Aeterna Zentaris Inc.
Q2 2015 Earnings Call Transcript

Published: 14 Aug 2015

[Operator:]

Good morning. My name is Tessa, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Aeterna Zentaris Second Quarter Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Paul Burroughs, Director of Communications, you may begin your conference.

[Paul Burroughs:]

Thank you. Good morning and welcome, everyone. With me today are David Dodd, Chairman and CEO; Dennis Turpin, Chief Financial Officer; Richard Sachse, Chief Scientific and Chief Medical Officer; and Jude Dinges, Chief Commercial Officer. Please take note that during this call, we may be making forward-looking statements regarding future events and the performance of Aeterna Zentaris that involve risks and uncertainties that could cause actual events and results to differ materially. These risks are described in further detail in the Company's press releases and reports filed with the U.S. and Canadian securities regulatory authorities. These forward-looking statements represent the Company's judgment as of today, Friday, August 14, 2015, and the Company disclaims any intent or obligation to update these forward-looking statements unless we’re required to do so by applicable law or by securities regulatory authority. However, we may choose to update, and if we do so, we will disseminate the updates to the investing public. It’s now my pleasure to introduce the Chairman and CEO of Aeterna Zentaris, David Dodd.

[David Dodd:]

Good morning and thank you for joining us. During the quarter and in recent weeks, our progress in successfully transforming the Company to accelerate our commercial efforts, gain momentum with our conclusion of a co-promotion agreement for Saizen, an exciting product in the $1.6 billion U.S market for the treatment of growth hormone deficiency in children and adults. We initiated our promotion of that product on July of 27 and have already begun to see new patients initiated on Saizen as a result of our promotion. In addition, we’ve seen significant progress in the prescribing developed for EstroGel with almost 500 new prescribers added between March and the end of June within our own territories. As a result of our selling activity, EstroGel is the only product in this category that’s demonstrating growth. In the clunk of development area, we made significant progress and now have two products in active Phase 3 trials. Furthermore, as part of our resource optimization efforts, we renegotiated our Frankfurt lease, resulting in our saving and Estro made $0.5 million per year by getting in 2016. Now let me go through the key developments in more detail. During the quarter, we made significant progress with our ZoptEC trial. With our oncology compound, zoptarelin doxorubicin has second line treatment for women with advanced, recurrent or metastatic endometrial cancer conducted under a special protocol assessment with the FDA. The trials primary endpoint is an improvement in overall survival versus standard doxorubicin. In April, following a first interim analysis of the trial, the independent data safety monitoring board recommended that we continue the ZoptEC trials plan. In June, we announced that we’ve completed enrollment of all 500 patients ahead of schedule. The most recent development for this trial occurred earlier this week when we announced that we’ve learned that the number of advanced a 192 required for in the data safety monitoring board to conduct its second interim analysis that occur. We are informed that the DSMB will conduct its efficacy and safety review of the data in early October of this year, and we expect to be able to announce results for the review soon thereafter. This review will be an important event in our development of zoptarelin doxorubicin and we’re looking forward to learning the results of the DSMB announced. The trial is expected to be completed by the end of 2016. During the quarter, we also announced filing of an application for a patent on a novel method of manufacturing zoptarelin doxorubicin. The plain manufacturing process is expected to result in a significant reduction in the cost of manufacturing the API. We believe that this reduction anticipated to be greater than 50% in the API manufacturing cost will provide a stronger competitive position for the Company. As a reminder, zoptarelin doxorubicin is an engineered molecule composed of synthetic peptide carrier linked to the widely used and well-known chemotherapeutic agent doxorubicin. Our product is intended to provide a more impactful delivery of doxorubicin with an improved benefit risk profile. In other words, increased survival and lower cardiotoxicity. Endometrial cancer is an important unmet medical need with a large market opportunity. It represents the most common gynecological malignancy. Approximately 50,000 new cases expect in the U.S. alone this year, with approximately 9,000 patients in our indication annually. We estimate that the potential annual market opportunity in the U.S alone represents between $300 million and $400 million in treating advanced, recurrent endometrial cancer and considering additional potential indications we may pursue, our product has an annual market opportunity of approximately $1 billion in the U.S alone. Zoptarelin doxorubicin is potentially the first FDA approved medical therapy for recurrent, advanced endometrial cancer. This could result we believe in its rapid adoption as a core therapy for patient treatment and management. We are continuing to develop our commercial plans or strategy for this product and establishing additional partnerships and strategic territories for the rest of the world. As for macro, our novel orally-active ghrelin agonist for use in evaluating adult growth hormone deficiency, we refer to as AGHD, as announced that we had selected Ergomed to conduct our new confirmatory Phase 3 clinical study which we recently initiated. We’ve great confidence in Ergomed’s ability to conduct this study on schedule and within budget based on their excellent collaboration as our clinical and co-developed from partner for our ZoptEC Phase 3 trial, which as I mentioned as in endometrial cancer. We are also planning a dedicated thorough QT study to evaluate the effect of Macrilen on myocardial repolarization which we expect to initiate in early 2016. The Macrilen confirmatory Phase 3 study is conducted as a two-way crossover with the insulin tolerance test as the benchmark comparator. The study population consists of patients with a medical history documenting risk factors for AGHD and includes a spectrum of patients from those with a low risk of having AGHD to those with a high risk of having this condition. The European medicines agency has indicated that our proposed confirmatory Phase 3 trial in AGHD with Macrilen meets its study design expectations role for supporting a registration pilot. We believe that Macrilen will demonstrate success in the confirmatory trial, and we believe that this product represents a strong value proposition, potentially becoming the only FDA approved product for evaluating AGHD in the United States. It’s accurate, comparable to current standard procedures. It’s safe and well tolerated and it’s convenient versus the insulin tolerance test and that it represents an oral versus IV and IM injections. It’s much simpler representing a single blood draw as possible, a shorter follow-up, and less medical supervision. As it for our early stage programs subsequent to quarter end, we granted an option to license our live recombinant oral allogenic tumor vaccine technology including AEZS-120, which is ready to enter a Phase 1 clinical trial to a private company in Germany. This option is granted to these entrepreneurs worldwide for a period of 12 months in return for an upfront fee. Pursuant to the option agreement, this company will have the right to obtain a worldwide exclusive license to develop, use, and sell products relating to the technology and AEZS-120, in exchange for milestone payments and royalties on net sales of any product developed from the technology and an equity interest in the company formed to develop the compounds. At the present time, we hold worldwide rights to the technology, including our product AEZS-120. Still regarding our early stage compounds, during the quarter, an optimized Erk-inhibitor POP compound AEZS-140, and back-up candidates were selected for development. Thus achieving another important milestone in the development of a new class of potential cancer therapies. AEZS-140 and the back-up candidates demonstrate improved plasma exposure in rodents as well as enhanced anti-tumor efficacy in comparison to the previous lead compound, AEZS-134. Furthermore, AEZS-140 was profiled against several clinical stage Raf, Mek and Erk inhibitors and demonstrated very competitive activity. We will proceed with the next development steps for AEZS-140 and the back-up compounds, including in depth profiling in vitro and, also, further in vivo tumor models. Our business development team is already engaged in discussions with parties who have previously expressed an interest in our work with Erk inhibitors. The optimization of our Erk inhibitors as well as the option granted for our oral anti-tumor vaccine technology represent examples of our strategy aimed at leveraging some of our promising early stage drug candidates in order to generate long-term value without having to heavily invest in their development ourselves. Relative to commercial operations, during the quarter we announced the signing of a promotional services agreement with EMD Serono, resulting in our July launch of field promotion activities in support of Saizen. In the U.S., we’re detailing Saizen to targeted endocrinologists, a return for achieving new patient starts above an agreed upon baseline, we will receive compensation. We currently have 19 contractual sales representatives in the U.S., which has being expanded 24 in order to significantly increase the field promotion behind Saizen. Saizen competes in a market of almost $2 billion in the U.S., which is growing at a double-digit rate. Saizen is indicated for the treatment of growth hormone deficiency in both children and adults. The product is noted for offering a needle-free delivery system. In addition, patients received 24/7 nursing support for the device training and a dedicated case manager to assist in resolving access and reimbursement issues. We’re quite excited about the opportunity offered to us by being associated with this product. Regarding EstroGel, we continue our promotional efforts relating to building that brand in our territories. Our agreement with ASCEND Therapeutics provides us commission revenue based upon incremental sales of the product, that are generated over pre-established baselines. Detailing efforts associated with EstroGel commenced in Ernst early in the first quarter of 2015, and overall feedback from the field has been positive. EstroGel represents an exciting market opportunity for our Company. In 2013, the markets for EstroGel replacement therapy was estimated at almost $4 billion annual sales in the U.S with non-patch transdermal [ph] products being among the fastest growing segment, generating approximately $100 million to annual sales. Our focus for Estrogel is to grow and differentiate the brand, achieving a leading category position in every territory we occupy. Our initial information indicates that within the AEZS territories, we’re achieving growth range significantly above overall market performance. In fact, as a result of our selling and prescriber development, Estrogel is the only brand in the category in our territories demonstrating growth. For the remainder of 2015, our main focus will be the following. On Estrogel, achieving continued increased success and market share growth. For Saizen, increased market share as a result of significant increased share of voice than we’re providing behind the brand. The ZoptEC Phase 3 trial to report the second interim analysis in early October and to continue our commercial launch strategy preparation for Macrilen having recently initialize -- initiated our confirmatory Phase 3 trial, our focus is now on patient recruitment. Finally, I’d like to address our current financial position in the recent pressure on our stock price. During the first quarter of this year, we made the decision to raise a significant amount of capital to support us through the next 18 months of the implementation of our strategy. As a result, we are in a stronger financial position with cash and cash equivalents of approximately $45.5 million as of June 30. However, the pressure being exerted on our stock price since our public offering does not reflect this strong cash position, nor our recent achievements and overall corporate value. We believe that the dilution attributable to warrants issued in the offering during the first quarter is the reason for the pressure on our stock price and that this pressured will continue for the next several months with the warrant impact expected to be completed by year-end. Regardless, we remain focused on continuing this step we’ve underway that support increased and long-term value development for our shareholders in our Company. We are confident in our commercial and clinical development activities, believing that we will become a successful growth oriented pharmaceutical company. I’ll now turn the call over to our CFO, Dennis Turpin for more details on this and our other financial activities. Dennis?

[Dennis Turpin:]

Thank you, David. First, let me update you on our cash position. As mentioned by David, our cash and cash equivalents totaled $45.4 million as of June 30, 2015, compared to $34.9 million as of December 31, 2014. We have the necessary funding to continue to advance our strategic initiatives, more particularly the ongoing Phase 3 ZoptEC trial and the Macrilen confirmatory Phase 3 trial. Our operating burn rate for the second quarter of 2015 was approximately $8.1 million, an average of $2.7 million per month. This is inline with our expectations and previous guidance. We now expect that our overall operating burn in 2015 will range from $35 million to $37 million. This is no significant change from our previous guidance. Now more details about our results of the quarter ended June 30, 2015. Net R&D costs were $4.5 million for the quarter ended June 30, 2015, compared to $5.5 million for the same period in 2014. The decrease is attributable to lower comparative employee compensation and benefits cost, facilities rent, and maintenance, as well as other costs. G&A costs were $2 million for the quarter ended June 30, 2015 compared to $2.5 million for the same period in 2014. The quarter-over-quarter decrease is attributable to lower comparative employee compensation and benefit costs. Selling costs were $1.7 million for the quarter ended June 30, 2015, compared to $0.5 million for the same period last year. Our increased selling costs are associated with the co-promotion efforts related to EstroGel, which were initiated late in 2014. Net loss for the three-month period ended June 30, 2015 was $15.1 million, compared to $5 million for the same period in 2014. The increase in net loss is predominantly is due to higher comparative net finance costs and to higher comparative selling expenses, partially offset by lower comparative R&D costs. Thank you for your attention. Now, David.

[David Dodd:]

Thank you, Dennis. Now we’re open for questions. I’ll turn it back to the operator to moderate.

[Operator:]

[Operator Instructions] Your first question comes from the line of Jason Kolbert from Maxim. Please go ahead.

[David Dodd:]

Hi.

[Jason Kolbert:]

Hi, guys. Congratulations on the quarter. Lot of good progress. Two quick questions. What’s it going to take for the Saizen revenues to begin to ramp up? Help me understand that process. And then, switching gears to that trial data, help me understand how that data will be released? What to do that at a medical conference or medical meeting, then pending the release of the data. Let’s assume it’s good. Walk me through what the next steps will be? Thanks.

[David Dodd:]

Okay. Thank you, Jason. Relative to Saizen, as we mentioned, Monday, July the 7, we started the selling and so we have currently 19 representatives that will soon be 24 representatives, we are selling that entirely ourselves in conjunction with the corporate account managers eight of which they’re for EMD Serono and some in-house support obviously functions on that. We’ve already began to generate our first new patient starts, so we’re quite excited about that. So it really is highly focused selling. We have a target list that we and EMD Serono have refined. And certainly that’s being further refined as we’re out in the field and it’s just a very high frequency, high share of voice of reintroducing that brand, which has not been detailed to endocrinologists for the last several years. Now it’s fortunate that people know the brand, it’s the same API as you know. So it’s typically differentiated based on the former delivery and all the type of support programs. So our challenge and our focus is to increase a much more greater awareness and then recognition of the product is available, the product is supported by not only selling, but by back home office for active reimbursement support now and we’re working very closely with the internal commercial team at EMD Serono. So I hope that gives you some insight on there. And as I’ve said, we’ve already begun to receive information, there is quick feedback, because the patient -- when the patient has started or being initiated on any product in this category for that matter, they end up being linked into an home office insurance management type program and we received almost immediate feedback of that there is new patients, so we’re able to track this much faster than the traditional prescription so to speak. So as I said, we were able to not only win, but when, where, and what offers the very first patient that we generated or heard [ph] from. So we’re excited about that. So our reps load product, the team at EMD Serono was being great to work with, continue to be, and all is going well there. For the second interim analysis results, that will be a comprehensive review by the DSMB of safety as well as efficacy data. We will not be releasing or they will not be releasing information that provides specifics owned comparative survival or comparative side effects, cardiotoxicity or otherwise is. So what they will end up doing is communicating the results of their review and that will be essentially to indicate their recommendation to continue which based upon the guidance they will able to provide will mean that we’re demonstrating difference between standard doxorubicin and safety as well as efficacy in all. And we will -- we don’t plan to hold a telephone conference, because it is at the granularity of information that everybody will want to have at this time. What we will be able to underscore is that based upon a review at the point of half of the expected events or 192 in a comprehensive very detailed review in both efficacy as well as safety that it indicates in this case we hope to be able to communicate is that we appeared to have a product.

[Jason Kolbert:]

Perfect. Thank you.

[David Dodd:]

[Technical difficulty] file a registration. Go ahead, I’m sorry.

[Jason Kolbert:]

Thank you. That really put in perspective. I really appreciate it, because I think it’s important for everybody to understand that the event is coming and just how to interpret that and that’s just really another milestone on the trial towards the completion of the trial on ultimate data. So thank you very much for clarifying that and congratulations on putting the building blocks in place towards a commercial infrastructure. I can really see how the potential now is there for you to start generating some real revenues. Thanks so much.

[David Dodd:]

Thank you.

[Operator:]

Your next question comes from the line of Ramakanth from H.C. Wainwright. Please go ahead.

[Swayampakula Ramakanth:]

Good morning, David, and good morning, Dennis.

[David Dodd:]

Good morning.

[Dennis Turpin:]

Good morning.

[Swayampakula Ramakanth:]

Just want to understand a little bit more about the EstroGel commissions that used to be recording, I believe from the third quarter onwards. So you said in your remarks that you’re seeing a better adoption than what it used to be. Is it possible for us to get a little bit more color than that statement, so that we understand what is better adoption mean?

[David Dodd:]

Sure. I will try to provide some input there, a couple of data points. Now we -- as I mentioned we’ve added almost 500 new prescribes since March. From March till the end of June those are for healthcare professionals or OBGYN, who had previously not prescribed this product and they are now prescribing the product. So it’s being introduced to them. They’re writing prescriptions. Samples are being distributed in there. That in addition to our other selling, and we monitor it on the universe of our very specific 19 territories in which we sell it. And so, when we look at that, new prescriptions are up over 9% and total prescriptions are up 8%. And this is in a market that is down approximately 4%. So we know we’re making an impact there. We’ve recently communicated in certain presentations that our sales reps are now achieving in excess of 10 calls per day, very heavy sample activity. Keep in mind again a sample is a month supply, so a sample goes out with the prescription. We don’t believe that this is a type of product where when a prescription is given as occur sometimes in a hypertensive and other areas where several months, several types of sample units are handed to a patient because of the size of the canister et cetera, it tends to be one for one that goes with [indiscernible]. Typically about, you can say that for about every four samples that are distributed we have someone starting on the product and all. We have thus far distributed almost 60,000, more over 59,000 samples. So it sort of helps you sort of work through about how many new units we have created in that market place at this point. And then as we mentioned these are territories that, in all these territories there were -- there was a history of prescribing of Estrogel, but there was not a history of it being direct promoted in there. And so the level of development in these territories was about 1/6 that of territories that had the traditional [indiscernible] reps. So we knew that there is an opportunity developed and sort of a recognition somewhat of an awareness of it, and we also needed to build it and begin to build our own presence within the market place. And as with any physicians office, now a days are not the easiest place to get front face time with the physician to get in there and develop them all, but we’ve had that -- its been good that we’ve had that dedicated concentration time because we presented at a conference just this week, a graph that shows that in our competitive categories the only product that has shown any growth since we started detailing Estrogel, is Estrogel.

[Swayampakula Ramakanth:]

Fantastic, that’s very encouraging. Could you confirm for us that we should start -- I mean you should start recording commission revenues from next quarter, am I correct?

[David Dodd:]

Yes, we actually are really doing it. It’s just not at a material level at this point. But we are in the positive, we are earning commissions.

[Swayampakula Ramakanth:]

Okay. And then, how are you thinking about your operational expenses going forward, and how are you trying to stretch the $45 million that you have in the bank so that you can get the fullest benefit of it?

[David Dodd:]

Yes. We’re obviously being very judicious, being very tied, being very focused. So we’re looking at those things. I have to recognize our team in Frankfurt for what they have achieved in this less than a year. They have now added over, approximately $1 million in income contribution by renegotiating leases, by selling equipment, by subleasing space. This was not request upfront. This shows what people do when they get the spirit and they realize that there is a lot of work to be done. And we look at that and that’s $1 million of 100% margin that in essence had been sitting around for as long as it was there, so we sold equipment. We subleased space we no longer needed. This was the result of our resource optimization program that we had completed. And now we’ve renegotiated the lease more recently and we actually anticipate there is possibility to further bring in additional ongoing income contribution from activities there. So, I guess, I would say the rest of us are trying to follow their lead and being just as focused and as good stewards as they are in terms of the investment we have [indiscernible].

[Swayampakula Ramakanth:]

And in terms of some of the things that you’ve started doing, that your newest deal for Southern Carolina and those places, when can we start -- so what is the progress being made there? What should we expect in terms of any money inflows out of these kind of relationships?

[David Dodd:]

Money inflows will largely come from our co-promotions and it -- both of them, one was just starting, but we’re very excited about. Keep in mind that in essence approximately 40% of the value of new patient start is what we ultimately receive that’s paid over an eight quarter period is we generate that now, but that’s a good way to think about and sort of model it. And then with Estrogel as we continue to build this, the space of new patients on this product, what is nice about that is we have a commission rate that when we are in the area of earning it, meaning above our base line it exceeds 50%.

[Swayampakula Ramakanth:]

Okay. Thank you very much.

[David Dodd:]

You are welcome.

[Operator:]

[Operator Instructions] Your next question comes from [indiscernible] from State Street Global Markets. Please go ahead.

[Unidentified Analyst:]

Yes, good morning. Could you give us a little more detail about your capital structure, more specifically of course the dilution effect of the last financing. So, I know that you’re talking about dilution taking place in -- up to the end of this year. But basically what I’d like to know from this, can you give us like a worse case scenario in terms of dilution effect and best scenario case?

[David Dodd:]

Sure. Dennis, [indiscernible].

[Dennis Turpin:]

Yes. So, just to summarize, we have outstanding number of shares as of June 30 of 140 million shares. As of August 12, the number of shares outstanding is now 182.3 million. So the warrants B that are still outstanding are at the level of $20.9 million as of August 12, 2015. It represents approximately 70% of all of the B warrants that were issued, if we recall on March 11. Now the behavior of the alternative cashless exercise is the decision from the investors, it is based on the price. If the stock price goes down they have the ability to exercise this alternative cashless exercise and it is difficult for the company to comment exactly how they will behave. And what we can tell you is, at the rate of exercise that we see for the last few weeks, it would take approximately, we don’t know maybe, four, five months maximum to see all of the B warrants being exercised. Now how many shares will result from that? It depends on the stock price. If the stock price goes up, there will be a fewer number of shares, than if the price goes down. And I’m sure you can imagine that the company cannot comment on the stock price where the stock price will go. Okay?

[Unidentified Analyst:]

All right, I understand that. But again, what is the worst case scenario?

[Dennis Turpin:]

Again on that question, it is difficult to comment. There is a formula that is presented in our financial statement which tells you that if you take the existing stock price, the ratio of conversion is about 10 times the warrant. So, if we calculate at the existing level 20 million comped at warrants would generate 200 million common shares at the existing price. So this is an example. If the stock price goes at the higher level, the ratio will be a lower ratio. It could be five times. It could be four times. It could be two times. It depends on the direction of the stock price. If it goes to a lower level then it is possible that the number of shares could be even higher than what I just mentioned. But its all speculation.

[Unidentified Analyst:]

Well I mean, it’s not necessary that much speculation. But the point is, so you’re at 170 million or 180 million right now?

[Dennis Turpin:]

Yes, this is the number which is still outstanding as of …

[Unidentified Analyst:]

Yes. And so, if the stock price stays at say $0.22, let’s suppose that it stays at $0.22. So what is the dilution at this point -- the maximum dilution at this point?

[Dennis Turpin:]

That would be approximately nine times the -- or lets say, not more than nine times. The 20 million outstanding warrants. So it’s 180 million additional shares that would be issued.

[Unidentified Analyst:]

So at $0.22 you could end up at 350 million shares outstanding?

[Dennis Turpin:]

Yes.

[Unidentified Analyst:]

Okay.

[Operator:]

Mr. Dodd, there are no further questions at this time. I’d turn the call back over to you.

[David Dodd:]

Thank you. Again, we appreciate everyone's interest and attention and follow-up about Aeterna Zentaris, the progress we’re continuing to post. We look forward to several exciting updates coming in the near future especially our second interim results on the ZoptEC trial. We look forward to announcing of our patients beginning to go into the Macrilen confirmatory trial program. We’ll keep you updated on a timely basis. And again thank you for your interest. We look forward to updating you at the end of the next quarter. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.