From GS:
TLRK reported Q2 op EPS of ($0.41), lower than our ($0.45) est on lower R&D exp. We modestly increased our loss assumption for ’02 to $93MM from $90MM, based mainly on lower interest inc. Our EPS est goes to a loss of $1.83 per share from $1.73 per share on a lower est yr-end share count.
Milestones in 1H02 include presentations at ASCO of Phase II data for T67 & T64 & Phase I data for T607, all in cancer, init’n of 2 add’l Phase II transplant trials w/ anti-CMV compound T611. TLRK plans to file 2-3 new IND’s in ’02.
Although the clin pipeline is steadily advancing, TLRK is at an early development stage, and we think most suitable for investors w/ a long time horizon. We reit our MO rating.
I.INVESTMENT OPINION & OUTLOOK
Tularik has developed a broad and diversified pipeline of candidates and therapeutic targets to address multiple diseases that represent large commercial opportunities. While the pipeline is at an early stage, many candidates in preclinical development may represent first in class drugs.
While we do not expect all candidates to be successful in clinical studies, only a few candidates need to be successful in order to create significant commercial value, long-term. Given the early stage of Tularik’s pipeline,
we believe it is premature to apply a net present value, or discounted earnings valuation. On a relative valuation basis, Tularik is trading within the range of other companies with platform technologies and related
product focus. Tularik’s strong platform, management, emerging pipeline and broad commercial rights set the stage well for long-term growth.
II. FINANCIAL REVIEW & OUTLOOK - INCREASING LOSS ESTIMATES BY $3MM
** Revenues **
Revenues for the quarter were $6.2 million, slightly below our $6.5 million estimate. We are maintaining our $28 million forecast for 2002, which is based on established and new potential contract agreements.
** Expenses **
R&D expenses of $25.2 million were lower than our $27.8 estimate and down 6% from the prior quarter. We have lowered our R&D expense assumption for the year to $112 from $115 million. SG&A expenses of $2.7 million were
below our $3.6 million. We have lowered our SG&A assumption for the year to $13 million from $15 million.
** Other income **
Interest income of $1.2 million came in below our $2.0 million estimate. We are lowering our net interest income estimate for the year to $6 million from $13 million.
** EPS estimates revised **
Based on the changes outlined above, we are increasing our loss estimate for the year by $3 million to $93 million. Our EPS estimate goes to ($1.83) from ($1.73) based on a lower estimated year-end share count of 50.8 million, versus our prior estimate of 52 million.
II. CLINICAL DEVELOPMENT PROGRAMS
** Oncology **
Tularik’s most advanced programs are in the oncology field. Phase II studies have been conducted for T67, a beta tubilin binder developed in house, and T64, an anti-folate compound licensed from Eli Lilly. Data available so far has been limited. Results from some of the Phase II studies will be presented at the 2002 annual meeting of the American
Society of Clinical Oncology (ASCO) in May and will provide a better base from which to assess clinical and commercial potential.
Tularik has announced its intent to pursue Phase III studies with T67 as well as to perform additional trials designed to assess pharmacokinetics, higher dosing, and the effects of a shorter infusion times, to optimize the dose for Phase III studies. The company expects to meet with the FDA in the third quarter to discuss the Phase III study design. Although the total market for similar anticancer compounds exceeds $2 billion, we have not factored potential revenues into our model because of the early development stage of the candidates.
Tularik plans to establish a partner for the development of T64, for which Phase II studies are being completed as first line therapy for non small cell lung cancer, and plans are underway for second line therapy.
Behind T67, Tularik is studying T607, an analog of T67 designed not to cross the blood brain barrier, in cancer. Data from Phase I trials of T607 will also be presented at ASCO in May. The company has selected a dosing regimen for Phase II studies in hepatocellular carcinoma, non-Hodgkin’s
lymphoma, gastric/esophageal cancer, and ovarian cancer. Phase II studies are expected to begin this quarter.
** Infectious disease **
Cytomegalovirus
Tularik is developing T611 for the treatment of cytomegalovirus (CMV). Phase II studies in AIDS patients with CMV infection have begun and the company plans to initiate two Phase II studies in kidney transplant
patients at risk of CMV infection, and one Phase I study in bone marrow transplant patients, by year end. The global market for CMV therapeutics approximates $150-200 million, however, the market could potentially be expanded with agents aimed at prevention in high-risk patients.
III. Preclinical programs: 2-3 new INDs in 2002
Tularik maintains an active research program that has yielded numerous drug targets and small molecule leads. In 2002, Tularik hopes to file two to three new INDs and one to two INDs per year thereafter. The company has currently selected five compounds as advanced preclinical candidates. Two of these will be directed at immunological disorders, including which could include such disorders as transplant rejection, multiple sclerosis, rheumatoid arthritis and inflammatory bowel disease. The other three have been selected for metabolic disorders such as Type 2 diabetes, dyslipidemia and obesity.
IV. NEW COLLABORATIONS
Medarex
In January, Tularik and Medarex announced an agreement in which Medarex will utilize its UltiMAb platform to generate fully human antibodies directed against three oncogene targets discovered at Tularik. This partnership marks the first antibody development agreement for Tularik. The
companies will share certain development responsibilities, costs and commercialization rights. As part of the agreement, Medarex invested $5 million in Tularik equity at $50 per share.
2002 Milestones
- Announce new pharmaceutical alliances
- File up to 3 INDs in 2002, potentially 1-2 each year going forward
H1
* Initiate additional Phase II studies of T611
- Initiate Phase II studies with T607
- Present Phase II results for T67 (ASCO, May)
- Present Phase II results for T64 (ASCO, May)
- Present Phase I results for T607 (ASCO, May)
H2
- Initiate Phase III studies with T64 and/or T67
- Initiate additional Phase II studies with T611
* = Milestone attained |
