Aeterna Zentaris Inc. (Nasdaq: AEZS) plunged 73% to $0.89 last week after announcing that the ZoptEC Phase 3 clinical study of Zoptrex (zoptarelin doxorubicin) in women with locally advanced, recurrent or metastatic endometrial cancer did not achieve its primary endpoint of demonstrating a statistically significant increase in the median period of overall survival of patients treated with Zoptrex as compared to patients treated with doxorubicin. Investigators said the Quebec-based biotech’s drug looked remarkably like the doxorubicin comparison arm.Aeterna Zentaris Inc. stocks plunged 73% after announcing #Zoptrex clinical trial failure Click To Tweet
Zoptrex scored a 10.9 month overall survival rate compared to 10.8 months for doxorubicin. The secondary endpoints were also a match. That result follows a Phase 3 failure of their lead drug Macrilen in January, which the FDA rejected three years ago.
Shares were down another 9% as of May 10, 2017.
After a small, erstwhile biotech like Aeterna gets disemboweled over the failure of its lead drug candidate, there are usually two camps of investors, having been in both myself over the years: 1) Those who got slaughtered along with the company by investing, but without a downside/pullout hedge strategy and, 2) those who did get out in time or never invested in the first place.
The question vis-à-vis Aeterna for investors in either camp is: what the heck happened?
Endpoints jogs our memories that it was just a couple of years ago that Aeterna promised to create a bunch of new jobs as it wrestled to make a comeback following a hurtful FDA rejection of its lead drug Macrilen for adult growth hormone deficiency.
Fast-forward to the present and now it’s Zoptrex–characterized by at least one analyst as “the future” of the company–that has flunked a Phase 3 study for advanced endometrial cancer. Aeterna is simply ditching the drug and going back to see if they can squeeze out an approval for the already once-rejected Macrilen. Not only is the company now talking about pursuing the new FDA application for Macrilen, but its got marketing plans as well.
That’s all well and good but a daunting task, at the very least, with the last drop of credibility at the company dashed to smithereens.
CEO David Dodd had this to say:
“Our focus has now shifted entirely to filing our new drug application for Macrilen and, if the product is approved, to its commercial launch as soon as possible. We will also optimize our resources to be consistent with our focus on Macrilen-related efforts. We continue to believe in the potential that Macrilen provides for us to become a focused specialty pharmaceutical company. Our intention is to submit the Macrilen NDA in the third quarter of 2017 and, if the product receives FDA approval, to commercially launch the product in the first quarter of 2018.”
So where did this freight train to riches go off the track so completely?
Yes, bullish sentiment for Zoptrex was so pervasive that its total failure in Phase 3 trials was unforeseen–pretty much universally. Analysts at one point set a 12-month median share price target of $4.75, with a high of $7.50. Share prices are now sitting at $0.81.
It’s a sobering reminder that many investors failed to hedge their speculative bets with puts or didn’t scale back their holdings as the shares ran up so swiftly in the days prior to the dreaded verdict. Larger than the monetary loss, however, Seeking Alpha reminds us about all the women involved in the study currently battling endometrial cancer and now coping with the failure of Zoptrex, as safer and more effective treatments continue elusive.
What do the analysts think?
As of May 05, 2017, the consensus forecast among polled investment analysts covering AEZS advises that the company will Outperform the market. Oops. This has been the consensus forecast since the sentiment of investment analysts improved on Dec 02, 2014. The previous consensus forecast advised investors to Hold their position.
Share price forecast.
The analysts offering 12-month price targets for Aeterna have a median target of $4.75, with a high estimate of $7.50 and a low estimate of $2.00. The median estimate represents a 698% increase from the last price of $0.81.
With the Aeterna play, Seeking Alpha scolds investors saying they could have easily seen the dwindling cash pool and binary Phase 3 data and decided to either hedge their bet or wait until positive Phase 3 data were posted to take what turned out to be a painful gamble.
However, many ignored the downside risk and failed to have a risk management plan in place for their investment or a target goal. These speculators were gambling on good top line data and chasing what they hoped would be an extraordinary return.
A similar case that turned out spectacularly well for investors was InterMune. Included in the company’s portfolio was a promising new drug, pirfenidone, for treating a progressive and ultimately fatal scarring condition of the lungs. In the summer of 2014, pirfenidone was undergoing FDA review.
Turns out that Roche bought the US biotech for $8.3 billion in August, 2014. The Swiss drugmaker paid $74 a share, representing a premium of 38% to the closing price on Aug. 22, just prior to the deal’s announcement. Pirfenidone was approved by the FDA in October 2014, validating Roche’s gamble.
People familiar with the situation said on Aug. 13 that InterMune and was working with financial advisors to evaluate strategic options. Investors who bet a takeover was in the offing and held a position in the stock on Aug. 12 realized a 63% appreciation in their investment.
Such a hefty premium isn’t unusual in biotech takeovers, reflecting the intense competition for promising new drugs among the larger companies which rely on small innovative firms for an increasing proportion of their product offerings.Steve's Take: Speculating on Aeterna Zentaris Inc. stock turned out to be a bad bet Click To Tweet
But there are far more situations like the Aeterna play where speculating rather than investing–with full use of all the traditional hedging tools–can lead to a really abysmal day at the track.