GS: TLRK (IL/N): 3Q 2003 Results in line, early
clinical progress
52-Week Range US$12-4
YTD Price Change 47.45%
Market Cap US$649.4mn
2002 2003E 2004E
US$-1.83 US$-1.91 US$-2.07
TLRK reported Q3 2003 loss of ($0.44), better than our estimate ($0.47), and consensus
est. of ($0.46). We are maintaining our 2003 estimated loss of $110 million and EPS of
($1.91). In the quarter, the company earned two milestones from its collaboration with
Amgen. The company also announced it has completed Phase I studies with drug
candidates T- 487 and T-131 and both agents were well tolerated at all doses tested. For
the remainder of 2003 we look for top line Phase II data on T607, one to two IND
submissions and potential new partnerships. We maintain our IL rating for long-term
investors. Tularik is an early-stage company. Key risks include potential clinical failures,
long development timeframes, potential 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: TLRK reported Q3 2003 net loss of $25.9 million or ($0.44) per share, better than our estimate $28 million or ($0.47), and consensus est. of
($0.46). We maintain our estimates for a loss of $110 million and $122 million in 2003 and 2004,
respectively. We have assumed $124 million and $140 million in R&D expenses for 2003 and
2004, respectively, which will depend on the number of candidates advancing in the clinic. Tularik
ended the quarter with $155 million in cash and marketable securities, excluding $14 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 and
discussion of likely next steps potentially in late 2003/early 2004.
** T487 - Phase IIa for psoriasis to begin in 4Q, RA in 1Q04 **
Tularik announced that Phase I studies have been completed with a novel compound, T487, an oral
anti-inflammatory agent with potential application in rheumatoid arthritis, inflammatory bowel
disease and psoriasis. Management indicated that the drug was well tolerated at all doses tested,
and good oral exposure was achieved.
Tularik expects to initiate Phase IIa, double-blind, placebo-controlled studies for psoriasis in 4Q
and for rheumatoid arthritis in 1Q 2004. Both studies will enroll approximately 40 patients with
moderate to severe disease and will run for 28 days. The studies are designed to test safety and to
make a preliminary assessment of clinical efficacy. Patients will be randomized to receive once
daily placebo or one of multiple doses of T487.
The primary endpoint in the psoriasis trial will be measured from skin biopsies taken at days 1 and
29, and will assess immune cell infiltration of the affected areas as well as biomarkers of
inflammation. Other measurements of efficacy will include PASI scores and the physician's global
assessment (PGA) of disease activity. In the rheumatoid arthritis study, primary measurements will
be made from infiltration of immune cells as well as inflammatory biomarkers from synovial
biopsies. Other measurements will include ACR20 and a disease activity score (DAS).
T-487 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 - Phase IIa to begin in 4Q **
The company announced it completed Phase I studies with drug candidate T131 for the potential
treatment of metabolic disorders. Management indicated that T131 was well tolerated at all doses
tested, and good oral exposure was achieved. Tularik plans to initiate a Phase IIa, blinded, placebo-
controlled trial for Type II diabetes in 4Q 2003. The trial is designed to look at safety and to make
a preliminary measurement of efficacy with T131 monotherapy. The study will enroll
approximately 60 patients of moderate severity, who have failed diet and exercise, and have fasting
blood glucose (FBG) levels of 7%. The primary efficacy endpoint will be a reduction in FBG, and
secondary endpoints will measure changes in markers of disease including insulin, adiponectin,
HbA1c, fructosamine and lipids.
T131 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 - Milestones achieved in 3Q
In the 3Q, Tularik announced that it had earned two milestone payments for Amgen's selection of
two compounds for optimization. Each compound is directed at a different target identified from
Tularik's oncology database.
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 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 Mil
estones ===== - 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 |
