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Expert Financial Analysis and Reporting

Cytokinetics: Collaboration with Astellas is Expanded and Will Bring in $65 Million of Cash (CYTK, $10.45, Buy)

Overview of Expanded Collaboration

Cytokinetics and Astellas announced on July 27th that they had expanded their collaboration for the development of products based on skeletal muscle activation. Cytokinetics has pioneered this very promising field and I believe has a commanding edge in the understanding of drug development based on this biology.

The expansion has two important components: (1) Astellas has been granted an option that if exercised could allow that Company to commercialize tirasemtiv outside of the US, Europe and certain other territories, and (2) the development program for CK-107 will be expanded to include ALS. There are also other new initiatives that will extend the joint research effort focused on discovery of additional next-generation skeletal muscle activators through 2017. The Astellas/ Cytogenetics collaboration in its entirety is one of the strongest in biotechnology and is a major positive in the Cytokinetics investment thesis.

Makes for a Very Strong Cash Position

The new agreement will bring in $50 million immediately and an additional $15 million in 2017 of dedicated capital. The $50 million is based on $15 million for the option to elect to participate in the development of tirasemtiv outside of the US, Europe and certain other areas where Cytokinetics will market tirasemtiv on its own. This option can be exercised at various times somewhere between the reporting of data from the phase 3 VITALITY-ALS trial of tirasemtiv and regulatory approval. The later the option is exercised, the more Astellas will have to pay. Other components of the tirasemtiv deal could bring in $85 million over time. Another $35 million is immediately received and relates to expanding the collaboration on CK-107 to include ALS and other products. Another $15 million will be received in 2017 when a phase 2 program of CK-107 begins in 2017. Finally, there will be another $30 million of sponsored research related to the CK-107 phase trial in ALS.

Cytokinetics had $123 million of cash at the end of 1Q, 2016. The quarterly burn rate in 1Q, 2016 was about $17 million. If the 2Q burn rate is the same, this $65 million dollars will result in an effective cash balance of $171 million. In addition, CTYK can potentially receive in the coming year $25 to $50 million of other milestone payments from Amgen and Astellas as well as the $30 million of research spending . This would bring the effective cash balance to $226 to $251 million. This makes for a very strong cash position.

Cytokinetics may receive over $100 million of additional payments associated with the exercise of the option on tirasemtiv and potential additional milestone payments. It will also receive escalating double-digit royalties on Astellas’ sales of tirasemtiv in  territories in which Astellas commercializes the drug.  In turn, Astellas may be eligible to receive royalties that can reach double-digits on Cytokinetics’ sales of tirasemtiv in CYTK territories.

Rationale for Expansion of Collaboration on CK-107 to Include ALS

Besides the money, what is Cytokinetics' motivation? Both tirasemtiv and CK-107 share the same mechanism of action which could reduce symptoms of ALS and improve quality of life. If tirasemtiv is effective in ALS, CK-107 is likely to be more effective. CK-107 is a second generation compound that appears to have clear advantages over tirasemtiv. It is more potent and it also does not cross the blood brain barrier like tirasemtiv. This could mean that CK-107 will not cause dizziness and light headedness which are drawbacks for tirasemtiv. Also, tirasemtiv has a potential drug to drug interaction with riluzole, which is the only approved drug for ALS that CK-107 does not have.

Tirasemtiv should complete enrollment in the VITALITY-ALS trial soon and I am expecting topline data in 2H, 2017. If the trial is successful, approval and marketing in 2018. CK-107 will begin a phase 2 trial in ALS run by CYTK probably in early 2017. I would think that if the clinical trial program goes well that we might see phase 3 results in 2019 or 2020 and if the results are positive, marketing could begin in perhaps 20121. Hence, tirasemtiv may have a three year lead or more on CK-107 in getting to the market. While CK-107 may ultimately prove to be the better drug and dominate the market for ALS (this boldly assumes both drugs are approved), it makes a lot of sense to develop both.

Investment Thesis

CK-107 is an under-appreciated molecule. It is in phase 2 for the orphan disease SMA and has just started a phase 2 in COPD. It is possible that a phase 3 trial in SMA could begin in 2017 or early 2018. I think that the current $450 million valuation for Cytokinetics is largely justified by prospects for CK-107 alone. Very importantly, I also think that the potential for moving omecamtiv into phase 3 for congestive heart failure and potential for tirasemtiv in ALS are not adequately reflected in the current stock price. As with CK-107, I think either drug alone could largely justify the current market valuation.

For further explanation of my enthusiam for CYTK, I suggest that you read my June 30 report Cytokinetics: Phase 2 Trial of CK-2127107 in COPD Begins (CYTK, $9.37, Buy) and my March 30 report Cytokinetics: Amgen’s R&D Chief Expresses Great Optimism About Omecamtiv Mecarbil for Treating Congestive Heart Failure (CYTK, Buy, $6.53). These give a more in-depth view of the Company.

Obviously, my long standing buy on Cytokinetics continues.


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  1. Larry,
    “In heart failure, after discussions with regulators on omecamtiv mecarbil, our novel cardiac myosin activator from Cytokinetics, we have submitted our heart failure outcomes study protocol for Special Protocol Assessment, or SPA, to the FDA and continue to work with our partners toward advancing in this novel area.”
    The above is from Sean E. Harper – Executive Vice President-Research & Development during the Amgen Conference call (copied from the seeking alpha transcript).
    We are waiting for the announcement of phase 3. What does this statement mean as far as getting to phase 3?

  2. A company will seek an SPA when it wants to reach an agreement with the FDA that the design of the clinical trial is accceptable to the FDA. This usually relates to the endpoint(s) of a trial. I have no information, but this could be something like Amgen wanting to make the endpoint different from overall survival to something like hospital discharge. This is a wild guess and probably wrong. However, it also can be interpreted that Amgen is in the final stages of plnning prior to announcing the phase 3 trial.


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