Aeterna Zentaris: Late-Stage Drug Development Company With An Enterprise Value Of Nearly Zero

| About: AEterna Zentaris, (AEZS)
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Aeterna Zentaris (NASDAQ:AEZS) is an interesting biotech with an enterprise value of nearly zero and an attractive developmental pipeline. AEZS currently has 12 drug candidates in development and one drug on the market, and after a recent capital raise, sits on a nice pile of cash that nearly makes the company's enterprise value equal to zero, suggesting the market is placing no value on any of the company's assets, which seems a bit pessimistic.

AEZS is an oncology and endocrinology drug development company currently investigating treatments for various unmet medical needs. AEZS's pipeline encompasses compounds at all stages of development, from drug discovery through to marketed products. The company has two product candidates in Phase 3 trials, 5 in Phase 2 trials, and the balance in Phase 1 and preclinical trials.

The company has multiple catalysts coming up in the balance of 2012 and the beginning of 2013 but the key catalyst to watch is the Phase 3 data for Perifosine for the treatment of multiple myeloma, which is expected to come out in Q1 2013. The expectations are for a positive outcome as in a note last week, Maxim said that the banking firm's research team believes perifosine has a strong probability of meeting its SPA-approved primary endpoint. A positive outcome should be very beneficial for the shares as Maxim set a price target of $12.

For some background, on December 16, 2009, the company announced the initiation of the Phase 3 trial. The study is a double-blind, placebo-controlled trial comparing the efficacy and safety of perifosine vs. placebo when combined with bortezomib (Velcade) and dexamethasone. The trial will enroll approximately 400 patients with relapsed or relapsed/refractory multiple myeloma. The primary endpoint is progression-free survival and secondary endpoints include overall response rate, overall survival and safety. The trial is being conducted pursuant to a Special Protocol Assessment SPA with the FDA. Additionally, the FDA granted perifosine Orphan Drug and Fast Track designations in this indication.

The Phase 3 trial is a randomized (1:1), double-blind trial comparing the efficacy and safety of perifosine to placebo when combined with bortezomib (Velcade) and dexamethasone in approximately 400 patients with relapsed or relapsed/refractory multiple myeloma. Patients will be randomized to bortezomib (Velcade) at 1.3 mg/m2 days 1, 4, 8 and 11 every 21 days in combination with dexamethasone 20 mg on the day of and day after bortezomib (Velcade®) treatment, and either perifosine 50 mg daily or placebo. The Phase 3 trial design is based on positive data reported from the Phase 1/2 trial which was recently reported at the 51st American Society of Hematology meeting.

In the Phase 1/2 study, perifosine in combination with bortezomib +/- dexamethasone was evaluated in 84 heavily pre-treated patients with relapsed or relapsed/refractory multiple myeloma. All patients were required to receive prior bortezomib and most were bortezomib refractory (73%). The combination demonstrated an overall response rate (ORR) including MR or > of 41% in all evaluable patients, with stable disease observed in an additional 41% of evaluable patients. The ORR was 65% for bortezomib-relapsed patients and 32% for patients with bortezomib-refractory disease. Median progression-free survival PFS was 6.4 months, with a median PFS of 8.8 months in the bortezomib-relapsed population. Median overall survival was 25 months. Therapy was generally well-tolerated; toxicities, including gastrointestinal side-effects and fatigue, proved manageable. No treatment-related mortality was seen. The investigators concluded that data reported for both safety and efficacy in this patient population were encouraging for the continued study of perifosine.

The trial has strong FDA support with the SPA and the Orphan drug designation. The Orphan Drug designation is a significant achievement for the company. In a recent article on Seeking Alpha, the author noted that normally not a desirable indication to target, an Orphan Drug candidate can now prove to be a large share price mover due to the less cost prohibitive trials and virtually non-existent competition during the period of market exclusivity. The designation now adds a little extra "kick" to the regulatory process and opens investors' eyes to the possibilities when new drug applications (NDA's) are submitted for a candidate or when FDA advisory panels or PDUFA catalysts approach.

After the offering, AEZS now has about 25.3 million shares outstanding and a cash balance (pre-Q3 cash burn) of $55 million. The current market cap of the company is $61 million suggesting an enterprise value of just $6 million - a small figure for a late-stage drug development biotech compared to the market cap.

The company has been a presenter at numerous conferences this year suggesting that the stock has strong visibility and may be in-line for additional sell-side initiations and positive commentary leading up to the trial results. In 2012, AEZS has presented at BIO CEO Investor, Cowen and Company, Needham, JMP Securities, Stifel Nicolaus, Rodman & Renshaw, and Bio Contact conferences.

The small enterprise value, in addition to the potential of additional sell-side support for the shares, may lead to a wild ride for AEZS going into the company's Q1 Phase 3 data release.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.