IPO Report: Tokai Pharmaceuticals (TKAI)

Tokai Pharmaceuticals ($TKAI) is a clinical-stage biopharmaceutical company focused on developing novel proprietary therapies for the treatment of prostate cancer and other hormonally-driven diseases. It is based in Cambridge, MA.

Six other companies are scheduled for the week of Sept. 15, 2014, including Alibaba. The full IPO calendar is available at IPOpremium.

The manager and co-managers are BMO Capital Markets, Stifel, and William Blair

The joint managers is Janney Montgomery Scott.

TKAI scheduled a $76 million IPO with a market capitalization of $291 million at a price range midpoint of $14 for Wednesday, Sept. 17, 2014 on the Nasdaq.  SEC filings

Tokaiu Pharmaceuticals IPO Report

Overview

TKAI is a clinical-stage biopharmaceutical company focused on developing novel proprietary therapies for the treatment of prostate cancer and other hormonally-driven diseases.

In clinical trials patients showed clinically meaningful PSA reductions of at least 50%.

Valuation

Glossary

Conclusion

The rating on TKAI is neutral to slightly positive.

In clinical trials patients showed clinically meaningful PSA reductions of at least 50%.

Insiders indicate an interest in purchasing up to $22.2mm .

Business

TKAI is a clinical-stage biopharmaceutical company focused on developing novel proprietary therapies for the treatment of prostate cancer and other hormonally-driven diseases.

TKAI’s lead drug candidate, galeterone, is a highly selective, multi-targeted, oral small molecule drug candidate that TKAI believes has advantages over existing prostate cancer therapies.

TKAI has administered galeterone to over 250 prostate cancer patients and healthy volunteers in Phase 1 and Phase 2 clinical trials.

In these trials, galeterone was well tolerated and in multiple prostate cancer patient populations showed clinically meaningful reductions in levels of prostate specific antigen, or PSA, a biochemical marker used to evaluate prostate cancer patients for signs of response to therapy.

TKAI is currently finalizing its plans for its pivotal Phase 3 clinical trial of galeterone based on discussions with the U.S. Food and Drug Administration (FDA). TKAI anticipates initiating the trial in the first half of 2015.

TKAI is focusing its initial development of galeterone on the treatment of patients with castration resistant prostate cancer (CRPC) whose prostate tumor cells express an altered androgen receptor that is truncated.

TKAI intends to conduct its pivotal Phase 3 clinical trial in these patients who TKAI believes may not be effectively treated by the therapies approved by the FDA in recent years.

TKAI believes that one of galeterone’s multiple mechanisms of action, androgen receptor degradation, provides an opportunity to treat this population of patients. In its ongoing Phase 2 clinical trial of galeterone, which TKAI refers to as its ARMOR2 trial, TKAI observed clinically meaningful PSA reductions in patients that were identified as having altered androgen receptors that were truncated in a retrospective subset analysis of seven patients.

Six of these patients showed clinically meaningful PSA reductions of at least 50%. Although its initial development focus is on galeterone for the treatment of this population of patients, TKAI is conducting its Phase 2 ARMOR2 trial of galeterone in multiple CRPC patient populations.

Galeterone acts by disrupting the androgen receptor signaling pathway, which is the primary pathway that drives prostate cancer growth.

The pathway is ordinarily activated by the binding of male hormones, or androgens, such as testosterone and the more potent androgen dihydrotestosterone (DHT) to the ligand binding domain of androgen receptors in prostate cancer cells. Galeterone disrupts the activation of the pathway through multiple mechanisms of action:

— inhibition of the enzyme CYP17, which blocks the synthesis of testosterone;

— androgen receptor antagonism, which blocks the binding of testosterone or DHT with the androgen receptor; and

— androgen receptor degradation, which reduces the amount of androgen receptor protein in the tumor cells.

Dividend Policy

No dividends are planned.

Intellectual Property

As of July 31, 2014, TKAI owned two issued U.S. patents, 10 U.S. provisional and non-provisional patent applications, one issued foreign patent, and 34 foreign applications in its galeterone patent portfolio.

TKAI also had rights under its license agreement with UMB to five issued U.S. patents and 42 issued foreign patents as well as three U.S. patent applications and 11 foreign applications.

TKAI’s owned and licensed patent and patent applications, if issued, are expected to expire on various dates from 2017 through 2034, without taking into account any possible patent term extensions.

TKAI has an exclusive license from UMB for a U.S. patent covering compositions and methods of use of a class of compounds encompassing galeterone, which expires in 2017.

Given its expiration date and the anticipated timing of development and commercialization of galeterone, TKAI does not believe this patent will provide significant protection for galeterone.

TKAI has no patent protection specifically covering the chemical structure of galeterone.

As a result, a third party that obtains regulatory approval of a product with the same active ingredient as galeterone may be able to market such product so long as the third party does not infringe any other patents owned or licensed by TKAI with respect to galeterone.

For this reason, TKAI has filed for or licensed patents and patent applications relating to galeterone covering methods of use, pharmaceutical compositions, combination treatments, prodrugs, metabolites, and analogs of galeterone and their use.

Competition

TKAI is focusing its initial development of galeterone on the treatment of CRPC patients whose prostate tumor cells express an altered androgen receptor that is truncated.

Based on their mechanisms of action, preclinical data and the data from the MD Anderson and Johns Hopkins trials, TKAI believes that Zytiga and Xtandi are less responsive in this patient population and do not expect that other drugs in development with similar mechanisms of action will be responsive in this patient population.

However, TKAI expects that other drugs with alternative mechanisms of action may be developed for the treatment of this patient population.

TKAI believes that galeterone may be well suited to treat other prostate cancer patient populations.

If galeterone is approved for additional indications, it may compete with other secondary hormonal treatments currently being marketed, such as Zytiga and Xtandi, or with secondary hormonal treatment drug candidates currently in development, such as ARN-509 and ODM-201.

Zytiga is marketed in the United States by Johnson & Johnson, and Xtandi is marketed in the United States by Astellas Pharma Inc. and Medivation, Inc.

ARN-509 is being developed by Johnson & Johnson and ODM-201 is being developed by Bayer Healthcare and Orion Corporation.

In addition, depending on the indication for which galeterone is approved, galeterone may compete with chemotherapy and other compounds that are not secondary hormonal treatments, including Jevtana and Provenge, and compounds that are in clinical development, such as Exelixis, Inc.’s Cometriq and Bavarian Nordic A/S’s Prostvac.

5% stockholders

Entities affiliated with Apple Tree Partners       49.15%

Novartis BioVentures Ltd.        28.12%

Trusts and other entities affiliated with Muneer A. Satter      10.56%

Seth L. Harrison, M.D.       50.53%

Reinhard J. Ambros, Ph.D.      28.12%

Campbell Murray, M.D.     28.12%                             

Use of proceeds

TKAI intends to use the $67 million in proceeds from its IPO as follows along with cash on hand:

$45 million to fund its planned pivotal Phase 3 clinical trial of galeterone for CRPC patients with AR-V7 and conduct other clinical trials and non-clinical studies to support the submission of an NDA to the FDA for galeterone for this indication;

$4.5 million to fund its ongoing ARMOR2 trial;

$2 million to fund its initial research of compounds that are designed to disrupt androgen receptor signaling through enhanced androgen receptor degradation;

the greater of $0.5 million and 1% of the gross proceeds of this offering to pay a fee to a financial advisor in connection with strategic and financial advisory services unrelated to this offering; and

the remainder for working capital and other general corporate purposes.