Interview With Dr. Frederick Wurlitzer: Bet On FDA Approval For Keryx, AEterna-Zentaris; Potential For Huge Upside

by: Jeremy Richards

My assistant Jeff Wu recently asked Dr. Frederick Wurlitzer, M.D., F.A.C.S., M.B.A some questions regarding Keryx (NASDAQ:KERX) and AEterna-Zentaris (NASDAQ:AEZS). Below are Dr. Wurlitzer's answers and opinions on each question.

Dr. Wurlitzer is a well-respected and now retired surgical oncologist and a former instructor in surgery at a major university. He trained in cancer surgery at M.D. Anderson Hospital in Houston.

Q. Are the Phase 2 and Phase 3 Studies for mCRC the same in design?

Dr. Wurlitzer: There are significant differences between how the P2 PCAP (Perifosine + Capecitabine or Xeloda) and the SPA P3 PCAP studies were designed to test the efficacy of the PCAP drug combination in treating metastatic colorectal cancer (mCRC). Many investors and analysts have not appreciated these differences fully or the full potential in AEZS.

The patient population in the X-Pect study is not the same in character as the population in the P2 study. The number of patients were of course different (P2 38; P3 430 expanded to 465). The X-Pect study population is like the subset of 5 FU refractory patients in the P2 study that was 5-FU refractory. Initial treatments varied, but all were also 5 FU refractory. This revised definition of refractoriness peculiar to the X-Pect study does not mean that there was not refractoriness to other modalities of treatment in the X-Pect study. The P3 X-Pect population in being all 5-FU refractory was clearly different in treatment background from the mixed refractory P2 population.

The subset of 5-FU patients in the P2 study had a different survival from that for the entire P2 group. Surprisingly, the refractory 5-FU control group in the P2 study had 6.5 months survival whereas the entire mean survival in the P2 study was 7.6 months (17.7 months versus 7.6 months; p = .0052). In contrast, the PCAP arm for the 5 FU refractory P2 group had about 15.1 months’ survival versus approximately 6.5 months for the control arm (p = .006). This meant that through the addition of Perifosine to Capecitabine there was an astounding 8.6 months increase in survival for refractory 5-FU MCRC patients in the P2 study.

This impressively high response rate for 5-FU refractory patients in the P2 studies is one reason why AEZS selected this subgroup of the P2 studies to be the only group undergoing study in the X-Pect trial. Another reason was that this subgroup could be clearly and easily defined. The X-Pect population did not have a mixture of refractoriness thereby providing a unique uniformity to its patient population.

Management is not aware of any difference in survival between mCRC patients receiving 1000 mg. per square meter in the X-Pect study and those receiving 825 mg. per square meter in the P2 study. These were oral twice daily dosages. Since there can be extreme toxicity with 1250 mg. per square meter usage, this dosage was not used.

All patients in the X-Pect study received 1000 mg. per M2 orally twice daily because that was the SPA protocol. Even when patients were frail and a lower dosage might have been indicated ordinarily, patients received Perifosine at the 1000 mg/M2 dosage level. This constancy in dosage approach insured greater reliability for statistical analysis of the X-Pect study.

Another difference between the P2 and P3 studies is that the P2 study set the major endpoint at Time to Progression or TTP whereas the endpoint for the P3 study is death (OS or Overall Survival). Since there can be differences of opinion as to when TTP occurs, the FDA asked that a hard endpoint be used, namely death. No one can argue whether or not death has occurred. The EMA has accepted all the conditions of the SPA P3 study as being applicable for European approval.

Still, another difference between the P2 and P3 studies is that the improvement in OS that occurred and/or predicted is different between the two studies. In the P2 study the mean OS was about 6.5 months for the 5 FU refractory subset of patient. Their overall increase in survival was 8.1 months. The statistical significance for that subset was about .006. If the OS cut-off period of 15.1 months had been set in the X-Pect study, the standards would have been unacceptably high since a very large patient population would have been required at great cost to reach statistical significance. Therefore, the FDA agreed that a two month increase in OS should be adopted although the actual increase in OS in the P2 study was 8.1 months. The odds are stacked in favor of the X-Pect study being successful.

The X-Pect study was designed so that a patient population of 430 patients was needed at a 90% confidence level to prove statistical significance for the PCAP arm at an estimated two month difference in mean OS. Statistical significance would occur at p=<.05. This level is considerably different from the p=<.006 level for the 5FU refractory group in the P2 study. In other words, the SPA X-Pect study was designed to prove PCAP works with at least two months improvement in survival for refractory 5-FU MCRC patients. The FDA agreed to the SPA design because of the very important role that PCAP could play in treating refractory MCRC patients, especially those that are 5-FU resistant. Toxicities were manageable.

In my opinion, the odds of eventual approval for PCAP are very high because of the elegance of the X-Pect study where a very homogeneous patient population of 5-FU refractory patients has to meet only a two month increase in OS versus the 8.1 month improvement in survival seen for the 5-FU refractory subset in the P2 study.

If pushed, my best guess is that there is an 80% chance for the PCAP combination being proven effective followed by a 90% chance of FDA approval later, for a 70% overall probability of success.

As more time passes before the 360 OS event is announced, these odds will improve. Delays in OS events imply strongly that the treatment arm is being effective, although of course it is possible that the control arm is also doing better than expected. If by February 2012 the 360 event has not been announced, the odds of eventual FDA approval will increase even more. The results of the X-Pect study should be available sometime in Q1 2012.

Q. Will AEZS and KERX do an analysis on the entire population of 465 patients in the X-Pect study?

Dr. Wurlitzer: The original X-Pect study consisted of 430 patients but was oversubscribed to 465 patients. A second analysis on 465 patients is not necessary. There will be only one analysis for X-Pect and that is when the 360 mortality event occurs. It is the mean Overall Survival (OS) that is being determined, not the average OS according to the SPA. There is a clear difference between mean and average, and the mean OS will be known at the 360 death event with a sufficient degree of accuracy when unblinding occurs.

Q. Was the failure of the DSMB to cancel the X-Pect Study at the 160 event bad news?

Dr. Wurlitzer: No, this was not bad news. Some investors have commented that the DSMB should have halted the X-Pect studies if PCAP treatment was statistically significant at the 160 event. If the P2 studies were statistically significant with 38 patients in the P2 study, surely there would have been statistical significance with 160 patients. Termination would have been the morally correct action for the DSMB to have taken in order to spare lives and suffering if PCAP was really effective. Further comments were that the Data Monitoring Committee (DMC) of the CORRECT study by Onyx Pharmaceuticals (NASDAQ:ONXX) set the bar high when it canceled for reasons of obvious efficacy Regorafenib as a treatment for mCRC so that remaining patients in the control arm could get treatment. The KERX DSMB should have done the same for PCAP and the failure to have done so indicated PCAP did not work.

In fact, the DSMB did not study statistical significance because the FDA does not demand interim looks for statistical analysis in Phase 3 studies. The bar is very high for ending a trial early in terms of statistical significance. It is risky to take an interim look because of the “alpha spend” required and how it might affect the final analysis.

Under the SPA its first two endpoints of efficacy and safety were met. Nothing further needed to be done according to the SPA protocol that could not be changed without great risk. An early termination would have voided the SPA X-Pect study and clearly would have put AEZS and KERX in jeopardy.

Q. Should KERX still be worth more than AEZS?

Dr. Wurlitzer: Although KERX is obviously worth more than AEZS from the standpoint of capitalization, AEZS probably has a substantially greater intrinsic value than that of KERX. The extensive pipeline (AEZS- 108, 112, 120, 129/131/132, and 130) and in particular the future value of AEZS 108 (a targeted cytotoxic LHRH analog) and various Perifosine combinations with other drugs for multiple myeloma, neuroblastoma, and a host of other serious conditions suggest a fundamental value for AEZS many times that for KERX that has essentially just a two drug pipeline (PCAP in the U.S. and Zerenex).

Sales from a PCAP combination could easily approach a billion dollars within 2-3 years throughout the world provided there are satisfactory major pharmaceutical companies doing the marketing. The emergence of AEZS 108 in 2-4 years for treating refractory ovarian and endometrial cancer would definitely have blockbuster potential.

So many variables are present that attempting a future value analysis discounted back to present value is risky. Yet, AEZS unmistakeably has the potential to be a multi-billion dollar company within 10 years if it is not bought out before then.

Q. Who might buy AeternaZentaris (AEZS) or Keryx Pharmaceuticals (KERX)?

Dr. Wurlitzer: The Xeloda main patent held by Roche (OTCQX:RHHBY) expires on Dec 15, 2013. An early patent termination will affect the pricing and potential sales since once Xeloda goes generic, most insurers will want patients on generic Xeloda first before any newer, more expensive treatments. If the PCAP combination is proven to be more effective than Xeloda alone, its sales should be at least as good or better than those for Xeloda alone or even in other combinations than PCAP. Roche has aggressively sought patents and use permits for Xeloda combinations and has a strong incentive to seek control of the Perifosine – Xeloda combination as well in most of the world by buying out AEZS and KERX. Through PCAP patent control Roche could extend its Xeloda sales in combination with Perifosine at full pricing beyond the time Xeloda generics come on stream.

It is ironic that the recent Onyx Pharmaceuticals' announcement concerning Regorafenib could spur Roche to make a buyout offer for AEZS because this new drug for CRC may be more effective than Xeloda alone.

As a fuller understanding emerges of the likelihood that the X-Pect trial will succeed and certainly if the X-Pect studies are indeed successful, other suitors are likely especially among those large pharmaceutical companies with an interest in oncology, such as Celgene (NASDAQ:CELG) and Gilead Sciences (NASDAQ:GILD) or others concerned about their patent cliffs".

Q. Did The ONXX investigational compound Regorafenib for mCRC that met primary endpoint of improving overall survival threaten AEZS and KERX?

Dr. Wurlitzer: This is unlikely. The methods of action of PCAP and Regorafenib are different. The population for the Regorafenib study was not composed of only 5-FU refractory patients. It is entirely possible that the two drugs could be synergistic. A comparative double blind prospective study yet to be done could easily show PCAP to be more effective than Regorafenib. Caution is indicated in jumping to conclusions that the efficacy of Regorafenib for 5-FU refractory mCRC patients is greater than PCAP.

In summary Dr. Wurlitzer said,

The X-Pect study is highly likely to show the effectiveness of the PCAP combination for mCRC. The failure of the DSMB to cancel the X-Pect Study at the 160 event was not bad news. In order to control the future of Xeloda whose basic patent expires in 2013, Roche is likely to make a buyout offer for AEZS and KERX. But the probability of other suitors emerging for just AEZS within a year as the X-Pect and other studies are completed is high.

Dr. Wurlitzer disclosed he is not an insider in either KERX or AEZS. He firmly believes in AEZS. He now owns about 1% of AEZS through various personal entities and intends to buy more stock on the open market. His holdings in KERX are minimal.

After what I heard from Dr. Wurlitzer, I believe AEZS to be one of the most undervalued biotechs on Wall Street. I am extremely baffled as to why AEZS's stock price, around $1.60, and market cap around $150M is so ridiculously cheap. AEZS has $54M cash on hand and zero debt. I believe buying the stock under $3 a share is an exceptional bargain that shouldn't be passed up based on the robust pipeline and prospects AEZS offers.

Eight analysts continue to be bullish on AEZS with buy ratings and average price targets of $5 per share which is above 200% of the current stock price. Oppenheimer & Co. came out with a research report after AEZS reported earnings last week on November 10, 2011 AEZS.

In a note to clients, Oppenheimer & Co. wrote:

Earlier today AEZS reported financial results for 3Q11 and provided an update on its development programs. Overall the P&L updates were immaterial, in our view, and we are revising our NPV model (page 2) due to share count growth ahead of our forecast. The company continues to advance its pipeline, with a potential NDA filing for AEZS-130 (Solorel) in adult growth hormone deficiency testing in early 2012. However, we believe that the key value driver over the next 4-6 months remains the outcome of the Phase III study of perifosine in colorectal cancer, which we anticipate in early '12. We maintain our Outperform rating and decreasing our price target from $5.50 to $5.00/share.

A Motley Fool article that agrees with my opinion on AEZS came out after the stock market closed on Friday, November 11, 2011, AEterna-Zentaris Surprises Again. Motley Fool said,

In an absolute shock, AEZS, a small-cap favorite of mine that currently has 11 compounds in its pipeline, reported a profit of $0.01 for the third quarter on revenue of $9.5 million. This compares with the consensus estimate that called for a loss of $0.09 on revenue of $6.8 million.

Motley Fool points to AEZS being an instant buyout target.

Disclosure: I am long AEZS, KERX.

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