|AEterna Zentaris And Keryx: Phase 3 Set For Success|
|By Jeremy Richards|
|Monday, 12 December 2011 00:00|
As readers know, I have provided strong factual support for these statements and AEZS is our top biotech stock pick based on the upside reward. For the benefit of readers, I will summarize some of my previous points and provide additional, new analysis on the clinical data. I am confident these views will be confirmed in AEZS’ presentation at the upcoming American Society of Hematology (ASH) Annual Meeting and Exposition and the stock price should see a nice upside move in the very near-term. Additionally, I strongly believe that the stock will trade at much higher levels in the long-term and investors may realize tremendous upside reward.
SUMMARY OF POINTS BEHIND INVESTMENT THESIS
1) Keryx Pharmaceuticals (NASDAQ:KERX) is bearing the cost of the phase 3 study so no out-of-pocket costs for AEZS.
2) There is credible evidence, both through public statements and other sources, that Roche (RHHBY.PK) is considering a takeover of AEZS. We believe the buyout price, if it materializes, will be over $4.70 per share.
3) AEZS has rejected an offer from an investor to acquire a substantial percentage of AEZS shares at above market prices.
4) The at-the-market sale agreement is complete and we therefore believe there will be no dilution going forward.
5) Insider buying of KERX is in the $3 range.
Central to the investment thesis and to biotechs in general is that AEZS’ drug has an extremely high likelihood of FDA approval, is currently in phase 3, and addresses a very large market for colon cancer. We now turn to the data, which negative publications don’t seem to understand and/or convey.
The P3 Perifosine, in combination with Xeloda (Capecitabine) X-Pect study of Keryx, is a trial for a drug combination used to treat metastatic colorectal cancer (mCRC). The combination is referred to as PCAP for Perifosine-Capacitabine.
This is a very important study because the number of deaths occurring each year as estimated by WHO is 610,000 worldwide, including 142,570 new cases and 51,370 deaths in the U.S. in 2010. The death rate from mCRC is about 17 per 100,000 people annually in the U.S. CRC is the second most common cancer after lung cancer and more lives are lost each year to colorectal cancer than to breast cancer and AIDS combined. More than 60% of cancers are detected in their late stages. Preliminary evidence is that PCAP is the most effective drug combination known for mCRC.
The study is being conducted by KERX with control and treatment arms consisting of 215 patients each at 65 centers throughout the U.S. under licensing from AEZS that has the patents for PCAP. Enrollment was completed March 2011. The KERX Data Safety Management Board (DSMB) reported August 31, 2011 that a 160 overall survival (OS) occurred around the first week of August. The DSMB said that the X-Pect study showed efficacy and safety and that it could continue. “Unblinding” of all data will occur at a 360 OS event that management projects will occur sometime in Q1 2012 after stating earlier that the 360 event would occur in Q4 2010.
There will be no unblinding before the 360 event regardless of how effective PCAP is proven to be because the X-Pect study is being done as a Special Protocol Assessment (SPA). According to the SPA rules, early termination based upon interim analysis could not occur without voiding the SPA contract with the FDA. If KERX had chosen to terminate the study based upon an interim analysis it would have put itself and AEZS at risk.
In the P2 study, the 5FU refractory group had about 15.1 months’ survival versus approximately 6.5 months for the control arm (p = .006). This meant that through the addition of Perifosine to Capecitabine there was an astonishing 8.6 months increase in survival for refractory 5-FU mCRC. Nevertheless, the FDA agreed to a SPA where at a confidence level of 90%, a two month increase in survival would be statistically significant. Using a greater increase in survival would have required more patients in the P3 study and cost more. Clearly, the SPA study was stacked in favor of proving the efficacy of PCAP.
When sample sizes are small, results can be skewed. Refractory 5FU patients treated with Xeloda alone can have a range of OS in different studies. The P2 sample size of refractory 5FU patients was small (38) versus the 430 patient population in the X-Pect study. “Outlying” results on the outer edge of an occurrence curve even in larger samples can skew results and that theoretically could increase OS for the control arm in the X-Pect study. But if that were the case, one would have expected the 160 event to have occurred later than it did. Its occurrence in August 2010 fits in with the analysis presented herein where an OS of 6.5 months was used for the control arm and 15.1 months for the treatment arm.
When the 360 OS event occurs in the X-Pect study has profound implications for determining the efficacy of PCAP. The later the 360 OS event occurs the more likely it is that PCAP is efficacious for mCRC.
FACTS AND ASSUMPTIONS:
The enrollments given were initially estimates based upon dividing total enrollment by 16, the number of months it took for enrollment to be completed July 27, 2011. All the actual numbers have not been made public except that through reviews of conference calls and other sources we believe that 167 patients were enrolled by the end of December 2010, 200 patients by the end of January 2011, and 290 by the end of March 2011. These numbers skewed the distribution of enrollment in so far as 200 were enrolled in the first 10 months and 265 in the last six months of the X-pect study. Exact numbers for enrollment have otherwise not been divulged. After the 160 OS DSMB review was announced we learned that there were 163 deaths in early August.
The X + Placebo group was given an OS of approximately 6.5 months, the same OS as in the P2 study for 5-FU refractory patients despite the higher dosage of Perifosine given and the small sample size of refractory 5FU patients in the earlier P2 study. There is no solid evidence to support that a higher dosage of Perifosine actually improves OS. Quite the contrary, reports from the literature, including some where higher doses of Capacitabine were used than in the P2 study, suggest that the single agent Capecitabine for refractory mCRC patients can have much lower median OS survival rates of 5.2, 5.3 (.pdf), 6.1, or less than 5 months (.pdf) for 285 patients on best standard of care vs. Erbitux versus 6.5 months. OS in the X-Pect trial could easily be skewed towards a much lower OS survival than 6.5 months.
IMPLICATIONS FROM ANALYSIS:
The 360 event is predicted to occur in January 2012 in this analysis and from the other models run some time in January. There were about 163 deaths the first week of August in all the models that were accepted. This number was about 10% less than expected earlier by management suggesting the treatment arm was working although the control arm might be doing better as well. It is disturbing though that the OS survival advantage for PCAP is less than that derived from the P2 study where the OS survival benefit can be questioned because of the small size of the study.
The different models using different OS figures suggest the following:
1.) The survival advantage of PCAP may be only 2-3 months. However, if X+Placibo survival is 5 to 5.5 months the PCAP advantage will be much greater.
2.) A 4 months or longer survival advantage for PCAP is possible depending upon X+Placibo OS.
3.) The 360 event will be in January 2012 unless X+Placibo is 5 months or less. Then the 360 event will be extended.
4.) The odds of success cannot be easily quantified but are still high.
A Canadian company has provided a sophisticated analysis than those we have done. This analysis using decay curves suggests strongly that PCAP will be proven effective.
If the 360 event actually occurs in January 2012 and especially after January 2012, it is likely that PCAP will have been proven effective. Remember only a two month increase in survival has to be shown under the terms of the SPA for PCAP to have been proven statistically significant. Earlier management implied that a two month increase in survival would be evident with a 360 event occurring in Q4 2010 and then management extended the probable occurrence of the 360 event to Q1 2012. In effect, management’s extension of the time for the 360 event was an endorsement that PCAP would be effective. A further endorsement has come from the Hikma deal for sales in the MENA countries.
All the available evidence available today suggests that PCAP will be proven effective.
It is clear that AEZS has tremendous upside potential and that Perofisine data is extremely positive. Big pharma is interested in AEZS and we believe a takeover is in the works.
My friend Dr. Williams is a successful medical doctor who invested in Dendreon (DNDN) under $4 a share in 2006 and sold at $50 in 2010. He is now investing in both AEZS and KERX. He told me AEZS has a splendid promising extensive pipeline, having two drugs in each of phases 1, 2 and 3. On a per-drug basis, the market has extremely undervalued the drugs within AEZS. He believes 100% Perifosine will be approved by the FDA. He now owns 300,000 shares of KERX and 900,000 shares of AEZS.
Investors may also read my prior interview article with Dr. Wurlitzer, a well-respected and now retired surgical oncologist and a former instructor in surgery at a major university. He trained in cancer surgery at M.D. Anderson Hospital in Houston. Dr. Wurlitzer now owns about one million shares of AEZS as he firmly believes in the success of Perifosine.
I am aware of 14 doctors that are currently invested in AEZS. I am honestly very surprised AEZS is still trading around $1.70. We think Roche, a $35b company, will offer $500m for AEZS based on the robust pipeline AEZS has. Roche is the logical suitor because through PCAP patent control it could extend its Xeloda franchise indirectly. Potential other suitors that may buy AEZS could be large pharmaceutical companies with an interest in oncology, such as Celgene (CELG) and Gilead Sciences (GILD).
The fund I manage has done very well over the past several weeks holding long positions in the following biotechs: Arena Pharmaceuticals (ARNA), Antares Pharma (AIS), BioSante Pharmaceuticals (BPAX) and VIcal Incorpated (VICL). We have a 10% trailing stoploss on 50% of our position in ARNA.
Author Jeremy Richards is a fellow contributor at Seeking Alpha and the Manager/Director of Private Wealth Fund. He has twenty years investment expertise. He is Long AEZS, KERX.