here are some answers: lehman's birchenough has a $ 3 target, with limited analysis; pru's zhang has a $ 3.50 target, analysis below. - - sales
HIGHLIGHTS
• Telik's conference call did not provide additional insight into the spectacular failures of ASSIST-1, -2
and -3. Management suggested that more analysis needs to be done to further understand the data and
would report the analysis at medical meetings.
• We don't see any residual value from the data of any of the three trials in terms of Telcyta's approval.
We are also not optimistic about the company's pipeline, mainly consisting of Telcyta and Telintra.
Telintra is still in the early stages of development for MDS, an increasingly crowed market.
• The next meaningful catalyst of the stock is the release of data from an ongoing Phase II study of a
triplet combination containing Telcyta in first-line non-small cell lung cancer, possibly in June next
year at ASCO. We believe that data will be less robust than previously reported based on lowered
Telcyta dose and the less than stimulating results revealed today. Also, investors will likely be
skeptical of any Phase II, uncontrolled, combination study results given the failures of the three trials
today, presumably on the heels of "positive" Phase II results seen before for Telcyta.
• We have lowered our price target to $3.50, based on an estimated cash of about $130 million at the
end of '06, and technology value of $53 million on Telintra.
DISCUSSION
Any hope of Telcyta being approved based on data from any of the failed three trials should be put
to rest.
Given that the ASSIST-1 and ASSIST-2 trials have special protocol agreement (SPA) with the FDA and
the primary end point was survival, a positive outcome of any of these two trials would make the approval
Telik, Inc.
December 26, 2006 TELK (NASDAQ)— $4.87
Prudential Equity Group,
LLC Research
C o m p a n y U p d a t e C o m p a n y U p d a t e C o m p a n y U p d a t e
Telik, Inc.
Zhang
Prudential Equity Group, LLC Àz One New York Plaza Àz 15th Floor Àz New York, NY 10292
2
process quite smooth. However, both trials failed to show any survival benefit derived from the drug as
compared to the controls. At this point, we are not even sure if there are hints of better activity, such as
response or progression free survival (PFS). Management did mention there was objective response
observed in all three trials, suggesting that single agent Telcyta did show responses in end stage patients.
Whether there were any differences of response rate comparing Telcyta to the comparator drugs in both
trials is not known. However, we would be very skeptical that there are any real differences of responses
between treatment arms in these trials. Even if there were some difference, the lack of survival is a pretty
big negative hurdle for the FDA to approve a new and likely expensive drug.
Before the data was released, we believe there were a large number of people on the Street focusing on
the outcome of ASSIST-3, hoping that a significant difference of objective response rate from Telcyta and
carboplatin would beat the control drug Doxil, leading to the drug’s approval. We argued that a high
response was not guaranteed because the company never reported complete data from their Phase II trials.
Furthermore, we doubted that response rate data was good enough for approval, given that the company
did not have a SPA with the FDA. We noted that also the lack of single agent Telcyta arm diminishes the
value of response from a combination study. Not only did the company fail to show the expected “high”
response rate, but any data from this trial is significantly diluted because 25% of patients prematurely
discontinued treatments. At this point, we assume the two arms did not have much difference in terms of
response rate¯the company would have stated so if there were signs of differences in response rate¯and
therefore the hope of a Telcyta approval could be close to zero.
Any value of Telcyta and the company’s pipeline?
Although the company insisted on continued development of Telcyta, we think the opportunities are very
limited. As stated, ASSIST-5, a trial in which Telcyta in combination with Doxil is comparing to Doxil
alone is still on going. But a possible protocol change could delay the trial and also diminish the value of
the data. A single arm Phase II study testing Telcyta, Taxol and carboplatin has just finished patient
enrollment in the third quarter this year. As previously reported, the triplet combination yielded very high
responses. However, we noticed a previous high dose caused higher than expected thromboembolisms
(~25%) that was not expected with carboplatin and Taxol. Therefore, the dose of Telcyta has been
lowered and response of that lowered dose has never been reported. So we could see a much lower
response from this Phase II trial as compared to previously announced preliminary data. Furthermore, it
becomes very obvious to investors that single arm Phase II trials could be too biased in favor of
experimental drug, leading to false hope. A prime example of this can be found in ASSIST-2, where the
“good” Phase II Telcyta results from a single arm trial vanished in outcomes of the larger, comparator
Phase III trial. We therefore do not think the Phase II, triplet combination results could have the positive
impact on Telik stock that they might have had prior to today.
Telintra is another drug the company is actively developing for MDS, which is becoming a very crowded
space. Three drugs are already approved in the U.S., including Pharmion’s Vidaza, MGI’s Dacogen and
Celgene’s Revlimid. So far the data shown with Telintra IV is on improvement of cell lines, whereas
both Vidaza and Dacogen have shown true clinical responses. The company is also developing a tablet
form of Telintra for chemotherapy-induced neutropenia, currently in pre-clinical development. Without
showing solid clinical data from the IV form Telintra and too early to see data from the tablet, we are
unconvinced that this drug would become a commercial success in a very competitive environment.
Telik, Inc.
Zhang
Prudential Equity Group, LLC Àz One New York Plaza Àz 15th Floor Àz New York, NY 10292
3
The company reported loss of about $20 million in the third quarter this year and about $152 million at
the end of 3Q. We estimate that the company could end up the year with $130 to $135 million, or about
$2.50 per share. As a result of the data from ASSIST-1, -2 and -3 we see no reason to believe that
Telcyta has any significant chance to be approved now or in the future. If the company drops the
development of Telcyta and focus on Telintra, the cash may be good for more than a year. But any value
appreciation of the drug would have to wait until Phase II of the tablet form or better of the IV form. We
therefore value the company based on its current cash value and believe the stock still has downside risk
before the report of the Phase II NSCLC data, possibly at ASCO next year in June.
Valuations and Risks
We value the company based on the company’s cash, which we estimated to be around $130 million by
the end of the year. We previously valued Telcyta at about $510 million, which is eliminated from our
model and Telintra at $53 million, or $1 per share. We believe the cash and Telintra together is worth
about $3.50 per share.
Risks to our investment thesis include speculation about any of the company’s clinical trial results and the
progress of Telintra in future clinical trials. |
