Shares of AEterna Zentaris (AEZS) received a boost last month when Roth Capital Partners initiated coverage of the company with an enthusiastic 'Buy' rating and a price target that was nearly triple where shares were trading at the time, but the announcement and implementation of a six-for-one reverse split (RS) quickly sent shares spiraling south and reversed what had quickly become the best positive trend enjoyed by AEterna shareholders since before the Phase III Perifisone failure of earlier this year.  Shares received another spark this week, however, when the Maxim Group issued a similarly encouraging forecast on the company when it, too, initiated coverage with a 'Buy' rating and a price target nearly triple the current prices.

AEterna, according to the Maxim report, could be "misunderstood" by investors right now based on the aforementioned Perifisone trial failure in metastatic colorectal cancer that was conducted in conjunction with Keryx Biopharmaceuticals (KERX).  As also emphasized by Maxim, data has been encouraging thus far in Perifisone's treatment of multiple myeloma (MM) and it is not wholly uncommon to see a treatment fail in one indication, only to be proven successful in others.  While the unjustifiably negative perception of Perifisone may form the basis of the two recent encouraging analyst reports, AEterna has a deeper pipeline that is also nearing the latter stages of development that should not go unnoticed.

AEZS-130, for example, is being prepared for an NDA filing with the FDA early next year as a diagnostic test for Adult Growth Hormone Deficiency.  The product has already proven successful in Phase III trials and an early-Wednesday report noted that the Phase III data will be presented  in Germany later this month at the 6th International Congress of the Growth Hormone Research (GRS) and Insulin-like Growth Factor (IGF) Society.  AEterna maintains world-wide rights to AEZS-130 and the product candidate has received an orphan drug designation from the FDA.

AEZS-108, another anti-cancer agent that has already proven successful in multiple Phase II trials also continues along in development and is currently being prepared for a near-term launch of a Phase III trial for endometrial cancer, with additional earlier-stage trials in the works.  Other earlier-stage products and technologies are still under development and join the above-mentioned product pipeline to justify Maxim's enthusiastic 12-month price target of $9.00.

While both the Roth and Maxim bullish reports will boost the speculative interest in this company, investors will also note the inherent risks of the sector that can also be applied to AEterna.  Perifisone has already proven once to have failed and there is always the chance that a company's product will not make it through trials and ultimately to market.  There is also the risk that even if a product does make it to market, it may not become the money-maker that was previously predicted. as evidenced by approved products such as Dendreon's (DNDN) Provenge and Avanir's (AVNR) Nuedexta as noted examples.  There is also the risk that the company may not be done funding its pipeline development, which leaves open the possibilities of additional dilution later on down the road.

One thing to keep in mind, however, is that by the time all of these risks are reduced for a company, the share price and market cap have usually already driven to much higher levels than when the company was still considered highly speculative - such is the nature of the developmental biotech and small pharma sector.  With that said, investors who are in at the earlier stages have the potential to reap the highest level of percentage gains over time, should a product succeed.  For example, although Provenge has turned out to be a relative disappointment to investors since its commercial launch, the treatment's Phase III success and subsequent approval launched the DNDN share price from three bucks to nearly fifty at one point.

In the case of AEterna, the company continues to carry the risks associated with the sector - and investors will be additionally wary due to Perifisone's earlier failure - but the pipeline is deep enough to spark some new investor attention and the analysts have, too, started to jump on board with the release of two enthusiastic ratings over the past month.

Although shares are again depressed following the reverse split, the company is in a stronger position by being able to maintain its listing on the NASDAQ exchange and the analyst coverage combined with the pending catalysts of early 2013 - which include a look at Perifisone for MM results and an NDA filing - could have the stock primed for a rebound.

Should development continue at the current rate and the catalysts play out to the positive, then a move toward the Roth and Maxim targets is highly possible.

Disclosure:  No position.

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