Biotech Values

[Skeptic]

Re TELK

The only thing that makes me nervous on TELK is that so many sell-side analysts are bullish on this thing with a median price target around $29 (almost double today's price). Whenever a majority of these clowns are in the same boat, I worry about the ship sinking.

That said, the theorized MOA is interesting and suggests that Telcyta ought to be a potent potentiator and perhaps even an effective monotherapy. Link to MOA (pretty picture)

http://www.telik.com/pipe_telcyta.html

However, I'll leave you with some of Prudential's thoughts on the matter...

While we see some prospects of success for its ASSIST-3 trial, we're
unchanged in our thesis that ASSIST-1 and ASSIST-2 results could be negative.

* Telik is also pursuing its lead candidate Telcyta in triple-combination
with Carboplatin and Paclitaxel for the first-line treatment of non-small
cell lung cancer (NSCLC). While data from this trial has been positive thus
far, we think the lowering of the maximum allowable dose in the trial
protocol (due to side effects) may result in lower response rates.
Furthermore, we think the NSCLC treatment landscape is becoming more
competitive.

* We reiterate our Underweight rating and $13 price target.
----- DISCUSSION ------------------------------------------------------------
Valuation and Risks
We value the company using two different approaches: P/E multiple and product
pipeline valuation. For the P/E method, we assume TELCYTA's approval in 2007
based on a positive result from the Phase III combination trial in ovarian
cancer. We forecast EPS into 2009, or about two years after TELCYTA's launch.
We chose a P/E multiple of 45x, the highest we would assign to a company that
does not yet have a product on the market. We use a high discount rate of 30%
mainly because of the high clinical risks in TELCYTA. Applying these
parameters to our 2009 EPS of $0.86, we arrive at a price target of $14. Our
product pipeline valuation arrives at a price target of $12. Our price target
of $13 for the next 12-18 months is the average of the two price points.