[Bearish thesis is built mainly upon the fact that AEZS/KERX has yet to land a partner, or acquirer, for this late-stage oncology asset coupled with the low share price. I respect the former argument but don't necessarily buy the latter. I'm more concerned about the prospects for positive Phase 3 results after having learned that the Phase 3 patient population is a sicker group than the Phase 2 patient population.]
By Adam Feuerstein 10/14/11 - 06:01 AM EDT18 Comments
BOSTON (TheStreet) -- Keryx Pharmaceuticals'(KERX_) colon cancer drug perifosine will fail when results from a phase III clinical trial are announced early next year.
Says who? I say, but noted University of Chicago oncologist and professor Dr. Mark Ratain shares my bearish outlook.
"Everything tells me that the perifosine trial is going to be negative," Ratain told me in a phone conversation Thursday. [Ratain has no financial conflicts related to Keryx.]
An email from W. Rubin asking for my prediction of the perifosine colon cancer study prompted a phone call to Ratain to get his opinion. The question is especially relevant in the context of an editorial Ratain and I co-authored and published last month in the Journal of the National Cancer Institute (JNCI) which demonstrated a 100% failure rate for phase III cancer drug trials conducted by micro-cap cancer drug developers.
Our JNCI paper analyzed the outcomes of 59 phase III clinical trials of cancer drugs going back 10 years, stratified by the market value of the companies four months prior to trial results being announced. What we found was a remarkable difference between the market values of companies that had positive and negative announcements.
Specifically, the median market capitalization was approximately 80-fold greater for the companies with positive trials vs. companies with negative trials. There were no positive trials among the 21 micro-cap companies (companies with less than $300 million market capitalization) whereas 21 of 27 studies reported by the larger companies analyzed (greater than $1 billion capitalization) were positive.
Keryx today carries a market value of approximately $200 million, which makes it a micro-cap cancer drug stock per our definition. The phase III colon cancer study of perifosine is also expected to report top-line results in the first quarter of next year, or approximately four months from now.
Ergo, Keryx is running headfirst into bad news real soon. Perifosine will be a bust.
I expect some of you -- maybe most of you -- will scoff at our prediction, particularly because perifosine demonstrated a significant survival advantage (17.7 months vs. 7.6 months) in a randomized, controlled phase II colon cancer study -- albeit a study that enrolled just 38 colon cancer patients. Still, these perifosine data, which have been presented at the big ASCO cancer meeting and were published last week in the Journal of Clinical Oncology, seem to justify confidence in a successful phase III study.
It's a reasonable argument to make, except, "If the earlier perifosine data are so good, why hasn't Keryx been bought out yet," asks Ratain.
Good question!
When Ratain and I were working on our JNCI paper, we recognized that one reason micro-cap cancer drug stocks had a perfectly dismal record with phase III trials is because the drugs being developed had already been vetted by both the market (i.e., investors) and larger, more successful cancer drug companies and found to have a low probability of success.
Cancer drugs are scarce and valuable commodities. Larger drug companies are way more likely to acquire, or at least partner with, a smaller drug company if that smaller company has a cancer drug in development with a strong shot at being successful.
Keryx has already stated publicly that it hopes to attract a buyer for the company. Yet, as Keryx nears the end of its colon cancer phase III study, the company is still independent -- no perifosine buyer, no partner either. [Aeterna Zentaris(AEZS_), which owns ex-U.S. rights to the drug, doesn't count.]
What's more likely to have happened already, says Ratain (and I agree with him) is that larger companies have already vetted the previous perifosine data and found it lacking. That makes Keryx look very much like the 21 micro-cap cancer drug companies included in the analysis done by Ratain and myself for JNCI. And that's not the group you want to be associated with.
Keryx and perifosine is an ideal, prospective test of whether stock market value can predict cancer drug trial outcomes. I'm looking forward to early next year when Keryx announces the perifosine results.
Some quick hits:
I mentioned on Twitter last week that Rodman & Renshaw was inviting investors to a "non-deal" road show for Cell Therapeutics(CTIC_) in New York City on Oct. 19.
To which Zacks analyst Jason Napodano (@JNapodano) replied, "There's no such thing as a "non-deal" show with R&R."
So true. Expect Cell Therapeutics to raise money again real soon.
Alan P. asks me to predict the outcome of the shareholder vote on the proposed merger between Amag Pharmaceuticals(AMAG_) and Allos Therapeutics(ALTH_). The vote is scheduled for Oct. 21.
I'm confident shareholders will vote against the Amag-Allos merger. I'm less certain about the related but separate proposal from hedge fund manager Martin Shkreli to shake up Amag's board and ultimately take over the company. He may not have the confidence of Amag shareholders to pull off what he wants to do, even if it's the right thing.
From a stock perspective, a "no" vote on the merger should send Amag shares higher and Allos shares lower. Amag's board, if it's not completely brain dead, will finally fire CEO Brian Pereira and conduct a proper auction process to sell off Feraheme.
Allos, on the other hand, will be left at the altar begging for companionship. I won't be surprised to see Spectrum Pharmaceuticals(SPPI_) re-engage and make a low-ball offer for Folotyn. That would be a smart move for Spectrum, which has a much greater chance of making money with Folotyn by leveraging its existing cancer drug business.
Nikolas V. writes, "Adam, you are very good at what you do. I like it. Keep it this way. Thank you."
Thank you, Nikolas. I'm including your thoughtful email in this week's Mailbag to counter what I anticipate will be a flurry of not-so-nice emails from Keryx fans coming shortly.
One housekeeping note: The next Biotech Stock Live Chat is scheduled for Thursday, Oct. 20 at 12 p.m. ET.
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