$.23The $.23 closing price yesterday for CZO is the same price as the day before the merger was announced but assuming the merger closes CZO now has ~$.35 per share cash based on the $57 million unrestricted cash as of September 30, 2023 and that it is a merger of equals. While material cash has likely been burned in the approaching six months since since we will have to see how much a potential upfront payment from a new North American diagnostic deal generates. Adjusted for inflation the previous upfront payment from Strongbridge was ~C$40 million. There was also to be a US$5 million milestone payment for pediatric test approval and coverage of pediatric trial costs. With the pediatric trial on the verge of potential completion and nearing potential approval a new licensee could be charged these values. There's also a potential wild card: The pediatric study is set up to potentially validate the test as a standalone diagnostic in an industry where two tests are currently required. That could add significant value.
So, what will the upfront, milestone, and potential royalties be for a new North American diagnotic test be? We don't know but AEZS indicated it expected a deal last July in a news release and Gilles is in the catbird seat at AEZS as a director as terms are being discussed. With Gilles by his side Ronnie Miller is "thrilled" with the merger and the diagnostic test is likely a significant driver of AZES's value. Ronnie Miller was trained in excellence at his former position of President and CEO or Roche Canada. H.C. Wainwright has had a US$15 target price for AEZS likely significantly driven by the diagnostic test. That works out to C$100 million in market cap for AEZS. Previously, some time ago, H.C. Wainwright anticipated that a new diagnostic deal could even have better terms than the Novo Nordisk deal.
Beyond the effective $.35 per current CZO share in cash based on the September 30, 2023 values CZO's base business has been expanded to add a potential cashcow diagnostic supporting future pipeline development. What is the value of base business 2.0?
AEZS's capital is also expected to fully finance CZO's near-term revenue generating opportunities and there are new developments here as CZO outlied in its February 23, 2024 news release. The avenanthramide pill also appears to have cleared the Data Safety Monitoring Board at 120mg since the merger announcement and PGX scale-up to 5X and 10X commissioning appears on schedule.
Given CZO is currently $18 million in market cap at $.23 and that this is a merger of equals it is now a $36 million market cap company assuming the merger closes. That is the equivalent of $.45 per CZO share before the merger announcement; yet with the merger and given developments since isn't CZO stronger than ever? The capital and human resources could also support stronger PGX deals as PGX approaches the potential decision point for mass industrialization(ie. commissioning of the 100L facility) potentially in the next six months. At the AGM Gilles indicated CZO was in talks with serious potential partners who understand the importance of bioavailability as a unique selling point for CoQ10. The University of Alberta study blew away the industry gold standard.
A final issue to be addressed it the burn rate from AEZS's pipeline. CZO has indicated that after the close of the merger it will assess the pipeline for potential cuts. Also, does AEZS now have a clear path to leaving preclinical testing and entering human trials were value accretive milestones can accelerate with proof in humans. What will clinical trials look like? Previously AZES has also indicated a potential interest in partnering upon early human data which could help manage risk and the burn rate. The path to a long term sustainable company could become clearer with developments.
Yesterday's news release:
Carolyn Egbert, Chair of Aeterna: “This is an excellent outcome that supports the creation of what we believe will be a long-term sustainable business, optimally positioned to deliver value to the biopharma sector, and to Aeterna and Ceapro shareholders."