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Here's What's We're Reading From The AEterna Zentaris Inc. (USA) (NASDAQ:AEZS) Situation

Here's What's We're Reading From The AEterna Zentaris Inc. (USA) (NASDAQ:AEZS) Situation
Written by
Chris Sandburg
Published on
August 14, 2017
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AEterna Zentaris Inc. (USA) (NASDAQ:AEZS) was one of our readers' biggest winners this year. The company collapsed back in May on the news that a phase 3 study of its then-lead oncology asset, a drug called Zoptrex, had failed. AEterna's share price went from $3.35 a share to less than one dollar a share practically overnight and it was at this latter price that we highlighted the company as one to watch. We argued that the valuation at that point didn't take into consideration the potential of AEterna's secondary asset, a drug called Macrilen, and that despite a pretty rocky development pathway, there was still a clear route to commercialization for said asset in the US. AEZSWe got an initial validation of this hypothesis during the middle of July when the FDA accepted a New Drug Application (NDA) resubmission and set a PDUFA date for the asset this coming December. On the news, the company ran up to more than $2.80 a share, returning a little over 210% to any of our readers that picked up an exposure on the back of our initial highlighting of the company.Subsequent to these highs, however, AEterna has dipped a bit, falling to $1.62 a share at the start of August. It's now back above two dollars, however, and will open this week at $2.15 a piece.So why are are we looking at this one today?Management put out earnings at the end of last week and the company beat expectations pretty much across the board. Net loss came in at ($0.18) per share, beating estimates of ($0.38) per share, and revenue for the quarter came in at $0.24 million, again beating analyst estimates of $0.22 million. That's great, and it has served to kick start some action in the stock, but there is a far more interesting undercurrent that's driving volume right now.Specifically, the company is currently in the process of carrying out legal action against its former CEO David Dodd and former General Counsel Philip Theodore, with the action rooted in an attempt by the latter two individuals to take control of Macrilen via a secret plan called "Project Rescue". It reads like a spy novel. AEterna staff discovered a secret document titled "Outline of Proposed Agreement with Graeme Roustan," which detailed how the alleged conspirators would mount a proxy contest. AEterna believes Theodore put the document together as part of the Project and it is going to form a key component of the company's efforts in seeking an injunction barring the two men from continuing to use AEterna's confidential information without authorization and from mounting a proxy fight.Exactly how the lawsuit will play out remains to be seen. There is limited information available as to what's involved (and when you look at the picture from the perspective of Dodd and Theodore, the details become even murkier) meaning AEterna's chances of success or failure in gaining the requested injunction can't really be quantified at this point. Some will argue that the firing of Dodd is indicative of success, given that the company wouldn’t have been able to do this without evidence of wrongdoing, but again, that's speculative.Right now, however, it's not the outcome that we see as pivotal to the situation. Instead, we are looking at the story from the perspective of what this tussle says about the individual opinions of those involved regarding Macrilen as an asset. Specifically, both Dodd and Theodore must feel that there is some value in the drug or they wouldn't be (allegedly) plotting to wrestle control of the asset from the company. For us, this is strongly supportive of a positive outcome for Macrilen at the end of this year and – in turn – strongly supportive of a bull thesis for anybody willing to take a punt on the drug and pick up an exposure to the asset before its regulatory decision come December.It's speculative, of course, but it's far from unreasonable speculation.PDUFA is December 30.Check out our previous coverage of this one here. We will be updating our subscribers as soon as we know more. For the latest updates on AEZS, sign up below!Image courtesy of John Lester via FlickrDisclosure: We have no position in AEZS and have not been compensated for this article.

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