Cytokinetics' New Rally Pauses On Buyer Exhaustion Print E-mail
By Brian Wilson, Lead Contributor   
Friday, 18 January 2013 02:30
Cytokinetics (NASDAQ: CYTK) seemed to catch the attention of biotech buyers this year, as demonstrated by the fact that YTD gains on CYTK are already close to 58% despite a lack of any major press releases from Cytokinetics since their transfer from the NASDAQ Global Market to the NASDAQ Capital Market as described in a press release from December 18th, 2012.
This transfer was due to the $1.00 minimum bid price per share policy that NASDAQ enforces quite strictly. The $1.00 rule became an issue for Cytokinetics only after May of 2012, when investors started selling the stock in reaction to some mixed clinical trial-related news.

On April 25th, Cytokinetics announced encouraging results from two phase II trials that were evaluating the drug candidate CK-2017357 in patients with ALL (Amyotrophic Lateral Sclerosis), which is also know as Lou Gehrig's Disease. Cytokinetics tested their CK-2017357 with and without the current standard-of-care (and only option for ALL), riluzole. The commentary surrounding the drug sounded quite positive too.

“I believe the novel mechanism of CK-2017357 may afford meaningful clinical benefit to ALS patients and I look forward to larger and longer studies with the goal of more conclusively demonstrating sustained functional improvements in patients with ALS.”

-Andrew A. Wolff, MD, Senior Vice President and Chief Medical Officer at Cytokinetics

It's also worth noting that the safety profile of CK-2017357 was terrific as well. There were no significant risks associated with the drug within three groups with different dosages (125mg, 250mg, and 375mg) used during a two week interval. The most frequently reported adverse event (side effect) was “dizziness”, which should not lead to any serious concern from the FDA during the analysis of the results. It was also reported that  CK-2017357 worked wonderfully on ALL patients as measured by the ALS Functional Rating Scale (ALSFRS-R), which showed +.4 point improvement by the 25th day for the two larger dosage arms of  CK-2017357 (the 250mg and 375 mg arms).

Overall, the news was pretty good. I would imagine that Cytokinetics would have been able to stay above $1/share, perhaps trading at about $1.25/share had it not been for the unreasonable reaction to first quarter results (and its webcast) published the next day.

The company's net loss stayed stubbornly high, at $9.9 million although this was still less than the $11.7 million from 2011. This was rather neutral news, and the lack of any disruptions in Cytokine's developmental pipeline at that point makes me think that investors were a bit concerned about the valuation of the company at $148 million.

Another company that comes to mind with regard to the development of ALL/Lou Gehrig's Disease treatments is Neuralstem (NASDAQ: CUR), which is trading at a market capitalization of just over $90 million. Having mentioned them, I should note that Neuralstem is a stem cell stock. Stem cell stocks seem to trade quite differently, and are often far too ambitious with indications for their stem cell lines.

We saw a lot of recent strength in Cytokinetics on the heels of an extremely bullish $4.00 price target on the stock from Piper Jaffray, although anyone looking at the chart can see that the bulk of the momentum has evaporated, which leaves too much room for profit-takers who may not trust the Piper Jaffray-related rally enough to hang on for much longer. This seems to be a pretty good case of something I like to call “buyer exhaustion,”, which is exactly what it sounds like.

Investors who are interested in Cytokinetics might want to wait for a healthier pullback before going long on this stock. Once in, they should be primarily focused on the company's clinical development of  CK-2017357 as an ALL treatment, and Omecamtiv Mecarbil which was unmentioned up until now. Omecamtiv seems to be generating a lot of investor hype for CYTK, although I am a bit skeptical on this therapeutic and will wait for phase III trial data before getting excited myself.

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