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Maybe H.P. Lovecraft was really a prophet of biotech when he wrote "That is not dead which can eternal lie," as it clearly seems like there are certain biotechs that come back again and again… and again. While the failure of AEterna Zentaris' (NASDAQ:AEZS) drug perifosine in colorectal cancer led to a major drop in the share price and the end of a variety of silly rumors regarding the company's prospects of being taken over by a Big Pharma company, it looks like the company has once again attracted some hope and optimism.

The real question, though, is whether there are solid reasons to hope that this go-around ends better for investors.

Three Shots On Goal

AEterna Zentaris has three compounds worth serious mention at this point - AEZS-130 as a diagnostic for adult growth hormone deficiency, AEZS-108 for endometrial cancer, and perifosine for multiple myeloma. All of these are relatively advanced programs, but there are still meaningful questions to resolve regarding market size, efficacy, and AEterna Zentaris' commercialization plans. Likewise, the company has other compounds in the pipeline (and other indications for AEZS-108), but those are distant opportunities today.

AEZS-130 (Solorel)

AEZS-130 (or Solorel), an oral ghrelin agonist, is likely the compound closest to commercialization (as a diagnostic for adult growth hormone deficiency). AEterna Zentaris has requested fast-track designation from the FDA, a designation that would chiefly offer the advantage of allowing the company to start filing the NDA on a rolling basis in Q4'2012. Even without the designation, it's likely that the filing would finish in the first quarter of 2013.

While this designation falls into the "nice to have" category and could help the company generate more funding opportunities, the market potential of AEZS-130 is less certain. Final results of 82% sensitivity and 92% specificity weren't as good as earlier data (due in part to a 13% misclassification rate), but the compound is probably still approvable - particularly since there's no other approved diagnostic.

The downside is that the market is pretty small - with about 5,000 to 6,000 or so new cases a year, and a potential test market may be 5x to 10x that number. What's more, while I'm aware of a few diagnostic tests for rare diseases that get reimbursement on the order of multiple thousands of dollars, I think AEterna will be hard pressed to charge even $1,000 for Solorel. Consequently, I don't much see commercial opportunity here, though I suppose any positive cash flow helps.

The company is also in earlier stage testing of AEZS-130 as a treatment for cancer cachexia.

AEZS-108

Although AEZS-108 may be the candidate with the best potential at the company, there are plenty of uncertainties here as well. The company has applied for a special protocol assessment (SPA) from the FDA and hopes to begin a Phase 3 study in endometrial cancer fairly soon. The study will compare AEZS-108 to doxorubicin, and I would expect that it could take as long as three years to see data (so, 2016), particularly given the company's cash status and its implications for patient enrollment.

It looks as though the company is looking to enroll 700 patients in what will at least initially be an "all comers study" (and not one that only looks to enroll LHRH-positive patients). Ostensibly, the company is doing this because it does not want to wait on an LHRH diagnostic test that is in development at Roche (OTCQX:RHHBY), and with roughly 80% of relapsed endometrial cancer patients being positive for LHRH, it seems like a reasonable risk. When (or if) the test becomes available, the company would then incorporate it into the patient screening protocol.

The mechanism of action for AEZS-108 does at least make some sense (it's loosely similar to the antibody drug conjugate approach used by Seattle Genetics (NASDAQ:SGEN) and ImmunoGen (NASDAQ:IMGN)), and advanced endometrial cancer is an under-served market. The Phase 2 results weren't spectacular in terms of overall survival or progression-free time, but the prognosis for advanced/refractory patients is very poor and there are enough addressable patients (approximately 7,000 or so per year in the U.S.) to make this commercially worthwhile if the drug works.

Perifosine

Last and not least is perifosine - the drug that got a lot of investors excited about AEterna Zentaris last year. This drug failed in a metastatic colorectal cancer study and former partner Keryx Pharmaceuticals (NASDAQ:KERX) decided to abandon the partnership. AEterna Zentaris still has the drug in a phase 3 study in multiple myeloma, though, and interim data should be available next year (Q1 of 2013).

Multiple myeloma (MM) is a significant market; Celgene's (NASDAQ:CELG) Revlimid generates over $3 billion a year in revenue with multiple myeloma as the primary indication. The question is whether there's much chance that perifosine will work well enough to hit the market and/or stand out from other MM drugs, even as a drug targeted to patients who failed to respond to Revlimid.

At this point I'm highly skeptical. Earlier phase 1/2 studies of perifosine and Velcade showed median overall survival of 25 months and progression-free survival of 6.4 months. That's an improvement of roughly 25-35% over the numbers seen in prior placebo groups in relapsed multiple myeloma studies. That doesn't leave much room to maneuver - especially when you consider the trend in biotechnology for oncology drugs to show less efficacy in pivotal studies than in early open-label studies.

That said, the phase 3 study of perifosine is for patients who have previously been treated with Revlimid, so it's not really fair to compare those numbers to older "pre-Revlimid" data. Likewise, I don't think perifosine has to be superior to Revlimid's data in relapsed/refractory patients (which showed median overall survival of roughly 30 months and progression-free survival of 11 months) to make it. Still, Keryx decided to back out, and that's not a company loaded with great near-term pipeline candidates either.

Beware The Hype And Hope

I have no issues with investors who look at AEterna Zentaris as a high-risk/high-reward long-shot. I have always held at least one biotech in my portfolio, and I have no delusions about the risks involved.

That said, I hope investors don't get sucked into a new round of unrestrained hype and hope. I saw that another broker-dealer recently initiated coverage on AEterna Zentaris with a "Buy" and a $1.75 price target. I also know that the company issued 3.6 million shares in "at the market" transactions in recent months, raising about $2.4 million. With a $40 million cash balance, AEterna needs money - be it from a partner or investors - to get AEZS-108 through a pivotal trial, and there will be brokers out there angling for that business with positive coverage.

Success with either AEZS-108 or perifosine, even just as a second or third-line therapy, would probably be enough to make this stock pay off from today's level. That's tempered by what, in my opinion, are pretty long odds of success. So to those investors who see more potential in these drugs, or think they see a good trading opportunity, I wish you luck. I just don't think the odds favor this story working out in the end, and there are too many well-funded and promising biotechs to choose from today to lead me to have any personal interest in these shares.

Source: Here We Go Again With AEterna Zentaris... Again