of drugs that are intended for the treatment
of a serious or life-threatening condition for which there is no
effective treatment and which demonstrate the potential to
address unmet medical needs for the condition. Under the fast
track program, the sponsor of a new drug candidate may request
the FDA to designate the drug candidate for a specific
indication as a fast track drug concurrent with or after the
filing of the IND for the drug candidate. The FDA must determine
if the drug candidate qualifies for fast track designation
within 60 days of receipt of the sponsors request.
If fast track designation is obtained, the FDA may initiate
review of sections of an NDA before the application is complete.
This rolling review is available if the applicant provides and
the FDA approves a schedule for the submission of the remaining
information and the applicant pays applicable user fees.
However, the time period specified in the Prescription Drug User
Fees Act, which governs the time period goals the FDA has
committed to reviewing an application, does not begin until the
complete application is submitted. Additionally, the fast track
designation may be withdrawn by the FDA if the FDA believes that
the designation is no longer supported by data emerging in the
clinical trial process.
24
In some cases, a fast track designated drug candidate may also
qualify for one or more of the following programs:
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Priority Review. Under FDA policies, a drug
candidate is eligible for priority review, or review within a
six-month time frame from the time a complete NDA is accepted
for filing, if the drug candidate provides a significant
improvement compared to marketed drugs in the treatment,
diagnosis or prevention of a disease. A fast track designated
drug candidate would ordinarily meet the FDAs criteria for
priority review. We cannot guarantee any of our drug candidates
will receive a priority review designation, or if a priority
designation is received, that review or approval will be faster
than conventional FDA procedures, or that FDA will ultimately
grant drug approval.
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Accelerated Approval. Under the FDAs
accelerated approval regulations, the FDA is authorized to
approve drug candidates that have been studied for their safety
and effectiveness in treating serious or life-threatening
illnesses, and that provide meaningful therapeutic benefit to
patients over existing treatments based upon either a surrogate
endpoint that is reasonably likely to predict clinical benefit
or on the basis of an effect on a clinical endpoint other than
patient survival. In clinical trials, surrogate endpoints are
alternative measurements of the symptoms of a disease or
condition that are substituted for measurements of observable
clinical symptoms. A drug candidate approved on this basis is
subject to rigorous post-marketing compliance requirements,
including the completion of Phase IV or post-approval
clinical trials to validate the surrogate endpoint or confirm
the effect on the clinical endpoint. Failure to conduct required
post-approval studies, or to validate a surrogate endpoint or
confirm a clinical benefit during post-marketing studies, will
allow the FDA to withdraw the drug from the market on an
expedited basis. All promotional materials for drug candidates
approved under accelerated regulations are subject to prior
review by the FDA.
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When appropriate, we and our collaborators intend to seek fast
track designation or accelerated approval for our drug
candidates. We cannot predict whether any of our drug candidates
will obtain a fast track or accelerated approval designation, or
the ultimate impact, if any, of the fast track or the
accelerated approval process on the timing or likelihood of FDA
approval of any of our drug candidates.
Satisfaction of FDA regulations and requirements or similar
requirements of state, local and foreign regulatory agencies
typically takes several years and the actual time required may
vary substantially based upon the type, complexity and novelty
of the product 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. 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 adverse
governmental regulations may arise from future United States or
foreign governmental action.
Other regulatory requirements. Any drugs
manufactured or distributed by us or our collaborators pursuant
to FDA approvals are subject to continuing regulation by the
FDA, 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 certain state agencies, and are
subject to periodic unannounced inspections by the FDA and
certain state agencies 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
regulatory requirements. If our present or future third-party
manufacturers or suppliers are not able to comply with these
requirements, the FDA
25
may halt our clinical trials, require us to recall a drug from
distribution, or withdraw approval of the NDA for that drug.
The FDA closely regulates the post-approval marketing and
promotion of drugs, including standards and regulations for
direct-to-consumer
advertising, off-label promotion, industry-sponsored scientific
and educational activities and promotional activities involving
the Internet. A company can make only those claims relating to
safety and efficacy that are approved by the FDA. Failure to
comply with these requirements can result in adverse publicity,
warning letters, corrective advertising and potential civil and
criminal penalties. Physicians may prescribe legally available
drugs for uses that are not described in the drugs
labeling and that differ from those tested by us and approved by
the FDA. Such off-label uses are common across medical
specialties. Physicians may believe that such off-label uses are
the best treatment for many patients in varied circumstances.
The FDA does not regulate the behavior of physicians in their
choice of treatments. The FDA does, however, impose stringent
restrictions on manufacturers communications regarding
off-label use.
Competition
We compete in the segments of the pharmaceutical, biotechnology
and other related markets that address cancer and cardiovascular
disease, each of which is highly competitive. We face
significant competition from most pharmaceutical companies as
well as biotechnology companies that are also researching and
selling products designed to address cancer and cardiovascular
disease. 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 cancer and cardiovascular disease
research, 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 at which we develop our drug candidates;
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the completion of clinical development and laboratory testing
and obtaining regulatory approvals for drug candidates;
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the timing and scope of regulatory approvals for our drug
candidates;
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our ability to manufacture and sell commercial quantities of a
drug to the market;
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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 competitors may also
commercialize competing drugs before we or our partners can
launch any drugs developed from our drug candidates.
If approved for marketing by the FDA, depending on the approved
clinical indication, our cancer drug candidates such as
ispinesib and SB-743921 could compete against existing cancer
treatments such as paclitaxel and its generic equivalents,
docetaxel, vincristine, vinorelbine or navelbine and potentially
against other novel
26
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, Chiron
Corp., BMS and others are conducting research and development
focused on KSP and other mitotic kinesins. In addition, BMS,
Merck, Novartis, Genentech, Inc. and other pharmaceutical and
biopharmaceutical companies are developing other approaches to
inhibiting mitosis.
If CK-1827452 or any other of our compounds is approved for
marketing by the FDA for heart failure, that compound could
compete against current generically available therapies, such as
milrinone, dobutamine or digoxin or newer drugs such as
nesiritide, as well as potentially against other novel drug
candidates in development such as ularitide, which is being
developed by PDL Biopharma, Inc., urocortin II, which is
being developed by Neurocrine Biosciences, Inc., and
levosimendan, which is being developed in the United States by
Orion Pharma in collaboration with Abbott Laboratories and is
commercially available in a number of countries outside of the
United States.
Other companies that are early-stage are currently developing
alternative treatments and products that could compete with our
drugs. These organizations also compete with us to attract
qualified personnel and potential parties for acquisitions,
joint ventures or other strategic alliances.
Employees
As of December 31, 2005, our workforce consisted of
150 full-time employees, 51 of whom hold Ph.D. or M.D.
degrees, or both, and 28 of whom hold other advanced degrees. Of
our total workforce, 117 are engaged in research and development
and 33 are engaged in business development, finance and
administration. 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, or 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 450 Fifth Street,
NW, 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 on the World Wide Web at
http://www.cytokinetics.com or by contacting the Investor
Relations Department at our corporate offices by calling
650-624-3000.
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Item 1A. Risk
Factors
Our future operating results may vary substantially from
anticipated results due to a number of factors, many of which
are beyond our control. The following discussion highlights some
of these factors and the possible impact of these factors on
future results of operations. You should carefully consider
these factors before making an investment decision. If any of
the following factors actually occur, our business, financial
condition or results of operations could be harmed. In that
case, the price of our common stock could decline, and you could
experience losses on your investment.
Risks
Related To Our Business
Our
drug candidates are in the early stages of clinical testing and
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.
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 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.
We expect to incur increasing losses for at least several 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 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 U.S. Food and Drug Administration, or FDA,
and other regulatory authorities in the United States and
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 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. Ispinesib, our most advanced drug candidate for the
treatment of cancer, SB-743921, our second drug candidate for
the treatment of cancer, and CK-1827452 in an intravenous form,
our drug candidate for the treatment of heart failure, are
currently our only drug candidates in clinical trials and we
cannot be certain that the clinical development of these or any
other drug candidate in preclinical testing or clinical
development 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 entry into clinical trials. Our commercial
revenues, if any, will be derived from sales of drugs that we do
not expect to be commercially available for several years, if at
all. The development of any one or all of these drug candidates
may be discontinued at any stage of our clinical trials programs
and we may not generate revenue from any of these drug
candidates.
We have funded all of our operations and capital expenditures
with proceeds from both private and public sales of our equity
securities, strategic alliances with GlaxoSmithKline, or GSK,
AstraZeneca and others, equipment financings, interest on
investments and government grants. We believe that our existing
cash and cash equivalents, future payments from GSK and
AstraZeneca, interest earned on investments, proceeds from
equipment financings and potential proceeds from our committed
equity financing facility, or CEFF, with Kingsbridge Capital
Limited, or Kingsbridge, will be sufficient to meet our
projected operating requirements for at least the next
12 months. To meet our future cash requirements, we may
raise funds through public or private equity offerings, debt
financings or strategic alliances. To the extent that we raise
additional funds by issuing equity securities, our stockholders
may experience additional dilution. To the extent that we raise
additional funds through debt financing, if available, such
financing may involve covenants that restrict our business
activities. To the extent that we raise additional funds
28
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. In addition, we cannot assure
you that any such funding, if needed, will be available on
attractive terms, or at all.
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 demonstrate with substantial evidence from
well-controlled clinical trials, and to the satisfaction of the
FDA and other regulatory authorities in the United States and
abroad, that such drug candidate is both sufficiently safe and
effective. Before we can commence clinical trials, we must
demonstrate through preclinical studies a satisfactory
manufacturing process for the drug in stable formulation and a
suitable safety profile in order to file an investigational new
drug application, or IND, (or the foreign equivalent of an IND).
In clinical trials we will need to demonstrate efficacy for the
treatment of specific indications and monitor safety throughout
the clinical development process. Long-term safety and efficacy
have not yet been demonstrated in clinical trials for any of our
drug candidates, and satisfactory chemistry, formulation,
stability and toxicity levels have not yet been demonstrated for
any of our potential drug candidates or compounds that are
currently the subject of preclinical studies. If our preclinical
studies, current clinical trials or future clinical trials are
unsuccessful, our business and reputation will be harmed and our
stock price will 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 satisfactorily support the filing of an IND
(or the foreign equivalent of an IND) with respect to our
potential drug candidates, and, even if these applications would
be or have been filed with respect to our drug candidates, the
results of preclinical studies do not necessarily predict the
results of clinical trials. Similarly, early-stage clinical
trials do not predict the results of later-stage clinical
trials, including the safety and efficacy profiles of any
particular drug candidate. In addition, there can be no
assurance that the design of our clinical trials is focused on
appropriate tumor types, patient populations, dosing regimens or
other variables which will result in obtaining the desired
efficacy data to support regulatory approval to commercialize
the drug. Even if we believe the data collected from clinical
trials of our drug candidates are promising, such data may not
be sufficient to support approval by the FDA or any other
U.S. or foreign regulatory authority. Preclinical and
clinical data can be interpreted in different ways. Accordingly,
FDA officials or officials from foreign regulatory authorities
could interpret the 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 that are the subject of preclinical studies to
animals may produce undesirable side effects, also known as
adverse effects. Toxicities and adverse effects that we have
observed in preclinical studies for some compounds in a
particular research and development program may occur in
preclinical studies or clinical trials of other compounds from
the same program. Such toxicities or adverse effects could delay
or prevent the filing of an IND (or the foreign equivalent of an
IND) with respect to such drug candidates or potential drug
candidates or cause us to cease clinical trials with respect to
any drug candidate. In Phase I clinical trials of
ispinesib, the 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 to date 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 clinical
trials, administering any of our drug candidates to humans may
produce adverse effects. These adverse effects could interrupt,
delay or halt clinical trials of our drug candidates and could
result in the FDA or other regulatory authorities denying
approval of our drug candidates for any or all targeted
indications. The FDA, other regulatory authorities, our partners
or we may suspend or terminate clinical trials at any time. Even
if one or more of our drug candidates were approved for sale,
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 such
drugs. Indications of potential adverse effects or toxicities
which may occur in clinical trials and which we believe are not
significant during the course of such clinical trials may later
turn out to actually constitute serious adverse effects or
toxicities when a drug has been used in large populations or for
extended periods of time. Any failure or significant delay in
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completing preclinical studies or clinical trials for our drug
candidates, or in receiving and maintaining regulatory approval
for the sale of any drugs resulting from our drug candidates,
may severely harm our reputation and business.
Clinical
trials are expensive, time consuming and subject to
delay.
Clinical trials are very expensive and difficult to design and
implement, especially in the cancer and heart failure
indications that we are pursuing, in part because they are
subject to rigorous requirements. The clinical trial process is
also time consuming. According to industry studies, the entire
drug development and testing process takes on average 12 to
15 years, and the fully capitalized resource cost of new
drug development averages approximately $800 million.
However, individual clinical trials and individual drug
candidates may incur a range of costs or time demands above or
below this average. We estimate that clinical trials of our most
advanced drug candidates will continue for several years, but
they 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 regulatory approvals to commence a clinical
trial;
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delays in identifying and reaching agreement on acceptable terms
with prospective clinical trial sites;
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slower than expected rates of patient recruitment and
enrollment, including as a result of the introduction of
alternative therapies or drugs by others;
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lack of effectiveness during clinical trials;
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unforeseen safety issues;
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adequate supply of clinical trial material;
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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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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, 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
depend on GSK for the conduct, completion and funding of the
clinical development and commercialization of our current drug
candidates for the treatment of cancer.
Under our strategic alliance with GSK, as amended, GSK is
currently responsible for the clinical development and
regulatory approval of our drug candidate ispinesib and our
potential drug candidate GSK-923295 for all cancer indications,
and for our drug candidate SB-743921 for all cancer indications
except non-Hodgkins lymphoma, Hodgkins lymphoma and
multiple myeloma. Other than our right to file INDs (or the
foreign equivalent) for
SB-743921
for these three hematologic cancer indications, GSK is
responsible for filing applications with the FDA or other
regulatory authorities for approval of these drug candidates and
our potential drug candidate and will be the owner of any
marketing approvals issued by the FDA or other regulatory
authorities. If the FDA or other regulatory authorities approve
these drug candidates, GSK will also be responsible for the
marketing and sale of these drugs including, at their option,
SB-743921 for non-Hodgkins lymphoma, Hodgkins
lymphoma and multiple myeloma. Because GSK is responsible for
these functions, we cannot control whether GSK will devote
sufficient attention and resources to the clinical trials
program or will proceed in an expeditious manner. GSK generally
has discretion to elect whether to pursue the development of our
drug candidates or to abandon the clinical trial programs, and,
after June 20, 2006, GSK may terminate our strategic
alliance for any reason upon six months prior notice. These
decisions are outside our control.
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Two of our cancer drug candidates being developed by GSK act
through inhibition of kinesin spindle protein, or KSP, a protein
that is a member of a class of cytoskeletal proteins called
mitotic kinesins that regulate cell division, or mitosis, during
cell division. Because these drug candidates have similar
mechanisms of action, GSK may elect to proceed with the
development of only one such drug candidate. If GSK were to
elect to proceed with the development of SB-743921 in lieu of
ispinesib, because SB-743921 is at an earlier stage of clinical
development than ispinesib, the approval, if any, of a new drug
application, or NDA, with respect to a drug candidate from our
cancer program would be delayed. In particular, if the initial
clinical results of some of our early clinical trials do not
meet GSKs expectations, GSK may elect to terminate further
development of one or both drug candidates or certain of the
ongoing clinical trials for drug candidates, even though the
actual number of patients that have been treated is relatively
small. The platinum refractory arm of our non-small cell lung
cancer Phase II clinical trial evaluating ispinesib as
monotherapy did not meet the clinical trials pre-defined
criteria for advancement and it is possible that the platinum
sensitive arm of such clinical trial, for which data are
expected in the first quarter of 2006, may also not meet such
clinical trials pre-defined criteria for advancement.
Furthermore, GSK may elect to terminate one or more clinical
trials for ispinesib at any time for some or all indications,
including indications which GSK previously determined to advance
to the next stage of patient enrollment, such as the ongoing
breast cancer clinical trial, even though such clinical trial
may not yet have been completed and regardless of clinical
activity that may have been demonstrated.
If GSK abandons one or more of ispinesib, SB-743921 and
GSK-923295, it would result in a delay in or prevent us from
commercializing such current or potential drug candidates, and
would delay or prevent our ability to generate revenues.
Disputes may arise between us and GSK, which may delay or cause
termination of any clinical trials program, result in
significant litigation or arbitration, or cause GSK to act in a
manner that is not in our best interest. If development of our
current and potential drug candidates does not progress for
these or any other reasons, we would not receive further
milestone payments from GSK. GSK has the right to reduce its
funding of our full time equivalents, or FTEs, for these
programs at its discretion, subject to certain agreed minimum
levels, in the beginning of each contract year based on the
activities of the agreed upon research plan. In addition, the
five year research term of the strategic alliance expires on
June 20, 2006, unless GSK agrees to extend the research
term, and GSK has the right to terminate the Collaboration and
License Agreement on six months notice at any time after
June 20, 2006. Even if the FDA or other regulatory agencies
approve one or more of our drug candidates, GSK may elect not to
proceed with the commercialization of such drugs, or may elect
to pursue commercialization of one drug but not others, and
these decisions are outside our control. In such event, or if
GSK abandons development of any drug candidate prior to
regulatory approval, we would have to undertake and fund the
clinical development of our drug candidates or commercialization
of our drugs, seek a new partner for clinical development or
commercialization, or curtail or abandon the clinical
development or commercialization programs. If we were unable to
do so on acceptable terms, or at all, our business would be
harmed, and the price of our common stock would be negatively
affected.
If we
fail to enter into and maintain successful strategic alliances
for certain of our drug candidates, we may have to reduce or
delay our drug candidate development or increase our
expenditures.
Our strategy for developing, manufacturing and commercializing
certain of our drug candidates currently requires us to enter
into and successfully maintain strategic alliances with
pharmaceutical companies or other industry participants to
advance our programs and reduce our expenditures on each
program. We have formed a strategic alliance with GSK with
respect to ispinesib, SB-743921, GSK-923295 and certain other
research activities. However, we may not be able to negotiate
additional strategic alliances on acceptable terms, if at all.
If we are not able to maintain our existing strategic alliances
or establish and maintain additional strategic alliances, we may
have to limit the size or scope of, or delay, one or more of our
drug development programs or research programs or undertake and
fund these programs ourselves. If we elect to increase our
expenditures to fund drug development programs or research
programs on our own, we will need to obtain additional capital,
which may not be available on acceptable terms, or at all.
31
The
success of our development efforts depends in part on the
performance of our partners and the NCI, 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 the NCI to conduct several
important clinical trials of ispinesib. The NCI is a government
agency and there can be no assurance that the NCI will not
modify its plans to conduct such clinical trials or will proceed
with such clinical trials diligently. We have no control over
the conduct of clinical trials, the timing of initiation or
completion or the announcement of results of clinical trials
being conducted by the NCI. If our partners fail to perform as
we expect, our potential for revenue from drugs developed
through our strategic alliances, if any, could be dramatically
reduced.
Our
focus on the discovery of drug candidates directed against
specific proteins and pathways within the cytoskeleton is
unproven, and we do not know whether we will be able to develop
any drug candidates of commercial value.
We believe that our focus on drug discovery and development
directed at the cytoskeleton is novel and unique. While a number
of commonly used drugs and a growing body of research validate
the importance of the cytoskeleton in the origin and progression
of a number of diseases, no existing drugs specifically and
directly interact with the cytoskeletal proteins and pathways
that our drug candidates seek to modulate. As a result, we
cannot be certain that our drug candidates will appropriately
modulate the targeted cytoskeletal proteins and pathways or
produce commercially viable drugs that safely and effectively
treat cancer, heart failure or other diseases, or that the
results we have seen in preclinical models will translate into
similar results in humans. In addition, even if we are
successful in developing and receiving regulatory approval for a
commercially viable drug for the treatment of one disease
focused on the cytoskeleton, we cannot be certain that we will
also be able to develop and receive regulatory approval for drug
candidates for the treatment of other forms of that disease or
other diseases. If we or our partners fail to develop and
commercialize viable drugs, we will not achieve commercial
success.
Our
proprietary rights may not adequately protect our technologies
and drug candidates.
Our commercial success will depend in part on our obtaining and
maintaining patent protection and trade secret protection of our
technologies and drug candidates as well as successfully
defending these patents against third-party challenges. We will
only be able to protect our technologies and drug candidates
from unauthorized use by third parties to the extent that valid
and enforceable patents or trade secrets cover them. In the
event that our issued patents and our applications, if they are
granted, do not adequately describe, enable or otherwise provide
coverage of our technologies and drug candidates, including for
example ispinesib, SB-743921, GSK-923295 and CK-1827452, we
would not be able to exclude others from developing or
commercializing these drug candidates and potential drug
candidates. Furthermore, the degree of future protection of our
proprietary rights is uncertain because legal means afford only
limited protection and may not adequately protect our rights or
permit us to gain or keep our competitive advantage.
The patent positions of life sciences companies can be highly
uncertain and involve complex legal and factual questions for
which important legal principles remain unresolved. No
consistent policy regarding the breadth of claims allowed in
such companies patents has emerged to date in the United
States. The patent situation outside the United States is even
more uncertain. Changes in either the patent laws or in
interpretations of patent laws in the
32
United States or other countries may diminish the value of our
intellectual property. Accordingly, we cannot predict the
breadth of claims that may be allowed or enforced in our patents
or in third-party patents. 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 these inventions;
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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;
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our and our licensors issued patents may not provide a
basis for commercially viable drugs or therapies, or may not
provide us with any competitive advantages, 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;
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we may not develop additional proprietary technologies or drug
candidates that are patentable; and
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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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We also rely on trade secrets to protect our technology,
especially where we believe patent protection is not appropriate
or obtainable. However, trade secrets are difficult to protect.
While we use reasonable efforts to protect our trade secrets,
our or our strategic 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 such
persons may not be enforceable or provide meaningful protection
for our trade secrets or other proprietary information in the
event of unauthorized use or disclosure. If we were to enforce a
claim that a third party had illegally obtained and was using
our trade secrets, our enforcement efforts would be expensive
and time consuming, and the outcome would be unpredictable. In
addition, courts outside the United States are sometimes less
willing to protect trade secrets. Moreover, if our competitors
independently develop information that is equivalent to our
trade secrets, it will be more difficult for us to enforce our
rights and 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 and to achieve or maintain profitability.
If we
are sued for infringing intellectual property rights of third
parties, such litigation 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
sell such 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 areas that we are exploring. In addition,
because patent applications can take several years to issue,
there may be currently pending applications, unknown to us,
which may later result in issued patents that our drug
candidates may infringe. There could also be existing patents of
which we are not aware that our drug candidates may
inadvertently infringe.
In particular, we are aware of an issued U.S. patent and at
least one pending U.S. patent application assigned to
Curis, Inc., or Curis, relating to certain compounds in the
quinazolinone class. Ispinesib falls into this class of
compounds. The Curis patent claims a method of use for
inhibiting signaling by what is called the hedgehog pathway
using certain such compounds. Curis has pending applications in
Europe, Japan, Australia and Canada with claims covering certain
quinazolinone compounds, compositions thereof
and/or
methods of their use. We are also aware that two of the
Australian applications have been allowed and two of the
European applications have been granted. In Europe, Australia
and elsewhere, the grant of a patent may be opposed by one or
more parties. We and GSK have each opposed the granting of
certain such patents to Curis in Europe and in Australia. Curis
or a third
33
party may assert that the sale of ispinesib may infringe one or
more of these or other patents. We believe that we have valid
defenses against the Curis patents if asserted against us.
However, we cannot guarantee that a court would find such
defenses valid or that such oppositions would be successful. We
have not attempted to obtain a license to this patent. If we
decide to obtain a license to these patents, we cannot guarantee
that we would be able to obtain such a license on commercially
reasonable terms, or at all.
In addition, we are aware of various issued U.S. and foreign
patents and pending U.S. and foreign patent applications
assigned to Cellomics, Inc., or Cellomics, relating to an
automated method for analyzing cells. We received a letter from
Cellomics notifying us that it believes we may be practicing one
or more of the Cellomics patents and offering a use license for
such patents through its licensing program. Cellomics has since
been acquired by Fisher Scientific International, Inc., or
Fisher. Fisher or a third party may assert that our
Cytometrix®
technologies for cell analysis fall within the scope of, and
thus infringe, one or more of these patents. We believe that we
have persuasive defenses to such an assertion. Moreover, the
grant of the European Cellomics patent has been opposed by
another company. However, we cannot guarantee that a court would
find such defenses persuasive or that such opposition would be
successful. If we decide to obtain a license to these patents,
we cannot guarantee that we would be able to obtain such a
license on commercially reasonable terms, or at all.
Other future products of ours may be impacted by patents of
companies engaged in competitive programs with significantly
greater resources (such as Merck and BMS). Further development
of these products could be impacted by these patents and result
in the expenditure of significant legal fees.
If a third party claims that our actions infringe on their
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, with
or without merit, can be costly and time consuming to litigate
and can delay the regulatory approval process and divert
managements attention from our core business strategy;
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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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We may
become involved in disputes with our strategic partners over
intellectual property ownership, and publications by our
research collaborators and scientific advisors 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
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 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
scientific advisors have contractual rights to publish our data
and other proprietary information, subject to our prior review.
Publications by our research collaborators and scientific
advisors containing such information, either with our permission
or in contravention of the terms of their agreements with us,
may impair our ability to obtain patent protection or protect
our proprietary information, which could significantly harm our
business.
34
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 novel small
molecule drugs focused on the cytoskeleton 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 at our expense, we will need to
raise additional capital to:
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expand our research and development and technologies;
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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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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 finance 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.
We
have limited capacity to carry out our own clinical trials in
connection with the development of our drug candidates and
potential drug candidates, and to the extent we elect to develop
a drug candidate without a strategic partner we will need to
expand our development capacity, and we will require additional
funding.
The development of drug candidates is complicated, and requires
resources and experience for which we currently have limited
resources. Currently, we generally rely on our strategic
partners to carry out these activities for certain of our drug
candidates that are in clinical trials. We do not have a partner
for our cardiac myosin activator drug candidate, CK-1827452,
and, if GSK elects to terminate its development efforts, we do
not have an alternative partner for our current and potential
cancer drug candidates. Pursuant to the amendment of our
Collaboration and License Agreement with GSK, we may initiate
and conduct clinical trials for our drug candidate SB-743921 for
the treatment of non-Hodgkins lymphoma, Hodgkins
lymphoma and multiple myeloma. For the clinical trials we
conduct with SB-743921 for these hematologic cancer indications,
we plan to rely on contractors for the manufacture and
distribution of clinical supplies. To the extent we conduct
clinical trials for a drug candidate without support from a
strategic partner, as we are doing with CK-1827452, and as we
currently plan to do for
SB-743921,
we will need to develop additional skills, technical expertise
and resources necessary to carry out such
35
development efforts on our own or through the use of other third
parties, such as contract research organizations, or CROs.
If we utilize CROs, we will not have control over many aspects
of their activities, and will not be able to fully control the
amount or timing of resources that they devote to our programs.
These third parties also may not assign as high a priority to
our programs or pursue them as diligently as we would if we were
undertaking such programs ourselves, and therefore may not
complete their respective activities on schedule. CROs may also
have relationships with our competitors and potential
competitors, and may prioritize those relationships ahead of
their relationships with us. Typically, we would prefer to
qualify more than one vendor for each function performed outside
of our control, which could be time consuming and costly. The
failure of CROs to carry out development efforts on our behalf
according to our requirements and FDA or other regulatory
agencies standards, or our failure to properly coordinate
and manage such efforts, could increase the cost of our
operations and delay or prevent the development, approval and
commercialization of our drug candidates.
If we fail to develop the additional skills, technical expertise
and resources necessary to carry out the development of our drug
candidates, or if we fail to effectively manage our CROs
carrying out such development, the commercialization of our drug
candidates will be delayed or prevented.
We
currently have no marketing or sales staff, and if we are unable
to enter into or maintain strategic alliances with marketing
partners or if we are unable 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. To commercialize our drugs that we determine not
to market on our own, we will depend on strategic alliances with
third parties, such as GSK, which have established distribution
systems and direct sales forces. If we are unable to enter into
such arrangements on acceptable terms, we may not be able to
successfully commercialize such drugs.
We plan to commercialize drugs on our own, with or without a
partner, 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, or at all,
which could make us unable to commercialize our drugs.
To the extent that we are not successful in commercializing any
drugs ourselves or through a strategic alliance, our product
revenues will suffer, we will incur significant additional
losses and the price of our common stock will be negatively
affected.
We
have no manufacturing capacity and depend on our 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 that are under development. 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 currently rely on our partner, GSK, to manufacture,
supply, store and distribute drug supplies for its ispinesib and
SB-743921 clinical trials, and will rely on GSK to perform such
activities for the planned GSK-923295 clinical trial. For our
drug candidate CK-1827452, and our drug candidate SB-743921 for
non-Hodgkins lymphoma, Hodgkins lymphoma and
multiple myeloma, we currently rely on a limited number of
contract manufacturers, and, in particular, we expect to rely on
single-source contract manufacturers for the active
pharmaceutical ingredient and the drug product supply for our
clinical trials. In addition, we anticipate continued reliance
on a limited number of contract manufacturers. Any performance
failure on the part of our existing or future contract
manufacturers 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.
36
Our drug candidates require precise, high quality manufacturing.
Our failure or our contract manufacturers failure to
achieve and maintain high manufacturing standards, including the
incidence of manufacturing errors, could result in patient
injury or death, product recalls or withdrawals, delays or
failures in product testing or delivery, cost overruns or other
problems that could seriously hurt our business. Contract drug
manufacturers often encounter difficulties involving production
yields, quality control and quality assurance, as well as
shortages of qualified personnel. These manufacturers are
subject to stringent regulatory requirements, including the
FDAs current good manufacturing practices regulations and
similar foreign laws, as well as 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 standards.
However, we do not have control over contract
manufacturers compliance with these regulations and
standards. If one of our contract manufacturers fails to
maintain compliance, the production of our drug candidates could
be interrupted, resulting in delays, additional costs and
potentially lost revenues. Additionally, our contract
manufacturer must pass a preapproval inspection before we can
obtain marketing approval for any of our drug candidates in
development.
If the FDA or other regulatory agencies approve any of our drug
candidates for commercial sale, we will need to manufacture them
in larger quantities. To date, our drug candidates have been
manufactured only in small quantities for preclinical testing
and clinical trials. We may not be able to successfully increase
the manufacturing capacity, whether in collaboration with
contract manufacturers or on our own, for any of our drug
candidates in a timely or economic manner, or at all.
Significant
scale-up of
manufacturing may require additional validation studies, which
the FDA must review and approve. If we are unable to
successfully increase the manufacturing capacity for a drug
candidate, the regulatory approval or commercial launch of any
related drugs may be delayed or there may be a shortage in
supply. Even if any 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
such improvements.
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 such contract manufacturer in a
timely manner and the production of our drug candidates would be
interrupted, resulting in delays and additional costs.
Switching manufacturers may be difficult and time consuming
because the number of potential manufacturers is limited and the
FDA must approve any replacement manufacturer or manufacturing
site prior to the manufacturing of our drug candidates. Such
approval would require new testing and compliance inspections.
In addition, a new manufacturer or manufacturing site would have
to be educated in, or develop substantially equivalent processes
for, production of our drugs after receipt of FDA approval. It
may be difficult or impossible for us to find a replacement
manufacturer on acceptable terms quickly, or at all.
We
expect to expand our development, clinical research, sales and
marketing capabilities, and as a result, we may encounter
difficulties in managing our growth, which could disrupt our
operations.
We expect to have significant growth in 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.
37
The
failure to attract and retain skilled personnel could impair our
drug development and commercialization efforts.
Our performance is substantially dependent on the performance of
our senior management and key scientific and technical
personnel, particularly James H. Sabry, M.D., Ph.D.,
our Chief Executive Officer, Robert I. Blum, our President,
Andrew A. Wolff, M.D., F.A.C.C., our Senior Vice President,
Clinical Research and Chief Medical Officer, Sharon A.
Surrey-Barbari, our Senior Vice President, Finance and Chief
Financial Officer, David J. Morgans, Ph.D., our Senior Vice
President of Preclinical Research and Development, Jay K.
Trautman, Ph.D., our Vice President of Research, and David
Cragg, our Vice President of Human Resources. The employment of
these individuals and our other personnel is terminable at will
with short or no notice. We carry key person life insurance on
James H. Sabry. The loss of the services of any member of our
senior management, 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
identification of suitable replacements, and could have a
material adverse effect on our business, operating results and
financial condition. 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, we believe that we will need to recruit additional
executive management 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 efforts, which would adversely affect the
development of our drug candidates and commercialization of our
potential drugs and growth of our business.
Risks
Related to Our Industry
Our
competitors may develop drugs that are less expensive, safer, or
more effective, which may diminish or eliminate the commercial
success of any drugs that we may commercialize.
We compete with companies that are also developing drug
candidates that focus on the cytoskeleton, as well as companies
that have developed drugs or are developing alternative drug
candidates for cancer and cardiovascular, and other diseases for
which our compounds may be useful treatments. For example, if
approved for marketing by the FDA, depending on the approved
clinical indication, our cancer drug candidates such as
ispinesib and
SB-743921
could compete against existing cancer treatments such as
paclitaxel, docetaxel, vincristine, vinorelbine or navelbine and
potentially against other novel 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, Chiron Corp., BMS and others are
conducting research and development focused on KSP and other
mitotic kinesins. In addition, BMS, Merck, Novartis, Genentech,
Inc. and other pharmaceutical and biopharmaceutical companies
are developing other approaches to inhibiting mitosis.
With respect to heart failure, if CK-1827452 or any other of our
compounds is approved for marketing by the FDA for heart
failure, that compound could compete against current generically
available therapies, such as milrinone, dobutamine or digoxin or
newer drugs such as nesiritide, as well as potentially against
other novel drug candidates in development such as ularitide,
which is being developed by PDL Biopharma, Inc.,
urocortin II, which is being developed by Neurocrine
Biosciences, Inc., and levosimendan, which is being developed in
the United States by Orion Pharma in collaboration with
Abbott Laboratories and is commercially available in a number of
countries outside of the United States.
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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have greater success in recruiting skilled scientific workers
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 or alter other drug candidate
profile aspects that our drug candidates need to show in order
to obtain regulatory approval; and
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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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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. Because our
research approach integrates many technologies, it may be
difficult for us to stay abreast of the rapid changes in each
technology. 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 advances in 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.
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
drug candidates 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 an NDA can be a lengthy, expensive
and uncertain process. In addition, failure to comply with the
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 also has substantial
discretion in the drug approval process. Despite the time and
expense 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 FDA approval varies depending
39
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 can delay, limit or
deny approval of a drug candidate for many reasons, including:
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a drug candidate may not be safe or effective;
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the FDA may not find the data from preclinical testing and
clinical trials sufficient;
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the FDA might not approve our or our contract
manufacturers processes or facilities; or
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the FDA may change its approval policies or adopt new
regulations.
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If we
or our partners receive regulatory approval for our drug
candidates, we will also be subject to ongoing FDA obligations
and continued regulatory review, such as continued safety
reporting requirements, and we may also be subject to additional
FDA post-marketing obligations, all of which may result in
significant expense and limit our ability to commercialize 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 contain requirements
for potentially costly post-marketing
follow-up
studies. In addition, if the FDA 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
previously 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, and could include withdrawal of the drug from the
market.
The FDAs policies may change 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 could 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,
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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timing of market introduction of competitive drugs;
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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; and
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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.
40
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.
There is significant uncertainty related to the coverage and
reimbursement of newly approved drugs. The commercial success of
our potential drugs in both domestic and international markets
is substantially dependent on whether third-party coverage and
reimbursement is available for the ordering of our potential
drugs by the medical profession for use by their patients.
Medicare, Medicaid, health maintenance organizations and other
third-party payors are increasingly attempting to contain
healthcare costs by limiting both coverage and the level of
reimbursement of new drugs, and, as a result, they may not cover
or provide adequate payment for our potential drugs. They may
not view our potential drugs as cost-effective and reimbursement
may not be available to consumers or may not be sufficient to
allow our potential drugs to be marketed on a competitive basis.
If we are unable to obtain adequate coverage and reimbursement
for our potential drugs, our ability to generate revenue may 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 may cause our revenue to decline.
We may
be subject to costly product liability claims and may not be
able to obtain adequate insurance.
If we conduct clinical trials in humans, we face the risk that
the use of our drug candidates will result in adverse effects.
We currently maintain product liability insurance. We cannot
predict the possible harms or side effects that may result from
our clinical trials. We may not have sufficient resources to pay
for any liabilities resulting from a claim excluded from, or
beyond the limit of, our insurance coverage.
In addition, once we have commercially launched drugs based on
our drug candidates, we will face exposure to product liability
claims. This risk exists even with respect to those drugs that
are approved for commercial sale by the FDA and manufactured in
facilities licensed and regulated by the FDA. 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 were 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 as
well as our other potential drugs. Moreover, product recalls may
be issued at our discretion or at the direction of the FDA,
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
image of the drugs being recalled as well as the reputation of
the drugs developer or manufacturer.
We may
be subject to damages resulting from 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 such 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 severely harm our business. Even if we are successful in
defending against these claims, litigation could result in
substantial costs and be a distraction to management.
41
We use
hazardous chemicals and radioactive and biological materials in
our business. Any claims relating to improper handling, storage
or disposal of these materials 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 efforts.
In addition, our partners may use hazardous materials in
connection with our strategic alliances. To our knowledge, their
work is performed in accordance with applicable biosafety
regulations. In the event of a lawsuit or investigation,
however, we could be held responsible for any injury caused to
persons or property by exposure to, or release of, these
hazardous materials used by these parties. Further, we may be
required to indemnify our partners against all damages and other
liabilities arising out of our development activities or drugs
produced in connection with these strategic alliances.
Our
facilities in California are located near an earthquake fault,
and an earthquake or other types of natural disasters or
resource shortages could disrupt our operations and adversely
affect results.
Important documents and records, such as hard copies of our
laboratory books and records for our drug candidates and
compounds, are located in our corporate headquarters at a single
location in South San Francisco, California near active
earthquake zones. In the event of a natural disaster, such as an
earthquake, drought or flood, or localized extended outages of
critical utilities or transportation systems, we do not have a
formal business continuity or disaster recovery plan, and could
therefore experience a significant business interruption. 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 Our Common Stock
We
expect that our stock price will fluctuate significantly, and
you may not be able to resell your shares at or above your
investment price.
The stock market, particularly in recent years, has experienced
significant volatility, particularly with respect to
pharmaceutical, biotechnology and other life sciences company
stocks. The volatility of pharmaceutical, biotechnology and
other life sciences company stocks often does not relate to the
operating performance of the companies represented by the stock.
Factors that could cause volatility in the market price of our
common stock include, but are not limited to:
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results from, and any delays in, the clinical trials programs
for our drug candidates for the treatment of cancer and heart
failure, including the current and proposed clinical trials for
ispinesib, SB-743921 and GSK-923295 for cancer, and CK-1827452
for heart failure, and including delays resulting from slower
than expected patient enrollment in such clinical trials;
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delays in or discontinuation of the development of any of our
drug candidates by GSK;
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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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delays or other developments in establishing new strategic
alliances;
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announcements concerning our strategic alliances with GSK or
AstraZeneca or future strategic alliances;
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announcements concerning clinical trials being initiated or
conducted by the NCI;
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42
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issuance of new or changed securities analysts reports or
recommendations;
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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 commercial
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; and
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volatility in the stock prices of other companies in our
industry.
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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, 2006, our executive officers, directors
and their affiliates beneficially owned or controlled
approximately 31% percent 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.
Future
sales of common stock by our existing stockholders may cause our
stock price to fall.
The market price of our common stock could decline as a result
of sales of common stock by stockholders who held shares of our
capital stock prior to this offering, or the perception that
these sales could occur. These sales might also make it more
difficult for us to sell equity securities at a time and price
that we deem appropriate.
Evolving
regulation of corporate governance and public disclosure may
result in additional expenses 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 regulations
and Nasdaq National Market 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 such costs. For example, compliance with
the internal control requirements of Sarbanes-Oxley
Section 404 for the year ended December 31, 2005
required the commitment of significant resources to document
43
and test the adequacy of our internal control over financial
reporting. While 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, 2005, our internal control over financial
reporting was effective, 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. 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 and our
reputation and business may be harmed.
Volatility
in the stock prices of other companies may contribute to
volatility in our stock price.
The stock market in general, and 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.
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.
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.
Risks
Related To The Committed Equity Financing Facility With
Kingsbridge
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 2005, we entered into the CEFF with Kingsbridge. The
CEFF 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 the CEFF unless certain conditions are met, which
include a minimum price for our common stock; the accuracy of
representations and warranties made to Kingsbridge; compliance
with
44
laws; effectiveness of a registration statement registering for
resale the shares of common stock to be issued in connection
with the CEFF and the continued listing of our stock on the
Nasdaq National Stock market. In addition, Kingsbridge is
permitted to terminate the CEFF 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 the CEFF, or if
the CEFF is terminated by Kingsbridge, we may be unable to
access capital on favorable 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 resale 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, calculated on the
basis of the number of shares held by Kingsbridge (exclusive of
shares that Kingsbridge may hold pursuant to exercise of the
Kingsbridge warrant) 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 resale
registration statement, the blackout or other payment could be
significant.
Should we sell shares to Kingsbridge under the CEFF, or issue
shares in lieu of a blackout payment, it will have a dilutive
effective on the holdings of our current stockholders, and may
result in downward pressure on the price of our common stock. If
we draw down under the CEFF, we will issue shares to Kingsbridge
at a discount of up to 10 percent from the volume weighted
average price of our common stock. If we draw down amounts under
the CEFF when our share price is decreasing, we will need to
issue more shares to raise the same amount 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.
Item 1B. Unresolved
Staff Comments
There are no unresolved staff comments regarding any of our
periodic or current reports.
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 2005.
45
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 National 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
National Market for the periods indicated.
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Sale Price
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High
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Low
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Fiscal 2004:
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Second Quarter (since
April 29, 2004)
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$
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17.42
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$
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14.70
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Third Quarter
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$
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15.01
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$
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7.50
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Fourth Quarter
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$
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13.79
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$
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8.33
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Fiscal 2005:
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First Quarter
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$
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10.17
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$
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6.16
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Second Quarter
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$
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7.05
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$
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4.88
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Third Quarter
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$
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9.55
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$
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7.11
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Fourth Quarter
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$
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8.83
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$
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6.29
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We currently expect to retain future earnings, if any, for use
in the operation and expansion of our business and have not and
do not in the foreseeable future anticipate paying any cash
dividends. As of February 28, 2006 there were 197 holders
of record of our common stock.
On October 28, 2005, we entered into the CEFF with
Kingsbridge, pursuant to which Kingsbridge committed to
purchase, subject to certain conditions, shares of our
newly-issued common stock with an aggregate purchase price of up
to $75 million. We are not obligated to sell any of the
$75 million of common stock available under the CEFF, and
there are no minimum commitments or minimum use penalties. As
part of the arrangement, we issued a warrant to Kingsbridge to
purchase 244,000 shares of our common stock with an
exercise price of $9.13 per share which was a premium to the
trading price of our common stock on the date we issued the
warrant. The warrant is exercisable beginning six months after
the date of grant and for a period of five years after the date
of grant. Subject to certain conditions and limitations, from
time to time under the CEFF, we may require Kingsbridge to
purchase newly-issued shares of our common stock at a price that
is 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 million. The minimum acceptable volume weighted average
price for determining the purchase price at which our stock may
be sold in any pricing period is the greater of $3.50 or 85% of
the closing price for our Common Stock on the day prior to the
commencement of the pricing period. Under the terms of the CEFF,
the maximum number of shares we may sell is
5,703,488 shares (exclusive of the shares underlying the
warrant). This limitation may further limit the amount of
proceeds we are able to obtain from the CEFF. The CEFF does not
contain any restrictions on our operating activities, automatic
pricing resets or minimum market volume restrictions. In
December 2005, we issued 887,576 shares of our common stock
to Kingsbridge pursuant to the CEFF for aggregate net proceeds
of $5.5 million. In January 2006, we issued
833,537 shares of our common stock to Kingsbridge pursuant
to the CEFF for aggregate net proceeds of $4.9 million.
We relied on the exemption from registration contained in
Section 4(2) of the Securities Act, and Regulation D,
Rule 506 thereunder, in connection with obtaining
Kingsbridges commitment under the CEFF, and for the
issuance of the warrant in consideration of such commitment.
Kingsbridge represented that it was an accredited investor and a
sophisticated investor, as such terms are defined in the
Securities Act and the regulations promulgated thereunder.
There were no employee stock repurchases for the quarter ended
December 31, 2005. As of December 31, 2005,
approximately 33,604 shares of common stock held by
employees and service providers remain subject to repurchase by
us.
46
The following table summarizes the securities authorized for
issuance under our equity compensation plans as of
December 31, 2005:
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Number of Securities
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Number of Securities
|
|
|
|
to be Issued
|
|
|
Weighted Average
|
|
|
Remaining Available
|
|
|
|
Upon Exercise of
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Under Equity
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Compensation Plans
|
|
|
Equity compensation plans approved
by stockholders
|
|
|
3,282,233
|
|
|
$
|
4.31
|
|
|
|
1,347,427
|
|
Equity compensation plans not
approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,282,233
|
|
|
$
|
4.31
|
|
|
|
1,347,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The number of authorized shares automatically increases by a
number of shares equal to the lesser of
(i) 1,500,000 shares, (ii) 3.5% of the
outstanding shares on such date, or (iii) an amount
determined by the Board of Directors. On January 1, 2006,
the number of shares of stock available for future issuance
under our 2004 Equity Incentive Plan was automatically increased
to 2,387,308 pursuant to the terms of the plan. |
Use of
Proceeds
We registered and sold 7,935,000 shares of our common stock
in connection with our initial public offering in April 2004. We
received net proceeds of approximately $94.0 million after
deducting offering costs of approximately $9.1 million,
which we invested in short-term investment-grade securities and
money market accounts pending use to fund working capital
requirements. In 2005, we utilized approximately
$39.5 million to fund operations and $2.4 million to
repay equipment financing lines.
47
|
|
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
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(In thousands, except per share
amounts)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenues
from related party
|
|
$
|
4,978
|
|
|
$
|
9,338
|
|
|
$
|
7,692
|
|
|
$
|
8,470
|
|
|
$
|
6,764
|
|
Research and development, grant
and other revenues
|
|
|
1,134
|
|
|
|
1,304
|
|
|
|
85
|
|
|
|
126
|
|
|
|
302
|
|
License revenues from related party
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
8,912
|
|
|
|
13,442
|
|
|
|
10,577
|
|
|
|
11,396
|
|
|
|
8,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
40,570
|
|
|
|
39,885
|
|
|
|
34,195
|
|
|
|
27,835
|
|
|
|
20,961
|
|
General and administrative
|
|
|
12,975
|
|
|
|
11,991
|
|
|
|
8,972
|
|
|
|
7,542
|
|
|
|
5,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
53,545
|
|
|
|
51,876
|
|
|
|
43,167
|
|
|
|
35,377
|
|
|
|
26,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(44,633
|
)
|
|
|
(38,434
|
)
|
|
|
(32,590
|
)
|
|
|
(23,981
|
)
|
|
|
(18,392
|
)
|
Interest and other income
|
|
|
2,916
|
|
|
|
1,785
|
|
|
|
903
|
|
|
|
1,612
|
|
|
|
2,956
|
|
Interest and other expense
|
|
|
(535
|
)
|
|
|
(549
|
)
|
|
|
(998
|
)
|
|
|
(711
|
)
|
|
|
(438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(42,252
|
)
|
|
$
|
(37,198
|
)
|
|
$
|
(32,685
|
)
|
|
$
|
(23,080
|
)
|
|
$
|
(15,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common
share basic and diluted(2)
|
|
$
|
(1.48
|
)
|
|
$
|
(1.88
|
)
|
|
$
|
(17.09
|
)
|
|
$
|
(13.25
|
)
|
|
$
|
(11.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in
computing net loss per common share basic and
diluted(1)(2)
|
|
|
28,582
|
|
|
|
19,779
|
|
|
|
1,912
|
|
|
|
1,742
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-
and long-term investments(1)
|
|
$
|
76,212
|
|
|
$
|
110,253
|
|
|
$
|
42,332
|
|
|
$
|
29,932
|
|
|
$
|
61,313
|
|
Restricted cash
|
|
|
5,172
|
|
|
|
5,980
|
|
|
|
7,199
|
|
|
|
13,106
|
|
|
|
6,236
|
|
Working capital
|
|
|
67,600
|
|
|
|
98,028
|
|
|
|
27,619
|
|
|
|
18,571
|
|
|
|
43,887
|
|
Total assets
|
|
|
91,461
|
|
|
|
128,101
|
|
|
|
62,873
|
|
|
|
56,168
|
|
|
|
79,019
|
|
Long-term portion of equipment
financing lines
|
|
|
6,636
|
|
|
|
8,106
|
|
|
|
8,075
|
|
|
|
7,077
|
|
|
|
3,525
|
|
Deficit accumulated during the
development stage
|
|
|
(173,524
|
)
|
|
|
(131,272
|
)
|
|
|
(94,074
|
)
|
|
|
(61,389
|
)
|
|
|
(38,309
|
)
|
Total stockholders equity
(deficit)(1)
|
|
|
73,561
|
|
|
|
107,556
|
|
|
|
(92,031
|
)
|
|
|
(60,588
|
)
|
|
|
(37,352
|
)
|
|
|
|
(1) |
|
Our initial public offering was declared effective by the
Securities and Exchange Commission on April 29, 2004 and
our common stock commenced trading on that date. 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 its |
48
|
|
|
|
|
common stock to GSK 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
its common stock. In December 2005, we sold 887,576 shares
of common stock to Kingsbridge for net proceeds of
$5.5 million. |
|
(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. |
49
|
|
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 biopharmaceutical company focused on the treatment of
cancer and cardiovascular disease. We currently have three novel
small molecule drug candidates in clinical development and two
novel small molecule potential drug candidates, including an
alternative formulation of one of our current drug candidates
currently in preclinical development. We anticipate one of these
potential drug candidates will proceed to clinical development
in 2006, and the other in 2007. These drug candidates and
potential drug candidates are currently being evaluated or are
expected to be evaluated during 2006 in up to 20 human clinical
trials.
Our clinical pipeline consists of two drug candidates and a
potential drug candidate for the treatment of cancer, a drug
candidate for the treatment of heart failure in an intravenous
formulation and a potential drug candidate for the treatment of
chronic heart failure via oral administration.
Oncology
Program:
|
|
|
|
|
Ispinesib (formerly designated SB-715992), our most advanced
drug candidate, is the subject of a broad Phase II clinical
trials program being conducted by GSK and the NCI designed to
evaluate its effectiveness in nine different types of cancer. At
the 2005 San Antonio Breast Cancer Symposium, we reported
that anti-cancer activity was observed in a Phase II
clinical trial in breast cancer.
|
|
|
|
SB-743921, our second drug candidate for the treatment of
cancer, is the subject of an ongoing Phase I clinical
trial. Interim data from this clinical trial were presented at
the Annual Meeting of the American Society of Clinical Oncology
in May 2005. We plan on initiating a Phase I/II clinical
trial in non-Hodgkins lymphoma in the first half of 2006.
|
|
|
|
GSK-923295, our third potential drug candidate for the treatment
of cancer, is currently in preclinical development under our
strategic alliance with GSK. We expect that GSK will initiate
Phase I clinical trials in 2007.
|
Cardiovascular
Program:
|
|
|
|
|
CK-1827452, in an intravenous formulation, a drug candidate for
the treatment of heart failure, entered Phase I clinical
development in 2005. We plan to initiate the first clinical
trial in a Phase II clinical trials program in 2006.
|
|
|
|
CK-1827452 via oral administration, our potential drug candidate
for the treatment of chronic heart failure, is currently in
preclinical development. We plan to initiate an oral
bioavailability Phase I clinical trial in 2006.
|
Ispinesib, SB-743921 and GSK-923295 are being developed under
our strategic alliance with GSK, which is focused on novel small
molecule therapeutics targeting human mitotic kinesins for
applications in the treatment of cancer and other diseases. We
have the right to clinically develop SB-743921 for certain
hematologic cancer indications pursuant to our 2005 amendment to
our Collaboration and License Agreement with GSK. We have
options to co-fund late stage clinical development for ispinesib
and GSK-923295, and have exercised this option for SB-743921. We
have further options to co-promote such co-funded products in
North America. We retain worldwide development and
commercialization rights for CK-1827452 in both intravenous and
oral formulations. In addition, we are pursuing other early
research programs addressing a number of therapeutic areas.
50
Since our inception in August 1997, we have incurred significant
net losses. As of December 31, 2005, we had an accumulated
deficit of $173.5 million. We expect to incur losses for
the next several years. We expect that these losses will
increase if any of the following occur.:
|
|
|
|
|
we conduct later-stage development and commercialization of
ispinesib or GSK-923295 under our strategic alliance with GSK;
|
|
|
|
we advance SB-743921 through clinical development for the
treatment of non-Hodgkins lymphoma, Hodgkins
lymphoma and multiple myeloma under our strategic alliance with
GSK;
|
|
|
|
we elect to provide a higher rate of co-funding for the
development of SB-743921 for indications outside of
Hodgkins lymphoma, Hodgkins lymphoma and multiple
myeloma;
|
|
|
|
we exercise our option to co-fund the development of one or both
of ispinesib and GSK-923295 under our strategic alliance with
GSK;
|
|
|
|
we exercise our option to co-promote any of the products for
which we have opted to co-fund development under our strategic
alliance with GSK;
|
|
|
|
we advance our novel cardiac myosin activator, CK-1827452
through clinical development for the treatment of heart failure;
|
|
|
|
we advance other potential drug candidates into clinical trials;
|
|
|
|
we expand our research programs and further develop our
proprietary drug discovery technologies; or
|
|
|
|
we elect to fund development or commercialization of any drug
candidate.
|
We intend to pursue selective strategic alliances to enable us
to maintain financial and operational flexibility.
Oncology
In 2005, in connection with our strategic alliance with GSK, we
continued to make progress in advancing our oncology development
program for both ispinesib and SB-743921, which are both
directed against the mitotic kinesin target KSP. In addition, we
reported ispinesib data from planned interim analyses from the
Phase II locally advanced or metastatic breast cancer trial
and from the platinum-refractory arm of the non-small cell lung
cancer clinical trial. We also announced our signing of an
amendment to our Collaboration and License Agreement with GSK
regarding the development of SB-743921 for certain hematologic
cancer indications. In December 2005, GSK selected a novel small
molecule development candidate, GSK-923295, directed against a
second mitotic kinesin, CENP-E, under our strategic alliance.
Ispinesib is the subject of a broad clinical trials program that
is planned to consist of nine Phase II clinical trials,
eight of which are currently being conducted, studying the
safety and efficacy of ispinesib in the treatment of cancer, and
five Phase I or Ib clinical trials evaluating the use of
ispinesib in a variety of both solid and hematologic cancers.
The breadth of this clinical trials program reflects the
potential of, and the complexity of developing, a drug candidate
such as ispinesib. We expect this approach should help us to
identify those tumor types that are the most promising for the
continued development of ispinesib. GSK initiated the first
Phase II clinical trial in late 2003 to evaluate ispinesib
as a monotherapy in non-small cell lung cancer. In mid and late
2004, GSK initiated two additional Phase II monotherapy
clinical trials to evaluate ispinesib in other prevalent tumor
types that represent large commercial markets, specifically
breast and ovarian cancers. The NCI is conducting clinical
trials of ispinesib in conjunction with GSK. During the first
quarter of 2005, the NCI began enrollment of patients in two
Phase II clinical trials, the first of which is evaluating
ispinesib for the treatment of colorectal cancer, and the second
of which is evaluating ispinesib for the first-line treatment of
patients with hepatocellular cancer. In the second quarter of
2005, the NCI initiated two additional Phase II clinical
trials, one evaluating ispinesib for the first-line treatment of
patients with melanoma and the second evaluating ispinesib for
the first- or second-line treatment of patients with head and
neck cancer. In the third quarter of 2005, the
NCI initiated a clinical trial evaluating ispinesib for the
second-line treatment of patients with hormone-refractory
prostate cancer. We anticipate that the NCI will initiate a
Phase II clinical trial in 2006 evaluating ispinesib for
the second-line treatment of patients with metastatic renal cell
carcinoma. Furthermore, we anticipate that ispinesib may
eventually be used in combination therapy regimens
51
utilizing existing cancer drugs. In 2004, GSK initiated
Phase Ib clinical trials to evaluate ispinesib in
combination with each of three standard anti-cancer
therapeutics, docetaxel, capecitabine and carboplatin.
We are participating in the development of ispinesib, which is
being conducted by GSK under our strategic alliance. The
clinical trials to evaluate ispinesib under the GSK alliance
include:
Breast Cancer: GSK continues to conduct an
international, Phase II, open-label, monotherapy clinical
trial, designed to enroll up to 55 patients, evaluating the
safety and efficacy of ispinesib at
18mg/m2
every 21 days in the second- or third-line treatment of
patients with locally advanced or metastatic breast cancer whose
disease has recurred or progressed despite treatment with
anthracyclines and taxanes. The clinical trials primary
endpoint is response rate as determined using the RECIST
criteria. We reported data from a planned interim analysis for
this clinical trial in September 2005. Based on the data
analysis to date, the best overall responses, as determined
using the RECIST criteria, have been 3 confirmed partial
responses observed among the first 33 evaluable patients. This
clinical trial employs a Green-Dahlberg design, which requires
the satisfaction of pre-defined efficacy criteria to allow
advancement to the second stage of patient enrollment and
treatment. In this clinical trial, ispinesib demonstrated
sufficient anti-tumor activity to satisfy the pre-defined
efficacy criteria required to move forward to the second stage.
GSK is now proceeding to full enrollment of 55 evaluable
patients in this clinical trial. Based on the current rate of
patient enrollment, we anticipate final data from this clinical
trial in 2006.
Ovarian Cancer: GSK continues to conduct a
Phase II, open-label, monotherapy clinical trial, designed
to enroll up to 35 patients, evaluating the efficacy of
ispinesib at
18mg/m2
dosed every 21 days in the second-line treatment of
patients with advanced ovarian cancer previously treated with a
platinum and taxane-based regimen. The primary endpoint of this
clinical trial is response rate as determined by the RECIST
criteria and blood serum levels of the tumor mass marker CA-125.
Based on the current rate of patient enrollment, we anticipate
interim data during the first half of 2006.
Non-Small Cell Lung Cancer: GSK continues to
conduct the platinum-sensitive arm of a two-arm, international,
Phase II, open-label, monotherapy clinical trial, designed
originally to enroll up to 35 patients in each arm. This
clinical trial was designed to evaluate the safety and efficacy
of ispinesib administered at
18mg/m2
every 21 days in the second-line treatment of patients with
either platinum-sensitive or platinum-refractory non-small cell
lung cancer. The clinical trials primary endpoint is
response rate as determined using the RECIST criteria. In the
second quarter of 2005, GSK completed patient treatment in the
platinum-refractory treatment arm of this trial. We reported
data from a planned interim analysis of the platinum-refractory
treatment arm of this clinical trial in September 2005. This
clinical trial employs a Green-Dahlberg design, which requires
the satisfaction of pre-defined efficacy criteria in a treatment
arm to allow advancement to the second stage of patient
enrollment and treatment in that arm. In the platinum-refractory
treatment arm of this clinical trial, the pre-defined efficacy
criteria required to move forward to full enrollment were not
met. The best overall responses observed in the
platinum-refractory treatment arm, as determined using the
RECIST criteria, were disease stabilization observed in 5
of 20, or 25%, of evaluable patients. The median time to
disease progression for these patients was 12 weeks as
compared to 6 weeks in the overall treatment population. We
anticipate interim data from the first phase of the
platinum-sensitive treatment arm of this clinical trial in the
first quarter of 2006.
Combination of ispinesib with each of capecitabine,
carboplatin and docetaxel: In November, we and
GSK presented data from two Phase Ib combination clinical
trials of ispinesib at the 2005 AACR-NCI-EORTC International
Meeting. These data suggest ispinesib has an acceptable
tolerability profile and no pharmacokinetic interactions when
used in combination with each of two common chemotherapeutic
agents in patients suffering from advanced solid tumors. One
presentation contained data from an ongoing clinical trial that
demonstrated that the combination of ispinesib and capecitabine
appears to have an acceptable tolerability profile on the
clinical trials treatment schedule. The second
presentation contained data from a clinical trial that
demonstrated that the combination of ispinesib with docetaxel
has an acceptable tolerability profile on a once every
21 day schedule. The regimen-limiting toxicity in this
second clinical trial was prolonged Grade 4 neutropenia which
was consistent with the Phase I clinical trial experience
with ispinesib and clinical
52
experience with doxetaxel. GSK continues to enroll patients in a
third dose-escalating Phase Ib clinical trial, designed to
evaluate the safety, tolerability and pharmacokinetics of
ispinesib in combination with carboplatin.
In parallel with these GSK-sponsored clinical trials, the NCI is
conducting five additional Phase II clinical trials and two
Phase I clinical trials that will further evaluate the
safety and efficacy of ispinesib across a variety of tumor
types. The NCI has an additional Phase II clinical trial
planned for initiation in 2006. These clinical trials include:
Colorectal Cancer: In the first quarter of
2005, the NCI initiated a Phase II clinical trial, designed
to enroll up to 76 patients, evaluating ispinesib in the
second-line treatment of patients with colorectal cancer. This
open-label, monotherapy clinical trial contains two arms that
evaluate different dosing schedules of ispinesib, either infused
at
7 mg/m2
on days 1, 8 and 15 of a
28-day
schedule or at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined using the RECIST criteria.
Prostate Cancer: In the third quarter of 2005,
the NCI initiated a Phase II clinical trial, designed to
enroll up to 40 patients, evaluating ispinesib in the
second-line treatment of patients with hormone-refractory
prostate cancer. This open-label monotherapy clinical trial will
evaluate ispinesib infused at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined by blood serum levels of the tumor mass marker
Prostate Specific Antigen.
Hepatocellular Cancer: In the first quarter of
2005, the NCI initiated a Phase II clinical trial, designed
to enroll up to 30 patients, evaluating ispinesib in the
treatment of patients with hepatocellular cancer that have not
been treated with any systemic chemotherapy. This open-label,
monotherapy clinical trial will evaluate ispinesib infused at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined using the RECIST criteria.
Head and Neck Cancer: In the second quarter of
2005, the NCI initiated a Phase II clinical trial, designed
to enroll up to 33 patients, evaluating ispinesib in the
first- or second-line treatment of patients with head and neck
cancer. This open-label monotherapy clinical trial will evaluate
ispinesib infused at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined using the RECIST criteria.
Melanoma: In the second quarter of 2005, the
NCI initiated a Phase II clinical trial, designed to enroll
up to 25 patients, evaluating ispinesib in the treatment of
patients with melanoma who may have received adjuvant
immunotherapy but no chemotherapy. This open-label monotherapy
clinical trial will evaluate ispinesib infused at
18mg/m2
every 21 days. The primary endpoint is objective response
as determined using the RECIST criteria.
Leukemia: In 2005, the NCI continued a
Phase I clinical trial initiated in 2004 of patients with
acute leukemia, chronic myelogenous leukemia or myelodysplastic
syndrome. This clinical trial is designed to evaluate the
safety, tolerability and pharmacokinetics of ispinesib infused
on a more dose-dense schedule than in other clinical trials
conducted by GSK or the NCI.
Advanced Solid Tumors: In 2005, the NCI
continued a Phase I clinical trial initiated in 2004 of
patients with histologically proven solid tumors that have
failed all standard therapies. This clinical trial is designed
to evaluate the safety, tolerability and pharmacokinetics of
ispinesib infused on a more dose-dense schedule than in other
clinical trials conducted to date by GSK or the NCI.
Renal Cell Cancer: The NCI is planning on
initiating in 2006 a Phase II clinical trial evaluating
ispinesib in the second-line treatment of patients with renal
cell cancer.
Based on communications with GSK, we expect the NCI will
complete one or more of these clinical trials in 2006. However,
neither we nor GSK control the timing of the NCIs clinical
trials nor the disclosure of any data in connection with these
clinical trials.
We expect that it will take several years before we can
commercialize ispinesib, if at all. Accordingly, we cannot
reasonably estimate when and to what extent ispinesib will
generate revenues or material net cash flows, which may vary
widely depending on numerous factors, including the safety and
efficacy profile of the drug, market acceptance, then-prevailing
reimbursement policies, competition and other market conditions.
GSK currently funds
53
the development costs associated with ispinesib pursuant to our
strategic alliance. We expect to determine whether and to what
extent we will exercise our co-funding option during the conduct
of our clinical trials for this drug candidate, taking into
consideration clinical trial results and our business, finances
and prospects at that time. If we exercise our option to co-fund
certain later stage development activities associated with
ispinesib, our expenditures relating to research and development
of this drug candidate will increase significantly.
During 2005, GSK continued to enroll patients in a
dose-escalating Phase I clinical trial evaluating the
safety, tolerability and pharmacokinetics of SB-743921 in
advanced cancer patients. We anticipate reporting data from this
clinical trial in the first half of 2006. Also in 2005, we
amended our Collaboration and License Agreement with GSK
regarding the development of SB-743921. Under this amendment, we
plan to expand our role in clinical research and development and
the funding of SB-743921 for non-Hodgkins lymphoma,
Hodgkins lymphoma and multiple myeloma. This amendment
provides us the opportunity to explore these additional
indications for this drug candidate under an expanded
development program in parallel with GSKs continuing
efforts for ispinesib and GSK-923295, and for SB-743921 for
cancer indications outside these hematologic cancer indications.
The clinical trials program for SB-743921 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. SB-743921 is at too
early a stage of development for us to predict when or if this
may occur.
GSK currently funds the research and development costs
associated with SB-743921 outside of the indications of
non-Hodgkins lymphoma, Hodgkins lymphoma and
multiple myeloma. The amendment to the Collaboration and License
Agreement provides for us to fund the development of SB-743921
in these hematologic cancer indications. As a result of this
amendment and the co-funding of certain later-stage development
activities associated with SB-743921, our expenditures relating
to research and development of this drug candidate will increase
significantly. For example, we anticipate initiating a
Phase I/II clinical trial of ispinesib in patients with
non-Hodgkins lymphoma in the first quarter of 2006.
In December 2005, GSK selected a novel small molecule
development candidate, GSK-923295, directed against a second
mitotic kinesin, CENP-E, under our strategic alliance. The
selection of this development candidate triggered a milestone
payment of $500,000 to us from GSK. We anticipate that GSK will
file an IND for
GSK-923295
in 2006 and begin clinical trials in 2007.
Cardiovascular
We have focused our cardiovascular research and development
activities on heart failure, a disease most often characterized
by compromised contractile function of the heart that impacts
its ability to effectively pump blood throughout the body. We
have discovered and optimized small molecules that improve
cardiac contractility by specifically binding to and activating
cardiac myosin, a cytoskeletal protein essential for cardiac
muscle contraction.
In March 2005, we selected a drug candidate, CK-1827452, a novel
cardiac myosin activator, for further development in our
cardiovascular program. In animal models, CK-1827452 is orally
bioavailable and has demonstrated the ability to increase
cardiac contractility without increasing intracellular calcium.
In September 2005, we initiated a Phase I clinical trial of
CK-1827452. This clinical trial is a double-blind, randomized,
placebo-controlled crossover trial designed to evaluate
escalating doses of CK-1827452 administered as an intravenous
infusion to normal healthy volunteers and to investigate its
safety, tolerability, pharmacokinetic, and pharmacodynamic
profile. This clinical trial is designed to identify the maximum
tolerated dose of a
six-hour
intravenous infusion of CK-1827452. Its effect on the left
ventricular function of these healthy volunteers is being
evaluated using serial echocardiograms. The clinical trial is
being conducted by us under a Clinical Trial Authorization at a
clinical investigative center in the United Kingdom. Assuming
the successful completion of this Phase I clinical trial,
we intend to initiate Phase II clinical trials for this
drug candidate in patients with heart failure in the second half
of 2006.
In December 2005, we selected CK-1827452 as a potential drug
candidate for the treatment of patients with chronic heart
failure via oral administration. Pharmacokinetic data arising
from preclinical studies and the Phase I clinical trial of
the intravenous formulation of CK-1827452 suggest that this
compound has the necessary
54
pharmacokinetic and pharmacologic properties to support
development of a chronic oral dosing formulation. Additional
preclinical studies to support oral dosing in humans with
CK-1827452 are currently underway. Assuming successful
completion of the enabling preclinical studies, we intend to
submit a regulatory filing for the initiation of a Phase I
clinical trial in the second half of 2006 that is intended to
confirm in humans the bioavailability seen in preclinical
studies with orally administered CK-1827452.
As with our drug candidates in our other programs, the compounds
in our cardiovascular program, including our drug candidate
CK-1827452, are at too early a stage of development for us to
predict if and when we will be in a position to generate any
revenues or material net cash flows from any of them. We
currently fund all research and development costs associated
with this program. We incurred costs of approximately
$19.6 million, $14.7 million and $11.5 million
for research and development activities relating to our
cardiovascular program in the years ended December 31,
2005, 2004 and 2003, respectively and incurred
$63.5 million from inception through December 31,
2005. We anticipate that our expenditures relating to research
and development of compounds in our cardiovascular program will
increase significantly as we advance CK-1827452 through clinical
development.
Development
Risks
The successful development of all of our drug candidates is
highly uncertain. We cannot estimate with certainty or know the
exact nature, timing and estimated costs of the efforts
necessary to complete the development of any of our drug
candidates or the date of completion of these development
efforts. We cannot estimate with certainty any of the foregoing
due to the numerous risks and uncertainties associated with
developing our drug candidates, including, but not limited to:
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the uncertainty of the timing of the initiation and completion
of patient enrollment 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 such trials have been initiated and
completed;
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the possibility of delays in characterization, synthesis or
optimization of potential drug candidates in our cardiovascular
program;
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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 new therapies; and
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the uncertainty related to the development of commercial scale
manufacturing processes and qualification of a commercial scale
manufacturing facility.
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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, as well as other risk factors.
Funding
To date we have funded our operations primarily through the sale
of equity securities, non-equity payments from GSK and
AstraZeneca, equipment financings, interest on investments and
government grants. We have received net proceeds from the sale
of equity securities of $218.6 million from August 5,
1997, the date of our inception, through December 31, 2005,
excluding sales of equity to GSK. Included in these proceeds are
$94.0 million received upon closing of the initial public
offering of our common stock in April 2004. In 2005, we received
net proceeds from the sale of equity securities of
$6.6 million, including $5.5 million from draw downs
under our CEFF with Kingsbridge. In 2001, under our strategic
alliance with GSK, GSK made a $14.0 million
55
upfront cash payment as well as an initial $14.0 million
equity investment. In April 2004, GSK purchased
538,461 shares of our common stock at $13.00 per share
immediately prior to the closing of our initial public offering
for a total price of $7.0 million. GSK also made a
$3.0 million equity investment in us in 2003. GSK has also
committed to reimburse our full time equivalents, or FTEs,
through the end of the minimum five-year research term of the
strategic alliance, and to make additional payments upon the
achievement of certain pre-commercialization milestones.
Cumulatively as of December 31, 2005, we received
$30.3 million in FTE and other expense reimbursements and
$7.0 million in milestone payments from GSK. Cumulatively
as of December 31, 2005, we received $2.4 million in
FTE reimbursement from our strategic alliance with AstraZeneca.
We received $1.3 million, $2.5 million and
$2.0 million under equipment financing arrangements in the
years ending December 31, 2005, 2004 and 2003,
respectively. Cash interest earned on investments in the years
ended December 31, 2005, 2004 and 2003 was
$3.8 million, $3.4 million and $2.4 million,
respectively. Grant revenues were none, $100,000 and none in the
years ended December 31, 2005, 2004 and 2003, respectively.
GSK has the contractual right to reduce its funding of our FTEs
at its discretion, subject to certain agreed minimum levels, in
the beginning of each contract year based on the activities of
the agreed upon research plan. This five-year research term ends
on June 20, 2006 unless extended by GSK. GSK has agreed to
fund worldwide development and commercialization of drug
candidates that arise from our strategic alliance and for which
GSK elects to continue in development, other than the funding
for development and commercialization of SB-743921 for
non-Hodgkins lymphoma, Hodgkins lymphoma and
multiple myeloma. We will earn royalties from sales of any
resulting drugs. We retain
product-by-product
options to co-fund certain later-stage development activities,
thereby potentially increasing our royalties and affording
co-promotion rights in North America. If we 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 commercial activities. GSK has the right to
terminate the Collaboration and License Agreement on six months
notice at any time after June 20, 2006. If GSK abandons one
or more of ispinesib, SB-743921 and
GSK-923295,
it would result in a delay in or prevent us from commercializing
such current or potential drug candidates, and would delay or
prevent our ability to generate revenues. In such event, or if
GSK abandons development of any drug candidate prior to
regulatory approval, we would have to undertake and fund the
clinical development of our drug candidates or commercialization
of our drugs, seek a new partner for clinical development or
commercialization, or curtail or abandon the clinical
development or commercialization programs.
Our Registration Statement (SEC File
No. 333-112261)
for our initial public offering was declared effective by the
Securities and Exchange Commission on April 29, 2004. Our
common stock commenced trading on the Nasdaq National Market on
April 29, 2004 under the trading symbol CYTK.
We sold 7,935,000 shares of common stock in the offering,
including shares that were issued upon the full exercise by the
underwriters of their over-allotment option, at $13.00 per
share for aggregate gross proceeds of $103.2 million. In
connection with this offering we paid underwriters
commissions of $7.2 million and incurred offering expenses
of $2.0 million. After deducting the underwriters
commissions and the offering expenses, we received net proceeds
of approximately $94.0 million from the offering. In
addition, we entered into an agreement with an affiliate of GSK
to sell 538,461 shares of our common stock immediately
prior to the completion of the initial public offering at a
purchase price of $13.00 per share, for a total of
approximately $7.0 million in net proceeds.
In June 2005, we filed a shelf Registration Statement on
Form S-3
(SEC File
No. 333-125786)
with the SEC to sell an aggregate of up to $100.0 million
of our common stock and or preferred stock. This registration
statement was declared effective on July 15, 2005.
In October 2005, we entered into a CEFF with Kingsbridge,
pursuant to which Kingsbridge committed to finance up to
$75.0 million of capital during the next three years.
Subject to certain conditions and limitations, from time to time
under the CEFF, at our election, Kingsbridge will purchase
newly-issued shares of our common stock at a price that is
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. The minimum acceptable volume weighted
average price for determining the purchase price at which our
stock may be sold in any pricing period is determined by the
greater of $3.50 or 85% of the closing price for our common
stock on the day prior to the commencement of the pricing
period. As part of the arrangement, we issued a warrant to
Kingsbridge to purchase 244,000 shares of our common stock
at a price of $9.13 per share, which represents a
56
premium over the closing price of our common stock on the date
we entered into the CEFF. This warrant is exercisable beginning
six months after the date of grant and for a period of five
years thereafter. The CEFF also required us to file a resale
registration statement with respect to the resale of shares
issued pursuant to the CEFF and underlying the warrant within
60 days of entering into the CEFF, and to use commercially
reasonable efforts to have such registration statement declared
effective by the Securities and Exchange Commission within
180 days of our entry into the CEFF. Our Registration
Statement on
Form S-3
filed in connection with the CEFF was declared effective on
December 2, 2005 (SEC File
No. 333-129786).
Under the terms of the CEFF, the maximum number of shares we may
sell is 5,703,488 (exclusive of the shares underlying the
warrant) which, under the rules of the National Association of
Securities Dealers, Inc., 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 the CEFF. We are not
obligated to sell any of the $75.0 million of common stock
available under the CEFF and there are no minimum commitments or
minimum use penalties. The CEFF does not contain any
restrictions on our operating activities, any automatic pricing
resets or any minimum market volume restrictions. In December
2005, we received gross proceeds of $5.7 million from the
draw down and sale of 887,576 shares of common stock to
Kingsbridge before offering costs. In connection with the CEFF,
we paid legal fees and other offering costs of $178,000. In
January, 2006, we received proceeds of $4.9 million from
the draw down and sale of 833,537 shares of common stock to
Kingsbridge.
Subsequent to the year ended December 31, 2005, we sold
5,000,000 shares of our common stock pursuant to a
take-down from our shelf Registration Statement on
Form S-3
(SEC File
No. 333-125786)
to certain institutional investors at a price of $6.60 per
share, for gross offering proceeds of $33.0 million and net
offering proceeds of approximately $31.9 million. (See
Note 13, Subsequent Events, in the accompanying
Notes to the Financial Statements.)
Revenues
Our current revenue sources are limited, and we do not expect to
generate any direct revenue from product sales for several
years. We currently recognize revenues from our strategic
alliances with GSK and AstraZeneca for contract research
activities, which we record as related expenses as incurred.
Charges to GSK are based on negotiated rates that are intended
to approximate the costs for our FTEs performing research under
the strategic alliance and our
out-of-pocket
expenses. GSK has paid us an upfront licensing fee, which we
recognize ratably over the five-year research term of the
strategic alliance. This research term ends on June 20,
2006 unless extended by GSK. We may receive additional payments
from GSK upon achieving certain pre-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 record amounts received in advance
of performance as deferred revenue. The revenues recognized to
date are not refundable, even if the relevant research effort is
not successful. Because a substantial portion of our revenues
for the foreseeable future will depend on achieving research,
clinical development and other pre-commercialization milestones
under our strategic alliance with GSK, our results of operations
may vary substantially from year to year. At any time after
June 20, 2006, GSK has the right to terminate the
Collaboration and License Agreement on six months notice. If we
exercise our co-promotion option, we are entitled to receive
reimbursement from GSK for certain sales force costs we incur in
support of our commercial activities.
Charges to AstraZeneca are based on negotiated rates that are
intended to approximate the costs for our FTEs performing
research under the strategic alliance. 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 not refundable, even if the
relevant research effort is not successful. The research term of
our Collaboration and License Agreement with AstraZeneca expired
in December 2005. AstraZeneca retains the right to purchase a
license to certain proprietary technology developed as part of
the collaboration for a fee of up to $2.0 million as may be
agreed by both parties.
We expect that our future revenues ultimately will be derived
from royalties on sales from drugs licensed to GSK under our
strategic alliance and from those licensed to future partners,
as well as from direct sales of our drugs.
57
We retain a
product-by-product
option to co-fund certain later-stage development activities
under our strategic alliance with GSK, thereby potentially
increasing our royalties and affording co-promotion rights in
North America.
Research
and Development
We incur research and development expenses associated with both
partnered and unpartnered research activities, as well as the
development and expansion of our drug discovery technologies.
Research and development expenses relating to our strategic
alliance with GSK consist 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. Certain of these
costs are reimbursed by GSK on an FTE basis. At this time GSK
funds the majority of the costs related to preclinical and
clinical development of ispinesib. Under our 2005 amendment to
the Collaboration and License Agreement with GSK, we have
committed to fund certain later-stage development activities for
SB-743921 for non-Hodgkins lymphoma, Hodgkins
lymphoma and multiple myeloma. We have the option to co-fund
certain later-stage development activities for ispinesib and
GSK-923295, and for
SB-743921
for cancer indications outside of those indications that are the
subject of the amendment. This commitment and the potential
exercise of any of our co-funding options will result in a
significant increase research and development expenses. 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. We expect to incur research and
development expenses to conduct preclinical studies and clinical
trials for CK-1827452 and other of our cardiac myosin activator
compounds for the treatment of heart failure and in connection
with our early research programs in other diseases, as well as
the continued advancement of our
PUMAtm
system,
Cytometrix®
technologies and our other existing and future drug discovery
technologies. From our inception through December 31, 2005,
we incurred costs of approximately $48.4 million for
research and development activities relating to the discovery of
mitotic kinesin inhibitors, $63.5 million for our cardiac
contractility program, $40.1 million for our proprietary
technologies and $28.9 million for all other 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, 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. Now
approaching our third year as a public company, we anticipate
continued increases in general and administrative expenses
associated with operating as a publicly traded company, such as
increased costs for insurance, investor relations and compliance
with section 404 of the Sarbanes-Oxley Act of 2002.
Stock
Compensation
In connection with the grant of stock options to employees and
non-employees, in prior periods we recorded deferred stock-based
compensation as a component of stockholders equity.
Deferred stock compensation for options granted to employees is
the difference between the fair value of our common stock on the
date such options were granted and their exercise price. As the
non-employee options become vested, we revalue the remaining
unvested options, with the change in fair value from period to
period represented as a change in the deferred compensation
charge. We valued and recognized the stock-based compensation
expense related to options granted to non-employees as the stock
options were earned. We amortize this stock-based compensation
as charges to operations over the vesting periods of the
options, generally four years.
We recorded deferred stock-based compensation related to options
granted to employees of none, $2.3 million and
$3.9 million for the years ended December 31, 2005,
2004 and 2003, respectively. We recorded amortization of the
deferred stock-based compensation related to employee options,
net of cancellations, of $1.3 million, $1.4 million
and $536,000 in the years ended December 31, 2005, 2004 and
2003, respectively. We recorded non-employee stock-based
compensation expense of $78,000, $496,000 and $390,000 in the
years ended
58
December 31, 2005, 2004 and 2003, respectively. The balance
of deferred stock-based compensation was $2.5 million,
$4.3 million and $3.7 million at December 31,
2005, 2004 and 2003, respectively.
The amount of non-cash stock-based compensation expense we
record in future periods will increase due to our adoption of
SFAS No. 123R on January 1, 2006.
Interest
and Other Income and Expense
Interest and other income and expense consist primarily of
interest income and interest expense. Interest income is
generated primarily from investment of our cash, cash
equivalents and investments. Interest expense generally relates
to the borrowings under our equipment financing lines.
Results
of Operations
Years
ended December 31, 2005, 2004 and 2003
Revenues
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Years Ended
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Increase
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December 31,
|
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(Decrease)
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2005
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2004
|
|
|
2003
|
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2005
|
|
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2004
|
|
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|
(In millions)
|
|
|
Research and development revenues
from related party
|
|
$
|
5.0
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|
|
$
|
9.3
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|
|
$
|
7.7
|
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|
$
|
(4.3
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)
|
|
$
|
1.6
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|
Research and development, grant
and other revenues
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
(0.2
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)
|
|
|
1.2
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|
License revenues from related party
|
|
|
2.8
|
|
|
|
2.8
|
|
|
|
2.8
|
|
|
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Total revenues
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|
$
|
8.9
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|
|
$
|
13.4
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|
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$
|
10.6
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|
$
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(4.5
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)
|
|
$
|
2.8
|
|
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|
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We recorded total revenues of $8.9 million,
$13.4 million and $10.6 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
Research and development revenues from related party refers to
revenues from our strategic partner, GSK, which is also a
stockholder of the Company. Research and development revenues
from GSK of $5.0 million for the year ended
December 31, 2005 consisted of $3.8 million for
reimbursement for FTEs, $500,000 for milestone revenues and
$700,000 for research expense funding. The
$500,000 milestone revenue received from GSK in 2005
related to the selection of a second mitotic kinesin development
candidate, GSK-923295, by GSK in the fourth quarter of 2005.
Research and development revenues from GSK of $9.3 million
for the year ended December 31, 2004 consisted of
$5.9 million for reimbursement of FTEs, $3.3 million
for milestone revenues and $100,000 for research expense
funding. The $3.3 million milestone revenue received from
GSK in 2004 consisted of $3.0 million for the initiation of
a Phase II clinical trials program for ispinesib and
$300,000 for selection of a new research and development target,
CENP-E. Research and development revenues from GSK of
$7.7 million for the year ended December 31, 2003
consisted of $7.0 million for reimbursement for FTEs,
$200,000 for milestone revenues and $500,000 for research
expense funding. The $200,000 milestone revenue received
from GSK in 2003 was earned on reaching the feasibility study
stage for two mitotic kinesin development targets.
The decrease in research and development revenues from GSK in
2005 compared with 2004 was primarily due to the
$3.0 million milestone payment in 2004 for the initiation
of the Phase II clinical trials program of ispinesib and a
decrease in reimbursements for FTEs in 2005 compared with 2004
of $2.1 million. The FTE decrease in 2005 was the result of
a contractually pre-defined change in FTE sponsorship by GSK.
The FTE sponsorship is determined annually by GSK and us in
accordance with the annual research plan and contractually
predefined FTE support levels. Research expense funding
increased by $600,000 in 2005 compared with 2004 and consisted
primarily of reimbursements for patent expenses by GSK.
The increase in research and development revenues from GSK in
2004 compared with 2003 was primarily due to the
$3.0 million payment in 2004 for the initiation of the
Phase II clinical trials program of ispinesib. This was
partly offset by a decrease of $1.1 million in
reimbursements for FTEs and a decrease of $400,000 in research
expense funding in 2004 compared with 2003.
59
Research and development, grant and other revenues of
$1.1 million for the year ended December 31, 2005
consisted entirely of reimbursement for FTEs from AstraZeneca
under our strategic alliance. Research and development, grant
and other revenues of $1.3 million for the year ended
December 31, 2004 consisted of $1.2 million for
reimbursement for FTEs from AstraZeneca and $100,000 of grant
revenue. Research and development, grant and other revenues of
$100,000 for the year ended December 31, 2003 represented
FTE reimbursement from AstraZeneca. FTE reimbursements from
AstraZeneca were higher in 2004 than in 2003 because 2004 was
the first full year of revenue recognition from that strategic
alliance.
License revenues from related party represents license revenue
from our strategic alliance with GSK. License revenue was
$2.8 million in each of the years ended December 31,
2005, 2004 and 2003. The license revenue is being amortized on a
straight line basis over the life of the agreement with GSK. As
of December 31, 2005, our remaining balance of deferred
revenue is $1.4 million, which we expect to fully amortize
in the first half of 2006.
We expect total revenues to be in the range of $4.0 million
to $5.0 million for the year ending December 31, 2006,
which reflects license revenue, the contractually agreed level
of FTE reimbursements from our strategic alliance partner and
other collaboration revenue.
Research
and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Years Ended
December 31,
|
|
|
(Decrease)
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Research and development expenses
|
|
$
|
40.6
|
|
|
$
|
39.9
|
|
|
$
|
34.2
|
|
|
$
|
0.7
|
|
|
$
|
5.7
|
|
Research and development expenses increased $700,000 to
$40.6 million in 2005 compared with $39.9 million in
2004, and increased $5.7 million to $39.9 million in
2004 compared with $34.2 million in 2003. The overall
increase in research and development expenses in 2005 over 2004
was primarily due to increased consulting and outsourced
services, particularly preclinical and clinical services of
$1.2 million, partially offset by a decrease in stock-based
compensation expense for employees and non-employees of $400,000
and lab consumables of $100,000. The increase in research and
development expenses in 2004 compared with 2003 was primarily
due to increased contract and outside services of
$3.8 million and higher salary and benefit costs of
$1.9 million resulting from the hiring of additional
research and development personnel and employee bonuses.
From a program perspective, the increased research and
development spending in 2005 was primarily due to the
advancement of our oncology and cardiovascular programs,
partially offset by decreased spending on proprietary
technologies and early research programs. For the years ended
December 31, 2005, 2004 and 2003, costs of approximately
$8.6 million, $6.9 million and $6.7 million,
respectively, were incurred for research and development
activities relating to the discovery of mitotic kinesin
inhibitors, of which GSK reimbursed, and we recorded as related
party revenue, $4.5 million in 2005, $6.1 million in
2004 and $7.5 million in 2003. During the years ended
December 31, 2005, 2004 and 2003, costs of approximately
$19.6 million, $14.7 million and $11.5 million,
respectively, were incurred for research and development
activities relating to our heart failure research program; costs
of $6.4 million, $9.0 million and $8.7 million,
respectively, were incurred for our proprietary technologies;
and costs of $6.0 million, $9.3 million and
$7.3 million, respectively, were incurred for all other
research programs.
Clinical timelines, likelihood of success and total completion
costs vary significantly for each drug candidate and are
difficult to estimate. We expect to make determinations as to
which 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 require the expenditure
of substantial resources. Any failure by us to obtain, or any
delay in obtaining, regulatory approvals could cause our
research and development expenditures to increase and, in turn,
have a material adverse effect on our results of operations.
We expect research and development expenditures to increase in
2006. We intend to initiate a clinical trial in 2006 for
SB-743921 for non-Hodgkins lymphoma. Additionally, we
expect to advance research and development of our cardiovascular
program and will continue clinical trials in 2006 for our
cardiac myosin activator drug
60
candidate CK-1827452. We expect research and development
expenses to be in the range of $67.0 million to
$71.0 million for the year ending December 31, 2006.
General
and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Increase
|
|
|
|
December 31,
|
|
|
(Decrease)
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
General and administrative
|
|
$
|
13.0
|
|
|
$
|
12.0
|
|
|
$
|
9.0
|
|
|
$
|
1.0
|
|
|
$
|
3.0
|
|
General and administrative expenses increased $1.0 million
in 2005 compared with 2004, and increased $3.0 million in
2004 compared with 2003. The increase in general and
administrative expenses in 2005 compared with 2004 was primarily
due to increased outside services of $600,000, increased legal
expenses, including patent costs, of $200,000 and increased
general business expenses of almost $200,000. Other outside
services included certain marketing and public relations costs,
accounting and audit fees, including costs related to our
Sarbanes-Oxley section 404 compliance initiative,
facilities outsourcing services and other consulting services.
The increase in general and administrative expenses in 2004
compared with 2003 was primarily due to increased salary and
benefit costs of $1.3 million resulting from the hiring of
additional general and administrative personnel, increased legal
expenses of $900,000 and higher other outside services of
$700,000.
We expect that general and administrative expenses will continue
to increase during 2006 due to increasing payroll-related
expenses in support of our initial commercialization efforts,
business development costs, expanding operational
infrastructure, and other costs associated with being a public
company. We expect general and administrative expenses to be in
the range of $18.0 million to $20.0 million for the
year ending December 31, 2006.
Interest
and Other Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Increase
|
|
|
|
December 31,
|
|
|
(Decrease)
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Interest and other income
|
|
$
|
2.9
|
|
|
$
|
1.8
|
|
|
$
|
0.9
|
|
|
$
|
1.1
|
|
|
$
|
0.9
|
|
Interest and other expense
|
|
$
|
(0.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
|
|
|
$
|
(0.5
|
)
|
Interest and other income was $2.9 million for the year
ended December 31, 2005 compared with $1.8 million and
$900,000 for the years ended December 31, 2004 and 2003,
respectively. The $1.1 million increase in interest and
other income in 2005 compared with 2004 was primarily due to
higher interest income on our cash, cash equivalents and
short-term investments. The increase in interest income in 2005
compared with 2004 was primarily due to increased investment
yields resulting from higher market interest rates earned on our
invested cash. The increase in interest and other income of
$900,000 in 2004 compared with 2003 was primarily due to higher
average balances of cash and investments resulting from proceeds
from the initial public offering and sale of common stock to
GSK, and to a lesser degree, higher yields.
Interest and other expense was $500,000 for each of the years
ended December 31, 2005 and 2004 and $1.0 million for
the year ended December 31, 2003. The total balances
outstanding under our equipment financing lines were
$9.4 million and $10.5 million as of December 31,
2005 and 2004, respectively. The $500,000 decrease in interest
and other expense in 2004 compared with 2003 was primarily
attributable to lower interest expense resulting from the
restructuring of the equipment financing lines.
Liquidity
and Capital Resources
From August 5, 1997, our date of inception, through
December 31, 2005, 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 totaled
$76.2 million at December 31, 2005, a decrease of
$34.1 million compared with $110.3 million at
December 31, 2004. The decrease was primarily due to the
use of proceeds from investment maturities to fund operations.
61
In April 2004, we sold 7,935,000 shares of common stock in
our initial public offering, including shares that were issued
upon the full exercise by the underwriters of their
over-allotment option, at $13.00 per share for aggregate
gross proceeds of $103.2 million. In connection with this
offering, we paid underwriters commissions of
$7.2 million and incurred offering expenses of
$2.0 million. After deducting the underwriters
commissions and the offering expenses, we received net proceeds
of approximately $94.0 million from the offering. In
addition, pursuant to an agreement with an affiliate of GSK, we
sold 538,461 shares of our common stock to GSK immediately
prior to the closing of the initial public offering at a
purchase price of $13.00 per share, for a total of
approximately $7.0 million in net proceeds. In the fourth
quarter of 2005, we entered into the CEFF with Kingsbridge and
received gross proceeds of $5.7 million from the draw down
and sale of 887,576 shares of common stock. In connection
with the CEFF, we paid legal fees and other offering costs of
$178,000. In January 2006, we received proceeds of
$4.9 million from the draw down and sale of
833,537 shares of common stock to Kingsbridge.
In January 2006, we sold 5,000,000 shares of our common
stock to certain institutional investors at a price of
$6.60 per share, for gross offering proceeds of
$33.0 million and net offering proceeds of approximately
$31.9 million. (See Note 13, Subsequent
Events, in the accompanying Notes to the Financial
Statements.)
As of December 31, 2005, we have received
$51.2 million in non-equity payments from GSK. We received
$1.3 million, $2.5 million and $2.0 million under
equipment financing arrangements in 2005, 2004 and 2003,
respectively. Interest earned on investments, excluding non-cash
amortization of purchase premiums, in the years ending
December 31, 2005, 2004 and 2003 was $3.8 million,
$3.4 million and $2.4 million, respectively.
Net cash used in operating activities was $39.5 million,
$34.0 million and $30.7 million for the years ended
December 31, 2005, 2004 and 2003, respectively, and was
primarily due to the Companys net losses of
$42.3 million, $37.2 million and $32.7 million,
respectively.
Deferred revenue decreased from $4.2 million at
December 31, 2004 to $1.4 million at December 31,
2005 as we continue to recognize revenue from the upfront
licensing fee from GSK on a ratable basis over the term of the
agreement. We recognized $2.8 million in license revenue in
each of the years ended December 31, 2005, 2004 and 2003.
Net cash provided by investing activities of $34.5 million
for the year ended December 31, 2005 was primarily related
to net proceeds from sales and maturities of investments, net of
$1.5 million of property and equipment purchases. Net cash
used in investing activities of $65.5 million and
$15.1 million for the years ended December 31, 2004
and 2003, respectively, was primarily due to purchases of
investments and, to a lesser extent, to purchases of property
and equipment.
Restricted cash totaled $5.2 million, $6.0 million and
$7.2 million at December 31, 2005, 2004, and 2003,
respectively. The balance decreased in 2005 as the balance
outstanding under our equipment financing line of credit
decreased and our lender reduced its required security deposit.
The balance of restricted cash decreased in 2004 primarily due
to the lender for our equipment financing line of credit
lowering the security deposit as of December 2004.
Net cash provided by financing activities was $5.4 million,
$102.3 million and $40.2 million for the years ended
December 31, 2005, 2004 and 2003, respectively. Net cash
provided by financing activities in 2005 was primarily due to
net proceeds from draw down of our CEFF of $5.5 million and
proceeds of almost $1.1 million from the issuance of common
stock associated with our employee stock plans, partially offset
by an overall decrease in our equipment financing line of
$1.1 million. Net cash provided by financing activities in
2004 was primarily due to our initial public offering and sale
of common stock to GSK. Net cash provided by financing
activities in 2003 was primarily due to the sale of preferred
stock, which generated $39.9 million.
62
As of December 31, 2005, 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
|
|
$
|
2,415
|
|
|
$
|
5,641
|
|
|
$
|
5,655
|
|
|
$
|
5,679
|
|
|
$
|
19,390
|
|
Equipment financing line
|
|
|
2,726
|
|
|
|
5,668
|
|
|
|
959
|
|
|
|
9
|
|
|
|
9,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,141
|
|
|
$
|
11,309
|
|
|
$
|
6,614
|
|
|
$
|
5,688
|
|
|
$
|
28,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 agreement with Portola
Pharmaceuticals, Inc., or Portola, we are obligated to reimburse
Portola for certain equipment costs incurred by Portola in
connection with research and related services that Portola
provides to us. These costs were incurred commencing when the
equipment became available for use in the second quarter of 2005
through the expiration date of the agreement, December 31,
2005. Our payments to Portola for such equipment costs, totaling
$285,000, are scheduled to be made in eight quarterly
installments commencing in the first quarter of 2006 and
continuing through the fourth quarter of 2007.
We expect to incur substantial costs as we continue to expand
our research programs and related research and development
activities. Under the terms of our strategic alliance with GSK,
we have options to co-fund certain later-stage development
activities for ispinesib and GSK-923295. We also plan to conduct
development of SB-743921 for non-Hodgkins lymphoma,
Hodgkins lymphoma and multiple myeloma. In addition, we
have committed to co-fund certain later-stage development
activities for SB-743921 for cancer indications outside of these
hematologic cancer indications. This commitment and the
potential exercise of any of our co-funding options will result
in a significant increase in research and development expenses.
We expect to determine whether and to what extent we will
exercise our co-funding options based on clinical results and
our business, finances and prospects at the time we receive the
Phase II clinical trial results for each drug candidate
under our strategic alliance with GSK. Research and development
expenses for our unpartnered drug discovery programs consist
primarily of employee compensation, supplies and materials,
costs for consultants and contract research and development,
facilities costs and depreciation of equipment. We expect to
incur significant research and development expenses as we
advance the research and development of our cardiac myosin
activators for the treatment of heart failure, continue human
clinical trials of CK-1827452 in 2006, pursue our other early
stage research programs in multiple therapeutic areas, and
develop our
PUMAtm
system,
Cytometrix®
technologies and other proprietary drug discovery technologies.
Our future capital uses and requirements depend on numerous
forward-looking 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;
|
|
|
|
GSKs decisions with regard to continued funding of
development of our drug candidates;
|
|
|
|
our level of funding for other current or future drug
candidates, including CK-1827452 for the treatment of heart
failure;
|
|
|
|
our level of funding for SB-743921 for the treatment of
non-Hodgkins lymphoma, Hodgkins lymphoma and
multiple myeloma;
|
|
|
|
our options to co-fund the development of ispinesib and
GSK-923295;
|
|
|
|
our level of co-funding for the development of SB-743921 for
cancer indications other than Hodgkins lymphoma,
non-Hodgkins lymphoma and multiple myeloma;
|
|
|
|
the number of drug candidates we pursue;
|
63
|
|
|
|
|
the costs involved in filing and prosecuting patent applications
and enforcing or defending patent claims;
|
|
|
|
our ability to establish, enforce and maintain selected
strategic alliances and activities required for
commercialization of our potential drugs;
|
|
|
|
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, proceeds
from our January 2006 offering of common stock, future payments
from GSK, interest earned on investments, proceeds from
equipment financings and the potential proceeds from the CEFF
will be sufficient to meet our projected operating requirements
for at least the next 12 months. If, at any time, our
prospects for internally financing our research and development
programs decline, we may decide to reduce research and
development expenses by delaying, discontinuing or reducing our
funding of development of one or more of our drug candidates or
potential drug candidates. Alternatively, we might raise funds
through public or private financings, strategic relationships or
other arrangements. We cannot assure you that the 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 co-development arrangements may require us to forego
certain commercial rights to future 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, 2005, 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 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.
64
Revenue
Recognition
We recognize revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin, or SAB, No. 104,
Revenue Recognition. SAB No. 104 requires
that basic 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 and determinable; and collectibility 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 our judgments regarding the
fixed nature of the fee charged for research performed and
milestones met, and the collectibility of those fees. Should
changes in conditions cause us to determine these criteria have
not been met for certain future transactions, revenue recognized
for any reporting period could be adversely affected.
Research and development revenues, which are earned under
agreements with third parties for contract research and
development activities, are recorded as the related expenses are
incurred. Charges to the third parties are based upon negotiated
rates for our FTEs and actual
out-of-pocket
costs. Rates for FTEs are intended to approximate our
anticipated costs. Milestone payments are non-refundable and
recognized as revenue when earned, as evidenced by achievement
of the specified milestones and the absence of ongoing
performance obligations. 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.
Grant revenues are recorded as research is performed. Grant
revenues are not refundable.
License revenues received in connection with strategic alliance
agreements are deferred and recognized on a straight-line basis
over the term of the agreement.
Stock-Based
Compensation
We account for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board,
or APB, Opinion No. 25, Accounting for Stock Issued
to Employees, or APB 25, and SFAS No. 123,
Accounting for Stock-Based Compensation and comply
with the disclosure requirements of SFAS No. 148,
Accounting for Stock-Based
Compensation Transition and Disclosure: an
Amendment of FASB Statement No. 123. Under
APB 25, compensation expense is based on the difference, if
any, on the date of grant, between the estimated fair value of
our common stock and the exercise price. SFAS No. 123
defines a fair value based method of accounting for
an employee stock option or similar equity investment.
We account for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and
Emerging Issues Task Force, or 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.
Effective for the quarter ending March 31, 2006, we will
adopt SFAS No. 123R (see Recent Accounting
Pronouncements below). Under SFAS No. 123R, we
will be required to recognize an expense for share-based payment
arrangements including stock options and employee stock purchase
plans.
Deferred
Tax Valuation Allowance
We record the estimated future tax effects of temporary
differences between the tax bases of assets and liabilities and
amounts reported in the financial statements, as well as
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.
Recent
Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 123R, Share-Based
Payment, which replaces SFAS No. 123.
SFAS No. 123R requires public companies to recognize
an expense for share-based payment arrangements including stock
options and employee stock purchase plans. The statement
eliminates a companys ability to account for share-based
compensation transactions using APB No. 25, and
65
generally requires instead that such transactions be accounted
for using a fair-value based method. SFAS No. 123R
requires an entity to measure the cost of employee services
received in exchange for an award of equity instruments based on
the fair value of the award on the date of grant, and to
recognize the cost over the period during which the employee is
required to provide service in exchange for the award. In
January 2005, the SEC issued SAB No. 107, which
provides supplemental implementation guidance for
SFAS No. 123R. We are required to adopt
SFAS No. 123R in the first quarter of 2006. We plan to
elect the modified-prospective-transition method, as provided by
SFAS No. 123R. Accordingly, prior period amounts will
not be restated. Under this transition method, we are required
to record compensation expense for all awards granted after the
date of adoption using grant-date fair value estimated in
accordance with the provisions of SFAS No. 123R and
for the unvested portion of previously granted awards as of
January 1, 2006 using the grant-date fair value estimated
in accordance with the provisions of SFAS No. 123. Our
estimate of stock-based compensation expense is affected by our
assumptions regarding a number of input variables to the
valuation model, including but not limited to, our stock price,
volatility and employee stock option exercise behaviors.
Although the adoption of SFAS No. 123R is expected to
have a material effect on our results of operations, future
changes to the assumptions used to determine the fair-value of
awards issued or the amount and type of equity awards granted
create uncertainty as to whether future stock-based compensation
expense will be similar to the previously disclosed
SFAS No. 123 pro forma expense.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error
Corrections A Replacement of APB Opinion
No. 20 and FASB Statement No. 3.
SFAS No. 154 replaces APB Opinion No. 20,
Accounting Changes, or APB 20, and FASB
Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements, and changes the requirements
for the accounting for and reporting of a change in accounting
principle. APB 20 previously required that most voluntary
changes in accounting principle be recognized by including in
net income of the period of the change the cumulative effect of
changing to the new accounting principle. SFAS No. 154
requires retrospective application to prior periods
financial statements for voluntary changes in accounting
principle. SFAS No. 154 is effective for accounting
changes and corrections of errors made subsequent to
January 1, 2006. The impact of SFAS No. 154 will
depend on the accounting change, if any, in a future period.
In June 2005, the EITF reached a consensus on EITF Issue
No. 05-6,
Determining the Amortization Period for Leasehold
Improvements Purchased After Lease Inception or Acquired in a
Business Combination, or EITF
No. 05-6.
EITF
No. 05-6
requires that leasehold improvements acquired in a business
combination or purchased subsequent to inception of a lease be
amortized over the shorter of the useful life of the assets or a
term that includes required lease periods and renewals deemed to
be reasonably assured at the date of acquisition. The
requirements of EITF
No. 05-6
are effective for any future leasehold improvements that we
purchase or acquire.
In November 2005, the FASB issued FASB Staff Position Nos.
FAS 115-1
and
FAS 124-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments, or
FSP
FAS 115-1,
which provides guidance on determining when investments in
certain debt and equity securities are considered impaired,
determining whether that impairment is
other-than-temporary,
and measuring such impairment loss. FSP
FAS 115-1
also includes accounting considerations subsequent to the
recognition of an other-than temporary impairment and requires
certain disclosures about unrealized losses that have not been
recognized as
other-than-temporary
impairments. FSP
FAS 115-1
is required to be applied to reporting periods beginning after
December 15, 2005. We are required to adopt FSP
FAS 115-1
in the first quarter of fiscal 2006. We do not expect that the
adoption of the statement will have a material impact on our
consolidated results or financial condition.
66
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risks
|
Interest
Rate Sensitivity
Our exposure to market risk is limited to interest rate
sensitivity, which is affected by changes in the general level
of United States 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. 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 United States government
and agency securities, high grade municipal and United States
corporate bonds, commercial paper, certificates of deposit and
money market funds. Our investment portfolio is subject to
interest rate risk, and will fall in value if market interest
rates increase. 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 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 and equipment financing lines (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Total
|
|
|
2005
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short- and long-term investments
|
|
$
|
62,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,697
|
|
|
$
|
62,697
|
|
Average interest rate
|
|
|
4.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.19
|
%
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment financing lines
|
|
$
|
2,726
|
|
|
$
|
2,857
|
|
|
$
|
2,811
|
|
|
$
|
694
|
|
|
$
|
265
|
|
|
$
|
9
|
|
|
$
|
9,362
|
|
|
$
|
9,100
|
|
Average interest rate
|
|
|
4.44
|
%
|
|
|
4.45
|
%
|
|
|
4.46
|
%
|
|
|
5.00
|
%
|
|
|
5.26
|
%
|
|
|
5.50
|
%
|
|
|
4.39
|
%
|
|
|
|
|
67
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
68
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cytokinetics, Incorporated:
We have completed an integrated audit of Cytokinetics,
Incorporateds 2005 financial statements and of its
internal control over financial reporting as of
December 31, 2005 and audits of its 2004 and 2003 financial
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Financial
statements
In our opinion, the accompanying balance sheets and the related
statements of operations, stockholders equity (deficit)
and cash flows present fairly, in all material respects, the
financial position of Cytokinetics, Incorporated at
December 31, 2005 and 2004, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2005, and cumulatively, for the
period from August 5, 1997 (date of inception) to
December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes 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. We believe that our
audits provide a reasonable basis for our opinion.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
the accompanying Managements Report on Internal Control
over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial
reporting as of December 31, 2005 based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly
stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2005, based on criteria
established in Internal Control Integrated
Framework issued by the COSO. The Companys management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on
the effectiveness of the Companys internal control over
financial reporting based on our audit. We conducted our audit
of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides 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
69
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, California
March 8, 2006
70
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except share and
per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,515
|
|
|
$
|
13,061
|
|
Short-term investments
|
|
|
62,697
|
|
|
|
92,637
|
|
Related party accounts receivable
|
|
|
576
|
|
|
|
53
|
|
Related party notes
receivable short-term portion
|
|
|
151
|
|
|
|
713
|
|
Prepaid and other current assets
|
|
|
1,925
|
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
78,864
|
|
|
|
109,067
|
|
Long-term investments
|
|
|
|
|
|
|
4,555
|
|
Property and equipment, net
|
|
|
6,178
|
|
|
|
7,336
|
|
Related party notes receivable
|
|
|
451
|
|
|
|
387
|
|
Restricted cash
|
|
|
5,172
|
|
|
|
5,980
|
|
Other assets
|
|
|
796
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
91,461
|
|
|
$
|
128,101
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,352
|
|
|
$
|
2,059
|
|
Accrued liabilities
|
|
|
4,137
|
|
|
|
3,697
|
|
Related party payables and accrued
liabilities
|
|
|
649
|
|
|
|
96
|
|
Short-term portion of equipment
financing lines
|
|
|
2,726
|
|
|
|
2,387
|
|
Short-term portion of deferred
revenue
|
|
|
1,400
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,264
|
|
|
|
11,039
|
|
Long-term portion of equipment
financing lines
|
|
|
6,636
|
|
|
|
8,106
|
|
Long-term portion of deferred
revenue
|
|
|
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
17,900
|
|
|
|
20,545
|
|
|
|
|
|
|
|
|
|
|
Commitments (Note 8)
|
|
|
|
|
|
|
|
|
Convertible preferred stock,
$0.001 par value:
|
|
|
|
|
|
|
|
|
Authorized: 10,000,000 shares
|
|
|
|
|
|
|
|
|
Issued and outstanding: None in
2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par
value:
|
|
|
|
|
|
|
|
|
Authorized: 120,000,000 shares
|
|
|
|
|
|
|
|
|
Issued and outstanding:
29,710,895 shares in 2005 and 28,453,173 shares in 2004
|
|
|
30
|
|
|
|
28
|
|
Additional paid-in capital
|
|
|
249,521
|
|
|
|
243,239
|
|
Deferred stock-based compensation
|
|
|
(2,452
|
)
|
|
|
(4,251
|
)
|
Accumulated other comprehensive
loss
|
|
|
(14
|
)
|
|
|
(188
|
)
|
Deficit accumulated during the
development stage
|
|
|
(173,524
|
)
|
|
|
(131,272
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
73,561
|
|
|
|
107,556
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible
preferred stock and stockholders equity
|
|
$
|
91,461
|
|
|
$
|
128,101
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
71
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
August 5, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception) to
|
|
|
|
Years Ended
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
|
(In thousands, except per share
data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenues
from related party
|
|
$
|
4,978
|
|
|
$
|
9,338
|
|
|
$
|
7,692
|
|
|
$
|
37,242
|
|
Research and development, grant
and other revenues
|
|
|
1,134
|
|
|
|
1,304
|
|
|
|
85
|
|
|
|
2,951
|
|
License revenues from related party
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
12,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
8,912
|
|
|
|
13,442
|
|
|
|
10,577
|
|
|
|
52,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
40,570
|
|
|
|
39,885
|
|
|
|
34,195
|
|
|
|
180,875
|
|
General and administrative(1)
|
|
|
12,975
|
|
|
|
11,991
|
|
|
|
8,972
|
|
|
|
53,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
53,545
|
|
|
|
51,876
|
|
|
|
43,167
|
|
|
|
234,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(44,633
|
)
|
|
|
(38,434
|
)
|
|
|
(32,590
|
)
|
|
|
(181,581
|
)
|
Interest and other income, net
|
|
|
2,916
|
|
|
|
1,785
|
|
|
|
903
|
|
|
|
11,705
|
|
Interest and other expense
|
|
|
(535
|
)
|
|
|
(549
|
)
|
|
|
(998
|
)
|
|
|
(3,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(42,252
|
)
|
|
$
|
(37,198
|
)
|
|
$
|
(32,685
|
)
|
|
$
|
(173,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common
share basic and diluted
|
|
$
|
(1.48
|
)
|
|
$
|
(1.88
|
)
|
|
$
|
(17.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
used in computing net loss per common
share basic and diluted
|
|
|
28,582
|
|
|
|
19,779
|
|
|
|
1,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes the
following stock-based compensation charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
$
|
790
|
|
|
$
|
1,150
|
|
|
$
|
609
|
|
|
$
|
2,848
|
|
General and
administrative
|
|
|
637
|
|
|
|
726
|
|
|
|
317
|
|
|
|
1,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,427
|
|
|
$
|
1,876
|
|
|
$
|
926
|
|
|
$
|
4,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
72
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
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)
|
|
|
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
|
)
|
73
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $4.25 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005
|
|
|
29,710,895
|
|
|
$
|
30
|
|
|
$
|
249,521
|
|
|
$
|
(2,452
|
)
|
|
$
|
(14
|
)
|
|
$
|
(173,524
|
)
|
|
$
|
73,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
75
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
August 5, 1997
|
|
|
|
Years Ended
December 31,
|
|
|
(Date of Inception) to
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
December 31, 2005
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(42,252
|
)
|
|
$
|
(37,198
|
)
|
|
$
|
(32,685
|
)
|
|
$
|
(173,524
|
)
|
Adjustments to reconcile net loss
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of
property and equipment
|
|
|
3,062
|
|
|
|
3,276
|
|
|
|
3,181
|
|
|
|
15,233
|
|
Loss on disposal of equipment
|
|
|
25
|
|
|
|
14
|
|
|
|
224
|
|
|
|
342
|
|
Gain on sale of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
Non-cash expense related to
warrants issued for equipment financing lines and facility lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
Non-cash interest expense
|
|
|
92
|
|
|
|
92
|
|
|
|
59
|
|
|
|
243
|
|
Non-cash compensation expense for
acceleration of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Non-cash forgiveness of loan to
officer
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
146
|
|
Stock-based compensation
|
|
|
1,427
|
|
|
|
1,876
|
|
|
|
926
|
|
|
|
4,552
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
74
|
|
|
|
(66
|
)
|
|
|
|
|
Related party accounts receivable
|
|
|
(544
|
)
|
|
|
136
|
|
|
|
(181
|
)
|
|
|
(875
|
)
|
Prepaid and other assets
|
|
|
565
|
|
|
|
(408
|
)
|
|
|
(362
|
)
|
|
|
(2,489
|
)
|
Accounts payable
|
|
|
(191
|
)
|
|
|
113
|
|
|
|
498
|
|
|
|
1,512
|
|
Accrued liabilities
|
|
|
519
|
|
|
|
697
|
|
|
|
819
|
|
|
|
4,097
|
|
Related party payables and accrued
liabilities
|
|
|
553
|
|
|
|
96
|
|
|
|
|
|
|
|
650
|
|
Deferred revenue
|
|
|
(2,800
|
)
|
|
|
(2,800
|
)
|
|
|
(3,110
|
)
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(39,484
|
)
|
|
|
(34,032
|
)
|
|
|
(30,697
|
)
|
|
|
(148,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(89,326
|
)
|
|
|
(189,451
|
)
|
|
|
(54,971
|
)
|
|
|
(450,158
|
)
|
Proceeds from sales and maturities
of investments
|
|
|
123,995
|
|
|
|
124,230
|
|
|
|
36,995
|
|
|
|
387,532
|
|
Purchases of property and equipment
|
|
|
(1,465
|
)
|
|
|
(1,400
|
)
|
|
|
(3,051
|
)
|
|
|
(20,959
|
)
|
Proceeds from sale of property and
equipment
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
(Increase) decrease in restricted
cash
|
|
|
808
|
|
|
|
1,069
|
|
|
|
5,907
|
|
|
|
(5,172
|
)
|
Issuance of related party notes
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,146
|
)
|
Proceeds from repayments of notes
receivable
|
|
|
460
|
|
|
|
46
|
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
34,492
|
|
|
|
(65,506
|
)
|
|
|
(15,120
|
)
|
|
|
(89,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public
offering, net of issuance costs
|
|
|
|
|
|
|
94,004
|
|
|
|
|
|
|
|
94,004
|
|
Proceeds from sale of common stock
to related party
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
|
7,000
|
|
Proceeds from draw down of
Committed Equity Financing Facility, net of issuance costs
|
|
|
5,547
|
|
|
|
|
|
|
|
|
|
|
|
5,547
|
|
Proceeds from other issuances of
common stock
|
|
|
1,054
|
|
|
|
927
|
|
|
|
310
|
|
|
|
2,868
|
|
Proceeds from issuance of preferred
stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
39,868
|
|
|
|
133,172
|
|
Repurchase of common stock
|
|
|
(25
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
(66
|
)
|
Proceeds from equipment financing
lines
|
|
|
1,280
|
|
|
|
2,523
|
|
|
|
1,971
|
|
|
|
17,607
|
|
Repayment of equipment financing
lines
|
|
|
(2,410
|
)
|
|
|
(2,113
|
)
|
|
|
(1,913
|
)
|
|
|
(8,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
5,446
|
|
|
|
102,321
|
|
|
|
40,236
|
|
|
|
251,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
454
|
|
|
|
2,783
|
|
|
|
(5,581
|
)
|
|
|
13,515
|
|
Cash and cash equivalents,
beginning of period
|
|
|
13,061
|
|
|
|
10,278
|
|
|
|
15,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
13,515
|
|
|
$
|
13,061
|
|
|
$
|
10,278
|
|
|
$
|
13,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
76
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 to
discover, develop and commercialize novel small molecule drugs
specifically targeting the cytoskeleton. The Company is a
development stage enterprise and has been primarily engaged in
conducting research, developing drug candidates and product
technologies, and raising capital.
The Company has funded its operations primarily through sales of
common stock and convertible preferred stock, contract payments
under its collaboration agreements, debt financing arrangements,
government grants and interest income. 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 was declared effective by the Securities and Exchange
Commission on April 29, 2004. The Companys common
stock commenced trading on the Nasdaq National Market on
April 29, 2004 under the trading symbol CYTK.
Prior to achieving profitable operations, the Company intends to
fund operations through the additional sale of equity
securities, payments from strategic collaborations, government
grant awards and debt financing.
Use of
Estimates and Reclassifications
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Certain reclassifications of prior period amounts have been made
to our financial statements to conform with current period
presentation.
Concentration
of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to
concentrations of risk consist principally of cash and cash
equivalents, investments and accounts receivable. The
Companys cash, cash equivalents and investments are
invested in deposits with three major banks in the United
States. Deposits in these banks may exceed the amount of
insurance provided on such deposits. The Company has not
experienced any losses on its deposits of cash, cash equivalents
or investments.
The Company performs an ongoing credit evaluation of its
strategic partners financial conditions and generally does
not require collateral to secure accounts receivable from its
strategic partners. The Companys exposure to credit risk
associated with non-payment is affected principally by
conditions or occurrences within GlaxoSmithKline, or GSK, its
primary strategic partner. The Company historically has not
experienced significant losses relating to accounts receivable
from GSK. Approximately 87% of revenues for the year ended
December 31, 2005, 90% of revenues for the year ended
December 31, 2004 and 99% of revenues for the year ended
December 31, 2003 were derived from GSK. Accounts
receivable from GSK totaled $569,000 at December 31, 2005
and $27,000 at December 31, 2004 and were included in
related party accounts receivable. The five year research term
of the strategic alliance expires on June 20, 2006, unless
GSK agrees to extend the research term.
Drug candidates developed by the Company may require approvals
or clearances from the Food and Drug Administration
(FDA) or other international regulatory agencies
prior to commercialized sales. There can be no
77
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
assurance that the Companys drug candidates will receive
any of the required approvals or clearances. If the Company were
to be denied approval or clearance or any such approval or
clearance were to be delayed, it may have a material adverse
impact on the Company.
The Companys operations and employees are located in the
United States. In the years ended December 31, 2005, 2004
and 2003, all of the Companys revenues were received from
entities located in the United States or from United States
affiliates of foreign corporations.
Cash
and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less at the time of purchase to be
cash equivalents.
Investments
The Company invests in US corporate, municipal and government
agency bonds, commercial paper and certificates of deposit. The
maturities of the investments range from three months to three
years, with the exception of variable rate obligations as
discussed below. The Company has classified its investments as
available-for-sale
and, accordingly, carries such amounts at fair value. Unrealized
gains and losses are included in accumulated other comprehensive
income (loss) in stockholders equity until realized.
Realized gains and losses on sales of all such securities are
reported in earnings and computed using the specific
identification cost method. Realized gains or losses and charges
for
other-than-temporary
declines in value, if any, on
available-for-sale
securities are reported in other income or expense as incurred.
The Company periodically evaluates these investments for
other-than-temporary
impairment.
The Company invests in investment grade variable rate municipal
debt obligations. The variable interest rates of these
asset-backed securities typically reset every 28 days.
Despite the long-term nature of the stated contractual
maturities of these securities, the Company has the ability to
quickly liquidate them. Accordingly, the securities are
classified as short-term
available-for-sale
investments and are recorded at fair value. The balance of these
investments was $55.7 million at December 31, 2005 and
$35.6 million at December 31, 2004. Due to the
resetting variable rates of these securities, their fair value
generally approximates cost. There were no realized gains or
losses from these investments during the year ended
December 31, 2005 or 2004, and no cumulative unrealized
gain or loss at December 31, 2005 or 2004. All income
generated from these investments was recorded as interest income.
All other
available-for-sale
investments are classified as short- or long-term investments
according to their contractual maturities.
Restricted
Cash
In accordance with the terms of the Companys line of
credit agreement with GE Capital, the Company is obligated to
maintain a certificate of deposit with the lender. The balance
of the certificate of deposit was $5.2 million and
6.0 million at December 31, 2005 and 2004,
respectively, and was classified as restricted cash.
Fair
Value of Financial Instruments
For financial instruments consisting of cash and cash
equivalents, accounts receivable, accounts payable and accrued
liabilities included in the Companys financial statements,
the carrying amounts are reasonable estimates of fair value due
to their short maturities. Estimated fair values for marketable
securities, which are separately disclosed in
Note 3 Investments, are based on quoted
market prices for the same or similar instruments. Based on
borrowing rates currently available to the Company, the carrying
value of the equipment financing lines approximates fair value.
78
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the
related assets, which are generally three years for computer
equipment and software, five years for laboratory equipment and
office equipment, and seven years for furniture and fixtures.
Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the remaining lease
term or the estimated useful life of the related assets,
typically five years. Upon sale or retirement of assets, the
costs and related accumulated depreciation and amortization are
removed from the balance sheet and the resulting gain or loss is
reflected in operations. Maintenance and repairs are charged to
operations as incurred.
Impairment
of Long-lived Assets
In accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-lived
Assets, the Company reviews long-lived assets, including
property and equipment, for impairment whenever events or
changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. Under
SFAS No. 144, an impairment loss would be recognized
when estimated undiscounted future cash flows expected to result
from the use of the asset and its eventual disposition is less
than its carrying amount. Impairment, if any, is measured as the
amount by which the carrying amount of a long-lived asset
exceeds its fair value. Through December 31, 2005, there
have been no such impairments.
Revenue
Recognition
The Company recognizes revenue in accordance with Securities and
Exchange Commission Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition.
SAB No. 104 requires that basic 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 and determinable; and collectibility
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
collectibility 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.
Research and development revenues, which are earned under
agreements with third parties for contract research and
development activities, are recorded as the related expenses are
incurred. Charges to the third parties are based upon negotiated
rates for full time equivalent employees of the Company and
actual
out-of-pocket
costs. Rates for full time equivalent employees are intended to
approximate the Companys anticipated costs. Milestone
payments are non-refundable and recognized as revenue when
earned, as evidenced by achievement of the specified milestones
and the absence of ongoing performance obligations. 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.
Grant revenues are recorded as research is performed. Grant
revenues are not refundable.
License revenues received in connection with strategic alliance
agreements are deferred and recognized on a straight-line basis
over the term of the agreement.
Research
and Development Expenditures
Research and development costs are charged to operations as
incurred.
79
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Retirement
Plan
The Company sponsors a 401(k) defined contribution plan covering
all employees. There have been no employer contributions to the
plan since inception.
Income
Taxes
The Company accounts for income taxes under the liability
method. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial
statement and tax bases 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.
Segment
Reporting
We have determined that we operate in only one segment.
Net
Loss Per Common Share
Basic net loss per common share is computed by dividing net loss
by the weighted average number of vested common shares
outstanding during the period. Diluted net loss per common share
is computed by giving effect to all potential dilutive common
shares, including outstanding options, common stock subject to
repurchase, warrants and convertible preferred stock. A
reconciliation of the numerator and denominator used in the
calculation of basic and diluted net loss per common share
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(42,252
|
)
|
|
$
|
(37,198
|
)
|
|
$
|
(32,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares outstanding
|
|
|
28,648
|
|
|
|
19,966
|
|
|
|
1,980
|
|
Less: Weighted-average shares
subject to repurchase
|
|
|
(66
|
)
|
|
|
(187
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares used in computing basic and diluted net loss per share
|
|
|
28,582
|
|
|
|
19,779
|
|
|
|
1,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following outstanding options, common stock subject to
repurchase, warrants and convertible preferred stock were
excluded from the computation of diluted net loss per common
share for the periods presented because including them would
have had an antidilutive effect (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Options to purchase common stock
|
|
|
3,282
|
|
|
|
2,645
|
|
|
|
2,244
|
|
Common stock subject to repurchase
|
|
|
34
|
|
|
|
120
|
|
|
|
144
|
|
Warrants to purchase common stock
|
|
|
294
|
|
|
|
70
|
|
|
|
100
|
|
Shares issuable related to the ESPP
|
|
|
41
|
|
|
|
47
|
|
|
|
|
|
Warrants to purchase convertible
preferred stock (as if converted)
|
|
|
|
|
|
|
|
|
|
|
91
|
|
Convertible preferred stock (as if
converted)
|
|
|
|
|
|
|
|
|
|
|
17,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares
|
|
|
3,651
|
|
|
|
2,882
|
|
|
|
19,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Stock-based
Compensation
The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and
SFAS No. 123, Accounting for Stock-Based
Compensation, and complies with the disclosure
requirements of SFAS No. 148, Accounting for
Stock-Based Compensation Transition and
Disclosure: an Amendment of FASB Statement No. 123.
Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant between the estimated
fair value of the Companys common stock and the exercise
price of the stock option.
The Company accounts for equity instruments issued to
non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force
(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.
The following table illustrates the effect on net loss if the
Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation
arrangements (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Net loss, as reported
|
|
$
|
(42,252
|
)
|
|
$
|
(37,198
|
)
|
|
$
|
(32,685
|
)
|
Add: Stock-based employee
compensation expense included in reported net loss
|
|
|
1,348
|
|
|
|
1,380
|
|
|
|
536
|
|
Deduct: Total stock-based employee
compensation determined under fair value based method for all
awards
|
|
|
(3,489
|
)
|
|
|
(1,760
|
)
|
|
|
(619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
$
|
(44,393
|
)
|
|
$
|
(37,578
|
)
|
|
$
|
(32,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic
and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(1.48
|
)
|
|
$
|
(1.88
|
)
|
|
$
|
(17.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
|
|
$
|
(1.55
|
)
|
|
$
|
(1.90
|
)
|
|
$
|
(17.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The value of each employee stock option granted is estimated on
the date of grant under the fair value method using the
Black-Scholes option pricing model. Prior to the initial public
offering on April 29, 2004, the value of each employee
stock option grant was estimated on the date of grant using the
minimum value method. Under the minimum value method, a
volatility factor of 0% is assumed. The following weighted
average assumptions were used for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Risk-free interest rate
|
|
|
4.18
|
%
|
|
|
3.13
|
%
|
|
|
2.80
|
%
|
Volatility (in 2004 for the period
subsequent to April 29, 2004)
|
|
|
78
|
%
|
|
|
75
|
%
|
|
|
|
|
Expected life (in years)
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Based on the above assumptions, the weighted average estimated
fair value of options granted was $4.76 and $5.82 for the years
ended December 31, 2005 and 2004, respectively, and the
weighted average minimum value of options granted was
$4.67 per share for the year ended December 31, 2003.
81
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
The value of employee stock purchase rights under the 2004
Employee Stock Purchase Plan was estimated based the following
weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Risk-free interest rate
|
|
|
3.47
|
%
|
|
|
2.15
|
%
|
Volatility
|
|
|
79
|
%
|
|
|
76
|
%
|
Expected life (in years)
|
|
|
1.25
|
|
|
|
1.25
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Based on the above assumptions, the weighted average estimated
fair value of each stock purchase right was $2.51 for the year
ended December 31, 2005 and $5.12 for the year ended
December 31, 2004.
Recent
Accounting Pronouncements
In December 2004, FASB issued SFAS No. 123R,
Share-Based Payment, which replaces
SFAS No. 123. SFAS No. 123R requires public
companies to recognize an expense for share-based payment
arrangements including stock options and employee stock purchase
plans. The statement eliminates a companys ability to
account for share-based compensation transactions using APB
No. 25, and generally requires instead that such
transactions be accounted for using a fair-value based method.
SFAS No. 123R requires an entity to measure the cost
of employee services received in exchange for an award of equity
instruments based on the fair value of the award on the date of
grant, and to recognize the cost over the period during which
the employee is required to provide service in exchange for the
award. In January 2005, the SEC issued SAB No. 107,
which provides supplemental implementation guidance for
SFAS No. 123R. We are required to adopt
SFAS No. 123R in the first quarter of 2006. We plan to
elect the modified-prospective-transition method, as provided by
SFAS No. 123R. Accordingly, prior period amounts will
not be restated. Under this transition method, we are required
to record compensation expense for all awards granted after the
date of adoption using grant-date fair value estimated in
accordance with the provisions of SFAS No. 123R and
for the unvested portion of previously granted awards as of
January 1, 2006 using the grant-date fair value estimated
in accordance with the provisions of SFAS No. 123. Our
estimate of stock-based compensation expense is affected by our
assumptions regarding a number of input variables to the
valuation model, including but not limited to, our stock price,
volatility and employee stock option exercise behaviors.
Although the adoption of SFAS No. 123R is expected to
have a material effect on our results of operations, future
changes to the assumptions used to determine the fair-value of
awards issued or the amount and type of equity awards granted
create uncertainty as to whether future stock-based compensation
expense will be similar to the previously disclosed
SFAS No. 123 pro forma expense.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error
Corrections A Replacement of APB Opinion
No. 20 and FASB Statement No. 3.
SFAS No. 154 replaces APB Opinion No. 20,
Accounting Changes (APB 20) and
FASB Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements, and changes the requirements
for the accounting for and reporting of a change in accounting
principle. APB 20 previously required that most voluntary
changes in accounting principle be recognized by including in
net income of the period of the change the cumulative effect of
changing to the new accounting principle. SFAS No. 154
requires retrospective application to prior periods
financial statements for voluntary changes in accounting
principle. SFAS No. 154 is effective for accounting
changes and corrections of errors made subsequent to
January 1, 2006. The impact of SFAS No. 154 will
depend on the accounting change, if any, in a future period.
In June 2005, the EITF reached a consensus on EITF Issue
No. 05-6,
Determining the Amortization Period for Leasehold
Improvements Purchased After Lease Inception or Acquired in a
Business Combination (EITF
No. 05-6).
EITF
No. 05-6
requires that leasehold improvements acquired in a business
combination or purchased subsequent to inception of a lease be
amortized over the shorter of the useful life of the assets or a
term that includes
82
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
required lease periods and renewals deemed to be reasonably
assured at the date of acquisition. The requirements of EITF
No. 05-6
are effective for any future leasehold improvements that we
purchase or acquire.
In November 2005, the FASB issued FASB Staff Position Nos.
FAS 115-1
and
FAS 124-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments
(FSP
FAS 115-1),
which provides guidance on determining when investments in
certain debt and equity securities are considered impaired,
whether that impairment is
other-than-temporary,
and on measuring such impairment loss. FSP
FAS 115-1
also includes accounting considerations subsequent to the
recognition of an other-than temporary impairment and requires
certain disclosures about unrealized losses that have not been
recognized as
other-than-temporary
impairments. FSP
FAS 115-1
is required to be applied to reporting periods beginning after
December 15, 2005. We are required to adopt FSP
FAS 115-1
in the first quarter of fiscal 2006. We do not expect that the
adoption of the statement will have a material impact on our
consolidated results or financial condition.
Note 2 Supplementary
Cash Flow Data
Supplemental cash flow information was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
August 5, 1997
|
|
|
|
Years Ended
December 31,
|
|
|
(Date of Inception) to
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
December 31, 2005
|
|
|
Cash paid for interest
|
|
$
|
417
|
|
|
$
|
428
|
|
|
$
|
833
|
|
|
$
|
2,554
|
|
Cash paid for income taxes
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
9
|
|
Significant non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock-based compensation
|
|
$
|
|
|
|
$
|
2,198
|
|
|
$
|
4,369
|
|
|
$
|
6,940
|
|
Purchases of property and
equipment through accounts payable
|
|
$
|
843
|
|
|
$
|
357
|
|
|
$
|
|
|
|
$
|
1,200
|
|
Purchases of property and
equipment through trade in value of disposed property and
equipment
|
|
$
|
2
|
|
|
$
|
35
|
|
|
$
|
|
|
|
$
|
127
|
|
Penalty on restructuring of
equipment financing lines
|
|
$
|
|
|
|
$
|
|
|
|
$
|
475
|
|
|
$
|
475
|
|
Conversion of convertible
preferred stock to common stock
|
|
$
|
|
|
|
$
|
133,172
|
|
|
$
|
|
|
|
$
|
133,172
|
|
Note 3 Investments
The amortized cost and fair value of short-term and long-term
investments at December 31, 2005 and 2004 were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Maturity
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Dates
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US corporate bonds
|
|
$
|
4,011
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
4,004
|
|
|
|
1/06 - 3/06
|
|
Government agencies bonds
|
|
|
3,000
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
2,993
|
|
|
|
2/06 - 3/06
|
|
Municipal bonds (taxable)
|
|
|
55,700
|
|
|
|
|
|
|
|
|
|
|
|
55,700
|
|
|
|
1/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
62,711
|
|
|
$
|
|
|
|
$
|
(14
|
)
|
|
$
|
62,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Maturity
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Dates
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US corporate bonds
|
|
$
|
42,459
|
|
|
$
|
|
|
|
$
|
(131
|
)
|
|
$
|
42,328
|
|
|
|
1/05 - 12/05
|
|
Government agencies bonds
|
|
|
11,583
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
11,554
|
|
|
|
4/05 - 12/05
|
|
Municipal bonds (taxable)
|
|
|
38,609
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
38,605
|
|
|
|
1/05 - 7/05
|
|
Certificate of deposit
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
1/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
92,801
|
|
|
$
|
|
|
|
$
|
(164
|
)
|
|
$
|
92,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US corporate bonds
|
|
$
|
3,079
|
|
|
$
|
|
|
|
$
|
(16
|
)
|
|
$
|
3,063
|
|
|
|
1/06 - 3/06
|
|
Government agencies bonds
|
|
|
1,500
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
1,492
|
|
|
|
3/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
4,579
|
|
|
$
|
|
|
|
$
|
(24
|
)
|
|
$
|
4,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income was $2.9 million, $1.8 million and
$903,000 for the years ended December 31, 2005, 2004 and
2003, respectively, and $11.3 million for the period
August 5, 1997 (inception) through December 31, 2005.
Following are the gross unrealized losses and fair values of the
Companys investments with unrealized losses that are not
deemed to be
other-than-temporarily
impaired as of December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Length of Continuous Unrealized
Loss Position
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
US corporate bonds
|
|
$
|
1,001
|
|
|
$
|
(1
|
)
|
|
$
|
3,003
|
|
|
$
|
(6
|
)
|
|
$
|
4,004
|
|
|
$
|
(7
|
)
|
Government agencies bonds
|
|
|
1,498
|
|
|
|
(2
|
)
|
|
|
1,495
|
|
|
|
(5
|
)
|
|
|
2,993
|
|
|
|
(7
|
)
|
Municipal bonds (taxable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,499
|
|
|
$
|
(3
|
)
|
|
$
|
4,498
|
|
|
$
|
(11
|
)
|
|
$
|
6,997
|
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses on the Companys investments in
U.S. corporate and U.S. government agencies bonds were
primarily caused by rising interest rates. We believe that it is
probable that the Company will be able to collect all
contractual cash flows from the U.S. corporate bonds and
U.S. government agencies bonds based on their high credit
quality and relatively short maturities. The contractual terms
of these investments do not permit the issuer to settle the
securities at a price less than the amortized cost of the
investment. Because the unrealized losses on the investments are
attributable to changes in the interest rates and not credit
quality and because the Company has the ability and intent to
hold these investments until a recovery of fair value, which may
be maturity, we do not consider these investments to be
other-than-temporarily
impaired at December 31, 2005.
As of December 31, 2004, none of the Companys short-
or long-term investments had been in a continuous loss position
for twelve months or longer.
84
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 4 Balance
Sheet Components
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Property and equipment, net (in
thousands):
|
|
|
|
|
|
|
|
|
Laboratory equipment
|
|
$
|
14,820
|
|
|
$
|
13,558
|
|
Computer equipment and software
|
|
|
3,606
|
|
|
|
3,569
|
|
Office equipment, furniture and
fixtures
|
|
|
347
|
|
|
|
242
|
|
Leasehold improvements
|
|
|
828
|
|
|
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,601
|
|
|
|
18,192
|
|
Less: Accumulated depreciation and
amortization
|
|
|
(13,423
|
)
|
|
|
(10,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,178
|
|
|
$
|
7,336
|
|
|
|
|
|
|
|
|
|
|
Property and equipment pledged as collateral against outstanding
borrowings under the Companys equipment financing lines
totaled $15.6 million, net of accumulated depreciation of
$10.5 million at December 31, 2005 and
$14.5 million, net of accumulated depreciation of
$7.7 million at December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Accrued liabilities (in thousands):
|
|
|
|
|
|
|
|
|
Bonus
|
|
$
|
1,319
|
|
|
$
|
1,032
|
|
Vacation and other payroll related
|
|
|
1,126
|
|
|
|
1,209
|
|
Consulting and professional fees
|
|
|
1,342
|
|
|
|
876
|
|
Other accrued expenses
|
|
|
350
|
|
|
|
580
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,137
|
|
|
$
|
3,697
|
|
|
|
|
|
|
|
|
|
|
Interest receivable on short- and long-term investments of
$200,000 and $1.1 million is included in prepaid and other
current assets at December 31, 2005 and 2004, respectively.
Note 5 Related
Party Transactions
Research
and Development Arrangements
In 2001, the Company entered into a Collaboration and License
Agreement with the GSK, establishing a strategic alliance to
discover, develop and commercialize small molecule drugs for the
treatment of cancer and other diseases. Under this agreement,
GSK agreed to pay the Company an upfront licensing fee of
$14.0 million for rights to certain technologies. In
addition, GSK agreed to pay the Company milestone payments
regarding performance and developments within agreed upon
projects. In conjunction with these projects, GSK agreed to
reimburse the Companys costs associated with the strategic
alliance. In accordance with the agreement, in 2001 GSK made a
$14.0 million equity investment in the Company. In 2001,
the Company also received $14.0 million for the upfront
licensing fee, which is being recognized ratably over the term
of the agreement. In each of the years ended December 31,
2005, 2004 and 2003, the Company recognized $2.8 million as
license revenue under this agreement. At December 31, 2005
and 2004, license revenue of $1.4 million and
$4.2 million, respectively, under this agreement was
deferred. The Company also received and recognized as revenue
$500,000, $3.3 million and $200,000 in performance
milestone payments under the agreement and $4.5 million,
$6.1 million and $7.5 million in FTE and other expense
reimbursements for the years ended December 31, 2005, 2004
and 2003 respectively, as no ongoing performance obligations
exist with respect to these aspects of the agreement. GSK also
made a $3.0 million equity investment in the Company in
2003. In April 2004, GSK purchased 538,461 shares of the
85
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Companys common stock at $13.00 per share immediately
prior to the closing of the Companys initial public
offering for a total price of $7.0 million. In April 2004,
an additional 37,482 shares of the Companys common
stock was issued to GSK in accordance with certain anti-dilution
provisions in the Companys fourth amended and restated
certificate of incorporation, with respect to the conversion to
common stock of Series D preferred stock that GSK held at
that time. In September 2005, the Collaboration and License
Agreement was amended to provide the Company with an expanded
role in the research and development of one of its drug
candidates for the treatment of cancer. The five-year research
term of the strategic alliance expires on June 20, 2006,
unless extended by GSK. GSK has the right to terminate the
Collaboration and License Agreement on six months notice at any
time after June 20, 2006. If GSK abandons development of
any drug candidate prior to regulatory approval, the Company
would undertake and fund the clinical development of that drug
candidate or commercialization of any resulting drug, seek a new
partner for such clinical development or commercialization, or
curtail or abandon such clinical development or
commercialization.
In 1998, the Company entered into a licensing agreement with
certain universities where the Companys founding
scientists are also affiliates of the universities. The Company
agreed to pay technology license fees, as well as milestone
payments for technology developed under the licensing agreement.
The Company is also obligated to make minimum royalty payments,
as specified in the agreement, commencing the year of product
market introduction or upon an agreed upon anniversary of the
licensing agreement. The Company paid $67,000, $201,000 and
$45,000 to the universities under this agreement in 2005, 2004
and 2003, respectively, and $974,000 in the period
August 5, 1997 (inception) through December 31, 2005.
Other
In August 2004, the Company entered into a written agreement
with Portola Pharmaceuticals, Inc. (Portola),
replacing a verbal agreement entered into in December 2003.
Charles J. Homcy, M.D., who sits on the Companys
Board of Directors and is a consultant to the Company, is the
President and CEO of Portola. In the years ended
December 31, 2005 and 2004, the Company incurred expenses
of $1.4 million and $1.2 million, respectively, for
research and related services performed by Portola. No such
expenses were incurred prior to 2004. In March 2005, the Company
entered into an amendment to the agreement with Portola. Under
the amended agreement, the term of the agreement was extended to
December 31, 2005 and certain other terms and conditions of
the agreement were revised. In addition, the amended agreement
provides for the purchase and use of certain equipment by
Portola in connection with Portola providing research and
related services to the Company. The Company will reimburse
Portola $285,000 for costs of the equipment in eight quarterly
payments from January 2006 through October 2007. The entire
equipment reimbursement of $285,000 was recognized in expenses
in 2005. Accounts payable and accrued liabilities at
December 31, 2005 and 2004 included $649,000 and $96,000,
respectively, payable to Portola for such services. The Company
also paid consulting fees to Dr. Homcy of $25,000 in 2005,
$27,000 in 2004 and $53,000 in 2003.
In 2001 and 2002, the Company extended loans for $200,000 and
$100,000, respectively, to certain officers of the Company. The
loans accrue interest at 5.18% and 5.75% and are scheduled to
mature on November 12, 2010 and July 12, 2008,
respectively. In 2002 the Company extended loans totaling
$650,000 to various certain officers and employees of the
Company. The loans accrue interest at rates ranging from 4.88%
to 5.80% and have scheduled maturities on various dates between
2005 and 2011. Certain of the loans are collateralized by the
common stock of the Company owned by the officers and by stock
options and were repaid in full no later than eighteen months
after the Companys initial public offering date of
April 29, 2004. Certain of the loans will be forgiven if
the officers remain with the Company through the maturation of
their respective loans. The Company did not extend any loans to
officers or employees of the Company in 2005, 2004 or 2003. In
2005, principal repayments totaled $461,000 and principal
forgiven totaled $38,000. A total of $602,000 and
$1.1 million was outstanding on these loans at
December 31, 2005 and 2004 and was classified as related
party notes receivable. Interest receivable on these loans
86
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
totaled $6,000 at December 31, 2005 and $17,000 at
December 31, 2004 and was included in related party
accounts receivable.
Note 6 Other
Research and Development Arrangements
In 2003, the Company entered into a strategic alliance with
AstraZeneca AB to develop a new application of the
Companys
Cytometrix®
technology. Under the agreement, AstraZeneca AB agreed to
reimburse certain of the Companys costs over a two-year
research term, pay licensing fees to the Company, and, upon the
successful achievement of certain agreed-upon performance
criteria, make a milestone payment to the Company. The Company
received and recognized FTE reimbursements of $1.1 million,
$1.2 million and $74,000 in the years ended
December 31, 2005, 2004 and 2003, respectively, and
$2.4 million in the period from August 5, 1997
(inception) through December 31, 2005. The research term of
our Collaboration and License Agreement with AstraZeneca expired
in December 2005. AstraZeneca retains the right to purchase a
license to certain proprietary technology developed as part of
the collaboration for a fee of up to $2.0 million as may be
agreed by both parties.
Note 7 Equipment
Financing Line
In July 2002, the Company entered into a financing agreement
with GE Capital under which the Company could borrow up to
$7.5 million through a financing line of credit. In 2002,
the Company made three draws on this line of credit for
$1.6 million, $1.8 million, and $535,000 with
effective interest rates of 8.77%, 7.61%, and 7.64%,
respectively, and with financing terms of 60 months for all
draws. In March 2003, the Company executed an additional draw of
approximately $1.1 million on the July 2002 line of credit
with an effective interest rate of 7.59% and a term of
60 months. In May 2003, the Company refinanced the
outstanding balance of approximately $4.8 million under the
January 2001 line of credit and drew an additional $248,000,
with an interest rate of 7.56% and a term of 60 months. In
October 2003, the Company refinanced the outstanding balance of
approximately $9.3 million under the January 2001 line of
credit (as previously refinanced) and the July 2002 line of
credit, with an interest rate of 4.25% and a term of
60 months. In November 2003, the Company executed an
additional draw of $614,000 on the $7.5 million line of
credit with an effective interest rate of 4.25% and a term of
60 months. In 2004, the Company made two additional draws
under this line of credit for $1.3 million and $296,000 with
effective interest rates of 5.05% and 4.56%, respectively, and
with terms of 60 months. All borrowings under this line are
collateralized by property and equipment. This financing line of
credit expired on January 1, 2004 and no additional
borrowings are available to the Company under it. As of
December 31, 2005, the balance of equipment loans
outstanding under this line was $7.4 million.
In January 2004, the Company entered into a financing agreement
with GE Capital under which the Company could borrow up to
$4.5 million under a financing line of credit. The line
expires on December 31, 2006. During 2004, the Company made
two draws under this line for $346,000 and $574,000 with
effective interest rates of 4.56% and 4.83%, respectively, and
financing terms of 60 months. During 2005, the Company made
two draws under this line for $808,000 and $472,000 with
effective interest rates of 5.12% and 5.50%, respectively, and
financing terms of 60 months. The borrowings are
collateralized by property and equipment. As of
December 31, 2005, the balance of equipment loans
outstanding under this line was $2.0 million, and
additional borrowings of $2.3 million were available to the
Company.
In connection with the lines of credit with GE Capital, the
Company is obligated to maintain a certificate of deposit with
the lender (see Note 1 Organization and Summary of
Significant Accounting Policies Restricted
Cash).
87
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
As of December 31, 2005, future minimum lease payments
under equipment lease lines were as follows (in thousands):
|
|
|
|
|
2006
|
|
$
|
2,726
|
|
2007
|
|
|
2,857
|
|
2008
|
|
|
2,811
|
|
2009
|
|
|
694
|
|
2010
|
|
|
265
|
|
Thereafter
|
|
|
9
|
|
|
|
|
|
|
Total
|
|
$
|
9,362
|
|
|
|
|
|
|
Interest expense was $509,000, $535,000 and $863,000 for the
years ended December 31, 2005, 2004 and 2003, respectively,
and $3.1 million for the period from August 5, 1997
(date of inception) through December 31, 2005.
Note 8 Commitments
Leases
The Company leases office space and equipment under two
noncancelable operating leases with expiration dates in 2011 and
2013. Rent expense net of sublease income was $2.2 million,
$2.1 million and $2.2 million for the years ended
December 31, 2005, 2004 and 2003, respectively, and was
$12.1 million for the period from August 5, 1997 (date
of inception) through December 31, 2005. The terms of both
facility leases provide for rental payments on a graduated scale
as well as the Companys payment of certain operating
expenses. The Company recognizes rent expense on a straight-line
basis over the lease period. During 2001 and 2000, the Company
subleased a portion of its building, which resulted in $636,000
of sublease income offsetting rent expense in those two fiscal
years.
Future minimum lease payments under noncancelable operating
leases are as follows (in thousands):
|
|
|
|
|
2006
|
|
$
|
2,415
|
|
2007
|
|
|
2,794
|
|
2008
|
|
|
2,847
|
|
2009
|
|
|
2,785
|
|
2010
|
|
|
2,870
|
|
Thereafter
|
|
|
5,679
|
|
|
|
|
|
|
Total
|
|
$
|
19,390
|
|
|
|
|
|
|
Note 9 Convertible
Preferred Stock
Effective upon the closing of the initial public offering on
April 29, 2004, all outstanding shares of the convertible
preferred stock converted into 17,062,145 shares of common
stock. In January 2004, the Board of Directors approved an
amendment to the Companys amended and restated certificate
of incorporation changing the authorized number of shares of
preferred stock to 10,000,000, effective upon the closing of the
initial public offering. As of December 31, 2005 and 2004,
there were 10,000,000 shares of convertible preferred stock
authorized and no shares outstanding.
88
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 10 Stockholders
Equity (Deficit)
Common
Stock
The Companys Registration Statement (SEC File
No. 333-112261)
for its initial public offering was declared effective by the
Securities and Exchange Commission on April 29, 2004. The
Companys common stock commenced trading on the Nasdaq
National Market on April 29, 2004 under the trading symbol
CYTK. The Company sold 7,935,000 shares of
common stock in the offering, including shares that were issued
upon the full exercise by the underwriters of their
over-allotment option, at $13.00 per share for aggregate
gross proceeds of $103.2 million. In connection with this
offering, the Company paid underwriters commissions of
$7.2 million and incurred offering expenses of
$2.0 million. After deducting the underwriters
commissions and the offering expenses, the Company received net
proceeds of approximately $94.0 million from the offering.
In addition, pursuant to an agreement with an affiliate of GSK,
the Company sold 538,461 shares of its common stock to GSK
immediately prior to the closing of the initial public offering
at a purchase price of $13.00 per share, for a total of
approximately $7.0 million in net proceeds. Also in
conjunction with the initial public offering, all of the
outstanding shares of the Companys convertible preferred
stock were converted into 17,062,145 shares of its common
stock.
In January 2004, the Board of Directors approved an amendment to
the Companys amended and restated certificate of
incorporation increasing the authorized number of shares of
common stock to 120,000,000. The amendment became effective upon
the closing of the initial public offering.
In June 2005, we filed a shelf registration statement on
Form S-3
(SEC File
No. 333-125786)
with the SEC to sell an aggregate of up to $100.0 million
of our common stock and or preferred stock. This shelf
registration statement was declared effective on July 15,
2005.
In October 2005, the Company entered into a committed equity
financing facility (CEFF) with Kingsbridge Capital
Ltd. (Kingsbridge), pursuant to which Kingsbridge
committed to purchase, subject to certain conditions of the
CEFF, up to $75.0 million of our newly-issued common stock
during the next three years. Subject to certain conditions and
limitations, from time to time under the CEFF, we may require
Kingsbridge to purchase newly-issued shares of our common stock
at a price that is 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 million. The minimum acceptable
volume weighted average price for determining the purchase price
at which our stock may be sold in any pricing period is the
greater of $3.50 or 85% of the closing price for our Common
Stock on the day prior to the commencement of the pricing
period. In December 2005, we received gross proceeds of
$5.7 million from the draw down and sale of
887,576 shares of common stock before offering costs. In
connection with the CEFF, we paid legal fees and other offering
costs of $178,000.
Warrants
In connection with its building lease, the Company issued
warrants to purchase 100,000 shares of common stock for
$0.58 per share in July 1999. The Company valued the
warrants by using the Black-Scholes pricing model in 1999. The
fair value was capitalized in other assets and amortized over
the life of the building lease, which expired in August 2000.
The amount charged to rent expense was $11,000 from
August 5, 1997 (date of inception) through August 2000. The
warrants were fully exercised in 2004 in a cashless exercise.
The Company has issued warrants to purchase convertible
preferred stock. Upon the conversion of the outstanding shares
of preferred stock into common stock in conjunction with the
Companys initial public offering, the outstanding warrants
for preferred stock became exercisable for common stock. In
September 1998, in connection with an equipment line of credit
financing, the Company issued warrants to the lender. The
Company valued the warrants by using the Black-Scholes pricing
model in fiscal 1999 when the line was drawn, and the fair
89
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
value of $30,000 was netted against the equipment line and
charged to interest expense over the life of the equipment line.
In August 2005, these warrants were exercised by the lender in a
cashless exercise, yielding 13,199 shares of common stock
on a net basis. In connection with a convertible preferred stock
financing in August 1999, the Company issued warrants to the
preferred stockholders. The warrants were valued at $467,000
using the Black-Scholes pricing model and the value was recorded
as issuance cost as an offset to convertible preferred stock.
These warrants are fully vested and exercisable as of
December 31, 2005. In connection with an equipment line of
credit, the Company issued warrants to the lender in December
1999. The value of the warrants was calculated using the
Black-Scholes pricing model and was deemed insignificant. In
August 2005, these warrants were exercised by the lender in a
cashless exercise, yielding 1,333 shares of common stock on
a net basis.
The Company issued warrants to purchase 244,000 of common stock
to Kingsbridge in connection with the CEFF that was entered into
in October 2005. The warrants are exercisable at a price of
$9.13 per share beginning six months after the date of
grant and for a period of five years thereafter. The warrants
were valued at $920,000 using the Black-Scholes pricing model
and the following assumptions: an expected term of five years,
risk-free interest rate of 4.3%, volatility of 67% and the fair
value of our stock price on the date of performance commitment,
October 28, 2005, of $7.02. The warrant value was recorded
as an issuance cost in additional paid-in capital on the initial
draw down of the CEFF in December 2005.
Outstanding warrants were as follows at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Expiration
|
|
of Shares
|
|
|
Price
|
|
|
Date
|
|
|
|
50,000
|
|
|
$
|
5.80
|
|
|
|
08/30/06
|
|
|
244,000
|
|
|
|
9.13
|
|
|
|
04/28/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option Plans
2004
Plan
In January 2004, the Board of Directors adopted the 2004 Equity
Incentive Plan (the 2004 Plan) which was approved by
the stockholders in February 2004. The 2004 Plan provides for
the granting of incentive stock options, nonstatutory stock
options, restricted stock purchase rights and stock bonuses to
employees, directors and consultants. Under the 2004 Plan,
options may be granted at prices not lower than 85% and 100% of
the fair market value of the common stock on the date of grant
for nonstatutory stock options and incentive stock options,
respectively. Options granted to new employees generally vest
25% after one year and monthly thereafter over a period of four
years. Options granted to existing employees generally vest
monthly over a period of four years. As of December 31,
2005, 2,756,420 shares of common stock were authorized for
issuance under the 2004 Plan. On January 1, 2006 and
annually thereafter, the number of authorized shares
automatically increases by a number of shares equal to the
lesser of (i) 1,500,000 shares, (ii) 3.5% of the
outstanding shares on such date, or (iii) an amount
determined by the Board of Directors. Accordingly, on
January 1, 2006, the number of shares of common stock
authorized for issuance under the 2004 Plan was increased to a
total of 3,796,301 shares.
1997
Plan
In 1997, the Company adopted the 1997 Stock Option/Stock
Issuance Plan (the 1997 Plan). The Plan provides for
the granting of stock options to employees and consultants of
the Company. Options granted under the Plan may be either
incentive stock options or nonstatutory stock options. Incentive
stock options may be granted only to Company employees
(including officers and directors who are also employees).
Nonstatutory stock options may be granted to Company employees
and consultants. Options under the Plan may be granted for
periods of up to
90
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
ten years and at prices no less than 85% of the estimated fair
value of the shares on the date of grant as determined by the
Board of Directors, provided, however, that (i) the
exercise price of an incentive stock option and nonstatutory
shall not be less than 100% and 85% of the estimated fair value
of the shares on the date of grant, respectively, and
(ii) with respect to any 10% shareholder, the exercise
price of an incentive stock option or nonstatutory stock option
shall not be less than 110% of the estimated fair market value
of the shares on the date of grant and the term of the grant
shall not exceed five years. Options may be exercisable
immediately and are subject to repurchase options held by the
Company which lapse over a maximum period of ten years at such
times and under such conditions as determined by the Board of
Directors. To date, options granted generally vest over four or
five years (generally 25% after one year and monthly
thereafter). As of December 31, 2005, the Company had
reserved 1,873,240 shares of common stock for issuance related
to options outstanding under the 1997 Plan, and there were no
shares available for future grants under the 1997 Plan.
Activity under the two stock option plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
Weighted
|
|
|
|
Available for
|
|
|
Options
|
|
|
Average Exercise
|
|
|
|
Grant
|
|
|
Outstanding
|
|
|
Price per Share
|
|
|
Options authorized
|
|
|
1,000,000
|
|
|
|
|
|
|
$
|
|
|
Options granted
|
|
|
(833,194
|
)
|
|
|
833,194
|
|
|
|
0.20
|
|
Options exercised
|
|
|
|
|
|
|
(147,625
|
)
|
|
|
0.015
|
|
Options canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 1998
|
|
|
166,806
|
|
|
|
685,569
|
|
|
|
0.12
|
|
Increase in authorized shares
|
|
|
461,945
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(582,750
|
)
|
|
|
582,750
|
|
|
|
0.39
|
|
Options exercised
|
|
|
|
|
|
|
(287,500
|
)
|
|
|
0.24
|
|
Options canceled
|
|
|
50,625
|
|
|
|
(50,625
|
)
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 1999
|
|
|
96,626
|
|
|
|
930,194
|
|
|
|
0.25
|
|
Increase in authorized shares
|
|
|
1,704,227
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(967,500
|
)
|
|
|
967,500
|
|
|
|
0.58
|
|
Options exercised
|
|
|
|
|
|
|
(731,661
|
)
|
|
|
0.27
|
|
Options canceled
|
|
|
68,845
|
|
|
|
(68,845
|
)
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2000
|
|
|
902,198
|
|
|
|
1,097,188
|
|
|
|
0.52
|
|
Options granted
|
|
|
(525,954
|
)
|
|
|
525,954
|
|
|
|
1.12
|
|
Options exercised
|
|
|
|
|
|
|
(102,480
|
)
|
|
|
0.55
|
|
Options canceled
|
|
|
109,158
|
|
|
|
(109,158
|
)
|
|
|
0.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001
|
|
|
485,402
|
|
|
|
1,411,504
|
|
|
|
0.73
|
|
Increase in authorized shares
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(932,612
|
)
|
|
|
932,612
|
|
|
|
1.20
|
|
Options exercised
|
|
|
|
|
|
|
(131,189
|
)
|
|
|
0.64
|
|
Options canceled
|
|
|
152,326
|
|
|
|
(152,326
|
)
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
955,116
|
|
|
|
2,060,601
|
|
|
|
0.95
|
|
91
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
Weighted
|
|
|
|
Available for
|
|
|
Options
|
|
|
Average Exercise
|
|
|
|
Grant
|
|
|
Outstanding
|
|
|
Price per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(613,764
|
)
|
|
|
613,764
|
|
|
$
|
1.39
|
|
Options exercised
|
|
|
|
|
|
|
(380,662
|
)
|
|
|
1.02
|
|
Options canceled
|
|
|
49,325
|
|
|
|
(49,325
|
)
|
|
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
390,677
|
|
|
|
2,244,378
|
|
|
|
1.06
|
|
Increase in authorized shares
|
|
|
1,600,000
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(863,460
|
)
|
|
|
863,460
|
|
|
|
7.52
|
|
Options exercised
|
|
|
|
|
|
|
(404,618
|
)
|
|
|
1.12
|
|
Options canceled
|
|
|
74,025
|
|
|
|
(58,441
|
)
|
|
|
3.64
|
|
Options retired
|
|
|
(36,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
1,165,114
|
|
|
|
2,644,779
|
|
|
|
3.10
|
|
Increase in authorized shares
|
|
|
995,861
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(996,115
|
)
|
|
|
996,115
|
|
|
|
7.23
|
|
Options exercised
|
|
|
|
|
|
|
(196,703
|
)
|
|
|
1.48
|
|
Options canceled
|
|
|
182,567
|
|
|
|
(161,958
|
)
|
|
|
5.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
1,347,427
|
|
|
|
3,282,233
|
|
|
|
4.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The options outstanding and currently exercisable by exercise
price at December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Vested and Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining Contractual
|
|
|
Number of
|
|
|
Average
|
|
Range of Exercise
Price
|
|
Options
|
|
|
Exercise Price
|
|
|
Life (Years)
|
|
|
Options
|
|
|
Exercise Price
|
|
|
$0.20
|
|
|
46,090
|
|
|
$
|
0.20
|
|
|
|
3.57
|
|
|
|
46,090
|
|
|
$
|
0.20
|
|
$0.58
|
|
|
467,625
|
|
|
$
|
0.58
|
|
|
|
4.71
|
|
|
|
467,625
|
|
|
$
|
0.58
|
|
$1.00
|
|
|
42,644
|
|
|
$
|
1.00
|
|
|
|
5.13
|
|
|
|
42,644
|
|
|
$
|
1.00
|
|
$1.20
|
|
|
931,496
|
|
|
$
|
1.20
|
|
|
|
6.77
|
|
|
|
931,496
|
|
|
$
|
1.20
|
|
$2.00 - $6.49
|
|
|
203,425
|
|
|
$
|
2.89
|
|
|
|
8.32
|
|
|
|
193,725
|
|
|
$
|
2.71
|
|
$6.50
|
|
|
374,660
|
|
|
$
|
6.50
|
|
|
|
8.18
|
|
|
|
292,815
|
|
|
$
|
6.50
|
|
$6.59 - $6.88
|
|
|
339,500
|
|
|
$
|
6.65
|
|
|
|
9.44
|
|
|
|
44,812
|
|
|
$
|
6.59
|
|
$7.10
|
|
|
385,993
|
|
|
$
|
7.10
|
|
|
|
9.22
|
|
|
|
71,778
|
|
|
$
|
7.10
|
|
$7.97 - $9.91
|
|
|
366,300
|
|
|
$
|
9.34
|
|
|
|
9.09
|
|
|
|
60,295
|
|
|
$
|
9.59
|
|
$9.95 - $15.95
|
|
|
124,500
|
|
|
$
|
10.20
|
|
|
|
8.69
|
|
|
|
39,384
|
|
|
$
|
10.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,282,233
|
|
|
$
|
4.31
|
|
|
|
7.56
|
|
|
|
2,190,664
|
|
|
$
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004, there were 1,231,223 options
outstanding, exercisable and vested at a weighted average
exercise price of $1.38 per share. As of December 31,
2003, there were 988,276 options outstanding, exercisable and
vested at a weighted average exercise price of $0.99 per
share.
92
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Stock-based
Compensation
Deferred
Employee Stock-Based Compensation
In anticipation of the Companys initial public offering,
the Company determined that, for financial reporting purposes,
the estimated value of its common stock was in excess of the
exercise prices of its stock options. Accordingly, for stock
options issued to employees, the Company recorded deferred
stock-based compensation and is amortizing the related expense
on a straight line basis over the service period, which is
generally four years. For the years ended December 31,
2005, 2004 and 2003, the Company recorded deferred stock
compensation of none, $2.3 million and $3.9 million,
respectively, and amortization of deferred stock-based
compensation of $1.3 million, $1.4 million and
$536,000, respectively, in connection with options granted to
employees.
Non-employee
Stock-Based Compensation
Stock-based compensation expense related to stock options
granted to non-employees is recognized on a straight-line basis
as the stock options are earned. The Company believes that the
fair value of the stock options is more reliably measurable than
the fair value of the services received. The fair value of the
stock options granted is calculated at each reporting date using
the Black-Scholes option-pricing model as prescribed by
SFAS No. 123 using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Risk-free interest rate
|
|
|
|
|
|
|
4.27
|
%
|
|
|
3.35
|
%
|
Volatility
|
|
|
|
|
|
|
72
|
%
|
|
|
70
|
%
|
Contractual life (in years)
|
|
|
|
|
|
|
9.6
|
|
|
|
10
|
|
Expected dividend yield
|
|
|
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
There were no options granted to non-employees for the year
ended December 31, 2005. Based on the above assumptions,
the weighted average fair value of options granted to
non-employees were $10.61 and $6.96 per share for the years
ended December 31, 2004 and 2003, respectively.
In connection with the grant of stock options to non-employees,
the Company recorded stock-based compensation expense of
$78,000, $496,000 and $390,000 in 2005, 2004 and 2003,
respectively, and $1.3 million for the period from
August 5, 1997 (date of inception) through
December 31, 2005. Stock-based compensation expense will
fluctuate as the fair market value of the common stock
fluctuates.
Employee
Stock Purchase Plan
In January 2004, the Board of Directors adopted the 2004
Employee Stock Purchase Plan (the ESPP) which was
approved by the stockholders in February 2004. Under the ESPP,
statutory employees may purchase common stock of the Company up
to a specified maximum amount through payroll deductions. The
stock is purchased semi-annually at a price equal to 85% of the
fair market value at certain plan-defined dates. During 2005,
179,520 shares were purchased under the ESPP at a price of
$4.25 per share. During 2004, 69,399 shares were
purchased under the ESPP at a price of $8.03 per share. At
December 31, 2005 the Company had 251,081 shares of
common stock reserved for issuance under the ESPP.
93
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 11 Income
Taxes
The Company did not record an income tax provision in the years
ended December 31, 2005, 2004 and 2003 because the Company
had a net taxable loss in each of those periods.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The significant components of the
Companys deferred tax assets and liabilities were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
6,793
|
|
|
$
|
3,217
|
|
Reserves and accruals
|
|
|
2,061
|
|
|
|
3,102
|
|
Net operating loss carryforwards
|
|
|
57,523
|
|
|
|
42,649
|
|
Research and development credits
|
|
|
9,832
|
|
|
|
9,342
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
76,209
|
|
|
|
58,310
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax asset
|
|
|
76,209
|
|
|
|
58,310
|
|
Less: Valuation allowance
|
|
|
(76,209
|
)
|
|
|
(58,310
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Management believes that, based upon a number of factors, it is
more likely than not that the deferred tax assets will not be
realized; therefore a full valuation allowance has been
recorded. The valuation increased by $17.9 million in 2005,
$16.2 million in 2004 and $14.1 million in 2003.
The Company had federal net operating loss carryforwards of
approximately $162.5 million and state net operating loss
carryforwards of approximately $39.2 million at
December 31, 2005. The federal and state operating loss
carryforwards will begin to expire in 2018 and 2008,
respectively, if not utilized.
The Company had research credit carryforwards of approximately
$5.6 million and $6.1 million for federal and state
income tax purposes, respectively at December 31, 2005. If
not utilized, the federal carryforward 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 operating loss tax
credit carryforwards in certain situations where changes occur
in stock ownership of a company. In the event the Company has a
change in ownership; utilization of the carryforwards could be
restricted.
94
CYTOKINETICS,
INCORPORATED
(A Development Stage Enterprise)
NOTES TO FINANCIAL
STATEMENTS (Continued)
Note 12 Quarterly
Financial Data (Unaudited)
Quarterly results were as follows (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
2005(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,572
|
|
|
$
|
2,341
|
|
|
$
|
1,855
|
|
|
$
|
2,144
|
|
|
$
|
8,912
|
|
Net loss
|
|
|
(10,530
|
)
|
|
|
(10,540
|
)
|
|
|
(10,101
|
)
|
|
|
(11,081
|
)
|
|
|
(42,252
|
)
|
Net loss per
share basic and diluted(1)(2)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(1.48
|
)
|
2004(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,867
|
|
|
$
|
2,900
|
|
|
$
|
2,449
|
|
|
$
|
2,226
|
|
|
$
|
13,442
|
|
Net loss
|
|
|
(5,932
|
)
|
|
|
(9,231
|
)
|
|
|
(10,216
|
)
|
|
|
(11,820
|
)
|
|
|
(37,198
|
)
|
Net loss per
share basic and diluted(1)(2)
|
|
$
|
(2.56
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(1.88
|
)
|
|
|
|
(1) |
|
The Companys initial public offering was declared
effective by the Securities and Exchange Commission on
April 29, 2004 and the Companys common stock
commenced trading on that date. The Company sold
7,935,000 shares of common stock in the offering for net
proceeds of approximately $94.0 million. In addition, the
Company sold 538,461 shares of its common stock to GSK
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 the Companys convertible preferred
stock were converted into 17,062,145 shares of its common
stock. In December 2005, we sold 887,576 shares of common
stock to Kingsbridge for net proceeds of $5.5 million. |
|
(2) |
|
Net loss per share for each quarter is computed using the
weighted-average number of shares outstanding during the
quarter, while net loss per share for the year is computed using
the weighted-average number of shares outstanding during the
year. Thus, the sum of the net loss per share for each of the
four quarters may not equal the net loss per share for the year. |
|
(3) |
|
Revenues and expenses are reported independently for each
quarter and for the year, rounded in thousands. Thus the sum of
the results for each of the four quarters may not equal the
results for the year due to rounding. |
|
(4) |
|
All per share amounts have been retroactively adjusted to give
effect to the
1-for-2
reverse stock split that occurred on April 26, 2004. |
Note 13 Subsequent
Events
On January 18, 2006, the Company 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, the Company paid an advisory fee to a registered
broker-dealer of $1.0 million and incurred other offering
expenses of approximately $70,000. After deducting the advisory
fee and the offering expenses, the Company received net proceeds
of approximately $31.9 million from the offering. The
offering was made pursuant to our shelf registration statement
on
Form S-3
(SEC File
No. 333-125786)
filed on June 14, 2005.
On January 18, 2006, the Company signed an extension to our
equipment financing agreement with GE Capital, extending
the funding period for the January 2004 $4.5 million line
of credit to December 2006. (See Note 7-Equipment
Financing Line.)
In January 2006, the Company received proceeds of
$4.9 million from the draw down and sale of
833,537 shares of common stock to Kingsbridge. (See
Note 10-Stockholders Equity.)
95
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation of disclosure controls and
procedures. Our management evaluated, with the
participation of our Chief Executive Officer and our Chief
Financial Officer, the effectiveness of our disclosure controls
and procedures (as defined in
Rule 13a-15(e)
under the Exchange Act) as of the end of the period covered by
this Annual Report on
Form 10-K.
Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer have concluded that the Companys
disclosure controls and procedures are 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.
Managements Report on Internal Control over Financial
Reporting. Our management is responsible for
establishing and maintaining adequate internal control over
financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act). Our management assessed the
effectiveness of our internal control over financial reporting
as of December 31, 2005. In making this assessment, our
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Our management has concluded that,
as of December 31, 2005, our internal control over
financial reporting is effective based on these criteria. Our
independent registered public accounting firm,
PricewaterhouseCoopers LLP, has audited our assessment of our
internal control over financial reporting as of
December 31, 2005, as stated in their report, which is
included herein.
Changes in internal control over financial
reporting. There was no change in our internal
control over financial reporting that occurred during the
quarter ended December 31, 2005 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
In November 2005, the Companys President, Robert I. Blum
and our Senior Vice President of Preclinical Research and
Development, David J. Morgans, established stock trading plans
under
Rule 10b5-1
of the Securities Exchange Act of 1934. Mr. Blums
plan provides for the exercise of options to purchase up to
112,500 shares of our common stock and the sale of certain
of those shares on pre-determined dates commencing
February 15, 2006 and ending on December 31, 2006.
Dr. Morgans plan provides for the exercise of options
to purchase up to 80,000 shares of our common stock and
sale of up to 60,000 shares of common stock on
pre-determined dates for an eleven month period commencing
February 15, 2006. The transactions under the plans will be
disclosed publicly, as applicable, through Form 144 and
Form 4 filings with the Securities and Exchange Commission.
PART III
|
|
Item 10.
|
Directors
and Officers of the Registrant
|
The information regarding our directors and executive officers
is incorporated by reference from Directors and Executive
Officers in our Proxy Statement for our 2006 Annual
Meeting of Stockholders.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the
Companys executive officers and directors and persons who
own more than ten percent (10%) of a registered class of our
equity securities to file reports of ownership and changes in
ownership with the SEC and the National Association of
Securities Dealers, Inc. Executive officers, directors and
greater than ten percent (10%) stockholders are required by
Commission regulation to furnish us with copies of all
Section 16(a) forms they file. We believe all of our
executive officers and directors complied with all applicable
filing requirements during the fiscal year ended
December 31, 2005.
96
Code of
Ethics
We have adopted a Code of Ethics that applies to all directors,
officers and employees of the Company. We publicize the Code of
Ethics through posting the policy on our website,
http://www.cytokinetics.com. We will disclose on our website any
waivers of, or amendments to, our Code of Ethics.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated by
reference from our definitive Proxy Statement referred to in
Item 10 above where it appears under the heading
Executive Compensation and Other Matters.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item regarding security
ownership of certain beneficial owners and management is
incorporated by reference from our definitive Proxy Statement
referred to in Item 10 above where it appears under the
heading Security Ownership of Certain Beneficial Owners
and Management. The information required by this Item
regarding equity compensation plans is incorporated by reference
from Item 5 of this Annual Report on
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information required by this Item is incorporated by
reference from our definitive Proxy Statement referred to in
Item 10 above where it appears under the heading
Certain Relationships and Related Transactions.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this Item is incorporated by
reference from our definitive Proxy Statement referred to in
Item 10 above where it appears under the heading
Principal Accounting Fees and Services.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as part of this
Form 10-K:
|
|
|
|
(1)
|
Financial Statements (included in Part II of this report):
|
Report of Independent Registered Public Accounting
Firm
Balance Sheets
Statements of Operations
Statements of Stockholders Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules:
None All financial statement schedules are
omitted because the information is inapplicable or presented in
the notes to the financial statements.
(3) Exhibits:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation.(1)
|
|
3
|
.2
|
|
Amended and Restated Bylaws.(1)
|
97
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.1
|
|
Specimen Common Stock
Certificate.(1)
|
|
4
|
.2
|
|
Fourth Amended and Restated
Investors Rights Agreement, dated March 21, 2003, by and
among the Registrant and certain stockholders of the
Registrant.(1)
|
|
4
|
.3
|
|
Loan and Security Agreement, dated
September 25, 1998, by and between the Registrant and
Comdisco.(1)
|
|
4
|
.4
|
|
Amendment No. One to Loan and
Security Agreement, dated February 1, 1999.(1)
|
|
4
|
.5
|
|
Warrant for the purchase of shares
of Series A preferred stock, dated September 25, 1998,
issued by the Registrant to Comdisco.(1)
|
|
4
|
.6
|
|
Loan and Security Agreement, dated
December 16, 1999, by and between the Registrant and
Comdisco.(1)
|
|
4
|
.7
|
|
Amendment No. 1 to Loan and
Security Agreement, dated June 29, 2000, by and between the
Registrant and Comdisco.(1)
|
|
4
|
.8
|
|
Warrant for the purchase of shares
of Series B preferred stock, dated December 16, 1999,
issued by the Registrant to Comdisco.(1)
|
|
4
|
.9
|
|
Master Security Agreement, dated
February 2, 2001, by and between the Registrant and General
Electric Capital Corporation.(1)
|
|
4
|
.10
|
|
Cross-Collateral and Cross-Default
Agreement by and between the Registrant and Comdisco.(1)
|
|
4
|
.11
|
|
Warrant for the purchase of shares
of common stock, dated July 20, 1999, issued by the
Registrant to Bristow Investments, L.P.(1)
|
|
4
|
.12
|
|
Warrant for the purchase of shares
of common stock, dated July 20, 1999, issued by the
Registrant to the Laurence and Magdalena Shushan Family Trust.(1)
|
|
4
|
.13
|
|
Warrant for the purchase of
shares of common stock, dated July 20, 1999, issued by the
Registrant to Slough Estates USA Inc.(1)
|
|
4
|
.14
|
|
Warrant for the purchase of shares
of Series B preferred stock, dated August 30, 1999,
issued by the Registrant to The Magnum Trust.(1)
|
|
4
|
.15
|
|
Warrant for the purchase of shares
of common stock, dated October 28, 2005, issued by the
Registrant to Kingsbridge Capital Limited.(7)
|
|
4
|
.16
|
|
Registration Rights Agreement,
dated October 28, 2005, by and between the Registrant and
Kingsbridge Capital Limited.(7)
|
|
10
|
.1
|
|
Form of Indemnification Agreement
between the Registrant and each of its directors and officers.(1)
|
|
10
|
.2
|
|
1997 Stock Option/Stock Issuance
Plan.(1)
|
|
10
|
.3
|
|
2004 Equity Incentive Plan.(1)
|
|
10
|
.4
|
|
2004 Employee Stock Purchase
Plan.(1)
|
|
10
|
.5
|
|
Build-to-Suit
Lease, dated May 27, 1997, by and between Britannia Pointe
Grand Limited Partnership and Metaxen, LLC.(1)
|
|
10
|
.6
|
|
First Amendment to Lease, dated
April 13, 1998, by and between Britannia Pointe Grand
Limited Partnership and Metaxen, LLC.(1)
|
|
10
|
.7
|
|
Sublease Agreement, dated
May 1, 1998, by and between the Registrant and Metaxen
LLC.(1)
|
|
10
|
.8
|
|
Sublease Agreement, dated
March 1, 1999, by and between Metaxen, LLC and Exelixis
Pharmaceuticals, Inc.(1)
|
|
10
|
.9
|
|
Assignment and Assumption
Agreement and Consent, dated July 11, 1999, by and among
Exelixis Pharmaceuticals, Metaxen, LLC, Xenova Group PLC and
Britannia Pointe Grande Limited Partnership.(1)
|
|
10
|
.10
|
|
Second Amendment to Lease, dated
July 11, 1999, by and between Britannia Pointe Grand
Limited Partnership and Exelixis Pharmaceuticals, Inc.(1)
|
|
10
|
.11
|
|
First Amendment to Sublease
Agreement, dated July 20, 1999, by and between the
Registrant and Metaxen.(1)
|
98
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.12
|
|
Agreement and Consent, dated
July 20, 1999, by and among Exelixis Pharmaceuticals, Inc.,
the Registrant and Britannia Pointe Grand Limited Partnership.(1)
|
|
10
|
.13
|
|
Amendment to Agreement and
Consent, dated July 31, 2000, by and between the
Registrant, Exelixis, Inc., and Britannia Pointe Grande Limited
Partnership.(1)
|
|
10
|
.14
|
|
Assignment and Assumption of
Lease, dated September 28, 2000, by and between Exelixis,
Inc. and the Registrant.(1)
|
|
10
|
.15
|
|
Sublease Agreement, dated
September 28, 2000, by and between the Registrant and
Exelixis, Inc.(1)
|
|
10
|
.16
|
|
Sublease Agreement, dated
December 29, 1999, by and between the Registrant and COR
Therapeutics, Inc.(1)
|
|
10
|
.17
|
|
Collaboration and License
Agreement, dated June 20, 2001, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.18
|
|
Memorandum, dated June 20,
2001, by and between the Registrant and Glaxo Group Limited.(1)
|
|
10
|
.19
|
|
Letter Amendment to Collaboration
Agreement, dated October 28, 2002, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.20
|
|
Letter Amendment to Collaboration
Agreement, dated November 5, 2002, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.21
|
|
Letter Amendment to Collaboration
Agreement, dated December 13, 2002, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.22
|
|
Letter Amendment to Collaboration
Agreement, dated July 11, 2003, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.23
|
|
Letter Amendment to Collaboration
Agreement, dated July 28, 2003, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.24
|
|
Letter Amendment to Collaboration
Agreement, dated July 28, 2003, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.25
|
|
Letter Amendment to Collaboration
Agreement, dated July 28, 2003, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.26
|
|
Series D Preferred Stock
Purchase Agreement, dated June 20, 2001, by and between the
Registrant and Glaxo Wellcome International B.V.(1)
|
|
10
|
.27
|
|
Amendment No. 1 to
Series D Preferred Stock Purchase Agreement, dated
April 2, 2003, by and among the Registrant, Glaxo Wellcome
International B.V. and Glaxo Group Limited.(1)
|
|
10
|
.28
|
|
Exclusive License Agreement
between The Board of Trustees of the Leland Stanford Junior
University, The Regents of the University of California, and the
Registrant dated April 21, 1998.(1)
|
|
10
|
.29
|
|
Modification Agreement between The
Regents of the University of California, The Board of Trustees
of the Leland Stanford Junior University and the Registrant,
dated September 1, 2000.(1)
|
|
10
|
.30
|
|
Collaboration and License
Agreement, dated December 15, 2003, by and between
AstraZeneca AB and the Registrant.(1)
|
|
10
|
.31
|
|
Collaboration Agreement, dated
December 28, 2001, by and between Exelixis, Inc. and the
Registrant.(1)
|
|
10
|
.32
|
|
First Letter Amendment of
Collaboration Agreement, dated April 10, 2003, by and
between Exelixis, Inc. and the Registrant.(1)
|
|
10
|
.33
|
|
Robert I. Blum Promissory Note,
dated July 12, 2002.(1)
|
|
10
|
.34
|
|
David J. Morgans and Sandra
Morgans Promissory Note, dated May 20, 2002.(1)
|
|
10
|
.35
|
|
David J. Morgans and Sandra
Morgans Promissory Note, dated October 18, 2000.(1)
|
|
10
|
.36
|
|
David J. Morgans Promissory Note,
dated July 12, 2002.(1)
|
|
10
|
.37
|
|
Jay K. Trautman Promissory Note,
dated July 12, 2002.(1)
|
|
10
|
.38
|
|
James H. Sabry and Sandra J.
Spence Promissory Note, dated November 12, 2001.(1)
|
|
10
|
.39
|
|
Robert I. Blum Cash Bonus
Agreement, dated September 1, 2002.(1)
|
|
10
|
.40
|
|
Robert I. Blum Amended and
Restated Cash Bonus Agreement, dated December 1, 2003.(1)
|
99
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.41
|
|
David J. Morgans Cash Bonus
Agreement, dated September 1, 2002.(1)
|
|
10
|
.42
|
|
David J. Morgans Amended and
Restated Cash Bonus Agreement, dated December 1, 2003.(1)
|
|
10
|
.43
|
|
Jay K. Trautman Cash Bonus
Agreement, dated September 1, 2002.(1)
|
|
10
|
.44
|
|
Jay K. Trautman Amended and
Restated Cash Bonus Agreement, dated December 1, 2003.(1)
|
|
10
|
.45
|
|
Common Stock Purchase Agreement,
dated March 10, 2004, by and between the Registrant and
Glaxo Group Limited.(1)
|
|
10
|
.46
|
|
Collaboration and Facilities
Agreement, dated August 19, 2004, by and between the
Registrant and Portola Pharmaceuticals, Inc.(2)
|
|
10
|
.47
|
|
Executive Employment Agreement,
dated July 7, 2004, by and between the Registrant and Gail
Sheridan.(2)
|
|
10
|
.48
|
|
Executive Employment Agreement,
dated July 8, 2004, by and between the Registrant and Jay
Trautman.(2)
|
|
10
|
.49
|
|
Executive Employment Agreement,
dated July 14, 2004, by and between the Registrant and
James Sabry.(2)
|
|
10
|
.50
|
|
Executive Employment Agreement,
dated July 14, 2004, by and between the Registrant and
David Morgans.(2)
|
|
10
|
.51
|
|
Executive Employment Agreement,
dated September 1, 2004, by and between the Registrant and
Robert Blum.(2)
|
|
10
|
.52
|
|
Executive Employment Agreement,
dated September 7, 2004, by and between the Registrant and
Sharon Surrey-Barbari.(2)
|
|
10
|
.53
|
|
Executive Employment Agreement,
dated as of August 22, 2005, by and between the Registrant
and Andrew Wolff.(8)
|
|
10
|
.54
|
|
Executive Employment Agreement,
dated February 1, 2005, by and between the Registrant and
David Cragg.
|
|
10
|
.55
|
|
Amendment No. 2 to
Collaboration Agreement, dated December 31, 2004, by and
between the Registrant and Exelixis, Inc.(3)
|
|
10
|
.56
|
|
First Amendment to Collaboration
and Facilities Agreement, dated March 24, 2005, by and
between the Company and Portola Pharmaceuticals, Inc.(4)
|
|
10
|
.57
|
|
Amendment to the Collaboration and
License Agreement with GlaxoSmithKline, effective as of
September 21, 2005, by and between the Registrant and Glaxo
Group Limited.(6)
|
|
10
|
.58
|
|
Sublease, dated as of
November 29, 2005, by and between the Company and
Millennium Pharmaceuticals, Inc.(9)
|
|
10
|
.59
|
|
Common Stock Purchase Agreement,
dated as of October 28, 2005, by and between the Registrant
and Kingsbridge Capital Limited.(7)
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers
LLP, Independent Registered Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney (see
page 102).
|
|
31
|
.1
|
|
Certification of Principal
Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Principal
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certifications of the Principal
Executive Officer and the Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350).
|
|
|
|
(1) |
|
Incorporated by reference from our registration statement on
Form S-1,
registration
number 333-112261,
declared effective by the Securities and Exchange Commission on
April 29, 2004. |
|
(2) |
|
Incorporated by reference from our Quarterly Report on
Form 10-Q,
filed with the Securities and Exchange Commission on
November 12, 2004, as amended February 16, 2005. |
|
(3) |
|
Incorporated by reference from our Annual Report on
Form 10-K,
filed with the Securities and Exchange Commission on
March 14, 2005. |
100
|
|
|
(4) |
|
Incorporated by reference from our Quarterly Report on
Form 10-Q,
filed with the Securities and Exchange Commission on
May 12, 2005. |
|
(5) |
|
Incorporated by reference from our Quarterly Report on
Form 10-Q,
filed with the Securities and Exchange Commission on
August 12, 2005. |
|
(6) |
|
Incorporated by reference from our Quarterly Report on
Form 10-Q,
filed with the Securities and Exchange Commission on
November 10, 2005. |
|
(7) |
|
Incorporated by reference from our Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
January 18, 2006. |
|
(8) |
|
Incorporated by reference from our Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
December 12, 2005. |
|
(9) |
|
Incorporated by reference from our Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
December 5, 2005, as amended December 13, 2005. |
(b) Exhibits
The exhibits listed under Item 14(a)(3) hereof are filed as
part of this
Form 10-K
other than Exhibit 32.1 which shall be deemed furnished.
(c) Financial Statement Schedules
All financial statement schedules are omitted because the
information is inapplicable or presented in the notes to the
financial statements.
101
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYTOKINETICS, INCORPORATED
James Sabry,
Chief Executive Officer and Director
Dated: March 9, 2006
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints James Sabry and
Sharon Surrey-Barbari, and each of them, his true and lawful
attorneys-in-fact,
each with full power of substitution, for him in any and all
capacities, to sign any amendments to this Annual Report on
Form 10-K
and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of
said
attorneys-in-fact
or their substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ James
Sabry, M.D., Ph.D.
James
Sabry, M.D., Ph.D.
|
|
Chief Executive Officer and
Director
(Principal Executive Officer)
|
|
March 9, 2006
|
|
|
|
|
|
/s/ Sharon
Surrey-Barbari
Sharon
Surrey-Barbari
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 9, 2006
|
|
|
|
|
|
/s/ Stephen
Dow
Stephen
Dow
|
|
Director
|
|
March 9, 2006
|
|
|
|
|
|
/s/ A.
Grant Heidrich, III
A.
Grant Heidrich, III
|
|
Director
|
|
March 9, 2006
|
|
|
|
|
|
/s/ Charles
Homcy, M.D.
Charles
Homcy, M.D.
|
|
Director
|
|
March 9, 2006
|
|
|
|
|
|
/s/ Mark
McDade
Mark
McDade
|
|
Director
|
|
March 9, 2006
|
|
|
|
|
|
/s/ Michael
Schmertzler
Michael
Schmertzler
|
|
Director
|
|
March 9, 2006
|
|
|
|
|
|
/s/ James
A. Spudich, Ph.D
James
A. Spudich, Ph.D
|
|
Director
|
|
March 9, 2006
|
102
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation.(1)
|
|
3
|
.2
|
|
Amended and Restated Bylaws.(1)
|
|
4
|
.1
|
|
Specimen Common Stock
Certificate.(1)
|
|
4
|
.2
|
|
Fourth Amended and Restated
Investors Rights Agreement, dated March 21, 2003, by and
among the Registrant and certain stockholders of the
Registrant.(1)
|
|
4
|
.3
|
|
Loan and Security Agreement, dated
September 25, 1998, by and between the Registrant and
Comdisco.(1)
|
|
4
|
.4
|
|
Amendment No. One to Loan and
Security Agreement, dated February 1, 1999.(1)
|
|
4
|
.5
|
|
Warrant for the purchase of shares
of Series A preferred stock, dated September 25, 1998,
issued by the Registrant to Comdisco.(1)
|
|
4
|
.6
|
|
Loan and Security Agreement, dated
December 16, 1999, by and between the Registrant and
Comdisco.(1)
|
|
4
|
.7
|
|
Amendment No. 1 to Loan and
Security Agreement, dated June 29, 2000, by and between the
Registrant and Comdisco.(1)
|
|
4
|
.8
|
|
Warrant for the purchase of shares
of Series B preferred stock, dated December 16, 1999,
issued by the Registrant to Comdisco.(1)
|
|
4
|
.9
|
|
Master Security Agreement, dated
February 2, 2001, by and between the Registrant and General
Electric Capital Corporation.(1)
|
|
4
|
.10
|
|
Cross-Collateral and Cross-Default
Agreement by and between the Registrant and Comdisco.(1)
|
|
4
|
.11
|
|
Warrant for the purchase of shares
of common stock, dated July 20, 1999, issued by the
Registrant to Bristow Investments, L.P.(1)
|
|
4
|
.12
|
|
Warrant for the purchase of shares
of common stock, dated July 20, 1999, issued by the
Registrant to the Laurence and Magdalena Shushan Family Trust.(1)
|
|
4
|
.13
|
|
Warrant for the purchase of shares
of common stock, dated July 20, 1999, issued by the
Registrant to Slough Estates USA Inc.(1)
|
|
4
|
.14
|
|
Warrant for the purchase of shares
of Series B preferred stock, dated August 30, 1999,
issued by the Registrant to The Magnum Trust.(1)
|
|
4
|
.15
|
|
Warrant for the purchase of shares
of common stock, dated October 28, 2005, issued by the
Registrant to Kingsbridge Capital Limited.(7)
|
|
4
|
.16
|
|
Registration Rights Agreement,
dated October 28, 2005, by and between the Registrant and
Kingsbridge Capital Limited.(7)
|
|
10
|
.1
|
|
Form of Indemnification Agreement
between the Registrant and each of its directors and officers.(1)
|
|
10
|
.2
|
|
1997 Stock Option/Stock Issuance
Plan.(1)
|
|
10
|
.3
|
|
2004 Equity Incentive Plan.(1)
|
|
10
|
.4
|
|
2004 Employee Stock Purchase
Plan.(1)
|
|
10
|
.5
|
|
Build-to-Suit
Lease, dated May 27, 1997, by and between Britannia Pointe
Grand Limited Partnership and Metaxen, LLC.(1)
|
|
10
|
.6
|
|
First Amendment to Lease, dated
April 13, 1998, by and between Britannia Pointe Grand
Limited Partnership and Metaxen, LLC.(1)
|
|
10
|
.7
|
|
Sublease Agreement, dated
May 1, 1998, by and between the Registrant and Metaxen
LLC.(1)
|
|
10
|
.8
|
|
Sublease Agreement, dated
March 1, 1999, by and between Metaxen, LLC and Exelixis
Pharmaceuticals, Inc.(1)
|
103
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.9
|
|
Assignment and Assumption
Agreement and Consent, dated July 11, 1999, by and among
Exelixis Pharmaceuticals, Metaxen, LLC, Xenova Group PLC and
Britannia Pointe Grande Limited Partnership.(1)
|
|
10
|
.10
|
|
Second Amendment to Lease, dated
July 11, 1999, by and between Britannia Pointe Grand
Limited Partnership and Exelixis Pharmaceuticals, Inc.(1)
|
|
10
|
.11
|
|
First Amendment to Sublease
Agreement, dated July 20, 1999, by and between the
Registrant and Metaxen.(1)
|
|
10
|
.12
|
|
Agreement and Consent, dated
July 20, 1999, by and among Exelixis Pharmaceuticals, Inc.,
the Registrant and Britannia Pointe Grand Limited Partnership.(1)
|
|
10
|
.13
|
|
Amendment to Agreement and
Consent, dated July 31, 2000, by and between the
Registrant, Exelixis, Inc., and Britannia Pointe Grande Limited
Partnership.(1)
|
|
10
|
.14
|
|
Assignment and Assumption of
Lease, dated September 28, 2000, by and between Exelixis,
Inc. and the Registrant.(1)
|
|
10
|
.15
|
|
Sublease Agreement, dated
September 28, 2000, by and between the Registrant and
Exelixis, Inc.(1)
|
|
10
|
.16
|
|
Sublease Agreement, dated
December 29, 1999, by and between the Registrant and COR
Therapeutics, Inc.(1)
|
|
10
|
.17
|
|
Collaboration and License
Agreement, dated June 20, 2001, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.18
|
|
Memorandum, dated June 20,
2001, by and between the Registrant and Glaxo Group Limited.(1)
|
|
10
|
.19
|
|
Letter Amendment to Collaboration
Agreement, dated October 28, 2002, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.20
|
|
Letter Amendment to Collaboration
Agreement, dated November 5, 2002, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.21
|
|
Letter Amendment to Collaboration
Agreement, dated December 13, 2002, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.22
|
|
Letter Amendment to Collaboration
Agreement, dated July 11, 2003, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.23
|
|
Letter Amendment to Collaboration
Agreement, dated July 28, 2003, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.24
|
|
Letter Amendment to Collaboration
Agreement, dated July 28, 2003, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.25
|
|
Letter Amendment to Collaboration
Agreement, dated July 28, 2003, by and between the
Registrant and Glaxo Group Limited.(1)
|
|
10
|
.26
|
|
Series D Preferred Stock
Purchase Agreement, dated June 20, 2001, by and between the
Registrant and Glaxo Wellcome International B.V.(1)
|
|
10
|
.27
|
|
Amendment No. 1 to
Series D Preferred Stock Purchase Agreement, dated
April 2, 2003, by and among the Registrant, Glaxo Wellcome
International B.V. and Glaxo Group Limited.(1)
|
|
10
|
.28
|
|
Exclusive License Agreement
between The Board of Trustees of the Leland Stanford Junior
University, The Regents of the University of California, and the
Registrant dated April 21, 1998.(1)
|
|
10
|
.29
|
|
Modification Agreement between The
Regents of the University of California, The Board of Trustees
of the Leland Stanford Junior University and the Registrant,
dated September 1, 2000.(1)
|
|
10
|
.30
|
|
Collaboration and License
Agreement, dated December 15, 2003, by and between
AstraZeneca AB and the Registrant.(1)
|
|
10
|
.31
|
|
Collaboration Agreement, dated
December 28, 2001, by and between Exelixis, Inc. and the
Registrant.(1)
|
|
10
|
.32
|
|
First Letter Amendment of
Collaboration Agreement, dated April 10, 2003, by and
between Exelixis, Inc. and the Registrant.(1)
|
|
10
|
.33
|
|
Robert I. Blum Promissory Note,
dated July 12, 2002.(1)
|
104
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.34
|
|
David J. Morgans and Sandra
Morgans Promissory Note, dated May 20, 2002.(1)
|
|
10
|
.35
|
|
David J. Morgans and Sandra
Morgans Promissory Note, dated October 18, 2000.(1)
|
|
10
|
.36
|
|
David J. Morgans Promissory Note,
dated July 12, 2002.(1)
|
|
10
|
.37
|
|
Jay K. Trautman Promissory Note,
dated July 12, 2002.(1)
|
|
10
|
.38
|
|
James H. Sabry and Sandra J.
Spence Promissory Note, dated November 12, 2001.(1)
|
|
10
|
.39
|
|
Robert I. Blum Cash Bonus
Agreement, dated September 1, 2002.(1)
|
|
10
|
.40
|
|
Robert I. Blum Amended and
Restated Cash Bonus Agreement, dated December 1, 2003.(1)
|
|
10
|
.41
|
|
David J. Morgans Cash Bonus
Agreement, dated September 1, 2002.(1)
|
|
10
|
.42
|
|
David J. Morgans Amended and
Restated Cash Bonus Agreement, dated December 1, 2003.(1)
|
|
10
|
.43
|
|
Jay K. Trautman Cash Bonus
Agreement, dated September 1, 2002.(1)
|
|
10
|
.44
|
|
Jay K. Trautman Amended and
Restated Cash Bonus Agreement, dated December 1, 2003.(1)
|
|
10
|
.45
|
|
Common Stock Purchase Agreement,
dated March 10, 2004, by and between the Registrant and
Glaxo Group Limited.(1)
|
|
10
|
.46
|
|
Collaboration and Facilities
Agreement, dated August 19, 2004, by and between the
Registrant and Portola Pharmaceuticals, Inc.(2)
|
|
10
|
.47
|
|
Executive Employment Agreement,
dated July 7, 2004, by and between the Registrant and Gail
Sheridan.(2)
|
|
10
|
.48
|
|
Executive Employment Agreement,
dated July 8, 2004, by and between the Registrant and Jay
Trautman.(2)
|
|
10
|
.49
|
|
Executive Employment Agreement,
dated July 14, 2004, by and between the Registrant and
James Sabry.(2)
|
|
10
|
.50
|
|
Executive Employment Agreement,
dated July 14, 2004, by and between the Registrant and
David Morgans.(2)
|
|
10
|
.51
|
|
Executive Employment Agreement,
dated September 1, 2004, by and between the Registrant and
Robert Blum.(2)
|
|
10
|
.52
|
|
Executive Employment Agreement,
dated September 7, 2004, by and between the Registrant and
Sharon Surrey-Barbari.(2)
|
|
10
|
.53
|
|
Executive Employment Agreement,
dated as of August 22, 2005, by and between the Registrant
and Andrew Wolff.(8)
|
|
10
|
.54
|
|
Executive Employment Agreement,
dated February 1, 2005, by and between the Registrant and
David Cragg.
|
|
10
|
.55
|
|
Amendment No. 2 to
Collaboration Agreement, dated December 31, 2004, by and
between the Registrant and Exelixis, Inc.(3)
|
|
10
|
.56
|
|
First Amendment to Collaboration
and Facilities Agreement, dated March 24, 2005, by and
between the Company and Portola Pharmaceuticals, Inc.(4)
|
|
10
|
.57
|
|
Amendment to the Collaboration and
License Agreement with GlaxoSmithKline, effective as of
September 21, 2005, by and between the Registrant and Glaxo
Group Limited.(6)
|
|
10
|
.58
|
|
Sublease, dated as of
November 29, 2005, by and between the Company and
Millennium Pharmaceuticals, Inc.(9)
|
|
10
|
.59
|
|
Common Stock Purchase Agreement,
dated as of October 28, 2005, by and between the Registrant
and Kingsbridge Capital Limited.(7)
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers
LLP, Independent Registered Public Accounting Firm.
|
|
24
|
.1
|
|
Power of Attorney (see
page 102).
|
|
31
|
.1
|
|
Certification of Principal
Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Principal
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
105
|
|
|
(1) |
|
Incorporated by reference from our registration statement on
Form S-1,
registration
number 333-112261,
declared effective by the Securities and Exchange Commission on
April 29, 2004. |
|
(2) |
|
Incorporated by reference from our Quarterly Report on
Form 10-Q,
filed with the Securities and Exchange Commission on
November 12, 2004, as amended February 16, 2005. |
|
(3) |
|
Incorporated by reference from our Annual Report on
Form 10-K,
filed with the Securities and Exchange Commission on
March 14, 2005. |
|
(4) |
|
Incorporated by reference from our Quarterly Report on
Form 10-Q,
filed with the Securities and Exchange Commission on
May 12, 2005. |
|
(5) |
|
Incorporated by reference from our Quarterly Report on
Form 10-Q,
filed with the Securities and Exchange Commission on
August 12, 2005. |
|
(6) |
|
Incorporated by reference from our Quarterly Report on
Form 10-Q,
filed with the Securities and Exchange Commission on
November 10, 2005. |
|
(7) |
|
Incorporated by reference from our Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
January 18, 2006. |
|
(8) |
|
Incorporated by reference from our Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
December 12, 2005. |
|
(9) |
|
Incorporated by reference from our Current Report on
Form 8-K,
filed with the Securities and Exchange Commission on
December 5, 2005, as amended December 13, 2005. |
106
exv10w54
Exhibit
10.54
CYTOKINETICS, INCORPORATED
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the Agreement) is made and entered into by and between
David Cragg (the Executive) and Cytokinetics, Incorporated, a Delaware Corporation (the
Company), effective as of February 1, 2005 (the Effective Date).
RECITALS
WHEREAS: It is expected that the Company from time to time will consider the possibility of an
acquisition by another company or other change of control. The Board of Directors of the Company
(the Board) recognizes that such consideration can be a distraction to Executive and can cause
Executive to consider alternative employment opportunities. The Board has determined that it is in
the best interests of the Company and its stockholders to assure that the Company will have the
continued dedication and objectivity of Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control of the Company.
WHEREAS: The Board believes that it is in the best interests of the Company and its stockholders to
provide Executive with an incentive to continue his or her employment and to motivate Executive to
maximize the value of the Company upon a Change of Control for the benefit of its stockholders.
WHEREAS: The Board believes that it is imperative to provide Executive with certain severance
benefits upon Executives termination of employment following a Change of Control. These benefits
will provide Executive with enhanced financial security and incentive and encouragement to remain
with the Company notwithstanding the possibility of a Change of Control.
WHEREAS: Certain capitalized terms used in the Agreement are defined in Section 11 below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto
agree as follows:
1. Term of Agreement. This Agreement shall terminate upon the date that all of the
obligations of the parties hereto with respect to this Agreement have been satisfied.
2. At-Will Employment. The Company and Executive acknowledge that Executives
employment is and shall continue to be at-will, as defined under applicable law. If Executives
employment terminates for any reason, including (without limitation) any termination prior to a
Change of Control, Executive shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement or by law.
3. Duties and Scope of Employment.
(a) Positions and Duties. As of the Effective Date, Executive will serve as the Vice
President of Human Resources of the Company. Executive will render such business and
professional services in the performance of his duties, consistent with Executives position
within the Company, as will reasonably be assigned to him by the Companys Board of Directors.
(b) Obligations. During such time as the Executive is employed by the Company,
Executive will perform his duties faithfully and to the best of his ability and will devote his
full business efforts and time to the Company. During such time as the Executive is employed by
the Company, Executive agrees not to actively engage in any other employment, occupation or
consulting activity for any material direct or indirect remuneration without the prior approval of
the Board.
4. Compensation.
(a) Base Salary. During such time as the Executive is employed by the Company, the
Company will pay Executive an annual salary as determined in the discretion of the Board of
Directors or any committee thereof. The base salary will be paid periodically in accordance with
the Companys normal payroll practices and will be subject to the usual, required withholding.
Executives salary will be subject to review and adjustments will be made based upon the Companys
normal performance review practices.
(b) Performance Bonus. Executive will be eligible to receive an annual bonus and other
bonuses, less applicable withholding taxes, as determined by the Board of Directors or any
committee thereof in the Boards or such committees sole discretion.
(c) Equity Compensation. Executive will be eligible to receive stock and option
grants, and other equity compensation awards, as determined by the Board of Directors or any
committee thereof in the Boards or such committees sole discretion.
5. Employee Benefits. During the time that Executive is an employee of the Company,
Executive will be entitled to participate in the Benefit Plans currently and hereafter maintained
by the Company of general applicability to other senior executives of the Company. The Company
reserves the right to cancel or change the Benefit Plans it offers to its employees at any time.
6. Vacation. Executive will be entitled to vacation in accordance with the Companys
vacation policy, with the timing and duration of specific vacations mutually and reasonably agreed
to by the parties hereto.
7. Expenses. The Company will reimburse Executive for reasonable travel,
entertainment or other expenses incurred by Executive in the furtherance of or in connection with
the performance of Executives duties as an employee of the Company, in accordance with the
Companys expense reimbursement policy as in effect from time to time.
8. Severance Benefits.
(a) Involuntary Termination Following a Change of Control. If within eighteen (18)
months following a Change of Control (X)(i) Executive terminates his or her employment with the
Company (or any parent or subsidiary of the Company) for Good Reason or (ii) the Company (or any
parent or subsidiary of the Company) terminates Executives employment for other than Cause, and
(Y) Executive signs and does not revoke a standard release of claims with the Company in a
-2-
form reasonably acceptable to the Company, then Executive shall receive the following
severance from the Company:
(i) Severance Payment. Executive will be entitled to (i) receive continuing payments
of severance pay (less applicable withholding taxes) at a rate equal to his base salary rate, as
then in effect, for a period of eighteen (18) months from the date of such termination, to be paid
periodically in accordance with the Companys normal payroll policies; and (B) a lump-sum payment
equal to 100% of Executives target annual bonus as of the date of such termination.
(ii) Options; Restricted Stock. All of Executives then outstanding options to
purchase shares of the Companys Common Stock (the Options) shall immediately vest and become
exercisable (that is, in addition to the shares subject to the Options which have vested and become
exercisable as of the date of such termination), but in no event shall the number of shares subject
to such Options which so vest exceed the total number of shares subject to such Options.
Additionally, all of the shares of the Companys Common Stock then held by Executive subject to a
Company right of repurchase (the Restricted Stock) shall immediately vest and have such Company
right of repurchase with respect to such shares of Restricted Stock lapse (that is, in addition to
the shares of Restricted Stock which have vested as of the date of such termination), but in no
event shall the number of shares which so vest exceed the number of shares of Restricted Stock
outstanding immediately prior to such termination.
(iii) Continued Employee Benefits. Executive shall receive Company-paid coverage for
Executive and Executives eligible dependents under the Companys Benefit Plans for a period equal
to the shorter of (i) eighteen (18) months or (ii) such time as Executive secures employment with
benefits generally similar to those provided in the Companys Benefit Plans.
(b) Timing of Severance Payments. Any lump-sum severance payment to which Executive
is entitled shall be paid by the Company to Executive in cash and in full, not later than ten (10)
calendar days after the date of the termination of Executives employment as provided in Section
8(a), and any other severance payments shall be paid in accordance with normal payroll policies as
provided in Section 8(a). If Executive should die before all amounts have been paid, such unpaid
amounts shall be paid in a lump-sum payment to Executives designated beneficiary, if living, or
otherwise to the personal representative of Executives estate.
(c) Voluntary Resignation; Termination for Cause. If Executives employment with the
Company terminates (i) voluntarily by Executive other than for Good Reason or (ii) for Cause by the
Company, then Executive shall not be entitled to receive severance or other benefits except for
those as may then be established under the Companys then existing severance and Benefits Plans or
pursuant to other written agreements with the Company.
(d) Disability; Death. If the Company terminates Executives employment as a result
of Executives Disability, or Executives employment terminates due to his or her death, then
Executive shall not be entitled to receive severance or other benefits except for those as may then
be established under the Companys then existing written severance and Benefits Plans or pursuant
to other written agreements with the Company.
-3-
(e) Termination Apart from Change of Control. In the event Executives employment is
terminated for any reason, either prior to the occurrence of a Change of Control or after the
eighteen (18) month period following a Change of Control, then Executive shall be entitled to
receive severance and any other benefits only as may then be established under the Companys
existing written severance and Benefits Plans, if any, or pursuant to any other written agreements
with the Company.
(f) Exclusive Remedy. In the event of a termination of Executives employment within
eighteen (18) months following a Change of Control, the provisions of this Section 8 are intended
to be and are exclusive and in lieu of any other rights or remedies to which Executive or the
Company may otherwise be entitled, whether at law, tort or contract, in equity, or under this
Agreement. Executive shall be entitled to no benefits, compensation or other payments or rights
upon termination of employment following a Change in Control other than those benefits expressly
set forth in this Section 8.
9. Conditional Nature of Severance Payments.
(a) Proprietary Information and Invention Assignment Agreement. If Executive is in
material breach of the terms of the Proprietary Information and Invention Assignment Agreement, by
and between the Company and Executive, dated as of February 1, 2005 (the Invention Agreement),
including, without limitation, Executives obligations of confidentiality and of non-solicitation
contained in the Invention Agreement, then upon such breach by Executive: (i) Executive shall
refund to the Company all cash paid to Executive pursuant to Section 8 of this Agreement; and (ii)
all severance benefits pursuant to this Agreement shall immediately cease.
(b) Non-Competition. Executive acknowledges that the nature of the Companys
business is such that if Executive were to become employed by, or substantially involved in, the
business of a competitor of the Company during the eighteen (18) months following the termination
of Executives employment with the Company, it would be very difficult for Executive not to rely on
or use the Companys trade secrets and confidential information. Thus, to avoid the inevitable
disclosure of the Companys trade secrets and confidential information, Executive agrees and
acknowledges that Executives right to receive the severance payments set forth in this Agreement
(to the extent Executive is otherwise entitled to such payments) will be conditioned upon Executive
not directly or indirectly engaging in (whether as an employee, consultant, agent, proprietor,
principal, partner, stockholder, corporate officer, director or otherwise), nor having any
ownership interest in or participating in the financing, operation, management or control of, any
person, firm, corporation or business that competes with the Company or is a customer of the
Company. Notwithstanding the foregoing, Executive may own, directly or indirectly, up to 1% of the
capital stock of a company that competes with the Company, provided such capital stock is traded on
a national securities exchange or through the automated quotation system of a registered securities
association. Upon any breach of this section, all severance payments pursuant to this Agreement
will immediately cease.
(c) Understanding of Obligations. Executive represents that he is fully aware of his
obligations under the Invention Agreement and hereunder, including, without limitation, the
reasonableness of the length of time, scope and geographic coverage of any such obligations.
-4-
10. Limitation on Payments. In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to Executive (i) constitute parachute
payments within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
Code) and (ii) but for this Section 10, would be subject to the excise tax imposed by Section
4999 of the Code, then Executives severance benefits shall be either:
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal, state and local
income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an
after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the
Company and Executive otherwise agree in writing, any determination required under this Section 10
shall be made in writing by the Companys independent public accountants immediately prior to
Change of Control (the Accountants), whose determination shall be conclusive and binding upon
Executive and the Company for all purposes. For purposes of making the calculations required by
this Section 10, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations concerning the application
of Sections 280G and 4999 of the Code. The Company and Executive shall furnish to the Accountants
such information and documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 10. If there is a reduction
pursuant to this Section 10 of the severance benefits to be delivered to Executive, such reduction
shall first be applied to any cash amounts to be delivered to the Executive under this Agreement
and thereafter to any other severance benefits of Executive hereunder.
11. Definition of Terms. The following terms referred to in this Agreement shall have
the following meanings:
(a) Benefit Plans. Benefit Plans means plans, policies or arrangements that the
Company sponsors (or participates in) and that immediately prior to Executives termination of
employment provide Executive and/or Executives eligible dependents with medical, dental, vision
and/or financial counseling benefits. Benefit Plans do not include any other type of benefit
(including, but not by way of limitation, disability, life insurance or retirement benefits). A
requirement that the Company provide Executive and Executives eligible dependents with coverage
under the Benefit Plans will not be satisfied unless the coverage is no less favorable than that
provided to Executive and Executives eligible dependents immediately prior to Executives
termination of employment. Notwithstanding any contrary provision of this Section 11, but subject
to the immediately preceding sentence, the Company may, at its option, satisfy any requirement that
the Company provide coverage under any Benefit Plan by instead providing coverage under a separate
plan or plans providing coverage that is no less favorable or by paying Executive a lump-sum
payment sufficient to provide Executive and Executives eligible dependents with equivalent
coverage under a third party plan that is reasonably available to Executive and Executives
eligible dependents.
-5-
(b) Cause. Cause means any of the following: (i) the failure by you to
substantially perform your duties with the Company (other than due to your incapacity as a result
of physical or mental illness for a period not to exceed 90 days); (ii) the engaging by you in
conduct which is materially injurious to the Company, its business or reputation, or which
constitutes gross misconduct; (iii) your material breach of the terms of this Agreement, the
Invention Agreement or any other agreements between you and the Company; (iv) the material breach
or taking of any action in material contravention of the policies of the Company adopted by the
Board of Directors or any committee thereof, including, without limitation, the Companys Code of
Ethics, Insider Trading Compliance Program, Disclosure Process and Procedures or Corporate
Governance Guidelines; (v) your conviction for or admission or plea of no contest with respect to a
felony; or (vi) an act of fraud against the Company, the misappropriation of material property
belonging to the Company, or an act of violence against an officer, director, employee or
consultant of the Company; provided, however, that in the event that any of the foregoing events in
(i), (iii) or (iv) is capable of being cured, the Company shall provide written notice to you
describing the nature of such event, and you shall thereafter have thirty (30) business days to
cure such event.
(c) Change of Control. Change of Control means the occurrence of any of the
following:
(i) Any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended) becomes the beneficial owner (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty percent (50%) or more of
the total voting power represented by the Companys then outstanding voting securities; or
(ii) Any action or event occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. Incumbent Directors shall mean directors who
either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors
at the time of such election or nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating to the election of
directors to the Company); or
(iii) The consummation of a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iv) The consummation of the sale, lease or other disposition by the Company of all or
substantially all the Companys assets.
(d) Disability. Disability shall mean that Executive has been unable to perform
his Company duties as the result of his incapacity due to physical or mental illness, and such
inability, at least twenty-six (26) weeks after its commencement, is determined to be total and
permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or
-6-
Executives legal representative. Termination resulting from Disability may
only be effected after at least thirty (30) days written notice by the Company of its intention
to terminate Executives employment. In the event that Executive resumes the performance of
substantially all of his or her duties hereunder before the termination of his or her employment
becomes effective, the notice of intent to terminate shall automatically be deemed to have been
revoked.
(e) Good Reason. Good Reason means any of the following unless such event is agreed
to, in writing or as set forth below, by you: (i) a material reduction in your salary or benefits
(excluding the substitution of substantially equivalent compensation and benefits), other than as a
result of a reduction in compensation affecting employees of the Company, or its successor entity,
generally; (ii) a material diminution of your duties or responsibilities relative to your duties
and responsibilities in effect immediately prior to the Change of Control, provided however, that,
in the case of the Company being acquired and made part of a larger organization, a change in your
title or reporting requirements where your duties, responsibilities and authority after the Change
of Control are functionally similar to your duties, responsibilities and authority prior to the
Change of Control (as, for example, when the Vice-President, Sales of the Company remains
responsible for sales of the Companys products following a Change of Control but is not made the
Vice President, Sales of the acquiring corporation) shall not constitute Good Reason; (iii)
relocation of your place of employment to a location more than 50 miles from the Companys office
location at the time of the Change of Control; and (iv) failure of a successor entity in any Change
of Control to assume and perform under this Agreement. If any of the events set forth above shall
occur, you shall give prompt written notice of such event to the Company, or its successor entity,
and if such event is not cured within thirty (30) days from such notice you may exercise your
rights to resign for Good Reason, provided that if you have not exercised such right within 45 days
of the date of such notice you shall be deemed to have agreed to the occurrence of such event.
12. Arbitration.
(a) General. In consideration of Executives service to the Company, its promise to
arbitrate all employment related disputes and Executives receipt of the compensation, pay raises
and other benefits paid to Executive by the Company, at present and in the future, Executive agrees
that any and all controversies, claims, or disputes with anyone (including the Company and any
employee, officer, director, shareholder or benefit plan of the Company in their capacity as such
or otherwise) arising out of, relating to, or resulting from Executives service to the Company
under this Agreement or otherwise or the termination of Executives service with the Company,
including any breach of this Agreement, will be subject to binding arbitration under the
Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2,
including Section 1283.05 (the Rules) and pursuant to California law. Disputes which Executive
agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include any
statutory claims under state or federal law, including, but not limited to, claims under Title VII
of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age
Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the California
Fair Employment and Housing Act, the California Labor Code, claims of harassment, discrimination or
wrongful termination and any statutory claims. Executive further understands that this Agreement
to arbitrate also applies to any disputes that the Company may have with Executive.
-7-
(b) Procedure. Executive agrees that any arbitration will be administered by the
American Arbitration Association (AAA) and that a neutral arbitrator will be selected in a manner
consistent with its National Rules for the Resolution of Employment Disputes. The arbitration
proceedings will allow for discovery according to the rules set forth in the National Rules for the
Resolution of Employment Disputes or California Code of Civil Procedure. Executive agrees that the
arbitrator will have the power to decide any motions brought by any party to the arbitration,
including motions for summary judgment and/or adjudication and motions to dismiss and demurrers,
prior to any arbitration hearing. Executive agrees that the arbitrator will issue a written
decision on the merits. Executive also agrees that the arbitrator will have the power to award any
remedies, including attorneys fees and costs, available under applicable law. Executive
understands the Company will pay for any administrative or hearing fees charged by the arbitrator
or AAA except that Executive will pay the first $125.00 of any filing fees associated with any
arbitration Executive initiates. Executive agrees that the arbitrator will administer and conduct
any arbitration in a manner consistent with the Rules and that to the extent that the AAAs
National Rules for the Resolution of Employment Disputes conflict with the Rules, the Rules will
take precedence.
(c) Remedy. Except as provided by the Rules, arbitration will be the sole, exclusive
and final remedy for any dispute between Executive and the Company. Accordingly, except as
provided for by the Rules, neither Executive nor the Company will be permitted to pursue court
action regarding claims that are subject to arbitration. Notwithstanding, the arbitrator will not
have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator
will not order or require the Company to adopt a policy not otherwise required by law which the
Company has not adopted.
(d) Availability of Injunctive Relief. In addition to the right under the Rules to
petition the court for provisional relief, Executive agrees that any party may also petition the
court for injunctive relief where either party alleges or claims a violation of this Agreement or
the Confidentiality Agreement or any other agreement regarding trade secrets, confidential
information, nonsolicitation or Labor Code §2870. In the event either party seeks injunctive
relief, the prevailing party will be entitled to recover reasonable costs and attorneys fees.
(e) Administrative Relief. Executive understands that this Agreement does not
prohibit Executive from pursuing an administrative claim with a local, state or federal
administrative body such as the Department of Fair Employment and Housing, the Equal Employment
Opportunity Commission or the workers compensation board. This Agreement does, however, preclude
Executive from pursuing court action regarding any such claim.
(f) Voluntary Nature of Agreement. Executive acknowledges and agrees that Executive
is executing this Agreement voluntarily and without any duress or undue influence by the Company or
anyone else. Executive further acknowledges and agrees that Executive has carefully read this
Agreement and that Executive has asked any questions needed for Executive to understand the terms,
consequences and binding effect of this Agreement and fully understand it, including that Executive
is waiving Executives right to a jury trial. Finally, Executive agrees that Executive has been
provided an opportunity to seek the advice of an attorney of Executives choice before signing this
Agreement.
-8-
13. Successors.
(a) The Companys Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or
substantially all of the Companys business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement in the same manner
and to the same extent as the Company would be required to perform such obligations in the absence
of a succession. For all purposes under this Agreement, the term Company shall include any
successor to the Companys business and/or assets which executes and delivers the assumption
agreement described in this Section 13(a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) The Executives Successors. The terms of this Agreement and all rights of
Executive hereunder shall inure to the benefit of, and be enforceable by, Executives personal or
legal representatives, executors, administrators, successors, heirs, distributees, devisees and
legatees.
14. Notice.
(a) General. Notices and all other communications contemplated by this Agreement
shall be in writing and shall be deemed to have been duly given when personally delivered or when
mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the
case of Executive, mailed notices shall be addressed to him or her at the home address which he or
she most recently communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall be directed to the
attention of its Chief Financial Officer.
(b) Notice of Termination. Any termination by the Company for Cause or by Executive
for Good Reason or as a result of a voluntary resignation shall be communicated by a notice of
termination to the other party hereto given in accordance with Section 14(a) of this Agreement.
Such notice shall indicate the specific termination provision in this Agreement relied upon, shall
set forth in reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination date (which shall
be not more than thirty (30) days after the giving of such notice).
15. Miscellaneous Provisions.
(a) No Duty to Mitigate. Executive shall not be required to mitigate the amount of
any payment contemplated by this Agreement, nor, except as otherwise contemplated in this
Agreement, shall any such payment be reduced by any earnings that Executive may receive from any
other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or discharged
unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by
an authorized officer of the Company (other than Executive). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement by the other party
-9-
shall be considered a waiver of any other condition or provision or of the same condition or
provision at another time.
(c) Headings. All captions and section headings used in this Agreement are for
convenient reference only and do not form a part of this Agreement.
(d) Entire Agreement. This Agreement and the Invention Agreement constitute the
entire agreement of the parties hereto and supersedes in their entirety all prior representations,
understandings, undertakings or agreements (whether oral or written and whether expressed or
implied) of the parties with respect to the subject matter hereof. No future agreements between
the Company and Executive may supersede this Agreement, unless they are in writing and specifically
mentioned this Agreement.
(e) Choice of Law. The laws of the State of California (without reference to its
choice of laws provisions) shall govern the validity, interpretation, construction and performance
of this Agreement.
(f) Severability. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other provision hereof,
which shall remain in full force and effect.
(g) Withholding. All payments made pursuant to this Agreement will be subject to
withholding of applicable income and employment taxes.
(h) Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which together will constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
-10-
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the
Company by its duly authorized officer, as of the day and year set forth below.
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COMPANY |
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CYTOKINETICS, INCORPORATED |
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By:
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/s/James Sabry |
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Title: |
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President & CEO |
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EXECUTIVE
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/s/David Cragg
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David Cragg, Vice President of Human |
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Resources |
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exv23w1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-115146 and 333-125973) and Form S-3 (Nos. 333-125786 and 333-129786) of Cytokinetics,
Incorporated of our report dated March 8, 2006 relating to the financial statements, managements
assessment of the effectiveness of internal control over financial reporting and the effectiveness
of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
March 9, 2006
exv31w1
Exhibit 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Sabry, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cytokinetics, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a
(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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By: |
/s/James Sabry
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James Sabry, |
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Chief Executive Officer and
Director
(Principal Executive Officer) |
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Date:
March 9, 2006
exv31w2
Exhibit 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sharon Surrey-Barbari, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cytokinetics, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a
(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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By: |
/s/Sharon Surrey-Barbari
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Sharon Surrey-Barbari, |
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Chief Financial Officer
(Principal Financial Officer) |
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Date:
March 9, 2006
exv32w1
Exhibit 32.1
CEO and CFO CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. Section 1350)
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, James Sabry, Chief Executive Officer and Director, and Sharon Surrey-Barbari, Chief Financial
Officer, of Cytokinetics, Incorporated (the
Company), hereby certify that to the best of our knowledge:
1. The Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and to
which this certification is attached as Exhibit 32.1 (the Periodic Report), fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
2. The information contained in this Periodic Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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By: |
/s/James Sabry
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James Sabry, |
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Chief Executive Officer and
Director
(Principal Executive Officer) |
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By: |
/s/Sharon Surrey-Barbari
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Sharon Surrey-Barbari, |
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Chief Financial Officer
(Principal Financial Officer) |
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Date:
March 9, 2006