CYTOKINETICS INC 10-K

ITEM 3. LEGAL PROCEEDINGS We are not currently subject to any material legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 63 Table of Contents PART II I TEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market information for common stock Our common stock is listed on the Nasdaq Global Select Market under the symbol “CYTK.” On February 22, 2022, the last reported sale price for our common stock was $33.69 per share. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and have not paid and do not in the foreseeable future anticipate paying any cash dividends. Performance Graph The comparisons in the table below are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock. This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, except to the extent we specifically incorporate it by reference into such filing. The following graph compares cumulative total return of our common stock with the cumulative total return of (i) The NASDAQ Composite Index, and (ii) The NASDAQ Biotechnology Index. The graph assumes (a) $100 was invested on December 31, 2016 in each of our common stock, the stocks comprising the NASDAQ Composite Index and the stocks comprising the NASDAQ Biotechnology Index, and (b) the reinvestment of dividends in to shares of common stock; however, no dividends have been declared on our common stock to date. $100 investment in stock or index 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 Cytokinetics, Inc. $ 100.00 $ 67.08 $ 52.02 $ 87.33 $ 171.03 $ 375.14 Nasdaq Composite Index 100.00 128.24 123.26 166.68 239.42 290.63 Nasdaq Biotechnology Index 100.00 121.06 109.77 136.56 171.64 170.55 Holders of Record As of February 22, 2022, we had 50 holders of record of common stock. The number of holders of record is based upon the actual number of holders registered as of such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations or other entities in security position listings maintained by depositories . 64 Table of Contents Dividends We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our capital stock. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Equity Compensation Information Information regarding our equity compensation plans and the securities authorized for issuance thereunder is set forth in Part III, Item 12. Unregistered Sales of Equity Securities On December 20, 2021, we entered into common stock purchase agreements with each of the RTW Investors. These common stock purchase agreements provided for the sale and issuance of an aggregate of 511,182 shares of common stock of Cytokinetics at a price per share of $39.125 and an aggregate purchase price of $20.0 million. The closing occurred on December 20, 2021. Issuer Purchases of Equity Securities None. I TEM 6. SELECTED FINANCIAL DATA ( Not required) 65 Table of Contents I TEM 7. MANAGEMENT’S 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 late-stage biopharmaceutical company focused on discovering, developing and commercializing first-in-class muscle activators and next-in-class muscle inhibitors as potential treatments for debilitating diseases in which muscle performance is compromised and/or declining. We have discovered and are developing muscle-directed investigational medicines that may potentially improve the health span of people with devastating cardiovascular and neuromuscular diseases of impaired muscle function. Our research and development activities relating to the biology of muscle function have evolved from our knowledge and expertise regarding the cytoskeleton, a complex biological infrastructure that plays a fundamental role within every human cell. As a leader in muscle biology and the mechanics of muscle performance, we are developing small molecule drug candidates specifically engineered to impact muscle function and contractility. Our clinical-stage drug candidates are: omecamtiv mecarbil, a novel cardiac myosin activator, CK-136, a novel cardiac troponin activator, reldesemtiv, a novel fast skeletal muscle troponin activator, aficamten , a novel cardiac myosin inhibitor, and CK-271, our second novel cardiac myosin inhibitor. For further information regarding our business, refer to Part I, Item 1 (Business) of this Annual Report on Form 10-K. Critical Accounting Policies and Significant 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 Annual Report on 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. Revenue Recognition We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration for those goods or services. To recognize revenue from a contract with a customer, we: (i) identify our contracts with our customers; (ii) identify our distinct performance obligations in each contract; (iii) determine the transaction price of each contract; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue as we satisfy our performance obligations. At contract inception, we assess the goods or services promised within each contract and assess whether each promised good or service is distinct and determine those that are performance obligations. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Collaborative Arrangements We enter into collaborative arrangements with partners that typically include payment to us for one of more of the following: (i) license fees; (ii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; and (iii) royalties on net sales of licensed products. Each of these payments results in collaboration or other revenues. Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied. As part of the accounting for these arrangements, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation. The stand-alone selling price may include such items as, forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, to determine the transaction price to allocate to each performance obligation. 66 Table of Contents For our collaboration agreements that include more than one performance obligation, such as a license combined with a commitment to perform research and development services, we make judgments to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate our progress each reporting period and, if necessary, adjust the measure of a performance obligation and related revenue recognition. License Fees : If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Milestone Payments : We use judgement to determine whether a milestone is considered probable of being reached. Using the most likely amount method, we include the value of a milestone payment in the consideration for a contract at inception if we then conclude achieving the milestone is more likely than not. Otherwise, we exclude the value of a milestone payment from contract consideration at inception and recognize revenue for a milestone at a later date, when we judge that it is more likely than not that the milestone will be achieved. If we conclude it is probable that a significant revenue reversal would not occur, the associated milestone is included in the transaction price. We then allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. Royalties : For contracts that include sales-based royalties, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. To date, we have not recognized any royalty revenues resulting from contracts. Research and Development Cost Reimbursements : Our now terminated collaboration agreements with Amgen and Astellas, namely the Amgen Agreement and the Astellas OSSA Agreement, included promises of research and development services. We have determined that these services collectively are distinct from the licenses provided to Astellas and Amgen under such agreements, and as such, these promises are accounted for as a separate performance obligation to be recognized over time. We recognize revenue for these services as the performance obligations are satisfied, which we estimate using internal development costs incurred. Accrued Research and Development Expenditures A substantial portion of our preclinical studies and all of our clinical trials have been performed by third-party CROs and other vendors and our accruals for expenses for preclinical studies and clinical trials may be significant. For preclinical studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled, duration of enrollment, milestones achieved and percentage of work completed to date. We monitor patient enrollment levels and related activities to the extent practicable through internal reviews, correspondence and status meetings with CROs, and review of contractual terms. We depend on the timeliness and accuracy of data provided by our CROs and other vendors to accrue expenses. If we receive and rely on incomplete or inaccurate data, accruals and expenses may be too high or too low at a given point in time and corresponding adjustments to accruals and expenses would be made in future periods when the actual expense becomes known. Revenue Participation Right Purchase Agreements We have entered into certain revenue participation right purchase agreements with certain investors, pursuant to which such investors purchased rights to royalties from certain revenue streams in exchange for consideration. We typically account for such agreements as debt to be amortized under the effective interest rate method over the life of the related royalty stream, when we have continuing involvement with the underlying R&D. We typically account for such agreements as deferred income to be amortized under the units-of-revenue method, when there is no continuing involvement with the underlying R&D. Revenue participation right purchase agreements are recognized using significant unobservable inputs. These inputs are derived using internal management estimates developed based on third party data and reflect management’s judgements, current market conditions surrounding competing products, and forecasts. We will periodically assess the amount and timing of expected royalty payments and account for any changes in such estimates on a prospective basis. 67 Table of Contents Results of Operations A discussion of our results of operations for the year ended December 31, 2019 can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report. Revenues Our revenues since inception were primarily from our strategic alliances. Under our now terminated collaboration agreements with Amgen and Astellas, namely the Amgen Agreement and the Astellas OSSA Agreement, we received payments including upfront license fees, reimbursements of internal costs of certain FTEs and costs to support research and development programs, and milestone payments. We have not generated any revenue from commercial product sales to date. 2021 license revenues were the result of a series of transactions we entered into with RTW Royalty Holdings and Ji Xing (together, the “2021 RTW Transactions”) . 2020 license revenues were the result of a series of transactions we entered into with RTW Royalty Holdings and Ji Xing (together, the “2020 RTW Transactions”). We may also be entitled to additional milestone payments and other contingent payments upon the occurrence of specific events. We expect that our revenue will continue to fluctuate in future periods. Revenues in 2021, 2020 and 2019 were as follows (in thousands): Years Ended December 31, Change 2021 2020 2019 2021-2020 2020-2019 (In millions) Research and development revenues $ 10.6 $ 16.5 $ 26.9 $ (5.9 ) $ (10.4 ) License revenues 54.9 36.5 — 18.4 36.5 Milestone revenues 5.0 2.8 — 2.2 2.8 Total revenues $ 70.5 $ 55.8 $ 26.9 $ 14.7 $ 28.9 Research and development revenues in 2021 and 2020 were primarily from Astellas and Amgen under the Astellas OSSA Agreement, the Astellas FSRA Agreement and the Amgen Agreement. Research and development revenues from Astellas were $3.2 million and $6.6 million in 2021 and 2020, respectively, for reimbursements under the Astellas FSRA Agreement and the Astellas OSSA Agreement in 2021 and the Astellas OSSA Agreement in 2020. Research and development revenues from Amgen were $7.3 million and $10.0 million in 2021 and 2020, respectively, for reimbursements. License revenues for 2021 were the result of the Ji Xing OM License Agreement, pursuant to which we granted to Ji Xing an exclusive license to develop and commercialize omecamtiv mecarbil in China and Taiwan. License revenue was $54.9 million and consisted of the residual allocation of consideration from the 2021 RTW Transactions. License revenues for 2020 were the result of the Ji Xing Aficamten License Agreement, pursuant to which we granted to Ji Xing an exclusive license to develop and commercialize aficamten in China and Taiwan. License revenue was $36.5 million and consisted of the residual allocation of consideration from the 2020 RTW Transactions. In 2021, we recognized a $5.0 million in milestone revenues from Ji Xing under the Ji Xing Aficamten License Agreement for having achieved initiation of a phase 3 clinical trial for aficamten in obstructive HCM. Although our contractual right to payment has not yet arisen under the Ji Xing Aficamten Agreement, we determined recognition of the milestone in accordance with ASC 606 in 2021 was appropriate based on our expected initiation of a phase 3 clinical trial of aficamten in oHCM. Milestone revenues from 2020 were $2.8 million and consisted primarily of the milestone earned from Ji Xing for the first patient dosed in Cohort 2 of REDWOOD-HCM . We do not expect future revenues from Amgen or Astellas under the Amgen Agreement and the Astellas OSSA Agreement due to the termination thereof in 2021. Co-funding under the Astellas FSRA Agreement for the conduct of COURAGE-ALS will continue until the $12.0 million cap is reached. Research and development expenses We incur research and development expenses associated with both partnered and our own research activities. Research and development expenses related to any development we elect to fund consist primarily of employee compensation, supplies and materials, costs for consultants and contract research and manufacturing, facilities costs and depreciation of equipment. 68 Table of Contents Research and development expenses by program for 2021, 2020 and 2019 were as follows (in thousands): Years Ended December 31, Change 2021 2020 2019 2021-2020 2020-2019 (In millions) Cardiac muscle contractility $ 102.5 $ 53.0 $ 45.8 $ 49.5 $ 7.2 Skeletal muscle contractility 27.9 17.1 14.6 10.8 2.5 All other research programs 29.5 26.9 25.7 2.6 1.2 Total research and development expenses $ 159.9 $ 97.0 $ 86.1 $ 62.9 $ 10.9 Research and development expenses increased to $159.9 million in 2021 from $97.0 million in 2020 primarily due to higher expenses for our clinical development activities for our cardiac muscle inhibitor programs, for COURAGE-ALS, for facilities expense due to the Oyster Point Lease recorded in 2021, and for regulatory filing costs. In addition, we incurred transition costs related to the termination of our collaboration with Amgen and our purchase from Amgen of approximately $14.6 million of materials including manufactured quantities of the active pharmaceutical ingredient for omecamtiv mecarbil. We continue to develop reldesemtiv to treat ALS and we recently announced that COURAGE-ALS, the Phase 3 clinical trial of reldesemtiv in patients with ALS, is open to enrollment. We may also continue to develop reldesemtiv to treat SMA. Under the Astellas FSRA Agreement, Astellas has agreed to pay one-third of the out-of-pocket clinical development costs which may be incurred in connection with Cytokinetics’ Phase 3 clinical trial, COURAGE-ALS, of reldesemtiv in ALS up to a maximum contribution by Astellas of $12.0 million. Under our strategic alliance with Amgen, Amgen was responsible for the development of omecamtiv mecarbil until the effective termination of the Amgen Agreement, which occurred on May 20, 2021. Following the effective termination of the Amgen Agreement, we have continued the Phase 3 development of omecamtiv mecarbil for the potential treatment of heart failure, at our own cost. We expect to continue the development of aficamten to assess the potential of aficamten to improve exercise capacity and relieve symptoms in patients with hyperdynamic ventricular contraction due to HCM. Under our strategic alliances with Ji Xing, Ji Xing is responsible for the development of aficamten and omecamtiv mecarbil in China and Taiwan, and we may be entitled to receive milestone payments upon the achievement of certain development and commercial milestones. Clinical development timelines, the likelihood of success and total completion costs vary significantly for each drug candidate and are difficult to estimate. We anticipate that we will determine on an ongoing basis which research and development programs to pursue and how much funding to direct to each program, taking into account the potential scientific and clinical success of each drug candidate. The lengthy process of seeking regulatory approvals and subsequent compliance with applicable regulations requires the expenditure of substantial resources. Any failure by us to obtain and maintain, or any delay in obtaining, regulatory approvals could cause our research and development expenditures to increase and, in turn, could have a material adverse effect on our results of operations . 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, human resources, legal, business and commercial development and strategic planning. Other significant costs include facilities costs, consulting costs and professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents and regulatory compliance. General and administrative expenses by program for 2021, 2020 and 2019 were as follows (in thousands): Years Ended December 31, Change 2021 2020 2019 2021-2020 2020-2019 (In millions) Total general and administrative expenses $ 96.8 $ 52.8 $ 39.6 $ 44.0 $ 13.2 General and administrative expenses increased to $96.8 million in 2021 from $52.8 million in 2020, primarily due to higher outside service spend in anticipation of the potential commercial launch of omecamtiv mecarbil, an increase in personnel related costs including stock-based compensation and facilities expense due to the Oyster Point Lease recorded in 2021 . We expect that general and administrative expenses will fluctuate in the future, depending in part on the timing of and investments in commercial readiness. 69 Table of Contents Interest expense Interest expense for 2021, 2020 and 2019 were as follows (in thousands) : Years Ended December 31, Change 2021 2020 2019 2021-2020 2020-2019 (In millions) Term loan $ 4.8 $ 4.9 $ 5.2 $ (0.1 ) $ (0.3 ) Convertible notes 11.5 10.8 1.4 0.7 9.4 Warrants — 0.2 — (0.2 ) 0.2 Other 0.1 0.1 — — 0.1 Total interest expense $ 16.4 $ 16.0 $ 6.6 $ 0.4 $ 9.4 Interest expense in 2021 and 2020 consists of interest expense related to the Term Loan Agreement and respective warrants by and among the Company, Oxford and Silicon Valley Bank and interest expense related to the 2026 Notes. Approximately half of the 2026 Notes’ interest expense is due to the amortization of the discount associated with the equity component of the 2026 Notes. Non-cash interest expense on liability related to sale of future royalties Non-cash interest expense comprised of the RPI OM Liability under the RP OM RPA related to sale of future royalties in 2021, 2020 and 2019 results from accretion of the liability related to sale of future royalties. In 2021, we updated our analyses to reflect our current assumptions resulting from ongoing market research in the U.S. and to reflect other adjustments in connection with our anticipated commercialization. Our estimates regarding the amount of future royalty payments decreased and the time periods within which we anticipated that such payments will be due changed. Each of these adjustments is accounted for on a prospective basis in our liability calculation and resulted in a decline in our imputed interest rate and noncash interest expenses from 15% and $22.7 million in 2020 to 10% and $12.9 million in 2021, respectively. In 2021, the change in estimate had no impact on revenue and reduced the net loss by $11.5 million. The change in accounting estimate reduced the net loss per share by $0.15 in 2021. We review our assumptions on a quarterly basis and our estimates may change in the future as we refine and reassess our assumptions. Non-cash interest expense on liability related to the RP OM RPA for 2021, 2020 and 2019 were as follows ( in thousands) : Years Ended December 31, Change 2021 2020 2019 2021-2020 2020-2019 (In millions) Non-cash interest expense recognized $ 12.9 $ 22.7 $ 20.7 $ (9.8 ) $ 2.0 Interest and Other Income, net Interest and other income, net for 2021, 2020 and 2019 consisted primarily of interest income generated from our cash, cash equivalents and investments. Liquidity and Capital Resources Our cash, cash equivalents and investments and a summary of our borrowings and working capital is summarized as follows: December 31, 2021 December 31, 2020 (In millions) Financial assets: Cash and cash equivalents $ 112.7 $ 83.0 Short-term investments 359.0 381.1 Total cash, cash equivalents and marketable securities $ 471.7 $ 464.1 Borrowings: Term loan, net $ 47.4 $ 46.2 Convertible notes, net 95.5 89.5 Total borrowings $ 142.9 $ 135.7 Working capital: Current assets $ 535.7 $ 474.2 Current liabilities 71.9 31.2 Working capital $ 463.8 $ 443.0 70 Table of Contents The following table shows a summary of our cash flows for the periods set forth below : Years Ended December 31, 2021 2020 2019 (In millions) Net cash (used in) provided by operating activities $ (142.5 ) $ 8.9 $ (90.9 ) Net cash used in investing activities (147.8 ) (196.5 ) (74.7 ) Net cash provided by financing activities 320.0 234.1 159.8 $ 29.7 $ 46.5 $ (5.8 ) Sources and Uses of Cash We have funded our operations and capital expenditures with proceeds primarily from private and public sales of our equity securities, a royalty monetization agreement, strategic alliances, long-term debt, other financings and interest on investments. We have generated significant operating losses since our inception. Our expenditures are primarily related to research and development activities. Net cash used in operating activities of $142.5 million for 2021 which include a net loss of $215.3 million was largely due to ongoing research and development activities, general and administrative expenses to support those activities, and operating lease liability related to the existing and new leases. Net loss for 2021 included, among other items: non-cash stock-based compensation, non-cash interest expense related to sale of future royalties and non-cash interest expense related to debt. Net cash used in investing activities of $147.8 million in 2021 was primarily due to purchases of investments and property and equipment offset by proceeds from maturity of investments. Net cash provided by financing activities of $320.0 million in 2021 was primarily due to $296.9 million of proceeds related to issuance of common stock in an underwritten public offering and stock-based activities. 2021 Ji Xing and RTW Transactions On December 20, 2021, we entered into the Ji Xing OM License Agreement, pursuant to which we granted to Ji Xing an exclusive license to develop and commercialize omecamtiv mecarbil in China and Taiwan. Under the terms of the Ji Xing OM License Agreement, we are the beneficiary of a nonrefundable $50.0 million payment obligation from Ji Xing comprised of a $40.0 million payment as consideration for the rights granted by us to Ji Xing and $10.0 million attributable to our having submitted to FDA an NDA for omecamtiv mecarbil. We may be eligible to receive from Ji Xing additional payments totaling up to $330.0 million for the achievement of certain commercial milestone events in connection to omecamtiv mecarbil. In addition, Ji Xing will pay us tiered royalties in the mid-teens to the low twenties range on the net sales of pharmaceutical products containing omecamtiv mecarbil in China and Taiwan, subject to certain reductions for generic competition, patent expiration and payments for licenses to third party patents. The Ji Xing OM License Agreement, unless terminated earlier, will continue on a market-by-market basis until expiration of the relevant royalty term. In addition to the Ji Xing OM License Agreement, we entered into common stock purchase agreements with each of the RTW Investors, pursuant to which we sold and issued an aggregate of 0.5 million shares of our common stock at a price per share of $39.125 and an aggregate purchase price of $20.0 million. 2020 Ji Xing and RTW Transactions O n July 14, 2020, we entered into a series of agreements comprised of the Ji Xing Aficamten License Agreement, three common stock purchase agreements for the sale of Cytokinetics common stock to the RTW Investors (as defined below), an agreement to sell to RTW Royalty Holdings Designated Activity Company (“RTW Royalty Holdings”) our interest in certain future royalties on net sales of products containing the compound mavacamten that is being developed by Bristol-Myers Squibb Company (formerly by MyoKardia, Inc.) and a funding agreement pursuant to which we had the option to sell to RTW Royalty Holdings a revenue interest in certain of our future sales of aficamten, upon the achievement of certain clinical trial milestones, in exchange for future royalty payments as further discussed below . As a result, we have or expect to receive a combination of committed funding and sale proceeds from the RTW Investors, RTW Royalty Holdings and Ji Xing . 71 Table of Contents Under the Ji Xing Aficamten License Agreement, we granted to Ji Xing an exclusive license to develop and commercialize aficamten in China and Taiwan. Under the terms of the Ji Xing Aficamten License Agreement, we received from Ji Xing an upfront payment of $25.0 million. We may be eligible to receive from Ji Xing milestone payments totaling up to $200.0 million for the achievement of certain development and commercial milestone events in connection to aficamten in the field of oHCM and/or nHCM and other indications. In addition, Ji Xing will pay us tiered royalties in the low-to-high teens range on the net sales of pharmaceutical products containing aficamten in China and Taiwan, subject to certain reductions for generic competition, patent expiration and payments for licenses to third party patents. The Ji Xing Aficamten License Agreement, unless terminated earlier, will continue on a market-by-market basis until expiration of the relevant royalty term. Under that certain Royalty Purchase Agreement, dated July 14, 2020, we sold to RTW Royalty Holdings our rights to receive certain payments on the net sales of products containing the compound mavacamten, a cardiac myosin inhibitor under the Research Collaboration Agreement, dated August 24, 2012, between us and MyoKardia, Inc. for an one-time payment of $85 million. We also entered into common stock purchase agreements with each of RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Venture Fund Limited (collectively, the “RTW Investors”), we sold and issued an aggregate of 2.0 million shares of our common stock at a price per share of $25.00 and an aggregate purchase price of $50.0 million. Finally, we also entered into a Funding Agreement (the “Funding Agreement”) with RTW Royalty Holdings . Pursuant to the Funding Agreement, RTW Royalty Holdings has committed to provide up to $90.0 million (the “Funding Commitment”), to fund our development and commercialization of aficamten in nHCM and oHCM in exchange for the Funding Commitment and upon receipt of such funding from RTW Royalty Holdings, we would have been liable to make payments to RTW Royalty Holdings equal to 2%, if RTW Royalty Holdings funds $45.0 million of the Funding Commitment, or 4%, if RTW Royalty Holdings funds the full $90.0 million of the Funding Commitment, in each case in respect of net sales of CK-274 by us and any of our licensees in the United States, the European Union, Switzerland, the United Kingdom and certain other countries in Europe. However, o n January 7, 2022, we announced that we had elected to unilaterally terminate the Funding Agreement in connection with our entry into the RP Aficamten RPA. At the time of its termination, we had not exercised any rights to sell any revenue interest in aficamten under the Funding Agreement. Future Sources and Uses of Cash 2022 Royalty Pharma Transactions On January 7, 2022, we announced that we had entered into the RP Loan Agreement and the RP Aficamten RPA with RPDF and RPI ICAV respectively, each of which are affiliated with Royalty Pharma International plc. Under the RP Loan Agreement, we are entitled to receive up to $300.0 million in term loans, $50.0 million of which was disbursed to us on closing and the remaining $250.0 available to us upon our satisfaction of customary disbursement conditions and certain development conditions by specific deadlines, as follows: • $50.0 million of tranche 2 term loans during the one year period following the receipt on or prior to December 31, 2022 of marketing approval from FDA of omecamtiv mecarbil; • $25.0 million of tranche 3 term loans during the one year period following the commercial availability of a diagnostic test measuring levels of omecamtiv mecarbil to support the final FDA label language applicable to such drug, subject to such commercial availability and the conditions to the tranche 2 term loans having occurred on or prior to December 31, 2022; • $75.0 million of tranche 4 term loans during the one year period following the receipt on or prior to September 30, 2024 of positive results from SEQUOIA-HCM, the Phase 3 trial for aficamten; and • $100.0 million of tranche 5 term loans during the one year period following the acceptance by the FDA on or prior to March 31, 2025 of an NDA for aficamten, subject to the conditions to the tranche 4 term loans having occurred on or prior to September 30, 2024. 72 Table of Contents Each term loan under the RP Loan Agreement matures on the 10 year anniversary of the funding date for such term loan and is repayable in quarterly installments of principal, interest and fees commencing on the last business day of the seventh full calendar quarter following the calendar quarter of the applicable funding date for such Term Loan, with the aggregate amount payable in respect of each term loan (including interest and other applicable fees) equal to 190% of the principal amount of the term loan (such amount with respect to each Term Loan, “Final Payment Amount”). We may prepay the term loans in full (but not in part) at any time at our option by paying an amount equal to the unpaid portion of Final Payment Amount for the outstanding Term Loans; provided that if the conditions for either the tranche 4 term loans or the tranche 5 term loans have been met, we must have borrowed at least $25 million principal amount of the tranche 4 or 5 term loans. In addition, the term loans under the RP Loan Agreement are repayable in full at the option of either us or the lender in an amount equal to the unpaid portion of Final Payment Amount for the outstanding term loans upon a change of control of Cytokinetics. In addition, on January 7, 2022, we entered into the RP Aficamten RPA with RPI ICAV, pursuant to which RPI ICAV purchased rights to certain revenue streams from net sales of pharmaceutical products containing aficamten by us, our affiliates and our licensees in exchange for up to $150.0 million in consideration, $50.0 million of which was paid on the closing date, $50.0 million of which is payable following the initiation of the first pivotal trial in oHCM for aficamten and $50.0 million of which is payable following the initiation of the first pivotal clinical trial in nHCM for aficamten. The RP Aficamten ARPA also provides that the parties will negotiate terms for additional funding if we achieve proof of concept results in certain other indications for aficamten, with a reduction in the applicable royalty if we and RPI ICAV fail to agree on such terms in certain circumstances. Pursuant to the RP Aficamten RPA, RPI ICAV purchased the right to receive a percentage of net sales equal to 4.5% for annual worldwide net sales of pharmaceutical products containing aficamten up to $1 billion and 3.5% for annual worldwide net sales of pharmaceutical products containing aficamten in excess of $1 billion, subject to reduction in certain circumstances. In future periods, we expect to incur substantial costs as we continue to expand our research programs and related research and development activities. We expect to incur significant research and development expenses as we advance the research and development of compounds from our other muscle biology programs through research to candidate selection to clinical development. We may also incur significant sales and marketing expenses if and when one or more of our drug candidates receive regulatory approvals, and in anticipation of regulatory approval of one of our drug candidates. Our future capital uses and requirements depend on numerous factors. These factors include, but are not limited to, the following: • the initiation, progress, timing, scope and completion of preclinical research, non-clinical development, chemistry, manufacturing, and controls (“CMC”), and clinical trials for our drug candidates and other compounds; • the time and costs involved in obtaining regulatory approvals; • the jurisdictions in which we are granted regulatory approvals and thus are able to successfully launch our products for commercial sale; • delays that may be caused by requirements of regulatory agencies; • our level of funding for the development of current or future drug candidates; • the number of drug candidates we pursue and the stage of development that they are in; • the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims; • our ability to establish and maintain selected strategic alliances required for the development of drug candidates and commercialization of our potential drugs; • our plans or ability to expand our drug development capabilities, including our capabilities to conduct clinical trials for our drug candidates; • our plans or ability to engage third-party manufacturers for our drug candidates and potential drugs; • our plans or ability to build or access sales and marketing capabilities and to achieve market acceptance for potential drugs; • the expansion and advancement of our research programs; • the hiring of additional employees and consultants; • 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 73 Table of Contents • As we advance commercialization plans for omecamtiv mecarbil, which we believe will importantly lay a strong foundation for commercialization of aficamten and the expansion of our cardiovascular franchise, we anticipate that our spending would increase, but we are also studying comparable company best practices and building a fit-for-purpose commercial organization. As a result of Amgen’s and Servier’s elections to terminate the Amgen Agreement and the Servier Agreement respectively, we will dedicate resources to ensure the transition of the programs related to omecamtiv mecarbil and CK-136 to us. Finally, notwithstanding the expansion of our collaboration with Ji Xing to include omecamtiv mecarbil in December 2021 and our recent financing transactions with entities affiliated with Royalty Pharma International plc in January 2022, we plan to continue to evaluate a wide range of corporate development strategies for potential co-development, co-commercialization and licensing deals in relation to omecamtiv mecarbil and our other drug candidates in order to mitigate the cost effects of the termination of the Amgen Agreement and Servier Agreement and enhance our commercial capabilities. These cost effects of termination include forfeiture of potential milestone payments from Amgen to us, as well as additional costs to us relating to clinical studies, regulatory filing, and commercialization of omecamtiv mecarbil. We have incurred an accumulated deficit of $1,207.6 million since inception and there can be no assurance that we will attain profitability. We are subject to risks common to clinical-stage companies including, but not limited to, development of new drug candidates, dependence on key personnel, and the ability to obtain additional capital as needed to fund our future plans. Our liquidity will be impaired if sufficient additional capital is not available on terms acceptable to us, if at all. Until we achieve profitable operations, we intend to continue to fund operations through payments from strategic collaborations, additional sales of equity securities, grants and other financings. We have never generated revenues from commercial sales of our drugs and may not have drugs to market for at least several years, if ever. Our success is dependent on our ability to obtain additional capital by entering into new strategic collaborations and/or through financings, and ultimately on our and our collaborators’ ability to successfully develop and market one or more of our drug candidates. We cannot be certain that sufficient funds will be available from such collaborators or financings when needed or on satisfactory terms. Additionally, there can be no assurance that any of our drug candidates will be accepted in the marketplace or that any future products can be developed or manufactured at an acceptable cost. These factors could have a material adverse effect on our future financial results, financial position and cash flows. Based on the current status of our development plans, we believe that our existing cash and cash equivalents, investments and interest earned on investments 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 of other research and development programs. Alternatively, we might raise funds through strategic relationships, public or private financings or other arrangements. There can be no assurance that funding, if needed, will be available on attractive terms, or at all, or in accordance with our planned timelines. Furthermore, financing obtained through future strategic relationships may require us to forego certain commercialization and other rights to our drug candidates. Similarly, any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. 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. Segment Information We have one primary business activity and operate in one reportable segment. Off-Balance Sheet Arrangements We are not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Recent Accounting Pronouncements The information required by this item is included in Item 8, Note 1, Organization and Accounting Policies, in our Consolidated Financial Statements included in this Annual Report on Form 10‑K. 74 Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks in the ordinary course of our business. These risks primarily include risk related to interest rate sensitivities. Interest Rate Risk We are exposed to market risk related to changes in interest rates. As of December 31, 2021 , we had cash and short-term investments of $471.6 million, which consisted of consist of U.S. Treasury securities, U.S. and non-U.S. government agency bonds, commercial paper, global portfolio of corporate debt and money market fund. To reduce the volatility relating to these exposures, we have put investment and risk management policies and procedures in place. The primary objective of our investment activities is to preserve capital to fund our operations. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Our investments are subject to interest rate risk and could fall in value if market interest rates increase. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Foreign Currency Risk The majority of our transactions occur in U.S. dollars. However, we do have certain transactions that are denominated in currencies other than the U.S. dollar, primarily Euro and GBP and we therefore are subject to foreign currency exchange risk. The fluctuation in the value of the U.S. dollar against other currencies affects the reported amounts of expenses, assets and liabilities primarily associated with a limited number of operating activities. Foreign currency transaction gains and losses have not been material to our financial statements for the year ended December 31, 2021 . A 10% increase or decrease in current exchange rates would not have a material effect on our financial results. 75 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 42) 78 Consolidated Balance Sheets 81 Consolidated Statements of Operations and Comprehensive Loss 82 Consolidated Statements of Stockholders’ Equity (Deficit) 83 Consolidated Statements of Cash Flows 84 Notes to Consolidated Financial Statements 85 76 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Cytokinetics, Incorporated Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Cytokinetics, Incorporated (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 25, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Estimates Related to Revenue Participation Right Purchase Agreements Description of the Matter As of December 31, 2021, the Company had a liability related to the sale of future royalties, net of $179.1 million, and deferred revenue related to the sale of a different royalty stream of $87.0 million. The Company recognized non-cash interest expense on the liability related to the sale of future royalties of $12.9 million for the year ended December 31, 2021. As described in Note 7 to the consolidated financial statements, the Company has entered into agreements with counterparties to monetize future royalty payments that the Company is either entitled to receive upon commercialization of certain products that were previously licensed to others or that it will commercialize itself. Cash is received upon execution of such revenue participation right purchase agreements, which are then accounted for as either a liability if the Company has significant continuing involvement in the related royalty stream or as deferred revenue if there is no significant continuing involvement. Regardless of whether there is significant continuing involvement, the Company is required to estimate the amount and timing of future royalty payments to be paid to the counterparties of the revenue participation right purchase agreements. The Company periodically assesses the amount and timing of expected royalty payments using a combination of internal projections and forecasts from external sources. There are a number of factors that could materially affect the amount and timing of royalty payments, most of which are not within the Company’s control and management’s estimates of the amount and timing of royalty payments to be received or paid require the use of significant unobservable inputs. These inputs are derived using internal management estimates developed based on third party data and reflect management’s judgements, current market conditions surrounding competing products, and forecasts. The significant unobservable inputs can include, to the extent applicable, estimates of patient populations, selling price, peak sales and sales ramp, the expected term of the related royalty streams, the timing of expected product launch and its impact on royalty rates, as well as the overall probability of clinical success and regulatory approval. A significant change in unobservable inputs could result in a material increase or decrease to the amount and timing of future cash flows Auditing management’s estimates of future royalty payments was especially challenging due to the significant judgment used by management in estimating the amount and timing of such payments, which required the use of subjective inputs. 77 Table of Contents How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s processes for estimating the amount and timing of future royalty payments. Our audit procedures included, among others, testing management’s process for estimating the amount and timing of future royalty payments and evaluating the reasonableness of significant assumptions used by management when developing the estimate of expected future royalties to be paid, including estimates of patient populations, selling price, peak sales and sales ramp, the expected term of the related royalty streams, the timing of expected product launch and its impact on royalty rates, as well as the overall probability of clinical success and regulatory approval. Evaluating the reasonableness of management’s assumptions included, among others, consideration of (i) relevant industry forecasts, (ii) consistency with external market research and industry data, and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Revenue from Collaborative and Licensing Arrangements Description of the Matter As described in Note 3, collaboration arrangements may include multiple elements such as license fees, milestone payments, royalties, and research and development cost reimbursement. Further, collaborations may include the delivery of various goods or services to the collaboration partner such as licenses to intellectual property or research and development services. The Company recognized $54.9 million as license revenue during 2021 under the agreement with Ji Xing Pharmaceuticals Limited (the “Ji Xing OM License Agreement”). Auditing the Company’s accounting for revenues from this collaboration arrangement was especially challenging due to the complex and highly judgmental nature of evaluating the terms of the related agreements, identifying performance obligations, and determining and allocating the transaction price to the performance obligations. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s processes for assessing the accounting treatment of any new collaboration agreements or modifications to existing collaboration agreements, including assessing the identification of and effort to satisfy performance obligations. To test the accounting for the Ji Xing OM License Agreement, we tested and evaluated, among other things, the performance obligation identified, the estimates and assumptions used to determine the transaction price, and the allocation of the transaction price to the performance obligation. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. Redwood City, California February 25, 2022 78 Table of Contents CYTOKINETICS, INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 112,666 $ 82,985 Short-term investments 358,972 381,075 Accounts receivable 51,819 4,420 Prepaid expenses and other current assets 12,215 5,741 Total current assets 535,672 474,221 Long-term investments 152,050 36,954 Property and equipment, net 73,271 13,346 Operating lease right-of-use assets 73,138 2,924 Other assets 7,188 6,358 Total assets $ 841,319 $ 533,803 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 21,087 $ 8,050 Accrued liabilities 34,370 19,315 Short-term operating lease liabilities 14,863 2,785 Other current liabilities 1,540 1,049 Total current liabilities 71,860 31,199 Term loan, net 47,367 46,209 Convertible notes, net 95,471 89,504 Liabilities related to revenue participation right purchase agreement, net 179,072 166,068 Long-term deferred revenue 87,000 87,000 Long-term operating lease liabilities 112,229 440 Other non-current liabilities 4,457 — Total liabilities 597,456 420,420 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.001 par value: Authorized: 10,000,000 shares; Issued and outstanding: none — — Common stock, $ 0.001 par value: Authorized: 163,000,000 shares Issued and outstanding: 84,799,542 shares at December 31, 2021 and 71,015,183 shares at December 31, 2020 84 70 Additional paid-in capital 1,452,268 1,105,470 Accumulated other comprehensive (loss) income ( 869 ) 149 Accumulated deficit ( 1,207,620 ) ( 992,306 ) Total stockholders’ equity 243,863 113,383 Total liabilities and stockholders’ equity $ 841,319 $ 533,803 The accompanying notes are an integral part of these consolidated financial statements. 79 Table of Contents CYTOKINETICS, INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share data) Years Ended December 31, 2021 2020 2019 Revenues: Research and development revenues $ 10,572 $ 16,527 $ 26,868 License revenues 54,856 36,501 — Milestone revenues 5,000 2,800 — Total revenues 70,428 55,828 26,868 Operating expenses: Research and development 159,938 96,951 86,125 General and administrative 96,803 52,820 39,610 Total operating expenses 256,741 149,771 125,735 Operating loss ( 186,313 ) ( 93,943 ) ( 98,867 ) Interest expense ( 16,440 ) ( 15,963 ) ( 6,623 ) Non-cash interest expense on liability related to sale of future royalties ( 12,892 ) ( 22,713 ) ( 20,737 ) Interest and other income, net 331 5,329 4,535 Net loss $ ( 215,314 ) $ ( 127,290 ) $ ( 121,692 ) Net loss per share — basic and diluted $ ( 2.80 ) $ ( 1.97 ) $ ( 2.11 ) Weighted-average number of shares used in computing net loss per share — basic and diluted 76,886 64,524 57,575 Other comprehensive loss: Unrealized (loss) gain on available-for-sale securities, net ( 1,018 ) ( 530 ) 179 Comprehensive loss $ ( 216,332 ) $ ( 127,820 ) $ ( 121,513 ) The accompanying notes are an integral part of these consolidated financial statements. 80 Table of Contents CYTOKINETICS, INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands, except shares) Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital (loss) Income Deficit Equity (Deficit) Balance, December 31, 2018 54,717,906 55 768,703 500 ( 743,324 ) 25,934 Exercise of stock options 131,909 — 1,017 — — 1,017 Issuance of common stock under at-the-market offering, net of issuance costs 3,984,849 4 36,210 — — 36,214 Issuance under Employee Stock Purchase Plan 172,113 — 1,108 — — 1,108 Vesting of restricted stock units, net of taxes withheld 165,347 — ( 732 ) — — ( 732 ) Issuance of warrants — — 185 — — 185 Equity component of convertible notes — — 49,477 — — 49,477 Capped call options associated with convertible notes — — ( 13,386 ) — — ( 13,386 ) Stock-based compensation — — 10,759 — — 10,759 Other comprehensive income — — — 179 — 179 Net loss — — — — ( 121,692 ) ( 121,692 ) Balance, December 31, 2019 59,172,124 59 853,341 679 ( 865,016 ) ( 10,937 ) Exercise of stock options 943,505 1 7,610 — — 7,611 Exercise of warrants 104,890 — — — — — Claims settlement under Section 16(b) — — 2,151 — — 2,151 Underwritten public offering of common stock, net of discounts, commissions and offering cost 8,385,417 8 188,875 — — 188,883 Issuance of common stock upon private placement 2,000,000 2 36,435 — — 36,437 Issuance of common stock under Employee Stock Purchase Plan 134,684 — 1,509 — — 1,509 Vesting of restricted stock units, net of taxes withheld 274,563 — ( 2,255 ) — — ( 2,255 ) Issuance of warrants — — 184 — — 184 Stock-based compensation — — 17,620 — — 17,620 Other comprehensive loss — — — ( 530 ) — ( 530 ) Net loss — — — — ( 127,290 ) ( 127,290 ) Balance, December 31, 2020 71,015,183 70 1,105,470 149 ( 992,306 ) 113,383 Exercise of stock options 1,304,347 3 11,017 — — 11,020 Vesting of restricted stock units, net of taxes withheld 360,050 — ( 4,449 ) — — ( 4,449 ) Net share settlement — — ( 418 ) — — ( 418 ) Underwritten public offering of common stock, net of discounts, commissions and offering cost 11,500,000 11 296,894 — — 296,905 Issuance of common stock upon private placement 511,182 — 15,144 — — 15,144 Issuance of common stock under Employee Stock Purchase Plan 108,780 — 1,778 — — 1,778 Stock-based compensation — — 26,832 — — 26,832 Other comprehensive loss — — — ( 1,018 ) — ( 1,018 ) Net loss — — — — ( 215,314 ) ( 215,314 ) Balance, December 31, 2021 84,799,542 $ 84 $ 1,452,268 $ ( 869 ) $ ( 1,207,620 ) $ 243,863 The accompanying notes are an integral part of these consolidated financial statements. 81 Table of Contents CYTOKINETICS, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 215,314 ) $ ( 127,290 ) $ ( 121,692 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Non-cash interest expense on liabilities related to revenue participation right purchase agreement 13,004 22,792 20,737 Non-cash stock-based compensation expense 26,832 17,620 10,759 Non-cash lease expense 7,361 4,221 3,552 Impairment of right-of-use assets 2,844 — — Depreciation and amortization of property and equipment 2,276 1,831 1,293 Gain on investment, net — ( 573 ) — Interest receivable and amortization on investments 4,894 ( 1,194 ) ( 2,587 ) Non-cash interest expense related to debt 7,125 6,640 919 Changes in operating assets and liabilities: Accounts receivable ( 47,399 ) 743 ( 2,932 ) Contract assets — — 4,554 Prepaid and other assets ( 7,381 ) ( 5,162 ) ( 3,862 ) Accounts payable 1,055 ( 110 ) 4,396 Accrued and other liabilities 15,060 7,117 ( 2,168 ) Deferred revenue — 87,000 — Operating lease liabilities 43,472 ( 4,692 ) ( 3,876 ) Other non-current liabilities 3,649 — — Net cash (used in) provided by operating activities ( 142,522 ) 8,943 ( 90,907 ) Cash flows from investing activities: Purchases of investments ( 525,042 ) ( 435,825 ) ( 277,883 ) Maturities of investments 422,837 247,301 202,599 Sales of investments 3,300 3,061 3,196 Purchases of property and equipment ( 48,872 ) ( 11,052 ) ( 2,619 ) Net cash used in investing activities ( 147,777 ) ( 196,515 ) ( 74,707 ) Cash flows from financing activities: Proceeds from public offerings of common stock, net of discounts, commissions and offering cost 296,905 188,883 — Proceeds from private placement, net 15,144 36,225 — Proceeds from stock-based award activities, net 7,931 6,865 1,393 Claims settlement under Section 16(b) — 2,151 — Net proceeds from long-term debt, net of debt discount and issuance costs — — 1,710 Net proceeds from convertible notes, net of debt discount and issuance costs — — 133,860 Issuance of common stock under at-the-market offering, net of issuance costs — — 36,214 Purchase of capped call options associated with convertible notes — — ( 13,386 ) Net cash provided by financing activities 319,980 234,124 159,791 Net increase (decrease) in cash and cash equivalents 29,681 46,552 ( 5,823 ) Cash and cash equivalents, beginning of period 82,985 36,433 42,256 Cash and cash equivalents, end of period $ 112,666 $ 82,985 $ 36,433 Supplemental cash flow disclosures: Cash paid for interest 9,175 9,620 4,059 Right-of-use assets recognized in exchange for operating lease obligations 80,395 1,106 10,687 Right-of-use assets recognized in exchange for finance lease obligations 1,294 — — Amounts unpaid for purchases of property and equipment 11,982 — — The accompanying notes are an integral part of these consolidated financial statements. 82 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Organization and Accounting Policies Organization Cytokinetics, Incorporated (the “Company”, “we” or “our”) was incorporated under the laws of the state of Delaware on August 5, 1997. We are a late-stage biopharmaceutical company focused on the discovery and development of novel small molecule therapeutics that modulate muscle function for the potential treatment of serious diseases and medical conditions. Our financial statements contemplate the conduct of our operations in the normal course of business. We have incurred an accumulated deficit of $1,207.6 million since inception and there can be no assurance that we will attain profitability. We had a net loss of $ 215.3 million and net cash used in operations of $ 142.5 million for the year ended December 31, 2021. Cash, cash equivalents and investments increased to $ 623.7 million as of December 31, 2021 from $ 501.0 million as of December 31, 2020. We anticipate that we will have operating losses and net cash outflows in future periods. We are subject to risks common to late-stage biopharmaceutical companies including, but not limited to, development of new drug candidates, dependence on key personnel, and the ability to obtain additional capital as needed to fund our future plans. Our liquidity will be impaired if sufficient additional capital is not available on terms acceptable to us. To date, we have funded operations primarily through sales of our common stock, contract payments under our collaboration agreements, sale of future royalties, debt financing arrangements, government grants and interest income. Until we achieve profitable operations, we intend to continue to fund operations through payments from strategic collaborations, additional sales of equity securities, grants and debt financings. We have never generated revenues from commercial sales of our drugs and may not have drugs to market for at least several years, if ever. Our success is dependent on our ability to enter into new strategic collaborations and/or raise additional capital and to successfully develop and market one or more of our drug candidates. We cannot be certain that sufficient funds will be available from such a financing or through a collaborator when required or on satisfactory terms. Additionally, there can be no assurance that our drug candidates will be accepted in the marketplace or that any future products can be developed or manufactured at an acceptable cost. These factors could have a material adverse effect on our future financial results, financial position and cash flows. Based on the current status of our research and development activities, we believe that our existing cash, cash equivalents and investments will be sufficient to fund cash requirements for at least the next 12 months after the issuance of these consolidated financial statements. If, at any time, our prospects for financing our research and development programs decline, we may decide to reduce research and development expenses by delaying, discontinuing or reducing our funding of one or more of our research or development programs. Alternatively, we might raise funds through strategic collaborations, public or private financings or other arrangements. Such funding, if needed, may not be available on favorable terms, or at all. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) 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 periods. We evaluate our estimates on an ongoing basis. We base our estimates on our historical experience and also on assumptions that we believe are reasonable; however, actual results could significantly differ from those estimates. Basis of Presentation The consolidated financial statements include the accounts of Cytokinetics, Incorporated and its wholly-owned subsidiary and have been prepared in accordance with GAAP. Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform the prior period presentation to the current year. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject us to concentrations of risk consist principally of cash and cash equivalents, investments, and accounts receivable. Our cash, cash equivalents and investments are invested in deposits with two major financial institutions in the United States. Deposits in these banks may exceed the amount of insurance provided on such deposits. 83 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Our exposure to credit risk associated with non-payment is limited to Astellas Pharma Inc. for co-funding one-third of the out-of-pocket clinical development costs which may be incurred in connection with Cytokinetics’ Phase 3 clinical trial, COURAGE-ALS, of reldesemtiv in ALS up to a maximum contribution by Astellas of $ 12.0 million, to our strategic partner in the People’s Republic of China (including the Hong Kong and Macau Special Administration Districts) (“China”) and Taiwan, Ji Xing Pharmaceuticals Limited (“Ji Xing”), and Royalty Pharma Investments ICAV (“RPI ICAV”), to whom we sold a revenue interest in our net sales of pharmaceutical products containing aficamten under a revenue interest purchase agreement, dated January 7, 2022 (the “RP Aficamten RPA”), as further described in Note 11 below. Drug candidates we develop may require approvals or clearances from the U.S. Food and Drug Administration (“FDA”) or other regulatory agencies prior to commercial sales. There can be no assurance that our drug candidates will receive any of the required approvals or clearances. If we were to be denied approval, or clearance or any such approval or clearance was to be delayed, it would have a material adverse impact on us. Cash and Cash Equivalents We consider all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Investments Available-for-sale investments. Our investments consist of U.S. Treasury securities, U.S. and non-U.S. government agency bonds, commercial paper, global portfolio of corporate debt and money market funds. We designate all investments as available-for-sale and report them at fair value, based on quoted market prices, with unrealized gains and losses recorded in accumulated other comprehensive income and loss. The cost of securities sold is based on the specific-identification method. Investments with original maturities greater than three months and remaining maturities of one year or less are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in Interest and other income, net. Recognized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in Interest and other income, net. Interest and dividends on securities classified as available-for-sale are included in Interest and other income, net. All of our available-for-sale investments are subject to a periodic impairment review. If an impairment is the result of a credit loss, we recognize an allowance for credit losses (“ACL”). ACL’s reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. We recognize an impairment charge when a decline in the fair value of investments below the cost basis is judged to be other-than-temporary. Factors we consider in assessing whether an other-than-temporary impairment has occurred include: the nature of the investment; whether the decline in fair value is attributable to specific adverse conditions affecting the investment; the financial condition of the investee; the severity and the duration of the impairment; and whether we have the intent and ability to hold the investment to maturity. When we determine that an other-than-temporary impairment has occurred, the investment is written down to its market value at the end of the period in which it is determined that an other-than-temporary decline has occurred. Property and Equipment, net Property and equipment are stated at cost less accumulated depreciation and are 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 and finance lease right-of-use assets are computed using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the related assets, typically ranging from three to twenty-two 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. Impairment of Long-lived Assets We review long-lived assets, including property, equipment and right-of-use assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Impairment is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. We would recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. 84 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Leases We determine if the arrangement contains a lease at inception based on whether the contract conveys the right to control the use of an identified asset. The lease classification is determined at lease commencement, which is the date the underlying asset is available for use by the Company, and preliminary based on whether the arrangement is effectively a financed purchase of the underlying asset (finance lease) or not (operating lease). We determined the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. In addition to the fixed minimum lease payments required under the lease arrangements, certain leases include payments of operating expenses that may be revised based on the landlord’s estimate. These variable payments are excluded from the lease payments used to determine the right-of-use asset and lease liability and are recognized when the associated activity occurs. We recognize right-of-use assets and short-term and long-term lease liabilities on our consolidated balance sheets for operating leases. The right-of-use asset and short-term and long-term lease liabilities for finance leases are recognized in property and equipment, other current liabilities, and other non-current liabilities, respectively, on the consolidated balance sheets. In determining the present value of lease payments, we estimated our incremental borrowing rate based on information available upon commencement. We base the lease liabilities on the present value of remaining lease payments over the remaining terms of the leases using an estimated rate of interest that we would pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The initial right-of-use asset, for both operating and finance leases, is measured based on the lease liability adjusted for any initial direct costs, lease prepayments, and lease incentives. We recognize rent expense for operating leases on a straight-line basis over the lease term in operating expenses on the consolidated statements of operations. Finance lease right-of-use assets are amortized on a straight-line basis over the shorter of the expected useful life or the lease term, and the carrying amount of the lease liability is adjusted to reflect interest, which is recorded in interest expense. We exclude from our consolidated balance sheets recognition of leases having a term of 12 months or less (short-term leases). We account for lease and non-lease components as a single component for our operating leases . Our operating leases consist of the facilities leases with KR Oyster Point 1, LLC (the “Kilroy Lease”) and Britannia Pointe Grand Limited Partnership (the “Britannia Leases”) and our finance leases are for laboratory equipment. Revenue Recognition We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration for those goods or services. To recognize revenue from a contract with a customer, we: (i) identify our contracts with our customers; (ii) identify our distinct performance obligations in each contract; (iii) determine the transaction price of each contract; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue as we satisfy our performance obligations. At contract inception, we assess the goods or services promised within each contract and assess whether each promised good or service is distinct and determine those that are performance obligations. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Collaborative Arrangements We enter into collaborative arrangements with partners that typically include payment to us for one of more of the following: (i) license fees; (ii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; (iii) royalties on net sales of licensed products; and (iv) research and development cost reimbursements. Each of these payments results in collaboration or other revenues. Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied. 85 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As part of the accounting for these arrangements, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations. The stand-alone selling price may include such items as, forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, to determine the transaction price to allocate to each performance obligation. For our collaboration agreements that include more than one performance obligation, such as a license combined with a commitment to perform research and development services, we make judgments to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate our progress each reporting period and, if necessary, adjust the measure of a performance obligation and related revenue recognition. License Fees : If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Milestone Payments : We use judgment to determine whether a milestone is considered probable of being reached. Using the most likely amount method, we include the value of a milestone payment in the consideration for a contract at inception if we then conclude achieving the milestone is more likely than not. Otherwise, we exclude the value of a milestone payment from contract consideration at inception and recognize revenue for a milestone at a later date, when we judge that it is probable the milestone will be achieved. If we conclude it is probable that a significant revenue reversal would not occur, the associated milestone is included in the transaction price. We then allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. Royalties : For contracts that include sales-based royalties, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. To date, we have not recognized any royalty revenues resulting from contracts. Research and Development Cost Reimbursements : Our joint programs with Astellas under that certain License and Collaboration Agreement for Other Skeletal Sarcomere Activators, dated April 23, 2020, as amended (the “Astellas OSSA Agreement”), and with Amgen under that certain Collaboration and Option Agreement, dated December 29, 2006, as amended (the “Amgen Agreement”) (both of the Astellas OSSA Agreement and the Amgen Agreement having now been terminated), included promises of research and development services. We also entered into the Fast Skeletal Regulatory Activator Agreement with Astellas, dated April 23, 2020 (the “Astellas FSRA Agreement”). Unde r the Astellas FSRA Agreement, As tellas agreed to pay one-third of the out-of-pocket clinical development costs which may be incurred in connection with the Company’s Phase 3 clinical trial of reldesemtiv in ALS, up to a maximum contribution by Astellas of $ 12.0 million. We determined that these services collectively were distinct from any licenses provided to Astellas and Amgen under such agreements, and as such, these promises were accounted for as a separate performance obligation recorded over time. We recognized revenue for these services as the performance obligations are satisfied, which we estimated using internal research and development costs incurred. 86 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Accrued Research and Development Expenditures A substantial portion of our preclinical studies and all of our clinical trials have been performed by third-party contract research organizations (“CROs”) and other vendors and our accruals for expenses for preclinical studies and clinical trials may be significant. For preclinical studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled, duration of enrollment, milestones achieved and percentage of work completed to date. We monitor patient enrollment levels and related activities to the extent practicable through internal reviews, correspondence and status meetings with CROs, and review of contractual terms. We depend on the timeliness and accuracy of data provided by our CROs and other vendors to accrue expenses. If we receive and rely on incomplete or inaccurate data, accruals and expenses may be too high or too low at a given point in time and corresponding adjustments to accruals and expenses would be made in future periods when the actual expense becomes known. Revenue Participation Right Purchase Agreements We have entered into certain revenue participation right purchase agreements with certain investors, pursuant to which such investors purchased rights to royalties from certain revenue streams in exchange for consideration. We typically account for such agreements as debt to be amortized under the effective interest rate method over the life of the related royalty stream, when we have continuing involvement with the underlying R&D. We typically account for such agreements as deferred income to be amortized under the units-of-revenue method, when there is no continuing involvement with the underlying R&D. Revenue participation right purchase agreements are recognized using significant unobservable inputs. These inputs are derived using internal management estimates developed based on third party data and reflect management’s judgements, current market conditions surrounding competing products, and forecasts. We will periodically assess the amount and timing of expected royalty payments and account for any changes in such estimates on a prospective basis . Research and Development Expenditures Research and development costs are charged to operations as incurred. Research and development expenses consist primarily of clinical manufacturing costs, preclinical study expenses, consulting and other third-party costs, employee compensation, supplies and materials, allocation of overhead and occupancy costs, facilities costs and depreciation of equipment. Income Taxes We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis 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. We recognize uncertain tax positions taken or expected to be taken on a tax return. Tax positions are initially recognized when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is more likely than not of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. We recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. The only aspect of ASU 2019-12 that had a material impact on our consolidated financial statements was the removal of the exception related to intraperiod tax allocation. Starting in 2019, we followed the general intraperiod allocation of tax expense. We have a loss from continuing operations and subsequent to the adoption of ASU 2019-12, we determined the amount attributable to continuing operations without regard to the tax effect of other items. We prospectively applied the ASU 2019-12 amendment related to intraperiod tax allocation. Had the Company not adopted ASU 2019-12, upon issuance of the convertible notes in 2019 (see Note 6 – Debt ) a $ 12.0 million deferred tax benefit would have been recognized along with corresponding decreases to net loss and accumulated deficit. The Company had no intraperiod tax allocation items in prior years. Due to our net loss position, the income tax benefit generated without the adoption of ASU 2019-12 was a non-cash benefit. The adoption of ASU 2019-12 did not impact our cash flows. 87 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Stock-Based Compensation We maintain equity incentive plans under which incentive stock options may be granted to employees and nonqualified stock options, restricted stock awards, performance-based stock units and stock appreciation rights may be granted to employees, directors, consultants and advisors. In addition, we maintain an employee stock purchase plan (“ESPP”) under which employees may purchase shares of our common stock through payroll deductions. Stock-based compensation expense related to stock options granted to employees and directors is recognized based on the grant date estimated fair values using the Black Scholes option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period. Stock-based compensation expense related to performance-based stock units granted to employees is recognized based on the grant-date fair value of each award and recorded as expense over the vesting period using the ratable method when the underlying performance conditions are deemed probable. Stock-based compensation expense related to the ESPP is recognized based on the fair value of each award estimated on the first day of the offering period using the Black Scholes option pricing model and recorded as expense over the service period using the straight-line method. Amortization of Debt Discount and Issuance Costs Debt discount and issuance costs, consisting of legal and other fees directly related to the debt as well as the discount created by the bifurcation of the equity component and the debt component of the convertible senior notes due 2026 (the “2026 Notes”), are offset against gross proceeds from the issuance of debt and are amortized to interest expense over the estimated life of the debt based on the effective interest method. Recent Accounting Standards In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). Under ASU 2020-06 the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate. ASU 2020-06 also provides for certain disclosures with regard to convertible instruments and associated fair values. ASU 2020-06 will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted. ASU 2020-06 provides companies with the option to adopt the new standard using either the full retrospective or modified retrospective method. We will adopt this new guidance using the modified retrospective method as of January 1, 2022 with respect to our convertible senior notes due 2026 (the “2026 Notes”). The adoption of this new guidance is estimated to result in an increase in the carrying value of the 2026 Notes by approximately $ 38.9 million to reflect the full principal amount of the convertible notes outstanding, net of issuance costs, a decrease in additional paid-in capital of approximately $ 49.5 million to remove the equity component separately recorded for the conversion feature associated with the convertible notes, a cumulative-effect adjustment of approximately $ 10.6 million to the beginning balance of our accumulated deficit as of January 1, 2022, and a reversal of the related deferred tax liability of $ 8.3 million with a corresponding increase in our valuation allowance. The adoption of this new guidance is expected to reduce non-cash interest expense for the year ending December 31, 2022 and until the 2026 Notes have been settled. The remaining debt issuance costs will continue to be amortized over the term of the notes. There is no expected impact to our Consolidated Statement of Cash Flows as a result of the adoption. 88 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Note 2 — Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive common shares, including outstanding stock options, unvested restricted stock, warrants, convertible preferred stock and shares issuable under our ESPP, during the period using the treasury stock method and convertible notes using the if-converted method. The following instruments were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been antidilutive (in thousands): Years Ended December 31, 2021 2020 2019 Options to purchase common stock 9,373 8,510 7,759 Warrants to purchase common stock 48 48 165 Restricted stock and performance units 1,415 1,117 839 Shares issuable related to the ESPP 8 12 27 Shares issuable upon conversion of convertible notes 16,675 16,675 16,675 Total shares 27,519 26,362 25,465 Note 3 — Research and Development Arrangements License and milestone revenues recognized during 2021, 2020 and 2019 were as follows (in thousands): Years Ended December 31, 2021 2020 2019 License revenues $ 54,856 $ 36,501 $ — Milestone revenues 5,000 2,800 — $ 59,856 $ 39,301 $ — 2021 Ji Xing and RTW Transactions The Ji Xing OM License Agreement, as defined below, and the sales of common stock to the RTW Investors in December 2021, as described below, (together the “2021 RTW Transactions”) were entered into with parties that are affiliated and in contemplation of one another and, accordingly, we have assessed the accounting for these transactions in the aggregate. We concluded that there were two units of accounting in the 2021 RTW Transactions as further described below. The Company allocated the total consideration in accordance with ASC 820 and ASC 606 as follows (in thousands) : Allocated Consideration Units of Accounting: License and collaboration $ 54,856 Common stock (fair value) 15,144 Total consideration $ 70,000 Ji Xing Omecamtiv Mecarbil License and Collaboration Agreement On December 20, 2021, we entered into a License and Collaboration Agreement (the “Ji Xing OM License Agreement”) with Ji Xing, pursuant to which we granted to Ji Xing an exclusive license to develop and commercialize omecamtiv mecarbil in China and Taiwan. Under the terms of the Ji Xing OM License Agreement, we are the beneficiary of a nonrefundable $ 50.0 million payment obligation from Ji Xing comprised of a $ 40.0 million payment as consideration for the rights granted by us to Ji Xing and $ 10.0 million attributable to our having submitted to FDA a new drug application (“NDA”) for omecamtiv mecarbil. We may be eligible to receive from Ji Xing additional payments totaling up to $ 330.0 million for the achievement of certain commercial milestone events in connection to omecamtiv mecarbil. In addition, Ji Xing will pay us tiered royalties in the mid-teens to the low twenties range on the net sales of pharmaceutical products containing omecamtiv mecarbil in China and Taiwan, subject to certain reductions for generic competition, patent expiration and payments for licenses to third party patents. 89 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Ji Xing will be responsible for the development and commercialization of omecamtiv mecarbil at its own cost and is required to use diligent efforts to develop and commer cialize omecamtiv mecarbil in China and Taiwan. The development of omecamtiv mecarbil will be initially focused on heart failure with reduced ejection fraction (“ HFrEF ”) , and Ji Xing will have the opportunity to participate in Cytokinetics’ global clinical trials of omecamtiv mecarbil . Cytokinetics will supply omecamtiv mecarbil to Ji Xing either as a finished product or as an active pharmaceutical ingredient. The Ji Xing OM License Agreement, unless terminated earlier, will continue on a market-by-market basis until expiration of the relevant royalty term. Ji Xing has the right to terminate the Ji Xing OM License Agreement for convenience. Each party may terminate the Ji Xing OM License Agreement for the other party’s uncured material breach, insolvency, or failure to perform due to extended force majeure events. Cytokinetics may also terminate the Ji Xing OM License Agreement if Ji Xing challenges Cytokinetics’ patents or undergoes certain change of control transactions. Rights granted to Ji Xing in relation to omecamtiv mecarbil will revert to Cytokinetics upon termination, and, under certain circumstances, subject to a low single digit royalty payment by the Company to Ji Xing on the net sales of the products containing the compound omecamtiv mecarbil in China and Taiwan. We assessed this arrangement in accordance with ASC 606 and concluded that there is one performance obligation relating to the license of functional intellectual property. The performance obligation was satisfied, and we recognized the residual allocation of arrangement consideration as revenue of $ 54.9 million for 2021. Due to the nature of development, including the inherent risk of development and approval by regulatory authorities, we are unable to estimate if and when the development milestone payments could be achieved or become due and, accordingly, we consider the milestone payments to be fully constrained and excluded any potential milestone payments from the initial transaction price. The consideration related to sales-based milestone payments, including royalties, will be recognized when the related sales occur under the sales- and usage-based royalty exception as these amounts have been determined to relate predominantly to the license. We re-evaluate the probability of achievement of development milestones and any related constraints each reporting period. We will include consideration, without constraint, in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Common Stock Purchase Agreements On December 20, 2021, as part of the 2021 RTW Transactions, we entered into common stock purchase agreements with each of RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Venture Fund Limited (collectively, the “RTW Investors”). These common stock purchase agreements provided for the sale and issuance of an aggregate of 511,182 shares of our common stock at a price per share of $ 39.125 and an aggregate purchase price of $ 20.0 million. The closing occurred on December 20, 2021 . The RTW Investors have agreed to certain trading and other restrictions with respect to the shares of common stock they purchased pursuant to these agreements, including a restriction on sales or other transfers of the shares, subject to certain exceptions, for a period of one year from the closing date. The restrictions resulted in a premium paid by the RTW investors of $ 4.9 million, which represents the excess amount paid over the fair value of the shares of common stock purchased. The premium was determined by analyzing the restrictions discount applied to the closing stock price as of December 20, 2021, which is a Level 2 fair value input. The cash received less the calculated premium is the $ 15.1 million fair value of the common stock recorded. 90 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2020 Ji Xing and RTW Transactions On July 14, 2020, we entered into a series of transactions as described below with RTW Royalty Holdings Designated Activity Company (“RTW Royalty Holdings”) and Ji Xing Pharmaceuticals Limited (“Ji Xing”), related to aficamten, our proprietary small molecule cardiac myosin inhibitor product , a novel cardiac myosin inhibitor, and other assets (together, the “2020 RTW Transactions”). The 2020 RTW Transactions include entering into a licensing and collaboration agreement with Ji Xing, the sale of Cytokinetics common stock to the RTW Investors (as defined below), an agreement to sell to RTW Royalty Holdings our interest in certain future royalties on net sales of products containing the compound mavacamten that is being developed by Bristol-Myers Squibb Company (formerly by MyoKardia, Inc.) , and the ability for the Company to obtain additional funding in the future from RTW Royalty Holdings, upon the achievement of certain clinical trial milestones, in exchange for future royalty payments as further discussed below . As a result, we have received and expect to receive a combination of license fees, milestone revenues and sale proceeds from the RTW Investors, RTW Royalty Holdings and Ji Xing . The 2020 RTW Transactions were entered into with parties that are affiliated and in contemplation of one another and, accordingly, we have assessed the accounting for these transactions in the aggregate. We concluded that there were three units of accounting in the 2020 RTW Transactions as further described below. The Company allocated the total consideration in accordance with ASC 820, Fair Value Measurement, and ASC 606, Revenue from Contracts with Customers, as follows (in thousands) : Allocated Consideration Units of Accounting: License and collaboration (residual) $ 36,501 Royalty (fair value) 87,000 Common stock (fair value) 36,499 Total consideration $ 160,000 Ji Xing Aficamten License and Collaboration Agreement We entered into a License and Collaboration Agreement (the “Ji Xing Aficamten License Agreement”) with Ji Xing, pursuant to which we granted to Ji Xing an exclusive license to develop and commercialize aficamten in China and Taiwan. Under the terms of the Ji Xing Aficamten License Agreement, we received from Ji Xing a nonrefundable upfront payment of $ 25.0 million. We may be eligible to receive from Ji Xing milestone payments totaling up to $ 200.0 million for the achievement of certain development and commercial milestone events in connection to aficamten in the field of obstructive hypertrophic cardiomyopathy (“oHCM”) and/or non-obstructive hypertrophic cardiomyopathy (“nHCM”) and other indications. In addition, Ji Xing will pay us tiered royalties in the low-to-high teens range on the net sales of the products containing aficamten in China and Taiwan, 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 aficamten at its own cost and is required to use diligent efforts to develop and commercialize aficamten in China and Taiwan. The development of aficamten will be initially focused on hypertrophic cardiomyopathy, and Ji Xing will have the opportunity to participate in Cytokinetics’ global pivotal clinical trials of aficamten. Cytokinetics or a designated supplier will supply aficamten to Ji Xing either as a finished product or as an active pharmaceutical ingredient. The Ji Xing Aficamten License Agreement, unless terminated earlier, will continue on a market-by-market basis until expiration of the relevant royalty term. Ji Xing has the right to terminate the Ji Xing Aficamten License Agreement for convenience. Each party may terminate the Ji Xing Aficamten License Agreement for the other party’s uncured material breach, insolvency, or failure to perform due to extended force majeure events. Cytokinetics may also terminate the Ji Xing Aficamten License Agreement if Ji Xing challenges Cytokinetics’ patents or undergoes certain change of control transactions. Rights granted to Ji Xing in relation to aficamten will revert to Cytokinetics upon termination, and, under certain circumstances, subject to a low single digit royalty payment by the Company to Ji Xing on the net sales of the products containing the compound aficamten in China and Taiwan. 91 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) We assessed this arrangement in accordance with ASC 606 and concluded that there is one performance obligation relating to the license of functional intellectual property. The performance obligation was satisfied, and we recognized the residual allocation of arrangement consideration as revenue of $ 36.5 million for 2020. No license revenue was recognized in 2021 related to the Ji Xing Aficamten License Agreement . Due to the nature of development, including the inherent risk of development and approval by regulatory authorities, we are unable to estimate if and when the development milestone payments could be achieved or become due and, accordingly, we consider the milestone payments to be fully constrained and exclude the milestone payments from the initial transaction price. The consideration related to sales-based milestone payments, including royalties, will be recognized when the related sales occur under the sales- and usage-based royalty exception of ASC 606 as these amounts have been determined to relate predominantly to the license. We re-evaluate the probability of achievement of development milestones and any related constraints each reporting period. We will include consideration, without constraint, in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We earned a $ 2.5 million milestone from Ji Xing as of December 31, 2020 for the first patient dosed in Cohort 2 of REDWOOD-HCM ( R andomized E valuation of D osing W ith CK-274 in O bstructive O utflow D isease in HCM ). We determined recognition of the milestone during 2020 was appropriate based on clinical trial progress. Our determination that we expected to earn the $2.5 million milestone resulted in a change in the overall transaction price of the collaboration agreement, as it was probable that a significant reversal of cumulative revenue would not occur. A corresponding contract asset was recorded in other current assets in our consolidated balance sheet as of December 31, 2020 and was released in the first quarter of 2021 upon receipt of cash. We recognized a $ 5.0 million milestone from Ji Xing during the third quarter of 2021 for initiation of a phase 3 clinical trial for aficamten in obstructive HCM. Although our contractual right to payment has not yet arisen under the Ji Xing Aficamten License Agreement, we determined recognition of the milestone in accordance with ASC 606 during the third quarter of 2021 was appropriate based on our expected initiation of a phase 3 clinical trial of aficamten in obstructive HCM and recorded a corresponding contract asset in other current assets in our consolidated balance sheet as of December 31, 2021 . Royalty Purchase Agreement We entered into a Royalty Purchase Agreement (the “RTW Royalty Purchase Agreement”) with RTW Royalty Holdings, pursuant to which we sold our right to receive certain payments on the net sales of products containing the compound mavacamten, a cardiac myosin inhibitor (the “Mavacamten Royalty”), under the Research Collaboration Agreement, dated August 24, 2012, between us and MyoKardia, Inc. to RTW Royalty Holdings for a one-time payment of $ 85.0 million. T he RTW Royalty Purchase Agreement transaction closed on November 13, 2020. On March 31, 2021, RTW Royalty Holdings assigned its rights and obligations under the RTW Royalty Purchase Agreement to its affiliate, RTW Investments ICAV for RTW Fund 1 (“RTW ICAV”) . The allocation of the consideration for the 2020 RTW Transactions resulted in $ 87.0 million being allocated to the RTW Royalty Purchase Agreement representing its fair value. The fair value was determined using an income approach method based on management’s estimates of the discounted cash flows to be received over the term of the related royalty agreement, which are Level 3 fair value inputs. Management’s estimates included significant unobservable inputs. These inputs are derived using internal management estimates developed based on third party data and reflect management’s judgements, current market conditions surrounding competing products, and forecasts. The significant unobservable inputs include the estimated patient population, estimated selling price, estimated peak sales and sales ramp, the expected term of the royalty stream, and timing of the expected launch. The $ 87.0 million recorded as deferred revenue will be amortized using the units-of-revenue method. We will recognize revenue related to the sale of the Mavacamten Royalty using the units-of-revenue method. Under the units-of-revenue method, the revenue to be recognized for a period is calculated by computing a ratio of the Mavacamten Royalty paid to RTW Royalty Holdings for a given period to the total payments expected to be made to RTW Royalty Holdings over the term of the agreement, and then applying that ratio to the period's cash payment. We will record any adjustments due to changes in the underlying royalties on a cumulative catch-up basis. 92 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Common Stock Purchase Agreement s On July 14, 2020, we entered into common stock purchase agreements with each of RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Venture Fund Limited (collectively, the “RTW Investors”). These common stock purchase agreements provided for the sale and issuance of an aggregate of 2.0 million shares of common stock of Cytokinetics at a price per share of $ 25.00 and an aggregate purchase price of $ 50.0 million. The closing occurred on July 14, 2020. The RTW Investors have agreed to certain trading and other restrictions with respect to the shares of common stock they purchased pursuant to these agreements, including a restriction on sales or other transfers of the shares, subject to certain exceptions, for a period of two years from the closing date, which period will be extended if certain conditions are met . The restrictions resulted in a premium paid by RTW investors of $ 13.5 million which represents the excess amount paid over the fair value of the shares of common stock purchased. The premium was determined by analyzing the holding period discount applied to the 30-day average stock price as of July 14, 2020 , which is a Level 2 fair value input. The cash received less the calculated premium is the $ 36.5 million fair value of the common stock recorded. Funding Agreement During July 2020, we also entered into a Funding Agreement (the “Funding Agreement”) with RTW Royalty Holdings . Pursuant to the Funding Agreement, RTW Royalty Holdings has committed to provide up to $ 90.0 million (the “Funding Commitment”) to fund our development and commercialization of aficamten in nHCM and oHCM. On January 7, 2022, we announced that we had elected to unilaterally terminate the Funding Agreement in connection with our entry into the RP Aficamten RPA. At the time of its termination, we had not exercised any rights to sell any revenue interest in aficamten under the Funding Agreement. Astellas Our strategic alliance with Astellas to advance novel therapies for diseases and medical conditions associated with skeletal muscle impairment and weakness commenced in 2013 under the License and Collaboration Agreement, dated June 21, 2013 between the parties (the “Astellas Agreement”). On April 23, 2020, we and Astellas entered into the two agreements referenced below which, taken together, amend and restate the Company’s research, development and commercialization collaboration with Astellas under the Astellas Agreement. Fast Skeletal Regulatory Activator Agreement The Company and Astellas entered into a Fast Skeletal Regulatory Activator Agreement, dated April 23, 2020 (the “Astellas FSRA Agreement”). As a result of the Astellas FSRA Agreement, the Company will now have exclusive control and responsibility for the Company's future development and commercialization of reldesemtiv, CK-601 and other fast skeletal regulatory activator (collectively “FSRA”) compounds and products, and accordingly, Astellas has agreed to terminate its license to all FSRA compounds and related products. Under the Astellas FSRA Agreement, Astellas agreed to pay one-third of the out-of-pocket clinical development costs which may be incurred in connection with the Company’s Phase 3 clinical trial of reldesemtiv in ALS, up to a maximum contribution by Astellas of $ 12 million. In addition, Astellas agreed to non-cash contributions to the Company, which include the transfer of its existing inventories of active pharmaceutical ingredient of reldesemtiv and CK-601. Astellas has also agreed to the continued conduct of ongoing stability studies pertaining to such existing inventories of active pharmaceutical ingredient, at Astellas’ cost. In exchange, the Company will pay Astellas a low- to mid- single digit royalty on sales of reldesemtiv in the United States, Canada, United Kingdom and the European Union until the later of (i) ten years following the first commercial sale of such product in a major market country, or (ii) December 31, 2034, subject to certain royalty reduction provisions. The Company will not owe Astellas royalties on sales of reldesemtiv in any other country, or on the sale of any FSRA compounds or related products other than reldesemtiv. License and Collaboration Agreement for Other Skeletal Sarcomere Activators The Company and Astellas also entered into that certain License and Collaboration Agreement for Other Skeletal Sarcomere Activators, dated April 23, 2020 (the “Astellas OSSA Agreement”), which is an amendment and restatement of the Astellas Agreement and removes the FSRA compounds and related products from the collaboration. On April 27, 2021, we received written notice of termination from Astellas of the Astellas OSSA Agreement. The termination of the Astellas OSSA Agreement was effective November 1, 2021. 93 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) We recognized research revenue for reimbursements from Astellas of internal costs of certain full-time employee equivalents, supporting collaborative research and development programs, and of other costs related to those programs through March 31, 2021 when the research term of the Astellas OSSA Agreement expired . Research and development revenues from Astellas for 2021, 2020 and 2019 were $ 3.2 million, $ 6.6 million, and $ 13.1 million, respectively. We had accounts receivable from Astellas of $ 1.8 million as of December 31, 2021 and $ 2.7 million as of December 31, 2020 . Amgen On November 23, 2020, we received written notice of termination from Amgen of that certain Collaboration and Option Agreement, dated December 29, 2006, as amended (the “Amgen Agreement”) pertaining to the discovery, development and commercialization of novel small molecule therapeutics, including omecamtiv mecarbil, a novel cardiac myosin activator, and CK-136 (formerly AMG 594), a novel cardiac troponin activator. The termination of the Amgen Agreement was effective May 20, 2021. We recognized research and development revenue for reimbursements from Amgen of both internal costs of certain full-time employee equivalents and other costs related to the Amgen Agreement, which terminated effective May 20, 2021. Research and development revenue from Amgen was $ 7.4 million in 2021, $ 10.0 million in 2020 and $ 13.8 million in 2019 and consists of reimbursement of costs we incurred related to METEORIC-HF. We had no accounts receivable from Amgen as of December 31, 2021. Accounts receivable from Amgen was $ 1.7 million as of December 31, 2020. Note 4 — Fair Value Measurements We value our financial assets and liabilities at fair value, defined as the price that would be received for assets when sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information reasonably available. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider the security issuers’ and the third-party issuers’ credit risk in our assessment of fair value. We classify fair value based on the observability of those inputs using a hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement): Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities; Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or through corroboration with observable market data; and Level 3 — Unobservable inputs, for which there is little or no market data for the assets or liabilities, such as internally-developed valuation models. 94 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fair Value of Financial Assets The follow tables set forth the fair value of our financial assets, which consists of cash equivalents and investments classified as available-for-sale securities, that were measured on a recurring basis (in thousands): December 31, 2021 Fair Value Hierarchy Level Amortized Cost Unrealized Gains Unrealized Losses Fair Value Money market funds Level 1 $ 115,937 $ — $ — $ 115,937 U.S. Treasury securities Level 1 133,498 1 ( 268 ) 133,231 U.S. and non-U.S. government agency bonds Level 2 33,489 — ( 53 ) 33,436 Commercial paper Level 2 169,622 6 ( 19 ) 169,609 U.S. and non-U.S. corporate obligations Level 2 175,282 — ( 536 ) 174,746 $ 627,828 $ 7 $ (876 ) $ 626,959 December 31, 2020 Fair Value Hierarchy Level Amortized Cost Unrealized Gains Unrealized Losses Fair Value Money market funds Level 1 $ 80,050 $ — $ — $ 80,050 U.S. Treasury securities Level 1 274,407 147 ( 8 ) 274,546 U.S. government agency bonds Level 2 51,581 15 ( 3 ) 51,593 Commercial paper Level 2 49,500 3 ( 1 ) 49,502 U.S. and non-U.S. corporate obligations Level 2 42,392 7 ( 11 ) 42,388 $ 497,930 $ 172 $ (23 ) $ 498,079 The available-for-sale securities in our consolidated balance sheet are as follows (in thousands) : December 31, 2021 December 31, 2020 Cash equivalents $ 115,937 $ 80,050 Short-term investments 358,972 381,075 Long-term investments 152,050 36,954 $ 626,959 $ 498,079 Interest income was $ 1.0 million, $ 5.3 million and $ 4.5 million in 2021, 2020 and 2019, respectively. No credit losses on debt securities were recognized in either 2021 or 2020. In its evaluation to determine expected credit losses, management considered all available historical and current information, expectations of future economic conditions, the type of security, the credit rating of the security, and the size of the loss position, as well as other relevant information. The Company does not intend to sell, and is unlikely to be required to sell, any of these available-for-sale investments before their effective maturity or market price recovery. The carrying amount of our accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. Fair Value of Financial Liabilities: As of December 31, 2021, the fair value of our term loan approximated its carrying value of $ 47.4 million based upon a market observable interest rate, which is a Level 2 input (see Note 6 – “Debt”). As of December 31, 2021, the estimated fair value of our convertible notes was $ 618.9 million and was based upon observable, Level 2 inputs, including pricing information from recent trades of the convertible notes (see Note 6 – “Debt”). 95 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of December 31, 2021, the fair value of the liability related to the sale of future royalties to RPI Finance Trust (“RPFT”) is consistent with its carrying value of $ 179.1 million, and is based on our current estimates of future royalties expected to be paid to RPFT under the Royalty Purchase Agreement (the “RP OM RPA”), over the life of the arrangement, which are considered Level 3 inputs (see Note 7 – “Liabilities Related to Revenue Participation Right Purchase Agreements”). There were no transfers between Level 1, Level 2, and Level 3 during the periods presented. Note 5 — Balance Sheet Components Our property and equipment consisted of (in thousands): December 31, 2021 2020 Property and equipment, net: Laboratory equipment $ 18,837 $ 18,160 Computer equipment and software 4,605 2,940 Office equipment, furniture and fixtures 4,042 1,885 Leasehold improvements 60,343 5,872 Construction in progress 224 9,130 Right-of-use assets, finance lease 1,409 — Total property and equipment 89,460 37,987 Less: Accumulated depreciation and amortization ( 16,189 ) ( 24,641 ) $ 73,271 $ 13,346 Depreciation expense was $ 2.3 million, $ 1.8 million and $ 1.3 million for 2021, 2020 and 2019, respectively. The balance of property and equipment increased significantly in 2021 primarily due to our relocation from our existing headquarters to our new facilities at Oyster Point in the fourth quarter of 2021 (see Note 9 – Commitments and Contingencies ) . Our accrued liabilities were as follows (in thousands): December 31, 2021 2020 Accrued liabilities: Clinical and preclinical costs $ 13,872 $ 6,124 Compensation related 14,930 11,787 Other accrued expenses 5,568 1,404 Total accrued liabilities $ 34,370 $ 19,315 96 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) We sponsor a 401(k) defined contribution plan covering all employees and contributed $ 1.1 million, $ 0.9 million and $ 0.6 million to this plan in 2021, 2020 and 2019 respectively. Note 6 — Debt Term Loan Prior to May 17, 2019, we maintained a loan and security agreement dated as of October 19, 2015, as amended (the “Original Loan Agreement”) with Silicon Valley Bank and Oxford Finance LLC (“Oxford”) (the “Lenders”) to fund our working capital and other general corporate needs. On May 17, 2019, we entered into a new loan and security agreement (the “Term Loan Agreement”) with the Lenders for $ 45.0 million (the “Term Loan”) and terminated the Original Loan Agreement. The proceeds of the Term Loan were used in part to repay in full all of the outstanding term loans under the Original Loan Agreement in an aggregate principal amount of $ 42.0 million. On November 6, 2019, and November 7, 2019, the Company entered into a First Amendment and a Second Amendment to the Term Loan Agreement. The Term Loan Agreement, as amended, permits the issuance of the Convertible Notes and Capped Call Transactions discussed below. On July 16, 2020, the Company and the Lenders entered into the Third Amendment to the Term Loan Agreement, which amended the Term Loan Agreement to permit (i) the sale of the Mavacamten Royalty under the RTW Royalty Purchase Agreement and (ii) subject to entry into an intercreditor agreement between Oxford (as security agent for the Lenders) and RTW Royalty Holdings in form and substance reasonably satisfactory to the Lenders and RTW Royalty Holdings, permits the draw of funding under the Funding Agreement and the grant of a security interest to RTW Royalty Holdings in the intellectual property located in the United States and accounts receivable related to aficamten . On June 30, 2021, the Company and the Lenders entered into the Fourth Amendment to the Term Loan Agreement, which amended the Term Loan Agreement to permit our ability to incur lease obligations for equipment, software and other property that may be leased under our lease agreements not to exceed $ 3.0 million in the aggregate. As of December 31, 2021, the Company has drawn approximately $ 1.4 million under such lease agreements. The Term Loan was accounted for as a debt modification in a non-troubled debt restructuring based on a comparison of the present value of the cash flows under the terms of the debt immediately before and after the effective date of the Term Loan, which resulted in a change of less than 10%. As a result, issuance costs paid to the Lenders in connection with the Term Loan were recorded as a reduction of the carrying amount of the debt liability and were not significant. Unamortized issuance costs as of the date of the modification were amortized to interest expense over the repayment term of Term Loan. Both borrowings under the Original Loan Agreement and Term Loan bear interest at an annual rate equal to the greater of (a) 8.05 % or (b) the sum of 6.81 % plus the 30-day U.S. LIBOR rate . The borrowing under the Original Loan Agreement was repayable in monthly interest-only payments through November 2019 followed by 35 months of monthly payments of interest and principal . The borrowing under the Term Loan was repayable in monthly interest-only payments through December 31, 2020. The interest-only period was automatically extended until July 1, 2021 as a result of the Company’s initiation of a Phase 2 trial for aficamten in cardiomyopathy and has been extended through December 31, 2021 as a result of the achievement of positive results in GALACTIC-HF, the trial of omecamtiv mecarbil in chronic heart failure as announced on October 8, 2020. The ultimate interest-only period will be followed by equal monthly payments of principal and interest to the maturity date in December 2023 . We are required to make a final payment upon loan maturity of 6.00 % of the notes payable, which we accrete over the life of the Term Loan. Our obligations under the Term Loan Agreement are secured by substantially all our current and future assets, other than our intellectual property. Interest expense for the Term Loan was $ 4.8 million, $ 4.9 million and $ 5.2 million for 2021, 2020 and 2019 respectively. As of December 31, 2021, the interest rate applicable to borrowings under the Term Loan was 8.05 %. Future minimum payments under the Term Loan Agreement are (in thousands): Years ending December 31: 2022 $ 23,595 2023 30,108 Future minimum payments 53,703 Less: Interest and final payment ( 8,703 ) Term Loan, gross $ 45,000 97 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Term Loan Agreement was terminated and all amounts thereunder repaid in connection to our entry into that certain Development Funding Loan Agreement, dated January 7, 2022 (the “RP Loan Agreement”), between us and Royalty Pharma Development Funding, LLC (“RPDF”), as further described in Note 11 below. The term loan was classified as non-current in our consolidated balance sheet at December 31, 2021, because short-term obligations expected to be refinanced on a long-term basis are not expected to require the use of working capital during the ensuing fiscal year. Convertible Notes On November 13, 2019, the Company issued $ 138.0 million aggregate principal amount of 4.0% convertible senior notes due 2026 (the “2026 Notes”). The 2026 Notes are unsecured obligations and bear interest at an annual rate of 4.0 % per year, payable semi-annually on May 15 and December 15 of each year, beginning May 15, 2020 . The 2026 Notes are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The 2026 Notes will mature on November 15, 2026 , unless earlier repurchased or redeemed by the Company or converted at the option of the holders. The Company may redeem the 2026 Notes prior to the maturity date but is not required to and no sinking fund is provided for the 2026 Notes. The 2026 Notes may be converted, under certain circumstances as described below, based on an initial conversion rate of 94.7811 shares of common stock per $ 1,000 principal amount (which represents an initial conversion price of $ 10.55 per share). The conversion rate for the 2026 Notes will be subject to adjustment upon the occurrence of certain specified events. In addition, upon the occurrence of a make-whole fundamental change (as defined in the indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its notes in connection with such make-whole fundamental change. The Company received approximately $ 133.9 million in net proceeds, after deducting the initial purchasers’ discount, from the issuance of the 2026 Notes. The 2026 Notes may be converted at the option of the holder under any of the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 127.5 % of the last reported sale price of the Company’s common stock on November 7, 2019; (2) during the 5 consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) if the trading price per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; (4) if the Company calls the 2026 Notes for redemption; and (5) at any time from, and including, July 15, 2026 until the close of business on the scheduled trading day immediately before the maturity date, November 15, 2026 . The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, based on the applicable conversion rate. The 2026 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after November 20, 2023 and, in the case of any partial redemption, on or before the 60th scheduled trading day before the maturity date, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (2) the trading day immediately before the date the Company sends such notice. If a “fundamental change” (as defined in the indenture) occurs, then, subject to certain exceptions, holders may require the Company to repurchase their 2026 Notes at a cash repurchase price equal to the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability and equity components. The carrying amount of the liability component of approximately $ 84.2 million was calculated by using a discount rate of 12.0 %, which was estimated to be the Company’s borrowing rate on the date of the issuance of the notes for a similar debt instrument without the conversion feature. The carrying amount of the equity component of approximately $ 49.5 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2026 Notes. The equity component of the 2026 Notes is included in additional paid-in capital in the consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification. The difference between the principal amount of the 2026 Notes and the liability component (the “debt discount”) is amortized to interest expense using the effective interest method over the term of the 2026 Notes. 98 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Debt issuance costs for the issuance of the 2026 Notes were approximately $ 5.0 million, consisting of initial purchasers' discount and other issuance costs. In accounting for the transaction costs, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds from the 2026 Notes. Transaction costs attributable to the liability component were approximately $ 3.1 million, were recorded as debt issuance cost (presented as contra debt in the consolidated balance sheet) and are being amortized to interest expense over the term of the 2026 Notes. The transaction costs attributable to the equity component were approximately $ 1.9 million and were netted with the equity component in stockholders’ equity. As of December 31, 2021, unamortized debt issuance cost for the 2026 Notes were $ 2.5 million. I nterest expense recognized on the 2026 Notes for 2021, 2020 and 2019 (in thousands) is as follows: Years Ended December 31, 2021 2020 2019 Contractual interest expense $ 5,520 $ 5,520 $ 721 Accretion of debt discount 5,907 5,246 673 Accretion of debt issuance costs 59 52 6 Total interest costs recognized $ 11,486 $ 10,818 $ 1,400 The effective interest rate on the liability component of the 2026 Notes was 12.5 % for the year ended December 31, 2021, which remains unchanged from the date of issuance. The remaining unamortized debt discount was $ 40.1 million as of December 31, 2021 and will be amortized over approximately 4.9 years. If the 2026 Notes were to be converted on December 31, 2021, the holders of the 2026 Notes would receive common shares of 16.7 million with an aggregate value of $ 760.0 million based on the Company’s closing stock price of $ 45.58 as of December 31, 2021. The if-converted value of the 2026 Notes exceeded its principal amount by $ 622.0 million as of December 31, 2021. Capped Call Transactions In connection with the offering of the 2026 Notes, the Company entered into privately-negotiated capped call transactions with one of the underwriters in the offering or its affiliate. The Company used approximately $ 13.4 million of the net proceeds from the offering of the 2026 Notes to pay the cost of the capped call transactions. The capped call transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the 2026 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2026 Notes, as the case may be, in the event that the market value per share of the Company’s common stock, as measured under the terms of the capped call transactions at the time of exercise, is greater than the strike price of the capped call transactions (which initially corresponds to the initial conversion price of the 2026 Notes, and is subject to certain adjustments), with such reduction and/or offset subject to a cap initially equal to approximately $ 14.07 per share (which represents a premium of approximately 70 % over the last reported sale price of the Company’s common stock on November 7, 2019), subject to certain adjustments. The capped call transactions are separate transactions, entered into by the Company and are not part of the terms of the 2026 Notes. Given that the transactions meet certain accounting criteria, the convertible note capped call transactions are recorded in stockholders’ equity, and they are not accounted for as derivatives and are not remeasured each reporting period. As of December 31, 2021, the Company had not purchased any shares under the convertible note capped call transactions. 99 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Note 7 — Liabilities Related to Revenue Participation Right Purchase Agreements We have a number of revenue participation right purchase agreements in place, including the Royalty Purchase Agreement entered into with RTW Royalty Holdings (the “RTW Royalty Purchase Agreement”) in 2020 and the Royalty Purchase Agreement (the “RP OM RPA”) entered into with RPI Finance Trust (“RPFT”) in 2017. Royalty Purchase Agreement with RPFT In February 2017, we entered into the RP OM RPA pursuant to which we sold a portion of our right to receive royalties from Amgen on future net sales of omecamtiv mecarbil to RPFT for a one-time payment of $ 90 million, which is non-refundable even if omecamtiv mecarbil is never commercialized. Concurrently, we entered into a common stock purchase agreement with RPFT through which RPFT purchased 875,656 shares of the Company’s common stock for $ 10.0 million. We allocated the consideration and issuance costs on a relative fair value basis to our liability to RPFT related to sale of future royalties under the RP OM RPA (the “RP OM Liability”) and the common stock sold to RPFT, which resulted in the RP OM Liability being initially recognized at $ 92.3 million. The RP OM RPA provides for the sale of a royalty to RPFT of 4.5 % on worldwide net sales of omecamtiv mecarbil, subject to a potential increase of up to an additional 1 % under certain circumstances. As a result of the termination of the Amgen Agreement and pursuant to our obligations under the RP OM RPA, we and RPFT entered into Amendment No. 1 to Royalty Purchase Agreement, dated January 7, 2022 to preserve RPFT’s rights under the RP OM RPA by providing for direct payments by us to RPFT of 4.5 % of our and our affiliates and licensees worldwide net sales of omecamtiv mecarbil, subject to a potential increase of up to an additional 1 % under certain circumstances (if FDA approves omecamtiv mecarbil on its target PDUFA date of November 30, 2022, the royalty owed to RPFT will be 4.9 % of worldwide net sales of omecamtiv mecarbil). Amendment No. 1 to Royalty Purchase Agreement, dated January 7, 2022 had no impact on the original accounting for the $ 92.3 million associated with the RP OM Liability established in February 2017. We account for the RP OM Liability as a liability primarily because we have significant continuing involvement in generating the related revenue stream from which the liability will be repaid. If and when omecamtiv mecarbil is commercialized and royalties become due, we will recognize the portion of royalties paid to RPFT as a decrease to the RP OM Liability and a corresponding reduction in cash. The carrying amount of the RP OM Liability is based on our estimate of the future royalties to be paid to RPFT over the life of the arrangement as discounted using an imputed rate of interest. The excess of future estimated royalty payments over the $92.3 million of allocated proceeds, less issuance costs, is recognized as non-cash interest expense using the effective interest method. The imputed rate of interest on the unamortized portion of the RP OM Liability was approximately 10 % as of December 31, 2021 and 15 % as of December 31, 2020. We periodically assess the amount and timing of expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than its original estimates, we will prospectively adjust the amortization of the RP OM Liability and the effective interest rate. There are a number of factors that could materially affect the amount and timing of royalty payments, most of which are not within our control. The RP OM Liability is recognized using significant unobservable inputs. These inputs are derived using internal management estimates developed based on third party data, including data historically provided by Amgen, and reflect management’s judgements, current market conditions surrounding competing products, and forecasts. The significant unobservable inputs include the estimated patient population, estimated selling price, estimated peak sales and sales ramp, the expected term of the royalty stream, timing of the expected launch and its impact on the royalty rate as well as the overall probability of success. A significant change in unobservable inputs could result in a material increase or decrease to the effective interest rate of the RP OM Liability. During the year ended December 31, 2021, we updated our analyses for the amount and timing of sales and royalties associated with omecamtiv mecarbil as a result of ongoing market research in the U.S. and to reflect other adjustments in connection with our anticipated commercialization plans. Our estimates regarding the amount of future royalty payments decreased and the time periods within which we anticipated that such payments will be due changed. Each of these adjustments is accounted for on a prospective basis in our liability calculation and resulted in a decline in our imputed interest rate and noncash interest expenses from 15 % and $ 22.7 million in 2020 to 10 % and $ 12.9 million in 2021, respectively. In 2021, the change in estimate had no impact on revenue and reduced the net loss by $ 11.5 million. The change in accounting estimate reduced net loss per share by $ 0.15 in 2021. We review our assumptions on a quarterly basis and our estimates may change in the future as we refine and reassess our assumptions. 100 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Changes to the RP OM Liability related to the sale of future royalties are as follows (in thousands): 2021 2020 Beginning balance, January 1 $ 166,068 $ 143,276 Interest accretion 12,892 22,713 Amortization of issuance costs 112 79 Ending balance, December 31 $ 179,072 $ 166,068 We recognized $ 12.9 million, $ 22.7 million and $ 20.7 million in non-cash interest expense in 2021, 2020 and 2019, respectively, related to the RP OM RPA. On January 7, 2022 we announced that we had sold a revenue interest in our net sales of pharmaceutical products containing aficamten to RPI ICAV under the RP Aficamten RPA, as further described in Note 11 below. Note 8 — Stockholders’ Equity Public Offering of Common Stock In July 2021, we closed an underwritten public offering of 11,500,000 shares of our common stock at a public offering price of $ 27.50 , which included the exercise in full by the underwriters of their option to purchase up to 1,500,000 shares of our common stock at the same price. The gross proceeds were $ 316.3 million and net proceeds were approximately $ 296.9 million, after deducting the applicable underwriting discounts and commissions. Equity Incentive Plan Our amended and restated 2004 Equity Incentive Plan (the “2004 Plan”) provides for us to grant incentive stock options, nonstatutory stock options, restricted stock, stock appreciation rights, restricted stock units, performance shares and performance units to employees, directors and consultants. We may grant options for terms of up to ten years at prices not lower than 100 % of the fair market value of our common stock on the date of grant. 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 . In May 2019, our stockholders approved an amendment to the Amended and Restated 2004 Equity Incentive Plan (the “2004 Plan”) to increase the number of authorized shares reserved for issuance under the 2004 Plan by 4.1 million shares. In May 2020, our board of directors approved an amendment to the 2004 Plan to increase the number of authorized shares reserved for issuance under the 2004 Plan by 0.8 million shares for inducement grants to new employees. In May 2021, our stockholders approved an amendment to the 2004 Plan to increase the number of authorized shares reserved for issuance under the 2004 Plan by 5.2 million shares to 21.5 million shares (excluding an additional 0.8 million then authorized for issuance as inducement grants to new employees). In August 2021, the Company’s board of directors approved another amendment to the 2004 plan and increased the number of shares reserved for issuance for inducement grants to new employees from the 0.8 million to 1.9 million. We started granting inducement grants in September 2020. As of December 31, 2021, the total authorized shares under the 2004 Plan of 5.7 million were available for grant. 101 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Stock option activity in 2021 was as follows: Stock Options Outstanding Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in millions) Balance at December 31, 2019 7,759,012 $ 8.59 Granted 1,944,562 15.59 Exercised ( 967,571 ) 8.27 Forfeited ( 234,054 ) 16.06 Balance at December 31, 2020 8,501,949 $ 10.02 Granted 2,513,350 22.43 Exercised ( 1,346,194 ) 9.01 Forfeited ( 296,146 ) 14.56 Balance at December 31, 2021 9,372,959 $ 13.35 6.8 $ 302.1 Exercisable at December 31, 2021 5,828,902 $ 9.99 5.6 $ 207.4 We expect all outstanding options to vest. The intrinsic value of stock options exercised, calculated based on the difference between the market value at the date of exercise and the exercise price, was $ 29.3 million for 2021, $ 14.0 million for 2020 and $ 0.5 million for 2019. The intrinsic value of stock options outstanding at December 31, 2021 was $ 302.1 million. Restricted stock unit (“RSU”), including Performance Stock Units (“PSUs”), activity in 2021 was as follows: Number of Restricted Stock Units Weighted Average Award Date Fair Value per Share Balance at December 31, 2019 839,075 $ 7.49 Granted 731,225 14.40 Exercised ( 435,450 ) 7.72 Forfeited ( 18,208 ) 10.37 Balance at December 31, 2020 1,116,642 $ 11.88 Granted 1,093,450 21.69 Exercised ( 606,240 ) 11.13 Forfeited ( 189,025 ) 21.32 Balance at December 31, 2021 1,414,827 $ 18.52 RSUs generally vest annually over two to three years . For 2021, the fair value of RSUs vested, calculated based on the units vested multiplied by the closing price of our common stock on the date of vesting, was $ 11.6 million. Performance Stock Units In May 2021, the Compensation and Talent Committee of the Company’s Board of Directors (“the Compensation Committee”) granted a total of 375,000 Performance Stock Units (“PSUs”) to certain employees with a weighted average grant date fair value of $ 25.32 per unit. The fair value of the PSUs was determined on the grant date based on the fair value of the Company’s common stock at such time. The PSUs consist of two equal tranches with 50 % of each tranche vesting upon achieving certain performance criteria and 50 % vesting at the one-year anniversary of such achievement provided the recipient has been continuously employed by the Company. The first tranche vests upon certification by the Compensation Committee that the new drug application (“NDA”) for omecamtiv mecarbil has been filed and accepted by the U.S. Food and Drug Administration (“FDA”) and the second tranche vests upon certification by the Compensation Committee that the FDA approval of the NDA is with an approved label that is consistent with the expectations underlying the Company’s commercial launch plans for omecamtiv mecarbil in effect immediately prior to such approval. As the FDA accepted our NDA for omecamtiv mecarbil subsequent to the year ended 2021, it resulted in change of estimate of the probability of meeting the performance conditions for the PSU grants during the fourth quarter of 2021. The previous estimate was based on assumptions that were the best available information at the time. The change of estimate resulted in a cancellation of 91,250 PSUs and decrease of $ 0.5 million in stock-based compensation expense for the year ended December 31, 2021. 102 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) In 2021 , the Company recognized expense of $ 1.4 million for the first tranche of PSUs. No expense has been recognized for the second tranche. As of December 31, 2021, there were 273,750 PSUs outstanding and $ 0.9 million unamortized stock-based compensation, which may vest and recognized with respect to the achievement of the performance goals and service period. The Company will assess the likelihood of achieving the performance conditions quarterly and the expense recognized will be adjusted accordingly. Employee Stock Purchase Plan Under our 2015 Employee Stock Purchase Plan (the “ESPP”), employees may purchase common stock up to a specified maximum amount at a price equal to 85 % of the fair market value at certain plan-defined dates. In May 2020, the Company’s stockholders approved an amendment to the ESPP to increase the number of common stock shares reserved for issuance under the ESPP by 0.5 million shares. We issued 108,780 shares at an average price of $ 16.33 per share during 2021, 134,684 shares at an average price of $ 11.21 per share in 2020, and 172,113 shares at an average price of $ 6.43 per share in 2019 pursuant to the ESPP. At December 31, 2021, we have 338,040 shares of common stock reserved for issuance under the ESPP. Stock-Based Compensation Expense We use the Black-Scholes option pricing model to determine the fair value of stock option grants to employees and directors and employee stock purchase plan shares. The fair value of share-based payments was estimated on the date of grant based on the following assumptions: Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 Options ESPP Options ESPP Options ESPP Risk-free interest rate 0.58% to 1.28% 0.05% 0.42% to 1.8% 0.11% to 1.8% 1.6% to 3.0% 1.8% to 2.4% Volatility 66% to 67% 66% to 67% 74% to 75% 74% to 75% 73% to 76% 73% to 76% Expected term in years 6.4 to 6.5 0.5 6.5 to 6.6 0.5 6.5 0.6 Expected dividend yield 0 % 0 % 0 % 0 % 0 % 0 % We use U.S. Treasury zero-coupon issues with remaining terms similar to the expected terms of the options for the risk-free interest rate. We use our own volatility history based on its stock’s trading history and our own historical exercise and forfeiture activity to estimate expected term for option grants. We do not anticipate paying dividends in the foreseeable future and use an expected dividend yield of zero. We do not estimate forfeitures in our stock-based compensation. We measure compensation expense for restricted stock units at fair value on the date of grant and recognize the expense over the expected vesting period. We recognize stock-based compensation expense on a ratable basis over the requisite service period, generally the vesting period of the award for share-based awards. Stock-based compensation expense for 2021 and 2020 was as follows (in thousands): Years Ended December 31, 2021 2020 2019 Research and development $ 10,463 $ 6,949 $ 4,260 General and administrative 16,369 10,671 6,499 $ 26,832 $ 17,620 $ 10,759 Stock-based compensation expense for share-based awards to non-employees was $ 0.2 million in 2021, 2020, and 2019. As of December 31, 2021, we expect to recognize $ 44.5 million of unrecognized compensation cost related to unvested stock options over a weighted-average period of 2.7 years, $ 11.5 million of unrecognized compensation cost related to unvested restricted stock over a weighted-average period of 1.4 years, and $ 0.9 million of unrecognized compensation cost related to unvested PSUs, which may vest and recognized with respect to the achievement of the performance goals and service period. 103 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Warrants Pursuant to the Term Loan agreement described in Note 6 - Debt, we issued a warrant with an exercise price of $ 9.76 per share to purchase 23,065 shares of our common stock in 2019. The warrant was fully exercisable and expires in May 2029 . As of December 31, 2019, warrants to purchase 165,424 shares of our common stock with a weighted average exercise price of $ 7.25 per share were outstanding. All outstanding warrants are fully exercisable and expire ten years after issuance. During the first quarter of 2020, in connection with the Term Loan Agreement further described in Note 6 - Debt, we issued a warrant with an exercise price of $ 10.42 per share to purchase 21,595 shares of our common stock. The warrant was issued in connection with achieving the interest-only extension milestone 1 in the Term Loan Agreement. The warrant was fully exercisable and expires in January 2030 . The $ 0.2 million fair value of the warrant related to the Term Loan was recorded as interest expense during the first quarter of 2020. In July 2020, OTA LLC, an assignee of Oxford, exercised 51,214 warrants with a strike price of $ 6.59 per share, 48,892 warrants with a strike price of $ 6.903 per share, and 25,352 warrants with a strike price of $ 7.10 per share and elected the cashless settlement method. Accordingly, in July 2020, we issued to OTA LLC a total of 95,932 shares of our common stock. In October 2020, OTA LLC exercised 13,839 warrants with a strike price of $ 9.755 per share and elected cashless settlement method. Accordingly, in October 2020, we issued OTA LLC a total of 8,958 shares of our common stock. As of December 31, 2021, we had outstanding warrants issued pursuant to the Original Loan Agreement and Term Loan Agreement with a weighted average exercise price of $ 9.12 per share to purchase 47,722 shares of our common stock. Committed Equity Offering In 2019, we terminated our original Controlled Equity Offering SM Sales Agreement (the “ATM Facility”) with Cantor Fitzgerald & Co. (“Cantor”) for the sale, in our sole discretion, of shares of our common stock, having an aggregate offering price of up to $ 75.0 million through Cantor and we entered into a new sales agreement (the “New ATM Facility”) with Cantor, which provides for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $ 85.0 million through Cantor, as our sales agent. The issuance and sale of these shares by us pursuant to the New ATM Facility are deemed “at the market” offerings and are registered under the Securities Act of 1933, as amended. We pay a commission of up to 3.0 % of gross sales proceeds of any common stock sold under the New ATM Facility. As of 2019, we issued 3,984,849 shares of common stock for net proceeds of $ 36.2 million under the New ATM Facility. Claims Settlement In the first quarter of 2020, we received $ 2.2 million from a claims settlement with certain institutional investors that were beneficial owners of our common stock related to the disgorgement of short swing profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended. This settlement was recognized in equity as additional paid-in capital. Note 9 — Commitments and Contingencies Operating Leases In May 2021, we amended the lease agreement for buildings 250, 256 and 280 East Grand Avenue, South San Francisco, California for our existing facilities and extended the lease term until June 30, 2022 , which was accounted for as a lease modification in accordance with Topic 842. Pursuant to such guidance, the Company remeasured the modified lease using the revised term as of the modification date. Adjustments were made to reflect the remeasured liability with the offset to the right-of-use asset. The lease includes rental payments and payment of certain operating expenses. Under the lease terms, we have minimum rental fee payment obligations of $ 0.5 million per month through the remaining term. As of December 31, 2021 , the remaining lease term is 0.5 years and the discount rate used to determine the operating lease liability was 6.8 % for buildings 250, 256 and 280 East Grand Avenue, South San Francisco, California. In July 2019, we entered into a lease agreement for approximately 234,892 square feet of office and laboratory space at a facility located in South San Francisco, California and in May 2020, January 2021 and November 2021, we entered into first, second and third amendments to the lease (collectively the “Oyster Point Lease”). 104 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Oyster Point Lease commenced on March 31, 2021 and upon commencement, we recognized a right-of-use asset of $ 77.9 million, a short-term lease liability of $ 3.7 million and a long-term lease liability of $ 85.3 million. The long-term lease liability includes $ 11.1 million of tenant improvement reimbursements as of March 31, 2021. The Oyster Point Lease had an initial expiration date of September 3 0 , 2033 and we have two consecutive five-year options to extend the lease. The options to extend the lease term were not included as part of the right-of-use asset or lease liability as the exercise of the options were not reasonably assured at the inception of the lease. During the third quarter of 2021, we amended the lease payment schedule and will be required to start making rent payments in January 2022. The lease term is extended until October 31, 2033 . The amendment was accounted for as a lease modification in accordance with Topic 842. As of December 31, 2021 , the remaining lease term of the Oyster Point Lease is 11.8 years and the discount rate used to determine the related lease liability was 10.1 %. We paid a total security deposit of $ 5.1 million in December 2019 and December 2020. The landlord will provide a tenant improvement allowance of $ 43.6 million in aggregate for costs relating to the initial design and construction of the improvements. As of December 31, 2021, the total commitment of undiscounted lease payments for the Oyster Point Lease was $ 230.5 million. During the fourth quarter of 2021, we officially relocated from our existing headquarters located at 250, 256, and 280 East Grand Avenue, South San Francisco to our new facilities at Oyster Point. As a result of the relocation, we considered ceasing use of the existing headquarters, which triggered an impairment assessment. In connection with this assessment, we recorded an impairment loss of $ 2.8 million, consisting of right-of-use assets of the existing headquarters, which is included in operating expenses on the consolidated statement of operations for the year ended December 31, 2021. We are subject to the fixed rental fee payments for the existing headquarters through the remaining term until June 2022. As of December 31, 2021, the weighted average remaining lease term for the operating leases is 11.7 years and the weighted average discount rate used to determine the operating lease liability is 10.0 % Cash paid for amounts included in the measurement of operating lease liabilities for the years ended December 31, 2021 and 2020 was $ 6.1 million and $ 6.7 million, respectively, and was included in net cash used in operating activities in our consolidated statements of cash flows. Finance Leases During the third quarter of 2021, we entered into a master lease agreement for laboratory equipment leases that was partially commenced in the fourth quarter of 2021. The leases have an initial term of 3 years and are expected to commence through the second quarter of 2022. The master lease agreement provides a purchase option with a bargain purchase price, which we expect to exercise at the end of the term. The Company classified the leases as finance leases. Finance leases are accounted for on the consolidated balance sheets with right-of-use assets and lease liabilities recognized in property and equipment, other current liabilities, and other non-current liabilities, respectively. The finance lease cost is recognized as a combination of the amortization expense for the right-of-use assets calculated on a straight-line basis over the five-year estimated useful life for laboratory equipment and interest expense for the outstanding lease liabilities using the determined discount rates. As of December 31, 2021, we have recognized finance lease right-of-use assets of $ 1.4 million, short-term finance lease liabilities of $ 0.5 million, and long-term finance lease liabilities of $ 0.8 million . As of December 31, 2021, the weighted average remaining lease term for the finance leases is 4.9 years and the weighted average discount rate used to determine the finance lease liabilities is 9.47 %. There was no cash paid for amounts included in the measurement of finance lease liabilities for the year ended December 31, 2021. 105 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The undiscounted future non- cancellable lease payments under all our operating and finance lease agreements as of December 31, 2021 is as follows (in thousands): Years ending December 31: Operating Leases Finance Leases 2022 $ 15,611 $ 513 2023 17,060 479 2024 17,620 479 2025 18,199 — 2026 18,799 — Thereafter 146,193 — Total undiscounted future lease payments 233,482 1,471 Less: Present value adjustments ( 106,390 ) ( 166 ) Total lease liability $ 127,092 $ 1,305 The lease obligations for the finance leases that have not yet commenced as of December 31, 2021 is approximately $ 1.9 million, which are not included in the table above. These leases will commence through the second quarter of 2022 and expire in 2025. Rent expenses for the operating leases and finance leases were $ 23.1 million, $ 5.7 million and $ 5.1 million for 2021, 2020 and 2019, respectively. Note 10 — Income Taxes We did no t record an income tax provision in 2021, 2020 and 2019 because we had net taxable losses. Our significant jurisdictions are the United States and California. The following reconciles the statutory federal income tax rate to our effective tax rate: Years Ended December 31, 2021 2020 2019 Tax at federal statutory tax rate 21 % 21 % 21 % State tax, net of federal benefits 0 % 1 % 3 % Change in state effected rates ( 1 )% ( 2 )% 4 % Tax credits, net 3 % 3 % 3 % Change in valuation allowance ( 24 )% ( 23 )% ( 30 )% Stock-based compensation 2 % 1 % ( 1 )% Other ( 1 )% ( 1 )% 0 % Total 0 % 0 % 0 % 106 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Deferred tax assets, net, reflecting 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, were as follows (in thousands): As of December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 181,977 $ 162,514 Tax credits 77,366 71,976 Liability related to sale of future royalties 38,302 36,989 Reserves and accruals 15,409 10,876 Capitalized R&D 1,115 2,370 Long-term lease liability 26,223 718 Deferred revenue 18,608 — Depreciation and amortization — 746 Total noncurrent deferred tax assets 359,000 286,189 Deferred tax liabilities: Depreciation and amortization ( 7,664 ) — Accounting method change — ( 927 ) Operating lease right-of-use assets ( 15,643 ) ( 651 ) Convertible notes ( 8,296 ) ( 9,832 ) Total noncurrent deferred tax liabilities ( 31,603 ) ( 11,410 ) Less: Valuation allowance ( 327,397 ) ( 274,779 ) Net deferred tax assets $ — $ — Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses since inception, expected future losses, and difficulty in accurately forecasting our future results and an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 2021 and 2020. The valuation allowance increased by $ 52.6 million in 2021 and increased by $ 28.9 million in 2020. At December 31, 2021 federal NOL carryforwards were $ 753.8 million and apportioned state NOL carryforwards before federal benefits were $ 323.1 million. If not utilized, federal and state operating loss carryforwards incurred prior to 2018 will begin to expire in various amounts beginning 2022 and 2028 , respectively. At December 31, 2021, tax credits of $ 73.6 million and $ 17.8 million for federal and state income tax purposes, respectively consisted of Research and Development Credits and Orphan Drug Credits. If not utilized, the federal carryforwards will expire in various amounts beginning in 2021 . California based credit carryforwards do not expire. In general, under Section 382 of the Internal Revenue Code (“Section 382”), a corporation that undergoes an ‘ownership change’ is subject to limitations on its ability to utilize its pre-change net operating losses and tax credits to offset future taxable income. We do not believe it has experienced an ownership change since 2006, however, a portion of its NOLs and tax credits prior to 2007 will be subject to limitations under Section 382. Activity related to our gross unrecognized tax benefits were (in thousands): Years Ended December 31, 2021 2020 2019 Balance at the beginning of the year $ 10,522 $ 9,922 $ 9,475 Decrease related to prior year tax positions ( 29 ) ( 3 ) — Increase related to current year tax positions 802 603 447 Balance at the end of the year $ 11,295 $ 10,522 $ 9,922 107 Table of Contents CYTOKINETICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) We are subject to income tax examination for all fiscal years with unutilized NOLs and tax credit carryforwards. Included in the balance of unrecognized tax benefits as of December 31, 2021, 2020 and 2019 are $ 10.3 million, $ 9.6 million and $ 9.1 million of tax benefits, respectively, that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law making several changes to the Internal Revenue Code, including provisions addressing the carryback of net operating losses for specific periods, refunds of alternative minimum tax credits, temporary modifications to limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property. Additionally, the CARES Act provides for refundable employee retention tax credits and the deferral of the employer-paid portion of Social Security taxes. For the years ended December 31, 2021 and 2020, respectively, the Company’s income tax provision was not significantly impacted by the CARES Act. The Company will continue to closely monitor any effects from future legislation. Note 11 — Subsequent Events 2022 Royalty Pharma Transactions On January 7, 2022, we announced that we had entered into the RP Loan Agreement and the RP Aficamten RPA with RPDF and RPI ICAV respectively, each of which are affiliated with Royalty Pharma International plc. Under the RP Loan Agreement, we are entitled to receive up to $ 300.0 million in term loans, $ 50.0 million of which was disbursed to us on closing and the remaining $ 250.0 available to us upon our satisfaction of customary disbursement conditions and certain development conditions by specific deadlines, as follows: • $ 50.0 million of tranche 2 term loans during the one year period following the receipt on or prior to December 31, 2022 of marketing approval from FDA of omecamtiv mecarbil ; • $ 25.0 million of tranche 3 term loans during the one year period following the commercial availability of a diagnostic test measuring levels of omecamtiv mecarbil to support the final FDA label language applicable to such drug, subject to such commercial availability and the conditions to the tranche 2 term loans having occurred on or prior to December 31, 2022; • $ 75.0 million of tranche 4 term loans during the one year period following the receipt on or prior to September 30, 2024 of positive results from SEQUOIA-HCM, the Phase 3 trial for aficamten; and • $ 100.0 million of tranche 5 term loans during the one year period following the acceptance by the FDA on or prior to March 31, 2025 of an NDA for aficamten, subject to the conditions to the tranche 4 term loans having occurred on or prior to September 30, 2024. Each term loan under the RP Loan Agreement matures on the 10 year anniversary of the funding date for such term loan and is repayable in quarterly installments of principal, interest and fees commencing on the last business day of the seventh full calendar quarter following the calendar quarter of the applicable funding date for such Term Loan, with the aggregate amount payable in respect of each term loan (including interest and other applicable fees) equal to 190 % of the principal amount of the term loan (such amount with respect to each Term Loan, “Final Payment Amount”). We may prepay the term loans in full (but not in part) at any time at our option by paying an amount equal to the unpaid portion of Final Payment Amount for the outstanding Term Loans; provided that if the conditions for either the tranche 4 term loans or the tranche 5 term loans have been met, we must have borrowed at least $ 25 million principal amount of the tranche 4 or 5 term loans. In addition, the term loans under the RP Loan Agreement are repayable in full at the option of either us or the lender in an amount equal to the unpaid portion of Final Payment Amount for the outstanding term loans upon a change of control of Cytokinetics. In addition, on January 7, 2022, we entered into the RP Aficamten RPA with RPI ICAV, pursuant to which RPI ICAV purchased rights to certain revenue streams from net sales of pharmaceutical products containing aficamten by us, our affiliates and our licensees in exchange for up to $ 150.0 million in consideration, $ 50.0 million of which was paid on the closing date, $ 50.0 million of which is payable following the initiation of the first pivotal trial in oHCM for aficamten and $ 50.0 million of which is payable following the initiation of the first pivotal clinical trial in nHCM for aficamten. The RP Aficamten ARPA also provides that the parties will negotiate terms for additional funding if we achieve proof of concept results in certain other indications for aficamten, with a reduction in the applicable royalty if we and RPI ICAV fail to agree on such terms in certain circumstances. Pursuant to the RP Aficamten RPA, RPI ICAV purchased the right to receive a percentage of net sales equal to 4.5 % for annual worldwide net sales of pharmaceutical products containing aficamten up to $ 1 billion and 3.5 % for annual worldwide net sales of pharmaceutical products containing aficamten in excess of $ 1 billion, subject to reduction in certain circumstances. Commensurate with our entry into the RP Loan Agreement and RP Aficamten RPA, we terminated the Term Loan Agreement with the Lenders and repaid all amounts outstanding thereunder. 108 Table of Contents I TEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.