Wachovia's March report:
TLRK: Initiates Pivotal Study Of T67 In Liver Cancer
2003-03-25 10:34 (New York)
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### ### WACHOVIA SECURITIES ### ###
March 25, 2003
TLRK: Initiates Pivotal Study Of T67 In Liver Cancer: Timing As Expected--No
Change To Estimates
Company Note
Tularik Inc. (TLRK-NASDAQ) Stock Rating: OUTPERFORM
Price: $4.88 Leah Rush Cann / (212) 891-5088
52-Wk. Rng.: $20-3 David Garrett / (212) 909-0969
Shares Out.:(MM) 54.0 Vanessa A. Rath / (212) 909-0952
Market Cap.:(MM) 263.5
[HI
EPS 2002A 2003E 2004E REV.2003 2004
FY(Dec.) Current Prior Current Prior Current Prior
Q1(Mar.) ($0.41) NC ($0.46) NC ($0.51) NC $6.3MM $6.6MM
Q2(June) (0.48) NC (0.49) NC (0.52) NC 6.3 7.2
Q3(Sep.) (0.45) NC (0.52) NC (0.53) NC 6.3 8.3
Q4(Dec.) (0.48) NC (0.59) NC (0.56) NC 6.3 9.6
Full FY ($1.83) NC ($2.06) NC ($2.11) NC $25.1MM $31.7MM
FY P/E NM NM NM
Full CY ($1.83) NC ($2.06) NC ($2.11) NC
CY P/E NM NM NM
]
Source: Company data and Wachovia Securities estimates.
NA = Not Available, NC = No Change; NE = No Estimate; NM = Not Meaningful
Float:(MM) 39.1 LT Debt: $0.0
Avg. Daily Vol.: 150,832 LT Debt/Total Cap.: 0.0%
S&P 500: 895.90 ROE: NM
Div./Yield: $0.00/0.0% 3-5 Yr. Est. Grth. Rate: NM
CY2003Est. P/E-to-Grth.: NM
Key Points
* Today, Tularik announced the enrollment of the first patient in a pivotal
trial for T67, a small molecule drug candidate being developed for the treatment
of liver cancer (hepatocellular carcinoma).
* The timing of this initiation is in line with our expectations and company
guidance.
* The pivotal Phase II/III trial is expected to enroll approximately 750
patients at in the U.S., E.U., and Asia. The study will compare survival
observed in patients receiving T67 versus patients administered doxorubicin.
According to Tularik, the FDA endorsed this international trial design in August
2002. Tularik expects to take an interim look at this data through a data safety
monitoring board at 100 patients but the data will remain confidential.
* Based on Tularik's initiating this trial in Q103, we estimate T67 could be on
the market by early 2007. Considering other products in development for liver
cancer, we believe T67 will be 1st or 2nd to market.
Valuation Range: $7 to $11
The first-tier biotechnology companies, as a group, historically trade at a
price-to-est. one-year forward revenue multiple of 11x. If we apply this
revenue multiple to TLRK's 2008 est. product revenue of $211.8 mm, then we
arrive at a 2007 valuation of $42/share. Discounting this at 40% per year, we
arrived at a 12-month price of $11/share. We believe the greatest near-term risk
for Tularik is the timely enrollment of the pivotal trial for T67 in liver
cancer. We believe the most important risk factor for Tularik is FDA approval.
If the FDA delays or does not approve one of Tularik's late stage product
candidates, we believe the market would increase the discount rate to 60% from
our estimated 40% in order to reflect increased risk. Under this scenario, we
estimate Tularik's stock would be worth $7 per share by the end of 2003.
Investment Thesis
In our opinion, Tularik possesses an exceptional scientific team. The company is
developing a promising new therapy, T67, for the treatment of hepatocellular
cancer, the most common type of liver cancer, for which there are no acceptable
therapies. If successful, we believe this product will be rapidly adopted and
will drive Tularik to profitability. Ultimately, we believe Tularik's oncogene
drug discovery platform will be a source of products and growth.
Investment Conclusion
We believe the best valuation model for late-stage, unprofitable biotechnology
companies is a one-year forward multiple, based on the price-to-revenue multiple
of commercial, profitable biotechnology companies. The first-tier biotechnology
companies, as a group, historically trade at a price-to-estimated one-year
forward revenue multiple of 11x. If we apply this revenue multiple to Tularik’s
2008 estimated product revenue of $211.8 million, then we arrive at a 2007
valuation per share of $42. Discounting this at 40% per year, we arrived at a
12-month price of $11 per share.
We believe the greatest near-term risk for Tularik is the timely enrollment of
the pivotal trial for T67 in liver cancer. We believe the most important risk
factor for Tularik is FDA approval. If the FDA delays or does not approve one of
Tularik’s late stage product candidates, we believe the market would increase
the discount rate to 60% from our estimated 40% in order to reflect increased
risk. Under this scenario, we estimate Tularik’s stock would be worth $7 per
share by the end of 2003.
On the basis of our perceived risk/reward for this stock, we rate the shares
Outperform with a 12-month price range of $11-$7.
Discussion
Today, Tularik announced the enrollment of the first patient in pivotal trial
for T67, the company’s small molecule drug candidate being developed for the
treatment of liver cancer (hepatocellular carcinoma). The timing of this
initiation is in line with our expectations and company guidance. Based on
today’s announcement, we are making no changes to our estimates.
The pivotal Phase II/III trial is expected to enroll approximately 750 patients
at multiple sites in the U.S., Europe, and Asia. The study will compare survival
observed in patients receiving T67 at a dose of 250mg/m2 administered IV once
weekly, versus patients administered 60mg/m2 of a chemotherapeutic agent,
doxorubicin, once every three weeks. Doxorubicin is the current systemic
chemotherapy standard of care for HCC, although the FDA has not approved it for
this indication. According to Tularik, the FDA endorsed this international trial
design in August 2002. Tularik expects to take an interim look at this data
through a data safety monitoring board at 100 patients but the data will remain
confidential.
Expectations for Commercialization
Based on Tularik’s initiating this trial in Q1 2003, we estimate T67 could be a
commercial product by early 2007. Considering other products in development for
the treatment of liver cancer, we believe T67 will be first or second to market.
Considering the relatively small prevalence and incidence of liver cancers, we
estimate T67 could cost $25,000 per year for therapy, and we believe it can
achieve 17-18% market penetration in its first year of use.
T67 (T138067)
T67 is Tularik’s most advanced oncology drug candidate. T67 is a novel
antimicrotubule agent that binds irreversibly to cysteine 239 on beta-tubulin.
Microtubules are essential to cell division. T67 disrupts microtubule function,
causing the cell to die and potentially resulting in tumor shrinkage. Since
cancer cells divide more rapidly than normal cells and microtubules are
essential for cell division, cancer cells are more sensitive than normal cells
to treatment with T67. This concept has been proven clinically by other agents
that target tubulin, such as paclitaxel and vincristine; however, over time,
many tumors become resistant to these drugs.
T67 Clinical Background
T67 has been shown to cause tumor shrinkage in a variety of human tumors
implanted into mice. T67 retains its activity against those tumors and cell
lines that are multiple drug-resistant. T67 demonstrates enhanced activity when
used in combination with cisplatin against the MX-1 mammary tumor implanted into
mice.
Tularik conducted Phase I studies of T67. One study included 14 patients and
evaluated daily doses of T67 for five consecutive days, every three weeks, at 44
mg/m2, 88 mg/m2, 175 mg/m2, and 250 mg/m2. One patient (7%) experienced grade
III neutropenia at the 175 mg/m2 dose. Two (14%) patients experienced grade III
neutropenia at the 250 mg/m2 dose, and one patient (7%) experienced grade III
neurotoxicity. A second Phase I study included 28 patients and evaluated weekly
doses of 110 mg/m2, 220 mg/m2, 330 mg/m2, 385 mg/m2, and 440 mg/m2.
Dose-limiting toxicity was reached at 440 mg/m2. In this trial, T67 showed
activity in HCC. There was one (4%) patient who had a partial response with 13
months durability at the 110 mg/ m2 m2 dose. At the conclusion of this trial, it
was recommended by the investigators that Tularik study T67 at the 220 mg/m2
dose level in HCC patients and at the 330 mg/m2 dose level in non-HCC patients.
Phase II Data
Phase II data for T67 in HCC were presented at the 2002 ASCO meeting. This was
an open-label study of T67 in patients with advanced, surgically unresectable
HCC. Patients in the previously treated arm of the study were allowed no more
than one prior chemotherapy regimen, no prior radiation therapy, no
immunotherapy, or no cryotherapy. The patients were not allowed to have had any
organ transplant in the past. In addition, patients had to exhibit no clinical
symptoms of brain metastasis.
Patients in the HCC study received 165 mg/m2 of T67 by intravenous infusion over
three hours every seven days (three weeks defined one cycle). Tularik
conservatively decided to use a lower dose in this trial than the recommended
dose of 220 mg/m2 (from the Phase I study), due to the fragile state of the
patients’ livers in this trial. Patients were allowed to receive multiple doses
as long as eligibility and retreatment criteria continued to be met, toxicity
was acceptable, and there was no evidence of disease progression. Patients were
monitored closely throughout the study for safety and efficacy parameters using
SWOG (Southwest Oncology Group) criteria by physical, radiologic, and laboratory
examinations.
The HCC study investigated the activity of T67 in two patient groups. The first
group was administered T67 in the front-line setting (chemotherapy naive). The
second group received T67 in the second-line setting, having had one prior
chemotherapy regimen. Both groups were treated with a dose of 165 mg/m2, given
by intravenous infusion every week. This is one-half the standard dose (330
mg/m2) of T67 that was given to patients in the other Phase II trials for T67.
Of the 34 evaluable front-line patients, there were two (6%) confirmed partial
responses, one (3%) unconfirmed partial response, and an additional 13 (38%) had
stable disease. Of the 27 evaluable patients in the second-line group, five
(19%) had a greater than 50% reduction in AFP, a tumor marker for HCC. There
was one (4%) partial response in the second-line arm of the study.
Safety Data
It was reported that the most common adverse events considered to be related to
T67 were infusion-site reactions (31%), fatigue (28%), nausea (25%), and
diarrhea (11%). There were no grade IV adverse events that were considered by
the investigators to be related to T67. There was a low incidence (less than
5%) of grade III and no grade IV hematologic toxicity. As a result of the low
incidence of adverse events and hematologic toxicity, in combination with a
pharmacokinetic analysis conducted in conjunction with the study, Tularik is
currently conducting trials to further investigate the safety of T67
administered at higher doses and the effect of shortening the infusion time of
the current dose. In addition, a Phase I/II combination study with T67 and
doxorubicin is being initiated to study the effects of these two drugs together.
Tularik presented Phase II NSCLC data at ASCO, which did not demonstrate
activity, but did give additional safety data. This was a Phase II study of T67
in prior taxane-treated patients with locally advanced or metastatic NSCLC.
Patients were administered a 330 mg/m2 dose of T67 over three hours, once per
week for three weeks. The data showed no efficacy in patients with NSCLC;
however, of the 20 evaluable patients in the study at this dose level there was
only one (5%) grade IV adverse event--dyspenia. The grade III adverse events
were as follows: one (5%) fatigue, five (25%) dyspenia, one (5%) weakness, and
one (5%) pyrexia.
Primary Liver Cancer (Unresectable Hepatocellular Carcinoma/HCC)
The liver, unlike most other organs, receives blood from two sources. The
hepatic artery supplies the liver with blood that is rich in oxygen. The portal
vein carries nutrient-rich blood from the intestines. The liver is necessary
for survival. This organ is made of several different types of cells, which can
result in several types of malignant and benign tumors. Malignant tumors can be
angiosarcomas or hemangiosarcomas. Angiosarcomas grow rapidly and are usually
too widespread to be removed surgically. Cholangiocarcinoma (hemangiosarcoma)
starts near the hilum and is generally too large or invasive to be removed by
surgery. Generally, liver cancers are metastasis from another area of the body.
The American Cancer Society has estimated that there are 16,200 new cases of
liver cancer each year, and 13,800 deaths result from liver cancer each year.
Therefore, we believe the addressable market for a liver cancer therapy would be
16,000-17,000 patients per year in the United States.
Front-line therapy in HCC usually consists of determining whether or not a
patient is eligible for surgical resection of the disease or a liver transplant.
These are potentially curative therapies for HCC and are evaluated as options in
the front line. Surgery offers the best chance for cure in patients with liver
cancer; however, only about 10-15% of all liver cancer cases prove to be
resectable. Of those cases, approximately 30-40% of patients are cured by way
of surgical resection. If a tumor is limited to one of the two lobes of the
liver or there are fewer than three lesions, surgical resection can usually be
performed. Approximately one-third of liver cancer cases initially present as
resectable on a CT scan; however, about two-thirds of these cases are found to
be unresectable at the time of surgery. Liver transplantation is rare and
occurs in less than one percent of cases, as it requires that the patient be in
otherwise good health and present resectable disease.
For patients that are unresectable (inoperable) because of the size and location
of their tumor or the presence of underlying liver disease, treatment options
are assessed based on the stage of disease progression. If the disease is
limited to the liver and consists of individual tumors only, treatment options
include cryosurgery, percutaneous ethanol injection, and radio-frequency
ablation. These options are particularly useful in patients that have
resectable tumors but are not eligible for surgical resection because of
underlying liver disease. Cryosurgery uses ultrasonic monitoring to direct a
cold probe into the liver tumor. Liquid nitrogen delivered through the probe
freezes the tumor and heated nitrogen then thaws it. This freeze-thaw process
permanently damages the tumor, causing its cells to die. Percutaneous ethanol
injection involves the injection of absolute ethyl alcohol directly into the
tumor under ultrasound guidance. Radio-frequency ablation destroys tumor cells
by delivering an electrical current via a needle.
If the disease is limited to the liver but is present throughout the liver,
treatment options include chemoembolization and interarterial infusion of FUDR
(floxuridine). Chemoembolization involves the administration of an
antineoplastic agent, together with an embolizing vehicle. This allows a slow
release of the agent, as well as the obstruction of the blood supply to the
neoplasm. Interarterial infusion of FUDR is the continuous infusion of the drug
directly into the hepatic artery and requires surgery to administer.
Chemotherapy is recommended for patients whose disease is unresectable, that
already have metastatic disease, or that are in danger of recurrence.
Chemotherapy agents used to treat liver cancer include Platinol (cisplatin),
5-FU (fluorouracil), Doxil (liposomal doxorubicin), and Adriamycin
(doxorubicin). Combination chemotherapy includes Platinol (cisplatin) plus
Adriamycin (doxorubicin), plus 5-FU (fluorouracil), plus alpha-interferon.
Radiation therapy to treat unresectable recurring disease or
chemotherapy-resistant disease is rare because of the inherent intolerance of
normal liver cells to radiation. Clinical trials evaluating alternate
chemotherapy regimes and the use of biologics in front-line therapy are also
under way.
Options for relapsed or refractory liver cancer patients include surgery,
transarterial oily chemoembolization (TOCE), percutaneous ethanol injection
therapy (PEIT), liver transplantation, and ongoing clinical trials evaluating
chemotherapy and biologics. Experimental therapies in development to potentially
treat liver cancer, in addition to Tularik’s T67 and T607, include the
later-stage Phase III Thymitaq from Zarix and the Phase II program for Thalomid
from Celgene. Earlier-stage therapies include Titan Pharmaceutical’s Phase II
Pivanex, MGI Pharma’s Phase II Irofulven (MGI-114), and GenVec’s Phase I
GV-1301.
Thymitaq is an inhibitor of the enzyme thymidylate synthase. Zarix started
enrolling a Phase III pivotal study of Thymitaq in November 2000 for
unresectable HCC. The company has stated that it expects to complete enrollment
of this trial by the end of 2002. Phase II data were reviewed in the journal
Cancer in August 1999. The Phase II trial included 41 patients who were reported
to have been administered an intravenous infusion for five days at a dose of 795
mg/m2 (milligrams per meter squared) per day, on a 24-hour outpatient basis.
Thirteen patients were reported to have received one course, and 28 have
received greater than or equal to two courses. Common reported side effects were
generally manageable. The median survival for the 13 patients receiving one
course of therapy was seven months, and for the 28 patients receiving two or
more courses, median survival was ten months. Of the 26 evaluable patients in
the Phase II trial, there was one (2.4%) complete response, two (8%) partial
responses, two (8%) patients with some clinical benefit, and 14 (54%) patients
reported to have had stable disease. Therefore, we conclude the objective
response in this trial was 10.4%. Zarix has not announced when it expects to
present its Phase III data.
Thalomid (generic name thalidomide) is a small-molecule immunomodulatory agent
that is believed to suppress TNF alpha. Thalomid has demonstrated antitumor
activity in solid tumors in off-label use. Phase II data for thalidomide in
patients with unresectable HCC were presented at the 2002 American Society of
Clinical Oncology (ASCO) meeting. Thalidomide was dosed at a beginning 200 mg
q.h.s. (every night at bedtime) in a 100-mg per week dose-escalating fashion to
the maximum tolerated dose and up to 800 mg per day. The trial included 27
patients, with 44% and 41% having had chronic hepatitis B and chronic hepatitis
C, respectively. One (4%) patient is reported to be remaining on thalidomide,
and another two (8%) patients are alive off-treatment. Median daily dose
achieved was 300 mg. Twenty-four patients were evaluable at the time of ASCO.
One (4%) patient showed a significant biochemical response, with a drop in
alpha-fetoprotein (AFP) to 18 ng/mL (nanograms per milliliter) from 34,630
within ten weeks of therapy and a partial radiologic response on CT (computed
tomography). One (4%) patient had stable disease for 15 months and is still
being followed off-treatment. Median duration of stable disease is 1.7 months
(51 days). All except one (8%) patient ultimately showed evidence of disease
progression. Fatigue and somnolence are the most common side effects occurring
in more than 75% of patients. There were no grade III or IV hematologic or
hepatic toxicities associated with treatment. It was concluded that with gradual
dose escalation, thalidomide is tolerated in patients with advanced HCC.
Pivanex is an analog of butyric acid. This small molecule attacks cancer cells
by causing cellular differentiation, which induces changes in gene expression of
these cells and causes them to undergo programmed cell death (apoptosis).
Pivanex is in a Phase I/II trial currently.
MGI Pharma announced interim Phase II results at 2002 ASCO for MGI-114 in
patients with unresectable HCC. Interim data suggested that MGI-114 has
antitumor activity and favorable drug tolerance when administered daily for four
days every 28 days. MGI reported that the trial continues to accrue. Further
investigation of MGI-114 activity in HCC is planned using biweekly dose
administration. |
