Telik: Promising results, risky play
Triumverate of cancer studies considered 'most risky' biotech move of 2006.
By Aaron Smith, CNNMoney.com staff writer
January 19, 2006: 12:06 PM EST
NEW YORK (CNNMoney.com) - A small California company is getting ready to make what could be the riskiest biotech play of the year.
Telik, a Palo Alto-based biotech specializing in potential cancer treatments, has drawn "buy" ratings from analysts, despite consensus projections of a 49 percent plunge in fourth quarter sales.
"Out of all the events that are going to happen this year in biotech, this is probably the most risky," said Dallas Webb, analyst for Stanford Financial Group with a "buy" rating for Telik. "But some of the risk is mitigated due to the fact that we're expecting data from all three of the trials at the same time. So you got three shots on goal."
Like many small biotechs, Telik (up $0.12 to $18.78, Research) isn't making money. Yet. But Telik's pipeline, and its anticipated release of experimental drug data this year at the American Society of Clinical Oncology conference in June, has raised eyebrows in the analyst community. The ASCO conference is one of the most closely watched for new drug data.
Do or die?
Telik is expected to release phase 3, or late-stage, data for three separate studies regarding its lead pipeline candidate and potential cancer drug Telcyta. The biotech will release two Telcyta studies for the treatment of ovarian cancer, and a third study for non-small cell lung cancer. All the trials involve patients whose previous cancer treatments, with other drugs or methods, had failed.
Analysts say the company will release all the data at the same time. If the company has at least one successful study, then it could possibly lead to a lucrative product, or products, in a booming market. Driven by aging baby boomers, cancer drug sales are expected to reach $55 billion in 2009, more than double the 2004 tally of $24 billion, according to IMS Health, the British research firm. Ovarian cancer killed 16,000 women in America in 2005, and 164,000 Americans died from lung cancer, according to estimates from the American Cancer Society.
Brian Rye, analyst for Janney Montgomery Scott with a "buy" rating for the company, said that in earlier tests Telik demonstrated "encouraging phase 2 data and solid safety profile." Rye expects Telcyta to be filed to the Food and Drug Administration this year for at least one indication, to be approved within six months as a "fast track" cancer drug, and to enter the market in the first quarter of 2007. Rye projects $120 million in Telcyta sales for 2007, growing to $500 million in annual sales by 2010.
Mark Monane, analyst for Needham and Co., is also impressed by data from the biotech's earlier studies and has rated Telik a "strong buy" with a 12-month price target of $33, a jump of at least 80 percent from its current price.
"They've taken their core technology and translated it into products," said Monane, referring to the biotech's molecular screening method for discovering new drug compounds. "The three most important things in biotech are product, product and the third would be product."
But Soham Pandya, analyst for Susquehanna Financial Group, has rated Telik "neutral" because so much is riding on their phase 3 studies.
"We don't have much visibility right now on the outcome of these phase 3 trials, and given that it's a major event for the company, I think that [the neutral rating] is appropriate,"said Pandya.
So what happens to Telik if its phase 3 data for Telcyta falls flat?
Webb, the analyst for Stanford Financial Group, said Telik's stock price would be "cut in half" if its late-stage Telcyta data fails to impress.
But Rye, the analyst for Janney Montgomery Scott, said that all is not lost if the Telcyta data disappoints. Rye said that Telik would get another chance at putting a product on the market with Telintra, which is currently in phase 2 clinical trials and is therefore not as advanced as Telcyta trials. Phase 3 studies for Telintra could begin this year. Telintra is being investigated as a possible treatment for myelodysplastic syndrome, a form of pre-leukemia in which bone marrow fails to produce enough red blood cells, white blood cells or platelets.
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