Why AEterna Zentaris Still Retains 200% to 300% Upside Potential

| About: AEterna Zentaris, (AEZS)

Numerous investors have written me recently to ask if I am still long Aeterna Zentaris (NASDAQ:AEZS), and the answer is "yes, absolutely." The investment thesis I laid out previously in earlier articles on AEZS (here and here) and Keryx (NASDAQ:KERX) (here) still holds true. The current stock price represents an exceptional bargain. Below is a quick summary of the salient points, upcoming catalysts, and an update for investors on current highlights from AEZS's recent presentation .(pdf):

1) The company maintains a healthy cash position sufficient to fund current trials and upcoming filings.

2) A new drug application (NDA) filing for Solorel is planned in 2011 - Solorel (AEZS-130), an oral diagnostic test for Adult Growth Hormone Deficiency (AGHD), is currently in Phase 3 under a Special Protocol Assessment (SPA) with the FDA.

3) Perifisone, for multiple myeloma and colorectal cancer, is in a pivotal phase 3 study - SPA, orphan-drug designation, and Fast-Track review were granted by the FDA. The NDA is expected to be filed in 2012. With FDA approval, they will also get access to US markets (refer to my prior articles listed above for details, or see the AEZS fact sheet (.pdf).

4) AEZS-108 completed positive Phase 2 for the treatment of endometrial cancer. Ovarian and Phase 1/2 studies in other cancers were initiated.

5) Executives recently mentioned they are seeking an Asian partner. Dennis Turpin, CFO, commented that he expects substantially better terms on this upcoming partnership than that in the US market. Such news could propel the stock easily above the $3 range.

As noted in my prior AEZS article, analysts have upgraded the stock and raised their price targets substantially based on clinical data and company developments. AEZS has a high price target of $5.50. It is apparent that the market has not grasped how undervalued AEZS is given the company's amazing prospects and potential. AEZS expects annual sales of Perifosine to be in the hundreds of millions of dollars. Additionally, the Asian partnership could bring a substantial upfront payment. Yet, the stock trades ridiculously cheap with a market cap of under $150M. I expect to see the $3 level within the next several months given the Asian partnership deal on the horizon.

On Tuesday, February 22, 2011, Aeterna Zentaris announced the "At-the-Market" Issuance Program.

If you read the details closely, these are not new shares being offered. In March 2010 the company registered $60 million in stock for sale. They only sold about two-thirds of that amount and have approximately $20 million remaining. This amendment basically changes the selling dealer and defines the terms as "at the market."

I expect that they are doing this for one of a few reasons. The most likely is that there are 3 major holders who have substantial amounts of warrants. Again, this is not new. But, the company is expecting numerous positive announcements and a drastic increase in the stock price. At that point, it is likely that the warrants will be exercised.

Disclosure: I am long AEZS, KERX.