Strength From Muscle Biology With Cytokinetics

|
About: Cytokinetics, Incorporated (CYTK), Includes: AMGN, MYOK, SNY
by: Kenneth Pittman
Summary

Cytokinetics has been around for 20 years, but has failed to get a product to market thus far.

Omecamtiv provides the best chance yet to reach the finish line and faces a key hurdle in 2019.

Reldesemtiv has key catalysts upcoming and could be considered a nearly free call option.

Cytokinetics has key partnerships with Amgen and Astellas and has CK-274 as an attractive partnership candidate.

I expect 2019 to be a positive year for Cytokinetics after a lackluster 2018.

I am returning from a writing break to once again cover the stock that I have both followed and written about for the longest period of time, Cytokinetics (CYTK). Cytokinetics is a developmental biotech which has been working in the area of muscle biology for over 20 years. Unfortunately, the largest criticism of the company remains true - they have still yet to get a product to market in that time. However, I have remained an investor over time largely because I believe that their science is excellent. Therefore - I have consistently held a base of shares and occasionally owned swing shares on top of this utilizing a "base and swing" approach. 2018 was a lackluster year for Cytokinetics and I did not actively swing trade the stock on top of my base shares. On January 6, 2019, I had the opportunity to meet with Robert Blum, CEO of Cytokinetics, at the JPMorgan Conference in San Francisco. After that conversation and evaluation of the latest investor presentation, I have renewed enthusiasm for the near-to-intermediate term future of Cytokinetics.

Omecamtiv Faces a Key Hurdle in 2019

Omecamtiv is a cardiac myosin activator that has been in development for many years in partnership with Amgen (AMGN). It has been the subject of 9 Phase 1 studies and 4 Phase 2 studies totaling over 1,500 patients. GALACTIC-HF, which is the larger Phase 3 Study of omecamtiv, has enrolled over 6000 patients thus far. GALACTIC-HF will complete enrollment in the 1H of 2019 with over 8000 patients in over 1000 different centers across the world. The primary endpoint of this study is the time to cardiovascular death or first heart failure event, whichever comes first. Secondary endpoints include time to cardiovascular death, symptom scores, time to first hospitalization, and overall time to death.

Omecamtiv has data from its earlier studies that should give hope for positive results in the Phase 3 study. First, omecamtiv results in improved Systolic Ejection Time, Stroke Volume, LVFS (Left Ventricular fractional shortening), and LVEF (Left Ventricular Ejection Fraction). All of these are direct indicators of improvement in heart function and most of them improved with dose optimization based on plasma levels. This can be seen in the figure below:

Source: Cytokinetics February 2019 Investor Presentation

In addition, omecamtiv shows improvement in several other factors related to heart volume and indicators of heart stress. This includes Left Ventricular End Systolic and Diastolic volumes, which improved with dose optimization.

Source: Cytokinetics February 2019 Investor Presentation

It also includes reduction in heart rate and NT-proBNP (N-terminal prohormone of brain natriuretic peptide). The latter of these is key as it is an excellent predictor of Left Ventricular Ejection Fraction (without the need for an echocardiogram). The fact that NT-proBNP continued to improve with longer exposure to omecamtiv is a very promising result.

Source: Cytokinetics February 2019 Investor Presentation

Omecamtiv is also being studied in a second Phase 3 study called METORIC-HF. This study will begin enrolling patients this quarter and is designed to evaluate exercise tolerance in patients with heart failure on omecamtiv vs. placebo. It will enroll ~270 subjects and last just over 5 months. Exercise tolerance is important in heart failure due to its impact on functionality. If omecamtiv can show improvement in exercise tolerance, then it is an indicator of positive functional changes in the lives of people with heart failure. This contrasts with the largely "improvement on negative" endpoints in GALACTIC-HF.

Cytokinetics has the potential of hundreds of millions, if not billions, of dollars in revenue should omecamtiv be successful. Cytokinetics is eligible for over $600 million in milestone payments from Amgen as well as escalating double-digit royalties. There is also reimbursement for some sales force activities with planned co-promotion in North America. Cytokinetics will owe Royalty Pharma a portion of these royalties, but still may gain over 15% of tiered sales outside of Japan even after Royalty Pharma's 4.5-5.5% is taken out. Cytokinetics believes that omecamtiv has a higher upside than Entresto, a heart failure drug developed by Novartis (NYSE:NVS). Novartis believes that Entresto has an upside of $4-5 billion in sales per year.

While predicting an upside higher than this is quite a lofty goal, I do not believe that it is completely unrealistic if omecamtiv were to have solid Phase 3 clinical results. Omecamtiv will likely be eligible for a Waxman-Hatch patent extension to 2032. This means that omecamtiv would have around 10-11 years of patent life left if approved. Below is a model of projected Entresto sales - using it as a 10-year guide and a 10% net royalty figure, I project that Cytokinetics could earn $955 million in revenue from sales royalties. Adding in the $600 million in milestone payments increases potential revenues to $1.5 billion. Keep in mind that Cytokinetics believes that sales could beat Entresto projections and that there is a strong potential of a net royalty of higher than 10%.

Source: Cytokinetics February 2019 Investor Presentation

Omecamtiv faces a key hurdle in 2019 with an interim analysis for GALACTIC-HF in the 1H of 2019. Assuming omecamtiv passes this interim checkpoint, I expect that Amgen will begin discussing omecamtiv much more in their forward projections. Amgen is already beginning to discuss the omecamtiv partnership more than they have previously - this discussion also includes AMG 594, another compound partnered with Cytokinetics that represents a "next generation" cardiac troponin activator. Amgen recently mentioned this as part of their presentation at the JPMorgan January 2019 Conference:

Reldesemtiv is a Near-Free Call Option with Upcoming Catalysts

While omecamtiv is by far the most important long-term drug to Cytokinetics, the pipeline drug with the more likely near-term catalysts is reldesemtiv (previously known at CK-107). Reldesemtiv is a fast skeletal muscle troponin activator (or FSTA) and is the next generation of tirasemtiv, which is Cytokinetics' previous FSTA that suffered a setback in a Phase 3. Cytokinetics is partnered with Astellas (OTCPK:ALPMY) for the development of reldesemtiv. Due to the failure of tirasemtiv in the Phase 3 study in ALS, investors have not placed much value in reldesemtiv. This is despite early clinical evidence showing an improved side effect profile relative to tirasemtiv. Tirasemtiv showed definite trends towards working, but had dose limiting side effects that led to discontinuation in too many patients. If reldesemtiv can maintain the efficacy trend of tirasemtiv, but have less side effects, then higher relative doses could be used.

Reldesemtiv has already had Phase 1 study results that showed that it appears to be more potent than tirasemtiv as shown below:

Source: Cytokinetics February 2019 Investor Presentation

Reldesemtiv has been the subject of several studies which I previewed in my article last year. The first of these studies to have results was a study of reldesemtiv in Spinal Muscular Atrophy, or SMA. These results were released in June 2018 and were met with a largely negative reaction in the market due to poor p-values particularly in the lower 150mg BID dose. However, this was a small study that was inadequately powered to detect anything other than trends. Cytokinetics was able to show that there was an improvement in 6 Minute Walk Distance (a functional measure) that correlated to higher plasma concentrations of the medication as seen below:

Source: Cytokinetics February 2019 Investor Presentation

The 6 Minute Walk Test was recently approved as a potential primary endpoint for a Phase 3 study of reldesemtiv in SMA. Notably, there were no major side effects and reldesemtiv was much better tolerated than tirasemtiv. This should allow Cytokinetics to pursue higher doses such as 600mg BID or 750mg BID in future studies. This tolerability has also been seen in another recent study of reldesemtiv in COPD. While that study did not show efficacy, tolerability was not an issue and was similar to placebo. Yet another study of reldesemtiv for limited mobility in the elderly also failed (stopped due to futility) - no significant adverse events were noted with the interim analysis, but full tolerability results were not yet available. In my previous article I pointed to this particular study as one I was not counting on positive results, but believe it could be a positive sign if tolerability was not an issue.

The fourth study of reldesemtiv may be the most telling. Results are expected in the next few months for the Phase 2 study of reldesemtiv in ALS (FORTITUDE-ALS). This will offer the best comparison yet of efficacy and tolerability compared to tirasemtiv. Based off of both Phase 1 data and the results of the other reldesemtiv studies, I believe that positive results for FORTITUDE are likely - especially at the 450mg dose. I do expect a positive dose response. If the 300mg and 150mg doses also show positive results, then it will be a big win for moving forward.

At this point, I believe that Astellas and Cytokinetics are preparing to move forward with a Phase 2b/3 study of reldesemtiv in SMA. I believe that they will also move to a Phase 3 study in ALS if the results of the Phase 2 study are positive. They could prioritize one of the two over the other - particularly if the ALS results are more impressive.

CK-274 Partnership as a Potential Catalyst

When taking a look at the February 2019 Investor Presentation for Cytokinetics, it is hard to miss the fact that the 1st compound discussed in detail was neither omecamtiv nor reldesemtiv. Instead, Cytokinetics initially focused on CK-274. CK-274 is the most recent Phase 1 addition to the Cytokinetics pipeline. It is a cardiac sarcomere inhibitor that is intended to target the morbidity of hypertrophic cardiomyopathy, or HCM. Cytokinetics believes that it has favorable properties including being a selective inhibitor of cardiac myosin without inhibiting smooth muscle myosin. It also does not impact the CYP enzymes. The full list of potential favorable properties is shown below:

Source: Cytokinetics February 2019 Investor Presentation

It is intriguing to note some of the relationships between CK-274 and a related compound, mavacamten by MyoKardia (MYOK). Mavacamten is currently in Phase 3 trials for obstructive HCM - the same type that CK-274 will initially target. Mavacamten also works on cardiac myosin - although it is not touted to be as selective as CK-274.

However, the link between CK-274 and Mavacamten is much deeper than this. Cytokinetics was an early investor in the Series A funding of MyoKardia in 2012. One of the founders of MyoKardia was Dr. James Spudich, who was a co-founder and former director at Cytokinetics. As part of this agreement, MyoKardia acquired the patent rights to Cytokinetics pipeline drugs (at that time) related to HCM. Their initial lead compounds from this? None other than MYK-461 - now known as mavacamten.

Mavacamten went on to have a partnership with Sanofi (SNY) established in 2014 that lasted until the end of 2018. Sanofi funded $230 million of mavacamten development before ending the partnership and giving full rights back to MyoKardia while it is still in Phase 3 trials. Dropping a partnership in Phase 3 may be considered an ominous sign for some - and the results for mavacamten remain to be seen. Some reports indicate that Sanofi was unhappy with MyoKardia being hesitant about expanding the partnership. However, I do not really buy this as the reason because Sanofi would have too much to gain from the success of mavacamten. Sanofi must have recalculated risk/reward on mavacamten and decided that it was no longer worth them pursuing. Investors (which include Sanofi's 11% stake in MYOK) seemed to be making the same decision between September 1, 2018, and the announcement of the end of the partnership. In that time, the stock fell from a high of $65.20 per share to $40.57 - a nearly 38% loss. MyoKardia had little to no negative information in their press releases during that time period.

What changed in that time period? First, the overall market is an obvious answer. However - there could be an answer deeper than that. On October 16th, Cytokinetics began discussing CK-274 as part of their expanded pipeline. Keep in mind that CK-274 was developed by many of the same people that developed mavacamten. It is a more specific drug that is intended to reduce side effects. While mavacamten did not have significant side effects in the Phase 2 studies, the number of patients in the studies was low and therefore may not have been sufficient to show less common side effects. Cytokinetics is very familiar with mavacamten and chose to advance CK-274 for one of two reasons: either they thought they had a great "me too" drug or they thought they had something that was better. Either of these is fine for investors in Cytokinetics (and ultimately both could hurt MyoKardia), but I would suggest that investors in MyoKardia (including Sanofi) may be convinced that it is the latter. I am not suggesting that mavacamten will fail in Phase 3 - I actually believe it has a good likelihood of being a success. However, I do believe that Cytokinetics is looking to follow the regulatory path of mavacamten and make it to market in a relatively short time period after mavacamten would. Cytokinetics has an extensive network of cardiologist partners already (much of which is likely shared with MyoKardia) and could rapidly deploy CK-274 in clinical studies.

Cytokinetics leading their investor presentation with CK-274 (first done at the JPMorgan conference) was not an accident. They are actively looking for a partner for CK-274. Could Sanofi be looking to jump from MyoKardia to Cytokinetics? Could Amgen be looking to expand their cardiac portfolio with Cytokinetics? Let's not leave out MyoKardia - could they see CK-274 as a back-up or revenue cycle management option? Others? Cytokinetics has failed to get a product to market thus far, but one thing they have been excellent at is partnerships. The prospect of a 3rd significant partner (or expansion with Amgen) gives Cytokinetics additional upside.

Conclusions

Cytokinetics' stock currently sits at $7.37 (2/11/19 close) for a market cap of $403 million. For comparison - MyoKardia is currently at a market cap of $1.593 billion. Cytokinetics has a Phase 3 asset with roughly similar potential as MyoKardia's - although Cytokinetics would share in proceeds whereas MyoKardia now owns theirs outright. Cytokinetics also has a newer asset in CK-274 that potentially could be a true equal to MyoKardia's mavacamten - although it will require research time and money to get it there. Finally, Cytokinetics has reldesemtiv which investors seem to have discounted significantly.

Ultimately, I continue to invest in Cytokinetics because of the potential of omecamtiv. I would most likely keep my base shares in Cytokinetics even if omecamtiv was the only asset it had. However, the additional "shots on goal" of reldesemtiv and now CK-274 offer extra upside and are the reason that I will once again be utilizing my "base and swing" strategy with some additional shares. I fully expect Cytokinetics to end 2019 higher than it ended 2018 as the Cytokinetics pipeline offers significant upside at these levels. Omecamtiv failure is the most significant risk - although this risk may be reduced if omecamtiv passes the interim analysis in the next few months.

Author's note: Thank you for reading my article. Please follow me for additional articles covering the biotech space with an emphasis on neuroscience. As always, I will disclose below which drug companies I have mentioned in the article for which I am the recipient of direct marketing. My articles include my personal opinions and are neither financial nor medical advice. They are solely intended to show my perspective and due diligence on a given subject. Please consult with the proper professional if you are looking for specific advice for your situation.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have not received marketing lunches in the last 10 years from any of the companies mentioned and do not expect to do so in the future.