Cytokinetics, Incorporated (CYTK) Earnings Call Transcript & Summary

Good morning and welcome, ladies and gentlemen, to Cytokinetics' Conference Call. At this time, I would like to inform you that this call is being recorded. [Operator Instructions] I will now turn the call over to Diane Weiser, Cytokinetics' Senior Vice President of Corporate Communications and Investor Relations. Please go ahead.

Good morning, everyone, and thanks for joining us on the call today. Robert Blum, our President and Chief Executive Officer, will lead us off today with an overview of today's announcement. Then Libby Schnieders, Senior Vice President of Business Development, will speak to the multiple components underlying the deal before Ching Jaw, our SVP and Chief Financial Officer, will summarize the financial terms of the deals and how they inform our financial outlook. Next, Fady Malik, our Executive Vice President of R&D, will discuss the impact of these transactions on the development program for CK-274 before Robert provides final comments and open the call for questions. Please note that portions of the following discussion, including our responses to questions, contain statements that relate to future events and performance rather than historical facts and constitute forward-looking statements. Our actual results might differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause our actual results to differ materially from those in these forward-looking statements is contained in our SEC filings. We undertake no obligation to update any forward-looking statements after this call. And now I will turn the call over to Robert.

Thank you, Diane, and thank you, everyone, for joining us on the call this morning. This morning, we announced a series of transactions, and included amongst those deals is a licensing collaboration, a funding deal, a royalty monetization deal and the sale of our common stock. These deals are with RTW Investments and its affiliate funds as well as with Ji Xing Pharmaceuticals and is focused to CK-2377374, or CK-274, our next-in-class cardiac myosin inhibitor that we're developing for the potential treatment of hypertrophic cardiomyopathies. The total committed capital to Cytokinetics under these deals is $250 million. In addition, we're eligible for an additional $200 million in development and commercialization milestone payments, plus royalties on future sales of CK-274 in certain Asian countries. As you'll hear in more detail from my colleagues, these deals afford us an opportunity to expand and accelerate our development program focused to CK-274 in multiple indications and across a wider span of geographies. Moreover, these deals reinforce our commitment to rapidly and broadly advance our cardiac myosin inhibitor program and to hopefully deliver a next-in-class medicine that could meaningfully impact underlying challenges of hypercontractility in patients suffering from hypertrophic cardiomyopathies. We have built our company by leveraging both innovative science as well as deals, and we're pleased to enter into another set of transactions to diversify our access to capital and extend and expand what we believe as an industry-leading cardiovascular pipeline anchored in pioneering muscle biology and pharmacology. Libby, Fady and Ching will now elaborate on the details of these several transactions and the implications for how we plan to dial up the further development of CK-274. And with that, I'll turn the call over to Libby to review the specifics of the deals.

Thanks, Robert. In connection with these agreements, Cytokinetics has granted Ji Xing Pharmaceuticals, a new company formed by RTW focused on the development and commercialization of innovative medicines in the People's Republic of China, an exclusive license to develop and commercialize CK-274 in the Greater China region, including Mainland China, Hong Kong, Macau and Taiwan, and in accordance with Cytokinetics' planned global registration programs. In exchange, Cytokinetics received an upfront payment from Ji Xing and is eligible to receive payments related to the achievement of development, regulatory and commercial milestone events for CK-274 in the field of obstructive hypertrophic cardiomyopathy and/or non-obstructive hypertrophic cardiomyopathy and other indications. In addition, Ji Xing will pay to Cytokinetics tiered royalties on net sales of CK-274 in the China region, subject to certain reductions. Ji Xing will be responsible for the development and commercialization of CK-274 in China in coordination with Cytokinetics. Development will be initially focused on hypertrophic cardiomyopathy, and Ji Xing will have the opportunity to participate in Cytokinetics' global pivotal trials of CK-274 and registration program. Cytokinetics and Ji Xing have also agreed to terms related to matters of manufacturing and regulatory affairs. Under a separate agreement with investment funds managed by RTW, Cytokinetics is eligible to receive funding for our development and commercialization of CK-274. The funding will be available at Cytokinetics' option upon the achievement of certain clinical trial milestones. In exchange for exercising options for funding, Cytokinetics has agreed to make royalty payments to RTW. Specifically, upon our initiation of a global registration program for CK-274 in each of obstructive HCM and non-obstructive HCM, Cytokinetics is eligible for funding from RTW in the amount of $45 million each in exchange for 2% royalty payable by Cytokinetics on sales of CK-274 in the United States and certain European countries. If Cytokinetics takes down the full $90 million in development from RTW, we would be responsible to pay RTW a 4% royalty on sales of CK-274 in the United States and certain European countries, subject to royalty reductions for other indications. Next, under a royalty purchase agreement between Cytokinetics and RTW, we have agreed to sell our rights to receive certain payments on potential future net sales of mavacamten, a cardiac myosin inhibitor, in exchange for onetime payment. The payments and closing of the transactions contemplated by the royalty purchase agreement are subject to customary closing conditions. Lastly, Cytokinetics and RTW have agreed to common stock purchase agreements, which provide for our sale and issuance of 2 million shares of our common stock, subject to certain trading and other restrictions. With that, I'll now turn the call over to Ching to elaborate on these deals with regard to the financials.

Thanks, Libby. As previously mentioned, these deals combined to provide Cytokinetics with $250 million in committed capital. These payments break out as follows: first, an upfront payment for the license to CK-274 in China; second, $85 million for sale of our royalty on mavacamten; third, up to $90 million for the funding of CK-274; and fourth, $50 million for sale of common stock equal to 2 million shares at $25 per share. In addition, we're eligible for another $200 million in milestone payments for development and -- CK-274 in China plus royalties on sales. Taking into consideration the capital from these transactions, we expect to end 2020 with at least 2 to 3 years of forward cash even as we plan to expand the development program for CK-274 alongside plans to co-commercialize omecamtiv mecarbil with Amgen. We will update our pro forma financials during our Q2 earnings call in August. Finally, these deals reflect our long-standing corporate development strategy to secure capital to fund our business by principally leveraging strategic partnerships. And now I will turn the call over to Fady to speak to the expanded development programs.

Thanks, Ching, and good morning, everyone. These transactions announced today enable us to extend the reach of the development program more globally by synchronizing development in North America, Europe and now China. Specifically, the funding enables us to expand our development program geographically and to consider in parallel a range of additional indications for CK-274 beyond obstructive HCM, including non-obstructive HCM and also those patients with hypercontractility associated with heart failure with preserved ejection fraction, or HFpEF. In essence, these deals provide us the opportunity to accelerate execution of our next-in-class development program and undertake key activities in parallel. Importantly, this funding meaningfully contributes to our ability to deliver on the promise of our pioneering science in the area of muscle biology directed to an expanded array of indications. In terms of specifics, regarding the development program associated with CK-274, these deals ensure that we can conduct the planned Phase III clinical trial of our next-in-class myosin inhibitor in patients with oHCM in North America, Europe and China promptly after we have results from REDWOOD-HCM and we receive feedback from regulatory authorities. Our current goal is to initiate a Phase III registration program in 2021. On a parallel path, we can be planning for the conduct of clinical trials in -- with CK-274 in nHCM and HFpEF also in the 2021 and 2022 time frame. We look forward to partnering with the team at Ji Xing and have been impressed with their professionals and the rigor with which they approach development. With that, I'll turn the call back over to Robert.

Thank you, Fady. In summary, these corporate developments announced today reflect and reinforce our unwavering commitment to the promise of our cardiac myosin inhibitor program for the potential treatment of patients suffering from diseases associated with hypercontractility of cardiac muscle. To be clear, this was a competitive and rigorous process. Over the past year, we have engaged with multinational and regional pharma and biopharma companies as well as a wide array of royalty buyers, and we believe we have optimized on our objectives with this deal to expand the development program for CK-274, diversify access to capital and monetize our pioneering leadership in the cardiovascular arena. After considering a multitude of alternative deals and partners, we're pleased to have completed these transactions with RTW Investments and Ji Xing Pharmaceuticals. RTW has a proven track record of investing in companies with innovative science, and the team at Ji Xing has complementary development expertise to that of our own. Operator, with that, we can now open up the call to questions, please.

[Operator Instructions] Your first question comes from the line of Joe Pantginis with H.C. Wainwright.

Congratulations on today's announcement, continues your long-standing record of delivering these kinds of transactions. So great job. So I have 2 questions. First, from a logistical standpoint, I was just curious if you could provide any update with regard to projected timing for REDWOOD, initial REDWOOD data and how enrollment might be going with regard to COVID. And then more importantly, how do you feel today's transactions and increased, I guess you could call it as you did, global reach for 274 potentially close the timing gap between you and mavacamten?

Excellent questions. Maybe I'll turn it to Fady, please, to answer the first one, and I'll take the second one.

Yes. So Joe, I think REDWOOD-HCM is back in -- beginning to screen and enroll patients. As you know, we suspended enrollment for a bit of time. We now have several sites that are activated and actively screening patients. We're continuing to open more sites both in the U.S. and Europe. So we've got geographic diversification to help us with COVID-19 as well. We still expect to complete enrollment in the first cohort and to have data from cohort 1 to inform the start of cohort 2 in early 2021.

And with regard to your second question, Joe, I think this deal factors very, very importantly into that strategy to narrow the gap between CK-274 and mavacamten. Mavacamten, as you know, was the subject of very encouraging Phase III results recently in the EXPLORER trial. But at the same time, there's an opportunity with the next-generation drug candidate to demonstrate some advantages potentially, especially as could be extending into China. We'll have more to say that over time with regard to where this could ultimately play out in terms of time to market. But we do foresee that by going forward, not only in an expanded geographical way but also in multiple parallel indications, we're in an enabled position to move with next-in-class properties to what hopefully can translate into an expansion of the category to the benefit of both mavacamten and CK-274.

Your next question comes from the line of Jason Butler from JMP Securities.

Congrats on the transactions. Just wondered if you could give any more specifics about how the additional capital and capital certainty impacts your plans to advance other indications. So any plans that we might see, an nHCM or any other indications begin to start Phase II trials in the 2021 time period, for example?

Yes, most definitely. I'll speak to that and ask Fady to also. As we highlighted throughout 2019, given our pioneering science in this space, we foresaw where there were opportunities in connection with this mechanism in obstructive HCM, of course, but also in other populations where hypercontractility complicates the management of these patients. And I think Cytokinetics, much like it was original in pioneering the therapeutic hypothesis in obstructive HCM, has been generating both preclinical data as well as clinical understandings about how CK-274 can move forward in these other indications. I'll turn to Fady maybe to be a bit more specific about how we're thinking about these populations, in particular, given the mechanism of action.

Yes, I think going back to our R&D day in 2018, we telegraphed our thinking in terms of nHCM and the HFpEF, in particular, a population of heart failure preserved ejection fraction where patients' etiology of their condition is hypercontractility. We think there is a sizable population with this phenotype, although it doesn't make up the majority of today's HFpEF population, which in many ways has become more driven by diabetes and obesity. But the ideas here are to focus on markers of their condition that define a population where the disease etiology is more central and cardiac in nature and develop a trial around that to look at initially function, say, in terms of symptoms and then, potentially, eventually to move on to thinking about outcomes in these patients.

I'll also mention that tomorrow, as many of you know, we're convening an Investor Day that will be early here in California. And we'll elaborate on these strategies as it relates to the biology and how that biology mechanistically translates to our build of a cardiovascular pipeline and a franchise. We'll speak to how matters of corporate development combined with commercial development enabling that to become a sustainable business. But to your question, Jason, with regard to the mechanism and the biology and how that then extends, we'll go into some more detail both with management and physician panel experts. And we won't be committal yet about what studies we will be adding to the roster in 2021, but we do foresee that we will be proceeding forward in parallel in these multiple indications.

Your next question comes from the line of Jeff Hung with Morgan Stanley.

Congratulations on the deals. I guess, can you talk about the opportunity for CK-274 in China and Taiwan such as like HCM prevalence?

Yes. So obviously, in doing this deal, that's something that we and RTW and Ji Xing were able to investigate through in each case our proprietary primary market research. I don't think we want to go at this time into too many details about that because, obviously, this is a nascent opportunity that will be evolving over time in connection with the clinical research. But I think we would be better suited to perhaps speak to that to you and others more as that becomes more tangible.

Okay. Great. And then you indicated that it's tiered, but are you able to indicate what the size royalty you are eligible from Ji Xing?

Yes. We can speak to that. It's mentioned in the 8-K that was filed also. It's a royalty that is ranging with escalating sales from low teens to high teens.

Our next question comes from the line of Charles Duncan with Cantor Fitzgerald.

Congratulations to you and the team, pretty innovative approach to funding these programs. I guess I had a question on 274, one on the mava royalties and then one on the common stock. So just quickly on 274, I'm wondering if you could provide us an estimate of the percentage of direct development expenses for 274 that you anticipate in the next couple of years that could be covered by this funding. And then also perhaps provide a little bit more color on the clinical profile that I think you mentioned for 274 that may be particularly important as you envision in Asia.

So I'll start and then maybe turn it over to Ching to speak a bit more to the financials. And then maybe, Fady, you can pick up with the remainder of the question. So obviously, for having access to committed capital of $250 million, this goes well beyond the costs that we foresee in the clinical research associated with CK-274. We are not obligated, but we have the option to take down funding from RTW. And as we have better clarity on what our financials will look like in 2021, this deal affords us certain latitudes to be able to do that in exchange for a low single-digit royalty. The REDWOOD study is an ongoing Phase II trial that we expect will conclude in 2021, and a Phase III study in obstructive HCM is, we think, in the range of each of those tranches of capital that we'd be pulling down, enabling us, we think, to be able to fund this program through this deal. But as you can appreciate, the company has a lot of moving parts. And amongst those moving parts is also our buildup of the commercial business to support co-commercialization of omecamtiv with Amgen. We expect and hope that will be happening in 2021. So we wanted to enter into a series of transactions that gave us latitudes. We can pull down capital from different sources. It could come from milestone payments that are earned under our collaboration with Amgen. It could come from this funding, both that which is going to be already on our balance sheet and that's -- that which will be available to us. And maybe I'll ask Ching to kind of speak a bit to -- for our indicating we should have over 2 years of capital at the end of this year, how he's thinking about that.

This is Ching here. Thank you for your question. So as Robert said and as I alluded during the call that with this deal and a $250 million committed funding, we expect to end 2020 with at least 2 to 3 years of forward cash. As you might appreciate, it depends on the indications that we decide to go into, as Fady alluded to during his presentation, that we might consider development in half-half. And this funding allows us the kind of flexibility that we didn't have prior to consummating this deal as to the scope and the timing of all these development programs. And I could tell you that we're on track with our current year spending to the guidance of $105 million to $115 million net cash spending for the year. And with this, we are well positioned for 2021 and 2022.

Perfect. That's helpful added color. I appreciate that. Regarding the mava royalties, I just need a clarification on that. The amount that you've received from -- or will receive from RTW, does that cover 100% of the royalties? And really, how did you establish a value on that? Does it depend on revenue levels and protect from the downside? And frankly, I wanted to know your perspective if you think this is -- mava royalties were a key driver to questions that you've been receiving from investors. Or do you believe that the royalties were largely overlooked by many investors in your recent discussions and not really a driver to Cytokinetics' share value recently? That one may be, Robert, for you.

Very good question. So we are selling the entirety of our retained royalty on mavacamten, and that will be going to RTW subject to some closing conditions. And as far as how it was valued, obviously, something like this gets valued both -- by each of Cytokinetics and RTW and also independently by other third parties, including analysts who follow Cytokinetics. With that said, only a couple of analysts who are following Cytokinetics, I think, ascribed value to that at this juncture. And therefore, I think it would probably be reasonable to say that this wasn't properly calibrated in expectations for the company and represents upside.

Okay. Final question regarding common stock that was purchased. Is that free to trade? And if not, when would it be free to trade?

So that is also elaborated on in the 8-K. It is subject to trading restrictions. Ching or Libby, do you want to elaborate?

Yes. Maybe I can start, and Libby, you can chime in. It has a 2-year restriction on trading, but if we were successful entering Phase III development with obstructive and non-obstructive HCM, then that period could be further extended until we have the results from those studies.

Your next question comes from the line of Ted Tenthoff with Piper Sandler.

Congrats on the deal. So I wanted to get a little bit more of a sense of what Ji Xing is going to be and what they're going to be bringing in China in terms of development and regulatory capabilities.

Yes. So I'll start and then maybe Fady. This is an exciting new company that RTW is supporting, nothing like the way they've helped launch other companies that have been, I think, built around very innovative science. In the case of Ji Xing, this is a company that is comprised of people who have a lot of expertise in China pertaining to cardiovascular drug development and regulatory affairs, medicine and commercialization. And I think in that way, they impressed us with their commitment to this science and this opportunity in ways that went beyond, in many instances, how we were discussing with other third parties. Fady, do you want to speak to that?

Sure. I think with Ji Xing, one of the things that attracted us was that the company that's being formed has a strong focus to cardiopulmonary medicines. And so as a consequence, they've built an expertise in this area, attracting in development cardiologists with deep expertise in terms of development obtained at large pharma as well as regulatory experience with folks that have experience with the Chinese regulatory authorities who have worked there. They're quite articulate on the operations side and also significant experience in conducting trials in the China region. And so this affords us to work with a company that is like-minded to us that very much is focused in the cardiovascular space and deeply knowledgeable about it.