Specialty biopharmaceutical company Aeterna Zentaris Inc. (AEZS) is focused on developing and commercializing therapeutics and diagnostic tests. The company’s lead product Macrilen has potential uses in both endocrinology and oncology indications. In addition, it has a license agreement with Julius-Maximilians-University Wuerzburg for developing an oral prophylactic bacterial vaccine against COVID-19 disease.

AEZS' shares have surged 44.2% year-to-date, fueled by the company’s efforts to advance the development of its AIM Biologicals pre-clinical program. But the stock plummeted 15.7% over the past month and 30.3% over the past three months, reflecting investor concerns over its non-compliance with the Nasdaq listing rules and fears of potential delisting.

Closing yesterday’s session at $0.61, the stock is trading 83.1% below its 52-week high of $3.62. The company’s underwhelming financials could cause its shares to witness a pullback soon. Moreover, its potential orally active COVID-19 vaccine is still in its preclinical development planning stage. So, the revenue-generating prospects from the drug remain uncertain.

Here’s what could influence AEZS’ performance in the near term:

Products Still in Preclinical and Clinical Stages

The company initiated its pivotal Phase 3 safety and efficacy study of AEZS-130-P02 in partnership with Novo Nordisk to diagnose childhood-onset growth hormone deficiency. In addition, it will start the formal preclinical development of AEZS-150, the lead candidate in its delayed clearance parathyroid hormone fusion polypeptides. Furthermore, AEZS has entered into a license agreement with Julius-Maximilians-University to develop a potential oral COVID-19 vaccine. The vaccine program is still in its preclinical development planning stage. Therefore, it could take a while before the company starts generating any revenues from its product pipeline.

Concerns Surrounding Nasdaq Listing Rule

In July, AEZS received Nasdaq notification regarding the company’s minimum bid price compliance. The notice indicated that it no longer satisfies Nasdaq Listing Rule 5550(a)(2). Although AEZS has been provided a 180 days grace period to evidence compliance with the Nasdaq listing rule, the company may face delisting if it fails to comply with the rule in a timely fashion.

Disappointing Financials

AEZS’ total revenue came in at $0.60 million for the second quarter ended June 30, 2021, compared to $0.07 million in the second quarter of 2020. However, its consolidated net loss stood at $2 million for the quarter, while its loss per share came in at $0.15. Moreover, the company’s total operating expenses amounted to $2.7 million, up 80% year-over-year. This can be primarily attributable to the increase in research and development costs.

The company’s trailing-12-month ROTC, ROE, ROA, and cash from operations are negative 12.8%, 19.1%, 7%, and $3.96 million, respectively. Moreover, its net income margin and levered free cash flow margin are negative 161.2% and 103.1%. Also, its trailing-12-month asset turnover ratio of 0.07% is 79.9% lower than the industry average of 0.4%.

POWR Ratings Reflect Bleak Prospects

AEZS has an overall rating of D, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. AEZS has an F grade for Quality. This reflects the stock’s negative ROTC and cash flow from operations.

In terms of Stability grade, the company has an F, reflective of its relatively high beta of 2.17. Also, it has a D grade for Momentum, consistent with its price decline over the past month.

Beyond the grades I’ve highlighted, one can check out additional AEZS ratings for Sentiment, Growth, and Value here. Of the 502 stocks in the F-rated Biotech industry, AEZS is ranked #268.

Bottom Line

While AEZS’ diversified portfolio of pharmaceutical and diagnostic products should bode well for the company in the long run, its products are still in their clinical and preclinical stages. Thus, commercialization and revenue generation from those products could still take a while. In addition, the company’s poor financial health and concerns regarding the Nasdaq listing raise investors’ concerns surrounding the stock. So, we think it is best avoided now.

How Does Aeterna Zentaris (AEZS) Stack Up Against its Peers?

While AEZS has an overall D (Sell) rating in our proprietary rating system, one might want to consider taking a look at its industry peers, Gilead Sciences Inc. (GILD) and Exelixis, Inc. (EXEL), having an A (Strong Buy) rating.

AEZS shares were trading at $0.61 per share on Friday morning, down $0.00 (-0.20%). Year-to-date, AEZS has gained 43.36%, versus a 18.53% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

More...