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Small development phase pharmaceuticals with promising lead product candidates can be profitable investments for shareholders fortunate enough to hold long positions when events unfold favorably. However, if clinicals prove to be failures or drugs are rejected by regulatory agencies the share price drop can be substantial with losses of well over 50% being typical depending on the companies' remaining candidates. Frantic and disappointed shareholders selling for losses at the depressed levels are often wise in doing such as much money and time has been lost by the company with much of its resources often construed as wasted. A careful evaluation of pipelines of some recent failures can often provide for good entry levels at the depressed levels due to other therapies in development that have been quietly progressing without the hype of their ill-fated and more advanced counterparts. I wish to delve into a couple of strong possibilities for shareholders who may be "value shopping" for such promising candidates. Interested investors are advised to perform much additional research before opening any type of position in these possibilities.

AEterna Zentaris (NASDAQ:AEZS) common shares had a phenomenal runup over the last year culminating with a 52-week high of $13.00 (on an adjusted reverse split basis) on March 9th of this year on the hopes of its lead product candidate, perifosine, in clinicals for refractory advanced colorectal cancer. Hopeful shareholders saw their portfolios wounded with an April 2nd announcement that the drug had failed to meet its primary endpoint. Shares that closed at $12.84 on Friday the 30th found themselves opening the day on Monday the 2nd at $4.38, a loss of over 65%. Shares would continue trading lower, necessitating a 1:6 reverse split on October 5th. Now trading at $2.19 with a market capitalization of $55.5 million, the stock has a 70% institutional holding and has been trading in the low $2 range for the last month.

The share price action since perifosine's failure in colorectal cancer appears to be indicative of a small pharma with little future in sight with few catalysts to keep investor attention. However, the pipeline seems to be alive and well with a late stage drug in Phase III development and a new drug application (NDA) upcoming in mid 2013 for another product. Perifosine is now in another Phase III trial, this time for multiple myeloma. The company announced Phase I/II data presented in October of 2011 with promising results. In the 84 patient trial evaluating perifosine for treating relapsed or refractory multiple myeloma in patients who had already been treated with bortezomib, 73% of the patients were refractory to bortezomib (no response to the drug). The addition of perifosine to the regimen demonstrated an overall response rate (ORR) including MR of more than 41% in all evaluable patients, with stable disease observed in an additional 41% of evaluable patients. The ORR was 65% for bortezomib-relapsed patients and 32% for patients with bortezomib-refractory disease. Median progression-free survival (PFS) was 6.4 months for those with bortezomib-refractory disease, with a median PFS of 8.8 months in the bortezomib-relapsed population. Median overall survival (OS) was 25 months for an indication in which the historical OS for symptomatic patients is about 12months (even less for bortezomib-relapsed and bortezomib-refractory patients).

The Phase III trial for perifosine in treating multiple myeloma is operating under the FDA's Special Protocol Assessment (SPA) trial design that provides clear direction for marketing approval for the drug if final data meet the predetermined primary endpoints. The drug has also received the FDA's Orphan Drug designation which is designed to provide incentives including, but not limited to, a 7-year period of marketing exclusivity after regulatory approval for a rare disease indication. During this Orphan market exclusivity period, the FDA will not approve an NDA or a generic drug application for the same product and for the same rare disease indication. For AEterna, an approval for perifosine in the event the Phase III trial is successful would mean a period of maximized return on its investment, at least during the first 7 years of marketing. With the global market for multiple myeloma drugs projected to reach $5.4 billion by 2016, AEterna's possible portion of that pie could be significant. It has licensed out perifosine to Keryx Pharmaceuticals (NASDAQ:KERX) in the U.S., Yakult Honsha for Japan and to Handok for Korea. Milestone payments for these licenses could be significant if the therapy is approved. The company still has all marketing rights for Europe, where it also has the Orphan Drug designation there, with a potential for up to 10 years of marketing exclusivity if approved. The European Medicines Agency (EMA) has already noted that perifosine has received a positive nod indicating that its current Phase III trial for multiple myeloma is a trial design deemed to be sufficient for registration in Europe. In other words, the company can make the most of its investment with approvals in the U.S. and Europe if this trial's topline data support such marketing approval. The Phase III interim data in Q1 will provide investors much information about the possibilities for such an outcome and could be a significant share price driver in the coming weeks.

With less upside potential but a more near term marketing possibility, the company intends to submit a new drug application (NDA) likely in Q1 for its lead product candidate, AEZS-130. The candidate is a diagnostic test for Adult Growth Hormone Deficiency (OTC:AGHD), a condition affecting 35,000 adults in the U.S., with 6,000 additional adults diagnosed annually. Like perifosine, AEZS-130 has received Orphan Drug status in the U.S. to help recover development costs and subsequently profit from this rare disease indication. Adding to the candidate's promise, AEterna has worldwide rights to AEZS-130 providing for additional revenue in the event the product is approved and commercialized elsewhere.

As I indicated in a previous article, AEterna has had a disappointing year for long term investors with the earlier failure of perifosine for colorectal cancer and a reverse split and then dilutive stock offering shortly thereafter. With a $55 million market capitalization, I believe the company to be highly undervalued considering its pipeline progression and upcoming NDA. As of September 30th, the company had cash and equivalents of $33.2 million not including the October 17th announced $15.2 million offering for a total of $48.4 million. The company is trading at just $6.6 million over its cash value, a very promising current entry for new investors as the company heads into what hopefully could be a better year ahead for shareholders.

Like AEterna, Progenics Pharmaceuticals, Inc (NASDAQ:PGNX) long time shareholders have suffered through a devastating year due to clinical failure and dilutive offering. In late July, the company and its partner, Salix Pharmaceuticals (NASDAQ:SLXP), announced receipt of a complete response letter (CRL) from the FDA for its attempted regulatory approval for RELISTOR® (methylnaltrexone bromide) injection for subcutaneous use for the treatment of opioid-induced constipation ()OIC)) in adult patients with chronic, non-cancer pain. The drug had been FDA approved since 2008 to treat constipation in patients with advanced illness and receiving palliative care, when response to existing laxative therapy had not been effective. The company had filed an sNDA (supplemental new drug application) attempting to expand the product's labeling, but met an obvious stumbling block with the CRL. Trading at $10.80 at the closing of the day's trade on July 27th, the company's common shares opened at $5.39 for an approximate 50% haircut. However, shares continued trading down to a 52-week low of $1.41 and are now at $2.29 with a $77.7 million market capitalization for the company as of market close on Friday the 14th.

At an October 5th End-of-Review meeting with the FDA, Salix discussed the CRL with the regulatory entity who advised them that it was concerned that there may be a "risk associated with the chronic use of mu-opioid antagonists in patients who are taking opioids for chronic pain. In order to understand this potential risk, the FDA's Division has communicated that a very large, well-controlled, chronic administration trial will have to be conducted to assess the safety of any mu-opioid antagonist prior to market approval for the treatment of patients with OIC who are taking opioids for chronic, non-cancer pain." However, Salix expressed the opinion that post-marketing data combined with clinical and preclinical data for RELISTOR® "adequately demonstrate an appropriate and expected safety profile sufficient to permit the approval of the current Relistor sNDA." According to Progenics Q3 filing, it and Salix plan to work with the FDA on a more acceptable regulatory path for the labeling expansion rather than another large trial. The two companies believe that a path forward could be agreed upon by the FDA sometime in 2013. With the expectation of a full trial necessary to more fully evaluate the risks, any news indicating a short trial or acceptance of the companies' recommendations could prove to be a large share price mover. Interested investors should watch carefully for this news.

Also like AEterna, Progenics' pipeline is far from dead as it already has an approved drug in RESISTOR® for the treatment of constipation in patients with advanced illness and receiving palliative care, when response to existing laxative therapy has not been effective. The company's next product in line, PSMA ADC, entered a Phase II clinical as announced on September 28th for the treatment of metastatic castration-resistant prostate cancer. PSMA ADC is a targeted anti-cancer therapeutic that uses a monoclonal antibody to deliver the cell-killing drug, monomethyl auristatin E (MMAE), to malignant cells with prostate specific membrane antigen (PSMA) expressions. Phase I data of a 50 patient set gives the company clear-cut guidance pertaining to dosing of the therapy. For the safety evaluation, 50 subjects were dosed in 9 dose levels. Dose-limiting toxicity was observed at 2.8mg/kg, including 1 death from neutropenia of an unknown cause. In terms of efficacy, prostate specific antigen (PSA) reductions of greater than 50% and/or reductions in circulating tumor cells (CTCs) to a concentration of less than 5 cells in 7.5 milliliters of blood were observed in approximately 50% of patients at doses of ≥1.8mg/kg. The Phase II trial will utilize 2.5mg/kg for its patient set and will view PSA and CTC data for efficacy determinations. The trial is expected to enroll 75 patients with metastatic castration-resistant prostate cancer.

Progenics shareholders are advised to monitor the RESISTOR® sNDA news as it becomes available and also watch carefully for any updates on the PSMA ADC Phase II trial. A large indication to tackle, the prostate cancer indication is significant with The American Cancer Society estimating more than 241,000 new cases of prostate cancer will be diagnosed in 2012 with about 28,000 men expected to die from the disease or its effects. According to the publication Research and Markets: Prostate Cancer Drug Pipeline Analysis and Market Forecasts to 2015: an essential source of information and analysis of the global prostate cancer market, January 21, 2010, the prostate cancer market may grow to $7.8 billion by 2015. A small portion of this pie could provide for significant upside from the company's current $77.7 million market share. According to the company's Q3 financials, Progenics had about $41 million in cash and equivalents as of September 30th. However, this did not include the $3.5 million the company obtained from the sale of its PRO 140 program to CytoDyn, Inc (OTCQB:CYDY) along with the additional milestones and royalties the company could obtain in the future for clinical and marketing success of the humanized monoclonal antibody HIV viral-entry inhibitor drug candidate. The company's cash value is also higher now due to a recent $22 million offering priced at $2.00 as announced on November 29th. Altogether, the company's current cash and equivalents value should be approximately $66.5 million, just $11.2 million less than the company's current market capitalization.

AEterna Zentaris and Progenics Pharmaceuticals are two prime examples of companies that oversold due to disappointing late-stage drug candidates but have remained at depressed values despite the fact that there is much happening with the remainder of their pipelines. Both of these companies have had very recent financing and are trading just above cash value. Promising developments in either of these candidates will likely catalyze the share prices into trading much higher while it appears that the worst case scenario has been priced in with little regard to the promise that the pipelines hold. I advise much additional research into each of these candidates if you are considering a position in either. Charts indicate oversold conditions in both with each trading dramatically closer to 52-week lows than 52-week highs. The year ahead should be better than the year behind for both of these companies. If so, wise and early entries in each could prove to have solid upside potential in 2013.

AEterna Zentaris' Pipeline:


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Progenics Pharmaceuticals' Pipeline:


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Source: AEterna Zentaris And Progenics Pharmaceuticals - Rising From The Ashes In 2013?