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This article by The Street biotech expert Adam Feuerstein analyzes Keryx (NASDAQ:KERX) and Aeterna Zentaris (NASDAQ:AEZS) who jointly created the cancer drug Perifosine and suggests that its phase 3 trial, the results of which will be out in early 2012, will most likely fail. He presents his findings in conjunction with Mark J. Ratain, MD. Dr. Ratain has quite an impressive bio, as shown on Forbes here. He has authored and co-authored more than 350 articles and book chapters. He received his A.B. degree from Harvard University and his M.D. from the Yale University School of Medicine.

Mr. Feuerstein presents what he calls the “Feuerstein-Ratain rule” which states that the outcome of phase 3 cancer drug studies can be predicted accurately by looking at the market value of the company running the study. It’s derived from an analysis of 59 phase 3 clinical trials of cancer drugs conducted over the past 10 years. The list of drug trials wasn’t put together by Feuerstein or Ratain, but by a paper published in the Journal of the National Cancer Institute.

The study showed that 21 out of 21 phase 3 cancer drug trials for micro-cap companies (companies with less than $300 market cap) failed, whereas 21 of 27 phase 3 trials by the larger companies analyzed (with a greater than $1 billion market cap) were positive. The apparent reason for this disparity is because pharmaceutical stock investors are astute and can accurately predict outcomes of phase 3 trials based on how the phase 1 and 2 trials went.

Keryx and Aeterna Zentaris are both micro-cap stocks.

A 100% failure rate is a compelling statistic, and suggests a short of both KERX and AEZS would be a good binary bet right before the phase 3 trial results come out in early 2012.

Dr. Ratain believes the phase 2 study of Perifosine is flawed and not as randomized as it should be. Initially, 381 patients diagnosed with seven different types of cancer were to be enrolled in the therapy. With each tumor type, patients were to be treated with either Perifosine or a placebo.

However, this study never took place. Instead, it was revealed that there were good results when combining Perifosine with Capecitabine in 25 colon cancer patients. So KERX jumped on this and took the other cancer patients out of the study and added 13 new colon cancer patients to bring the total number of patients to 38. The data of these 38 colon cancer patients showed a survival benefit favoring the Perifosine-Capecitabine combination over Capecitabine alone. This qualified as a pass for phase 2, which brought on the phase 3 study.

Dr. Ratain has various criticisms of the study. Mainly that singling out only the 25 colon cancer patients was data dredging, and can only be considered hypothesis generating. Adding only 13 to the group is inadequate to assess the hypothesis. Also, we don't know the baseline characteristics of the additional 13 patients, including their refractory status to previous treatments. Therefore, the phase 2 results are un-interpretable.

Because of these criticisms, Ratain believes there’s a good chance the larger and prospectively designed phase 3 study will fail.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Why Perifosine Phase 3 Trials Will Likely Fail