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| TELK > SEC Filings for TELK > Form 10-Q on 7-May-2009 | All Recent SEC Filings |
7-May-2009
Quarterly Report
Special Note Regarding Statements of Expected Future Performance
This Quarterly Report on Form 10-Q contains statements indicating expectations about future performance and other forward-looking statements that involve risks and uncertainties. We usually use words such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "future," "intend," "potential," or "continue" or the negative of these terms or similar expressions to identify forward-looking statements. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our current intent, belief or expectation, primarily with respect to our operations and related industry developments. Examples of these statements include, but are not limited to, statements regarding the following: the implications of positive results of our Phase 2 clinical trials, the progress of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products and technology, our ability to identify new product candidates using TRAP technology (our proprietary Target-Related Affinity Profiling technology), the potential of such product candidates to lead to the development of safer or more effective therapies, our ability to develop the technology derived from our collaborations, our anticipated timing for filing additional Investigational New Drug applications, or INDs, with the FDA, or for the initiation or completion of Phase 1, Phase 2 or Phase 3 clinical trials for any of our product candidates, our future operating expenses, our future losses, our future expenditures for research and development and the sufficiency of our cash resources. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A of this Quarterly Report on Form 10-Q.
The following discussion and analysis should be read in conjunction with the unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with the financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on March 2, 2009.
TELIK, the Telik logo, TRAP, TELCYTA and TELINTRA are trademarks of Telik, Inc. All other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
Overview
Telik is engaged in the discovery and development of small molecule drugs. Our business strategy is to advance our drug product candidate TELINTRA through Phase 2 clinical studies, and after obtaining clinical data, enter into a partnership with a pharmaceutical or biotechnology company to assist in further development and commercialization; advance our two leading preclinical drug candidates TLK58747 and TLK60404 into the clinic and seek a partnership for TELCYTA for further development. We have incurred net losses since inception and expect to incur losses for the next several years as we continue our research and development activities.
During the quarter ended March 31, 2009, loss from operations and net loss was $7.7 million. Net cash used in operations for the quarter ended March 31, 2009 was $7.3 million and net cash, cash equivalents, investments and restricted investments at March 31, 2009 were $57.3 million. As of March 31, 2009, we had an accumulated deficit of $487.6 million.
Our expenses have consisted primarily of those incurred for research and development and general and administrative costs associated with our operations. The process of carrying out the development of our product candidates to later stages of development and our research programs may require significant additional research and development expenditures, including for preclinical testing and clinical trials, as well as for manufacturing development efforts and obtaining regulatory approval. We outsource our clinical trials and our manufacturing development activities to third parties to maximize efficiency and minimize our internal overhead. To date, we have funded our operations primarily through the sale of equity securities, and from non-equity payments from collaborative partners.
We are subject to risks common to biopharmaceutical companies, including risks inherent in our research, development and commercialization efforts, preclinical testing, clinical trials, uncertainty of regulatory and marketing approvals, enforcement of patent and proprietary rights, the need for future capital, potential competition, use of hazardous materials and retention of key employees. In order for a product to be commercialized, it will be necessary for us to conduct preclinical tests and clinical trials, demonstrate efficacy and safety of our product candidates to the satisfaction of regulatory authorities, obtain marketing approval, enter into manufacturing, distribution and marketing arrangements, obtain market acceptance and, in many cases, obtain adequate reimbursement from government and private insurers. We cannot provide assurance that we will generate revenues or achieve and sustain profitability in the future.
In February 2009, we implemented a restructuring plan to further reduce our operating expenses and to streamline our infrastructure to focus on our most advanced preclinical and clinical development programs. As a result of the restructuring plan we reduced our workforce by 36 positions and recorded a charge of approximately $0.9 million which consists primarily of employee severance and related costs. As a result of our restructuring plan, we believe our existing cash resources will be sufficient to satisfy our current operating plan until mid 2011. Changes in our research and development plans or other changes affecting our operating expenses may affect actual future consumption of existing cash resources as well. In any event, we will require substantial additional financing to fund our operations in the future.
We expect that our quarterly and annual results of operations will fluctuate for the foreseeable future due to several factors, including the timing and extent of our research and development efforts and the outcome of our clinical trial activities. The successful development of our products is uncertain. As such, an accurate prediction of future operating results is difficult or impossible.
Clinical Product Development
TELINTRA, our current drug product candidate in clinical development, is a small molecule glutathione analog inhibitor of the enzyme glutathione S-transferase P1-1. We are developing TELINTRA for the treatment of blood disorders associated with low blood cell levels, such as neutropenia or anemia. In May 2008, we initiated two Phase 2 clinical trials of TELINTRA tablets, one for the treatment of patients with MDS and the other for the treatment of chemotherapy induced neutropenia, or CIN, in patients with locally advanced or metastatic non-small cell lung cancer receiving first-line chemotherapy. Both of these trials are randomized Phase 2 studies and are currently enrolling patients. The trial for MDS is intended to enroll 86 patients and is expected to be completed by the end of 2009, and the trial for CIN is intended to enroll 135 patients.
In April 2009, we initiated a new Phase 2 randomized study in Severe Chronic Idiopathic Neutropenia, or SCIN, to determine the effect of TELINTRA on absolute neutrophil count, in patients with severe chronic neutropenia. The trial for SCIN is intended to enroll a total of 20 patients.
TELCYTA, our first product candidate, is a small molecule cancer drug product candidate designed to be activated in cancer cells. TELCYTA has shown clinical antitumor activity alone and in combination with standard chemotherapeutic agents in multiple Phase 2 clinical trials in refractory or resistant ovarian, non-small cell lung, breast and colorectal cancer. In addition, TELCYTA demonstrated clinical activity in two Phase 2 trials in combination regimens as first line treatment in patients with Stage IIIb or IV non-small cell lung cancer.
We initiated four randomized Phase 3 registration trials of TELCYTA in platinum refractory or resistant ovarian cancer and in platinum resistant non-small cell lung cancer. ASSIST-1 and ASSIST-3 were designed to evaluate TELCYTA in the treatment of platinum resistant ovarian cancer. ASSIST-2 was designed to evaluate TELCYTA in the treatment of advanced non-small cell lung cancer. In June 2007, we reported that these trials did not achieve their primary endpoints. ASSIST-5, our fourth randomized Phase 3 trial, was initiated in May 2006 to evaluate TELCYTA in combination with PLD versus PLD alone as second line therapy in platinum refractory or resistant ovarian cancer. On October 29, 2008, we announced top-line results
from the ASSIST-5 trial demonstrating that statistically significant improvement was observed in a sub-set of patients with platinum refractory or primary resistant disease. We are currently seeking a partnership with a pharmaceutical or biotechnology company to further advance the development and commercialization of TELCYTA.
Pre-Clinical Drug Product Development
TLK58747-Cytotoxic Small Molecule
TLK58747 is a novel metabolically activated cytotoxic small molecule. TLK58747 induces apoptosis and G2/M, or cell division, cell cycle arrest in a broad array of human cancer cell lines including those not expressing glutathione S-transferase P1-1, or GST P1-1. It has shown significant anti-tumor activity in human breast, pancreatic, brain and colon tumors in pre-clinical models of human cancer when administered either orally or by injection. We are conducting the required preclinical safety studies that if successful may support the potential filing of an IND application with the FDA.
TLK60404-Aurora Kinase/VEGFR2 Inhibitors
We currently have a small molecule compound inhibiting both Aurora kinase and VEGFR2 kinase in pre-clinical development. Aurora kinase is a signaling enzyme whose function is required for cancer cell division, while vascular endothelial growth factor receptor, or VEGFR, plays a key role in tumor blood vessel formation, ensuring an adequate supply of nutrients to support tumor growth. The lead compounds of our first dual inhibitor program met a development milestone in August 2008 by demonstrating anticancer activity in preclinical models of human colon cancer and human leukemia. A development drug product candidate, TLK60404, has been selected. We are conducting the required preclinical safety studies that if successful may support the potential filing of an IND application with the FDA.
MCP-1 Antagonists (C243)-Small Molecule for Autoimmune and Inflammatory Disorders
MCP-1 antagonists, including our lead compound C243, is a small molecule that prevents leukocyte infiltration, a process linked to tissue injury in chronic autoimmune and inflammatory diseases such as multiple sclerosis, rheumatoid arthritis and atherosclerosis. In February 2007, we announced an agreement with SRI International under which SRI will fund and conduct preclinical studies of C243 in multiple sclerosis and other autoimmune and inflammatory diseases.
We discovered all of our drug product candidates using our proprietary technology, TRAP, which we believe enables the rapid and efficient discovery of small molecule drug product candidates. We expect to enter into collaborative arrangements with third parties, such as contract research organizations for clinical trials, development, manufacturing, regulatory approvals or commercialization of some of our products, particularly outside North America, or in disease areas requiring larger and longer clinical trials than cancer.
In August 2008, we announced a license agreement with ReceptorBio, Inc. which would enable ReceptorBio to develop and commercialize our oral small molecule insulin receptor kinase activators. These compounds were identified through the application of TRAP. The agreement is contingent on ReceptorBio's reimbursement of Telik's patent expenses. It also provides for payments to Telik related to regulatory milestones and royalties based on product sales or licensing fees; and will expire at the end of the royalty period. Our development focus does not currently include metabolic diseases like diabetes.
Nasdaq Stock Listing Compliance Status
On September 19, 2008, we received notification from Nasdaq informing us that the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market under Nasdaq Marketplace Rule 5450(a)(1) and giving us 180 days to regain compliance. Nasdaq subsequently implemented temporary suspensions of the minimum bid price requirement. We have until December 21, 2009 to regain compliance and are considering various strategies in order to satisfy the minimum bid price requirement.
UBS Purchase Rights and Loan
On November 10, 2008, we entered into an agreement with UBS AG and with its affiliates, or UBS, whereby we received rights, or the Right, to sell all our auction rate securities, or ARS, held in our UBS account at par value to UBS at any time during a two-year period beginning on June 30, 2010 and ending on July 2, 2012. If we do not exercise the Right, the ARS will continue to accrue and pay interest as determined by the auction process or the terms specified in the prospectus of the ARS if the auction process fails. If the Right is not exercised on or before July 2, 2012, it will expire and UBS will have no further obligation to buy our ARS. UBS is also granted the right to purchase or sell our ARS at any time after acceptance of the Agreement until July 2, 2012, so long as we receive par value for the ARS. The Right is a nontransferable security registered with the SEC.
In connection with our acceptance of the offer to enter into the agreement, UBS has made available to us "no net cost" loans for up to 75% of the market value of our ARS, where interest payable on the loan does not exceed interest earned on our ARS. The loan is to be secured by our ARS. On December 31, 2008, we borrowed $8 million from UBS in accordance with such a secured, "no net cost" demand facility. For the three months ended March 31, 2008, interest paid on the loan was approximately $30,000 which was fully offset by interest earned on the pledged securities.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates and judgments related to revenue recognition and clinical development costs. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates under different assumptions or conditions.
There has been no material change in our critical accounting policies and significant judgments and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2008.
Use of Estimates
In preparing our financial statements to conform with GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results may differ from these estimates.
Results of Operations
Revenues
We did not record any revenues in 2008 and currently do not expect to record any revenues in 2009. Future non-product revenues, if any, will depend upon the extent to which we enter into new collaborative research agreements and the amounts of payments relating to such agreements.
Research and Development Expenses
Research and development expenses for the three months ended March 31, 2009 and 2008 were $4.0 million and $8.2 million. Our research and development activities consist primarily of drug development, clinical supply manufacturing, clinical activities, discovery research, screening and identification of product candidates and preclinical studies. We group these activities into two major categories: "research and preclinical" and "clinical development."
The approximate costs associated with research and preclinical and clinical development activities were as follows:
Three Months Ended
March 31, %
2009 2008 Change
(In thousands, except percentages)
Research and preclinical $ 2,114 $ 4,020 (47 )%
Clinical development 1,876 4,175 (55 )%
Total research and development $ 3,990 $ 8,195 (51 )%
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The decrease of 51%, or $4.2 million, in research and development expenses for the three months ended March 31, 2009 compared to the same period in 2008 was principally due to the following:
• reduction of approximately $1.3 million as Phase 3 clinical trial study activities in our ASSIST-1, ASSIST-2, ASSIST-3 and ASSIST-5 were completed;
• decreased costs of approximately $249,000 as our TELCYTA Phase 2 combination trials in ovarian and lung cancer were completed and approximately $247,000 due to completion of Phase 1-2a TELINTRA clinical trials for MDS and were offset by an approximately $438,000 increase as we initiated two Phase 2 clinical trials of TELINTRA tablets, one for the treatment of patients with MDS and the other for the treatment of CIN;
• decreased costs of approximately $1.6 million in connection with headcount reduction associated with reduced clinical activities and the implementation of the February 2009 restructuring plan; and
• lower stock-based compensation expense of approximately $1.0 million primarily due to complete vesting of higher value stock options granted in earlier periods.
We expect total research and development expenditures to decrease in the next twelve months as we focus on the Phase 2 clinical trials of TELINTRA tablets and preclinical studies on TLK58747 and TLK60404. Traditionally, Phase 2 and pre-clinical studies incur less expenses than Phase 3 studies due to comparative size of the studies. Specifically, we expect both clinical and manufacturing expenditures to be lower than previous years and the timing and the amount of these expenditures will depend on the progress of the TELINTRA tablets Phase 2 clinical trials and the progress of our pre-clinical programs.
The following table summarizes our principal drug product candidate development initiatives:
Related R&D Expenses
Three Months ended March 31,
Product 2009 2008
(in thousands)
TELCYTA $ 423 $ 3,681
TELINTRA 1,660 849
TLK58747 596 -
TLK60404 503 -
Other (1) 808 3,665
Total research and development expenses $ 3,990 $ 8,195
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(1) "Other" constitutes research and development activities performed by our Chemistry, Biology, preclinical and Quality Assurance departments as these costs cannot be allocated to any individual project.
The largest component of our total operating expenses is our on-going investment in our research and development activities and, in particular, the clinical development of our product candidate pipeline. The process of conducting the clinical research necessary to obtain FDA approval is costly and time consuming. Current FDA requirements for a new human drug to be marketed in the United States include:
• the successful conclusion of preclinical laboratory and animal tests, if appropriate, to gain preliminary information on the product's safety;
• filing with the FDA of an IND, to conduct initial human clinical trials for drug candidates;
• the successful completion of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate; and
• filing by company and acceptance and approval by the FDA of a New Drug Application, or NDA, for a product candidate to allow commercial distribution of the drug.
In view of the factors mentioned above, we consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each candidate and clinical program may be impacted by a variety of factors, including, among others, the quality of the candidate, the validity of the target and disease indication, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Due to these and other factors, it is difficult to give accurate guidance on the anticipated proportion of our research and development investments or the future cash inflows from these programs.
General and Administrative Expenses
Three Months Ended
March 31, %
2009 2008 Change
(In thousands, except percentages)
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The increase in general and administrative expenses of 20%, or $474,000 in the three months ended March 31, 2009 compared to the same period in 2008 was primarily due to lower stock-based compensation expense of approximately $405,000 in the three months ended March 31, 2008 as a result of cancelled options
We expect general and administrative expenses in 2009 to be at the same level as 2008.
Stock-Based Compensation Expense
Employee stock-based compensation expense related to our share-based payment
awards recognized under SFAS 123R was as follows:
Three Months Ended
March 31,
2009 2008
(in thousands)
Research and development $ 202 $ 1,213
General and administrative 564 159
Stock-based compensation expense before taxes 766 1,372
Related income tax benefits - -
Effect on net loss $ 766 $ 1,372
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The decrease in employee stock-based compensation expense for research and development for the three months ended March 31, 2009 compared with the same period in 2008 was principally due to the reversal of accrued expense for cancelled options and complete vesting on higher fair value options granted in prior years. The increase in employee stock-based compensation expense for general and administration for the three months ended March 31, 2009 compared with the same period in 2008 was primarily due to higher reversal of accrued expense for cancelled options recorded in the three months ended March 31, 2008.
Restructuring Costs
In February 2009, we implemented a restructuring plan and reduced our workforce by 36 positions and recorded a charge of approximately $868,000 of which approximately $749,000 has been paid in the quarter ended March 31, 2009 as severance, payroll taxes and other personnel related costs. We have no restructuring charge for the three months ended March 31, 2008.
Interest Income and Interest Expense
Three Months Ended
March 31, %
2009 2008 Change
(In thousands, except percentages)
Interest and other income (expense), net $ 70 $ 800 (91 )%
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Interest and other income (expense), net resulted primarily from investment activities including our ARS. The decrease of approximately $730,000 for the three months ended March 31, 2009 compared to the same period in 2008 was due primarily to a $747,000 decrease in investment income due to lower investment cash balances and lower interest rates.
Interest expense for the three months ended March 31, 2009 was for interest payments on our UBS loan. There was no interest expense for the three months ended March 31, 2008.
Liquidity and Capital Resources
March 31, December 31,
2009 2008
(in millions, except ratios)
Cash, cash equivalents, investments and restricted
investments $ 57.3 $ 63.5
Working capital $ 42.4 $ 48.8
Current ratio 11.1:1 11.3:1
Three Months Ended
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