by Ramu Iyer
The biotech sector has been buzzing with activity lately, and, after bullish signs from sectors across the board, investors are looking for firms that can deliver real gains in 2013. I have been following several biotech stocks over the past six months, and three have caught my attention recently. Aeterna Zentaris (AEZS) has been working on AEZS-108, an experimental targeted therapy aimed at treating various cancers that express LHRH receptor. Keryx (KERX) recently doubled in value after investors responded positively to encouraging results surrounding Zerenex. Celgene (CELG) has been working on its experimental drug, Aprimilast, which has proved to be more effective than a placebo for psoriasis patients in a late-stage study conducted by the company, paving the way for the company to apply for FDA approval in the second half of 2013. I will discuss the most recent developments surrounding each company to see where investors can find the best value.
Aeterna Zentaris
Aeterna Zentaris announced that “a first patient has been treated for the randomized Phase 2 trial in chemotherapy refractory triple-negative (“ER/PR/HER2-negative”) luteinizing hormone-releasing hormone receptor (“LHRH-R”)-positive metastatic breast cancer, with the company’s targeted doxorubicin peptide conjugate, AEZS-108.” Alberto J. Montero, of the Department of Medicine, Sylvester Comprehensive Cancer Center at the University Of Miami Miller School Of Medicine, is the lead investigator of this trial, which also includes sites at the Universities of Regensburg and Goettingen, in Germany. This is an open-label, randomized, two-arm, multicenter Phase 2 study involving up to 74 patients. Patients will be randomized in a ratio of 1:1 into one of the two treatment arms namely AEZS-108 (267 mg/m2 every 21 days) Arm A or SSC (standard single agent cytotoxic chemotherapy Arm B) puts up The primary endpoint in the study is median time of progression-free survival and secondary endpoints include overall response-rate, and overall survival. The study will also evaluate the toxicity profile and quality of life of patients in relation to conventional cytotoxic chemotherapy.
Breast Cancer Market
The American Cancer Society says that breast cancer is the most common form of cancer in women after skin cancers. In 2012, over 226,000 new cases of invasive breast cancer were diagnosed in women in the U.S., and around 40,000 were expected to succumb to this disease. Between 10% to 20% of breast cancers are triple-negative breast cancer, a category of breast cancer that is characterized by its unique molecular profile, the integration of its behavior and the lack of targeted therapies. Chemotherapy has been the main treatment for women with this condition but this is not the optimum therapy. AEZS-108 is a new concept in targeting in oncology which uses a hybrid molecule made up of a synthetic peptide carrier and an accepted chemotherapy agent, doxorubicin. It is the first intravenous drug in advanced clinical development that aims the chemotherapy agent at Luteinizing Hormone-Releasing Hormonereceptor expressing tumors and has the benefit of more targeted treatment with less damage to healthy tissue. It has successfully completed Phase 2 trials in the treatment of ovarian and endometrial cancer and the company will be conducting a Phase 3 trial in endometrial cancer under a Special Protocol Assessment from the FDA. AEZS-108 is also undergoing Phase 2 trials in prostate, breast and bladder cancer and has been granted orphan drug designation by the FDA and orphan medicinal product designation from the European Medicines Agency for ovarian cancer.
In April 2012, the company reported top-line data from the phase III X-PECT trial for perifosine which showed that patients treated with the drug did not have any significant improvements in overall survivability in comparison to patients who received capecitabine and placebo. Keryx was the partner which actually conducted the trials for perifosine and the share prices of both companies took a beating. Now, in addition to the potential for AEZS-108, the company also has AEZS-130 (macimorelin), which is an oral ghrelin agonist. AEterna Zentaris is developing this ghrelin agonist for use in the diagnosis of adult growth hormone deficiency as well as a treatment for cachexia. A successful phase3 trial was concluded in 2011 showing statistically significant results for diagnostic efficacy and the NDA will probably be submitted in the first quarter of 2013. Cachexia is a wasting condition of the body because of depressed appetite and unhealthiness for patients suffering from serious maladies like AIDS and cancer. There is no approved treatment for the condition at this point in time. Moreover, the Special Protocol Assessment from the FDA for AEZS-108 for endometrial cancer could well be on the market before the completion of the phase 3 trial which will provide the company with useful revenues.
The company recently experienced a setback when an independent Data Safety Monitoring Board (DSMB) recommended that it discontinue its phase 3 study on its oncology candidate perifosine. The goal of the study was to evaluate the efficacy and safety of perifosine in combination with Velcade (bortezomib) and dexamethasone in multiple myeloma patients. Despite this setback, I believe there is still upside potential here due to the company’s promising drug pipeline.
MLV & Co. has upgraded Aeterna Zentaris from Hold to Buy with a price target of $5.50. The consensus estimates of analysts indicate a mean target of $4.92 and a median target of $4. The share current trades at around $1.93 and there could be a short term upside based on the forthcoming catalysts.
Keryx
Shares of Keryx more than doubled in value as the markets responded to encouraging clinical trial data for Zerenex, which is an experimental treatment to treat a side effect of kidney disease. Zerenex is designed to control abnormally high levels of phosphate in the blood of End Stage Renal Disease (ESRD) patients. The company reported that Zerenex, which treats elevated levels of serum phosphatein patients with end-stage kidney disease, proved to be more effective than a placebo in a late-stage study. The drug was more effective at reducing serum phosphorus levels and improving iron levels and patients using the drug did not need as much iron or any other treatment for anemia. The company has no approved drugs, and announced that it would sell $55 million in a fresh stock offering to fund prelaunch activities for the treatment.
Keryx estimates that the ESA and IV iron markets in the United States are worth $2 billion and $400 million respectively and that. Zerenex could shrink the costs of treatment for kidney patients in the United States by roughly $750 million annually. At the present time, the leading phosphate binder drug is Renvela/Renagel from Sanofi (SNY), which accounts for about half of the market. In the third quarter, Renvela/Renagel generated well over $200 million in revenue and sales were up by almost 13% year on year determined by, strong sales performance was driven by increased sales in the United States of around 17%. Burrill Institutional Research analyst, Reni Benjamin is of the opinion that Zerenex has the ability to compete once it enters the market in 2014 and take a share of the large phosphate binder market which generates $1.5 billion in revenue every year. Joseph Pantginis at Roth Capital shares the same opinion because he thinks that Zerenex has a significant opportunity to become the first phosphate binder that provides effective treatment for the management of anemia associated with dialysis patients. He has raised his price target for Keryx from $7 to $15 a share and also predicts Zerenex will hit the markets in the U.S. and Europe next year.
The United States Renal Data System has revealed that around 600 million people have ESRD as of 2010 and, according to the Centers for Disease Control and Prevention, 10% of American adults or more than 20 million suffer from some level of chronic kidney disease. The National Kidney and Urologic Diseases Information Clearing House (NKUDIC) reports that the most common causes of kidney failure are diabetes and high blood pressure. There are more than 25 million people in United States who have diabetes, based on data from the American Diabetes Association indicating that the number of patients in need of ESRD treatments will continue to grow. Zenerex’s positive safety and efficacy results indicate it has great potential for growth once approved by the FDA.
Zerenex, despite its trade name, is simply ferric citrate, and this is of concern to some investors. Ferric citrate is a GRAS (generally accepted as safe) item on the FDA list which means that it can be sold as an OTC supplement. Even if patents protect Keryx’s use of the product in the potential treatment of kidney patients, it is possible that the chemically identical product could be sold for another indication. Moreover, Keryx does not own Zerenex but licenses it from Panion, Inc. The company itself has disclosed that its license for Zerenex (ferric citrate) gives it the exclusive commercial rights to a series of patent applications worldwide. These patents and patent applications cover a composition of matter and method of treatment of hyperphosphatemia in patients with ESRD and expire in the second half of 2017, with possible extension through 2020 or later), as well as a method for the manufacture of ferric citrate which expires in 2023.
The consensus estimate from eight analysts is a mean target price of $12.63 and a median target price of $14. The share is currently trading at $7.26 which means that the potential upside is considerable. The risk to investors is high not only because of regulatory risk but because the company is a one product company and the consequences of not receiving FDA approval would be highly negative. If you are comfortable with this risk and believe in the future potential of Zerenex, you should consider an investment in Keryx.
Celgene
Celgene’s experimental drug Apremilast has proved to be more effective than a placebo for psoriasis patients in a late-stage study conducted by the company, paving the way for the company to apply for U.S. FDA approval in the second half of 2013. The company said that 59% of patients in the 844-patient trial achieved a 50% improvement in symptoms after 16 weeks, using a standard score of the severity and extent of psoriasis, and compared to 17% of placebo patients. A 75% improvement was observed in 33% of the treatment group and 5% of the placebo group. The Phase 3 trial is the first of two critical studies of the drug in patients suffering from psoriasis, a disease in which itchy, painful skin plaques are believed to be caused by an inflammatory response from the body’s immune system. Apremilast is a pill that inhibits the activity of an enzyme known as phosphodiesterase 4, or PDE4, and works to reduce inflammation. Side effects were similar to those seen in earlier trials of which the most common were diarrhea and nausea. The company reported that no cases of tuberculosis or lymphoma were observed and that there was no increase in risk of cardiovascular events or serious opportunistic infection. Most psoriasis patients are currently treated with methotrexate, which can induce serious side effects.
The discouraging news from the trial was that the phase 3 results were not as good as the phase 2 results. In December 2009, the company announced phase 2 results of Apremilast in treating psoriasis. In this mid-stage trial, 41% of patients achieved the targeted 75% reduction in symptoms while the phase 3 results just announced showed only 33.1% of patients achieving this reduction. This represents a drop-off in efficacy which would have an effect on the frequency of prescription if the drug is ultimately approved. In comparison, 80% of patients taking AbbVie’s (ABBV) blockbuster drug, Humira, achieved the 75% reduction after 16 weeks while clinical studies of Enbrel, marketed by Amgen (AMGN) and Pfizer (PFE) found that 46% of patients taking a 50 mg dosage of the drug achieved the reduction after 12 weeks. There must know be a question mark about whether Celgene can achieve its target of $1.5 billion in annual sales for the treatment.
The encouraging news is that Apremilast met its primary endpoint and has encouraged the company to apply for regulatory approval. It will submit a New Drug Application shortly for treating psoriatic arthritis and will follow up with an application for psoriasis in the second half of 2013. Celgene also intends to apply for European approval for Apremilast for both indications in the second half of 2013.The other good sign is that the safety profile for Apremilast continues to be good and than 96% of patients reported no adverse events or only mild-to-moderate adverse events. It is true that Apremilast will not be as effective as treatments already on the market like Humira and Enbrel. However, its advantages include a good safety profile and the fact that Apremilast is taken in pill form instead of being injected. Finally, there’s the question of cost and analysts anticipate that Apremilast will be considerably less expensive than its rivals.
ISI Group analyst Mark Schoenebaum still thinks the drug will be approved and used by doctors because of its good safety profile, but it would have to be priced lower than its rivals. He also says Celgene’s 2017 Apremilast sales guidance of $1.5 billion to $2 billion is too high and current consensus estimate are 2017 sales of $873 million. The lower efficacy could impact sales, but the advantages of the drug, namely safety, convenience, and price are still there. Apremilast should still be a blockbuster, although sales are likely to be lower than expected. Apremilast is just one of several drugs that could contribute to Celgene’s growth in the future. I rate Celgene a Hold, pending more favorable news on Apremilast.