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Expert Financial Analysis and Reporting

Cytokinetics: Proposed Acquisition Price for MyoKardia Suggests CYTK is Dramatically Undervalued (CYTK, Buy, $27.33)

Bristol-Myers Squibb has announced that it will acquire MyoKardia for $13.1 billion in cash and this has important implications for Cytokinetics. These companies have technologies that activate or inhibit muscle activation. To my knowledge they are the only two companies that have products in clinical development based on this technology. Interestingly, MyoKardia acquired technology from Cytokinetics which was the basis of its product development. Cytokinetics appears to be significantly under valued on a relative basis with a current market capitalization of $1.6 billion. In this note, I suggest that if omecamtiv is successful in its phase 3 trial that CYTK on a relative basis would be worth more than $13.1 billion which amounts to a staggering $218 per share if we use MyoKardia as a benchmark. Even if omecamtiv fails in its phase 3 trial, I would argue that on the basis of CK-274, CYTK should still be valued at substantially more than its current $1.7 billion market capitalization ($27 per share) based on what BMY is paying for MyoKardia.

The lead product of MyoKardia is mavacamten which treats  hypertrophic cardiomyopathy. It has been shown to be very effective in phase 3 trials and should be approved in 2021; it would be the first drug approved in this indication. The lead drug for Cytokinetics is omecamtiv which is being developed in partnership with Amgen for the treatment of chronic heart failure, a quite different indication. We are expecting phase 3 results from a huge 8,000 patient trial in 4Q, 2020.

Cytokinetics is also developing CK-274 which is a direct competitor and fast follower to mavacamten. It is about two years behind mavacamten in development. CYTK believes that CK-274 offers advantages over mavacamten. Regardless of whether this holds true and even if CK-247 is only comparable to mavacamten, it would grab a significant share of the hypertrophic cardiomyopathy market. MyoKardia has a second drug in development called danicamtiv that has a mechanism of action like omecamtiv. It is being developed for a niche market in heart failure and if BMY chooses to develop it for chronic heart failure to compete with omecamtiv it would likely take four or five years of clinical development.

MyoKardia is being acquired for $13.1 billion in cash based largely on prospects for mavacamten. For Cytokinetics this has important implications. Cytokinetics has been working for over twenty years in the muscle biology field. Investors have never bought completely into the company because of uncertainty as to the viability of its technology. The acquisition of MyoKardia validates CYTK’s technology. When we compare MyoKardia and Cytokinetics we see companies with comparable technologies and with no visible competitors in the space.

As the second drug potentially to enter the hypertrophic cardiomyopathy space, I would expect CK-274 to achieve sales amounting to 30% to 40% of the market if it is roughly comparable to mavacamten which would have 60% to 70%. If as CYTK believes it is better, CK-274 might achieve a greater percentage. So in comparing the companies we see CYTK as having in CK-274 promised value comparable to mavacamten. In addition, with CYTK, investors are getting omecamtiv which if successful in its phase 3 trial could become part of standard of care for chronic heart failure. This is a commercial opportunity is several times as large as that in treating hypertrophic cardiomyopathy.




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