By Jake King
Telik, Inc. (OTCQB:TELK) announced last Friday that the FDA granted its lead candidate, ezatiostat HCL (Telintra), orphan drug designation for the treatment of myelodysplastic syndrome (MDS), sending the stock soaring. Shares climbed 100% to $3.00 over the course of the trading session, but on Monday have been in a partial reversal, down 20% to $2.40 at the noon mark. While the large swing over the last two sessions is largely a result of above-average involvement in a minutely-traded stock, the company's dire financial situation suggests that Telik will be raising capital imminently, and the stock's move south has yet to run its full course.
Limited options point to a dilutive, discounted raise. As of its third quarter financial report, Telik had just $6.4M in cash, equivalents, and investments, burned roughly $2M quarterly, and by the company's own estimations will need to seek capital through an equity financing or partnership, "in order to meet its current cash requirements beyond the first quarter of 2013." Telik has an At the Market Issuance Sales Agreement in place, allowing the company to sell an additional $5M in stock on the open market, but with less than 165,000 shares traded on the average day, we don't expect the company has been minting meaningful amounts of new shares - or raising meaningful amounts of cash. Telik has limited negotiating power with such a weak balance sheet, and corporate partners will be waiting on the sidelines until mid-stage data for Telintra (not due until late 2013), or at least an improved capital position. That means an equity raise for Telik, and with an increasingly poor stock performance in 2012 (down 42% TTM), finding interested investors will most likely require a significant discount to market and generous warrant coverage. It's an ugly situation for the company, but we imagine that with the stock's recent performance, management is out in force seeking capital. And for shareholders, that means dilution is imminent; even after Monday's partial retracing, TELK may be due for further losses in the near-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: PropThink is a team of editors, analysts, and writers. This article was written by Jake King. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. Use of PropThink’s research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein.You should assume that as of the publication date of any report or letter, PropThink, LLC and persons or entities with whom it has relation ships (collectively referred to as "PropThink") has a position in all stocks (and/or options of the stock) covered herein that is consistent with the position set forth in our research report. Following publication of any report or letter, PropThink intends to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. To the best of our knowledge and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and not from company insiders or persons who have a relationship with company insiders. PropThink was not compensated to publish this article. Our full disclaimer is available at www.propthink.com/disclaimer.