Shares of Cytokinetics (NASDAQ:CYTK), a clinical-stage biopharmaceutical company, tumbled after the company announced a $100 million convertible-debt offering. Concern about the potential dilution that will happen if the company can't repay its debt before the notes convert in 2026 pressured the stock, which fell by 19.4% as of 3:55 p.m. EST on Thursday.
After losing $91.1 million during the first nine months of 2019, Cytokinetics finished September with just $166 million in cash and short-term investments. Without any products to sell, the company's going to need more cash to support the continuing development of its clinical-stage pipeline.
In partnership with Amgen, Cytokinetics is running the pivotal 8,200-patient Galactic study with its lead candidate, a heart-failure drug called omecamtiv mecarbil. Cytokinetics will also begin a midstage trial with a wholly owned new drug candidate, CK-274, before the end of 2019.
Investors aren't too thrilled with the company's plan to raise up to $100 million through a convertible debt offering that matures in 2026 because the company's ability to repay that debt before it's converted into new shares is questionable, at best.
Cytokinetics already has a $45 million term loan that matures in 2023, and the potential approval of omecamtiv mecarbil won't help much. In 2017, the company monetized future royalties from Amgen for $90 million, and as of Sept. 30, that liability has swelled to $137.7 million.
The Galactic study isn't exactly a slam dunk, either. While omecamtiv mecarbil lowered heart tissue deformation in a midstage study, the pivotal Galactic trial is measuring the time to cardiovascular death or a heart-failure event.
If the Galactic study isn't a rousing success, Cytokinetics will be on the hook for a heap of convertible debt with no cash flow to pay for any of it. It's probably a good idea to steer clear of this risky biotech stock until it has significant amounts of revenue to work with.