Has Aeterna Zentaris Finally Found A Technical Bottom Ahead of Catalysts?
By A.J. Deniken
Despite hitting shareholders with a discounted $16.5 million stock offering at $2.50 per share, on October 12, shares of the Aeterna Zentaris, Inc. (NASDAQ: AEZS) appear to have finally found a bottom after slowly trending down since.
This may be good for a firm that has been garnering interest from Wall Street Analysts, yet has seen its stock price of fall since reaching over $5.50/share on September 21. That was when the company announced a six-for-one reverse stock split. Individual investors should be taking notice of AEZS at these price levels as they have been given a very good entry point to initiate or add to a position with, now, minimized down-side risk.
On September 20th, Roth Capital Partners initiated coverage of AEZS with a Buy rating and a split-adjusted 12-month price target of $10.50/share. The analyst sited the value of the Company's late stage portfolio (Perifosine, AEZS-108, AEZS-130) coupled with the "free option" of an impressive set of early stage products (including AEZS-120, AEZS-125), which are substantially funded through non-profit sources. The analyst went on to say on the front page of the report:
"Following a major setback for Perifosine in colorectal cancer in April 2012, AEZS shares have been repriced and in holding pattern. We believe that a significant revaluation of the stock would follow positive news any of the late stage clinical programs.. With three products in late stage development and a number of upcoming catalysts, we believe that AEZS shares are undervalued, at these levels. "
Maxim Group initiated coverage on Aeterna Zentaris, Inc. on October 8, 2012 with a Buy rating and a 12-month price target of $9.00/share. The Maxim analyst sites the value of Perifosine and the late stage products beyond Perifosine. The analyst goes on to point out the early stage pipeline (AEZS-120, AEZS-125, AEZS-129&136 and AEZS-112) has potential. The analyst then states regarding the valuation:
"We triangulate free cash flow (FCF), EPS, and the sum of the parts. The critical assumption is the outcome of the interim analysis in the Phase III multiple myeloma trial. We see the potential for perifosine to be >$500 million by 207, which includes EU and Japan (royalty). Discounting this value back, averaged and equally weighted, suggests a $9.00 price target."
Both analysts discuss the near-term catalysts for AEZS. The first quarter of 2013 looks to be pivotal for the Company as AEZS is expecting events for Perifosine, AEZS-130 and AEZS-108 later in the year.
Aeterna Zentaris expects to reach the Interim Analysis of Perifosine's Phase III clinical trial for Relapsed and Refractory Multiple Myeloma. The trial began in December of 2009, and AEZS decided to move ahead with this trial after it received the rights of Perifosine back from Keryx earlier this year, based on the strength of the Phase I/II trial results. The full trial is expected to be approximately 400 patients in 10 countries, including 40 to 50 sites in the U.S. The primary endpoint of the trial is progression free survival, with secondary endpoints of overall survival, overall response rate and safety. About 265 evens, categorized as disease progression or death, will trigger data to be unblinded. The Interim Analysis of safety, efficacy and futility is scheduled after 80 events. The management expects this threshold to occur in the first quarter of 2013. If positive activity trends are identified, the trial can continue to add patients. If this occurs, the stock should have a positive reaction.
Investors can look at two developments that may foretell positive results for the interim analysis; 1) AEZS is collaborating with a Japanese partner, Yakult Honsha, on Perifosine. In June 2012 Yakult Honsha initiated a Phase I clinical trial in Japan for Multiple Myeloma of Perifosine in combination with Velcade. This trial is similar to the ongoing U.S. trial. Yakult Honsha would not have made this investment without compelling data, given the recent history of Perifosine's colorectal cancer trial. And, 2) the Company just announced a raise of $16.5 million, with Roth Capital Partners as the sole placement manager. The Company stated "The Company intends to use the net proceeds from the Offering to continue to fund its ongoing drug development activities, particularly for the continued development of perifosine in multiple myeloma and the advancement of its AEZS-108 and AEZS-130 programs, as well as for general corporate purposes and working capital." AEZS appears to be showing confidence in results of the upcoming interim analysis with the new funding.
AEZS is expected to file a New Drug Application (NDA) "early next year" for its candidate AEZS-130. The Company describes AEZS-130 as follows:
"AEZS-130, a ghrelin agonist, is a novel orally-active small molecule that stimulates the secretion of growth hormone. The Company has completed a Phase 3 trial for use as an oral diagnostic test for AGHD. AEZS-130 has been granted orphan drug designation by the FDA for use in this indication. AEZS-130 is also in a Phase 2A trial as a treatment for cancer induced cachexia."
On September 26th, the Company received notification from the FDA that Fast Track designation had not been granted for this indication of AEZS-130. Juergen Engel, Ph.D, President and CEO of Aeterna Zentaris stated, "Although the FDA's decision will not allow us to submit our New Drug Application on a rolling basis, it should not affect the timing of our filing of the NDA for AEZS-130, which is expected early next year, nor should it affect the potential of obtaining priority review. We are actively pursuing our strategy to advance AEZS-130 towards regulatory approval for AGHD, as it could become the first orally administered test in this indication."
Investors could see share price increases as AEZS-130 moves through the approval process in anticipation of the potential final approval.
Aeterna Zentaris has an upcoming Phase III clinical trial planned for AEZS-108 in recurrent endometrial cancer, which effects about 20% of the woman with endometrial cancer. There is currently no approved drug for this indication in the U.S. or most of Europe. The Company is also planning to initiate a Phase II clinical trial for AEZS-108 for triple-negative breast cancer. Wikipedia defines triple-negative breast cancer as the following: "Triple-negative breast cancer refers to any breast cancer that does not express the genes for estrogen receptor (ER), progesterone receptor (PR) or Her2/neu. Triple negative is sometimes used as a surrogate term for basal-like; however, more detailed classification may provide better guidance for treatment and better estimates for prognosis."
The cash position of the Company enhanced over the $39.8 million they ended the June 2012 quarter with. In addtion with these near-term catalysts, and another that was announced November 1st (now set to take place any day), Aeterna Zentaris, around the $2.20/share level, appears to be a very good entry spot for investors and short term traders alike.
As the first quarter of 2013 moves closer, investors will likely begin purchasing the stock anticipating the interim analysis results and the AEZS-130 filing, potentially moving the stock price up over this time. Investors can look to the potential reward of the nearly 400% increase in value projected from the Roth and Maxim analysts over the next twelve months for taking a position here.
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