Keryx Biopharmaceuticals vs. AEterna Zentaris

Includes: AEZS, KERX
by: Michael J. Ray

One of the most interesting questions I am often asked about stocks is, which company is the better buy, Keryx Biopharmaceuticals, Inc. (NASDAQ:KERX) or AEterna Zentaris, Inc.(NASDAQ:AEZS)? What seems like an easy question at first is actually pretty complex on many levels. Just asking the question shows that the person is aware of the bond that both companies share when it comes to the oral anti-cancer Perifosine, but can the answer be solely based on this relationship? Before we answer the question, we need to better understand each company.

Keryx Biopharmaceuticals
Keryx is a speculative healthcare company that trades on the NASDAQ exchange. KERX’s goal is to try to commercialize new pharmaceutical products that focus on serious conditions like renal disease and cancer. The company for 2011 will not expect to recognize revenue based on sales of its products, but has recorded license revenue from an agreement for the initiation of a Phase 3 clinical trial in Japan. So basically KERX is living on cash on hand until a revenue stream or buyout transaction can be derived.
Keryx has two products that are being developed. The first pharmaceutical product is the well known Perifosine, the oral anti-cancer drug mentioned above. The drug is designed to treat advanced colorectal cancer and multiple myeloma. Initial testing with the drug has delivered some very promising results, which tend to lead one to believe that the product is destined for better days ahead. KERX derived the drug from a commercial license agreement in 2002 with Zentaris AG, which is a wholly owned subsidiary of AEterna Zentaris Inc. (AEZS). According to the agreement, KERX is granted exclusive rights to promote Perifosine in the U.S., Canada, and Mexico. Needless to say that represents a large market of potential users. More than 2,000 patients in the US and Europe are currently involved with the trials of the drug to determine if it is effective. An even more exciting aspect is that Perifosine is also in Phase 1 and 2 clinical developments for several other tumor types. If the drug can be used to combat several different types of cancers then one can easily see the potential for both patients and investors.
KERX also has a second product being developed. This drug is also an oral compound that is used to treat end stage renal disease. The drug’s name is Zerenex and it is under a US Phase 3 study with the FDA. It should be noted that the company is also working with the Japanese under a partnership to complete the Phase 3 as well. Much like Perifosine, this drug also has the potential to be a real winner for the company. In the United States 485,000 people are afflicted with end stage renal disease. This number should increase by 60% to 785,000 by the year 2020. Needless to say, the stock price will react very positively if Keryx can get final FDA approval and get the product to market.
AEterna Zentaris
AEterna Zentaris operates as a late-stage drug development company specializing in oncology and endocrinology. The company was founded in 1991, and its headquarters is in Quebec City, Canada. Unlike KERX, which has only 2 drugs in the pipeline, AEZS has 5 in varying stages of development. These products are:
  • AEZS-112 (Oncology)
  • AEZS-130 (Endocrinology)
  • AEZS-108 (Ovarian, prostate, bladder cancer)
  • Perifosine (Multiple Cancers)
  • Perifonsine Advanced Colorectal and Multiple Myeloma
  • Solorel (Endocrinology)
The company also has one product on the market, Cetrotide, which is administered to women to prevent premature ovulation in order to increase fertility success rate.
When looking at the company’s financial statements they seem to have the same issues that currently plague KERX. Sales and revenue was $7.1 million for the three-month period ended March 31, 2011, compared with $5.7 million for the same period in 2010. The increase is largely related to comparative higher-than-normal deliveries of Cetrotide to certain customers as well as to the comparative strengthening of the euro against the US dollar. The issue is that revenue for the second quarter 2011 is expected to decrease slightly, compared with the first quarter of 2011. Add to this the fact that company operating expenses were $14.7 million and it’s not hard to see the company is deep in the red. Needless to say, sales of Cetrotide cannot support this company. Similar to KERX, it is basically living on their cash supply.
Much like KERX, AEZS has lot riding on Perifosine. Perifosine has also been granted Orphan Medicinal Product designation from the EMA in multiple myeloma, and has received positive Scientific Advice from the EMA for both the advanced colorectal cancer and multiple myeloma programs, with ongoing Phase 3 trials for these indications expected to be sufficient for registration in Europe. Besides the license to KERX, Perifosine rights have been licensed to Handok Pharmaceuticals Co. Ltd. for Korea and to Yakult for Japan. On March 8, 2011, the company entered into an agreement with Yakult for the development, manufacture and commercialization of Perifosine in all human uses in Japan. Under the terms of this agreement, Yakult made an initial upfront payment of approximately $8.4 million. Also AEZS will be entitled to receive up to a total of $62.5 million upon achieving certain established milestone events in Japan. Finally is should be known that it will be entitled to receive double-digit royalties on future net sales of Perifosine in the Japanese market.
Now that more facts are on the table, let’s revisit the original question. What stock is the better buy? The real question is, which company is a better investment when Perifonsine is approved for commercial use? My answer to that is simple; you buy both. Both of these companies are going to be heavily influenced by the final verdict for Perifonsine. By buying both one gets maximum coverage as KERX will control the US, Canada and Mexico and AEZS will get pretty much everywhere else. The two together will make for stellar returns. Now both companies have other drugs in their pipelines that could have some positive or negative effects, but it is Perifonsine where the biggest bang is going to come from in the immediate future. Of course if the drug fails then both companies will take major hits to their stock price, so only money set aside for speculation should be risked here.
Disclosure: I am long KERX.

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