Cytokinetics, Incorporated (CYTK) Earnings Call Transcript & Summary

Good morning, and welcome, ladies and gentlemen, to the 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 Joanna Siegall, Cytokinetics' Senior Manager 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 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 specifics of the deal. Before Ching Jaw, our SVP and Chief Financial Officer, will summarize the financial terms 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 future development and commercialization for omecamtiv mecarbil before Robert will provide final comments and open the call for questions. At that time, we will also be joined by Stuart Kupfer, Chief Medical Officer; and Andrew Callos, Chief Commercial Officer. 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, in particular, our quarterly report for the third quarter filed on Form 10-Q. We undertake no obligation to update any forward-looking statements after this call. Compounds or molecular entities mentioned or identified are investigational and have not been approved by the U.S. Food and Drug Administration or any governmental regulatory agencies. Now I will turn the call over to Robert.

Thank you, Joanna, and thank you to everyone for joining us on the call this morning. This morning, we issued a joint press release with Ji Xing Pharmaceuticals announcing the expansion of our collaboration. Cytokinetics has granted to Ji Xing an exclusive license to develop and commercialize omecamtiv mecarbil in Greater China. In exchange, Cytokinetics will receive $70 million in committed capital and up to $330 million in additional milestone payments plus royalties on the net sales of omecamtiv mecarbil in Greater China. These deals build on our already successful collaboration with Ji Xing for aficamten that we began last year. The expansion of this collaboration is enabling Ji Xing to build synergies between the potential commercialization of both omecamtiv mecarbil and aficamten in China, similar to how we plan to leverage parallel synergies and efficiencies across our business for the potential approvals and planned commercialization of omecamtiv mecarbil and aficamten in North America. Given Xi Jing's complementary expertise to ours, and our company's mutual interest in advancing potential treatments for cardiovascular disease. We are confident that Xi Jing is the right partner to bring omecamtiv mecarbil to more patients in China and their other licensed territories. Libby, Ching and Fady will now elaborate on the details of this expanded collaboration and how this supports our strategic vision of building a global cardiovascular franchise. With that, I'll now turn the call over to Libby to review the specifics of the deals.

Thanks, Robert. With the expansion of our collaboration with Ji Xing, Cytokinetics has granted Ji Xing Pharmaceuticals an exclusive license to develop and commercialize omecamtiv mecarbil in the Greater China region, namely Mainland China, Hong Kong, Macau and Taiwan. In exchange, Cytokinetics receives an upfront and near-term milestone payments, totaling $50 million (sic) [$70 million] and may be eligible to receive from Ji Xing additional milestone payments, summing up to $330 million for the achievement of certain commercial milestone events. In addition, Ji Xing will pay to Cytokinetics tiered royalties from the mid-teens to the low 20s range on the net sales of omecamtiv mecarbil in the Greater China region, subject to certain reductions for generic competition, patent expiration and payments for licenses to third-party patents. Ji Xing will be responsible for the development and commercialization of omecamtiv mecarbil in China in coordination with Cytokinetics, initially focused on heart failure with reduced ejection fraction or HFrEF. Ji Xing will have the opportunity to participate in future Cytokinetics global clinical trials of omecamtiv mecarbil. Under a separate agreement with entities affiliated with investment funds managed by RTW Investments, Cytokinetics and RTW have agreed to common stock purchase agreements for the sale and issuance to RTW of shares of Cytokinetics common stock with an aggregate purchase price of $20 million at a price per share of approximately $39.12. With that, I'll now turn the call over to Ching to elaborate on these deals with regard to the financials.

Thanks, Libby. Taking into consideration the capital from these transactions, we expect to end 2021 with at least 2 years of forward cash even as we expect spending in 2022 and 2023 to be higher than our expected spending this year. We do not expect to provide our 2022 financial guidance until our Q4 2021 earnings call early next year. We believe that with these deals, we are positioned financially and strategically to execute on our potential launch of omecamtiv mecarbil once approved in North America and continuing to advance our pipeline and strategic business franchise. And now I will turn the call over to Fady to speak to the development collaboration.

Thanks, Ching. The transactions announced today enable us to build on the already successful development collaboration for aficamten that exists with Ji Xing and extended now to include omecamtiv mecarbil. Our intent is to ensure the continued generation of compelling data for omecamtiv mecarbil that informs the potential views in patients with heart failure and reduced ejection fraction. Collaborating with Ji Xing expands the reach of our development program for omecamtiv mecarbil geographically and reinforces both Cytokinetics and Ji Xing's commitment to potentially bring novel therapies to more people around the world. Under this collaboration, Ji Xing will have the opportunity to participate in future Cytokinetics' global clinical trials of omecamtiv mecarbil, such as pursuing additional indications for the product or further delineating its clinical benefit in heart failure with reduced ejection fraction. We've been pleased with our partnership with Ji Xing around aficamten, for which Stuart Kupfer is the co-chair of our joint development committee, and look forward to continue to work together in our newly expanded collaboration. And with that, I'll turn the call back over to Robert.

Thank you, Fady. We're very pleased to announce this expanded collaboration today. Cytokinetics has always been built on a strong financial foundation, and we have a history of deal making to support our continued growth and progress. The committed capital we'll receive through this deal will add to our cash runway and support our continued execution against the potential commercialization of omecamtiv mecarbil in North America and other geographies. Over the past year, we've established a very productive successful collaboration with our colleagues at Ji Xing for aficamten, and we believe they are the right partner for the further development of potential commercialization of omecamtiv mecarbil in Greater China, expanding this partnership reinforces the cardiovascular franchise model on which we're building our business, driven by our goal to bring novel medicines to more patients around the world. Ji Xing shares this goal and together we believe we can deliver on the promise of muscle biology and the modulation of cardiac contractility. Importantly, as we have previously communicated at Cytokinetics we're seeking to execute on a structured financing transaction as well. Today's announcement of this deal with Ji Xing and RTW does not preclude that possibility. And we hope to be able to move towards that objective as well. We believe that Cytokinetics has demonstrated a strong track record for monetizing our pioneering leadership in muscle biology and diversifying access to capital through business and corporate development transactions comprising licensing and royalty deals alongside a proper balance of both equity and debt deals. We hope to continue that history rolling forward with this and other deals as we mature our company and leverage our expertise in R&D towards also commercialization, especially in geographies outside our own reach. And operator, with that, we can now open the call up to questions, please.

[Operator Instructions] Our first question comes from the line of Carter Gould with Barclays.

Robert and team, congratulations on the deal. I guess, Robert, the obvious first question is what this deal implies around additional partnering. The partnership process, I guess, have been framed around multiple discussions around Asia and Europe. And this deal, obviously, is China-focused with an existing partner. So should we think about broader partnership in Asia and Europe sort of changing after this? Is that less of a near-term objective to simply delay those? And are EU and the rest of Asia more likely to get partnered together now? Any commentary on that front would be helpful.

Yes. I'd say that in my nearly 40 years of doing business development deals, we -- in this campaign, had an opportunity to evaluate options that included Europe and Japan and China and rest of world or otherwise, as we chose to separate Greater China from those other geographies. And and also consider that alongside of the corporate development structured financing transactions you've heard us referencing. I think you should assume that we're going to approach this on a geography-by-geography basis and alongside of what might be multiple deals. What we noted through the course of these discussions, and we had different architecture of deals to consider, is that it seems in our best interest to align aficamten and omecamtiv mecarbil in Greater China. And increasingly, we believe that it's going to be the China national companies that are going to have competitive advantage relative to multinational companies in Greater China. Ji Xing has recruited a superb management team based in China, people with a great deal of expertise directly in China. And we decided that it was in our interest to align omecamtiv and aficamten in that same expanded partnership. So don't assume by doing this deal that we aren't also in doing other deals, and you should be expecting those as well, but this one seemed to be the best thing to do for that particular geography.

Your next question is from Anupam Rama with JPMorgan.

So quick clarification question. The $330 million in milestones is that commercial only? Or are there regulatory milestones such as an approval or NRDL listing included in there as well? And then when will we understand sort of next step for omecamtiv in China? Can you remind us if there are any regional patients enrolled in GALACTIC?

Sure. So I'll start. I'll turn it over to Libby to characterize those milestone payments as best we can based on what is agreed for public disclosure. Then I'll turn it over to Fady to remind you about China and GALACTIC and next steps. So Firstly, this is a deal that is focused to Greater China, and it is oriented towards what will be, obviously, committed payments that are near term. But a good deal of the upside here also exists in potential future milestone payments. Libby, could you elaborate, please?

Yes. To answer the question, what we've disclosed is that these are commercial milestone events. We haven't elaborated in detail regarding what triggers those events?

And Fady, could you and Stuart speak to GALACTIC in China and next steps?

Sure. I think in terms of GALACTIC, we did enroll patients in Greater China. We enrolled 400 patients in GALACTIC from Greater China, and they were part of prespecified Asian strata that as you can see from the primary publication had a very good response to omecamtiv mecarbil. So we think precedent for the drug being used in China and familiar to -- we had over, I think, 40 sites in China at leading hospitals and familiar there already to many investigators. So in the future, maybe I'll ask Stuart to talk about a little bit how we might approach things going forward.

Thanks, Fady. Well, I think the main point is that the data in China are consistent with the rest of the study, both from efficacy and safety profile and that certainly indicates that omecamtiv mecarbil will be an important addition to the treatment of HFrEF in that region as well. So we also look forward to, as has been stated, the possibility of trying to participate in future studies on omecamtiv mecarbil.

Yes. To that point, we've had fairly extensive conversations with Ji Xing about what we would like to be doing in connection with some additional Phase IV evaluation life cycle management with omecamtiv mecarbil. It's not our current assumption that, that's required for registration of omecamtiv mecarbil in China, but instead that we should be able to proceed based on what had been proactive conversations around China even before we started GALACTIC. So the expectation is that under this collaboration, we can proceed with Ji Xing as our partner towards registration and marketing authorization in China based on GALACTIC. Does that answer your question?

Yes.

Sure. Thank you.

Your next question is from Yasmeen Rahimi with Piper Sandler.

Congratulations on a great deal. Two quick questions for you. Team, maybe the first question is, how soon can we be thinking about approval in China and, therefore, accounting for revenues from the royalty streams. And then the second question is can you -- is it naive to think about additional partnership news to be coming ahead of an approval here in the U.S?

Sure. I'll turn it over to Fady, but I'll first say it's probably premature for us to be speculating. We have not been engaging China regulatory authorities in the same way we've been doing that in other geographies. So not with the same frequency yet, but that should be coming soon. So I think we'll have more that we'll be able to share about that and time lines once Ji Xing has those engagements in 2022? As far as other deals, yes, you should be expecting other deals as we'll be hopefully elaborating once those are closed. Our goal is to be enabling of not only us to be further supplementing our balance sheet, but also as we expect to extend our geographic reach. Fady, anything else you want to add to that?

No, I think you covered it all.

Your next question is from Salim Syed with Mizuho.

Congrats on the deal. So just a couple for me. Sorry to try to kind of belabor this one. But is the base case right now that you'll be able to obtain approval based on the China data produced with GALACTIC? Or is the base case right now that you'll have to at least run another study? Just so we can -- I know you can't precisely tell us when you may expect approval here, but what is the general thesis right now between you and Ji Xing? And then just on further business development here, should we be expecting anything at all on aficamten potentially like in Europe, for example or just rule that out completely?

Yes. Fady, do you want to take the first one and then I'll take the second.

Sure. Salim, I think we should just be clear, we do expect the data from GALACTIC to be sufficient to seek approval in China. We have several interactions with the Chinese regulatory authorities for the conduct of GALACTIC to understand how many patients we should enroll in that geography and other things, so that's our base case. Obviously, things can always change during the review process. But that should be clear that, that's our expectation.

And as far as your second question regarding partnering in Europe, there's a very high level of interest in what Cytokinetics can offer a partner in Europe. And that's inclusive of aficamten to your question. But at the same time, we're very sober to what we would want from a partner. And our expectations are somewhat aggressive and our interests are to ensure that any deal we do are very much aligned with our own strategic interests, which are to maintain a majority of the control and economics as it associates with aficamten and also omecamtiv mecarbil in certain geographies. So our goal is to go to market ourselves in North America and Europe, and we have different expectations as to omecamtiv and aficamten that way. We'd probably be willing to share more of those rights and responsibilities given a more diffuse marketplace for omecamtiv in Europe than for aficamten. So as we look at these deals, geography by geography, we're going to make certain that we do the best we can to maximize shareholder value as well as ensure that we maintain our own autonomy and control over our key lead cardiovascular programs. So that's not to say that we aren't intending to do deals. It is to say that any deals we do are going to be high watermark deals.

Your next question is from Charles Duncan with Cantor Fitzgerald.

This is Pete Stavropoulos for Charles. Congratulations on the transaction. Can you discuss what are the royalty agreements in terms of rate adjustment when certain sale levels are achieved? And can you discuss it is a ramp up or ramp down? And the second question we have is, can you provide any color on the minimums required and performance metrics that -- and are there any take back rights?

So very good questions. I'm not sure we'll be able to answer them to your satisfaction because we, obviously, are maintaining confidentiality around certain key elements. The royalties do escalate with increasing sales, I suspect that's obvious but Libby, is there anything else that you think we can disclose?

I don't think that we can comment any detail at this point.

I'd say that what we agreed to is conventional with regard to those matters that you asked about. What may be more appropriate to speak about is, in a general sense, that we did align together Ji Xing and Cytokinetics on diligence requirements and Andrew Callos is on the line. He can speak in a general sense about diligence and -- or having agreed to a commercial plan and diligence metrics that we believe ensure that we've aligned our interest. Andrew, in a general sense?

Sure. I think there's typical terms in there around the joint commercialization committee to meet our regular frequency and review commercial activities related to key hospitals, key targets, investment levels and the like, just to ensure diligence and continue to widen it globally to the commercial strategy.

What I can say is Ji Xing led by Joe Romanelli, formerly Head of Merck China is first class and first rate in terms of our transparency and dialogue. We've established a very nice relationship and he's leading a team there that's very highly committed to the cardiovascular space in Greater China. I think they're going to be a category leader. I think they're going to be a very serious player in that space in Greater China. Now with both of our cardiovascular drug candidates, it's apparent how serious they are about making this a big strategic push, and we're very pleased to be aligned together with them.

Your next question is from Jason Butler with JMP Securities.

It's actually Roy in for Jason. I just had one really box checking obvious one, but the 2 years of forward cash at year-end, that does not include any assumption on the structured financing you mentioned, correct?

Ching, do you want to take that?

That is correct. So it's purely based on the cash we have on hand as well as cash that we expect to bring in through these deals announced today.

Okay. That makes sense. And then anything you guys can say high level about the market opportunity in China, just how you see the patient population there. And then pricing, obviously, you're not going to give a price. But is it fair to assume that 20% the U.S. price, 50%, what's kind of -- how do you think about pricing?

Libby and Andrew, do you want to take those?

So I think with respect to the market for heart failure, we refer in the public disclosure about as you can see globally, that heart failure is a very serious condition and particularly within China, affecting over 10 million individuals. And as you know, from other calls with the company, approximately half of those have heart failure with left ventricular ejection fraction issues. So it's a growing opportunity, and we're exceedingly excited to be working with Ji Xing to bring omecamtiv and our other programs forward in this area. Andrew?

Maybe the only thing I'll add to that is I think the market size, obviously, is a much larger market. Most are treated that are in the urban areas. And from a pricing point of view, it's typical in the China market where it's really a market-based price until NRDL listing and then the market expands and the price would decline over time. So that's really just a normal pricing dynamic for China. That's the expectation here.

Your next question is from Jeff Hung with Morgan Stanley.

Did the discussion on Ji Xing on the size of the opportunity at regions focus on higher-risk patients. And then of the $50 million upfront and near-term payments on the collaboration agreement, are the near-term milestone payments focused only on the Greater China market? Or is any of it tied to the U.S. regulatory process?

So I don't think we can elaborate on your second question more than what we've already said, other than you can assume that it is committed capital as will be earned here in the very near term. With regard to your first question, the strategy here is the same. We're approaching omecamtiv mecarbil based on what the data tells us and the data tells us that there's an amplified effect in higher-risk patients, but the labeling might be inclusive of all patients. Ultimately, that will be determined on a geography-by-geography basis in conversations with regulatory authorities. But we and Ji Xing are aligned with regard to how to approach this on a global planning basis. I hope that helps. Fady, Stuart, anything else you would want to add to that?

Yes. No. I think it's just that we are aligned and sort of thinking about how to expand the evidence base for omecamtiv mecarbil. And as I said before, in the population patients enrolled in China, we had very strong treatment effect. Certainly, if we pursue a more severe population, we would include China in that evaluation. But there are other things we may do that would also be relevant to include China in their -- in that pursuit.

And obviously, the patients enrolled in China will be reviewed by the China regulatory authorities. Those data haven't yet been presented but are consistent as Stuart said for effects in GALACTIC. Next question, please?

Your next question is from Emanuela Branchetti with H.C. Wainwright.

Congrats on the very good news. Robert, what you and Fady has touched upon this, but I was wondering if you can clarify for me exactly what are your plans for additional studies to be conducted with omecamtiv. You touched upon a Phase IV in China, should we expect additional trials in patients with reduced ejection fraction? And how the -- what are the potential additional indications you are targeting?

Yes. Very good question. And we haven't been as specific or committal about this yet, but I expect you'll hear more from us in 2022 about our plans. We don't believe it's very prudent to go to market with any potential new medicine without continuing to invest in its life cycle management in Phase IV program. So Fady and Stuart and others at our company have been working on these additional studies and considering how to prioritize them throughout all of 2021. We just haven't yet been in a position to fund them or disclose them, but that's coming soon, I expect. Fady, could you elaborate in a general way about how you're thinking about some of these options?

Yes. I mean, I think, first of all, let me just be clear, we don't necessarily expect China-specific studies per se unless there's a compelling reason to do them that way. We think of these as global studies include China. Some of them, as discussed earlier would focus on the more severe patient population, perhaps by elaborating an endpoint that's a bit different than what we use in GALACTIC including other potential features of benefit. We might look at how omecamtiv mecarbil impacts the use of guideline-directed medical therapy tolerability. We know -- we've shown in GALACTIC how well tolerated omecamtiv is, and we may be able to amplify that in certain populations that may be intolerant of guideline medical directed therapy. So there are a number of ideas that we've been fleshing out. And I think as we go through the regulatory process here in the U.S. and speak with our external stakeholders across the academic and physician community, we'll begin to focus and elaborate on what we may eventually pursue probably later in the calendar year of 2022.

Got it. And just a second quick question. Could you provide any update on the NDA submission activities for omecamtiv and potential timeline?

Yes. So I won't be able to provide any update other than reiterate what we had indicated, which was -- it was our objective to submit an NDA in Q4, and we would be commenting upon its potential acceptance for filing by FDA but not otherwise on its submission.

Your next question is from Dane Leone with Raymond James.

Congratulations on the partnership deal with Ji Xing. Just a clarification question for me, sorry. And I think a lot of us had expected when you think about partnering aficamten and omecamtiv in the U.S. region that you retain, at least the standard co-promote maybe 50-50, if you were to sign a deal with a larger biopharma company with an existing cardiology channel. I guess some of us were a little surprised, at least from your prior comments on the call, that you would be thinking of building or having some sort of commercial infrastructure in Europe or Western Europe specifically. Could you maybe clarify your kind of thoughts around that strategy of Cytokinetics building out commercial infrastructure in Europe.

Sure. Happy to. So I think we've said this before, if otherwise made clear, I'll try to be more explicit. In North America, we expect and we're building already, we expect to build the commercial organization that would be sufficient for our commercialization of omecamtiv mecarbil and aficamten. In Europe, Western Europe, in particular, to your point, we see it differently, but we expect that we will be in a position to co-commercialize omecamtiv mecarbil. And as to aficamten, that's to be determined. We believe that there's an opportunity as it relates to aficamten for us to go it alone, but there may be advantages to partnering also in Europe. And those could considerably extend to North America on the margin, but not as would be required. I make that point because I want to emphasize, it's our full intention to build out our commercial infrastructure to support omecamtiv mecarbil and aficamten as is required in North America. In Europe, you could imagine us doing work alongside a partner for omecamtiv mecarbil and taking on more of that, if not all of that ourselves for aficamten. I hope that helps. Any follow-up to that?

His line has disconnected. At this time, there are no additional questions. I would like to turn it back over to Robert Blum for closing remarks.

Okay. Thank you, operator, and thank you to all the participants on our teleconference today for your attention to these matters and this deal announced today. Thanks for your continued support and interest in Cytokinetics. We believe that the deals announced today further our geographic reach for both the commercialization of omecamtiv mecarbil, but in synergy with aficamten in Greater China. We think that's very much in our interest and that of patients and shareholders. And we also want to emphasize that this is the beginning, not the end of what should be other expectations around other deals we'll be doing. And our goal is to do territory by territory, what's in the best interest, we believe, of ultimately the drug candidate in connection with our ambitions and our mission. If there are any other questions that folks have that they want to follow up with us after this call, happy to entertain those and look forward to hopefully speaking with you again very soon. And if not today, then hopefully -- everybody has good holidays, and we'll look forward to a very good 2022 with important milestones and other progress that we intend to be elaborating in Q1. With that, operator, we can conclude the call. Thanks very much.

Thank you. This concludes today's conference call. You may now disconnect. Speakers, please hold the line.