GS report:
Stock rating: In-Line
Coverage view: Neutral
Small-Cap Growth
Price: US$11.20
July 16, 2003
TLRK (IL/N): 2Q 2003 Results in line,
clinical programs on track
TLRK reported Q1 2003 loss of ($0.53), in line with our estimate, and higher than
consensus est. of ($0.48). We are maintaining our 2003 estimated loss of $110 million.
EPS for 2003 is changed to ($1.91) from ($1.92) based on a higher share count. In the
quarter, the company formed a significant collaboration with Amgen, centered on
Tularik's oncogene discovery platform. 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, need for additional capital and negative investment sentiment toward early
stage companies.
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 first quarter net loss of
$30 million or ($0.53) per share, in line with our estimates. We maintain our estimates for a loss of
$110 million and $122 million in 2003 and 2004, respectively. We have assumed flat revenues from
2002 to 2003, which may be conservative as we expect new collaborations and expansion of
existing collaborations. We have assumed $124 million in R&D expenses for 2003, which will
depend on the number of candidates advancing in the clinic.
Tularik ended the quarter with $174.2 million in cash and marketable securities, excluding $15.9
million in cash from its subsidiary Cumbre. As part of its collaboration with Tularik, Amgen will
purchase an additional $40 million in newly issued stock at market prices over the next three years.
I. CLINICAL DEVELOPMENT PROGRAMS
** T67 for primary liver cancer - pivotal study initiated in March **
Tularik's most advanced programs are in the oncology field. The company initiated Phase II/III
studies in March 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 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.
** T607 for solid tumors **
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 hepatocellular
carcinoma, gastric/esophageal cancer and ovarian cancer. We look for top line results potentially in
late 2003.
** T487 for inflammatory disorders **
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.
** T131 for Type II diabetes **
In January, 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.
II. AMGEN ONCOLOGY COLLABORATION
In May, 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 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.
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.
III. 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 that all of the views expressed in this
report accurately reflect my personal views about the subject company or
companies and its or their securities |
