Why Cytokinetics Inc. Shares Soared

Cytokinetics shocked Wall Street with a surprise profit. Should investors be buying into this bullishness or would they be best served remaining cautious?

Feb 7, 2014 at 1:38PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Cytokinetics (NASDAQ:CYTK), a clinical-stage biopharmaceutical company developing small molecule therapies that modulate muscle function in order to treat serious diseases, roared higher by as much as 34% after the company reported its fourth quarter earnings results.

So what: For the quarter, Cytokinetics reported revenue totaling $24.3 million, which was leaps and bounds above the $2.2 million reported in the year-ago period, as adjusted net income climbed to $0.21 per share, reversing a year-ago adjusted loss of $0.48 per share. Comparatively speaking, Wall Street had expected a quarterly EPS loss of $0.08, so that equates to your run-of-the-mill $0.29 per share EPS beat! The dramatic boost in its top-line came from a combined $6.5 million in licensing and research and development revenue from its collaboration with Astellas Pharma, as well as $17.2 million in licensing revenue from its collaboration with Amgen. Looking to fiscal 2014, Cytokinetics is forecasting $19 million-$21 million in cash revenue -- not including $10 million in deferred revenue -- as well as R&D expenses of $50 million-$53 million, and general/administration expenses of $15 million-$17 million.

Now what: It's certainly easy to please investors when you make Wall Street analysts look like fools around earnings season. One thing to keep in mind, though, is that in spite of the numerous pipeline catalysts Cytokinetics possesses, it's still burning through its cash. Based on its guidance, it could burn through approximately $46.5 million in cash in 2014 based on the midpoints of its estimates. With the company ending the year at $80.2 million in cash, it could precipitate a dilutive secondary offering. My suggestion would be to stick to the sidelines and wait for late-stage data from experimental acute-heart-failure drug omecamtiv mecarbil, which is being developed in collaboration with Amgen, before making any moves one way or another on Cytokinetics.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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