Byron Capital: The market is overly pessimistic about AEterna Zentaris

Byron Capital analyst Douglas Loe notes that AEterna Zentaris’s cash position is quite close to its market capitalization of a shade under $50-million. He says investors assigning essentially zero value to the company’s pipeline may be doing so because they have been burned in the past.AEterna Zentaris (TSX:AEZ) reported its Q3, 2012 results last week. The company lost (US) $6.55-million on revenue of $7.1-million, down from the $9.5-million topline the company posted in same quarter last year.

CEO Juergen Engel said the company is moving on from the disappointments of earlier this year.

“This has been quite an eventful quarter for our company. At the drug development level, we focused on opening new sites and increasing patient recruitment for our contrinuing phase three trial of perifosine in multiple myeloma. Meanwhile, our partner, Yakult, continued to make progress with a phase one trial of perifosine in the same indication in Japan,” he said, adding: “Two thousand thirteen looks promising, and we remain confident that the market will come to recognize the full potential of our innovative pipeline.”

Byron Capital analyst Douglas Loe notes that AEterna Zentaris’s cash position is quite close to its market capitalization of a shade under $50-million. He says investors assigning essentially zero value to the company’s pipeline may be doing so because they have been burned in the past. However, he says, those looking at the company without regard to its prior history, are indeed looking at a story with some risk, but also get a pipeline for which ongoing programs are sufficiently supported by biochemical data. In a research update to clients yesterday, Loe maintained his HOLD rating and (US)$2.75 target price on AEterna Zentaris.

In 2010 and 2011, it looked like AEterna Zentaris was finally on the right track. The company’s stock perked up on the potential of perifosine. In July of 2011, nearly eight years after initially filing, the cancer therapy candidate was granted a patent by the European Patent Office. By the end of that month, the Quebec-based drug maker had completed recruiting 465 patients for its perifosine phase 3 trial for refractory advanced colorectal cancer. And by October, two articles reporting positive phase one and two results perifosine had been published in the October, 2011 on-line issue of the Journal of Clinical Oncology.

But on April 2nd, shareholders of the Quebec-based oncology/endocrinology drug maker had a very bad day. That morning, the company announced that perifosine failed to meet its primary endpoint. On May 7th, partner Keryx returned the rights to the treatment to AEterna Zentaris. Shares of the company fell from $2.14 on March 30th to recent lows under $.40 cents, before a six-for-one share consolidation early in October.

LOe says those currently pessimistic about AEterna Zentaris will soon find out if those feeling are justified. The company expects PFS data from the first eighty patients enrolled in a 450-patient multiple myeloma trial, which it now fully owns after partner Keryx dropped out, in Q1 or Q2, 2013.

Shares of AEterna Zentaris on the TSX closed today up 9.6% to $2.16.

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