Biotech Stock Mailbag: Keryx, Amarin, ImmunoCellular

Updated with disclosure of investor's position in Amarin. BOSTON ( TheStreet) -- The Biotech Stock Mailbag is open.

Some of you were unhappy with my ASCO coverage of Keryx Pharmaceuticals ( KERX), believing there was no point in focusing on the failed phase III study of perifosine in colon cancer since the company had already dropped the drug to focus R&D efforts on the iron-based phosphate binder Zerenex for chronic kidney disease.

SL writes, "Adam, I don't like your style, you are again dancing on graves. In oncology, negative outcome is almost as valuable as positive ones because now scientists know for sure that perifosine is not the right way to fight against this terrible disease. We should be thankful for those investors, investigators and patients who made the X-PECT trial possible."

Sim says, "Old story of perifosine -- why is it still mentioned in this latest report??? KERX had returned its rights and gave it up to Aeterna Zentaris (AEZS)."

Doug M. writes, "Nice hatchet job on Keryx. What could possibly motivate you to mention negative information from the past with a heading of "Keryx" and "Very Bad"? Oh, I wonder. How does a guy like you sleep at night and look yourself in the mirror in the morning?"

Guy says, "Man, you are an ugly bleep . I understand you used to be a used car salesman, I see you still operate as such. I saw your take on Spectrum Pharmaceuticals, what a pathetic bleep you are. Keryx will go over $2. I guess you can bleep as much as you like, what a pathetic way to make a living. Man, you are really ugly."

Finally, Marc S. chimes in, "Just another note to chastise you, again. Perifosine was not, from what I can tell, shown to cause patients taking it to die earlier, Yes, the numbers went against it, but I saw no data in your article suggesting the null hypothesis could be rejected. That is, perifosine, at this stage appears to do nothing. While the companies involved almost certainly deserve all the derision heaped on them, someone of your obvious talents should be a bit fairer. Anyway, I still maintain you are the best journo out there in biotech, so keep up the good work. Just perhaps be a little fairer."

Late-stage cancer drug trials fail all the time. That is undeniably true. But less common is when the drug being studied (perifosine, in this case) is found to be potentially more harmful than a control. Experimental drugs that are less effective than placebo (or an active control) are usually screened out and dropped in earlier-stage clinical studies. That perifosine made it all the way through a phase III study and placed colon cancer patients at risk for a quicker death is alarming and most certainly noteworthy.

Let's also not forget that Keryx pursued the phase III study based on an observed "survival benefit" favoring perifosine found only in a subgroup of colon cancer patients enrolled in the phase II trial. This perifosine efficacy signal turned out to be a total fiction. So, please, repeat after me:

I will not believe "positive" results derived from data-mined, failed clinical trials.

If you're an investor in Keryx who believes perifosine is the past and therefore has no bearing on the company's future, I say you're missing the big picture. The same management team that pursued perifosine's development (and should have known better) is largely the same management team also responsible for the phase III blowup of the diabetic nephropathy drug Sulonex in 2008.

This same management team is now making similar promises about Zerenex -- not exactly confidence-inspiring.

Sticking with Keryx, @Juliux tweets, "Zerenex will replace Fosrenol and their $300 mil in sales. That's a dud? That's 3x current market cap, lol." Then he adds, "I just don't understand how AF can be so bearish on Zerenex, it has massive potential, could take over Renagel."

Keryx is developing Zerenex as a treatment for treat kidney disease patients on dialysis with excess phosphate in their blood. A phase III study is under way with results expected before the end of the year. Unlike perifosine, there is a good chance that Zerenex works, based on previous studies.

Unfortunately, Zerenex is likely coming to market in late 2013 or early 2014 at the same time as generic phosphate binders. Both Sanofi's ( SNY) Renagel/Renvela (the market leader with $537 million in sales) and Shire's ( SHPGY) Fosrenol will be largely replaced by cheap generic versions just as Zerenex tries to compete. Phoslo, another phosphate binder, is already generic.

Going up against generics is tough enough, but Keryx faces an even more impossible challenge with Zerenex because dialysis providers (the primary users of phosphate binders) only receive a single, fixed or "bundled" fee from Medicare that covers all ancillary products involved in providing dialysis to patients. Under a bundled reimbursement system, dialysis providers can only increase their profits by reducing costs. One way to reduce costs, obviously, is to spend less on phosphate binders. The likelihood that dialysis providers will eschew cheap, generic phosphate binders in favor of a premium-priced product like Zerenex is low to nil.

Medicare set up bundled payments for drugs and services tied to the treatment of end-state, chronic kidney disease patients in 2011 but delayed the inclusion of oral drugs into the payment bundle until 2014.

Zerenex is an iron-based phosphate binder that Keryx claims may allow dialysis clinics to reduce patients' use of iron supplements and/or costly red blood cell boosting drugs like Epogen that treat anemia. The ongoing phase III study is measuring IV irons and anemia drugs to determine whether Zerenex reduces their use compared to non iron-based phosphate binders. FDA will determine whether any "iron benefit" observed is clinically meaningful enough to make it into the Zerenex label. It will be up to the bean counters at dialysis clinics to determine whether buying Zerenex over cheaper generic phosphate binders lowers overall costs and boost profits.

Color me skeptical. AMAG Pharmaceuticals ( AMAG) tried to market a better, premium-priced IV iron to dialysis clinics and failed fairly miserably. Dialysis clinics preferred lower cost IV irons. And don't for a second believe Keryx is going to convince dialysis clinics to eschew Epogen for Zerenex without Amgen ( AMGN) fighting back with its considerable expertise and marketing muscle. A fight between Amgen and Keryx is a mismatch.

@amlewis4 asks, "If a delay was to occur in the $AMRN PDUFA date, what would be the typical time frame that delay could occur within."

The FDA decision date (PDUFA) for Amarin's ( AMRN) AMR101 is July 26. My sense is that most investors expect full approval. While at ASCO, I did speak to an investor with a dissenting view. She believes FDA will reject AMR101 on July 26, or technically, delay approval. And this investor suspects Amarin knows bad news is coming and has even dropped some clues to investors. At this point, she has no position in Amarin but may open a position in next few weeks, she told me.

When Amarin reported first quarter results last month, the company reiterated its expectation for AMR101 approval "in the second half of 2012, and commercial launch in Q1 2013."

"If Amarin was confident about AMR101 approval on July 26, why would the company say it expects approval in the second half of 2012?" my investor friend asks. Likewise, she believes that if Amarin really thought AMR101 was going to be approved on July 26, the company wouldn't be guiding to a commercial launch six to eight months later.

Good points, I must admit, but I'm still predicting full approval of AMR101 on July 26. Perhaps with a bit less confidence, however.

Don F. writes, "I have to say you really hate ImmunoGen (IMGN). What does 5% of $3 billion in sales of T-DM1 come out to for ImmunoGen? Not bad earnings for a small biotech company, is it? And a lot of small biotech companies have to sell out to get the money to keep themselves going."

I don't hate ImmunoGen, I just believe the stock at $14-15 overvalues the company's future royalty revenues and earnings from the breast cancer drug T-DM1 and its drug pipeline, which is still relatively early stage and unproven.

Reasonable people can disagree on valuation but at some point, the numbers do matter. I was at the ASCO meeting last week where T-DM1 grabbed a ton of media attention -- and rightly so -- for the benefit offered to breast cancer patients. But the stock market looks ahead and investors have very much accounted for all that good news in ImmunoGen's market value already.

It's also unfair to accuse me of hating ImmunoGen when I've written favorably about the stock and T-DM1 since 2008. ImmunoGen was trading around $4 at that time. I'm happy to have championed ImmunoGen early, before most investors knew about the potential for T-DM1. Absence a fundamental change in the story, I simply believe the best chance for investors to make significant returns in ImmunoGen have passed. I'll certainly be watching to see if any such changes take place.

Brett D. asks, "Anything new regarding ImmunoCellular Therapeutics (IMUC)? Not many of us like the fact they are propping up the stock price with Seeking Alpha, but there appears to be signs of real science taking place versus a pump and dump! Any thoughts since your last comments?"

ImmunoCellular has in the past, through its investor relations firm, paid writers for positive coverage of the company. Seeking Alpha has published some of these stories. ImmunoCellular also continues to be promoted by CEOCast, a stock promotions firm with a troubled past, according to stories published by Barron's.

I understand that small-cap biotechs find it difficult to attract attention from the media and investors, but paying for favorable coverage isn't a credibility-enhancing strategy.

ImmunoCellular's lead drug is a cancer immunotherapy, ICT-107, under development as a treatment for glioblastoma multiformae, a form of brain tumor. Updated data from a phase I trial in 16 patients treated with ICT-107 showed a four-year survival rate of 50%, with 38% of patients reporting no tumor growth for 48-66 months. These new data were reported at the ASCO meeting last week.

The company claims these results compare very favorable to an "historic" mean overall survival of 12% after four years.

Be skeptical when a company compares data from a single-arm trial to "historic" results, particularly a single-arm trial of only 16 patients, all enrolled by the same investigator at a single hospital.

Unless a clinical trial directly compares an experimental therapy to a placebo or some other control -- something ImmunoCellular did not do in the phase I study of ICT-107 -- an observation of a survival benefit cannot be determined. The ICT-107 data look promising but that may disappear completely when larger, randomized trials are conducted.

ImmunoCellular is running a larger, randomized phase II study of ICT-107 versus a placebo in glioblastoma multiformae patients. Interim results from this study are expected in the first quarter 2013.

ImmunoCellular's fully diluted share count (including options and warrants) is approximately 55 million. At $3.70 per share, the company's market value of $204 million isn't cheap.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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