Is There Value In Telik?

| About: Telik, Inc. (TELK)

It has become clear that Telik (OTCQB:TELK) has very prudently put all its current efforts on its product Telintra. Telintra has been tested for benefit in certain kinds of anemia due to bone marrow disease, particularly, a condition previously called preleukemia, and now referred to as myelodysplastic syndrome or MDS.

On January 22, Telik announced that after meeting with the FDA, it had "decided to stop further enrollment in its ongoing Phase II exploratory trials," and that "preliminary agreement was reached regarding the design of a Phase III placebo-controlled randomized registration trial of Telintra (ezatiostat) for the treatment of Low to Intermediate-1 risk myelodysplastic syndrome, using red-blood-cell transfusion independence as the endpoint." In short, it is moving from Phase II to Phase III ahead of schedule. There were two Phase II studies involving Telintra in progress. One was for its effectiveness in treating a subset (del 5q) of MDS patients and the other was for the rest. The planned primary dates of completion of these two Phase II studies were April and May 2013, respectively, with completion dates of October 2013 and November 2014. The curtailing of these trials, therefore, significantly advances the Phase III initiation and possible new drug approval for which all of these are intended. If you found Telik a good prospect, but were concerned about the speed with which a product might come to market, this is very good news.

Telik's Products: Telik has two products that have undergone clinical trials, it identifies 4 other cancer related products that are in pre-clinical (that is, they are not yet ready to be tested on humans) stages of evaluation, and it owns a proprietary drug discovery platform technology. Unfortunately, at the current financial state of the company, it does not make sense to own it purely for the TRAP technology or the pre-clinical products. They are a definite value if the company regains life, and for that to happen, the potential of the current clinical products is crucial.

There are two products of Telik under clinical trial. "Telcyta® (Canfosfamide HCl) is an investigational drug that is a cancer cell-activated chemotherapeutic," and "Telintra® (ezatiostat HCl, TLK199) is a small molecule product candidate." If you have followed the company at all, you would not be holding your breath for Telcyta to come crashing through the gates of Phase III trials and FDA approval to be a winner, although there is a Phase II study involving 45 patients that began in June 2010, with estimated completion data collection for primary outcome measure last December, and study completion in June 2013 (Study of Canfosfamide in Refractory or Relapsed Mantle Cell, Diffuse Large B Cell Lymphoma and Multiple Myeloma).

The company also must be thinking this way, because it is focusing itself properly. For instance, they stated in their last quarterly report that they "are developing Telintra for the treatment of blood disorders associated with low blood cell levels, such as neutropenia or anemia.". There was in process "a Phase II randomized study in Severe Chronic Neutropenia, or SCN, to determine the effect of Telintra tablets on absolute neutrophil count in patients with this disease." However, "due to our focus on MDS, we plan to terminate this study once the last remaining patients complete treatment around the fourth quarter of 2012." Since the data reported from this study was quite positive (see below), the curtailment makes sense as strategy, in order to conserve funds.

In a previous post I compared the arguments for being negative or positive about Telik shares. The gist of that report was that there is value in TELK, and that, compared to the market capitalization of its peers, it was especially underpriced. Here I examine the value and potential question further: (1) What are the chances of Telintra getting approval? That is, is it safe, and is it effective for treating a medical condition? (2) If it does get FDA approval, would it make the company significantly more valuable?

Telintra Results:

Telintra & ICN: To begin with, even for the study that Telik discontinued, the reported results were quite positive and the study is worth reading. Four patients with idiopathic chronic neutropenia [ICN] who did not respond to treatment with granulocyte colony stimulating factors (G‑CSF) all improved on treatment with Telintra tablets. "ICN is a group of diseases characterized by low circulating neutrophils, recurrent fevers, mucosal inflammation, and systemic infections. The risk of complications is inversely proportional to the absolute neutrophil count [ANC]...Most patients respond to daily subcutaneous administration of granulocyte colony stimulating factors (G-CSF); however, some patients do not respond." In 3 out of 4 cases enrolled for Telintra treatment, ANC improved and infections were overcome. "Patient 2, a 63 year old with ICN for 26 years, had…a history of multiple hospital admissions for sepsis, non-healing perineal and decubitus ulcers, and recurrent high fevers within 4 days of cessation of parenteral antibiotics, necessitating resumption. Post-ezatiostat [Telintra] treatment…[there was] a persistent infection-free period of over 22 months with no hospitalizations or antibiotic therapy required." In the one remaining case with no significant improvement in ANC, infections were still overcome. A patient who previously had only a small response lasting 1-2 days to G-CSF became responsive to it after Telintra treatment with fivefold increase in the absolute neutrophil count that lasted a week, "suggesting re-sensitization to G-CSF." This is the trial the company decided to stop enrolling patients in as reported last quarter.

Telintra & MDS: The fact that some patients who previously did not respond to an existing therapy became responsive after Telintra treatment has been observed also in regard to myelodysplastic syndrome [MDS] the current focus of treatment. In this Phase I study lenalidomide, a drug approved for treating a sub-population (del 5q) of MDS patients, was given in combination with Telintra for patients in other than that subset. "Three of 7 (43%) red blood cell [RBC] transfusion-dependent patients became RBC transfusion independent, including one patient for whom prior lenalidomide monotherapy was ineffective."

Telintra was initially tested in Phase I studies by IV injection. It was evaluated in MDS patients for safety, what is called pharmacokinetics (processing and distribution of the drug within the body, and levels attained), and improvement in regard to blood cells. The study involved 54 patients. There was improvement in regard to red blood cells in 24%, for neutrophils in 42% and for platelets in 50% of the patients. "These responses were accompanied by improvement in clinical symptoms and reductions in transfusion requirements. Improvement in bone marrow maturation and cellularity was also observed."

Subsequent studies have administered Telintra orally as tablets. A dose-escalation study using the tablets showed that Telintra was well tolerated. Side effects at higher doses for the most part were GI related: nausea, diarrhea (and these are not unlike the adverse effects of existing chemotherapies). "Ezatiostat [Telintra] doses up to 6000 mg/day were evaluated without reaching dose limiting toxicity." Subsequent studies have demonstrated positive effects with lower doses. The results from the combination study with lenalidomide showed improvement to various degrees in different patients with regard to red cells, white cells as well as platelets. 43% of the patients in the group who were transfusion dependent became transfusion independent. 60% of patients with thrombocytopenia had improved platelet levels (Note: these percentage figures can be misleading because of the relatively small number involved in each sub-group in the study). In patients with impairment in regard to more than one cell type, one third to two thirds attained improvement in regard to both or all three. Similar kind of results were reported from another Phase II study.

MDS and Current Therapies: MDS is a disease of older adults, with more than 80% of patients older than 60 years. Each year between 15,000 and 20,000 new cases of MDS are diagnosed in the United States. A number of patients with MDS acquire the disease as result of prior cancer treatment (radiation or chemotherapy).

Not only is MDS connected with a large number of different mutations, there is no uniform prognosis. Some progress into leukemia. Patients can be scored in regard to risk, which ranges from low to intermediate to high.

There are two principal drugs in addition to lenalidomide mentioned above that are approved for MDS (excluding the iron chelators). Lenalidomide was approved for a subset (20-30%) of MDS patients who have a particular mutation and are in the low-risk group. A scientific study arguing the case for Telintra states that "there are few treatment options for the majority of transfusion-dependent MDS patients with lower risk disease. This situation represents a significant unmet medical need." The other two approved MDS drugs, azacitidine and decitabine, are really of benefit to "patients with higher-risk disease." They are also currently approved as injectables and not oral medication.

Other existing treatments are supportive (blood transfusions) or using therapies not specifically approved for MDS. Stem cell transplant, with its high risk (cannot use stem cells from the patient themselves because they are mutated and causing disease, and transplanting allogeneic stem cells has its own complications, such as graft host disease), is of value for patients in the high risk category. It has actually been found that in low risk MDS patients, stem cell treatment reduces the patient life span compared to other treatments.

Back to Telik as a company and investment. Assuming Telintra succeeds in demonstrating safety and efficacy, and obtains FDA approval, would it still make sense to own shares of Telik, the company, as an investment? This is the question to ponder. For that purpose, we are going to imagine the best case scenario, that Telik will complete Phase III trials and Telintra will get approved for the treatment of Low to Intermediate-1 risk MDS. If that perfect scenario unfolds, one might ask other questions.

What percent of the existing or newly diagnosed (15-20,000/yr) patients will get treated with this medicine (you pick your number)?

It appears that azacitidine and decitabine are sold at prices $7000-$9000/ month per patient, and lenalidomide is in a similar range.

At $80-100,000/yr/patient how many patients does it take to get an annual revenue of $100M?

With 2.7M shares outstanding, today's market cap for Telik is less than $5M.

(The number of outstanding options from 2011, taking into account the reverse split, would be closer to 363,000 and the weighted average exercise price would go up to $170, essentially making those worthless.)

Assuming the company can regain its footing, what additional value would you place on its existing pipeline and drug discovery technology?

I consider TELK a speculative buy, but a strong buy nevertheless. It is anybody's guess when the stock will begin to move. The technical picture, despite the sell off after each sharp rally, has definitely improved. MA(20) crossed above MA(50) in early December and has continued so, and yesterday's high kissed the 200-day moving average before pulling back.

Additional disclosure: The author has no affiliations or associations of any kind with any publicly traded company including TELK. All information here was obtained by searching publicly available documents. The interpretations are susceptible to error and are not advice. I would consider myself long even if I owned only one share. I do not short.

Disclosure: I am long OTCQB:TELK. 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.