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TELK - biotech with failed drug trial

http://www.forbes.com/markets/2007/06/05/telik-cancer-update-markets-equity-cx_er_0605markets23.html

Telik's Grave Error
Evelyn M. Rusli, 06.05.07, 9:00 PM ET


It was a black Tuesday for the young biotech company Telik. Its shares plummeted after the company announced that the U.S. Food and Drug Administration had pulled the plug on human trials for Telcyta, its ovarian cancer treatment.

Late Monday, the FDA ordered Telik to stop administering the drug after the company reported that patients on Telcyta died 5.1 months earlier than patients on traditional chemotherapy.

Shares of Telik plunged 25.5%, or $1.17, to close at $3.42.

The FDA's mandate, called a clinical hold, effectively freezes all ongoing trials and prevents the company from enrolling new patients.

"Telik plans to submit to the FDA additional detailed safety and other information regarding Telcyta and meet with the FDA regarded the clinical hold as soon as possible," the company said in a statement on Monday. There was only one trial open for patient enrollment.

The drug, which was also tested on lung-cancer patients, failed to prolong life or slow the growth of tumors. On average, ovarian cancer patients, with particularly aggressive conditions, lived 8.5 months on Telcyta, while those on traditional chemotherapy lived 13.6 months.

For a small biotech company with only a handful of drugs in the pipeline and none on the market, the disappointing data was a major blow to the company's stock and its credibility. At the height of Telcyta enthusiasm, Telik's shares traded above $20. However, after the company announced in December 2006 that the latest human trial of the drug did not improve patient survival rate, the stock plummeted 70.1%, to just under $5. While few expected Telik to announce stellar results at the annual meeting of the American Society of Clinical Oncology, taking place in Chicago this week, few expected the news to be this bad.

"Anticipating significant shareholder backlash and harsh challenge to management credibility, we believe Telik will drown in negative publicity pending FDA review of Telcyta clinical data," Wachovia Securities analyst George Farmer said in a note. He downgraded the stock to "Market Perform" from "Outperform."

Like many young biotech companies, Telik has faced incredible pressure to swiftly produce positive results. While large pharmaceutical houses like Merck and GlaxoSmithKline can weather the failure of a drug because of their deep cash reserves and broad portfolios, a small biotech depends on consistent victories to secure investment capital.

According to Dr. Michael Bookman, an oncologist at Fox Chase Cancer Center who participated in an early stage trial of Telcyta, Telik's ambition and the enormous pressure to succeed may have clouded its judgement. During the early trial, Bookman wanted to take tissue samples of the patients in order to understand whether the drug was more effective in patients with certain enzyme characteristics. However, the company refused his request "because it might have potentially complicated regulatory filings," Bookman said.

The study would have been expensive and the findings may have restricted the drug's usage, damaging its marketablity.

"I think it was a shame they chose not to go down the path of getting more data, it would have helped them guide their study more carefully," Bookman said.