End of Year 2006

End of Year Update

Get some quick news out of the way:

Genvec announced interim efficacy analysis for a phase II / III trial in pancreatic cancer. To quote:

“Kaplan-Meier analysis of overall survival data, based on available results for the first 51 patients enrolled in the study, some followed for as long as 18 months, showed a 42.5% absolute increase in overall survival with the addition of TNFerade to standard of care (SOC). At one year, survival was 70.5% in the TNFerade + SOC arm, versus 28.0% in the SOC arm. Significance was at the 75% confidence interval level, and was based on 5 deaths out of 33 TNFerade patients and 7 deaths out of 18 SOC patients”

That was on the 19th of December. On the 20th of December, they announced a ~20 million financing.

Transparent? Yes.

Par for the course for Genvec? Yes.

Those familiar with some of the trading history of this company will know that someone has always had the advance scoop for news, and such shenanigans aren’t out of the ordinary. And although the preliminary results for this pancreatic cancer trial appear exciting, it is a serious stretch to depend heavily on a control arm comparison that had only 7 events and 18 patients. All in all, it’s pretty clear that Genvec management gamed the market with this announcement. So for the experienced jaded biotech investor that has seen more of these shenanigans than they can count, the overall situation is a plus because they actually get some clinical data to chew on.

Telik... ugh...

Obviously the big news for this hypothetical portfolio was the crater left at Telik headquarters after they released topline results for ASSIST-1, 2 and 3. Seemingly the impossible happened :-)

I’d handicapped this event in a way that did not give any possibility to all three failing because I thought ASSIST-3 was a gimme, trial-wise, even if it may not have been adequate for approval by itself. Well, due to some significant trial issues, management managed to F up this trial so much so that it is scientifically inconclusive. Coupled with the drug failing in ASSIST-1 and ASSIST-2, this was the absolutely worst outcome for Telik. Not only does the drug fail to prove superiority in two large trials, the third trial is so poorly managed that not only will it be insufficient for a regulatory filing, it doesn’t give a clear answer as to the drug’s future in the combination treatment settings.

For those that love uncertainty, this situation has created nothing but.

Why uncertainty and not certain failure?

Arguably, Telcyta’s strongest data to date have been the combination results. In handicapping the ASSIST trials, i’d given very low incremental odds for the monotherapy ovarian and NSCLC trials to succeed. Those failures are now certain. However, the market opportunities in 3rd line ovarian and NSCLC were limited, and for Telik to truly be a lucrative investment, the combination studies in earlier stage disease were key. But with ASSIST-3 being inconclusive, it’s hard to decide if there is any future for the drug as combination therapy.

It’s hard to comment on or analyze this situation any further, because there are absolutely no data to look at. Some important questions to address will be:

1) Although ASSIST-1 and ASSIST-2 failed to show statistically significant improvement over the control arm, did the hazard ratio favour Telcyta? I’m talking about a 15-20% favoring of the Telcyta arm, not 5%.

2) Management said that objective responses were observed on the Telcyta arm of all trials. What were the response rate percentages? In the previous ovarian cancer monotherapy trials, the response rates were in the 10-15% range. For consistency, it would be nice if this was reproduced in ASSIST-1. It would also be nice if the median survival in the small monotherapy trials was, more or less, reproduced in ASSIST-1.

3) If you withdraw the 25% of patients with discordance in ASSIST-3, do the data still favour the Telcyta combination arm?

4) Will they change ASSIST-5 to a survival trial?

For me, these questions will determine whether or not Telik will be suitable for risk-loving investors going forward, or if it will simply be a lost cause. If the hazard ratio reasonably favored Telcyta in ASSIST-1 and 2, with response rates mimicking the previous phase II results *and* ASSIST-3 favored the Telcyta arm once the discordancies were subtracted, this *might* be one of the repeated “buying opportunities” that a certain subset of biotech investors enjoy. If the above three conditions are satisfied, I would like to see ASSIST-5 turned into a survival trial.

Why do we care about ASSIST-1, a failed trial, reproducing the results of the previous monotherapy trials? Although Telik’s biggest problem is the failure of these three trials, management’s second big issue is that of credibility. If investors see that the previous phase II trials were properly run (and the results reproduced in ASSIST-1), that can give some comfort to investors who are now tentative about relying on the phase II combination data that the company had previously released. As it stands, all the encouraging phase II combination data to date is suspect. That is the grim truth.


In the meantime, the triplet data in first line NSCLC is due to be released at AACR in April. With over 100 patients in this dataset, it should be a meaningful piece of information for those who are following Telik. But understandably, even if the data look “good”, there will be a substantial dose of skepticism... all of which will be deserved.


Synopsis

With prudent hedges in place ahead of the phase III results, many could have dampened the impact of the 70% decrease in share price. In fact, in real life, I use hedges for these situations. However, I want to limit such additional considerations for the purposes of this blog. That aside, I do think Telik’s current situation can be a recipe for disaster for many investors. If you’re one of those investors who is inclined to have “faith” in a drug, and you feel it is “not if, but when” Telcyta will be approved, the current valuation may appear too good to pass up. But without additional data on the ASSIST trials, buying here would be pretty much irresponsible, in my opinion. Bottom fishing is for traders, and this blog has no intention of confusing the current fundamentals of Telik with the allure of scalping 20% by trading a stock that just crashed and burned based on phase III results.

As of today, the hypothetical portfolio stands at a value of $87 011.75, or a loss of 13%. That’s a terrible, terrible one year performance. Read at your own risk!