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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________ .
COMMISSION FILE NUMBER: 333-33868
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TELIK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 93-0987903
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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750 GATEWAY BOULEVARD, SOUTH SAN FRANCISCO, CA 94080
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 244-9303
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
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Class: Common Stock $0.01 par value Outstanding at November 3, 2000:
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22,569,362 shares
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TELIK, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Balance Sheets as of
September 30, 2000 and December 31, 1999 3
Condensed Statements of Operations for the
three and nine months ended September 30, 2000 and 1999 4
Condensed Statements of Cash Flows for
the nine months ended September 30, 2000 and 1999 5
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3: Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 20
Item 2: Changes In Securities and Use of Proceeds 20
Item 3: Defaults upon Senior Securities 21
Item 4: Submission of Matters to a Vote of Security Holders 21
Item 5: Other Information 21
Item 6: Exhibits and Reports on Form 8-K 21
SIGNATURES 22
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TELIK, INC.
Condensed Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 37,976 $ 1,950
Short-term investments 6,439 5,606
Prepaid expenses and other assets 528 337
-------------- --------------
Total current assets 44,943 7,893
Property and equipment, net 855 1,197
Other assets 80 80
-------------- --------------
$ 45,878 $ 9,170
============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,415 $ 780
Accrued contracts and other liabilities 1,004 680
Deferred revenue 896 2,250
Current portion of capital lease obligations and equipment loans 17 247
-------------- --------------
Total current liabilities 3,332 3,957
Noncurrent portion of capital lease obligations and equipment loans 16 25
Other long term liabilities 56 58
Commitments
Stockholders' equity:
Convertible preferred stock, $0.01 par value, issuable in series, none
authorized at September 30, 2000, 1,023,799 shares in 1999, none issued
and outstanding at September 30, 2000, 2,186,817 shares issued and
outstanding at December 31, 1999 (aggregate liquidation preference of
$50,408 at December 31, 1999) - 10
Common stock; $0.01 par value, 50,000,000 shares authorized at September 30,
2000, 23,000,000 shares in 1999, 22,563,841 and 2,207,281 shares issued
and outstanding at September 30, 2000 and December 31, 1999 respectively 226 22
Additional paid-in capital 106,519 56,742
Deferred stock compensation (2,491) (260)
Accumulated deficit (61,780) (51,384)
--------------- --------------
Total stockholders' equity 42,474 5,130
=============== ==============
--------------- --------------
Total liabilities and stockholders' equity $ 45,878 $ 9,170
=============== ==============
</TABLE>
See accompanying notes
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Telik, Inc.
Condensed Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Contract revenue from collaborations:
With related parties $ 562 $ 500 $ 1,687 $ 1,500
Other 134 481 339 1,970
Other revenues 25 - 25 -
----------- ----------- ----------- -----------
721 981 2,051 3,470
Costs and expenses:
Research and development 2,872 2,499 7,991 7,697
General and administrative 552 318 5,141 1,090
----------- ----------- ----------- -----------
3,424 2,817 13,132 8,787
----------- ----------- ----------- -----------
Loss from operations (2,703) (1,836) (11,081) (5,317)
Interest income, net 434 99 685 325
----------- ----------- ----------- -----------
Net loss (2,269) (1,737) (10,396) (4,992)
Deemed dividend to preferred stockholders - - (4,667) -
----------- ----------- ----------- -----------
Net loss allocable to common stockholders $ (2,269) $ (1,737) $ (15,063) $ (4,992)
========== =========== =========== ==========
Net loss per common share, basic and diluted $ (0.12) $ (0.11) $ (0.90) $ (0.34)
========== =========== =========== ==========
Weighted average shares used in computing net loss
per common share, basic and diluted 19,549 15,177 16,830 14,841
</TABLE>
See accompanying notes
Page 4
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Telik, Inc.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
---------- ------------
<S> <C> <C>
Operating activities
Net loss $(10,396) $ (4,992)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 411 463
Amortization of deferred stock compensation 386 -
Stock options issued to consultants 4,063 -
Amortization of discount on investments 67 115
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (191) 82
Accounts payable 635 (16)
Accrued contracts and other liabilities 324 (54)
Deferred revenue (1,354) (1,351)
Other long-term liabilities (2) (84)
---------- ------------
Net cash used in operating activities (6,057) (5,837)
---------- ------------
Investing activities
Maturities of short-term investments 2,750 11,026
Sales of short-term investments - 4,315
Purchases of short-term investments (3,650) (10,350)
Purchases of property and equipment (69) (225)
---------- ------------
Net cash (used in) provided by investing
activities (969) 4,766
---------- ------------
Financing activities
Proceeds from equipment loans - -
Principal payments under capital lease obligations and
equipment loans (239) (443)
Net proceeds from issuance of convertible preferred stock 6,950 -
Net proceeds from issuance of common stock and warrants 36,341 11
---------- ------------
Net cash provided by (used in) financing
activities 43,052 (432)
---------- ------------
Increase (decrease) in cash and cash equivalents 36,026 (1,503)
Cash and cash equivalents at beginning of period 1,950 2,196
---------- ------------
Cash and cash equivalents at end of period $ 37,976 $ 693
========== ============
Supplemental cash flow information
Cash paid for interest $ 171 $ 54
========== ============
Schedule of non cash transactions
Deferred stock compensation $ 2,617 $ -
========== ============
Note receivable for preferred stock $ 5,000 $ -
========== ============
Note receivable received for common stock $ 153 $ -
========== ============
</TABLE>
See accompanying notes
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TELIK, INC.
Notes to Condensed Financial Statements
(Unaudited)
1. Basis of presentation and summary of significant accounting policies
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000 or any other period. These financial
statements and notes should be read in conjunction with the financial statements
for the year ended December 31, 1999, included in the Company's Registration
Statement on Form S-1.
Certain reclassifications of prior year amounts have been made to conform
to current year presentation.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity of 90 days or less when purchased to be cash equivalents. For the
periods presented, cash equivalents consist of money market funds and corporate
debt securities. The Company's short-term investments include obligations of
governmental agencies and corporate debt securities with original maturities
ranging between 3 and 12 months. The Company limits concentration of credit risk
by diversifying its investments among a variety of high credit-quality issuers.
All cash equivalents and short-term investments are classified as
available-for-sale. Available-for-sale securities are carried at estimated fair
value, based on available market information, with unrealized gains and losses,
if any, reported as a component of stockholders' equity. The cost of securities
sold is based on the specific identification method. As of September 30, 2000
and December 31 1999, there were no material differences between amortized cost
and fair value of available-for-sale securities. Realized gains and losses on
sales of available-for-sale investments are not material.
REVENUE RECOGNITION
Contract revenue consists of revenue from research and development
collaboration agreements. The Company's research and development collaboration
agreements provide for periodic payments in support of the Company's research
activities. The Company recognizes contract revenue from these agreements as
earned based upon the performance requirements of the agreements and payments of
up-front technology access and license fees are recognized ratably over the
period of the related research program. Payments received, which are related to
future performance, are deferred and recognized as revenue when earned over
future performance periods.
The Company has received United States government grants, which support
research efforts in defined projects. Revenue from such government grants is
recognized as costs relating to the grants are incurred.
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TELIK, INC.
Notes to Condensed Financial Statements
(Unaudited)
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists primarily of unrealized
gains or losses on available-for-sale securities. There was no significant
difference between the reported net loss and the comprehensive net loss for all
the periods presented.
RECENTLY ISSUED THE STANDARDS
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which contains
rules designed to clarify the application of APB 25. FIN 44 was effective
July 1, 2000. The adoption of FIN 44 did not have a material effect upon our
operating results or financial position.
In December 1999, the Staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain
of the Staff's views in applying generally accepted accounting principles to
revenue Recognition. The Company has not completed its assessment of the impact
of SAB 101, but does not expect that the implementation of SAB 101 will have a
material impact.
2. Basic and diluted net loss per share
Basic net loss per common share has been calculated based on the weighted-
average number of common shares outstanding during the period less shares
subject to repurchase. Diluted net loss per share would give effect to the
dilutive effect of common stock equivalents consisting of stock options and
warrants (calculated using the treasury stock method). Potentially dilutive
securities have been excluded from the diluted earnings per share computations
as they have an antidilutive effect due to our net loss.
The computation of basic and diluted net loss per share includes shares
issuable upon the conversion of outstanding shares of convertible preferred
stock (using the as-if converted method) from the original date of issuance.
The following table presents the calculations of basic and diluted net loss
per share (in thousands, except share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss allocable to common
stockholders $ (2,269) $ (1,737) $ (15,063) $ (4,992)
============= ============= ============= =============
Basic and diluted:
Weighted average shares of
common stock outstanding 14,011,497 2,256,335 6,008,956 2,200,926
Adjustment to reflect shares
subject to repurchase (96,000) -- (32,584) --
Adjustment to reflect weighted
average effect of conversions
of preferred stock 5,633,032 12,920,863 10,853,581 12,639,975
------------- ------------- ------------- -------------
Weighted average shares used in
net loss per common share,
basic and diluted 19,548,529 15,177,198 16,829,953 14,840,901
============= ============= ============= =============
</TABLE>
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TELIK, INC.
Notes to Condensed Financial Statements
(Unaudited)
3. Deemed dividend upon issuance of convertible preferred stock
During March 2000, the Company consummated the sale of 1,166,667 shares of
Series K convertible preferred stock at $6.00 per share for net proceeds of
approximately $1,950,000 and a short term note receivable of $5,000,000. At the
date of issuance, the Company believed the per share price of $6.00 represented
the fair value of the preferred stock. Subsequent to the date of issuance, Telik
re-evaluated the fair value of its common stock. Accordingly, the increase in
fair value resulted in a beneficial conversion feature of $4,667,000 that was
recorded as a deemed dividend to preferred stockholders in the first quarter of
2000. The Company recorded the deemed dividend at the date of issuance by
offsetting charges and credits to additional paid-in capital, without any effect
on total stockholders' equity. The preferred stock dividend increases the net
loss allocable to common stockholders in the calculation of basic and diluted
net loss per common share for the nine months ended September 30, 2000.
4. Deferred Compensation
In connection with the grant of stock options to employees and directors we
recorded deferred stock compensation totaling $2,617,000 for the nine months
ended September 30, 2000, representing the difference between the fair value of
the common stock for financial statement reporting purposes and the exercise
price of the underlying options. This amount is included as a reduction of
stockholders' equity and is being amortized over the vesting period of the
individual options, generally four years. We recorded amortization of deferred
stock compensation of $163,000 and $386,000 for the three and nine months ended
September 30, 2000, respectively. Additionally, we recorded $4,063,000 of non-
employee stock-based compensation for the nine months ended September 30, 2000.
No deferred stock compensation or non-employee stock-based compensation was
recorded in the third quarter of 2000.
5. Initial public offering of common stock
In September 2000, the Company completed an initial public offering of 5.75
million newly issued shares of its common stock at a price of $7.00 per share,
receiving net proceeds of $35.6 million. Simultaneously with the closing of the
initial public offering, the 2,186,817 shares of convertible preferred stock
outstanding at June 30, 2000 were automatically converted into 13,806,642 shares
of common stock and warrants to purchase preferred stock were exercised for a
total of 8,493 shares of common stock.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Special Note Regarding Statements of Expected Future Performance
This Form 10-Q contains statements indicating expectations about future
performance and other forward-looking statements that involve risks and
uncertainties. We usually use words such as "may," "will," "should," "expect,"
"plan," "anticipate," "believe," "estimate," "predict," "future", "intend,"
"potential," or "continue" or the negative of these terms or similar expressions
to identify forward-looking statements. These statements appear throughout the
Form 10-Q and are statements regarding our current intent, belief, or
expectation, primarily with respect to our operations and related industry
developments. Examples of these statements include, but are not limited to,
statements regarding the following: the extent to which our issued and pending
patents may protect our products and technology, our ability to identify new
product candidates using TRAP, the potential of such product candidates to lead
to the development of safer or more effective therapies, our ability to develop
the technology derived from our collaborations, our anticipated timing for
filing an IND or for the initiation or completion of Phase I or Phase II testing
for any of our product candidates, our future operating expenses, our future
losses, our future expenditures for research and development and our use of
proceeds from the initial public offering. You should not place undue reliance
on these forward-looking statements, which apply only as of the date of this
Form 10-Q. Our actual results could differ materially from those anticipated in
these forward-looking statements for many reasons, including the risks faced by
us and described under in the section of this Item 2 titled "Additional Factors
That May Affect Future Results," and elsewhere in this Form 10-Q and under the
heading "Risk Factors" in the Company's Registration Statement on Form S-1 dated
August 11, 2000.
The following discussion and analysis should be read in conjunction with
the unaudited financial statements and notes thereto included in Part I, Item 1
of this Quarterly Report and with Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in our Registration
Statement on Form S-1 dated August 11, 2000.
Overview
We are engaged in the discovery, development and commercialization of small
molecule therapeutics. We have incurred net losses since inception and expect to
incur substantial and increasing losses for the next several years as we expand
our research and development activities and move our product candidates into
later stages of development. The process of carrying out the development of our
own unpartnered products to later stages of development and our research
programs for our corporate partners may require significant additional
expenditures for research and development including preclinical testing and
clinical trials, as well as for obtaining regulatory approvals. To date, we have
funded our operations primarily through the sale of equity securities, non-
equity payments from collaborators and capital asset lease financings. At
September 30, 2000, our accumulated deficit was approximately $61.8 million.
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Results of Operations
Three months ended September 30, 2000 and 1999
Revenues
Revenues for the three-month periods ended September 30, 2000 and 1999 were
$0.7 million and $1.0 million, respectively. The decrease in revenue is
attributable to the completion of one our collaborative agreements in 1999.
Revenue in 2000 resulted from the recognition of deferred contract revenue from
collaborative agreements and funded research related to a grant received from
the National Institutes of Health in the third quarter of 2000.
Research and development expenses
Research and development expenses for the three-month periods ended
September 30, 2000 and 1999 were $2.9 million and $2.5 million respectively.
The increase in expenses in 2000 was primarily due to clinical trials expenses
and non-cash charges for amortization of deferred stock compensation.
General and administrative expenses
General and administrative expenses for the three-month periods ended
September 30, 2000 and 1999 were $0.6 million and $0.3 million, respectively.
The increase in expenses in 2000 was primarily due to staffing and other costs
associated with the administration of Telik as a public company.
Nine months ended September 30, 2000 and 1999
Revenues
Revenues for the nine-month periods ended September 30, 2000 and 1999 were
$2.1 million and $3.5 million, respectively. The decrease in revenue in 2000 is
attributable to the completion of one of our collaborative agreements in 1999.
Revenue in 2000 included recognition of deferred contract fees from
collaborative agreements as well as funded research related to a grant received
from the National Institutes of Health in the third quarter of 2000.
Research and development expenses
Research and development expenses for the nine-month periods ending
September 30, 2000 and 1999 were $8.0 million and $7.7 million, respectively.
The increase in expenses in 2000 was primarily due to clinical trials expenses
and non-cash charges for amortization of deferred stock compensation and stock
based compensation expense.
General and administrative expenses
General and administrative expenses for the nine-month periods ended
September 30, 2000 and 1999 were $5.1 million and $1.1 million respectively.
The increase in expenses in 2000 was primarily due to a $3.8 million non-cash
charge in 2000 for stock based compensation expense relating to stock options
granted to a former executive officer. We also incurred additional
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expense in 2000 due to staffing and other costs associated with the
administration of Telik as a public company.
Liquidity and Capital Resources
Our cash, cash equivalents and short-term investments totaled $44.4 million
at September 30, 2000. We have financed our operations from inception primarily
through private placements of equity securities, revenue from collaborative
agreements, interest earned on short-term investments and equipment lease line
financings. During the nine months ended September 30, 2000, we received net
proceeds of $35.6 million from our initial public offering and $7 million from a
private placement of equity securities. As of September 30, 2000, we had raised
$98.6 million from the sale of equity securities, including $11.0 million from
collaborators, and received $11.3 million in non-equity payments from
collaborators.
We believe our existing cash and investment securities and anticipated cash
flow from existing and future collaborations, if any, will be sufficient to
support our current operating plan through at least the next 18 months; however,
we have based this estimate on assumptions that may prove to be wrong. Our
future funding requirements will depend on many factors, including, but not
limited to:
. the progress and success of preclinical and clinical trials of our product
candidates;
. the progress and number of research programs in development;
. the costs and timing of obtaining regulatory approvals;
. our ability to establish, and the scope of, new collaborations;
. our ability to meet the milestones identified in our collaborative
agreements which trigger payments; and
. the costs and timing of obtaining, enforcing and defending our patent and
intellectual property rights.
Outlook
We continue to expect to complete patient accrual for the Phase I trial of
our TLK286 cancer drug product candidate in refractory cancer patients in the
fourth quarter of 2000 and to initiate Phase II trials of TLK286 in the first
quarter of 2001. We also plan to file an Investigational New Drug application
(IND) in the first half of 2001 for U.S. Food and Drug Administration (FDA)
clearance to begin clinical testing of our TLK199 product candidate for the
treatment of chemotherapy-induced neutropenia.
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We expect our operating expenses for the remainder of 2000 and for 2001 to
increase as we expand clinical development of TLK286 and as we prepare to file
an IND to begin clinical development of TLK199.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Our business is subject to various risks, including those described below.
You should carefully consider these risk factors; together with all of the other
information included in this Form 10-Q. Any of these risks could materially
adversely affect our business, operating results and financial condition.
WE HAVE A HISTORY OF NET LOSSES, WHICH WE EXPECT TO CONTINUE FOR AT LEAST
SEVERAL YEARS. WE WILL NEVER BE PROFITABLE UNLESS WE DEVELOP, AND OBTAIN
REGULATORY APPROVAL AND MARKET ACCEPTANCE OF, OUR PRODUCT CANDIDATES.
Due to the significant research and development expenditures required to
develop our TRAP technology and identify new product candidates and the lack of
any products to generate revenue, we have not been profitable and have generated
operating losses since we were incorporated in 1988. As of September 30, 2000,
we had an accumulated deficit of approximately $61.8 million. We expect to incur
losses for at least the next several years and expect that these losses will
actually increase as we expand our research and development activities and incur
significant clinical testing costs. To date, we have derived substantially all
of our revenue from project initiation fees and research reimbursement paid
pursuant to existing collaborative agreements with third parties and achievement
of milestones under current collaborations. We expect that this trend will
continue until we develop, and obtain regulatory approval and market acceptance
of, our product candidates. We cannot assure you when, if ever, we will receive
product revenue, if any, sufficient to become profitable.
ALL OF OUR PRODUCT CANDIDATES ARE IN RESEARCH AND DEVELOPMENT. IF CLINICAL
TRIALS OF TLK286 ARE DELAYED OR UNSUCCESSFUL, IF THE IND FOR TLK199 IS NOT
ACCEPTED, OR IF WE ARE UNABLE TO COMPLETE THE PRECLINICAL DEVELOPMENT OF OUR
DIABETES PRODUCT CANDIDATE, OUR BUSINESS MAY BE ADVERSELY AFFECTED.
Preclinical testing and clinical development are long, expensive and
uncertain processes. It may take us or our collaborators several years to
complete this testing, and failure can occur at any stage of the process.
Success in preclinical testing and early clinical trials does not ensure that
later clinical trials will be successful. A number of companies in the
pharmaceutical industry, including biotechnology companies, have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials.
Only one of our product candidates, TLK286, has advanced to the stage of
human testing designed to determine safety, known as phase I clinical trials
and, to date, we have only limited data on safety and efficacy in humans. We are
in the process of conducting the necessary work to support the filing of an IND
application for TLK199, our second cancer product candidate. The FDA may require
us to run more preclinical tests, which could delay commencing clinical trials
of TLK199. Finally, our success depends, in part, on our ability to complete
preclinical
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development of our diabetes product candidates and take them through early
clinical trials. We do not anticipate that any of our products will reach the
market for at least several years.
If we are unable to continue to identify new product candidates using TRAP,
our proprietary drug discovery technology, we may not be able to maintain our
product pipeline and develop commercially viable drugs.
WE BELIEVE THAT OUR ABILITY TO COMPETE DEPENDS, IN PART, ON OUR ABILITY TO USE
OUR PROPRIETARY TRAP TECHNOLOGY TO DISCOVER, DEVELOP AND COMMERCIALIZE NEW
PHARMACEUTICAL PRODUCTS. WE MAY NOT BE COMPETITIVE IF WE ARE UNABLE TO UTILIZE
OUR TRAP TECHNOLOGY OR IF THE TECHNOLOGY PROVES INEFFECTIVE.
TRAP technology is a relatively new drug discovery method that uses a
protein panel of approximately 20 proteins selected for their distinct patterns
of interacting with small molecules. This panel may lack essential types of
interactions that we have not yet identified, which may result in our inability
to identify active compounds that have the potential to be developed into
commercially viable drugs.
IF WE ARE UNABLE TO RAISE ADEQUATE FUNDS IN THE FUTURE, WE WILL NOT BE ABLE TO
CONTINUE TO FUND OUR OPERATIONS, RESEARCH PROGRAMS, PRECLINICAL TESTING AND
CLINICAL TRIALS TO DEVELOP OUR PRODUCTS.
The process of carrying out the development of our own unpartnered products
to later stages of development and developing other research programs to the
stage that they may be partnered will require significant additional
expenditures, including preclinical testing, clinical trials and obtaining
regulatory approval. As a result, we will require additional financing to fund
our operations. We do not know whether additional financing will be available
when needed, or that, if available, we will obtain financing on terms favorable
to our stockholders. We have expended substantial amounts of cash to date and
expect capital outlays and operating expenditures to increase over the next
several years as we expand our research and development activities.
IF OUR COMPETITORS DEVELOP AND MARKET PRODUCTS THAT ARE MORE EFFECTIVE THAN
OURS, OR OBTAIN MARKETING APPROVAL BEFORE WE DO, OUR COMMERCIAL OPPORTUNITY WILL
BE REDUCED OR ELIMINATED.
The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Some of the drugs
that we are attempting to develop, for example TLK199, will have to compete with
existing therapies. In addition, a number of companies are pursuing the
development of pharmaceuticals that target the same diseases and conditions that
we are targeting. We face competition from pharmaceutical and biotechnology
companies in the United States and abroad. Our competitors may develop new
screening technologies and may utilize discovery techniques or partner with
collaborators in order to develop products more rapidly or successfully than we,
or our collaborators, are able to do. Many of our competitors, particularly
large pharmaceutical companies, have substantially greater financial, technical
and human resources than we do. In addition, academic institutions, government
agencies and other public and private organizations conducting research may seek
patent protection with respect to potentially competing products or technologies
and may establish exclusive collaborative or licensing relationships with our
competitors.
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Our competitors may succeed in developing technologies and drugs that are
more effective or less costly than any which are being developed by us or which
would render our technology and potential drugs obsolete and noncompetitive. In
addition, our competitors may succeed in obtaining FDA or other regulatory
approvals for product candidates more rapidly than we, or our collaborators. We
cannot assure you that drugs resulting from our research and development
efforts, or from our joint efforts with our existing or future collaborative
partners, will be able to compete successfully with competitors' existing
products or products under development or that they will obtain regulatory
approval in the United States or elsewhere.
AS OUR PRODUCT PROGRAMS ADVANCE, WE WILL NEED TO HIRE ADDITIONAL SCIENTIFIC AND
MANAGEMENT PERSONNEL. OUR RESEARCH AND DEVELOPMENT EFFORTS WILL BE SERIOUSLY
JEOPARDIZED IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL.
As a small company with approximately 41 employees, our success depends on
the continued contributions of our principal management and scientific personnel
and on our ability to develop and maintain important relationships with leading
academic institutions, scientists and companies in the face of intense
competition for such personnel. In particular, our research programs depend on
our ability to attract and retain highly skilled chemists and other scientists.
As we progress to advanced phase II and III clinical trials, we will also need
to expand our clinical development personnel. We do not have employment
contracts with our key employees. If we lose the services of Dr. Michael Wick or
any of our other key personnel, our research and development efforts could be
seriously and adversely affected. There is currently a shortage of skilled
executives and employees with technical expertise in the biotechnology industry,
and this shortage is likely to continue. As a result, competition among numerous
companies, academic and other research institutions for skilled personnel and
experienced scientists is intense and turnover rates are high. In recent years,
the cost of living in the San Francisco Bay Area has increased significantly,
which we expect will adversely affect our ability to compete for qualified
personnel. Because of this competitive environment, we may encounter increasing
difficulty in attracting qualified personnel as our operations expand and the
demand for these professionals increases, and this difficulty could
significantly impede the achievement of our research and development objectives.
IF WE DO NOT OBTAIN REGULATORY APPROVAL TO MARKET PRODUCTS IN THE UNITED STATES
AND FOREIGN COUNTRIES, WE OR OUR COLLABORATORS WILL NOT BE PERMITTED TO
COMMERCIALIZE OUR PRODUCT CANDIDATES.
Even if we are able to achieve success in our preclinical testing, we, or
our collaborators, must provide the FDA and foreign regulatory authorities with
clinical data that demonstrate the safety and efficacy of our products in humans
before they can be approved for commercial sale. Failure to obtain regulatory
approval will prevent commercialization of our products.
The pharmaceutical industry is subject to stringent regulation by a wide
range of authorities. We cannot predict whether regulatory clearance will be
obtained for any product that we are developing or hope to develop. A
pharmaceutical product cannot be marketed in the United States until it has
completed rigorous preclinical testing and clinical trials and an extensive
regulatory clearance process implemented by the FDA. Satisfaction of regulatory
requirements typically takes many years, is dependent upon the type, complexity
and novelty of the product and requires the expenditure of substantial
resources. Of particular significance are the
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requirements covering research and development, testing, manufacturing, quality
control, labeling and promotion of drugs for human use.
Before commencing clinical trials in humans, we, or our collaborators, must
submit and receive approval from the FDA of an IND application. We must comply
with FDA "Good Laboratory Practices" regulations in our preclinical studies.
Clinical trials are subject to oversight by institutional review boards and the
FDA and:
. must be conducted in conformance with the FDA's IND regulations;
. must meet requirements for informed consent;
. must meet requirements for Good Clinical Practices;
. may require large numbers of participants; and
. may be suspended by us, our collaborators or the FDA at any time if it is
believed that the subjects participating in these trials are being exposed
to unacceptable health risks or if the FDA finds deficiencies in the IND
application or the conduct of these trials.
Before receiving FDA clearance to market a product, we or our collaborators
must demonstrate that the product is safe and effective in the patient
population that will be treated. Negative or inconclusive results or adverse
medical events during a clinical trial could cause a clinical trial to be
repeated or a program to be terminated or could delay getting approval. We
typically rely on third party clinical investigators to conduct our clinical
trials and other third party organizations to perform data collection and
analysis and, as a result, we may face additional delaying factors outside our
control. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy or interpretation during the period of product
development, clinical trials and FDA regulatory review. Failure to comply with
applicable FDA or other applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory
action. We have limited experience in conducting and managing the clinical
trials necessary to obtain regulatory approval.
If regulatory clearance of a product is granted, this clearance will be
limited to those disease states and conditions for which the product is
demonstrated through clinical trials to be safe and efficacious. We cannot
ensure that any compound developed by us, alone or with others, will prove to be
safe and efficacious in clinical trials and will meet all of the applicable
regulatory requirements needed to receive marketing clearance.
Outside the United States, the ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. This foreign regulatory approval process typically includes all of
the risks associated with FDA clearance described above and may include
additional risks.
IF PHYSICIANS AND PATIENTS DO NOT ACCEPT OUR PRODUCTS, OUR ABILITY TO GENERATE
PRODUCT REVENUE IN THE FUTURE WILL BE ADVERSELY AFFECTED.
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Our product candidates may not gain market acceptance among physicians,
patients and the medical community. We believe that market acceptance will
depend on our ability to provide acceptable evidence of safety, efficacy,
convenience and ease of administration and cost effectiveness. In addition, we
believe market acceptance depends on the effectiveness of our marketing strategy
and the pricing of our products. Physicians may elect not to recommend our
products even if we meet the above criteria. If any of our product candidates
fails to achieve market acceptance, we may not be able to successfully market
and sell the product, which would limit our ability to generate revenue and
adversely affect our operations.
IF WE, OR OUR LICENSEES AND LICENSORS, CANNOT OBTAIN AND DEFEND OUR RESPECTIVE
INTELLECTUAL PROPERTY RIGHTS, OR IF OUR PRODUCTS OR TECHNOLOGIES ARE FOUND TO
INFRINGE PATENTS OF THIRD PARTIES, WE COULD BECOME INVOLVED IN LENGTHY AND
COSTLY LEGAL PROCEEDINGS THAT COULD ADVERSELY AFFECT OUR SUCCESS.
Our success will depend in large part on our own, our licensees' and our
licensors' ability to obtain and defend patents for each party's respective
technologies and the compounds and other products, if any, resulting from the
application of these technologies. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and
factual questions. Accordingly, we cannot predict the breadth of claims allowed
in our or other companies' patents.
Our success will also depend, in part, on our ability to operate without
infringing the intellectual property rights of others. We cannot assure you that
our activities will not infringe patents owned by others. If our products or
technologies are found to infringe patents issued to third parties, the
manufacture, use and sale of our products could be enjoined, and we could be
required to pay substantial damages. In addition, we may be required to obtain
licenses to patents or other proprietary rights of third parties. No assurance
can be given that any licenses required under any such patents or proprietary
rights would be made available on terms acceptable to us, if at all. Failure to
obtain such licenses could negatively affect our business.
The degree of future protection for our proprietary rights is uncertain and
we cannot assure you that:
. we were the first to make the inventions covered by each of our pending
patent applications;
. we were the first to file patent applications for these inventions;
. others will not independently develop similar or alternative technologies
or duplicate any of our technologies;
. any of our pending patent applications will result in issued patents;
. any patents issued to us or our collaborators will provide a basis for
commercially viable products, will provide us with any competitive
advantages or will not be challenged by third parties;
. we will develop additional proprietary technologies that are patentable; or
. the patents of others will not have an adverse effect on our ability to do
business.
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In addition, we could incur substantial costs in litigation if we are
required to defend against patent suits brought by third parties or if we
initiate these suits, and we cannot predict whether we would be able to prevail
in any such suit.
Others may have filed and in the future may file patent applications
covering small molecules or therapeutic products that are similar to ours. We
cannot assure you that any patent application filed by someone else will not
have priority over patent applications filed by us. Any legal action against us
or our collaborators claiming damages and seeking to enjoin commercial
activities relating to the affected products and processes could, in addition to
subjecting us to potential liability for damages, require us or our
collaborators to obtain a license to continue to manufacture or market the
affected products and processes. We cannot predict whether we, or our
collaborators, would prevail in any of these actions or that any license
required under any of these patents would be made available on commercially
acceptable terms, if at all. We believe that there may be significant litigation
in the industry regarding patent and other intellectual property rights. If we
become involved in litigation, it could consume a substantial portion of our
managerial and financial resources and we may not be successful in any such
litigation.
We also rely on trade secrets to protect technology, including our TRAP
technology, where we believe patent protection is not appropriate or obtainable.
However, trade secrets are difficult to protect. While we require employees,
academic collaborators and consultants to enter into confidentiality agreements,
we may not be able to adequately protect our trade secrets or other proprietary
information in the event of any unauthorized use or disclosure or the lawful
development by others of such information. If the identity of specific proteins
or other elements of our technology become known, our competitive advantage in
drug discovery could be reduced.
WE WILL BE DEPENDENT UPON COLLABORATIVE ARRANGEMENTS TO COMPLETE THE DEVELOPMENT
AND COMMERCIALIZATION OF SOME OF OUR PRODUCT CANDIDATES. THESE COLLABORATIVE
ARRANGEMENTS MAY PLACE THE DEVELOPMENT OF OUR PRODUCT CANDIDATES OUTSIDE OF OUR
CONTROL, MAY REQUIRE US TO RELINQUISH IMPORTANT RIGHTS OR MAY OTHERWISE NOT BE
ON TERMS FAVORABLE TO US.
We expect to enter into collaborative arrangements with third parties for
clinical trials, manufacturing, regulatory approvals or commercialization of
some of our products, particularly outside North America, or in disease areas
requiring larger and longer clinical trials, such as diabetes. Dependence on
collaborative arrangements will subject us to a number of risks. We may not be
able to control the amount and timing of resources our collaborative partners
may devote to the product candidates. Should a collaborative partner fail to
develop or commercialize a compound or product to which it has rights from us,
we may not receive any future milestone payments and will not receive any
royalties associated with this compound or product. Business combinations or
significant changes in a collaborative partner's business strategy may also
adversely affect a partner's willingness or ability to complete its obligations
under the arrangement. Failure to enter into additional collaborative agreements
on favorable terms could have a material adverse effect on our business,
financial condition and results of operations.
Some of our collaborations are for early stage programs and allow partners
significant discretion in electing whether to pursue any of the planned
activities. We do not anticipate significant revenues to result from these
relationships until the collaborator has advanced products into clinical
testing, which will not occur for several years, if at all. Such arrangements
are subject to numerous risks, including the right of the collaboration partner
to control the timing of the research and development efforts, and discretion to
advance lead candidates to clinical testing and commercialization of the
product. In addition, a collaborative partner could
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independently move forward with a competing lead candidate developed either
independently or in collaboration with others, including our competitors.
IF WE ARE UNABLE TO CONTRACT WITH THIRD PARTIES TO MANUFACTURE OUR PRODUCTS IN
SUFFICIENT QUANTITIES AND AT AN ACCEPTABLE COST, WE MAY BE UNABLE TO MEET DEMAND
FOR OUR PRODUCTS AND LOSE POTENTIAL REVENUE.
We do not currently operate manufacturing facilities for clinical or
commercial production of our products under development. We currently lack the
resources or capability to manufacture any of our products on a clinical or
commercial scale. As a result, we will be dependent on corporate partners,
licensees or other third parties for the manufacturing of clinical and
commercial scale quantities of our products. Our products may be in competition
with other products for access to these facilities. For this and other reasons,
our collaborators or third parties may not be able to manufacture these products
in a cost effective or timely manner. If not performed in a timely manner, the
clinical trial development of our product candidates or their submission for
regulatory approval could be delayed, and our ability to deliver products on a
timely basis could be impaired or precluded. We are currently dependent upon a
sole source of supply for clinical quantities of TLK286 and are in the process
of identifying alternative suppliers. If our primary supplier fails to perform,
our clinical trials or commercialization of TLK286 would be delayed. We may not
be able to enter into any necessary third-party manufacturing arrangements on
acceptable terms, if at all. Our current dependence upon others for the
manufacture of our products may adversely affect our future profit margins and
our ability to commercialize products on a timely and competitive basis.
IF WE ARE UNABLE TO CREATE SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR
ENTER INTO AGREEMENTS WITH THIRD PARTIES TO PERFORM THESE FUNCTIONS, WE WILL NOT
BE ABLE TO COMMERCIALIZE PRODUCTS.
We currently have no sales, marketing or distribution capabilities. In
order to commercialize any products, we must internally develop sales, marketing
and distribution capabilities, or establish collaborations or other arrangements
with third parties to perform these services. We intend to market some products
directly in North America and rely on relationships with one or more
pharmaceutical companies with established distribution systems and direct sales
forces to market other products and address other markets. We may not be able to
establish in house sales and distribution capabilities or relationships with
third parties. To the extent that we enter into co-promotion or other licensing
arrangements, our product revenues are likely to be lower than if we directly
marketed and sold our products, and any revenues we receive will depend upon the
efforts of third parties, whose efforts may not be successful.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY INCUR
SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT COMMERCIALIZATION OF OUR
PRODUCTS.
The testing and marketing of medical products entail an inherent risk of
product liability. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit
commercialization of our products. If we are unable to obtain sufficient product
liability insurance at an acceptable cost, potential product liability claims
could prevent or inhibit the commercialization of pharmaceutical products we
develop, alone or with corporate collaborators.
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IF WE USE BIOLOGICAL AND HAZARDOUS MATERIALS IN A MANNER THAT CAUSES INJURY, WE
MAY BE LIABLE FOR DAMAGES.
Our research and development activities involve the controlled use of
potentially harmful biological materials, hazardous materials, chemicals and
various radioactive compounds, and are subject to federal, state and local laws
and regulations governing the use, storage, handling and disposal of these
materials and specified waste products. We cannot completely eliminate the risk
of accidental contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or injury, we could
be held liable for damages that result, and any liability could exceed our
resources.
OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES
AT OR ABOVE YOUR PURCHASE PRICE.
The market prices for securities of biotechnology companies in general have
been highly volatile, with recent significant price and volume fluctuations, and
may continue to be highly volatile in the future. You may not be able to sell
your shares quickly or at the market price if trading in our stock is not active
or the volume is low. The following factors, in addition to other risk factors
described in this section, may have a significant impact on the market price of
our common stock:
. announcements of technological innovations or new commercial products by
our competitors or us;
. developments concerning proprietary rights, including patents;
. developments concerning our collaborations;
. publicity regarding actual or potential medical results relating to
products under development by our competitors or us;
. regulatory developments in the United States and foreign countries;
. litigation;
. economic and other external factors or other disaster or crisis; or
. period-to-period fluctuations in financial results.
IF CERTAIN STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK, THE MARKET
PRICE OF OUR COMMON STOCK MAY FALL.
If those stockholders who held stock prior to our initial public offering
in August 2000 sell substantial amounts of our common stock, including shares
issued upon the exercise of outstanding options and warrants, the market price
of our common stock may fall. These sales also might make it more difficult for
us to sell equity or equity-related securities in the future at a time and price
that we deem appropriate. Substantially all of the shares outstanding prior to
our initial public offering are subject to a lock up until February 7, 2001.
After the lock up expires, at least 4,906,331 shares of our common stock will
become freely tradable and an additional 10,062,873 shares will be tradable
subject to Rules 144 and 701.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
and at the same time maximize income we receive from our investments without
significantly increasing risk. We maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities. Due to the
short-term nature of these investments, we have concluded that there is no
material market risk exposure.
We have operated primarily in the United States and all funding activities
with our collaborators to date have been made in U.S. dollars. Accordingly, we
do not have any exposure to foreign currency rate fluctuations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the period July 1 through August 30, 2000 (the effective date of our
registration statement on Form S-8), we issued options to purchase an aggregate
of 100,000 shares of common stock, all of which at an exercise price of $7.06,
under the 2000 Non-Employee Directors' Stock Option Plan. During the same
period, a total of 653,846 shares of common stock were issued upon exercise of
outstanding options, at exercise prices ranging from $1.00 to $1.60 per share,
under the 1988 Stock Option Plan, the 1996 Stock Option Plan and outside our
stock plans. There were no underwriters employed in connection with any of these
issuances. These issuances were deemed exempt from registration under the
Securities Act in reliance on Section 4(2) or Rule 701 promulgated thereunder as
transactions pursuant to compensatory benefit plans and contracts relating to
compensation. The recipients in each such issuance represented their intention
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates and other instruments issued in such transactions. All
recipients either received adequate information about Telik or had access,
through employment or other relationships, to such information.
On August 11, 2000, a registration statement on Form S-1 (No. 333-33868)
was declared effective by the Securities and Exchange Commission, pursuant to
which 5,750,000 shares of our common stock were offered and sold by us at a
price of $7 per share, generating gross offering proceeds of $40.3 million. The
managing underwriters were Lehman Brothers Inc., Chase Securities Inc., Legg
Mason Wood Walker, Inc., UBS Warburg LLC and Fidelity Capital Markets, a
division of National Financial Services Corporation. In connection with the
offering, we incurred approximately $2.8 million in underwriting discounts and
commissions, and approximately $1.9 million in other related expenses. The net
proceeds from the offering, after deducting the foregoing expenses, were
approximately $35.6 million.
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From the time of receipt through September 30, 2000, we have used the net
proceeds from our initial public offering to invest in short-term, investment
grade interest-bearing securities. We have used our existing cash balances to
fund the general operations of the Company. The net proceeds of the initial
public offering will be used for clinical trials, pre-clinical studies and
general corporate purposes, including working capital and product development.
We may use a portion of the net proceeds to acquire or invest in products and
technologies that are complementary to our own, although no acquisitions are
planned or being negotiated as of the date of this filing, and no portion of the
net proceeds has been allocated for any specific acquisition. None of the net
proceeds of the initial public offering were paid directly indirectly to any
director, officer, general partner of the Company or their associates, persons
owning 10% or more of any class of equity securities of the Company, or an
affiliate of the Company. We expect that our use of proceeds from the offering
will conform to the intended use of proceeds as described in our initial public
offering prospectus dated August 11, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the third quarter of 2000, the Company solicited the approval of its
stockholders by an Action By Written Consent of the Stockholders of Telik, Inc.
Such action became effective on or about August 7, 2000 without a meeting of the
stockholders. The matter approved was an amendment and restatement of the
Company's certificate of incorporation to incorporate all prior amendments into
a single charter document. The matter was approved by holders of a total of
12,227,742 shares of Common Stock (assuming the conversion of the outstanding
Preferred Stock into Common Stock). Holders of a total of 3,826,288 shares of
Common Stock (assuming such conversion) did not return a signed consent and are
deemed to have voted against the proposal.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELIK, INC. Dated November 13, 2000
/s/ Michael M. Wick, MD, PhD
------------------------------------
Michael M. Wick, MD, PhD
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
/s/ Cynthia M. Butitta
------------------------------------
Cynthia M. Butitta
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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27.1 Financial Data Schedule
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