GS take on the quarter:
Stock rating: In-Line
Coverage view: Neutral
TLRK reported Q4 2002 loss of ($0.48), greater than our est. of ($0.45) and consensus
est. of ($0.44). We are revising our 2003 estimated loss to $115 million from $108 million
on lower revenues. Plans to begin pivotal studies with T67 for patients with primary liver
cancer are on track for Q1 2003. In 2003 we look for Phase I data on T-487 and T-131,
top line Phase II data on T607, one to two IND submissions and potential new
partnerships. We maintain our IL/N rating for long-term investors. Tularik is an
early-stage company. Key risks include potential clinical failures, long development
timeframes, likely need for additional capital and negative investment sentiment toward
early stage companies. In addition, Tularik recently filed a registration statement for the
possible resale of up to 11.4 million shares owned by ZKB Pharma Vision AG, which
could put pressure on the shares.
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 $26
million or ($0.48) per share, compared to our forecast of a loss of $24 million or ($0.45) per share.
We are revising our 2003 loss estimate to $115 million from $108 million, slightly above
management's guidance of cash burn around $100 million with non-cash expenses expected to be
around $10 million. We are lowering our 2003 revenue forecast from $40 million $22 million in
revenues, in the mid-point of management's guidance of $20-$25 million. The upper end of the
revenue range is dependent on potential new partnerships. We are also introducing a 2004 loss
estimate of $132 million or $2.31 per share. We have assumed flat revenues, which may be
conservative as we expect new collaborations and expansion of existing collaborations. We have
assumed a $16 million increase in R&D expenses, which will depend on the number of candidates
advancing in the clinic.
Tularik ended the quarter with $168 million in cash and marketable securities, excluding $19.8
million in cash from Cumbre. Tularik raised $25.7 million through the sale of 4 million shares on
October 17, 2002. The company estimates that they have about two years worth of funding.
However, management plans to leverage its technology with a greater number of collaborations
over the course of the year.
I. CLINICAL DEVELOPMENT PROGRAMS
** Pipeline **
Tularik's most advanced programs are in the oncology field. The company plans to start pivotal
studies in Q1 2003 with T67, a beta tubulin binder, for the treatment of primary liver cancer. Phase
II study results were presented at ASCO in May 2002. Tularik plans to study the primary endpoint
of survival in approximately 750 patients who 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 6-month survival.
Behind T67, Tularik is studying T607, an analog of T67 designed not to cross the blood brain
barrier, in cancer. 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 began enrolling in July, 2002. We look for top line results potentially in late 2003.
Phase I clinical trials are underway with a novel compound, T487, an oral anti-inflammatory agent
with potential application in rheumatoid arthritis, inflammatory bowel disease and psoriasis. The
trial will be conducted in the UK and will investigate the safety and pharmacokinetic profile of the
small molecule in up to 30 healthy adults. The compound 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.
On January 27, 2003, Tularik announced it has begun Phase I studies with T131. The compound 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, anemia, and weight gain side effects that have been
associated with this class. Preclinical studies showed that animals treated with T131 did not
demonstrate heart enlargement, anemia or weight gain.
Tularik also announced that Merck has initiated Phase I studies, for the potential treatment of
HIV/AIDS, with a compound resulting from collaborative research between the two companies.
The compound inhibits the HIV integrase enzyme, which is required for viral replication after the
virus has infected the blood. In addition to the viral protease and reverse transcriptase enzymes,
integrase is the third HIV enzyme required for viral replication. Inhibition of integrase would
represent a novel mechanism for HIV treatment.
II. Milestones in 2003
Tularik expects to file one to two new INDs or IND equivalents in 2003 and a like amount per year
thereafter. The company has currently selected six oral compounds 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. T659 is an oral agent, which increases HDL
cholesterol, and T792 is an oral agent that acts through the central nervous system to effect weight
loss.
III. Risks
Key risks include potential clinical failures, long development timeframes and need for additional
capital. In addition, Tularik recently filed a registration statement for the possible resale of up to
11.4 million shares owned by ZKB Pharma Vision AG, which could put pressure on the shares.
===== 2003 Milestones =====
- Potential new pharmaceutical alliances
- File up to 2 INDs in 2003, potentially 1-2 each year going forward
H1
* Initiate Phase I studies with T131 in healthy volunteers
- Initiate pivotal studies with T67 in patients with primary liver cancer
H2
- Announce top line Phase II results for T607
- Present Phase I results for T487 and begin Phase IIa studies
- Present Phase I results for T131 and begin Phase IIa studies
* = Milestone attained |
