GS: We are initiating coverage of Tularik with a Market Outperformer rating.
Tularik has built a unique platform for developing novel, small molecule drugs, based on gene regulation. The company has identified gene regulatory pathways associated with several major therapeutic areas and many candidates in
development may address novel therapeutic targets. While the clinical pipeline is steadily advancing, Tularik is at an early development stage, and we think most suitable for investors with a long time horizon. However, Tularik’s strong platform, pioneering management, emerging pipeline and broad commercial rights set the stage well for long-term growth, in our opinion.
Company profile - focus on small molecule drugs
Tularik’s discovery efforts span seven therapeutic areas, including cancer, inflammation, infectious disease, immune disorders, lipid disorders, diabetes and obesity. Four candidates are in clinical studies, three candidates are
poised for clinical studies in 2002, and over 20 lead therapeutic targets have been identified. Tularik has retained commercial rights to most of its programs
and has established alliances with Roche Biosciences in the inflammation area and Japan Tobacco in the metabolic disease area.
The disease pathway approach - potential first in class targets
While the elucidation of the human genome in 2000 marked a watershed event for the industry, Tularik has been focused on gene-based drug discovery since its inception in 1991. While many companies today are developing gene based medicines, Tularik’s early focus on developing an integrated discovery platform around specific, commercially relevant gene regulatory pathways has provided a solid, differentiated foundation. Tularik’s platform is distinguished by strong chemistry and biology.
Pioneering management
Tularik was founded by and is run by thought leaders in the biotechnology industry, including David Goeddel, PhD, Steven McKnight PhD, and Robert Tjian, PhD. David Goeddel was a top scientist at Genentech and was centrally
involved in the development of several of the industry’s first recombinant products, including human insulin, growth hormone and tissue plasminogen activator (t-PA). Drs. McKnight and Tjian are globally recognized pioneers in
the identification and elucidation of gene regulating agents called transcription factors. Dr. Andrew Perlman, MD, PhD, joined Tularik in 1993 from Genentech, where he held senior clinical research positions, after having
served as a faculty member in the department of Medicine at Stanford University. In addition to significant internal expertise, Tularik collaborates with thought leaders in several fields, including Dr. Michael Wigler, at Cold Spring
Harbor Laboratory, who has done leading research on genes associated with cancer, and Drs. Michal Browne and Joseph Goldstein, Nobel laureates in cholesterol regulation.
Financial projections
We are projecting losses for the foreseable future. We anticipate per share losses of ($1.15), ($1.70) and ($2.00) for 2001, 2002 and 2003 respectively. As of September 30th, Tularik had over $240 million on the balance sheet.
Investment outlook and valuation
Tularik has developed a broad and diversified pipeline of candidates and therapeutic targets to address multiple
diseases that represent large commercial opportunities. While the pipeline is at an early stage, many candidates in
preclinical development may represent first in class drugs. While we do not expect all candidates to be successful in
clinical studies, only a few candidates need to be successful in order to create significant commercial value, long-term.
Given the early stage of Tularik’s pipeline, we believe it is premature to apply a net present value, or discounted
earnings valution. On a relative valuation basis, Tularik is trading within the range of other companies with platform
technologies and related product focus. Tularik’s strong platform, pioneering management, emerging pipeline and
broad commercial rights set the stage well for long-term growth, in our opinion.
Projected 2002 Milestones
* Announce new pharmaceutical alliances
* File up to 3 INDs in 2002 * H1 - Initiate additional Phase II studies with CMV agent, T611 in transplant patients
* H1 - Initiate Phase II studies with cancer agent, T607
* H1 - Present Phase II results for T67 (Possibly at ASCO, May)
* H1 - Present Phase II results for T64 (Possibly at ASCO, May)
* H2 - Potentially initiate Phase III studies with T67 and/or T64 depending on Phase II data
Risks
Tularik is an early stage biotechnology company and therefore entails significant risks. Most candidates in
development are in early clinical or preclinical stages. There can be no assurance that these candidates will be
successfully developed. Each therapeutic area being pursued is highly competitive. Although Tularik is currently well
funded, we would expect that additional financing will likely be required before the company potentially reaches
profitability. We do expect that the stock will be volatile which is typical of development stage biotechnology
companies.
Clinical development programs
** Oncology **
Tularik’s most advanced programs are in the oncology field. Phase II studies are nearing completion for two of the
anti-cancer compounds, T67, a beta tubilin binder, and T64, an anti-folate compound licensed from Eli Lilly. Data
available so far has been limited and results from Phase II studies, expected in the first half of 2002, will provide a
better base from which to assess clinical and commercial potential. If Phase II data are positive, Tularik could enter Phase III studies in 2002. While the total market for similar anticancer compounds exceeds $2 billion, we have not
factored potential revenues into our model because of the early development stage of the candidates. Behind these
lead clinical candidates, Tularik has identified over a dozen novel oncogenes thought to be involved in a range of
cancers.
** Infectious disease **
Cytomegalovirus
Tularik is developing T611 for the treatment of cytomegalovirus (CMV). Phase II studies in AIDS patients with CMV infection have begun and the company plans to initiate Phase II studies in transplant patients at risk of CMV infection. The global market for CMV therapeutics approximates $150- 200 million, however, the market could potentially be expanded with agents aimed at prevention in high-risk patients.
Preclinical development programs
** Bacterial infections ** Tularik, through its Cumbre subsidiary, has been researching novel, oral antibacterial agents, that could potentially address a broad spectrum of bacterial infections, and have a low resistance profile.
Ongoing research has focused on processes necessary for bacterial growth, including transcription and replication. The company’s scientists have identified 5 enzymes as targets for drug development, including: RNA polymerase (the
most advanced program), primase, helicase, histidine kinase and DNA polymerase III.
** Type 2 diabetes, obesity and lipid disorders **
Tularik is developing a series of compounds for Type 2 diabetes that address the same target as the glitizone class of therapeutics, the PPAR gamma receptor. Tularik’s compounds are thought to bind to and activate PPAR gamma differently than the marketed insulin sensitizers. In preclinical studies, Tularik’s compounds have not lead to fat cell differentiation, and may therefore potentially obviate weight gain. In addition, in preclinical studies, edema and anemia have not been observed. In addition to PPAR gamma, Tularik is pursuing other metabolic pathways thought central to obesity and metabolism, including proteins involved in metabolic rate determination and lipid disorders.
** Inflammation **
Tularik scientists have made important contributions in deciphering the regulatory pathways of major
genes that control inflammatory cytokines and have identified over 10 novel drug targets. Tularik has developed high throughput assays for the majority of these targets, and is conducting preclincial compound optimization for several candidates, including the transcription factor NF-Kappa B. Tularik scientists have identified several protein targets induced by regulators along the NF-Kappa B pathway and other inflammatory pathways.
** Orphan nuclear receptors **
In collaboration with Japan Tobacco, Tularik is working on identifying novel drugs that act on orphan receptors. Nuclear receptors describe a family of gene regulators, or transcription factors, that are typically activated by a hormone. Nuclear receptors can provide attractive drug targets, once the receptor and its associated hormone are known. The companies may file an IND to begin clinical studies with one candidate over the next 12 months. |
