AEterna Zentaris: Blazing a New Frontier

| About: AEterna Zentaris, (AEZS)

A strong balance sheet and a pair of promising late-stage hormone therapy products underlie recently appointed CEO Dr. David Mazzo's optimism for the future prospects of the 16-year-old, Quebec-based biopharmaceutical firm AEterna Zentaris (NASDAQ:AEZS). Lead hormone therapy products cetrorelix and ozarelix aim to compete with Abbott Lab's (NYSE:ABT) and Takeda's joint venture's (TAP Pharma) Lupron Depot, as well as AstraZeneca’s Zoladex. These two products produced combined global sales of just under $2 billion last year in the treatment of prostate cancer, endometriosis, breast cancer, and in-vitro fertilization [IVF] applications.

I had the opportunity to conduct a 10 minute phone interview on May 24 with the newly appointed CEO of AEterna Zentaris, Dr. David Mazzo, arranged and mediated by AEterna's PR consulting firm Richard Lewis Communications. The teleconference focused primarily on analyzing the future prospects for AEterna, including key upcoming milestones over the next year. Dr. Mazzo began by summarizing the attributes of AEterna, which he felt made it an ideal candidate for him to take over as CEO, which include: a solid financial position of $55 million in cash & investments with estimated $25 million cash burn for 2007, currently marketed products (Cetrotide & Impavido) plus a pipeline with a high probability of near-term success (Cetrorelix & Ostrarelix) that includes an anticipated NDA filing for cetrorelix in 2009 & product launch in 2010, and a company with an international reach through global partnerships. My take-away from this conversation was to watch for a mid-September announcement when the company completes its ongoing strategic review of all the company's assets, including the development plans for cetrorelix since Solvay recently returned all marketing rights (ex-Japan) to AEterna.

Cetrorelix and ozarelix have a different mode of action than existing products, offering potential advantages such as flexible, dose-dependent control over sex hormone levels which allows AEterna’s products to be used in less severe indications such as the $4 billion global market for the treatment of benign prostatic hyperplasia [BPH] -- which is currently dominated by oral drugs that must be taken every day such as German-based Boehringer Ingelheim’s blockbuster drug Flomax. Cetrorelix and ozarelix are being developed as long-acting depot formulations (e.g. ozarelix would potentially be given as an injection just twice per year) that show promise in recent clinical trials for better symptomatic control of BPH and dosing advantages compared to existing treatments.

Cetrorelix is being developed for benign indications such as BPH and endometriosis, while ozarelix will be developed for both BPH and prostate cancer. Another advantage over Lupron and Zoladex is a lack of the initial surge in sex hormone levels that actually causes symptoms to worsen in patients over the first few days to weeks with existing treatments. Current treatment options cause this initial flare-up and sex hormone increase before ultimately suppressing their output versus AEterna’s products, which offer a customizable suppression of sex hormone levels based on the condition being treated.

In August 2004, AEterna granted Spectrum Pharmaceuticals (NASDAQ:SPPI) an exclusive license to develop and market ozarelix for all potential indications in North America and India, while AEterna Zentaris retains exclusive rights to the rest of the world (basically European markets are left at this point). Spectrum will also receive 50% of any milestone payments, royalties, and profits from sales of the product in Japan. Japanese rights for all oncology indications have been licensed to Nippon Kayaku.

At this week’s annual meeting of the American Urological Association, encouraging results were presented for ozarelix in an ongoing Phase 2b trial. The drug was well tolerated with no significant impact on quality of life or erectile function and it demonstrated statistically significant and clinically relevant effectiveness in the treatment of lower urinary tract symptoms secondary to BPH such as increased frequency or difficulty in urinating. The most effective dosing regimen in the trial consisted of a series of two 15 milligram injections of ozarelix given in the first two weeks of the study. Ozarelix produced noticeable improvements in patients in just four weeks with maximum benefit occurring at weeks 12 to 16. Results from this Phase 2b trial will aid in the design of the Phase 3 trial, expected to occur later this year.

Recent developments earlier this month have led to the return of full marketing rights for the related hormone therapy cetrorelix to AEterna after Solvay Pharmaceuticals terminated a licensing agreement for the drug as part of a shift in their strategy to unrelated therapeutic areas. AEterna has regained global (ex-Japan) rights for cetrorelix in all indications, including endometriosis, without any financial compensation payable to Solvay. The CEO was pleased with this transaction as it did not reflect a negative outlook for cetrorelix, but was simply a shift in strategy at Solvay. AEterna plans to conduct a strategic analysis for the drug to determine the best path to maximizing its value to the company.

Cetrorelix is currently in late-stage clinical trials for both BPH and endometriosis. The company recently initiated a clinical trial for BPH at 40 sites in the US and Canada that aims to track change in prostate size and measure improved quality of life in 600 patients, as part of an extensive 1,500 patient Phase 3 development program. In addition, Cetrotide is the currently marketed version of cetrorelix that is already being used in over 80 countries for IVF applications. It was launched onto the market in Japan through Shionogi and through Merck Serono in the US, Europe, and other countries. Cetrotide provides the company with royalties to fund research and development initiatives and operating expenses, as well as providing a large pool of safety data in humans to support its eventual NDA for BPH and endometriosis.

Another currently marketed product through multiple global partnerships is Impavido, which is the first oral drug for the treatment of the parasitic infections called visceral and cutaneous leishmaniasis. Impavido has been proven in previous studies to be a highly effective and less toxic treatment option compared to other available treatments. There are more than 1 million new cases per year of this parasitic disease with an estimated prevalence of 12 million people already infected.

A promising cancer drug in development is perifosine, which is partnered to Keryx Biopharmaceuticals (NASDAQ:KERX). Perifosine is an oral compound that works as a signal transduction inhibitor and is being investigated in multiple Phase 2 trials used alone, in combination with chemotherapy, and in combination with radiation therapy for multiple cancer types such as non small-cell lung cancer, breast cancer, multiple myeloma, and sarcoma. In addition, the company has ZEN-012 in Phase 1 studies for solid tumors and lymphoma, along with a robust pipeline that includes earlier stage compounds for the treatment of obesity, endometriosis, growth hormone deficiency, and other cancers.

Financially, the company ended the first quarter with $55 million in cash and investments, providing adequate liquidity to fund operations for about three years -- more than adequate to cover the time to reach a potential NDA filing for cetrorelix in 2009. AEterna posted a first quarter net loss of $5.1 million on total revenues of $10 million, comprised of $8 million in product sales and royalties, with the remainder coming from licensing agreements. The net loss widened from $2.6 million in the year-ago period, reflecting the missing contribution of $3.3 million in net income from January 2007 spin-out of specialty chemicals and nutraceuticals division Atrium Biotechnologies.

Currently, AEterna is under the radar of most US biotech investors and institutions, with less than 10% of the company’s shares currently held by the latter. However, armed with a strong balance sheet, two marketed products, multiple partnerships, a pair of promising late-stage hormone therapy products, a robust pipeline, and a new focus at the company; investors should buy the stock below $4 per share in anticipation of positive clinical developments later this year for their hormone therapy products, which target large potential markets.

Disclosure: Author has a long position in AEZS

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