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TELK > SEC Filings for TELK > Form 10-Q on 4-Nov-2011All Recent SEC Filings

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Form 10-Q for TELIK INC


4-Nov-2011

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 timing and implications of 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, the sufficiency of our cash resources and ability to raise adequate funds in the future. 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, 2010 filed with the Securities and Exchange Commission on March 2, 2011.

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 product candidates through Phase 2 clinical studies, and to enter into a partnership with a pharmaceutical or biotechnology company to assist in further development and commercialization, license product candidates outside our therapeutic focus, and identify and develop additional drug product candidates.

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 nine months ended September 30, 2011, loss from operations was $9.6 million and net loss was $9.5 million. Net cash used in operations for the nine months ended September 30, 2011 was $10.3 million and net cash, cash equivalents, investments and restricted investments at September 30, 2011 were $14.0 million. As of September 30, 2011, we had an accumulated deficit of $537.8 million.

Our expenses consist 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 would 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, non-equity payments from collaborative partners and interest income.


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We are subject to risks common to biopharmaceutical companies, including the need for capital, 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, potential competition 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.

We have carried out four workforce reductions since 2007, the most recent of which was completed in November 2010. As a result of our restructuring plans, we believe our existing cash resources will be sufficient to satisfy our current operating plan until the third quarter of 2012. However, changes in our research and development plans or other changes affecting our operating expenses may affect actual future consumption of existing cash resources. In any event, we will require substantial additional financing to fund our operations and continue our clinical product development programs in the future, and our ability to continue as a viable entity will be dependent on our ability to obtain funding. We have been and are currently actively seeking collaborative arrangements with corporate partners to fund the development and commercialization of TELINTRA, our lead product candidate and TELCYTA, our other product candidate. We may also seek to raise additional funds through equity or debt financings and sales transactions as well as other sources such as research grants from non-profit organizations.

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 product candidates is uncertain. As such, an accurate prediction of future operating results is difficult or impossible.

Clinical Product Development

TELINTRA, our lead drug product candidate in clinical development, is a small molecule glutathione analog inhibitor of the enzyme glutathione S-transferase P1-1, or GST P1-1. We are developing TELINTRA for the treatment of blood disorders associated with low blood cell levels, such as neutropenia or anemia. In 2008, we initiated a Phase 2 clinical trial of TELINTRA tablets, for the treatment of patients with Myelodysplastic Syndrome, or MDS. The trial for MDS completed enrollment of 86 patients and we presented the results at the annual meeting of the American Society of Hematology, or ASH, in December 2010. In the second quarter of 2009, we initiated a Phase 2 randomized study in Severe Chronic Neutropenia, or SCN, to determine the effect of TELINTRA tablets on absolute neutrophil count in patients with this disease. We terminated this trial in the second quarter of 2011 prior to completion of enrollment due to the scarcity of SCN patients and our focus on MDS. In the fourth quarter of 2009, we initiated a Phase 1 dose-ranging study of TELINTRA tablets in combination with lenalidomide in patients with MDS. We have completed enrollment of this study and expect to have results by the end of 2011. In June 2011, we initiated a Phase 2 clinical trial to evaluate TELINTRA tablets in patients with lenalidomide refractory or resistant, deletion 5q myelodysplastic syndrome, or del 5q MDS. This multicenter trial is intended to enroll up to 117 evaluable patients. The first planned interim analysis occurs after one-third of the patients have completed therapy and depending on the results of the interim analysis, additional enrollment may continue with two additional analyses planned. The timing of the interim analyses is dependent on the availability of patients in the del 5q MDS population. In October 2011, we initiated a Phase 2b clinical trial to evaluate TELINTRA tablets in patients with transfusion dependent, non-deletion 5q MDS, who have not been treated with hypomethylating agents , or HMA. This multicenter trial is intended to enroll up to 145 evaluable patients with 2 planned interim analyses, the first of which will be performed when data from 49 evaluable patients are available and the second at 97 evaluable patients. The timing of enrollment in this study is dependent on the availability of non-deletion 5q MDS patients.


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TELCYTA, our other product candidate, is a small molecule cancer drug product candidate designed to be activated in cancer cells. TELCYTA has been evaluated in multiple Phase 2 and Phase 3 clinical trials, including trials using TELCYTA as monotherapy and in combination regimens in ovarian, non-small cell lung, breast and colorectal cancer. Results from these clinical trials indicate that TELCYTA monotherapy was generally well-tolerated, with mostly mild to moderate side effects, particularly when compared to the side effects and toxicities of standard chemotherapeutic drugs. When TELCYTA was evaluated in combination with standard chemotherapeutic drugs, the tolerability of the combinations was similar to that expected of each drug alone. Clinical activity including objective tumor responses and/or disease stabilization was reported in the TELCYTA Phase 2 trials; however, TELCYTA did not meet its primary endpoints in the Phase 3 studies. In May 2010, we initiated an investigator led study at a single site of TELCYTA in patients with refractory or relapsed mantle cell lymphoma, diffuse large B cell lymphoma, and multiple myeloma. Enrollment for this study is expected to range between 18 to 48 patients based on the number of responses observed. Completion of enrollment is expected by the end of 2012. We are currently seeking a partnership with a pharmaceutical or biotechnology company to further advance the development and commercialization of TELCYTA.

We will need to raise additional funds in the near future in order to see our current active and planned clinical trials to completion.

Preclinical Drug Product Development

TLK60404-Aurora Kinase/VEGFR Inhibitors

We have a small molecule compound inhibiting both Aurora kinase and VEGFR kinase. Aurora kinase is a signaling enzyme whose function is required for cancer cell division, while VEGF 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. These lead compounds prevented tumor growth in preclinical models of human colon cancer and human leukemia by inhibiting both Aurora kinase and VEGFR kinase. Our data support the concept that dual inhibition of Aurora kinase and VEGFR kinase represents a promising approach for anticancer therapy. 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.

TLK60357-Antimitotic Agent

Using our TRAP technology, we have discovered TLK60357, a novel, potent small molecule inhibitor of cell division. TLK60357 inhibits the formation of microtubules that are necessary for cancer cell growth leading to persistent cancer cell block and subsequent cell death at the G2/M cell cycle. This compound demonstrates potent broad-spectrum anticancer activity against a number of human cancer cells. This compound also displays oral efficacy in multiple, standard preclinical models of cancer. Since we are currently focused on TELINTRA and TELCYTA development, no additional expenditure on this compound is expected.

TLK60596-VEGFR Inhibitor

TLK60596 is a small-molecule dual inhibitor of VEGFR1 and VEGFR2 kinase. VEGFR1/2 kinases are known to mediate the formation of new blood vessels in human cancers allowing them to grow. In standard animal models of human colon cancer, oral administration of TLK60596 significantly reduced tumor growth. As we are currently focused on TELINTRA and TELCYTA development, no additional expenditure on this compound is expected.


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Other

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.

Nasdaq Stock Listing Compliance

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 5550(a)(2). Effective January 7, 2010, we transferred the listing of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market. On April 22, 2010, we received notification from Nasdaq that we have regained compliance with the minimum bid price requirement. Since May 20, 2010, the bid price for our common stock had again fluctuated below the levels required by Nasdaq rules for continued listing. On July 21, 2010, we received notice from Nasdaq that the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market. On February 10, 2011, we received a notification from Nasdaq that we regained compliance with the minimum bid price requirement. On April 21, 2011, we received notice from Nasdaq that the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market and that we have 180 calendar days, or until October 18, 2011 to regain compliance. On October 20, 2011, we received notice from Nasdaq that we have been provided with an additional 180-day period, or until April 16, 2012, to regain compliance with the minimum $1.00 per share requirement. In order to regain compliance, at any time before April 16, 2012, the bid price of our common stock must close at $1.00 per share or more for a minimum of ten consecutive business days. Nonetheless, Nasdaq may require us to maintain a closing bid price of at least $1.00 per share for a longer period before determining that we have achieved compliance. If Nasdaq determines that we will not be able to cure the deficiency, or if we are otherwise ineligible, then Nasdaq would provide written notification that our common stock will be delisted, after which we may appeal the delisting determination to a Hearings Panel.

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, 2010.


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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 for the three and nine months ended September 30, 2011 or in 2010. 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 September 30, 2011 and 2010 were $1.3 million and $2.6 million. Research and development expenses for the nine months ended September 30, 2011 and 2010 were $4.5 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                         Nine Months Ended
                                              September 30,             %               September 30,             %
                                            2011          2010        Change           2011         2010        Change
                                                               (In thousands, except percentages)
Research and preclinical                 $      351      $   663          (47 )%    $    1,214     $ 2,160          (44 )%
Clinical development                            954        1,906          (50 )%         3,250       6,042          (46 )%

Total research and development           $    1,305      $ 2,569          (49 )%    $    4,464     $ 8,202          (46 )%

The decrease of 49%, or $1.3 million, in research and development expenses for the three months ended September 30, 2011 compared to the same period in 2010, was primarily due to the following:

decreased costs of approximately $1.1 million associated with a workforce reduction as a result of our November 2010 restructuring plan and reduced facility costs as we relocated our corporate offices to a smaller facility in November 2010; and

decreased clinical trial expenses of approximately $166,000 related to the completion of our Phase 2 TELINTRA tablets for MDS.

The decrease of 46%, or $3.7 million, in research and development expenses for the nine months ended September 30, 2011 compared to the same period in 2010, was primarily due to the following:

decreased costs of approximately $3.2 million associated with a workforce reduction as a result of our November 2010 restructuring plan and reduced facility costs as we relocated our corporate offices to a smaller facility in November 2010;


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decreased clinical trial expenses of approximately $586,000 related to the completion of our Phase 2 TELINTRA tablets for MDS and $146,000 in clinical drug supply manufacturing costs;

decreased expenses of approximately $65,000 for TLK60404-Aurora Kinase pre-clinical development program; and

offset by increased clinical development expenses of approximately $263,000 for our ongoing Phase 1 dose-ranging study of TELINTRA tablets in combination with lenalidomide in patients with MDS and Phase 2 TELCYTA in patients with Refractory or Relapsed Mantle Cell lymphoma, Diffuse Large B Cell Lymphoma, and Multiple Myeloma clinical studies.

We expect total research and development expenditures in 2011 to be lower than 2010 as we focus our resources mainly on advancing the clinical development of TELINTRA in MDS.

The following table summarizes our principal drug product candidate development initiatives:

                                                     Related R&D Expenses
                                                Nine Months ended September 30,
 Product                                         2011                     2010
                                                        (in thousands)
 TELCYTA                                   $          1,207         $          1,553
 TELINTRA                                             3,222                    5,588
 TLK58747                                                -                       128
 TLK60404                                                35                      359
 Other (1)                                               -                       574

 Total research and development expenses   $          4,464         $          8,202

(1) "Other" constitutes research and development activities that 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.


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General and Administrative Expenses

Three Months Ended Nine Months Ended
September 30, % September 30, %
2011 2010 Change 2011 2010 Change
(In thousands, except percentages)

General and administrative $ 1,550 $ 2,101 (26 )% $ 5,090 $ 6,856 (26 )%

The decrease in general and administrative expenses of 26%, or $551,000, for the three months ended September 30, 2011 compared to the same period in 2010, was primarily due to a decrease of $356,000 in workforce and corporate administrative expenses as a result of the restructuring plan implemented in November 2010 and decreased facility costs of $472,000 primarily due to the relocation of our corporate offices to a smaller facility in November 2010. The decrease was partially offset by an increase of $277,000 in legal expenses primarily due to patent renewal activities and registration filings.

The decrease in general and administrative expenses of 26%, or $1.8 million, for the nine months ended September 30, 2011 compared to the same period in 2010, was primarily due to a decrease of $1.2 million in workforce and corporate administrative expenses as a result of the restructuring plan implemented in November 2010 and decreased facility costs of $1.4 million partially offset by an increase of $786,000 in legal and professional service expenses primarily relating to business development, patent renewal activities and the filing of new patent applications.

We expect 2011 general and administrative expenses to be lower than the 2010 spending level as we undertake efforts to control expenses.

Stock-Based Compensation Expense

Employee stock-based compensation expense related to our share-based payment
awards was as follows:



                                                     Three Months Ended             Nine Months Ended
                                                        September 30,                 September 30,
                                                    2011            2010            2011          2010
                                                                      (in thousands)
Research and development                          $     217       $     179      $      557      $   611
General and administrative                              256             234             626          936

Stock-based compensation expense before taxes           473             413           1,183        1,547

Effect on net loss                                $     473       $     413      $    1,183      $ 1,547

The increase in employee stock-based compensation expense of $60,000, for the three months ended September 30, 2011 compared with the same period in 2010, was primarily due to new options granted in May 2011 and vested during the quarter ended September 30, 2011.

The decrease in employee stock-based compensation expense of $364,000, for the nine months ended September 30, 2011 compared with the same period in 2010, was primarily due to options shares with higher fair values fully vested in 2010, options canceled as a result of reduction in force implemented in November 2010 . . .

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