Should AEterna Zentaris be rising or falling on Japan woes?

Quebec City’s AEterna Zentaris (TSX:AEZ), the developer of oncological and endocrine therapies, is really testing the notion of sector negativity these days. The Japanese earthquake and subsequent tsunami has been called the worst catastrophe since World War Two by Japanese PM Naoto Kan. Early estimates for the cost of the cleanup are in the tens of billions of dollars.

Sectors and sub-sectors deemed to be directly affected by the disaster have been hit hard. Uranium miners and insurance stocks were dumped, en masse. At press time shares of Aflac, the number one insurance company in Japan in terms of individual insurance policies in force, were down 8%, marking the company’s fourth straight day of losses.

On March 9th, AEterna Zentaris announced a Japanese partnership deal for market their anti-cancer compound, Perifosine. The stock, which had risen from $1.54 on January 20th to a recent high of $1.80, has fallen every day since. While global markets have all been in the red since the Japanese quake, investors looking for a straight line between the disaster and the price might be hard pressed to find logic.

Radiation levels at the Fukushima No. 1 plant, 250 kilometers northeast of Tokyo, are now deemed to be harmful to human health, and the problem has now spread to four of its six reactors. Officials say thyroid cancer is the most immediate risk. The Japanese government is distributing iodide pills which can, in the short term, prevent radioactive iodine from being adsorbed by the thyroid. But some experts are now calling the long term cancer risk the “main threat” in Japan.

AEterna Zentaris’ Perifosine is in stage three studies for multiple myeloma and advanced metastatic colorectal cancer and is in stage two for a range of other cancers. As part of the Japanese agreement the company received a six-million-euro (US $8.3 million) upfront payment and will be entitled to receive additional payments of up to 44 million euros (US $60.9-million) payments upon achieving certain pre-established milestones.

AEterna’s Japanese partner, Yakult Honsa, has been around since 1955. The company began as a manufacturer of fermented lactic drinks and diversified into pharmaceuticals and cosmetics. Its 2010 revenue of 236 billion yen topped their 2009 numbers by 6.6%.

This is the third such partnership agreement for AEterna Zentaris around Perifosine, the first two were with Keryx for North America and Handok, for Korea.

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