After a drought of close to two months, I have finally found another potential superstock. The company is  Aeterna Zentaris Inc.'s (AEZS...

Weekly Superstock Scan 3 Dec 2018 - 7 Dec 2018: Aeterna Zentaris Inc.'s (AEZS)

After a drought of close to two months, I have finally found another potential superstock. The company is Aeterna Zentaris Inc.'s (AEZS).


 AEZS is a speciality bio-pharmaceutical company engaged in developing and commercialising novel pharmaceutical therapies. AEZS is focused on the commercialisation of macimorelin, an orally available ghrelin agonist, and making it commercially available to patients with adult growth hormone deficiency ("AGHD").

On January 16, 2018, AEZS entered into a license and assignment agreement with Strongbridge to carry out development, manufacturing, registration and commercialization of Macrilen (macimorelin) in the United States and Canada.

Technical



AEZS is range-bound, albeit a big range from $0.80 to $3.30, between May 2017 to Nov 2018. On Oct 31, AEZS went up 59% on Strongbridge/Novo Macrilen deal. For the next few weeks, the stock continue to move up to the top of the range. Last week, price broke above the range to close at $3.38. The volume of the week was 2.08 million, higher than the average trading volume of 1.64 million. However, the average trading volume was highly inflated by the Oct 31 volume which was a 159x surge.

Other than the momentum of the Strongbridge/Novo Macrilen deal, another catalyst for the break above the range was positive opinion from an advisory group in Europe backing approval for MACRILEN (macimorelin) for the diagnosis of adult growth hormone deficiency.

Fundamental



As AEZS is a bio-pharmaceutical company, its revenue and profit are not strong matrices or predictors of its stock price. Having said that, including the current quarter, AEZS reported 10 consecutive quarters of year on year EPS growth. More importantly, it was out of the woods following FDA approval of macrimorelin.

Strongbridge/Novo Macrilen Deal

Under the terms of the license agreement between AEZS and Strongbridge, and for as long as Macrilen™ (macimorelin) is patent-protected, AEZS will be entitled to a 15% royalty on annual net sales up to $75.0 million and an 18% royalty on annual net sales above $75.0 million. 

However, Strongbridge announced on October 31 that it entered into an agreement with Novo Nordisk to sell the U.S. and Canadian rights to Macrilen for an upfront payment of the 145 million plus royalties on net sales. While AEZS is not entitled to any part of the 145 million upfront, the deal raised the value of Macrilen’s licensing opportunities for the rest of the world, and AEZS received several inbound expressions of interest recently after the deal was announced.

Launch in Europe

AEZS is actively pursuing business development opportunities for macimorelin in the rest of the world. The next target for them is Europe. AEZS has submitted their Day 181 response and they expect that the results of our EMA application will be determined in the first quarter of 2019. AEZS is in discussions with a variety of companies in Europe regarding licensing and/or distribution opportunities.

Novo Nordisk remains a potential licensee, considering that Europe is one of their key geography.

Matrices
+ Small float of 16.4 million shares. With a trading volume of  577 thousand shares, float represents around 28 times its average daily trading volume.
- AEZS is trading at 113 times its trailing twelve months EPS. 

I will not give too much weight for the matrices this week. The high volume may be temporary only due to the string of catalyst recently. And Macrilen was only launched this year and AEZS has yet to receive its first royalty as at last quarter, so the P/E ratio is not reflective of its current state of business.

Risk Factors/ Things I do not like:

  • Bio-pharmaceutical - This is a sector that I generally do not like due to the additional risks. For AEZS, as much as it looks promising for launch in Europe, there is a chance that EMA will disapprove the drug. Also, as AEZS looks at developing another product in the future, it puts itself at risk of a failed product all over again.
  • Low liquidity - Before October 31, there are generally less than 100 thousand shares traded per day. Once the hype dies down, this is the volume we are expecting again.

Once again there is no potential superstock this week. This is despite us seeing us seeing a strong recovery in the US market in the past tw...

Weekly Superstock Scan 12 Nov 2018 - 16 Nov 2018: Nil

Once again there is no potential superstock this week. This is despite us seeing us seeing a strong recovery in the US market in the past two weeks since the large decline.



One positive we saw this week is we are starting to see stocks that passed the technical screen. This week, CRNT, JE and VCTR passed the technical analysis. Unfortunately none of them passed the technical screen.

This will be the third week where we do not have any potential superstock. Not a single stock in the US market passed even the technical scr...

Weekly Superstock Scan 29 Oct 2018 -2 Nov 2018: Nil

This will be the third week where we do not have any potential superstock. Not a single stock in the US market passed even the technical screen.

Technicals are extremely bad for stocks right now. At the same time, I do not believe it will be a v-shape reversal from the new high considering how strong the market was. It is likely that market will rally to the last high again before. Once that happens, there will be more color if the bull trend will continue, or there will be a major trend reversal from there.

There is no potential superstock this week.  There is uncertainty in the market now.  After the sharp fall two weeks ago, it was a t...

Weekly Superstock Scan 22 Oct 2018 -26 Oct 2018: Nil

There is no potential superstock this week. 



There is uncertainty in the market now. After the sharp fall two weeks ago, it was a tough battle between the bulls and bears last week. There is no outcome on who is the stronger side as a doji candle formed at on the weekly chart last week. My sense is that there is still a lot of strong bulls in the market, enough for the market to test the previous high for at least one last time before we see a major reversal. Hopefully we will see more color in the next two weeks.


There is no potential superstock this week. This is no surprise to me given the turmoil in the markets this week. While I see this w...

Weekly Superstock Scan 15 Oct 2018 -19 Oct 2018: Nil

There is no potential superstock this week. This is no surprise to me given the turmoil in the markets this week.

While I see this week's events as a potential turning point for the market, the probability is still low as at this point.

In a broader sense, the turmoil did very little to change the long term outlook of the stock market. There is no convincing break of the long term trend line or the moving average. And a bull market as strong and long-lived as this are unlikely to reverse with a first weak break of the trend line.


How I see the bear story playing out is we see a weak and two-legged rally back to around the previous high and unable to go higher than that. Thereafter we can expect price to move down back to the low of last week. At the minimal, the trend will stop and the market will form a trading range. And if the bear is strong enough, we will see a reversal.


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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.