Expert Financial Analysis and Reporting

Key Takeaways From 3Q, 2013 Conference Call
The BENEFIT-ALS trial of tirasemtiv has nearly completed enrollment and Cytokinetics (CYTK) believes that topline data will be reported as early as the American Academy of Neurology (AAN) Meeting in Philadelphia in April 2014. The most likely path forward in the event that the data is positive is that CYTK will have to conduct a phase III trial. However, the Company is preparing for a possible regulatory filing based on BENEFIT-ALS if the data is exceptionally good. This is the most critical event for the Company over the next year.

The first part of the COSMIC-HF heart failure phase IIb trial has been completed. The main goals of this trial are to select the oral dosage form of omecamtiv mecarbil that will be used in phase III and to also gain an insight its pharmacokinetics (the effect of the body on the drug) and pharmacodynamics (the effect of the drug on the body). This trial will also mark the longest duration of therapy for omecamtiv mecarbil in any trial to date. The trial is to be conducted in two parts with an expansion phase following the dosage determination phase.

I had anticipated that the expansion part of the trial to gauge pharmacokinetics and pharmacodynamics would start almost immediately after the initial dose determination phase. Unexpectedly, the Company announced that it was filing an amendment to the COSMIC-HF protocol. Management was vague about the details of the amendment stating that they wanted first to discuss the amendment with their partner Amgen. They would only say that the matter was administrative and that the delay should be short.

I had been expecting topline data from the expansion phase in 2H, 2014. While management gave no guidance on how much this delay would slow the release of results, my interpretation is that there could be rapid enrollment and that the data will probably still be released in 2014, but more toward the very end of the year.

Investment Thinking
I continue to think that success in either the congestive heart failure development of omecamtiv mecarbil or tirasemtiv in ALS would represent an asymmetric upside stock opportunity. The key catalyst for the stock in 1H, 2014 will be the reporting of topline data from the BENEFIT-ALS trial. This should have a fairly dramatic effect on the stock. I think that positive results could more then double the stock and negative results would perhaps reduce the value of the stock by 30% to 50%.

The next catalyst then should be topline data from the COSMIC-HF trial, probably late in 2014 or possibility in early 2015. The immediate effect of the data release might be limited, but if based in this data Amgen then decided to take the drug into phase III development, I believe that there would be a sharp upward inflection in stock price; this is likely a 1Q, 2015 event. In the event that tirasemtiv results are negative and the stock does suffer a drop of 30% to 50%, I would remain a buyer.

I continue to believe that the stock is attractive at these levels. I must emphasize for those who are not experienced biotechnology investors that there is a meaningful risk of failure in all clinical trials. However, my experience is that one successful outcome can offset several failures. In my portfolio, I own approximately 13 different emerging biotechnology companies on the premise that if I am successful one-half or even one-third of the time that I can make a good or excellent return. On the companies on which I write, I am always confident that the outcome has a very high probability of success, but in my heart of hearts I know that some will fail. Each of my stock holdings is a relatively small part of my portfolio, but in the aggregate emerging biotechnology is about 15% of my broadly based portfolio.

Cytokinetics is one of my favorite holdings because both omecamtiv mecarbil and tirasemtiv are unique, hugely interesting molecules targeting great unmet medical needs in ALS and congestive heart failure. I would recommend the stock at this level on the basis of either drug alone. Cytokinetics has about 26 million basic shares outstanding and if all currently outstanding warrants and options were ultimately exercised there would be about 38 million shares. Based on this, the market capitalization is about $230 million, which is not reflective of a company with two such promising drugs in phase IIb development.

For those wanting a more thorough discussion of the Company, I would refer you to the reports on my website.

COSMIC-HF Study of Omecamtiv Mecarbil in Heart Failure
COSMIC-HF is a phase IIa double-blind, randomized, placebo-controlled, study designed to evaluate several modified-release oral formulations of omecamtiv mecarbil. The objective of the trial is to determine the best formulation for the potential phase III trial. The trial was designed to have an intial phase in which the final oral formulation would be determined. This was to be followed by an expansion phase in which this selected formulation would be studied.

The first part of the study was a dose escalation in 40 patients who were randomized to one of three different dose formulations or placebo in two ascending dose formulations. Omecamtiv mecarbil was dosed at 25 milligrams twice daily for 1 week in the first cohort and 50 mgs twice daily for one week in the second cohort. This phase of the study has been completed and the oral formulation of omecamtiv mecarbil has been selected for evaluation in the planned expansion phase of the trial.

COSMIC-HF is designed primarily for safety, tolerability pharmacokinetics and pharmacodynamics. Like ATOMIC-HF, this is not a study that has a principal efficacy objective or clinical outcome. So it really is about understanding if the oral form that has now been selected is well tolerated and produces predictable and durable pharmacokinetics and pharmacodynamic. This will also be the first time patients will be dosed for a sustained period of time and they want to demonstrate safety and tolerability over an extended period of time.

BENEFIT ALS
The BENEFIT ALS trial is a multinational double-blind randomized placebo-controlled clinical trial designed to evaluate the safety, tolerability and potential efficacy of tirasemtiv in patients with ALS. It is close to completing enrollment of about 600 patients. The trial is designed to dose patients for 12 weeks which is the endpoint of the trial and then follow-up the patients at 7 days and 28 days. As of today, 300 have completed 12 weeks of treatment which is the endpoint for the study.

The Data Safety Monitoring Board recently completed another scheduled meeting to review data from BENEFIT-ALS and recommended that the trial continue without any changes in protocol. This meant that the trial could continue without any protocol changes. It now expects enrollment to conclude by the end of 2013 with topline results in 1H, 2014.

Cytokinetics is preparing for the two scenarios in the event of positive results. If the results are extraordinarily positive, they will then talk with regulatory authorities as to whether the trial results would support a standalone registration. However, the Company believes that it is more likely that the next step will be a phase III trial. Each scenario has different timelines and investment requirements.

Cytokinetics has also been assessing whether to build a commercial business in the US. They are assessing the cost in terms from a market access standpoint, from a tax, legal, IP, human resources and clinical sales and marketing standpoint. They are trying to understand what it would take to build a business that could return significantly on investment. The current thinking is to build out a commercial infrastructure in the U.S. at least.

CK-107
The Company has just entered into human trials with its third drug, CK-107, which is being developed in a partnership with Astellas. Cytokinetics is responsible for conducting the phase I trials of CK-107. This drug is potentially useful in the treatment of non-neuromuscular diseases associated with muscle fatigue and weakness.

In 3Q, 2013, the first phase I trial was begun and the first healthy volunteer was dosed. This trial will be done in healthy male volunteers. It is a double-blind randomized placebo controlled study designed to assess the safety, tolerability and pharmacokinetics of single ascending oral doses of CK-107 administrated to healthy adult males in a three period dose escalating crossover design.

A second phase I trial was also recently initiated in healthy volunteers. It is a randomized open-label, two period crossover study to assess the relative oral bioavailability, pharmacokinetics, safety and tolerability of two oral forms of CK-107.