CHARLESTON, S.C.--(BUSINESS WIRE)--Aeterna Zentaris Inc. (NASDAQ: AEZS) (TSX: AEZS) (the “Company”), announced today that it has filed a claim against the Company’s former CEO David Dodd and its former General Counsel Philip Theodore (the “Defendants”) with the Ontario Superior Court of Justice, Commercial List (the “Claim”) for actions that the company says involve breaches of fiduciary duties and unauthorized disclosure of confidential and highly proprietary information.
As detailed in the 15-page claim, the Board of Directors (the “Board”) uncovered what it believes to be a conspiracy between Mr. Dodd and Mr. Theodore, while still employed by Aeterna, to take control of Aeterna and acquire the U.S. rights to the Company's major asset, MacrilenTM. To accomplish these goals, they joined forces with a self-styled shareholder activist, Graeme Roustan, who made various demands for board representation. Mr. Dodd's and Mr. Theodore’s egregious breaches of confidence and fiduciary duties to the Company came to light as part of the investigation surrounding the dismissal of Mr. Dodd for cause in July of this year.
Carolyn Egbert, Chair of the board of directors (the “Board”) commented on the Claim:
“We are dismayed and appalled at the actions of Mr. Dodd and Mr. Theodore and we are acting quickly and decisively to protect the interests of our employees and shareholders. In our Claim, we ask the Court to prevent Mr. Dodd and Mr. Theodore from using or conveying the Company’s confidential information, including to seize control of the Board through a proxy contest. We refuse to allow Mr. Dodd or Mr. Theodore to disrupt the Company’s focused effort in bringing Macrilen to market and maximizing value for all of our stakeholders.
The Board would also like to recognize the considerable efforts of our new CEO Michael Ward in acting quickly to stabilize the management of the Company, and ensuring that we do not lose momentum at a critical and exciting time in our Company’s history.”
The Claim alleges, that among other things:
- The Defendants breached fiduciary duties owed to the Company.
- In or prior to June 2017 the Defendants conspired to devise a secret plan known as "Project Rescue" that outlined a path for Mr. Dodd and Mr. Theodore to acquire the U.S. rights to MacrilenTM from Aeterna either through a Corporation named RiversEdge BioVentures, LLC, which is wholly-owned by Mr. Dodd, or another newly incorporated Corporation.
- In or about July 2017, while they were still employed by Aeterna, the Defendants began to develop a second secret plan, which they called "Project Rescue – Version 2". Under the second plan, the Defendants engaged the assistance of an activist shareholder named Graeme Roustan to mount a proxy contest for control of the board of directors of the Company (the “Board”). Mr. Roustan controls a currently undisclosed holding of Aeterna shares.
- On July 7, 2017, Mr. Roustan sent a letter to the Board advising, among other things, that he desired a seat on the Board. The Board's Strategic Review Committee took charge of communication with Mr. Roustan.
- The Defendants had full knowledge that the Board was communicating with Mr. Roustan, and Mr. Dodd expressed his objection to being excluded from those communications. However, the Defendants never disclosed their involvement with Mr. Roustan or their plans to take over the Board and acquire the U.S. rights to MacrilenTM. Their plans were only uncovered through an investigation following the termination of Mr. Dodd as CEO. Among other things, the Board discovered a document created by Mr. Theodore entitled "Outline of Proposed Agreement with Graeme Roustan", which detailed some of the particulars of how Messrs. Roustan, Theodore, and Dodd intended to mount the proxy contest.
- On July 20, 2017, Aeterna terminated Mr. Dodd's employment as CEO for cause, including for his repeated refusal to implement express directives of the Board.
- Following the revelation of the plan to mount a proxy contest after Mr. Dodd's termination, it was uncovered through further investigation that, during and after Mr. Theodore's employment, he disclosed and made unauthorized use of highly proprietary and confidential information, including, among other things, providing others with privileged information that Mr. Theodore had received in his capacity as the Company's General Counsel.
- Mr. Theodore's employment was terminated on July 28, 2017.
- Following Mr. Dodd's and Mr. Theodore's terminations, they failed to comply with the Company's requests for the return of confidential information.
Aeterna has sought among other things:
- An injunction to prevent the Defendants from continuing to use Aeterna’s confidential and proprietary information without authorization.
- An injunction to prevent the Defendants from mounting a tainted proxy contest that will be premised upon the breaches of fiduciary and statutory duties and breaches of confidence alleged in the Claim.
About MacrilenTM (macimorelin)
Macimorelin, a ghrelin agonist, is an orally-active small molecule that stimulates the secretion of growth hormone. Macimorelin has been granted orphan drug designation by the FDA for diagnosis of AGHD. The Company owns the worldwide rights to this patented compound and has significant patent protection left. The Company’s U.S. composition of matter patent expires in 2022 and its U.S. utility patent runs through 2027. The Company proposes, subject to FDA approval, to market macimorelin under the tradename Macrilen™.
AGHD affects approximately 75,000 adults across the U.S., Canada and Europe. Growth hormone not only plays an important role in growth from childhood to adulthood, but also helps promote a hormonally-balanced health status. AGHD mostly results from damage to the pituitary gland. It is usually characterized by a reduction in bone mineral density, lean body mass, exercise capacity, and overall quality of life as well as an increase of cardiovascular risks.
About Aeterna Zentaris Inc.
Aeterna Zentaris is a specialty biopharmaceutical company engaged in developing and commercializing novel pharmaceutical therapies. We are engaged in drug development activities and in the promotion of products for others. We recently completed Phase 3 studies of two internally developed compounds. The focus of our business development efforts is the acquisition of licenses to products that are relevant to our therapeutic areas of focus. We also intend to license out certain commercial rights of internally developed products to licensees in non-U.S. territories where such out-licensing would enable us to ensure development, registration and launch of our product candidates. Our goal is to become a growth-oriented specialty biopharmaceutical company by pursuing successful development and commercialization of our product portfolio, achieving successful commercial presence and growth, while consistently delivering value to our shareholders, employees and the medical providers and patients who will benefit from our products. For more information, visit www.aezsinc.com.
This press release contains forward-looking statements made pursuant to the safe harbor provision of the U.S. Securities Litigation Reform Act of 1995, which reflect our current expectations regarding future events. Forward-looking statements may include, but are not limited to statements preceded by, followed by, or that include the words “expects,” “believes,” “intends,” “anticipates,” and similar terms that relate to future events, performance, or our results. Forward-looking statements involve known risks and uncertainties, many of which are discussed under the caption “Key Information – Risk Factors” in our most recent Annual Report on Form 20-F filed with the relevant Canadian securities regulatory authorities in lieu of an annual information form and with the U.S. Securities and Exchange Commission (“SEC”). Such statements include, but are not limited to, statements about the progress of our research, development and clinical trials and the timing of, and prospects for, regulatory approval and commercialization of our product candidates, the timing of expected results of our studies, anticipated results of these studies, statements about the status of our efforts to establish a commercial operation and to obtain the right to promote or sell products that we did not develop and estimates regarding our capital requirements and our needs for, and our ability to obtain, additional financing. Known and unknown risks and uncertainties could cause our actual results to differ materially from those in forward-looking statements. Such risks and uncertainties include, among others, the availability of funds and resources to pursue our research and development projects and clinical trials, the successful and timely completion of clinical studies, the risk that safety and efficacy data from any of our Phase 3 trials may not coincide with the data analyses from previously reported Phase 1 and/or Phase 2 clinical trials, the rejection or non-acceptance of any new drug application by one or more regulatory authorities and, more generally, uncertainties related to the regulatory process (including whether or not the regulatory authorities will definitively accept the Company’s conclusions regarding Macrilen™ and approve its registration following the Company’s re-submission of an NDA for the product as described elsewhere in this press release), the ability of the Company to efficiently commercialize one or more of its products or product candidates, the degree of market acceptance once our products are approved for commercialization, our ability to take advantage of business opportunities in the pharmaceutical industry, our ability to protect our intellectual property, and the potential of liability arising from shareholder lawsuits and general changes in economic conditions. Investors should consult the Company’s quarterly and annual filings with the Canadian securities commissions and the SEC for additional information on risks and uncertainties. Given these uncertainties and risk factors, readers are cautioned not to place undue reliance on these forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, unless required to do so by a governmental authority or applicable law.