Aeterna Zentaris Surprises Again

By Sean Williams | More Articles
November 11, 2011 | Comments (3)

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For those of you wondering when the day would come that Aeterna Zentaris (Nasdaq: AEZS ) would turn a quarterly profit, today is the day.

In an absolute shock, Aeterna Zentaris, a small-cap favorite of mine that currently has 11 compounds in its pipeline, reported a profit of $0.01 for the third quarter on revenue of $9.5 million. This compares with the consensus estimate that called for a loss of $0.09 on revenue of $6.8 million.

Helping the company report blowout results were higher sales of its hormone drug, Cetrotide, and favorable euro-to-dollar exchange rates. In addition, because of a change in the way the company values its warrant liability, the company pocketed a gain of $9.3 million as opposed to the $4.5 million it lost from the same warrants in the year-ago period.

Although I'm excited about this profit and the healthy cash position of $48.1 million that the company ended the quarter with, it's the pipeline update that really has me excited about Aeterna Zentaris' potential.

Perifosine, the company's lead cancer-drug candidate, completed patient enrollment in phase 3 clinical trials during the quarter. Already with "orphan drug" status and receiving a patent on the drug in Europe through 2023, the company appears to be marching toward a meeting with the FDA sooner than later. Even with perifosine licensed to Keryx Biopharmaceuticals (Nasdaq: KERX ) in the U.S., Canada, and Mexico, Yakult Honsha in Japan, and Handok in South Korea, the revenue potential for perifosine, if approved, is huge and makes Aeterna an instant buyout candidate.

But, it isn't just perifosine that's stirring the pot. AEZS-130, the phase 3 experimental molecule designed to be the first oral drug to detect adult growth hormone deficiency, showed remarkable efficacy, and the company anticipates filing a new drug application with the FDA shortly. In addition, AEZS-108, a molecule designed to treat endometrial cancer, reached efficacy and safety goals in phase 2 clinical trials. This doesn't even take into account the positive data from the company's other pre-clinical drug candidates.

The reason I like Aeterna Zentaris (a lot) has to do with a simple numbers game. Back in April, I commented that relative to some of its peers, Aeterna Zentaris gets no respect. The company currently has 11 compounds under development and two in phase 3 clinical trials, yet it commands a market value of only $150 million.

Compare this with XenoPort (Nasdaq: XNPT ) , Orexigen Therapeutics (Nasdaq: OREX ) , or ImmunoGen (Nasdaq: IMGN ) , which have seven, two, and 12 drugs under development but have only a combined two drug candidates currently in phase 3 trials. Still, these companies command market valuations of $179 million, $99 million, and $973 million. The numbers simply don't make sense, but I anticipate that will change soon enough.

Consider this another successful quarter for Aeterna Zentaris in its quest to gain some respect from investors.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong , track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Motley Fool newsletter services have recommended buying shares of ImmunoGen. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that recently reported positive results in the efficacy of its truthiness.

Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On November 11, 2011, at 7:18 PM, Troy2008 wrote:

This company could sell for $20 per share if the price starts escalating soon. DNDN, HGSI and many others went from $1.50 to $30 to $60 per share with much less potential in the pipeline.
I'm a buyer anywhere under $5
Report this Comment On November 11, 2011, at 11:28 PM, EficientMarket wrote:

Mr. Williams, I liked your article right until you started comparing Aeterna wit the other companies.
You should have stopped at $150m.
Although in investing it is healthy comparing peers, in this case I don't think makes justice to Aeterna nor the other companies to be compare between them because they, although are Biotech's are not the same.
For example Orex has the valuation it has because was already rejected by the FDA.
By the contrary, XNPT has the valuation it has because already had a successful P3 and got a NDA approved by the FDA and has another NDA for a PDUFA pending along with potentially Blockbuster candidates in p2 etall.
So in summary sometimes the market it is efficient and sometimes it is not, right know in all this stocks mentioned is being efficient :) until something material changes them.
Report this Comment On November 12, 2011, at 1:47 PM, TrackUltraLong wrote:

EfficientMarket,
I think the comparison just goes to show how undervalued Aeterna is relative to some similarly sized biotechs. Sure they aren't competing for the same treatments, but there's something to be said for a company that has 11 drugs in trials, of which 2 are in phase 3, 2 in phase 2 and 2 in phase 1. Many of these other companies have issues getting anything out of phase 1, so I think the comparison makes sense. Just my opinion of course and I'm looking for good things out of Aeterna.
TMFUltraLong

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