Expert Financial Analysis and Reporting

Investment Opinion

Data presented at the upcoming American Heart Association meeting on the phase 3 GALACTIC-HG trial on omecamtiv mecarbil could cause a sharp swing in the stock. The data could make investors more positive on the commercial potential of omecamtiv mecarbil in which case we could see a sharp upward move. Also possible is that the current negative view is reinforced, leading to a weakening in the stock. In the latter case, I think that investor attention would focus on the potential for CK-247, the potential for which more than justifies the current market valuation of $715 million. There is also a promising pipeline beyond CK-247. Hence, I continue with a Buy on the stock in either event.

Results from GALACTIC-HF will be presented at a live, virtual, embargoed AHA News Briefing on Thursday, November 12, 2020 from 12:30-1:30 PM ET. Cytokinetics will host an investor/media event related to the results of GALACTIC-HF on November 13, 2020 at 1:00 PM ET

Top Line Data from GALACTIC-HF Trial Was Disappointing

Cytokinetics declined sharply after it announced topline results in the phase 3 GALACTIC-HF trial of omecamtiv in congestive heart failure. The study successfully reached the primary endpoint of time to cardiovascular death or first heart failure event with a p-value of 0.025 and a hazard ratio of 0.92; 95% CI: 0.86, 0.99. This was a less than robust result. The key secondary endpoint of time to cardiovascular death was not reached; the failure to show a mortality benefit was taken as quite negative. The immediate conclusion of analysts was that the drug at best could be approved with a lackluster, non-competitive label and at worst might not be approved at all. In the first case, the commercial potential probably would be quite limited.

There remains the possibility of a somewhat better scenario. Amgen and Cytokinetics will be presenting greater detail on GALACTIC-HF at the American Heart Association Meeting on November 12. This will be a critical catalyst for omecamtiv. In the next few bullet points, I list some critical issues that analysts will focus on. I raise a number of hypotheses about how the data might make investors more positive on the commercial potential for omecamtiv. However, at this point I must emphasize that these are hypotheses that may or may not be demonstrated by a more intense analysis of the data. There is the possibility for a sharp upward move if my hypotheses (guesses) prove accurate and a downward move if the data causes Wall Street to conclude the drug won’t be approved or if approved, will have only modest potential. Here are some points to consider.

• This was an extremely large study that enrolled 8,500 or so patients in both the hospital and outpatient setting. This constitutes two large sub-groups with quite different risk/ benefit profiles.
• A hypothesis can be made that outpatients are less sick and therefore it is more difficult to show a mortality benefit than with inpatients. Conceivably, hospital patients might achieve a mortality benefit while outpatients don’t.
• Within the subgroups of inpatient and outpatient there may be other meaningful sub-groups where benefit can be determined. Because of the large trial size, the number of patients treated in subgroups could number in the several hundreds or thousands.
• The potential problem with analyzing sub-group performance is that if a statistical analysis is not prespecified in the statistical plan, the FDA might look at this as retrospective analysis (data mining) which it perceives very negatively.
• The trial did meet its primary endpoint so that a powerful effect in one or more sub-groups might meaningfully bolster the odds of approval even with the mediocre outcome on the primary endpoint and failure on the key secondary endpoint.
• The side effect profile was comparable to placebo which greatly enhances the risk/ benefit of the drug and makes it easier for the FDA to approve.
• Quality of life is a major problem for congestive heart failure patients. The inability of the heart to pump enough blood means that patients constantly are fatigued and short of breath making for poor quality of life.
• We can look to the experience with inotropic agents like digitalis and milrinone to get a possible glimpse into how important quality of life might be. Omecamtiv like these drugs results in the heart pumping more blood leading to better oxygenation of the blood, allowing more physical activity. Digitalis and milrinone can cause life threatening cardiac arrythmias because they are forcing an already damaged heart to work harder. No such risk was identified for omecamtiv in the GALACTIC-HF trial. Even with life threatening side effects, many patients elect to take digitalis or milrinone because it greatly improves quality of life.
• It could be the case that in all patients or certain sub-groups, omecamtiv provided a medically meaningful improvement in quality of life.
• Amgen and Cytokinetics are currently enrolling another trial of omecamtiv called METEORIC-HF that is looking at quality of life outcomes. The primary endpoint is change in peak oxygen uptake (VO2) on cardiopulmonary exercise testing from baseline to week 20.
• Secondary outcomes for METEORIC-HF are: (1) change in exercise capacity, as measured by the change in total workload during cardiopulmonary exercise testing (CPET) from baseline to Week 20; (2) change in ventilatory efficiency, as measured by the change in Ventilation (VE)/Carbon dioxide output (VCO2) slope during cardiopulmonary exercise testing (CPET) from baseline to Week 20 and (3) change in the average daily activity units measured over a 2-week period from baseline (Week -2 to Day 1) to Week 18-20.

CK-247 Justifies the Current Valuation In My Opinion

The next value driver for Cytokinetics is CK-274. This is a selective cardiac myosin inhibitor being studied for use in hypertrophic cardiomyopathy (HCM), a severe cardiac condition different from congestive heart failure. Investors are very keen on this space due to clinical success of Myocardia’s mavacamten in this disease setting. This led to Bristol-Myers acquiring MyoKardia for $13 billion. Interestingly Cytokinetics licensed technology to MyoKardia that was instrumental in mavacamten’s development and for which CYTK receives a royalty stream; this royalty stream was monetized.

CK-247 is currently being studied in REDWOOD-HCM study with results from this 18-patient trial expected towards the end of this year. Cytokinetics believes that CK-274 may have a superior pharmacokinetic profile that could prove to have meaningful advantages over mavacamten. It has faster and higher absorbability of the active ingredient and a half-life of 80 hours reduces the need for secondary dosing and also improves patient compliance to dosage schedules. CYTK believes that CK-247 could be a meaningfully better drug than mavacamten and become the gold standard in HCM.

The HCM market has considerable potential and certainly there is room for two drugs. CK-247 is probably three years behind mavacamten in reaching the market. However, the launch of mavacamten may be initially slow. There is no current drug therapy for HCM so that it will require time for Bristol-Myers to educate the market. The uptake of CK-247 could be much quicker than mavacamten as it enters an educated market place.