Replies to post #837 on Cytokinetics, Inc. (CYTK)

[Cynic-Al]

There is a stigma attached to doing a reverse stock split, so it is not initiated without very good reason and may take a shareholder or board meeting for consent. Many institutional investors and mutual funds, for example, have rules against purchasing a stock whose price is below some minimum, perhaps US$5.In an extreme case, a company whose share price has dropped so low that it is in danger of being delisted from its stock exchange, might use a reverse stock split to increase its share price. For these reasons, a reverse stock split is often an indication that a company is in financial trouble.

This could be a good short opportunity :)

[$hylo]

Why is Cytokinetics implementing a reverse stock split of its common stock?

While the reverse stock split had no direct impact on the equity market capitalization of Cytokinetics, we believed that the reverse stock split would provide benefits to the company and our stockholders in a number of ways, including:

Providing a sufficient level of authorized shares of common stock available for future issuance. We require available authorized shares of common stock to provide for any potential future stock issuances to raise capital, effect acquisitions and/or provide equity incentives to our employees. Prior to the reverse stock split, only 0.2% of the authorized shares of common stock under our Certificate of Incorporation remained available for issuance. In connection with the reverse split, we implemented a concurrent reduction in the number of authorized shares of common stock from 245,000,000 to 81,500,000. The combination of the reverse stock split and the authorized share reduction had the effect of increasing the number of shares of common stock available for issuance. At present, we do not have any plans or arrangements to issue additional shares of common stock other than shares currently reserved for issuance under our existing equity incentive plans and upon conversion of our outstanding Series B convertible preferred stock and warrants.

Stock Price Volatility. We have been advised by certain institutional investors, as well as by our financial advisors, that a higher stock price might increase the acceptability of our common stock to a number of long-term investors who may not find our shares attractive at their pre-split price due to the trading volatility often associated with stocks below certain prices.

Stock Price Requirements. Many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers or by restricting or limiting the ability to purchase such stocks on margin.

Transaction Costs. Investors also may be dissuaded from purchasing stock below certain prices because the brokerage commissions, as a percentage of the total transaction value, tend to be higher for such low-priced stocks.

Taken together, we believe that the reverse stock split has made our common stock a more attractive investment.
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