With a pair of Phase III trials in the works and a recent $2.5 million milestone payment received for achieving a net sales benchmark involving a third drug AEterna Zentaris (NASDAQ: AEZS) looks to be positioned favorably for the future yet the late-stage oncology drug development company continues to see its shares traded at a surprisingly low level, around the 1.79 – 1.85 range. While shares did hit a six-month high of 2.09 last week and remain above the 50-day moving average of 1.70 and 200-day moving average of 1.38 the failure to climb higher despite favorable progress from their efforts involving Solorel, an orally-administered product used as a simple diagnostic test for adult growth hormone deficiency (AGHD), and Perifosine, a novel oral PI3K/Akt inhibitor for the treatment of colorectal cancer and multiple myeloma has been cause for concern for some investors.
What should bring investors some peace of mind is the fact that AEZS has navigated the FDA approval path before, bringing Cetrotide to market, first in Europe in 1999, then the U.S. in 2001, and then Japan in 2006 (now approved in more than 90 countries). With that said AEZS isn’t some biotech company that will create their own hurdles along the FDA approval process; they know how to follow study guidelines and provide the necessary information that will ultimately gain them access to the market.
Of course in late February AEZS saw its final financial benefit of Cetrotide as related to their sale agreement with Cowen Healthcare Royalty Partners back in 2008. That sale was a $52.5 million deal that dealt AEZS’ rights to royalties of future sales of Cetrotide covered by its license agreement with Merck Serono signed in 2000 which granted Merck exclusive rights to market, distribute, and sell Cetrotide worldwide, with the exception of Japan, in the field of in vitro fertilization.
While AEZS had generated a considerable amount of their revenue from Cetrotide they clearly outlined their path for future revenues in their third quarter 2010 earnings report in which they stated their highest priorities were Perifosine and AEZS-108, which aims to treat advanced endometrial and advanced ovarian cancer. They also stated they would be pushing forward on AEZS-112, an oral anticancer agent which is in Phase I as well as Solorel, their diagnostic test for AGHD).
Despite the advancement of Solorel in its Phase III study it doesn’t appear as if AEZS is putting much emphasis in this area, focusing rather on their advancement in the oncology drug development arena. That’s not to say Solorel will be placed on the backburner, it is still expected to be the subject of a New Drug Application in 2011, but it doesn’t seem to generate the same interest as the other projects AEZS has brought forward.
This seemingly lack of enthusiasm is a bit surprising given that approval for Solorel would make it the first oral test for the diagnosis of AGHD and estimates have suggested it could generate between $30 to $40 million in annual revenues.
That lack of enthusiasm for Solorel can be detected in the company’s new release concerning their $2.5 million milestone payment related to Cetrotide in which AEZS President and CEO Juergen Engel, Ph.D. stated, “We are pleased to have reached this $2.5 million milestone which will be incremental to advance perifosine, AEZS-108 and other innovative oncology compounds from our extensive product pipeline.” Again, that’s not to say they are ignoring Solorel, only that they don’t seem to be as enthusiastic about their venture in the endocrinology field, even with the worldwide rights to the drug.
Most investors do feel the true value of AEZS and their future success lies with Perifosine, which is in a Phase III study and has already been granted SPA, orphan-drug designation, and Fast-Track review by the FDA for multiple myeloma and colorectal cancer. Perifosine is also part of a Phase II program for a number of other cancers. The company has targeted 2012 to file an NDA and has estimated that the drug could generate hundreds of millions of dollars annually once approved.
Earlier this month AEZS announced they had signed an exclusive development, commercialization, and licensing agreement with Yakult Honsha for the development, registration, and marketing of Perifosine for Japan. As part of that agreement AEZS would receive an $8.3 million upfront payment and could receive up to an additional $60.9 million in payments for achieving certain pre-established milestones including clinical and regulatory events in Japan. In addition, AEZS will be supplying perifosine to Yakult Honsha on a cost-plus-basis and be entitled to receive double-digit royalties on future net sales of perifosine in Japan with Yakult Honsha being responsible for the development, registration and commercialization of Perifosine in Japan.
AEZS has already out-licensed Perifosine rights to Keryx Biopharmaceuticals for North America and to Handok for Korea in addition to the Yakult Honsha agreement while retaining all rights for the rest of the world. This could be significant do in large part to the rising rates of colorectal cancer throughout the world; it is now the fourth most common cancer in men and the third most common cancer in women worldwide and data has shown rates are climbing in several countries, including Japan. What shouldn’t be ignored though is colorectal cancer rates are said to be declining in both men and women in the U.S.
Aside for Perifosine the company is also pushing forward with AEZS-108 as a treatment for advanced endometrial and advanced ovarian cancer which has been shown to be effective and well tolerated in studies this far, including studies in Europe.
Unquestionably AEZS has an impressive pipeline that could generate substantial revenue for the company and its shareholders but that pipeline comes with risks. Essentially AEZS is banking on approval for cancer drugs and that is no easy task even with the need. Getting any drug through the process of FDA approval is difficult but cancer drugs are among the toughest with less than 5% actually ever reaching that designation. It may only take one approval for AEZS to gain the financial rewards but the odds of even that happening aren’t in their favor.
On the positive side the company does have enough money to keep pushing their studies forward without risking value to their current shareholders. They have noted that the influx of money from milestone payments and new agreements is enough to get them through the coming months and that should be a welcome sign to investors who are all too familiar with biotech companies forced to dilute shareholder value by raising money through the selling of new shares. That shouldn’t be the case with AEZS and with a share price sitting below the 1.90 level and the company’s potential to generate substantial revenue the payoff for those getting in low could be quite generous.