AEterna Zentaris Offers Extreme Upside Reward

Mar.31.11 | About: AEterna Zentaris, (AEZS)

Many investors wrote me to request an update on AEterna Zentaris (NASDAQ:AEZS) In short, I continue to look forward with great anticipation for additional near-term, explosive upside moves in AEZS. The following commentary will highlight some exciting updates and upcoming catalysts for AEZS that I believe will push the stock to much higher levels:

1) As anticipated in my prior article, AEZS announced (here) an exclusive development, commercialization and licensing agreement with Japan's Yakult Honsha for the development, registration and marketing of Perifosine. Perifosine, the most advanced oral Akt/PI3K inhibitor in clinical development. It could become a novel oral combination treatment of great benefit to patients suffering from colorectal cancer and multiple myeloma, a form of bone marrow cancer. These indications also represent large market opportunities. Colorectal cancer is the fourth most common cancer in men and the third most common in women. Multiple myeloma is the second most prevalent blood cancer. Global markets for colorectal cancer and multiple myeloma are expected to be $6.7 billion and $5.8 billion in 2019, respectively. As part of the agreement with Yakult, AEZS received an $8.3 million upfront payment and could receive an additional $60.9 million in payments for achieving certain pre-established milestones including clinical and regulatory events in Japan. In addition, AEZS will be supplying perifosine to Yakult Honsha on a cost-plus-basis and is entitled to receive double-digit royalties on future net sales of perifosine in Japan with Yakult Honsha being responsible for the development, registration and commercialization of Perifosine in that country. In 2019, the colorectal market in Japan is expected to be $1.3 billion and the multiple myeloma market is expected to be about $540 million.

In the 6-K filed on March 22, 2011 (here), Dennis Turpin, SVP/Chief Financial Officer at Aeterna Zentaris stated, “We are very pleased with the completion of our recently announced transaction with Yakult, which generated nearly $8.3 million as an up-front payment. With this transaction, our cash, cash equivalents and short-term investments as at December 31, 2010, on a pro-forma basis, would be $42.2 million, a solid financial position from which we can continue to execute our business plan.” To biotech investors, the cash payment is critical as it lessens the likelihood of any near-term dilution.

2) Starting on Sunday April 3, 2011, until April 5, 2011, AEZS along with Keryx (NASDAQ:KERX) will present two abstracts. Its lead anticancer compound, perifosine, will be presented at the upcoming 102nd annual meeting of the American Association for Cancer Research. One abstract indicates that, "Taken together, in gastric cancer cell lines, perifosine demonstrated antitumor activity and enhances the antitumor activity of taxane even in taxane-resistant cancer cell lines." (click here)

3) AEZS reached an agreement with the FDA on an SPA for Solorel to complete a Phase 3 study for the diagnosis of AGHD. Very encouraging final data from phase 2 trials was presented at two major oncology conferences. And the company is nearing initiation of a first pivotal trial in endometrial cancer this year. Furthermore, the FDA granted orphan-drug designation, and the EMA, orphan medicinal product designation to AEZS-108 for ovarian cancer, providing the compound with extra market exclusivity protection in the U.S. and Europe. These two indications represent good market opportunities. For example, in 2019, the seven major markets for ovarian cancer are expected to be around $1.5 billion.

4) The analysts following AEZS have all raised their ratings and price targets over the past six months. In addition, JMP Securities on March 16, 2011 started coverage on AEZS with an outperform rating and placed a $5 price target on the stock. JMP also started coverage on AEZS's American Partner, Keryx Biopharmaceuticals (KERX), with an outperform and $8 price target. Even prior to the analyst recommendations, as attested by my prior articles, I accumulated a sizable position in both AEZS and KERX in the fund I manage.

5) Technicals on AEZS are extremely bullish. It looks ready to test its 52 week high of $2.19, and a breakout above that level would be explosive.

6) News of a European partner could be imminent as was hinted (here) in a recent 6-k filing.

AEZS should be trading above the $3 mark by conservative valuations and should easily double by the end of 2011. The current stock price of $2 is ridiculously cheap compared to Wall Street standards within the biotech sector given the company's pipeline and blockbuster earnings prospects. It is relatively clear that most investors are missing the huge upside potential AEZS offers. As noted in my prior articles, Perifosine is in a Phase III study and has already been granted SPA, orphan-drug designation, and Fast-Track review by the FDA for multiple myeloma and colorectal cancer. Perifosine is also part of a Phase II program for a number of other cancers. I am confident that these will prove to be very exciting times for investors in the company. Its state-of-the-art, novel anti-cancer compounds such as perifosine, as well as innovative targeted therapies such as AEZS-108 and other earlier-stage compounds, will make AEterna Zentaris a major name in oncology for years to come.

Disclosure: I am long AEZS, KERX, ZLCS.