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In my last note, I wrote that I thought the ATOMIC-AHF, phase IIb trial of the intravenous dosage form omecamtiv mecarbil in acute heart failure might not reach its primary endpoint of dyspnea (shortness of breath), but that this would not deter Amgen from beginning phase III trials in 2H, 2014. Wall Street analysts closely following Cytokinetics understand and like me are not alarmed by the potential for the primary endpoint not being reached. However, I doubt that reporters for the major wire services are aware of this and I would be surprised if there are not some news headlines after the release of data that read "Omecamtiv Misses Primary Endpoint in ATOMIC-AHF Trial". I also think that some investors may claim that Cytokinetics is trying to put a positive spin on a negative trial which certainly has some precedence in biotechnology investing. In this report I try to explain why missing the primary endpoint should not cause an "oh no" reaction from investors. I continue with my Buy recommendation that was initiated on March 25, 2013.

Management has consistently represented this trial as one in which their primary interest is in data that relate to safety, tolerability, pharmacokinetics and pharmacodynamics and dose-related trends that underscore the therapeutic hypothesis for omecamtiv mecarbil's novel mechanism of action. They say that this is a Phase IIb trial intended to fine tune the design of the phase III program and if ATOMIC-AHF were intended to assess the same endpoint(s) as is expected for registration, Cytokinetics and Amgen would be referring to it as a proof-of-concept trial. Both have repeatedly stated that that there are not "go/no go" criteria for proceeding into phase III that are constructed around dyspnea. Their main interest is to assess dose-related trends. By the way, this is also the objective of a second ongoing trial called COSMIC-HF, which involves the oral dosage form of omecamtiv mecarbil.

Despite these repeated comments of both Amgen and Cytokinetics, my last report caused some confusion and alarm among readers because it seems axiomatic in biotechnology investing that missing the primary endpoint of a late stage trial is a major setback that will pummel the stock price. This report focuses on and tries to further clarify my thinking on this issue. It is not a comprehensive report and for those who are looking for more background and a deeper understanding of the Company, I would refer you to past reports on Cytokinetics on my website.

ATOMIC-AHF results have been unblinded and the results are known to Amgen and Cytokinetics. However, they have not been released as it is customary for companies to unveil key results from major trials at important medical conferences where the lead investigators present the results to their peers. This is the reason why results won't be released until Tuesday September 3 at the European Society of Cardiology Congress. Cytokinetics will hold an investor meeting immediately afterwards at 8:00 AM EST to review the results; this will be webcast and available on their website.

I think that if the results were discouraging to Amgen and Cytokinetics that there would have been an announcement as this would be a material event. I also think that the acceptance of this trial as a late breaker presentation at ESC and at the Heart Failure Society of America (where results will be presented on September 23) suggests that the trial was successful. Finally, Amgen on June 12 extended its collaboration with Cytokinetics on omecamtiv mecarbil to include Japan that resulted in the upfront payment of $15 million and the purchase by Amgen of $10 million of CYTK stock. I don't think Amgen would have done this if they thought that the results of ATOMIC-AHF would be disappointing and lead to a decision to not go to phase III.

Reasons Why the Primary Endpoint May Not Be Reached

Congestive heart failure (CHF) is a life threatening condition that can result from heart attacks or prolonged hypertension. While simplistic, it is useful to compare the cardiovascular system to a pump (the heart) and the pipes (blood vessels). CHF is a condition in which the heart is not pumping enough blood because it has been damaged and the pipes or blood vessels are clogged making it harder to pump blood through them. Blood can pool in the body causing shortness of breath, swelling in the limbs and exercise intolerance. An already damaged heart muscle is asked to pump harder. This causes the heart to enlarge and become flabby and increasingly less functional. This downward spiral in heart function eventually leads to death.

The primary purpose of ATOMIC-AHF is to understand the blood levels and other pharmacokinetic and pharmacodynamic measures that are achieved with three dose levels of omecamtiv mecarbil given intravenously. It is important to establish desired blood levels that can be achieved with various IV dosages. Patients can be brought to this blood level in the hospital and then switched to an oral dose that will keep the patient at the same effective blood level when discharged.

ATOMIC-AHF is only a two day study and it is not likely that in this brief period of time that omecamtiv can reverse heart damage that was decades in the making. Amgen and Cytokinetics understood this, but still wanted to see if there was a trend toward relieving dyspnea as this was potentially an endpoint for the much longer phase III trial treatment period; the companies have since pretty much ruled out dyspnea as a primary endpoint. The effect on dyspnea may be modest or insignificant in this brief two day period. In addition, this is a dose escalating trial and it may be the case that the two lower dosages are sub-therapeutic and only the higher dose could show some benefit. These points are discussed in more detail later in the report.

Some Clinical Trial Background on Omecamtiv

Amgen and Cytokinetics have conducted a long and thorough clinical development program that was begun in 2005. This already has provided strong evidence through previous phase I and II trials that suggests that omecamtiv mecarbil will be an effective drug. The last steps in the pre-phase III development are two phase IIb programs that are now underway. ATOMIC-AHF is a 614 patient trial studying the acute use of the intravenous dosage form of omecamtiv mecarbil in hospitalized patients and COSMIC-HF is meant to finalize the oral dosage form that will be used in phase III trials.

The promise of omecamtiv mecarbil is in chronic use outside the hospital using the oral dose. Acute use in the hospital with the IV dosage has limited commercial potential as current therapy is effective and there is no significant unmet medical need. However, the IV dose is important in that some patients will be started in the hospital on the IV and switched to and discharged on the oral. It is important to establish effective blood levels with the IV dosage and then maintain those blood levels when patients are switched to the oral dosage before they are discharged.

Many small companies developing drugs rush through clinical trials and then find that they have not properly anticipated and dealt with key issues. They often end up with complete response letters from the FDA requiring additional trials that result in several years of delay. Amgen and Cytokinetics have been extraordinarily careful in their eight year clinical development program and this gives hope that they will avoid this pitfall.

If there are no problems arising from ATOMIC-AHF and COSMIC-HF, omecamtiv mecarbil could begin phase III trials in 2H, 2014. These will be large trials involving several thousand patients and their durations will depend on the primary endpoint. If the FDA demands overall survival as the primary endpoint, the trial could take three or more years so that topline results would come in 2017 and approval potentially in 2018. If the FDA accepts reduced hospital admissions and some measures relating to quality of life as mixed primary endpoints, approval could come in 2017. This of course assumes a successful trial outcome.

I think that the gating factor for beginning a phase III trial of omecamtiv mecarbil is the data from COSMIC-HF. As with ATOMIC-AHF, this is not a proof of concept trial. I think that results will be positive and that topline data will be reported in 1H, 2014. This should result in a decision to move forward into phase III shortly thereafter and this could be a major boost to the stock.

Design of ATOMIC-AHF

ATOMIC-AHF is short for Acute Treatment with Omecamtiv Mecarbil to Increase Contractility in Acute Heart Failure Patients. It is a trial in acute heart failure patients with the intravenous formulation of omecamtiv. The primary endpoint of the trial is to evaluate the effect of 48 hours of intravenous (IV) omecamtiv mecarbil compared with placebo on dyspnea in subjects with left ventricular systolic dysfunction hospitalized for acute heart failure. The secondary outcomes which are also evaluated over the period of 48 hours are:

· To characterize pharmacokinetics of omecamtiv mecarbil including metabolites following IV infusion and to evaluate the relationship between omecamtiv mecarbil plasma concentration and echocardiographic parameters.

· To assess the safety and tolerability of three dose levels of IV omecamtiv mecarbil compared with placebo.

· To evaluate the effects of 48 hours treatment with IV omecamtiv mecarbil on additional measures of dyspnea, patient global assessment (PGA), change in NT-proBNP (a biomarker associated with the severity of heart failure), incidence of worsening heart failure, and short term clinical outcomes.

This trial is a dose escalation study designed to assess both efficacy and safety as the dose is increased. Previous trials have suggested that the dose effect in humans plateaus at 400 ng/ ml. Obviously, it makes no sense to go above this dose but the companies have to answer the question of what blood levels are effective and what are the side effects associated with these doses.

In order to answer this question, ATOMIC-AHF enrolled three cohorts of patients starting with a low dose in the first cohort and progressing to higher doses in the two successive cohorts. The first cohort of patients began the trial in April of 2011 at a dose of 115 ng/ml. The second cohort began enrolling in May of 2012 at a dose of 230 ng/ml. The third and final cohort began enrolling at 330 ng/ml in November of 2012 and has completed. The Company has not reported interim data but the progression from the first to the second and then the third cohort indicates that there have been no worrisome safety issues at the two lower doses.