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Throughout this year, Cytokinetics’ (NASDAQ:CYTK) shares have been moving between $1.12 and $2.96. During this time, the stock has been knocked down more than 60% and the recent turbulence in the market has not helped much either. This is a report on the main programs of the company plus some fundamental and technical analysis that will hopefully shed light on what a long term investor should expect from Cytokinetics.

What does Cytokinetics do?

Cytokinetics develops clinical programs primarily focused on muscle contractility. At the moment, the company is developing two key compounds in its pipeline:

  • Omecamtiv mecarbil is a cardiac myosin activator that the company has partnered with Amgen (NASDAQ:AMGN) and is developing as part of its cardiac muscle contractility program. It’s undergoing a safety and tolerability phase IIb trial of an i.v. formulation in heart failure that began in April 2011. Amgen also plans to test an oral formulation of the drug.
  • CK-2017357 (‘357 for short) is a fast skeletal muscle troponin activator featured as part of the company’s skeletal muscle contractility program. In short, ‘357 increases the sensitivity of the troponin system to calcium, which is essential for muscle contraction. It is undergoing phase II Evidence of Effect (EoE) trials for several indications such as ALS, intermittent claudication and myasthenia gravis.

How are these drugs working so far?

Omecamtiv mercabil (OM)

The first phase IIa trial of OM for decompensated or chronic stable cardiac failure reported results in November 2008. Data from 45 patients showed significant increases in several cardiac physiological parameters that measure the heart’s pump function such as systolic ejection time, fractional shortening, stroke volume (i. e. the volume the heart pumps at each beat) and ejection fraction. There was a significant correlation between these cardiac functions and increasing plasma concentrations (p < 0.01). The drug was well tolerated.

Basically, this trial measured how well the drug improves the way the heart pumps blood into the body. Any value under a certain threshold indicates heart failure and OM improved the cardiac function in a dose-dependent fashion.

In July 2009, Cytokinetics discontinued a phase IIa study that was evaluating patients with stable heart failure undergoing cardiac catheterization due to “difficulties of the trial design and restrictions on patient enrollment”.

In April 2011, Cytokinetics began enrollment in a phase IIb trial in hospitalized, acute heart failure patients with left ventricular systolic dysfunction. It expects to enroll 600 patients with results due in the first half of 2013.

CK-2017357

Claudication associated with peripheral artery disease. The drug performed better than the placebo with all three doses of 375, 500 and 750mg, in a dose-dependent fashion. However, it was only statistically significant with the higher dose (see press release). These results were released on June 2nd and they didn’t cause a big reaction on the stock price as it continued its previous downtrend.

Amyotrophic Lateral Sclerosis

It was evaluated in 500mg doses in a Global Assessment in which the patient and the investigator evaluated independently if the patient felt better, the same or worse. 29 out of 65 patients assessed themselves as "better", compared to 18 out of 63 taking the placebo (p = 0.043). The investigators only assessed 8 out of 63 patients with placebo as "better", compared to 15 out of 62 who had taken 250 mg of CK-2017357 (p = 0.063) and 20 out of 65 who had taken 500 mg of CK-2017357 (p = 0.004).

The stock experienced a big run up the days prior to the data release that resulted in a big sell-off that sent the stock back to its previous levels. The already initiated downtrend continued. The problem may be due to the fact that the results were not as spectacular as the market could have expected. Remember that there’s no current cure for ALS and the strategies used to treat the disease center around the improvement of life quality and symptomatic management.

Cytokinetics began enrollment for the phase IIa multiple-dose, safety, tolerability, and pharmacokinetic clinical trial of ‘357 in patients with ALS on June 21st (see press release here).

Myasthenia gravis

There are no previous results reported for this indication as Cytokinetics first opened enrollment in January 2011. Data from this study are expected by the end of 2011.

Financial situation and fundamentals

Cytokinetics could be classified as a value stock. According to the latest 10Q form, as of March 31st it sits on almost $60M cash and the quarterly burn rate approximately amounts to a high $13M, half of which is spent on R&D of the unpartnered skeletal muscle contractility program. It has a P/B of 1.29. That is to say that the stock is worth $0.83 in the books which is approximately the same cash per share. It has little debt shown by its Debt/Equity ratio of 10. The company has 72.2M shares outstanding.

Cytokinetics experienced an important decrease in revenue in 2010 compared to 2009 due to a $50M payment from Amgen upon exercise of its option agreement.

In April 2011 Cytokinetics announced it had entered into a financing agreement to sell 5.3M shares of common stock at $1.50 and some 8k shares of its Series A Convertible Preferred Stock at $1,500 to entities affiliated with Deerfield Management. This will allow Cytokinetics to rise $20M.

Also, in June 2011, Cytokinetics hired McNicoll, Lewis and Vlak (MLV) in an "At the Market Issuance Sales Agreement" to sell shares of its common stock from time to time in order to rise up to $20M. See the last SEC filing here.

It has had an accumulated deficit of $309M since August 1997.

Technical Analysis

ABtrader shows us the TA of Cytokinetics*:

Let’s first look at a the short-term daily chart, CYTK broke-out of a bull flag on nice volume. This is very healthy for the bulls. This is not the only good sign, the last three closes show confidence and urgency as the bulls made sure they maintain every support level. The stock closed above the 50MA for the first time in more than a month.

Let’s now analyze a multi-month daily chart. As you can see from the chart above, CYTK has been in a downtrend since October. It is now making a nice assault to leave this channel and is setting at the upper portion. Objectively, technical analysis relay heavily on historical trends, thus there is not much to brag about here as the stock had many failed assaults to leave this channel.

click to enlarge image

Looking into different time-frames allows us to define better entry and exit points and find critical price levels. Let’s look now into the weekly chart, where you will automatically realize that CYTK is now at a very important level. $1.38 is a critical level and if the bulls mean business they will have to overtake it.

In summary, I remain Neutral on CYTK with a hint of optimism. The stock remains guilty until proven innocent. Luckily, there is a clear level in where these charts show that the bulls need to takeover to make their case much more valid. The 1.38-1.41 range happens to be:

  1. Important resistance on the weekly chart and the
  2. A bullish exit of the multi-month downtrend channel.
  3. 100MA on the daily chart.

I will be considering a position in case this bounce continues.

Milestones

Second half of 2011:

  • Announcement of results of the phase IIb trial of CK—357 in myasthenia gravis.
  • Initiation of a phase I trial of multiple oral formulations of OM in patients with heart failure. Cytokinetics is in talks with Amgen about the development strategy.
  • Filing of an IND for CK-2066260, which is a developmental molecule of the skeletal contractility program and a subsequent initiation of a Phase I first-in-humans trial.

First half of 2013:

  • Results from the phase IIb trial of Omecamtiv mercabil in heart failure.

Conclusions

Cytokinetics’ main compound is OM, from which we don´t expect top-line results until 2013. Whereas the main catalyst of the year is the data release of ‘357 in myasthenia gravis; the high burn rate coupled with a turbulent general market has taken the stock to its all-time lows leading investors to chicken out. Institutional investors dumped some 7.2M shares during the last two quarters. On the other hand, insiders have not sold a single share since June 2010. Insiders and 5% owners hold 22% of the shares.

As the technical analysis points out, the stock still has to show some strength to enter the “buy mode”. At least it should reach $1.23 in order to give it some life and prove it can reverse its current downtrend.

It has a strong cash position for now that should get the company through 2011, although it will need to raise cash at some point most likely during the last quarter of the year.

Cytokinetics is probably not a buy right now, but it’s definitely a stock to keep an eye on as we move toward the end of the year. It features a promising pipeline that addresses certain conditions that not many companies in the biotech field are currently tackling.

*Acknowledgements: I would like to deeply thank ABtrader for his unique help with the technical analysis. You can find him on twitter @ABtrader.

Source: Cytokinetics' Promising Pipeline: Value Stock for a Long-Term Investor