Expert Financial Analysis and Reporting

Investment Overview

I have listened to management presentations at recent brokerage conferences and have then followed up with questions. There are two important, potentially stock moving events that I see for 2015. The most important information from a data standpoint will be the phase 2b results of the COSMIC-HF trial of the oral dosage form of omecamtiv in chronic heart failure. Topline results should be available in 4Q, 2015 and will provide the basis for the go/no go decision by Amgen and Cytokinetics to begin a phase 3 trial in 2016. The second will be the start of the phase 3 trial of tirasemtiv in ALS in 2Q, 2015.

In this note, I go over some of the important findings that may come out of COSMIC-HF in regard to omecamtiv and the possible interpretation of them. A decision to go forward into phase 3 by Amgen and Cytokinetics would be a major catalyst for the stock. Ordinarily, the beginning of a phase 3 trial as in the case of tirasemtiv is not a significant catalyst for a stock. However, I think that as investors gain information on the primary endpoints of the trial, they will conclude, like me, that there is a good chance for success in the trial.

In the BENEFIT-ALS phase 2b trial of tirasemtiv, one of the proscribed secondary endpoints was slow vital capacity (SVC). As I have discussed at length in prior reports, these results showed a highly statistically significant and positive outcome. Conversations with the FDA and EMA have led management to believe that both regulatory agencies will accept SVC tied to other measures of respiratory function as an acceptable primary endpoint in the phase 3 trial as opposed to ALSFRS-r which was the primary endpoint of BENEFIT-ALS. I think that many investors, like me, believe that the phase 2b data for SVC can be replicated in a phase 3 trial and lead to approval for tirasemtiv in ALS.

What has surprised me in recent presentations has been the timelines that management has laid out for the release of phase 3 data for tirasemtiv. They are pointing for release of topline data from that trial in late 2016. The results from this trial in combination with data from the phase 2b BENEFIT-ALS trial should be sufficient for regulatory approval if the trial is successful. This means that investors can probably reach a reasonably firm conclusion on whether tirasemtiv will be approved for ALS by the end of 2016.

As I have written, I think that tirasemtiv would be widely embraced by an ALS community desperate for any drug that will improve outcomes. The only drug approved in ALS is riluzole; while it has only marginal effectiveness, it is used by 2/3 of patients in the US. I think that with a solid outcome in the phase 3 trial that investors could view tirasemtiv as having blockbuster $1 billion potential.

Tirasemtiv Phase 3 Issues

Start of Phase 3 Trial

Tirasemtiv will enter phase 3 in 2Q, 2015, probably in June. The only other possible phase 3 trial in ALS that could be started in 2015 that I am aware of is a phase 3 trial of Neuralstem’s NSI-566 neural stem cells. These are very different therapeutic approaches and would almost certainly be used in combination.

Enrollment Timeline

Management believes that the phase 3 trial will take only 6 to 9 months to enroll. If they start in June, enrollment could complete in the December 2015 to February 2016 timeframe.

Primary Endpoints

The primary endpoint in the Phase III trial of tirasemtiv will pivot on analysis of SVC at 6 months but secondary endpoints will evaluate blinded data to 12 months. The primary endpoint will be centered on SVC. However, this is a surrogate endpoint and regulatory agencies will want to see this tied to other measures or clinical outcomes that address respiration.

Secondary endpoints could include time to respiratory insufficiency, time to SVC changes of defined magnitude and time to ventilatory support. They could also include three elements of the ALSFRS-r that relate to respiration. These are:

•       need for mechanical ventilation,

•       dyspnea- shortness of breath, breathless or breathing discomfort,

•       orthopnea- shortness of breath when lying flat that requires the patient to be propped up to breathe.

Details on the trial design will be forthcoming with the first patient dosed.

Will the Company Ask for a Special Protocol Assessment (SPA)?

Management has not decided on whether to ask for an SPA. I think that getting an SPA may not be so critical as long as the Company has gone through the long negotiations that would result in an FDA. Through these discussions, they can get a good understanding of the FDA’s thinking. After all, an SPA is not a contract; the FDA can always change its mind.

Completion of Primary Efficacy Analysis

Management is looking for the primary efficacy analysis to be completed in 2016. This is based on the assumption that each patient is treated for six months so that the last data point on the last patient is potentially available six months after that last patient is enrolled.

Remember, they are saying enrollment will take six to nine months. Assuming the trial starts in June of 2015, the last data point on the last patient could be completed in June to September 2016. It would then take some time to lock the data base, compile all the data and do an efficacy analysis. This points to late in 2016 for topline data to be released.

Thinking about Side Effects

Side effects were an issue in the BENEFIT-ALS trial In BENEFIT-ALS as there 90 early terminations on tirasemtiv versus 45 on placebo even though the trial was randomized 1:1. In looking at the data from BENEFIT-ALS, they believe that there are things that can be done in the phase 3 to better address side effects and keep people on the drug.

They will alert sites to monitor, watch for and react to side effects more quickly and more urgently. This will be made easier as they will be going back to the same sites that participated in BENEFIT-ALS and have experience with the drug. There will also be better instructions on nutritional supplements that improve tolerability.

The phase 3 will have a longer open label period in which all patients initially will be given tirasemtiv and then randomized to placebo or tirasemtiv. Light headedness is an issue with tirasemtiv that usually goes away after 5 to 7 days. Slow titration can lessen the effect.

Management believes that they will go more slowly in titrating patients from an initial dose of 150 mg BID to 250 mg BID. In some cases, they think that they can get effectiveness with 150 mg BID. They won’t push patients quickly to a higher dose.

Can Tirasemtiv Alter the Course of ALS?

For the first time that I am aware of, management suggested that tirasemtiv might remodel the diaphragm making it more responsive to neuronal input. This would be disease modifying. I am only reporting on this; I have not seen any data to support this.

Discussions with the European Medicines Agency (EMA)

The EMA is the European equivalent of the FDA. It may not agree with the FDA on all points of a clinical trial. Cytokinetics will have to make sure that there is harmony between the two regulators on the endpoints.

Omecamtiv Issues

 Timing of Data for COSMIC-HF

The readout of data for the COSMIC-HF trial will be in 2H, 2015.

The last patient is about to be enrolled. My guess is that topline data will be released in the October to December of 2015 time frame.

Endpoints of the Trial

COSMIC-HF is looking at three oral dosages of omecamtiv in a randomized trial versus placebo; there is really no clinical primary endpoint of this trial that could be used in a phase 3 trial. The primary endpoints relate to safety and also pharmacokinetic measures particularly as they relate to blood levels. Prior trials have found that blood levels of 200 to 450 ng/ml are the best level to maintain therapeutic effect. They will be looking at results for various drug dosages out to 20 weeks to judge how they maintain blood levels.

There are also a host of other secondary endpoint measures that relate to heart function. These are detailed in ClinTrials.com

Ischemia is the Issue of Greatest Potential Concern

My greatest concern about the results for COSMIC-HF would relate to ischemia. Because of the mode of action of omecamtiv, one of the concerns is that it would cause ischemia. At blood levels of omecamtiv much in excess of those targeted in COSMIC-HF, ischemia has been seen. I think that ischemia is what management will be watching for most closely.

Arrhythmias are Less Worrisome

Again because of the mechanism of action, cardiac arrhythmias. Management is less concerned about arrhythmias. They point out that patients in the ATOMIC-AHF trial were highly susceptible to arrhythmias but they were not a problem in that trial.

Duration of Effect

Management is also not that worried about loss of effect over time. They have dosed in animals for many months without an impact on effect. They believe that duration of effect is not an issue as long as blood levels are maintained in the 200 to 450 ng/ml blood level range.

Maintaining Blood Levels

Prior clinical studies have shown that many patients can tolerate 900 ng/ml, which is well above the range needed for efficacy. Dosing as related to blood levels is predictable and can be fine-tuned.

If the drug is eventually approved, there will probably be dose monitoring for the first few weeks or months to understand and adjust blood levels. This should not be an issue as many drugs have side effects that require monitoring. The ubiquitously used diuretics are an example. They need initial and periodic monitoring for an effect on potassium and kidney function,

What to Make of Passing the Interim Safety Analysis

The interim safety analysis was performed without the Data Monitoring Committee raising any concerns about safety that would alter the conduct of the trial. This is suggestive that ischemia is not a huge issue in the trial.

However, I still have the concern that when the final data is read out that there will be an increase in ischemia seen at the higher doses. If so, this has the potential for raising investor concern. However, some slight increase in risk of ischemia would not be a showstopper if this risk were meaningfully offset by an increase in efficacy.

Possible Endpoint for Phase 3

The current thinking on a primary endpoint for phase 3 is reduction in death or hospital readmission within 6 months of hospital discharge in high risk heart failure patients. These endpoints are still likely to require the enrollment of several thousand patients. My guess is that this could take three years to complete the study and release topline data, but that is just a guess.

 

CK-107 is Coming on the Scene

The phase 2 trial of CK-107 in the orphan disease spinal muscular atrophy will start in 2H, 2015. They will be looking at the ability to improve skeletal muscles activity in type 2 and 3 disease states in adolescents and some adults

The endpoint will be a measure of ambulatory function.

Financial Data

The cash position at year end was $83 million and the collaboration with Astellas on CK-107 brought in $45 million more.

There are 38.6 million basic shares issued and the fully diluted share count is 50.2 million. At the current price of $7.79, the fully diluted market capitalization is $393 million.

Price Target Thinking

 I continue with my Buy recommendation. As previously noted, enthusiasm for tirasemtiv drove the stock to a high of $12.99 in April of 2014 and then hopes for the product were dashed by disappointment in the BENEFIT-ALS trial. I watched very closely as management dug into the trial results and began to signal that there was a path forward for tirasemtiv using SVC as a primary endpoint. I agreed and I wrote numerous reports recommending the stock last year when it was trading in the $3.50 to $4.50 range; tirasemtiv going forward into phase 3 was the expected catalyst.

The prospects for approval for tirasemtiv appear much better now than just before BENEFIT-ALS results were released. With the current market capitalization of $390 million I think that prospects for tirasemtiv alone makes the stock attractive. Adding in the possibility for success with omecamtiv and CK-107, the very strong financial position and the continuing expansion or product development from its core muscle contractility technology, I think that the stock has excellent potential.

So how should investors value the stock? Absolute values of biotechnology stocks are very difficult to judge because of the many uncertainties involved in drug development. I often rely on relative valuation measures. Cytokinetics has a market capitalization of about $390 million. With other companies in phase 3 development with one promising drug, we often see market capitalizations of $500 to $800 million; I can argue that tirasemtiv alone justifies this level of valuation. I can make a similar argument for omecamtiv providing the COSMIC-HF trial is successful. Moreover, CK-107 and other potential drugs that could arise from the Astellas collaboration could be worth half this much. The sum of the parts suggests that Cytokinetics could sell at $1.2 billion to $2.0 billion based on these three products if tirasemtiv is advanced into phase 3 (almost a certainty), omecamtiv is successful in COSMIC-HF (reasonable probability) and CK-107 goes into phase 2 (almost a certainty).

I am postulating two potential price targets one year out. I think that if it is announced later this year that omecamtiv will be taken forward into a phase 3 trial by Amgen and Cytokinetics that the stock could double from this level to a market capitalization of $800 million (or more) and a stock price of $14. I think that the odds favor omecamtiv moving into phase 3, but if omecamtiv is abandoned by Amgen, there could be a sharp immediate impact on the stock. However, after that passes the stock could recover and trade meaningfully above current levels, perhaps in the $8 to $10 range as a guess.

 

Tagged as cytk, Cytokinetics, Omecamtiv, tirasemtiv + Categorized as Company Reports