Tide Of Good News Buoys Cytokinetics Shares

Summary

Collaboration with Astellas expanded to include ALS, aligning the two companies interests.

Early blinded data suggests VITALITY-ALS is powered at 90+%.

Omecamtiv Mecarbil Phase III Announcement anticipated in Q3.

My previous article on Cytokinetics (NASDAQ:CYTK) detailed why their May and June presentations suggested their late stage candidates were likely to succeed. Since my previous article was published on June 26th significant developments have taken place and the shares have risen 36%.

The biggest news over the last 6 weeks has been the announcement that the collaboration with Astellas (OTCPK:ALPMY) has been expanded to give Astellas an option on Tirasemtiv and to allow for the development of CK-2127107 (also known as CK-107) in ALS. On Cytokinetics' Investor Presentations Page you can listen to both the July 27th conference call to discuss this announcement as well as the July 28th earnings conference call in which the expanded partnership is also discussed at length.

Often in deals like this, the financial terms themselves are of primary importance for investors. And in this case the financial terms are very meaningful: $65 Million in upfront payments, plus $30 Million in committed research funds that combine to lengthen the company's cash runway through 2018. But I believe something of even more importance to discerning investors lies at the heart of this deal: the need for Cytokinetics and Astellas to align their interests within the skeletal muscle program. The most important insight I believe investors can glean from this deal stems from a highly unusual circumstance that existed between Cytokinetics and Astellas before the deal was struck. Prior to the deal Cytokinetics retained all the rights to one of its skeletal muscle activators, Tirasemtiv, which is in Phase III for ALS, while it was partnered with Astellas on its other skeletal muscle activator, CK-107, which is currently in Phase II for SMA and COPD. What made this an unusual situation is that these two drugs have exactly the same mechanism of action.

The potential conflicts between two partners collaborating on a drug that has the exact same mechanism of action as another drug that one of them has sole rights to are not hard to imagine. For readers new to Cytokinetics, Tirasemtiv is several years ahead of CK-107 in development, but CK-107 looks to have a superior profile from the standpoint of potential Adverse Effects.

It's always important to look at both sides of any deal. And I think looking at this deal from Astellas' perspective is very enlightening for Cytokinetics investors. From the clinical trials of CK-107 to date, Astellas has great insight into how the mechanism of action these two drugs share is performing in the clinic, and with that knowledge and the data from Tirasemtiv's previous trials in hand they invested $95 million dollars to obtain an option on Tirasemtiv and to expand their current collaboration with Cytokinetics to allow for CK-107 to be developed for ALS. Tirasemtiv is more than a year into its Pivotal Phase III trial, VITALITY-ALS, and from Astellas' perspective, I think this deal suggests that they have a great deal of confidence in the mechanism of action shared by Tirasemtiv and CK-107.

From Cytokinetics' perspective, this deal makes sense because if Tirasemtiv is approved for ALS, CK-107 stands to replace it within a few years because it shares its mechanism of action and features a superior Adverse Event profile. CK-107 does not cross the blood-brain barrier as readily as Tirasemtiv, and in early trials with healthy volunteers it has not produced the light-headedness sometimes associated with Tirasemtiv. Additionally, CK-107 has been designed to have a better drug interaction profile than Tirasemtiv. As patients may be able to tolerate a higher dosage of CK-107 than Tirasemtiv, CK-107 may ultimately prove to have higher efficacy as well. If Tirasemtiv succeeds, CK-107 is very much in line to be the next generation treatment, and so aligning Cytokinetics and Astellas' interests in both drugs is a win-win-win from the standpoint of both companies and patients as well.

The imperative for this deal was clearly the shared mechanism of action of Tirasemtiv and CK-107. As for the timing, I believe that was a result of both companies viewing Tirasemtiv as being far enough along and likely enough to succeed that it made sense to align their interests. As a result of the timing of the deal coming a year into Tirasemtiv's pivotal Phase III trial, and the two drugs shared mechanism of action, I believe this deal bodes well for Tirasemtiv's and CK-107's chances in ALS.

Moving on to VITALITY-ALS, Tirasemtiv's Phase III trial, which is going to close for enrollment any week, Andy Wolff, Cytokinetics Senior Vice President and Chief Medical Officer made this significant statement in the July 28th earnings call:

"While we remain blinded to investigational study drug assignments, we are encouraged that these data are consistent with or even slightly better than assumptions that we made in designing VITALITY-ALS, including constructing our statistical power calculation."

I agree with Jason Butler of JMP Securities who characterized this news as follows: "Management indicated that the values observed are more favorable than anticipated during the powering of the study. We look favorably toward this, as it suggests the trial is likely powered at a greater level than originally expected."

As I wrote in my prior article, VITALITY-ALS is designed to confirm at 24 weeks the same 6% improvement in the rate of decline of Slow Vital Capacity (SVC) that BENEFIT-ALS showed at 12 weeks. It is no surprise to me that preliminary and still blinded data indicates that this trial actually has greater than the anticipated 90% power to detect the 6% improvement in the rate of slowing of SVC over 24 weeks. Cytokinetics has access to clinical data on the decline in SVC in thousands of patients from the placebo arms of previous ALS trials that have been conducted over the years. The data from the placebo patients in VITALITY-ALS is unlikely to vary significantly from this well established, tragically consistent data. Tirasemtiv showed a roughly 60% slowing in the rate of decline of SVC over 12 weeks in BENEFIT-ALS, and the conservative powering of VITALITY-ALS which aims to show at 24 weeks what BENEFIT-ALS showed at 12 means that if Tirasemtiv is indeed slowing the rate of decline of SVC as the data from BENEFIT-ALS suggests, it is highly likely to show up with statistical significance in VITALITY-ALS.

The news of the expansion of the Astellas Collaboration, and the comments on VITALITY-ALS, are very positive for Cytokinetics. But the potential advancement of Cytokinetics' Heart Failure drug, Omecamtiv Mecarbil, to Phase III is the primary consideration for many investors because of the blockbuster potential this market holds.

Omecamtiv Mecarbil is partnered with Amgen (NASDAQ:AMGN) and Amgen announced on its earnings call July 27th that the trial protocol had been submitted to the FDA for a SPA. At the end of the question and answer session, Amgen's Executive Vice President of Research & Development, Sean Harper, had this to say in regards to the Omecamtiv Mecarbil program:

"I think we've been able to design a very robust study and have decided that we should put it through the Special Protocol Assessment at FDA. So things are actually moving along as fast as I would have expected to on a complex program like this."

And Cytokinetics' CEO Robert Blum had this to say in his opening remarks on July 28th earnings call:

"I am pleased to tell you that we and Amgen continued to make progress in preparations for an international Phase III outcomes trials during the second quarter. While Amgen has not yet made a formal corporate commitment to proceed to Phase III, we remain optimistic and hopeful that the program will move forward given the increasing level of operational activity intended to support the initiation of a Phase III trial that are underway. Fady will elaborate on this in a moment.

But suffice to say that from protocol development, to regulatory interactions, to the vetting of clinical trial sites, all of the wheels are in motion to initiate a Phase III clinical trial by years end. And we expect the final formal decision from Amgen in Q3."

As a result of the recent developments raising awareness of and expectations for the company's drug candidates, Cytokinetics shares have rallied 36% on higher than average volume since June 26th. Tirasemtiv has an excellent chance to become the first drug approved for ALS in decades, where there is tremendous unmet need. As for Omecamtiv Mecarbil, the odds are extremely high that Amgen will formally announce Phase III by this quarter's end. This combination of a drug with excellent chances of success in ALS, and another candidate likely entering a Heart Failure Phase III trial, along with CK-107 plus a pre-clinical pipeline has started to catch attention. And for good reason: success in any of their late stage programs will result in manyfold returns for investors who buy in at these levels. There is always risk in investing in small biotechs, but I believe Cytokinetics presents a rare and attractive risk/reward profile for the risk tolerant investor.

Disclosure: I am/we are long CYTK.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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