Don't Read Too Much Into This Partnership

As if the M&A-rumor pumpers needed more ammo to promote the idea that Roche might buy Aeterna Zentaris (Nasdaq: AEZS). The biotech said yesterday that it had signed up Ventana Medical Systems to help develop a companion diagnostic for its cancer drug AEZS-108. Ventana, if you haven't been keeping up with the diagnostics world, was purchased by Roche a few years ago.

This does not -- I repeat does not -- mean Roche is going to buy Aeterna Zentaris.

All that we can read into this deal is that Roche has a good diagnostic testing development group. Not that there are that many options for companion diagnostics. Beyond Roche, the other big player is Abbott Labs (NYSE: ABT). It's developing diagnostics for GlaxoSmithKline and recently launched one for Pfizer's Xalkori. If it had partnered with Abbott, would the pumpers switch the name in their rumors?

The deal terms weren't disclosed, but assuming Roche is footing the bill for at least some of the development of the diagnostic, we can infer that Roche has at least some confidence in the potential for AEZS-108. The drug recently passed phase 2 trials in patients with endometrial and ovarian cancer.

The diagnostic will determine whether the tumor cells express luteinizing hormone-releasing hormone, or LHRH. AEZS -108 is kind of like Seattle Genetics' (Nasdaq: SGEN) and ImmunoGen's (Nasdaq: IMGN) antibody-drug conjugates, but instead of using an antibody to target the toxic payload, it uses a small peptide attached to doxorubicin, an effective-but-non-specific chemotherapy agent. It's easier to find an antibody that'll stick to a protein and target the chemotherapy there than it is to find a peptide -- that's why Seattle Genetics and ImmunoGen have done so many deals -- but now that Aeterna Zentaris has found one to target LHRH, there's no reason to think the drug doesn't have potential.

While I don't think the partnership is a sign that Roche will buy Aeterna Zentaris, there's no doubt that the development of AEZS-108 and, more importantly, its lead drug candidate, perifosine, make the biotech a more attractive takeout candidate. We should get data from a phase 3 trial testing perifosine in patients with advanced colorectal cancer this quarter. Of course, if Roche wanted access to perifosine it might also have to buy Keryx Biopharmaceuticals (Nasdaq: KERX), Aeterna Zentaris's partner on perifosine.

I wouldn't count on that one, either. And certainly not before the perifosine data is released.

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