2024-01-11 23:54:22 ET
Summary
- Previously recommended "Sell" on Cytokinetics; Aficamten's SEQUOIA-HCM data outperformed expectations, necessitating reevaluation.
- Aficamten revealed possibly improved efficacy and safety compared to Camzyos, implying that it could become a blockbuster treatment in HCM.
- CYTK's M&A appeal surged post-data, despite a dip after Novartis cooled acquisition talks; the current market cap suggests upside potential.
- Recommend "Strong Buy" under $90/share for the long term, based on fundamentals and market opportunities, despite potential short-term volatility.
At A Glance
Last year, I penned three "Sell" recommendations for Cytokinetics ( CYTK ) prior to SEQUOIA-HCM data for their lead drug, aficamten. My last article expressed concerns regarding aficamten's ability to differentiate itself from a similar drug, marketed as Camzyos, by Bristol-Myers Squibb ( BMY ). Furthermore, prior to the data, Cytokinetics had (and continues to have) a riskier long-term balance sheet, with debts exceeding cash and investments (although the current ratio of 7.22 bodes very well in the short term).
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Aficamten had to demonstrate more than just comparable efficacy and safety to its competitor, Camzyos. It needed a decisive victory in SEQUOIA-HCM. For much of last year, I thought a decisive victory would be a "slim chance," or what I also like to call a "10% event." Subsequently, I thought a "Sell" was in order.
With SEQUOIA-HCM data now available, it appears that the 10% event occurred, that I was mistaken, and that Cytokinetics' stock should be revalued in light of it.
The following article delves into the SEQUOIA-HCM data, the commercial potential of aficamten, and the current flurry of M&A speculations surrounding Cytokinetics' stock.
Cytokinetics' Stock Surge: Aficamten's Prescription For Success
In the SEQUOIA-HCM study, Cytokinetics unveiled aficamten's significant impact. The drug enhanced exercise capacity. It improved peak oxygen uptake (pVO2) by 1.74 mL/kg/min. This improvement bore a high statistical weight (p=0.000002). The effect remained consistent across varied patient groups. Those on beta-blocker therapy also benefited. Aficamten's efficacy extended beyond primary endpoints. All secondary measures showed meaningful enhancements. These included patient-reported outcomes, functional class, and left ventricular outflow tract gradient. Exercise workload and septal reduction therapy indications also improved.
Amazingly, aficamten's tolerability paralleled placebo in general. Its adverse event profile matched the placebo's. Notably, serious treatment-related adverse events were slightly less prevalent with aficamten. A minority of patients on aficamten saw left ventricular ejection fraction (LVEF) dip below 50%, consistent with this class of medicine. Despite this, no instances of exacerbated heart failure emerged. Treatment discontinuation due to low LVEF was not reported.
The data compares favorably to Camzyos, so much so that it is possible that aficamten avoids a boxed warning that is present on Camzyos' label for its risk of heart failure. To be clear, the boxed warning and REMS program, in themselves, shouldn't deter Camzyos' uptake in the HCM market, for which few drugs are available. However, if aficamten is viewed as a safer and/or more effective alternative to Camzyos, it may see a lucrative market share. Prior to data, in my opinion, an 80/20 Camzyos/aficamten market share would have been optimistic for Cytokinetics, as it is difficult to match the marketing prowess of a company the size of Bristol. Right now, it is safe to assume the market share will be closer to 50/50. Nonetheless, this is all speculative for now, as aficamten's commercialization remains at least a year away, and comparing two different drugs in two different trials isn't an easy task.
The market viewed the data favorably, with Cytokinetics' stock soaring well over 100%.
Wall Street analysts were satisfied as well. For example, Needham noted:
We believe the SEQUOIA trial results establish afi as the new standard of care for HCM, and sets a new high bar for the cardiac myosin inhibitor class that further enhances Cytokinetics' appeal as an M&A target.
Novartis' Chase Cools, But Cytokinetics Still a Hot Pick
Even prior to SEQUOIA-HCM data, Cytokinetics had been rumored to be an acquisition target. Following the data and heading into the popular JP Morgan Healthcare conference, Cytokinetics was seen as a top M&A candidate. On Monday, a report came out that Novartis ( NVS ) was closing in on a deal, possibly by the end of this week, ahead of at least a couple of other bidders. This news rallied the stock to around $110 per share. As the days went by without any confirmation, Cytokinetics' stock dripped. The drip turned into a waterfall as an update Thursday revealed Novartis' pursuit, which has apparently been ongoing for a few months, had cooled down. At writing, Cytokinetics' stock is down 20% intraday.
As I pointed out on Sunday, the expectations for a deal to close the week of the JPMorgan Healthcare conference were likely naive.
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Interestingly, the frequency and detail of these rumors are peculiar. Cytokinetics is almost certainly fielding several bids from a few different companies. One company dropping out is not a cause for concern, nor should it surprise anyone.
Investors are, for better or worse, anchored to BMY's $13.1 billion acquisition of MyoKardia in 2020, which gave them rights to Camzyos. A similar price for aficamten would command at least $110 per share. But this is a really simple calculation, and Cytokinetics' share structure is a bit more complicated than usual.
I believe it is very likely that Cytokinetics will be acquired within a few months at most, and possibly within a week or two, for no less than $110 per share, suggesting a reasonable upside from current prices. Even without a buyout, Cytokinetics has a drug with a clear path to >$2 billion in peak annual revenue. Bear in mind that BMY had projected $4 billion in peak annual revenue for Camzyos. So, the $2 billion estimate assumes a conservative 50/50 split.
My Analysis and Recommendation
In wrapping up, Cytokinetics is sitting pretty following SEQUOIA-HCM data. Aficamten clearly has the potential to be a blockbuster drug, and those are hard to come by. We have several reports (from reputable sources like Reuters and WSJ ) that Cytokinetics is fielding offers from at least three bidders (Novartis, AstraZeneca ( AZN ), Johnson & Johnson ( JNJ )). Although Novartis appears to be out of the race for now, Cytokinetics is now attractively valued ahead of a prospective acquisition or even if they go to market alone; thus, as long as the company trades below $85 per share, it is a "strong Buy."
However, there is substantial risk here to consider, especially in the short term. Cytokinetics' stock will likely remain very volatile in the coming weeks. Losses could be swift and significant. If a deal does not occur at all, which is a very possible scenario, the company may resort to a share offering ahead of marketization, which would dilute its shareholders. For now, the company figures to have ~2 years of cash runway . It's important to note that investing in biotech with the intention of making quick money from a hopeful acquisition is seldom a good practice. My "Strong Buy" recommendation is for the long term, with or without acquisition, and is based on the company's fundamentals and market opportunities following SEQUOIA-HCM data. As always, investors should diversify their portfolios and not overexpose themselves to one position to risk being wiped out.
For further details see:
Cytokinetics Steps Up As Prime Target After Aficamten's HCM Triumph (Rating Upgrade)