UPDATE 1-AEterna loss grows on R&D expenses

(Adds details, analyst comments. In U.S. dollars unless noted)

By Scott Anderson

TORONTO, Nov 7 (Reuters) - AEterna Zentaris Inc (AEZ.TO) reported a larger third-quarter loss on Wednesday, due in part to increased research and development expenses.

The biotechnology company reported a loss of $8.7 million, or 16 cents per share, compared with a loss of $1.6 million, or 3 cents, from the same period the year before.

Revenue was $11.6 million, up 9.4 percent from $10.6 million, partly due to higher license fees after the company's partner, Ardana Biosciences Ltd, paid a milestone payment of $1.4 million for the initiation of a Phase 3 study for the diagnosis of growth hormone disorders.

Analysts had expected, on average, a loss of 13 cents a share and revenue of $10.7 million according to Reuters Estimates.

Research and development costs were $10.1 million for the quarter, compared with $6.2 million a year earlier, due to additional expenses from its Phase 3 cetrorelix cancer treatment program and earlier clinical-stage development programs.

Maher Yaghi, a biotech analyst at Desjardins Securities in Montreal noted that the higher research and development spending was a positive sign that the new management team was steering the firm in the right direction.

"When a biotech company has more R&D spending it's good," he said. "When you are doing a clinical trial and it's costing you more shorter term it means that it's advancing quicker than originally projected."

Selling, general and administration expenses were $6.1 million, up from $4.5 million, due to the restructuring of the management team and the board, as well as the opening of a new office in Warren, New Jersey.

The company has implemented a major overhaul of its management team over the past year including the appointment of David Mazzo as president and chief executive, and Jurgen Ernst as chairman.

The team also unveiled a strategic plan recently that includes commercialization of its key cetrorelix drug and the sale of some non-core assets. It will seek a commercialization partner for cetrorelix, its treatment for benign prostatic hyperplasia (BPH), the increase in the size of the prostate in middle-aged and elderly men.

AEterna expects to launch cetrorelix, which is currently in Phase 3 trials, as a BPH treatment by 2011.

The company also said it plans to divest certain assets, including its Echelon Biosciences lipid research unit and a Quebec City building. ($1=$0.92 Canadian) (Reporting by Scott Anderson and Leah Schnurr; Editing by Rob Wilson)