Here's How Aeterna's Pain Can Be Your Gain

The CEO of BATS Global Markets, Joe Ratterman, received a mulligan... I think I'd like to use mine now.

For months I've been touting how bullish I was on microcap biotech company Aeterna Zentaris (Nasdaq: AEZS  ) . Earlier in the week, Aeterna sent the optimists packing by reporting its long-awaited phase 3 data results on perifosine with regards to treating advanced colorectal cancer. Needless to say, the results showed no significant survival difference between perifosine and the placebo being used in the study. In case you're wondering, I take my crow with a side of ranch.

This data posed a huge blow to Aeterna, which has seen roughly 70% of its market value erased in just the past two days, but it proves potentially even more damaging to its licensing partner in the U.S., Canada, and Mexico, Keryx Biopharmaceuticals (Nasdaq: KERX  ) .

Although fellow Fools Rich Duprey and longtime health-sector guru Brian Orelli have pointed out significant flaws with Aeterna, I, in my usual contrarian fashion, am going to show you why I think the stock presents an amazing value after perifosine's setback.

For the sake of argument, let's assume that Aeterna and Keryx do not pursue perifosine whatsoever, which would mean its current phase 3 trial for multiple myeloma also turns out negatively (which as of now there is nothing to indicate such a finding). This means that Aeterna, which is valued at $74 million as of Tuesday's close, currently has the following going on within its pipeline:

  • Eight preclinical studies: These studies include six oncological potential inhibitors or enzymes, one possible endocrinology treatment, and one oncology/endocrinology combination possibility.
  • Two phase 1 clinical trials: AEZS-112, which is targeted at various solid tumors, has shown early promise in suppressing tumor growth beyond previous treatment averages.
  • Two phase 2 clinical trials: This one is a stretch, because it has two drugs treating multiple ailments and each with its own separate subtrial. Excluding perifosine, AEZS-108 has shown statistical promise so far in treating ovarian, bladder, endometrial, and prostate cancer.
  • Two phase 3 clinical trials: Once again, excluding perifosine, AEZS-130 has shown statistical promise as a ghrelin agonist in initiating the secretion of human growth hormone.
  • One marketed drug: Cetrotide, an in-vitro fertilization treatment that helps prevent premature ovulation in women, was first launched in 1999 in Europe, and in 2001 in the United States.

Although I'm not a huge fan of share issuances, it's a necessary evil of the biotech sector. With so many ongoing trials, Aeterna Zentaris needs ample cash at its disposal. As of its most recent quarter, Aeterna claimed $46.9 million in cash on its balance sheet.

Without even adding residual value from Cetrotide, you're only paying a premium over cash on hand of $30 million for a preclinical and clinical trial pipeline that consists of 14 possible treatments. Keep in mind that many trials have subtrials currently running that could treat different types of ailments. This seems like a brutally inexpensive price to pay for a biotechnology company even with the risks included. I'm going to have to give Aeterna a serious look as this Fool may soon have a microcap biotech joining his portfolio.

Are you writing off Aeterna Zentaris? Tell me and your fellow Fools in the comments section below.

Aeterna clearly isn't going to be the next Rule Breaker -- at least not yet. But there is one company that has caught the attention of our Rule Breakers team. Find out for free which stock has all the makings of being the next potential multibagger.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is going to claim the title of Motley Fool Contrarian-In-Chief. 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.

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Read/Post Comments (5) | Recommend This Article (18)

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 Report this Comment icon found on every comment.

  • Report this Comment On April 04, 2012, at 10:33 PM, MichaelHamilton wrote:

    Probably will drop further. Buy in when it bottoms out.

  • Report this Comment On April 05, 2012, at 10:25 AM, yazzbro wrote:

    AEZS is destined for the pink sheets. AEZS doesn't have the cash to see through any of these drugs into phase 3 trials without diluting their share price even further. Especially cancer meds. And if you haven't learned anything from this whole Perifosine debacle is that small cap pharm has a 0% chance of getting FDA approval on a cancer med. They just don't have the money to do it. So this is a lot of wishful thinking on your part. Good luck.

  • Report this Comment On April 05, 2012, at 11:21 AM, TDevils13 wrote:

    I figure it can't hurt to buy a few hundred to a few thousand shares just for the upside in potential.

  • Report this Comment On April 06, 2012, at 3:57 PM, Troy2008 wrote:

    Yazbro, your comments are as usual ridiculous. You have always had a very one sided, poor understanding of these trials. AEZS generally doesn't pay for trials and partners out for them.

    MichaelHamilton, well you were just plain wrong. Unless they have nothing left in the pipe these are the times to buy as they're oversold.

    I bought 10,000 shares at .70 and will by more Monday. The company is debt free, has plenty of cash and is a takeout candidate at this level. Should recover like AIS did after the BPAX failure. (BPAX tripled as well, short term).

  • Report this Comment On April 10, 2012, at 12:40 PM, naughtyguy wrote:

    The writer touts this stock and doesn't own any. "Put your money where your mouth is" comes to my mind. Look at a ten year chart and day dream about all the money that was lost in the buyers of this stock. It is going nowhere! There needs to be an investigation and a return of royalties if you ask me.

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