Wachovia's take:
TELK: Initiates Pivotal Study Of TLK286 In Ovarian Cancer
2003-03-27 09:07 (New York)
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### ### WACHOVIA SECURITIES ### ###
March 26, 2003
TELK: Initiates Pivotal Study Of TLK286 In Ovarian Cancer: Timing As
Expected, No Change To Estimates
Company Note
Telik, Inc. (TELK-NASDAQ) Stock Rating: OUTPERFORM
Price: $12.37 Leah Rush Cann / (212) 891-5088
52-Wk. Rng.: $16-8 David Garrett / (212) 909-0969
Shares Out.:(MM) 35.5 Vanessa A. Rath / (212) 909-0952
Market Cap.:(MM) 439.1
[HI
EPS 2002A 2003E 2004E REV.2003 2004
FY(Dec.) Current Prior Current Prior Current Prior
Q1(Mar.) ($0.19) NC ($0.35) NC ($0.39) NC $0.3MM $0.3MM
Q2(June) (0.33) NC (0.39) NC (0.43) NC 0.3 0.3
Q3(Sep.) (0.28) NC (0.27) NC (0.46) NC 5.3 0.3
Q4(Dec.) (0.36) NC (0.29) NC (0.47) NC 5.3 0.3
Full FY ($1.17) NC ($1.29) NC ($1.75) ($1.74) $11.0MM $1.0MM
FY P/E NM NM NM
Full CY ($1.17) NC ($1.29) NC ($1.75) ($1.74)
CY P/E NM NM NM
]
Source: Company data and Wachovia Securities estimates.
NA = Not Available, NC = No Change; NE = No Estimate; NM = Not Meaningful
Float:(MM) 30.0 LT Debt: $0.0
Avg. Daily Vol.: 267,790 LT Debt/Total Cap.: 0.0%
S&P 500: 869.95 ROE: NM
Div./Yield: $0.00/0.0% 3-5 Yr. Est. Grth. Rate: NM
CY2003Est. P/E-to-Grth.: NM
Key Points
* Telik announced the enrollment of the first patient in a pivotal trial for TLK
286, the company's small molecule drug candidate being developed for the
treatment of ovarian cancer.
* The timing of this initiation is in line with our expectations and company
guidance.
* Based on the announcement, we are making no changes to our estimates and
maintain our Outperform rating.
* In addition to the Phase III ovarian cancer trial, we expect Telik to initiate
a Phase III trial of TLK 286 in second-line, non-small cell lung (NSCLC) cancer
patients in late H2 2003. Based on the timing of these trials, we estimate that
TLK286 could start contributing to revenue in 2006.
* Further details on the ovarian cancer trial design and our expectations for
commercialization are given within this note.
Valuation Range: $23 to $32
The first-tier biotechnology companies, as a group, historically trade at a
price-to-estimated one-year forward revenue multiple of 11x. If we apply this
revenue multiple to Telik's 2007 estimated revenue of $205.4 million, we arrive
at a 2006 valuation per share of $62. Discounting this at 25% per year, we
arrived at a 12-month valuation of $32 per share. With the initiation of Telik's
Phase III trial in refractory ovarian cancer in late Q1 2003, we believe a
discount rate of 25% is appropriate to Telik's phase of development. However, we
continue to believe the greatest near-term risk to Telik's stock is the timely
enrollment of this trial. If the trial is delayed, we believe the appropriate
discount rate would be 40%, in order to reflect increased risk. Under this
scenario, we estimate Telik's stock would be worth $23 per share by the end of
2003.
Investment Thesis
In our opinion, Telik is lead by an excellent management and clinical
development team, with a proven industry track record. We believe the company's
promising new therapy, TLK 286, an experimental treatment for patients with
colorectal, ovarian and non-small cell lung cancer, will offer a viable
treatment option for patients and oncologists with few alternatives. If FDA
approved, we expect TLK 286 to gain rapid adoption, driving strong revenue and
earnings growth for Telik.
Investment Conclusion
We believe the best valuation model for late-stage, unprofitable biotechnology
companies is a one-year forward multiple, based on the price/revenue of the
commercial, profitable biotechnology companies. The first-tier biotechnology
companies, as a group, historically trade at a price-to-estimated one-year
forward revenue multiple of 11x. If we apply this revenue multiple to Telik’s
2007 estimated revenue of $205.4 million, we arrive at a 2006 valuation per
share of $62. Discounting this at 25% per year, we arrived at a 12-month
valuation of $32 per share.
With the initiation of Telik’s Phase III trial in refractory ovarian cancer in
late Q1 2003, we believe a discount rate of 25% is appropriate to this company’s
phase of development. However, we continue to believe the greatest near-term
risk to Telik’s stock is the timely enrollment of this trial. If the trial is
delayed, we believe the appropriate discount rate would be 40% rather than our
estimated 25% in order to reflect increased risk. Under this scenario, we
estimate Telik’s stock would be worth $23 per share by the end of 2003.
On the basis of our perceived risk/reward for this stock, we maintain our Buy
rating, with a 12-month valuation range of $23-32 per share.
Discussion
Telik announced the enrollment of the first patient in a pivotal trial for
TLK286, the company’s small-molecule drug candidate being developed for the
treatment of ovarian cancer. The timing of this initiation is in line with our
expectations and company guidance. Based on the announcement, we are making no
changes to our estimates.
Designated ASSIST-1 (ASsessment of Survival In Solid Tumors-1), the trial
intends to enroll 440 patients at between 80-100 sites in the U.S. and Europe,
over a 15-month period. Participants will have failed 1-2 courses of platinum
and paclitaxel front-line combination chemotherapy, followed by failure of
second-line, single-agent Doxil or topotecan chemotherapy. Therefore, trial
participants will be third-line. Fifty percent of patients in this trial will be
randomized to TLK 286 and 50% will be randomized to a Doxil/topotecan control
arm. Based on the literature, survival for third-line patients receiving Doxil
or topotecan is typically 36-41 weeks. TLK 286 will be administered once every
three weeks. Patients will receive Doxil or topotecan based on which of these
two drugs they did not receive in the second-line setting. The trial will be
designed to detect a 40% improvement in survival, the FDA agreed upon primary
endpoint. The secondary endpoint is time-to-progression (TTP) and the tertiary
endpoint is objective response rate (ORR), as measured by RECIST criteria for
tumor response. The FDA is allowing Telik to take three interim analyses to
evaluate statistically significant TTP or survival. This could lead to
accelerated approval.
Expectations for Commercialization
In addition to the Phase III ovarian cancer trial, we expect Telik to initiate a
Phase III trial of TLK 286 in second-line, non-small cell lung (NSCLC) cancer
patients in late H2 2003. Based on the timing of these trials, we estimate that
TLK286 could start contributing to revenue in 2006. We estimate that nearly
9,000 patients could receive the drug in 2006, and nearly 19,000 patients could
receive it in 2007. Using an estimated price of approximately $11,000 for a
course of therapy, we estimate TLK286 sales at $98 million in 2006 and $204.4
million in 2007. This price is consistent with current pricing on
standard-of-care chemotherapy. Market penetration is estimated at 4.8% for
refractory ovarian cancer patients in 2006, and 7.5% in 2007. Market penetration
is estimated at 1.5% for refractory NSCLC patients in 2006 and 2.8% in 2007.
TK286
TLK286 is a small molecule drug candidate developed through Telik’s
chemogenomics (TRAP) technology. TLK286 has been studied in Phase II trials for
breast, colorectal, non-small cell lung and ovarian cancer, and the drug is
currently being tested in a Phase III trial for advanced ovarian cancer. TLK286
is described as a novel glutathione derivative of an alkylating agent that is
preferentially activated by the enzyme glutathione S-transferase (GST P1-1).
Therefore, TLK286 has a novel mechanism of action that targets tumors that
overexpress glutathione S-transferase (GST P1-1) and reacts within the cell.
This enzyme plays an important role in drug detoxification and has been
implicated in mediating cellular resistance to several classes of anticancer
therapy, leading the development of resistance to commonly used chemotherapeutic
drugs. TLK286 reacts with GST P1-1 and becomes cytotoxic when encountering a
glutathione S-transferase enzyme (GST P1-1). GST P1-1 is overexpressed in many
solid tumors. TLK286’s mechanism of activation in tumor cells is believed to be
potentially safer and more effective as a result of its being specifically
directed against cancer drug-resistant tumors.
Background on TLK286 for the Treatment of Ovarian Cancer
Phase II Ovarian Trial. Telik announced on May 29, 2001, that a Phase II trial
of TLK286 had been initiated for the treatment of refractory ovarian cancer
patients. The study was a single arm, open label Phase II trial which enrolled
36 patients with platinum-resistant advanced epithelial ovarian cancer.
Patients were administered TLK286 every three weeks. The objective of the trial
was to determine the efficacy of TLK286 in these patients as measured by the
objective response rate, disease stabilization rate, time-to-tumor progression,
and survival.
This study was conducted at Memorial Sloan-Kettering Cancer Center in New York
under the direction of Principal Investigator David R. Spriggs, M.D., Professor
of Medicine, Chief of Developmental Chemotherapy Service, and at the University
of Texas M.D. Anderson Cancer Center in Houston under the direction of Principal
Investigator John J. Kavanagh, M.D., Chief of Gynecologic Medical Oncology.
Telik presented positive results from this trial at the annual meeting of the
American Society of Clinical Oncology in May 2002.
Phase II Ovarian Cancer Data Presented at ASCO 2002. The trial of 36 platinum-
and paclitaxol-resistant (relapsed within 6 months) or refractory (progressed
during treatment) ovarian cancer patients was a single-arm, open-label trial.
Patients were administered TLK286 every three weeks. The objective of the trial
was to determine the efficacy of TLK286 in patients as measured by the objective
response rate, disease stabilization rate, time-to-tumor progression, and
survival.
Thirty-one of the 36 patients were evaluable. There were one complete response
and three partial responses, for an objective response of 13%. These responses
were reported to be durable, with the complete responder currently at 12-13
months. In an educational session held on May 19, 2002, at ASCO, Dr. Gini
Fleming reported that therapies currently used in this setting, paclitaxol and
topotecan, have response rates of 3.0% and 8.8%, respectively. TLK286 was well
tolerated in this trial. There were no grade IV adverse events and infrequent
grade III adverse events. We did not see any other experimental therapies in
this indication at ASCO with data as compelling for safety and efficacy as
TLK286.
Follow-Up Ovarian Cancer Data. At the time of a pre-phase III meeting with the
FDA (September 4, 2002), 34 of the 36 patients were evaluable. There continued
to be one complete response (CR) and four partial responses, for an objective
response of 15%. These responses were reported to be durable, with the complete
responder currently at 16 months. Median survival is greater than 65 weeks.
There were no grade IV toxicities reported and only 3% of patients have dropped
out of the study.
Final Ovarian Cancer Follow-Up Data Presented at EORTC. As of the November 20,
2002, EORTC presentation, 34 of the 36 patients enrolled were evaluable for
response. The overall response rate was 15%, with one complete response and four
partial responses. Thirty-five percent of patients achieved disease
stabilization. Median survival has not been reached at 71 weeks. There are no
grade IV toxicities reported and only 3% of patients have dropped out of the
study.
Ongoing Phase II Trials (Weekly Dosing Schedule & Combination Therapy)
Telik is currently conducting six additional Phase II trials of TLK 286. Three
of these trials employ the use of single-agent, once-weekly dosing schedules in
breast, non-small cell lung, and ovarian cancers. According to Telik, objective
tumor responses, as defined by RECIST criteria, have been observed in all three
of these trials. Each trial is expected to enroll up to 50 patients. We believe
the company may present interim data on these trials in H1 2003, possibly at the
American Society of Clinical Oncology (ASCO) annual meeting in late May.
We view the observation of objective tumor responses in the single-agent,
weekly-dosed, breast and non-small cell lung cancer trials as significant, given
that objective responses in these indications have not previously been observed.
As a reminder, data reported from Telik’s previously conducted Phase II trials
of TLK 286 employed a once every three weeks dosing schedule.
Telik is also currently conducting three trials of TLK 286 in combination with
FDA-approved chemotherapy agents. One of the trials is evaluating the
combination of TLK 286 with Doxil in ovarian cancer patients who have failed
platinum-based chemotherapy. The second trial is evaluating TLK 286 in
combination with carboplatin in patients who have recurrent, platinum-sensitive
ovarian cancer. The third trial is evaluating TLK 286 and Taxotere in non-small
cell lung cancer. Data from these trials could be presented in H2 2003. |
