GS on TLRK/AMGN: Stock rating: In-Line
Coverage view: Neutral
Small-Cap Growth
Price: US$6.34
May 21, 2003
TLRK (IL/N): Amgen - a 20% equity stake &
cancer alliance, major plus
Stock Data
52-Week Range US$10-4
YTD Price Change -15.01%
Market Cap US$350.7mn
Tularik and Amgen announced this morning the formation of a 5-year collaboration for
cancer therapeutics. The collaboration with Amgen provides a much needed cash
infusion, eliminates the overhang of ZKB shares and provides a top strategic partner in
oncology. Amgen has agreed to pay a total of $125 million in committed funding over 5
years and up to $21 million per target, plus potential royalties. Amgen has agreed to
purchase 6M shares of outstanding stock, plus an additional 3M following Hart Scott
Rodino approval, from ZKB Pharma Vision AG. With this deal and revised guidance,
management estimates that they have at least 2 yrs of funding in place. On higher
revenues, we are revising our 2003 estimated loss to $110 million from $115 million, and
our 2004 loss estimate to $122 million from $132 million.
INVESTMENT OUTLOOK: We maintain our IL/N rating for long-term investors.
Tularik is an early-stage company. While we do not foresee near-term milestones that may
drive interest in the shares, we believe that Tularik has developed a novel platform with
unique drug targets for the long-term development. 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. Key risks include potential clinical failures, long
development timeframes, need for additional capital and negative investment sentiment toward
early stage companies.
I. ONCOLOGY COLLABORATION
Tularik and Amgen announced they have 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 30 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.
II. TERMS OF COLLABORATION - $125M IN COMMITTED FUNDING
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 will also purchase $35 million in
newly issued shares of Tularik at $10 per share, and an additional $40 million in newly issued stock
at market prices over the next three years.
In addition, Amgen has agreed to purchase 6 million shares of outstanding stock from ZKB Pharma
Vision, which was an overhang for the company. Following Hart Scott Rodino approval, Amgen
will purchase an additional 3 million ZKB shares.
Importantly, the Amgen collaboration provides a much needed cash infusion, as we estimate Tularik
had about 1 year of funding. With this deal and revised guidance, management estimates that they
have at least 2 yrs of funding in place. The company revised its 2003 guidance of cash burn to
$90M from $100M and revenues to $25-30 million from $20-25 million.
III. CHANGES TO ESTIMATES
On higher revenues, we are revising our 2003 estimated loss to $110 million from $115 million, and
our 2004 loss estimate to $122 million from $132 million. On higher revenues and increased share
count, we are adjusting our 2003 EPS to ($1.92) from ($2.07), and 2004 to ($2.07) from ($2.31).
We are increasing our revenue estimates to $25 million from $22 million in 2003, and to $32
million from $22 million in 2004.
IV. OTHER 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.
===== 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
* Announce strategic oncology alliance with Amgen
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
I, Meg Malloy, hereby certify... |
