Cytokinetics Still Has Value, Despite Setbacks

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Summary

Cytokinetics has had two Phase 2b studies in the last year not meet their primary endpoint.

Both Omecamtiv and Tirasemtiv may advance to Phase 3 despite Phase 2b failures.

Third Phase 2b Study on Omecamtiv has more attainable primary endpoint.

Concerns about management have left investors feeling burned.

Quick Background:

I am a Physician (practicing Child Psychiatry) and I have been an investor in Cytokinetics (NASDAQ:CYTK) for approximately 16 months. While this is my first Seeking Alpha article, I have contributed my thoughts more briefly to StockTwits during that time. I intend to contribute more regularly to Seeking Alpha as a way of more fully explaining my ideas. While CYTK is one of my more prominent holdings, I follow several other Biotech stocks as well as some technical/value plays.

Two Studies Which Did Not Meet Primary End Point

Omecamtiv Mecarbil ATOMIC Study

ATOMIC-AHF was a Phase 2b study of an IV form of Omecamtiv Mecarbil (OM) for which results were presented at the European Society of Cardiology meeting on September 3rd, 2013. The primary endpoint of the study was dyspnea (shortness of breath) response as measured by the Likert scale. This was evaluated after 48 hours of IV treatment with OM. Cytokinetics and their partner, Amgen (NASDAQ:AMGN), both made comments both prior to and after the study that meeting the primary endpoint was not necessary to advance the drug. While OM did not meet this primary endpoint, most other measures in the study were positive. Secondary endpoints related to the progression of heart failure and systolic ejection time were both positive for OM.

In fact, the two higher dosing groups (of three) met both the primary and secondary endpoints if the lower dosing group was removed from pooled results. When this occurs, it is important to look at safety data to determine if higher doses could be tolerated. In general, OM was very well tolerated in the study at all doses. The one main concern was an increase in post-randomization myocardial infarctions (heart attacks) in the combined OM groups compared to placebo (7 vs. 3). However, there was no apparent dose-related response and with the low numbers it is difficult to determine whether or not this was drug effect versus chance. This will be a key factor to watch in additional (and larger) studies. If there is indeed no dose-related risk of MI, then the two higher dosings should be preferred in the future over the lower dose. That would mean that if the study were done again, they likely would not even include the lower dose to begin with.

Again, if the lower dose were not included, then the ATOMIC study would have met both primary and secondary endpoints. The low dose was subtherapeutic in the same way Ibuprofen would be if most adults tried to take 100mg (half of one pill) to help their headache. One could argue that the dose choices for the study were flawed to begin with. I believe that the scientists simply made their best educated guess at effective dosing prior to the study and unfortunately guessed a little low.

Tirasemtiv BENEFITS-ALS Study

Overview

BENEFITS-ALS was a Phase 2b study of Tirasemtiv for which results were presented at the American Academy of Neurology meeting on April 29th, 2014. Top-line results for this were released on April 25th (more on the significance of these dates later). The primary endpoint of this study was the change in ALS Functional Rating Scale. This was measured at 4, 8, and 12 weeks of medication. Tirasemtiv did not meet this primary endpoint and, unfortunately, it appears actually trended towards worse results than placebo (although not statistically significant). Like OM, Tirasemtiv DID meet some important secondary endpoints including a reduction in the rate of decline in Slow Vital Capacity and muscle fatigue related measures.

It is important to note that NO drug (not even riluzole, the one drug approved for ALS) has EVER met an endpoint related to the change in ALS Functional Rating scale. NO drug (not even riluzole) has ever previously met an endpoint like Tirasemtiv's secondary endpoint of reduction in the rate of decline in SVC. Dexpramiprexole (Biogen's ALS drug that failed Phase 3) also never met either of these endpoints. Riluzole was approved and is used because it reduces mortality by 2-3 months. Many patients with ALS prefer not to use riluzole because, despite prolonging life on average, it does not result in functional improvement for most. Tirasemtiv's improvement in both the rate of reduction of SVC and some muscle fatigue areas, if verified, would offer patients a chance of improved FUNCTION rather than just prolonged life. The reduced rate of reduction of SVC has been correlated with survival in the past, but survival has yet to be studied with Tirasemtiv.

Unlike OM, Tirasemtiv had major concerns with adverse events. Patients with ALS have a high rate of adverse events to begin with, but Tirasemtiv had a high dropout rate compared to placebo. This was true even after an initial tolerance phase that excluded many patients who did not tolerate Tirasemtiv in the first week prior to randomization. In the 12 week post-randomization study, 6.5x as many patients dropped out due to non-fatal AE's in the tirasemtiv arm compared to the placebo arm. This is highly significant especially given that so many people were excluded pre-randomization. Weight loss in patients on tirasemtiv was also a concern, which is a problem in that weight loss in patients with ALS is associated with a negative effect on survival.

A Subgroup Effect?

Interestingly, the researchers have noted that a subgroup of ALS patients in the tirasemtiv arm appeared to tolerate it better without significant nausea or weight loss. If just this tolerant group is compared to placebo, then there was a significant improvement in the rate of decline of the ALS-FRS. The take home message of this is that some patients who were able to tolerate tirasemtiv seem to have a much better response to it. This seems to be confirmed by neurologists who have discussed their experiences during the study (see this conference transcript).

In the BENEFITS study, this tolerant group was characterized by the lack of gastrointestinal (NYSE:GI) side effects that included nausea and decreased appetite. These GI side effects were directly associated with weight loss and poor response to tirasemtiv. In fact, those taking tirasemtiv that did NOT have nausea/decreased appetite had weight loss similar to placebo. Several previous studies have discussed subgroups of ALS from genetic and/or biologic perspectives. This article discusses the relationship of genetics and environmental triggers in possible subgroups of ALS. This study discusses a variety of biologic markers including MRI findings that separate ALS into two subgroups. The dexpramiprexole Phase 3 study had a post-hoc analysis that also noticed a subgroup effect. It is quite possible that the nausea/GI symptoms and weight loss experienced by a large number of those taking tirasemtiv in this study is a function of one of these genetic/biologic subgroups. Therefore, if Cytokinetics could find some way of improved screening for GI symptoms, they may be able to better exclude them. They could then subsequently study a subgroup of ALS patients that appear to have a better response to tirasemtiv.

While a subgroup may save the drug, it also reduces the market potential. Cytokinetics did try to do some screening for nausea on tirasemtiv in BENEFITS and this led to 14% (106 out of 711) "lead-in failures." Even with that 14% out of the study, 21.9% of the tirasemtiv group had nausea and 10% had decreased appetite. Using these numbers, I calculate that the subgroup of patients WITH GI symptoms is between 32.8% (14% + 86% * 21.9%) and 41.4% (14% + 86% * (21.9% + 10%)), wherein that range depends on how much overlap there is between nausea and decreased appetite. Since this overlap is likely high, I would suspect that around 1/3 of patients have GI side effects on tirasemtiv overall based on this study. While there is some reason for hope in the other 2/3, the best chance for the medication succeeding in Phase 3 may be to exclude this subgroup that appears to be 1/3 of all ALS patients. Since ALS is a fairly rare disease to begin with, excluding 1/3 of the potential treatment population is a significant impact on the market potential of the drug. An alternative would be to pretreat patients with an antinausea medication (such as Phenergan/Zofran), but it is unclear if this would work based on the data that I have seen. However, this was discussed as a possibility for phase 3 in the Q&A of the conference call. While it is not my expertise, I find this strategy to be more risky in Phase 3 than better exclusion of the subgroup with GI side effects.

Data Concern?

My one main concern upon viewing the SVC data in particular is that the tirasemtiv arm had lower baseline SVCs than the placebo arm to begin with (and this was confirmed to be statistically significant). I believe that this may result in the reduced rate of decline being less significant than it is on the surface. This is particularly true at 4 and 8 weeks. Below is a table related to this, with the baseline and changes from baseline being pulled directly from Cytokinetics data. The SVC at a given week is extrapolated from the data:

Summary of SVC Data

Placebo Change in SVC Tirasemtiv Change in SVC Placebo SVC Tirasemtiv SVC
Baseline 89.70 85.70
Week 4 -3.89 -0.99 85.81 84.71
Week 8 -5.81 -2.85 83.89 82.85
Week 12 -8.66 -3.12 81.04 82.58

If you look at just the change in SVC (as Cytokinetics did in their presentation), then all three subsequent data points are significant with the data at Week 12 being the most significant. If I look at this data on its face, it appears to me that from baseline to Week 4 the placebo group worsened to make them more in-line with where the tirasemtiv group was to begin with. There was no significant difference in the change from Week 4 to Week 8 (both worsened by about 2). However, from Week 8 to Week 12 the placebo group continued to worsen and the tirasemtiv group stayed almost the same. This led to the tirasemtiv arm having a better SVC at the end of the study than the placebo arm despite being worse to begin with. This fact could be very encouraging and, given that the dropout rate in the tirasemtiv arm was higher, may be further evidence that a subgroup who tolerated tirasemtiv did very well on the drug. It may also indicate that prolonged use of the medication (when tolerated) builds an effect. Alternatively, those left in the tirasemtiv arm at 12 weeks could have had a higher baseline SVC to begin with and this would skew the results. However, NONE of my point here was addressed at the presentation or discussed in the Q&A that followed. I was very surprised that this was glossed over without being addressed.

Omecamtiv Mecarbil COSMIC-AF Study

COSMIC-AF is a Phase 2b of an oral form of Omecamtiv Mecarbil that recently began enrollment in an expansion phase. Cytokinetics and Amgen altered this study following the ATOMIC results and this led to a delay in the study. The primary changes made relate to the dosing and length of the study. This appears to be a smart scientific decision based on the efficacy and tolerance of OM in the ATOMIC study as discussed above. Unfortunately, it means that results of this study will likely not be available until sometime in 2015. Even if the study was fully enrolled tomorrow (which is unlikely), it would take November to complete the study. I expect that results will be approximately 6-8 months after the announcement of completion of enrollment, which I do not expect until late 2014. At this point I would guess that a reasonable target for results would be the European Society of Cardiology meeting in September 2015.

It is important to note the endpoints for this study. The primary endpoint is related to safety, tolerability, and pharmacokinetics. With the exception of the MI concern in ATOMIC, these are measures that OM has generally done very well with. It is my opinion that this is a MUCH easier endpoint to meet than the above two "failed" studies. Secondary endpoints for COSMIC are numerous and related to cardiac function parameters, HR, and n-terminal BNP. OM has generally done very well with regards to cardiac function parameters (especially Systolic Ejection time, which I would almost guarantee to be positive). HR may be a concern and that is one that I would not be surprised with negative results. n-terminal BNP may also be a challenge, but if positive would probably guarantee advancement to P3 assuming reasonable safety/tolerability.

Advancement to Phase 3

Omecamtiv Mecarbil

It is my opinion that the ATOMIC study actually SUPPORTS advancement to phase 3. This is due to the significant positive effects at higher doses with few tolerability concerns. I agree with previous Seeking Alpha articles that argue that the market misinterpreted the ATOMIC results by just focusing on the primary endpoint. Additionally, I believe that the COSMIC study will be positive for its Primary endpoint and several of its secondary endpoints. I would watch the BNP endpoint as one in particular that might influence advancement to Phase 3. I believe there is a STRONG chance that Amgen/Cytokinetics will advance OM to Phase 3. If OM ultimately succeeds, then it enters a HUGE market as a first-in-class medication.

Tirasemtiv

BENEFITS-ALS was a mixed study at best. Judging by comments in the conference call, I believe that Cytokinetics is leaning towards some type of advancement to Phase 3. I believe CLINICALLY that this is a good decision because people with ALS are desperate for something that may help them improve functionally. Even if there is only a 67% subgroup of ALS patients that could potentially benefit (which is my estimate), then it's worth pursuing to benefit the lives of some. However, this also means that the already small market is reduced by at least 33% (in my opinion), so from a business/investment standpoint I'm not sure there is much profit to be made here. The one thing that could change that is additional indications and there is some evidence for tirasemtiv in myasthenia gravis in particular. Regardless, I no longer believe tirasemtiv in contributing a significant portion to the value of the company - the current value of the stock is almost all based on OM.

Management Concerns

There have been several concerns raised about the management of Cytokinetics as a company within the last year. While there have been some positives (with regards to partnering with Astellas and money management), there have been three key negatives:

1) The first of these (and the smallest by a large margin) began with a conference call prior to the OM results. During an important conference call, there was a cat meowing repetitively during the recording. While this in itself is not a huge concern, it did seem a little unprofessional especially when the cat was not removed quickly. Investor relations also did not respond to emailed questions about this, which is also concerning. This has become a joke among some Cytokinetics investors and translated to more negative jokes once negative data was released.

2) In the lead up to the OM results being released (which management knew in advance of the release), there was significant hype related to it being presented as a "Late Breaker" talk. While there is no reason to believe that management directly contributed to the hype about this, I do believe that they could have done more to publicly soften the hype without giving away the results. I believe that management honestly thought that investors would see the results as positively as they did (despite missing the primary end point) and therefore they were just as hyped as investors. The problem is that management may have misread how the market would react to the results.

3) Most significantly, management botched the release of the tirasemtiv results. On April 22nd, they announced that they would release the results on April 29th at the AAN. On April 23rd, they announced that there would be a breakfast to accompany the release of the results on the 29th. The market was preparing for a binary event on the 29th. Instead of waiting until when they said they would release results, they released them two days after their breakfast announcement (on the 25th). There was absolutely no need for this - why say that you are going to release results in 4 business days and then release them in 2 instead? That has left investors feeling burned and damages the trust of investors in management. I understand that they may have wanted to avoid the hype issue like with OM (that analysts and a small float contributed to from the 22nd-25th). However, breaking your word as a company is not the way to do this. Making a statement like "the breakfast is no indication of positive or negative results" would have sufficed.

At the breakfast, Dr. Robert Miller (who was an invited guest that was involved in the study, but not part of management), said "But, now we have a job to do with respect to tirasemtiv and BENEFIT-ALS, and we will do that job, and that a job that isn't just about trial and data and P values. It's not just about endpoints. It's not about stock price. It's not about puts and calls. It's really about what are we going to do to understand how this science translates to potential therapeutic options in medicine for these patients." While I agree with his sentiment and that is one of the reasons I invest in biotechs (because it also helps improve science), I do worry that management does not concern themselves enough with how their actions impact their investors. If your investors don't trust you, there will be no money to do the science that "translates to potential therapeutic options in medicine for these patients." Again, Dr. Miller's comment does not necessarily reflect the view of Cytokinetics, but his word choice did jump out as very disrespectful of investors. I very much respect the science at Cytokinetics (it is the main reason I hold the stock), but the management concerns worry me as an investor.

Thoughts on Future Stock Price

Possible Negative Factors

  • The stock's all-time low is $3.60 and without impending catalysts the stock could return to that low or that market cap (which is even lower due to dilution).
  • Distrust of management by investors could prevent them from returning to the stock.
  • An announcement of abandoning tirasemtiv could come at any time (this is probably nearly priced in to the stock and I actually do not expect this one to happen).
  • COSMIC could be halted due to serious adverse events or negative efficacy (I view this as incredibly unlikely, but it would effectively end the company).
  • CK-2127107 (Astellas partnered drug in Phase 1) could have negative results or lose its partnership - this is not a large part of the value of the company yet, but would likely scare investors as to the whole program.

Possible Positive Factors

  • Cytokinetics could announce intentions to advance tirasemtiv to Phase 3. This would be a positive particularly if they could partner it to have additional financing of the study.
  • Stock is near technical lows and could return to moving averages (which are mostly in the 8's at the moment).
  • Amgen could buy out the company (which I view as more likely now that tirasemtiv is priced out of the stock).
  • CK-2127107 could advance to Phase 2a (likely late 2014/early 2015).
  • Omecamtiv could advance to Phase 3 (major factor - likely mid 2015).
  • No near-term dilution should be required as company has ample cash currently available (unless burn rate increases due to advancing tirasemtiv to Phase 3 without a partner).
  • Cytokinetics has a candidate Smooth Muscle myosin inhibiting drug that could be studied in asthma, COPD, or pulmonary artery hypertension. This drug could be advanced to Phase 1 and/or partnered at any time.

My Current Recommendation

I believe that the weight of the potential positives is greater than the negatives at this point. I believe the intermediate-term downside is approximately $3.60 (which would represent a 20% decline from current levels), while the upside is close to 8 (which would represent a 78% upside). I think a more realistic short-term upside is $6, which would represent a 33% upside from current levels. Analysts have current price targets ranging from $5-$15. Therefore, despite my management concerns, I remain long Cytokinetics and added to my position after tirasemtiv results.

Disclosure: I am long CYTK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in AMGN and no plans to initiate a position in it.