The CEO of BATS Global Markets, Joe Ratterman, received a mulligan ... I think I'd like to use mine now.

For months I've been touting how bullish I was on microcap biotech company Aeterna Zentaris (NAS: AEZS) . Earlier in the week, Aeterna sent the optimists packing by reporting its long-awaited phase 3 data results on perifosine with regard to treating advanced colorectal cancer. The results showed no significant survival difference between perifosine and the placebo being used in the study. In case you're wondering, I take my crow with a side of ranch.

This data posed a huge blow to Aeterna, which has seen nearly 70% of its market value erased in just the past two days, but it proves potentially even more damaging to its licensing partner in the U.S., Canada, and Mexico, Keryx Biopharmaceuticals (NAS: KERX) .


Although my fellow Fools Rich Duprey and longtime health-sector guru Brian Orelli have pointed out significant flaws with Aeterna, I, in my usual contrarian fashion, am going to show you why I think the stock presents an amazing value after perifosine's setback.

For the sake of argument, let's assume that Aeterna and Keryx do not pursue perifosine whatsoever, which would mean its current phase 3 trial for multiple myeloma also turns out negatively (as of now, there is nothing to indicate such a finding). This means that Aeterna, which is valued at $74 million as of Tuesday's close, currently has the following going on within its pipeline:

  • Eight pre-clinical studies: These studies include six oncological potential inhibitors or enzymes, one possible endocrinology treatment, and one oncology/endocrinology combination possibility.
  • Two phase 1 clinical trials: AEZS-112, which is targeted at various solid tumors, has shown early promise in suppressing tumor growth beyond previous treatment averages.
  • Two phase 2 clinical trials: This one is a stretch, because it has two drugs treating multiple ailments and each with its own separate sub-trial. Excluding perifosine, AEZS-108 has shown statistical promise so far in treating ovarian, bladder, endometrial, and prostate cancer.
  • Two phase 3 clinical trials: Once again, excluding perifosine, AEZS-130 has shown statistical promise as a ghrelin agonist in initiating the secretion of human growth hormone.
  • One marketed drug: Cetrotide, an in vitro fertilization treatment that helps prevent premature ovulation in women, was first launched in 1999 in Europe, and in 2001 in the United States.

Now follow along, because I'm going to break out some of my funny math again. Please keep in mind the following figures are my own best "guestimations" unless otherwise stated.

In 2008, Aeterna sold its royalty rights to Cetrotide, which it had received from Merck (NYS: MRK) subsidiary Merck Serono for $52.5 million, with the exception of Japan. The residual income created from Cetrotide still amounts to, in my opinion, about $5 million to $10 million in market value.

Although I'm not a huge fan of share issuances, it's a necessary evil of the biotech sector. With so many ongoing trials, Aeterna Zentaris needs ample cash at its disposal. As of its most recent quarter, Aeterna claimed $46.9 million in cash on its balance sheet. Adding Cetrotide's residual revenue in, that gives us a value (again, my opinion) of between $52 million and $57 million based on just its cash balance and Cetrotide sales.

At just $74 million, you're paying a minuscule premium of $17 million to $22 million for a pre-clinical and clinical trial pipelines that consists of 14 possible treatments. Keep in mind that many trials have sub-trials currently running within that could treat different types of ailments. This seems like a brutally inexpensive price to pay for a biotechnology company even with the risks included. I'm going to have to give Aeterna a serious look as this Fool may soon have a microcap biotech joining his portfolio.

Are you writing off Aeterna Zentaris? Tell me and your fellow Fools in the comments section below.

Aeterna clearly isn't going to be the next Rule Breaker -- at least not yet. But there is one company that has caught the attention of our Rule Breakers team. Find out for free which stock has all the makings of being the next potential multibagger.

At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is going to claim the title of Motley Fool Contrarian-In-Chief. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that offers clinics on transparency.

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