Tirasemtiv May not be Dead
In listening carefully to Cytokinetics' (NASDAQ:CYTK) comments over the last several months, I am convinced that the Company will consult with the FDA and EMEA about the design of a new Phase 3 trial of tirasemtiv in ALS. It will ask for approval to use the respiratory measure of sustained vital capacity (SVC) as the primary endpoint. It will almost certainly seek a Special Protocol Assessment from the FDA, which acknowledges that SVC is an acceptable primary endpoint for a new Phase 3 trial. The top line results might be available in 2017, although management has not commented on this.
If the FDA agrees, CYTK can probably conduct a Phase 3 trial with perhaps 700 or so patients, and use the recently completed Phase 2b BENEFIT-ALS trial as a supporting study. Based on the results of BENEFIT-ALS, the probability of success in a Phase 3 trial using SVC as an endpoint is quite high, in my opinion, as I will explain shortly. The great uncertainty is whether regulators will agree with CYTK that SVC is an acceptable primary endpoint. The FDA could view SVC as a surrogate marker of respiratory function, and not a clear clinical endpoint. This would also represent a sharp demarcation for the FDA, which has to-date only accepted the ALSFRS-r scale as the primary endpoint for recent ALS trials; this would be a difficult decision for the agency.
As early on as April, when the results of BENEFIT-ALS were announced, CYTK management strongly indicated that they did not believe that the trial results signaled the death of tirasemtiv. They believe that SVC trumps all other measures. Respiratory failure is the primary cause of death in ALS patients, and slow vital capacity (SVC), which measures the amount of air that can be slowly exhaled after a deep breath, is the most widely used and relied upon measure of breathing function. ALS patients know their SVC scores like most people know their social security numbers. Survival of ALS patients is closely correlated with SVC, and it is used for decision making on whether to put a patient on ventilatory assistance, to surgically intervene or to decide to put a patient in hospice.
In the Phase 2b Benefit-ALS study, the rate of decline in SVC was measured for tirasemtiv in comparison to control. The results were strikingly positive, as the rate of decline for tirasemtiv was only one-third that of control patients, and the p-value was a very strong (p=0.0006). Cytokinetics believes that tirasemtiv is the only drug that has ever demonstrated the ability to slow the decline in respiratory function in a large (over 200 patients) clinical trial.
Tirasemtiv failed the primary endpoint of ALSFRS-r, and did not show statistically significant improvement in any secondary endpoints other than SVC. It showed no effect on two measures of pulmonary function; sniff nasal inspiratory pressure (SNIP), and maximum voluntary ventilation (MVV). It also showed no effect on handgrip fatigue and muscle strength. The only statistically significant effect was on the secondary endpoint of sustained vital capacity (SVC). There are also three measurements of respiratory function in the 12-item ALSFRS-r scale, and the drug did not show meaningful improvement in these measures either.
Implications if the FDA Agrees that SVC is a Primary Endpoint for a Phase 3 Trial
I am unsure as to what the FDA will decide. If they accept SVC as the primary endpoint, I think there is a high probability that tirasemtiv will succeed in the Phase 3 trial. On the other hand, if the FDA insists on using ALSFRS-r as the primary endpoint, there is almost no chance that CYTK would launch another Phase 3 trial. My subjective evaluation is that there is less than a 50% chance that the FDA will agree to the SVC endpoint. Still, the chances are not zero.
I believe that there is very little expectation on the part of investors that tirasemtiv will proceed to a Phase 3 study and be successful. There was a sharp decline in price following the announcement, from $13.00 to $4.60, suggesting that expectations for tirasemtiv were pretty much wiped out of the stock price. If so, most (probably all) of the $200 million valuation of CYTK is now based on the potential for omecamtiv mecarbil, CYTK's drug for congestive heart failure, which could move into Phase 3 trials in 2015. Hence, there seems to be not much risk if tirasemtiv is abandoned as weighed against very significant upside if it is ultimately successful in a Phase 3 trial. This seems to be an asymmetric opportunity for investors. For a detailed discussion of omecamtiv mecarbil and its commercial potential, please check this Seeking Alpha article.
The first key inflection point for the stock is the decision of the FDA and EMEA on whether to accept SVC as an endpoint. If they agree, I could see the stock trading to the $5.00 to $6.00 range, or possibly higher. There is no way of precisely quantifying this, so my suggestion on price potential is based on a subjective judgment. Remember that prior to the Phase 2 failure, the stock was trading at $13.00, indicating that investors had high expectations for the commercial success of tirasemtiv, if approved. We should know the FDA decision by the end of 2014. If the agencies give a thumbs-down, I think that tirasemtiv will be abandoned, and this could cause a 5% to 10% sell-off in the stock, as a guess.
For those who would like a more detailed discussion of these issues, you should follow this link to much more extensive report on my website.
Cytokinetics ended Q2, 2014 with approximately $92 million in cash, cash equivalents and investments. Management guided that this represents approximately 20 to 22 months of going-forward cash burn, based on our current financial guidance. This would take it into Q1, 2016. However, this guidance doesn't take into account a Phase 3 trial for tirasemtiv. In order to complete a Phase 3 trial of tirasemtiv, I think that the company will have to either partner the drug or raise significant amounts of capital. While management has not been explicit, I get the impression that they may look to partner tirasemtiv as a first option.
Disclosure: The author is long CYTK.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.