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KERX/AEZS - Feuerstein comments

http://www.thestreet.com/_yahoo/story/10669217/1/biotech-stock-mailbag-keryx-biopharmaceuticals.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

Biotech Stock Mailbag: Keryx Biopharmaceuticals
By Adam Feuerstein 01/29/10 - 07:00 AM EST
BOSTON (TheStreet) -- Let's kick off this week's Biotech Stock Mailbag with a tweet rather than an email.

Via Twitter, @bobbandera asks, "Any opinion on the Keryx Biopharmaceuticals(KERX Quote) data released for its colon cancer drug?"

The Keryx cancer drug in question is perifosine and much of the data presented this week are not new, but first released last May at the American Society of Clinical Oncology (ASCO) annual meeting. Here's what I wrote about the perifosine data last May:

"The data presented on perifosine at ASCO came from a small, randomized phase II study in patients with second- or third-line metastatic colon cancer. Patients treated with a combination of perifosine and the chemotherapy Xeloda reported that it took 28.9 weeks before their tumors started growing again. That's more than double the 11 weeks for patients treated with Xeloda alone.

"Twenty percent of patients in the perifosine arm of the study reported tumor shrinkage compared to 7% for patients in the Xeloda-alone arm. Perifosine patients were also living longer, although survival data is not yet mature."

On Monday, Keryx presented an update to this perifosine trial. Importantly, the now-mature survival data looks strong, with median overall survival of 18 months for the perifosine-Xeloda patients compared to 11 months for the Xeloda-alone patients. The survival benefit was statistically significant in favor of perifosine. The rest of the efficacy data -- response rate and progression-free survival -- remained unchanged from when the data were first presented last May.

These data are certainly encouraging, but as I noted last May, this phase II study was small, with only 38 patients enrolled. And only half the patients in the study received prior treatment with Erbitux or Vectibix, the two colon cancer drugs from the EGFR inhibitor class marketed by Eli Lilly and Amgen, respectively, that are commonly used in second- and third-line colon cancer patients.

On the side effect front, anemia and hand-foot syndrome -- at 15% and 30%, respectively -- seem to be the most worrisome adverse events related to perifosine.

The updated perifosine data hasn't had much impact on Keryx's stock price this week, which closed Thursday at $2.76. The fact that much of these perifosine data were previously known could account for the muted stock price reaction.

Keryx was the third-best performing biotech/drug stock in 2009, so clearly investors are taking an interest in the development of perifosine. (The drug is also being studied in a phase III study of late-stage multiple myeloma patients.) Investors who bought Keryx after the data were first presented last spring have done exceedingly well.

On a cautionary note, be aware that there's a certain level of wariness or mistrust about Keryx among some of Wall Street's professional biotech investors. Mention Keryx to a gang of biotech hedge fund guys and many of them will roll their eyes and mutter, "Ugh, isn't that a Paramount Capital spinoff?"

Paramount Capital, now defunct, was a biotech merchant bank/hedge fund that earned a rather dubious reputation in the late 1990s and early part of the aughts for privately funding (and ultimately spinning out publicly) biotech companies with pipelines stocked full of old or junky drugs that never worked. Often times, Paramount-funded companies would buy other Paramount-funded companies to boost their market value. Genta was probably Paramount's most famous (or infamous) creation.

Keryx is also a Paramount spinoff and perifosine is an old drug. Its provenance dates back to the U.S. government labs of the National Cancer Institute, where the drug was tested in a bunch of early-stage trials but never really moved forward.

In 2002, Access Oncology, a privately held drug firm also created by Paramount Capital, acquired U.S. rights to perifosine. In January 2004, Access Oncology was acquired by Keryx. (Perifosine's ex-U.S. rights are owned by Aeterna Zentaris.)

Keryx's management team, past and present, has ties to Paramount. Michael Weiss was a managing director of Paramount who also founded and served as CEO of Access Oncology. He then became chairman and CEO of Keryx and held those reins when the company blew up in 2008 after the phase III trial failure of a drug for diabetic nephropathy.

Weiss eventually left Keryx, replaced by current CEO Ron Bentsur, whose previously job was CEO of XTL Biopharmaceuticals(XTLBY.PK Quote), another failed Paramount-funded company. XTL Biopharma went bust in November 2008, also after a major clinical trial failed. Bentsur was chief executive of XTL at that time and Weiss served on the company's board.

The perifosine data in colon cancer are impressive and not easily debunked or dismissed because they're derived from a randomized, controlled study (albeit a small one). But you should know that professional investors with long memories have seen similar promising mid-stage drug data from Paramount-seeded biotech companies before, ones that failed to survive pivotal phase III trials. This is a stigma, rightly or wrongly, that Keryx needs to overcome.

How does it do that? Positive results from the perifosine phase III study in multiple myeloma would do the trick. So would a partnership for the drug with a well-regarded company. (One possible hiccup for a partnership: perifosine's composition of matter patent expires in 2013. Even a possible patent extension to 2018 makes the drug a bit long in the tooth.)

Keryx has come a long way since last spring, and with an enterprise value of about $115 million, there's definitely upside if the company can continue to execute well.