Expert Financial Analysis and Reporting

Investment Overview and Thesis

Cytokinetics has an extremely valuable asset in omecamtiv mecarbil, which it is developing in collaboration with Amgen; it is currently being studied in the huge, 8000+ patient, GALACTIC-HF phase 3 trial. I believe that this drug which is being studied in congestive heart failure is potentially one of the most important drugs in development in all of biopharma and has peak sales potential of $5 to $10 billion or more. Unfortunately, from an investment standpoint there may be little information on this trial until early 2021.

In collaboration with Astellas, Cytokinetics is also developing reldesemtiv (aka CK-107) in several indications. Results from a 70 patient phase 2 exploratory trial in spinal muscular atrophy (SMA) will be reported at a conference on June 2, 2018. Data from a 450 patient trial in ALS should be reported out in 4Q, 2018 or 1Q, 2019. If the data is encouraging, this could lead to phase 3 trials in each indication being underway in 2019. There could also be further data on reldesemtiv in 2018 from a phase 2 trial in COPD and a phase 1b trial in elderly patients with limited mobility.

The Company has $250 million in cash and its stated goal is not to raise any cash in the capital markets until results from the GALACTIC-HF trial are known in 2021. Success in this trial would almost certainly cause a dramatic move in the stock price or perhaps lead to an acquisition by Amgen. The Company may be able to raise funds from partnering deals of other new products to bolster cash until then.

The probable absence of actionable news on omecamtiv in the next two to three years means that either upwards or downward movements in the stock this year likely will be due to news on reldesemtiv in SMA or ALS. As I highlighted, the phase 2 SMA trial is exploratory and the trial actually does not have a defined primary endpoint. Whether the data from the trial could be sufficient to begin a phase 3 trial remains to be seen.

There will be considerable skepticism even if the trial of reldesemtiv in ALS is deemed encouraging. It has the same mechanism of action as tirasemtiv which failed in a large phase 2b trial and a subsequent phase 3 trial. Management believes that the failure was due to patients’ inability to tolerate side effects and not the mechanism of action. Needless to say, if Cytokinetics and its partner Astellas view the upcoming phase 2 data as promising and decide to do a phase 3 trial, there will be skepticism from some (many) investors. Still, successful development in ALS would be a homerun and that prospect can’t be completely ignored.

Success with omecamtiv in GALACTIC-HF would lead to a significant advance in the treatment of congestive heart failure and as I noted could have multi-billion sales potential. The potential impact on the stock would be huge as I outlined in my March 15, 2017 report- Estimating a Potential 2025 Price Target of $172 in 2025 Based Only on the Potential for Omecamtiv Mecarbil and Ignoring Tirasemtiv and CK-107. Investors can have considerable confidence from Amgen’s enthusiastic comments about the drug. See my March 23, 2016 report- Amgen’s R&D Chief Expresses Great Optimism About Omecamtiv Mecarbil for Treating Congestive Heart Failure. He said

“Amgen has shown the phase 2 data to heart failure experts from all around the world. It has been quite unique in his experience to see such a uniformly enthusiastic response to the phase 2 data. In one way or another each expert has essentially said that they see this as the most compelling heart failure data set of all the drugs they have ever seen.”

Amgen has also put its money where its mouth is as the phase 3 trials could cost $200 million or so to complete. The promise of omecamtiv mecarbil has been the basis of my long standing buy on CYTK and this remains the case. The upcoming data on reldesemtiv could cause either a huge positive or negative swing in the stock. In the event that the data is viewed as equivocal or negative, I will continue to be a buyer of the stock.

 Omecamtiv mecarbil

Key Points:

• Omecamtiv is one of the most promising products in phase 3 development in all of biopharma from both a commercial and medical standpoint. I believe that it can generate peak sales of $5 to $10 billion or possibly much more.
• Enrollment is close to 50% completed and the companies expect enrollment completion in one year.
• We are not likely to have any information on the outcome of the phase 3 GALACTIC-HF trial until early 2021. Approval could come in late 2021 if the trial is successful.

Following nearly ten years of development in extensive phase 1 and 2 trials (yes you reading that correctly), CYTK and its partner Amgen began a phase 3 trial of omecamtiv mecarbil in 4Q, 2016 called GALACIC-HF. This has been one of the most exhaustive phase 1 and 2 programs I have seen. It has tried the patience of investors (including me) but has produced a vast amount of information important in designing the phase 3 GALACTIC-HF trial.

 

The trial will enroll approximately 8,000 symptomatic chronic heart failure patients in approximately 900 sites in 35 countries who are currently hospitalized for the primary reason of heart failure or have had hospitalization or admission to an emergency room for heart failure within a year prior to screening. The trial is nearing 50% completion of the enrollment goal and they expect to complete enrollment in one year. The trial is scheduled to report topline data in January 2021. There is the possibility that if an interim look shows overwhelming efficacy that the trial could potentially be stopped in early 2020. For more details on the trial see this link to ClinTrials.gov.

Cytokinetics and Amgen are preparing a second phase 3 trial of omecamtiv mecarbil in heart failure. The trial will be largely funded by Amgen but conducted by CYTK and will focus on the potential effect of omecamtiv mecarbil on exercise performance in patients with heart failure. If successful, this could meaningfully distinguish omecamtiv mecarbil from other medicines (especially beta blockers) used for the treatment of heart failure. In a survey conducted by Cytokinetics and Amgen, they found that more than 80% of key opinion leaders and nearly 70% cardiologists view improvement in exercise performance as a highly beneficial and clinically meaningful end point.

The partners expect to finalize preparations for the second phase 3 trial of omecamtiv mecarbil in 2018. The study will be substantially smaller than the GALACTIC-HF study, but based on work with CROs, they feel they can reasonably predict enrollment rates and number of centers needed. While starting this study later than GALACTIC-HF, they believe that that it can be finished in the same general time frame so that it can be part of the regulatory filings.

Reldesemtiv (formerly CK-107)

Reldesemtiv is the second drug in clinical development. It is being studied in four phase 2 trials for which data should be available in 2018. These will shed light on its potential to impact a spectrum of diseases and conditions that are characterized by impaired muscle function. Reldesemtiv does not affect the underlying cause of the diseases, but rather improves quality of life. However, in doing so it potentially can provided a medically meaningful clinical benefit. The four phase two trials now underway are in patients with:

• spinal muscular atrophy, SMA
• amyotrophic lateral sclerosis, ALS,
• chronic obstructive pulmonary disease, COPD,
• and elderly patients with limited mobility

Reldesemtiv is a skeletal muscle activator and second generation follow-up to tirasemtiv which recently failed in a phase 3 trial in ALS. The key aspect of reldesemtiv is that it was specifically designed not to cross the blood brain barrier and is therefore much better tolerated by patients.

Reldesemtiv in SMA

Key Points:

• Data from a phase 2 trial will be presented on June 2, 2018.
• If encouraging, this could lead to a phase 3 trial that would likely begin in late 2018 or early 2019.

CYTK has completed enrollment of a phase 2 study that had two cohorts that looked at a low dose and high dose of reldesemtiv in comparison to placebo. The ratio of patients on drug to placebo was 2:1. There were 39 patients in the first cohort and 31 in the second who were given high and low doses. The data will be reported on June 16, 2018 at the 2018 Annual Cure SMA Conference in Dallas by the lead investigator, Dr. John Day, Professor of Neurology and Pediatrics at Stanford Medical The study has enrolled 70 patients, 39 in Cohort 1 and 31 in Cohort 2.

The study was stopped short of the intended enrollment goal after a blinded analysis based on change from baseline of several of the efficacy measures demonstrated at the trial appears to have sufficient statistical power to detect differences versus placebo in the efficacy endpoints. Given the evolving therapeutic landscape in SMA, CYTK believed that it had to move expeditiously to understand if there is a potential therapeutic effect and to move forward into phase 3. There is considerable drug development activity in this small patient population. Biogen recently launched Spinraza (nusinersen) which is on its way to reaching blockbuster status. There are also drug development efforts underway using gene therapy approaches.

Reldesemtiv and Spinraza have very different mechanisms of action that should complement one another. Spinraza addresses the cause of the disease and is primarily targeted at younger, SMA type 1 children who are most severely affected by the disease. Reldesemtiv is being studied in older patients, twelve years or older, who have a less severe form of the disease.

In interpreting the upcoming data, it is important to understand that this is a phase 2 exploratory, hypothesis generating trial with no single primary endpoint. Patients in both the high dose and low dose cohorts as well as the placebo patients are divided ambulatory and non-ambulatory groups. The trial will look at multiple functional assessments such as the Hammersmith scale that is the most commonly used endpoint in SMA patients. They are using measure to assess upper limb function and also standard measures of pulmonary function such as expiratory pressure, inspiratory pressure and vital capacity.

Tirasemtiv Failure in Phase 3 VIGOR-ALS Trial

Key Points:

• The failure of tirasemtiv in the phase 3 trial in ALS was due to tolerability issues that led to a high discontinuation rate and better than expected performance (less functional deterioration) in the control group.
• For patients who remained on treatment, there was a modest, statistically significant improvement over control patients. However, this did not support a regulatory filing.

Tirasemtiv failed to reach the endpoint in the VIGOR-ALS trial and development was discontinued. There are about 90 to 100 patients who are currently receiving tirasemtiv will continue to be treated and followed in an open label extension trial  Some of these patients have been on tirasemtiv for as long as 2.5 years. This extension of the trial is not with the goal of resurrecting the development of tirasemtiv; it is just the right thing to do for these patients who believe that tirasemtiv is benefitting them. Still, this could provide insights into the long-term tolerability and effectiveness for this mechanism of action.

The failure of the VIGOR-ALS trial was in an important measure due to tolerability issues that confounded the interpretation of results when looked at on an intent to treat basis. About one-third of patients dropped out based on tolerability issues. In looking at patients who remained on treatment, CYTK saw a borderline, statistically significant effect that was durable over time which suggests that there is a biologic activity with this mechanism of action.

Another perplexing issue with the VIGOR-trial was that functioning of patients in the control group did not decline at the expected rate. The control group performed much better than what had been seen in the tirasemtiv phase 2 trial and other clinical trials in ALS. Potentially, this could be due to differences in populations even though the baseline characteristics were similar. It might also be attributable to recent improvements in standard of care. CYTK is trying to sort this out.

Reldesemtiv in ALS, the FORTITUDE-ALS Trial

CYTK and Astellas continue to enroll patients in FORTITUDE-ALS which is a phase 2 trial of reldesemtiv in patients with ALS. This trial plans to enroll 450 patients in total.  As of April 19, 2018 150 patients had been randomized. The goal is to complete enrollment this summer and report data in the second half of 2018. However, I think that the data release might slip to early 2019. The trail is intended to inform CYTK on whether to conduct a phase 3 trial.

With the completion of FORTITUDE-ALS, over 1000 patients with ALS will have received either tirasemtiv or reldesemtiv. This affords considerable information on the mechanism of action that both drugs share.

Reldesemtiv in COPD

Astellas has nearly completed enrollment in the phase 2 clinical trial of reldesemtiv in patients with COPD. Results are expected in the second half of 2018.

Reldesemtiv in elderly patients with limited mobility

Astellas has now enrolled more than 20 patient in the phase 1b study of reldesemtiv in elderly adults with limited mobility. The goal is to enroll 60 patients toward a goal to enroll 60 patients. Astellas plans to conduct an interim analysis of data in Q4, 2018.

New Drug Candidates

Together with Amgen, CYTK is developing the next generation cardiac muscle activator. It is expected that it will move into phase 1 in 2018. CYTK also expects to advance in unpartnered cardiac sarcomere into phase 1 in 2018. They are continuing a joint research program with Astellas directed to the discovery of next-generation skeletal muscle activators.

Financials

Cytokinetics ended the first quarter with $251 million in cash and cash equivalents. This represents over 24 months of planned cash burn. The goal is to not issue any equity until data is available from GALACTIC-HF, which they believe to be most valuable catalyst for the company. In addition to judiciously managing our spending, CYTK will probably look for opportunities to raise no dilutive capital through potential collaboration deals for our unpartnered cardiac sarcomere directed program, which they expect to advance to Phase I later this year.

Management proudly points out that they have raised an equivalent amount of capital from collaborative partners as from capital markets throughout the company's history.

 

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