Big Moves on Big Volume Could Continue

Good morning and happy 12-12-12!  As unsettling as the date may be to some, if we are right about today’s profiled stock, 12-12-12 will be a profitable day.

Telik Inc. (NASDAQ – TELK - $1.96) is a California-based clinical stage drug development company focused on various forms of cancer treatment with a solid management team consisting of several Ph.D. and M.D. leaders, each having many years of experience in the industry. The Company has 2 products in Phase 2 clinical trials and a number of preclinical problems.

GST P1-1 ROLE IN CANCER:  A variety of human cancers, including breast, colon, kidney, lung and ovarian, usually express high levels of GST P1-1 compared to the surrounding tissues. High expression of GST P1-1 has been associated with disease progression and with drug resistance in patients undergoing chemotherapy.  This is the basis for much of the drug discovery for the Company.

Therapies:

TELINTRA® (Ezatiostat HCl):  A small molecule bone marrow stimulant that is in a Phase 2 trial in myelodysplastic syndrome (MDS) and severe chronic idiopathic neutropenia (SCN).  TELCYTA®: (Canfosfamide HCl): A cancer cell-activated small molecule that is in development for ovarian and non-small cell lung cancer. Learn more about TELCYTA®

Additionally, Telik has developed a proprietary development platform called TRAP, which is a revolutionary small molecule screening process.  TRAP allows Telik to screen approximately 10,000 times less compounds used in identifying disease related targets.  This technology is being used in additional projects in the pipeline, and could rapidly increase development time.

The Bottom Line

The stock has been a dog this year after completing a 1:30 reverse stock split. Management has been forced to reduce headcount and other expenses, and according to the 3Q12 results release, it appears as if the Company needs additional funding to pay for clinical development past 1Q13. Sounds like a reason to avoid the stock, right?

Well, there was very heavy volume on Monday with nearly 1 million shares traded and the stock jumping as much as 64%, intraday. Typically, the stock trades in the tens of thousands of shares. Big volume continued yesterday and continues today. We should note that the 52-week range on the stock is $9.00 - $1.09, so it remains near the lows for the year, despite the big moves.

We do not believe that the recent big swings are illustrative of a dead cat bounce.

Instead, since the stock is under real accumulation, we are speculating that Telik is close to obtaining financing, which would sharply reduce the risk inherent in these shares.  While equity financing is usually a dilutive driver of stock price, there was a recent transaction in the pharmaceutical sector that shows a quick pop is possible.  Acadia Pharmaceuticals announced a deal worth $86 million at the close yesterday with the stock at $4.43.  It hit $5.18 already today!  With all these factors in play we like TELK for a pop to the $3.00 level if our hunch is correct.

Disclosure: The authors of this blog are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

Rob Goldman

Aaron Schweitzer

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