Expert Financial Analysis and Reporting

Summary

I attended the BIO CEO conference in New York City on February 8 and 9. I am writing a series of blogs that give highlights and impressions from company presentations that I attended. These range from companies that I am deeply involved in to companies that I have seen for the first time. This is an update on Cytokinetics.

This company has a market capitalization of only $315 million and yet it has three drugs in advanced development, each of which has blockbuster potential. I think there is significant, asymmetric upside potential from this stock price if only one of these three drug development efforts is successful. These are:

• Tirasemtiv in phase 3 for ALS, topline data in 2Q, 3Q 2017, unpartnered
• Omecamtiv mecarbil for congestive heart failure, should enter phase 3 in 2H, 2016, partnered with Amgen
• CK 107 in spinal muscular atrophy, phase 2 topline data in 4Q, 2016 or 1Q, 2017, partnered with Astellas.

I estimate that the Company ended 2015 with about $90 million of cash and it has a high probability of receiving $50 million of milestone payments in 2016 and 2017. It has sufficient cash to carry into 2018 and there is no need to do a financing in 2016 and perhaps not in 2017.

Tirasemtiv

There are no other drugs that I am aware of that are in phase 3 development for ALS and there have been no new drugs approved in over 20 years. If approved, there would likely be very rapid uptake and as I have previously written, the addressable market is over $1 billion. This drug is unpartnered.

The VITALITY-ALS trial of tirasemtiv in ALS will complete enrollment in 2Q, 2016 and topline e results are expected in 2Q or 3Q, 2017. In all previous ALS trials, companies have used the ALSFRS-r scale as the primary endpoint. None of these trials have been successful. Cytokinetics is using change from baseline to week 24 of predicted slow vital capacity (SVC), the primary measure of breathing function in ALS patients as the primary endpoint. This is the first trial to do so. In BENEFIT-ALS, there was very strong improvement in SVC that should bode well for success in VITALITY-ALS. See my report Cytokinetics: Phase 3 Trial for Tirasemtiv About to Begin with Topline Results Possible in 2H, 2016; Successful Outcome Could Make the Stock a Homerun

If successful, this trial could be one of the two controlled trials needed for filing an NDA in 2018. I think that BENEFIT-ALS could be the other. The secondary endpoints are:

• Time to the first occurrence of a decline in the respiratory components of the ALS functional rating scale- revised (ALSFRS-R) (i.e., items 10, 11, and 12) or death over 48 weeks,
• Time to the first occurrence of a decline from baseline in percent predicted SVC ≥ 20 percentage points or the onset of respiratory insufficiency or death over 48 weeks,
• Time to the first occurrence of any use of assisted ventilation or death during double-blind, placebo-controlled treatment over 48 weeks,
• Time to the first occurrence of a decline in SVC to ≤ 50% predicted or the onset of respiratory insufficiency or death over 48 weeks,
• Slope in muscle strength mega-score change from baseline during the randomized, double-blind, placebo-controlled phase over 24 weeks.

In the event that VITALITY-ALS successfully achieves the endpoint of SVC, I think that the FDA will want to see confirmation from the preponderance of data in the secondary endpoints in order to approve tirasemtiv.

Omecamtiv mecarbil

Omecamtiv addresses a major unmet medical need in treating congestive heart failure by making the heart more efficient in pumping blood without having to work harder. This is a multi-billion opportunity. This drug is partnered with Amgen.

Omecamtiv mecarbil has been intensively studied over the last ten years in nine phase 1 and four phase 2 trials. CYTK’s partner Amgen has been exceedingly careful in the development of this drug as its mode of action is to increase the pumping action of the heart. In a badly damaged heart of a congestive heart failure patient, there was intense research to determine if omecamtiv might damage the heart. Efficacy of the drug, at least in the short term, was evident very early on. Safety was the key issue.

The decision to move into phase 3 will be the joint decision of Amgen and Cytokinetics although CYTK has already said that it should move to phase 3. For Amgen, the phase 3 trials will cost several hundreds of millions to conduct. If it decides to move forward into phase 3, this will be featured by Amgen as one of its top development opportunities that will help drive Amgen in the 2020+ period. Hence, the decision to move into phase 3 is a very powerful catalyst for CYTK.

CYTK’s CEO Robert Blum said that he expected the decision to move forward into phase 3 could be made soon and the trial could begin in 2H, 2016.

CK 2127107

This drug has a mechanism of action similar to tirasemtiv as it improves skeletal muscle contractility which is being studied initially in spinal muscular atrophy (SMA), but there are a host of related orphan diseases in which it might be useful. The incidence of SMA is somewhat less than ALS, but it is a significant opportunity. Biogen and Ionis are developing nusinersen, a different type of drug for SMA. Nusinersen is being studied in young children while CK 107 is being studied in children over 12, an older and clinically different patient population. These drugs work by different mechanisms of action and are likely to be used in combination if they are shown to be effective.

The phase 2 trial of CK 107 is a double blind, randomized trial involving 72 patients that will report out data in late 2016 or early 2017. This trial has a number of primary endpoint that should provide a wealth of information and give a clear insight into the potential of the drug. These are:

• Change from baseline and slope of change from baseline in Forced Vital Capacity (FVC), over 8 weeks,
• Change from baseline and slope of change from baseline in Maximum Inspiratory Pressure (MIP)/Maximum Expiratory Pressure (MEP), over 8 weeks.
• Change from baseline and slope of change from baseline in Hand-Held Dynamometry (HHD), over 8 weeks,
• Change from baseline and slope of change from baseline in Hammersmith Functional Motor Scale-Expanded, over 8 weeks,
• Change from baseline and slope of change from baseline in Revised Upper Limb Module (RULM)
• Change from baseline and slope of change from baseline in Timed Up and Go (TUG) test
• Change from baseline and slope of change from baseline in 6-Minute Walk Test (6MWT)
• Global Assessments, end of week 2, end of week 8 and end of week 12 follow-up visits. Patient will be asked whether they feel the same, better or worse as compared to how they felt pre-dose on Day 1. Investigator will assess whether patient appears the same, better or worse as compared to patient's status at pre-dose on Day 1.

Financial Issues

The Company ended 3Q, 2015 with $98 million of cash. The cash burn from operations has been running at about $10 million per quarter and if that rate held in 4Q, 2015 the Company currently has about $88 million of cash, CEO Robert Blum has said that the Company anticipates that it will receive $50 million in milestone payments from Amgen (for omecamtiv) and Astellas (for CK-2127107) over the next year or two. This effectively increases the availability of cash through the end of 2017 to $138 million. At the recent quarterly burn rate of $10 million, this cash would last until mid-2018. However, the expense of the phase 3 trial of tirasemtiv should increase the burn. Management has given no guidance, but if the burn were to increase to $15 million per quarter, this $138 million of cash would last until early 2018 or well past the reporting of topline results from the phase 3 trial of tirasemtiv.