AEterna Zentaris: A Shift In Focus?

AEterna Zentaris Inc. (AEZS) (TSX: AEZ) is an oncology drug developer that is testing a plethora of drug candidates for various types of cancers. For the time being, the market seems to be focusing on the development of the drug Perifosine, which is a phase III treatment for advanced metastatic colorectal cancer and multiple myeloma.

The drug is also in phase II trials for other types of cancer as well. Its diversity in cancer therapy is possible due to the two ways in which the drugs inhibit cancer-cell function. AEterna Zenatis’ drug can (in theory) not only prevent cancer-cell recruitment of vital proteins to maintain function, but can potentially trigger apoptosis (programmed cell death) in cancerous cells. Apparently, there are some flaws to the drug’s performance in the field. In phase III trials, Perifosine failed to meet its primary endpoints. The news hit in early April and sent the stock spiraling down from ~$2/share to its current micro-cap status.

The drug is not dead though. Perifosine is an orphan drug for what is arguably one of the most deadly and mysterious types of cancers known. Multiple myeloma is also incredibly rare, with approximately 1-4 cases per 100,000 people. Conventional treatment provides roughly 3-4 years of survival for patients diagnosed. If Keryx (AEterna’s partner for Perifosine) can manage to produce a phase III trial that meets its critical endpoints, the likelihood of approval is high due to the lack of highly effective MM treatments available. This makes it very dangerous to short AEZS now, especially after the bad news has already been priced in.

AEterna Zenatis has other drugs in development, which can also make up for Perifosine’s damage to the stock. AEZS-108 is a drug simultaneously being developed for endometrial cancer (with phase II finished), ovarian cancer (with phase II finished), and castration/taxane-resistant prostate, bladder and triple-negative breast cancer undergoing phase II trials now. After Perifosine’s disaster, it’s possible that even if the drug suffers a slow death, AEZS-108 can induce fresh, bullish speculation as its phase III trials for endometrial cancer begin later this year.

Shift In Focus
AEterna Zenatis published an online abstract on AEZS-108 regarding its mechanism to combat castration-resistant prostate cancer on the ASCO 2012 (The American Societyof Clinical Oncology) website. Perifosine was not mentioned, which is interesting in that it seems to indicate the company is beginning to shift its focus on the rest of its pipeline as well.

At ~$.50/share, the stock is essentially ignoring the likelihood of a Perifosine approval and only partially considering the effect that AEZS-108 will have on its targeted markets. Oversold conditions in the broader market also add to bullish pressure on these shares. Watch the company’s performance during ASCO -- we may begin to see a push above $1/share if not more as Perifosine moves to the back-burner.