Analyst Insights

Tokai Pharmaceuticals Inc (NASDAQ:TKAI): What Now?

Tokai Pharmaceuticals Inc (NASDAQ:TKAI) has had a tough couple of months. The company collapsed towards the end of July on the news that it was discontinuing a pivotal in its lead indication. The drug under investigation was the only real asset in its pipeline, at least the only of any note, and markets are struggling to find any value in Tokai’s remaining assets. There’s a cash balance to consider, and a small amount of other current assets, but that’s about it. Law firms are circling, and a number of individual suits have been put forward claiming misrepresentation. The question is, what’s next? Is there anything worth holding on for, might we see a bounce, or is Tokai dead in the water?

First up, a bit of history as to what went right, and what went wrong. Tokai was working on a prostate cancer drug called galeterone. In prostate cancer, surgical removal and chemo/radiation therapy is the go-to treatment. In patients whose prostate cancer has spread, however, this isn’t a particularly effective treatment. These are called castration resistant prostate cancer patients, and they have very few treatment options as things stand. Tokai was seeking to change this with galeterone. The drug aimed to achieve what’s called androgen receptor degradation in prostate cancer patients. Androgen, and androgen receptors, play a key role in expressing the male phenotype, and in turn, are key to the formation of prostate cancer tumors in men. Through the inhibition of the receptors, or the degradation, in this instance, it is theorized that a drug can slow or stop tumor growth.

There’s been plenty of study in this field, and so Tokai’s attempt to carry one such drug through to commercialization was not a foolhardy task, but it seems as though – for whatever reason – galeterone isn’t an effective compound in achieving this process.

Phase I and II data in more than 250 patients suggested efficacy, and the company pushed forward into a pivotal in June last year. The study aimed to compare once daily oral galeterone with once daily oral Enzalutamide, otherwise known as Xtandi, which is the drug Pfizer Inc. (NYSE:PFE) just agreed to pay $14 billion for by way of its Medivation Inc (NASDAQ:MDVN) buyout. Xtandi is part of the same family of drugs as galeterone – it’s an antiandrogen – although MOAs differ slightly.

We saw a brief bounce in Tokai on the Pfizer Medivation announcement, and this similarity may have been the kicker behind that bounce. It sold off almost instantly, however.

Anyway, back to the trial. It was blinded and monitored by an independent DMC. This DMC decided last month that the data to date suggested Tokai’s candidate wasn’t going to beat out that of Medivation, and recommended discontinuation. Tokai took the recommendation, and here we are.

Getting back to the initial question, then, what’s next? Tokai is currently in the process of investigating the unblended data, and markets are essentially in limbo while this investigation takes place. If the company can spot any indication that the drug might work in a particular subset of the patient population, or anything else that might warrant another trial, there could be plenty of upside. Things don’t look good right now, however. Taken from the latest quarterly:


This suggests there’s not much in the data to go on, and in turn, that the company is essentially at square one. It’s got cash and equivalents of $43 million as of June 30, but no development pipeline outside of galeterone, and around $8 million liabilities, so its current market cap looks about right.

Long term, it looks like there’s very little to get excited about with this one. We might see a bounce as shorts unwind (there are 2.41 million shares short as of July) and this might be a nice short term play, but it’s about as risky as they come.

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Disclosure: We have no position in TKAI and have not been compensated for this article.