From GS: TLRK (IL/N): 4Q 2003 Results in line,
multiple data points in 2004
52-Week Range US$20-4
YTD Price Change 9.12%
Market Cap US$1.0bn
TLRK reported Q4 2003 loss of $25M or ($0.40) p/s, lower than our est. of $30M, or
($0.51) p/s due to slightly higher revenues and lower SG&A expense. We are lowering
our 2004 loss estimate to $110M from $122M, slightly above guidance of cash burn
around $100 million. We are also introducing a 2005 loss estimate of $125M or ($1.92)
p/s. Multiple data points are expected in 2004. An interim analysis is expected in
mid-2004 of an ongoing Phase II/III trial with T67 for primary liver cancer. Phase II data
points are expected with T487 for psoriasis and rheumatoid arthritis, T131 for Type II
diabetes, and T607 for multiple cancers. Clinical studies with obesity agent T71 should
begin Q1. We also look for one to two IND submissions in 2004. Management maintains
its goal of a partnership for T131, potentially in Q1. We maintain our IL rating for long-
term investors. Tularik is a development-stage company. Key risks include potential
clinical failures, long development timeframes, potential need for additional capital. Our
coverage view remains Neutral.
INVESTMENT OUTLOOK: Tularik is focused on developing novel oral agents to
address multiple diseases that represent large commercial opportunities. While the most
advanced agents are in the oncology area, we believe some of the more promising
candidates are in early clinical and preclinical development. Several of these candidates
may represent first in class therapeutics. Tularik maintains its goal of filing 1-2 new INDs
per year. Tularik is a development stage company most suitable for investors with a
long-term time frame and high risk tolerance.
FINANCIAL RESULTS AND ESTIMATES: Tularik reported a fourth quarter net loss of $25.5
million or ($0.40) per share, compared to our forecast of a loss of $30.0 million or ($0.51) per
share. The difference was mainly due to slightly higher revenues, $10 million vs our $7 million
estimate and slightly lower than expected SG&A expense, $3 million vs our $5 million estimate.
We are revising our 2004 loss estimate to $110 million from $122 million, slightly above
management's guidance of cash burn around $100 million. We maintain our 2004 revenue forecast
of $32 million, in the range of management's guidance of $30-$35 million. We are also introducing
a 2005 loss estimate of $125 million or ($1.92) per share, although management has not yet issued
2005 guidance. We have assumed slightly declining revenues, which may be conservative as we
expect new collaborations, expansion of existing collaborations and milestone payments. We have
assumed $15 million in R&D expenses, which will depend on the number of candidates advancing
in the clinic. Tularik ended the year with $200.4 million in cash and marketable securities, including
$12.2 million of cash from Cumbre, a majority owned subsidiary.
I. CLINICAL DEVELOPMENT PROGRAMS
** T67 for primary liver cancer - interim analysis mid-2004 **
An interim analysis of Tularik's Phase II/III study with T67, a beta tubulin binder, for the treatment
of primary liver cancer is expected mid- year. Over 100 patients have been enrolled. The analysis
will be conducted by a data monitoring committee (DMC). The DMC will analyze safety and
clinical endpoints including survival and response rates. While it is possible that the trial could be
stopped early if efficacy data support it, we think it is more likely that the full study is conducted.
Tularik initiated the Phase II/III study, which will involve about 750 patients, in March 2003. The
primary endpoint is survival. Patients will be treated with either T67 or the current standard of care,
doxorubicin, as first line therapy. Both agents are administered by IV infusion. The trial will be
performed at centers in the US, Europe and Asia. If data from the full trial are positive, we believe
that potential approval could occur in 2006/2007. Given lack of strong evidence of efficacy in
Phase II studies we believe this program is risky. However, we believe that T67 would be
approvable with a modest improvement in survival. The average survival period for patients
diagnosed with primary liver cancer is estimated at 6 months. The study is designed to detect an
improvement of six weeks ( roughly 25%) in survival over the doxorubicin arm. We would also
expect potential safety advantages relative to doxorubicin, particularly with respect to white blood
cell and platelet suppression, cardiovascular profile and other side effects.
** T607 for solid tumors - data expected at ASCO
Behind T67, Tularik is studying T607, an analog of T67 designed not to cross the blood brain
barrier, in cancer. The company began enrolling Phase II studies in July, 2002 for primary liver
cancer, gastric/esophageal cancer and ovarian cancer. While encouraged by liver and gastric cancer
prospects, management has decided not to continue ovarian cancer studies. We look for data to be
presented for liver cancer at ASCO in June. The company may also release data for esophageal and
gastric cancer around mid- year. We look for a discussion of likely next steps potentially in mid-
2004.
** T487 - Phase IIa for psoriasis underway, RA in 1Q04 **
Tularik is conducting studies with T487, an oral anti-inflammatory agent with potential application
in multiple inflammatory disorders including psoriasis, rheumatoid arthritis, multiple sclerosis,
inflammatory bowel disease and transplant rejection. In December 2003, Tularik announced the
initiation of a Phase IIa, double-blind, placebo-controlled study for psoriasis. The company expects
to initiate Phase IIa studies in rheumatoid arthritis in 1Q 2004. Both studies will enroll
approximately 40 patients with moderate to severe disease and will run for 28 days. The studies are
designed to test safety and to make a preliminary assessment of clinical efficacy. Patients will be
randomized to receive once daily placebo or one of multiple doses of T487.
The primary endpoint in the psoriasis trial will be measured from skin biopsies taken at days 1 and
29, and will assess immune cell infiltration of the affected areas as well as biomarkers of
inflammation. Other measurements of efficacy will include PASI scores and the physician's global
assessment (PGA) of disease activity. In the rheumatoid arthritis study, primary measurements will
be made from infiltration of immune cells as well as inflammatory biomarkers from synovial
biopsies. Other measurements will include ACR20 and a disease activity score (DAS).
T-487 inhibits binding of specific chemokines to lymphocyte receptors, specifically the CXCR3
receptor, and is therefore predicted to inhibit migration of lymphocytes to sites of inflammation.
T487 has shown preclinical activity in transplant rejection. Phase I studies demonstrated that the
drug was well tolerated at all doses tested, and good oral exposure was achieved.
** T131 for Type II diabetes - Phase IIa underway, potential partner**
Tularik has begun blinded, placebo-controlled Phase IIa studies with drug candidate T131 for the
potential treatment of Type II diabetes. The trial is designed to look at safety and to make a
preliminary measurement of efficacy with T131 monotherapy. The study will enroll approximately
60 patients of moderate severity, who have failed diet and exercise, and have fasting blood glucose
(FBG) levels of <240 and HbA1c of >7%. The primary efficacy endpoint will be a reduction in
FBG, and secondary endpoints will measure changes in markers of disease including insulin,
adiponectin, HbA1c, fructosamine and lipids. Phase I studies demonstrated that T131 was well
tolerated at all doses tested, and good oral exposure was achieved.
Because of the large clinical trials required for metabolic diseases, Tularik intends to partner T131
for development beyond the current Phase IIa trial. Management indicated that it could potentially
announce a corporate partner for T131 in the 1Q 2004.
T131 is one of multiple leads, which have been identified with potential application in diabetes.
They target the PPAR gamma receptor, the same target as the glitizone class of diabetes drugs.
Candidates in development may obviate the fluid retention side effects that have been associated
with this class.
** Phase I to start Q1 with T71, a novel oral weight loss agent **
In December 2003 Tularik filed to begin a Phase I study with T71, a potential first in class agent
for weight loss. Although the exact mechanism has not been disclosed, T71 works through the
central nervous system and is thought to lower appetite and increase metabolic rate.
II. MILESTONES ACHIEVED WITH COLLABORATORS
** Amgen - two milestones from significant alliance **
In May 2003, Tularik and Amgen entered a five-year collaborative agreement to discover, develop
and commercialize cancer therapeutics. Under the collaborative agreement, Amgen will gain
exclusive worldwide commercialization rights to drugs related to a certain portion of the existing
and to-be-discovered oncogenes, while Tularik retains rights to others. Tularik also retains an
option to co-promote certain drugs in the US, which are developed by Amgen. Tularik has
discovered roughly 35 oncogenes from its discovery platform, and we believe there are more to be
discovered. The oncogenes consist of cell surface as well as intracellular proteins which can be
inhibited, respectively, with antibodies and small molecules, or in some cases by either.
Under the terms of the collaboration, Amgen will pay Tularik up to $21 million in milestone
payments per target, plus a total of $125 million in committed funding over the five year period.
Amgen will also pay royalties to Tularik on potential product sales. The committed funding
includes $50 million in research funding over five years. Amgen has purchased $35 million in
newly issued shares of Tularik at $10 per share, and will purchase an additional $40 million in
newly issued stock at market prices over the next three years.
In 2003, Tularik earned two milestone payments for Amgen's selection of two compounds for
optimization. Each compound is directed at a different target identified from Tularik's oncology
database.
** Eli Lilly - Phase II studies with Factor Xa inhibitor.
Tularik earned a milestone payment with Eli Lilly's initiation of Phase II studies with an oral Factor
Xa inhibitor, in development for the potential acute and chronic treatment of disorders resulting
from blood clots. Tularik is entitled to additional milestones if the candidate advances in the clinic
and potential royalties if it is commercialized.
** Sankyo - selects Orphan G-Protein receptor target **
Tularik and Sankyo are collaborating on targets to Orphan G-Protein re
ceptors. Sankyo has selected a lead compound for further development. The companies would
share clinical development costs and potential profits for any compounds commercialized in the
U.S. and Europe.
III. Milestones in 2004
Tularik expects to file one to two new INDs or IND equivalents on new chemical entities (NCEs)
in 2004. A number of oral compounds have been selected as advanced preclinical candidates. In
the immunological/inflammatory category, T6204, which targets the IL-1/TNF pathway, has
shown preclinical efficacy in animal models of ulcerative colitis and collagen-induced arthritis.
Two candidates target metabolic disorders, including T659 is an oral agent, which increases HDL
cholesterol.
===== 2004 Milestones =====
- Potential new pharmaceutical alliances
- File up to 2 INDs, potentially 1-2 each year going forward
H1
- Interim analysis of Phase II/III trial with T67 for primary liver cancer-
Potential corporate partnership for T131
- Present Phase II results of T131 for Type II diabetes
- Present Phase II results of T607 for primary liver cancer, June 2004 at
ASCO
- Present Phase II results of T607 for gastric and esophageal cancer
- Initiate Phase IIa studies with T487 for rheumatoid arthritis
- Initiate Phase I studies with T71 for obesity
H2
- Announce Phase IIa results of T487 for psoriasis
- Announce Phase IIa results of T487 for rheumatoid arthritis
* = Milestone attained
I, Meg Malloy, hereby certify that all of the view |
