Aeterna Zentaris Inc.
Q3 2014 Earnings Call Transcript

Published: 5 Nov 2014

[Operator:]

Good morning. My name is Matthew, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aeterna Zentaris Reports Third Quarter 2014 Financial and Operating Results Conference Call. [Operator Instructions] Thank you. Director of Communications, Paul Burroughs, 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 will 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, Wednesday, November 5, 2014, and the company disclaims any intent or obligation to update these forward-looking statements unless we are required to do so by applicable law or by a securities regulatory authority. However, we may choose to update, and if we do so, we'll disseminate the updates to the investing public. It's now my pleasure to introduce the Chairman and CEO of Aeterna Zentaris, David Dodd.

[David Alan Dodd:]

Thank you, Paul, and good morning, everyone. Thank you again for your interest in Aeterna Zentaris. It is a pleasure that we have this opportunity to update you on our continued progress. This third quarter was highlighted mainly by the signing of the co-promotion agreement with Ascend Therapeutics for EstroGel, the leading non-patch transdermal brand of estrogen replacement therapy commercialized in the U.S. EstroGel, as you may recall, is marketed in over 70 countries and is the most prescribed estrogen product in Europe, as well as the most prescribed transdermal estrogen product in Canada. Under the terms of the agreement, we will market Ascend's EstroGel in specific Aeterna Zentaris territories in the U.S. in exchange for a sales commission, which will be payable based upon incremental EstroGel sales volumes generated over a certain pre-established threshold. Last week, we announced the formal implementation of our sales force of approximately 20 full-time reps for the field selling of EstroGel, which will be scheduled to start in the week of November 17. For its part, Ascend will use its existing sales force of over 35 sales reps to cover its territory. In total, this provides about 55 representatives selling EstroGel. Additionally, the agreement provides the following regulatory approval of Macrilen, our ghrelin agonist for use in evaluating adult growth hormone deficiency, Ascend will provide similar co-promotion services to us in exchange for a sales commission. This co-promotion agreement is an important step in our strategy of transitioning into a commercially operating specialty biopharmaceutical company, as it will jump-start our commercial activities. It will also enable us to use our new commercial structure, not only for the co-promotion of EstroGel, but also for the potential launch of Macrilen as well as for other commercial products that we plan to acquire, in-license or promote in the future. Continuing with Macrilen, we're expecting a decision from the FDA on its review of the NDA imminently since the NDA has a PDUFA date of today, November 5, 2014. You'll recall that, if approved, Macrilen will be the only orally administrated drug indicated for the evaluation of AGHD. And I'm sure you're all wondering if in fact we have heard from the FDA, and in fact we have not at this point. During the last few months, we completed our commercialization plans, focusing on the many critical issues necessary in support of a rapid commercial launch and penetration of our target market. This included critical staffing and the implementation of our own sales force, which I've mentioned a few moments ago. Prelaunch activities expect to be carried out throughout the remainder of 2014 will continue. In addition, we will implement activities to build the commercial infrastructure necessary to access the physicians who perform the majority of AGHD tests, along with the major centers of AGHD influence. We'll continue to evaluate the potential to commercialize Macrilen in other geographic territories, including Canada and Europe, as well as in other indications, including the evaluation of pediatric growth hormone deficiency. Now for zoptarelin doxorubicin, our lead oncology compound currently in a ZoptEC Phase III trial comparing it to doxorubicin alone as a second line treatment with -- for women with advanced recurrent or metastatic endometrial cancer. This is being conducted, you'll recall, under an SPA, Special Protocol Assessment, from the FDA. And the primary endpoint is an improvement in overall survival versus standard doxorubicin. I'm happy to report that we currently have over 300 patients taking part in the trial out of the expected total of 500 patients. At this point, the patient recruitment is in line with our initial goal of ensuring the first interim analysis in the first half of 2015. A reminder that zoptarelin doxorubicin is an engineered molecule composed of a synthetic peptide carrier linked to a widely-used and well-known chemotherapeutic agent, agent doxorubicin. This treatment is intended to provide a more impactful delivery of doxorubicin with fewer side effects than is typical, similar to what we observed in our Phase II trial. Endometrial cancer is an important unmet medical need with a large market opportunity and represents the most invasive gynecologic cancer in women. Approximately 52,600 new cases are expected in the U.S. alone this year. There is no systemic treatment approved in the U.S. or throughout most of Europe, and we hold worldwide rights to this compound. Finally, as part of our transition strategy, we started implementing our global resource optimization program intended to primarily streamline our R&D activities, increase our commercial operations and our overall flexibility as a company. This program is expected to result in the termination of 31 staff, which represents 1/3 of our employment base. Upon completion of this program, overall annualized savings are expected to amount to approximately $2.3 million. At this point, we are more sharply focused with greater flexibility and the ability to drive towards our goal of becoming a growth-oriented biopharmaceutical operation, actively developing customers while ensuring we have a vibrant, attractive portfolio of future growth products. In summary, for the remainder of the year, our focus will be on our 2 lead compounds, Macrilen and zoptarelin doxorubicin; on starting the field selling of EstroGel in our territories; on continuing to develop a commercial portfolio through additional in-licensing, acquisition or promotion of registered products; and on improving the way we operate and the flexibility that we have. So at this point, I'll turn it over to our Chief Financial Officer, Dennis Turpin, for more details on our activities and finance. Thank you. Dennis?

[Dennis Turpin:]

Thank you, David. First, let me update you on our cash position. Our cash and cash equivalents totaled $42 million as of September 30, 2014, as compared to $43.2 million at December 31, 2013. The decrease is attributable to recurring disbursement and working capital fluctuations, partially offset by the receipt of $22.3 million in net cash from our financings closed during the first 9 months of the year. Taking into account our additional drawdowns from our ATM subsequent to quarter end for a net proceeds of $2.1 million, our pro forma cash position would be $44.1 million with no debt. We have adequate midterm liquidity to advance our business plan, and more specifically, to fund our ongoing Phase III ZoptEC trials with zoptarelin doxorubicin in endometrial cancer, the initiation of our sales efforts related to our co-promotion agreement with Ascend for EstroGel and, subject to a positive outcome from our NDA review, our launch activity associated with Macrilen. Regarding our burn rate, our average monthly operating burn from continuing operations for the first 9 months of the year was about $2.5 million, as compared to $2.6 million for the same period in 2013, which is slightly better than our previous guidance. Taking into account our ongoing Phase III ZoptEC trial, our sales and marketing efforts and the implementation of our previously announced restructuring plan, including the start of severance payment, we expect that our overall operating burn in 2014 will be around $34 million, which is slightly lower than our previous guidance of $35 million. Regarding our P&L and for the quarter ended September 30, 2014, R&D costs net of refundable tax credit and grants decreased slightly to $6.1 million for the last quarter from $6.2 million in the same period in 2013, as we focus on advancing our ZoptEC trial. Our SG&A costs for the last quarter increased by nearly $1.3 million, mainly due to the implementation of our marketing and sales activities related to Macrilen and the corresponding support related to EstroGel. Overall, our net loss from continuing operations for the third quarter was $11.6 million compared to $7.8 million for the same period in 2013. The quarter-over-quarter increase is mainly due to higher net finance cost, which includes cost recorded in connection with the periodic re-evaluation of our warrant liability, which is noncash, combined with increase in cost related to our marketing and sales activities that I mentioned a few moments ago. Our net loss for the last quarter was $11.3 million as compared to a net income of $3.8 million for the same period last year. I should note that our net income in the third quarter of 2013 included nearly $12 million of noncash revenues associated with our discontinued Cetrotide business. Thank you for your attention. Now back to David.

[David Alan Dodd:]

Thank you, Dennis. And now we welcome your questions. I'll turn it back to Paul.

[Paul Burroughs:]

To the operator.

[Operator:]

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

[Jason Kolbert:]

I wondered if you could take a little bit of time and just walk us through the dynamics of how you're going to deploy the sales reps, where the key accounts are and give us some idea of kind of the sales strategy around both EstroGel and the Macrilen product, if that launches. And then I want to come back and talk a little bit about the zoptarelin trial and kind of what we should expect in terms of completion of enrollment and then first data points?

[David Alan Dodd:]

Okay. Jude, do you want to walk him through this on the...

[Jude Dinges:]

Sure. Yes, EstroGel -- actually both products are pretty straightforward in terms of how you go about reaching the prescribers. There's -- as I'm sure you know, mathematically, you need a footprint of around 50 reps to cover the whole U.S. And by having this agreement with Ascend, we're able to cover between 7,000 and 10,000 OB/GYNs for EstroGel, which is basically the bulk of the non-patch transdermal market. Macrilen is even more advantageous, because endos are fewer in number but they're very spread out. So by having a 50-rep footprint, we're able to cover upwards of 2,500 to 3,000 endos in the U.S. So it's pretty straightforward and pretty traditional way to approach a market. Both brands have very clear value propositions. And so we're very optimistic about our ability to penetrate these markets.

[Jason Kolbert:]

And can you help me understand the relationship to Macrilen as a diagnostic to some of the major diagnostic centers? And can we talk a little bit about reimbursement being on kind of formulary with the major plans? And can you tell us where we're at with the label and when should we expect to hear a little bit about pricing?

[Jude Dinges:]

So the label and pricing, obviously we don't -- we're not going to comment on that. But in terms of coverage, we believe we have a good story with payers because it will be the only approved diagnostic drug. Obviously, you cannot approach insurance companies or anyone prior to having an approved product and label. So until we get that -- until we get approval, until we have the label, we really cannot get in front of them and position the product. Having said that though, our market research tells us that many people, clinicians and payers both, are very interested in Macrilen or the profile of a product like Macrilen. So...

[Jason Kolbert:]

But I guess the question I'm really asking is, if I take an analogy, another company I follow, Omeros, talked about kind of CMS pass-through designation and how their product will fit both inside and outside the bundle for where that product is targeting. So I'm just trying to wonder -- I'm just trying to ask you definitively, have you figured out the reimbursement strategy and exactly how this will fit in kind of the treatment paradigm as a new diagnostic? Will it get its own CMS codes? Will it be pass-through? Help me understand kind of the managed care strategy, if you will.

[Jude Dinges:]

Well, first of all, majority of its market is not CMS, Jason. So it's not Medicaid patients, it's not Medicare patients. The average age of patients in our trial was in their early 50s. So we believe CMS is not going to be a huge part of this market. Having said that, however, CMS will set the stage for whether or not it gets a J-Code. And a J-Code is, as you know, a determinate code for anything billed on the medical benefit on Medicare Part B, as in boy. And the fact that it's an oral drug does complicate it a little bit because most oral drugs are not Medicare Part B, as in boy; therefore they don't need a J-Code. However, since it has to be administered by a health care provider, one could argue it's going to end up going that path on the medical benefit. We're prepared to seek reimbursement on both benefits, medical and pharmacy, and if we're forced into one or the other, we have a plan in place.

[David Alan Dodd:]

And if I may add, Jason, this is David. We have a contracted partner representing us and our interests related to access and reimbursement and all, and they have been in discussions now for some time with the potential payers and the people that will influence that. We've outlined the channel outline that we're going to be pursuing and how we're going to do that. It's -- I mean, it will unfold as we come out with a product, but it is somewhat of a proprietary nature of how we designed this. We spent a lot of time looking at the process and working with others in designing that. On the labeling, everything right now is sort of tied up on today's date, PDUFA date. We have previously commented and I'll just mention that to our knowledge we have completed labeling discussions, but we don't know because we haven't received the final action by the FDA. But we have received proposed labeling that was very -- that was acceptable to us. We are pleased with it. We had it submitted. We received it back from the FDA. So in one sense, we feel the labeling discussions, at least to what we know today, have been completed. As you know, we've gone through the PAI also. There are no infractions identified at any of the sites, so we felt real good about that. So all of those elements from where we are that has brought us to date. With the access and reimbursement, we've enlisted a very well-known strong firm in this area. And they have helped us outline and decide on the pathway in which we're going to be delivering the product for access to the patients, et cetera. And at the same time, they have initiated, to the degree they can without an approved product, discussions with those related to the access and reimbursement. And so we've been doing a lot of that in the background and continue to do so.

[Jason Kolbert:]

David, that's perfect. That's exactly what I was looking for, just that the partner is involved, that you're making a contact and -- because it's -- you don't want to do a cold start once you have approval. You want to be able...

[David Alan Dodd:]

No, no, right. Yes, I would say Jude and his team probably have been -- this thing has been building, these discussions, since June. And as we have proceeded further, more activity, at the same time we conducted substantial, whatever substantial -- we've conducted a good bit of market research related to the pricing and tagging it based on a number of things in conjunction with our access and reimbursement people. So we've again learned a lot there that's going to be very helpful to us. We won't disclose pricing until we actually launch the product, and then we will, at that point, know. But we've been pleased with what we found -- I'd say we've been pleased with the reception that is sort of building in the anticipation for the product. So from those things, generally I'd have to say we've been quite pleased. But we've been spending a good bit of work over this summertime period and all this preparation of these items that you're talking about, which are so critical.

[Jason Kolbert:]

Perfect, I got it. And my last question is just a clinical one, where I start looking at zoptarelin and I start thinking a little bit about you're 300 patients in but there is a potential interim analysis in mid-2015. Can you talk a little bit about kind of the trajectory and mathematics of the current enrolled patients, so that we can get an idea of how many patients might be involved in that interim look, right, or give people their first chance to kind of understand the utility of this drug, both in endometrial and maybe even beyond that, in triple-negative BC?

[David Alan Dodd:]

So we have -- we currently have over 300 patients that are enrolled. We're on track for the first interim analysis, which is done at 128 of them. So 128 tests, that should be -- that -- everything is on track for that to be within the first half of next year. And I'm going to turn it over maybe to Richard at this point, who can give you some more on the metrics and, like I said, the trajectory related to that. And feel free to expand on your questions to Richard. Richard?

[Richard Sachse:]

Thanks, David. Actually, we are very pleased with the current enrollment rate, which is exactly on target and steadily -- just about 300 patients enrolled. Now, we have 2 planned interim analysis, 1 at 128 events, which we expect, as David already stated, in the first half of next year. And another one is the 192 events, which depending, obviously, on the event rate, might occur by the end of next year as well. Overall, we plan to enroll 500 patients, and overall, the primary endpoint will be reached with 384 events. And this is exactly where we are. It then depends on the event rate and how long the patients will remain in the study before eventually they die.

[Jason Kolbert:]

Right. So I guess my question would be at what point do you think you enrolled 128 patients? Because if we know, let's say, the first 128 had completed enrollment 18 months ago, then at least we'll get a feel for when that event rate -- and I guess we're using similar math to come up with the mid-2015 approximation, is that right?

[David Alan Dodd:]

That's right, and tracking. Our statistician is in tracking as the events build and basically informing us if we're still on track and all, that's exactly it.

[Jason Kolbert:]

Okay, good. I really appreciate the update. We look forward to the transition of Aeterna becoming a commercial company. And when I look at the market cap and the enterprise value, and then I start to do the metrics as a commercial company with revenues, I just see an incredible value here. So we really appreciate the turnaround that you guys are accomplishing.

[David Alan Dodd:]

Thank you. We share your opinion.

[Operator:]

Your next question comes from the line of Swayampakula Ramakanth with HCW.

[Swayampakula Ramakanth:]

I have 3 questions. Continuing on the Macrilen story, management for some time now has been talking about expanding the market into Canada and Europe. I'd like to hear your comments and your progress there. And also, looking further than the current AGHD market, what needs to be done so that once we have the PDUFA in today, to think about the next indication, the TBI indication? What are the plans there? What kind of milestones we need to be looking forward so that we get to that market as well?

[David Alan Dodd:]

Thank you. Let me comment then, RK, for you. First of all, relative to Canada, we have had discussions with Health Canada, and we are -- we have been in preparation for the submission there. And we certainly are waiting to see what we hear from the FDA and all, but if it's -- if it were to be positive, we're prepared within a month to submit in Canada. And so some of the steps that are necessary for registration in Canada, we have already taken there. So that, I would call, is in process and all. So that's where we are relative to Canada for that standpoint. Relative to TBI, TBI is not a separate indication. TBI is a condition for which one sees a high risk of growth hormone deficiency occurring as a result of TBI. So we would need to do nothing relative to that as a condition that builds potentially the marketplace. The challenge we will have, as anyone, is the challenge of market education and the expansion to existing clinicians, emergency room physicians and staff and all so that they would recognize that patients who are diagnosed with TBIs, once they've accommodated let's say the swelling, the injury, et cetera, need to have follow-up monitoring relative to growth hormone deficiency. And that's consistent with the guidelines of the Endocrine Society, where they point out that those patients who suffer from a moderate-to-severe traumatic brain injury ought to be evaluated at 3, 6 and I believe it's 12 months following that event to make sure or to determine to what degree, if any, they have growth hormone deficiency. So that's where the market expansion comes in. The challenge is, in today's hospitals, emergency rooms, there is not protocol to follow up on that. And so we have said all along, it's a big number in terms of opportunity but a tremendous challenge, not one that we will not end up addressing but one that we want to make sure everybody understands is a real challenge to deliver the result and value of. Now, the other indications, such as use in pediatrics, that will require additional clinical work and will be defined by what result of discussions we have with regulatory authorities about what they will require to receive a submission in support of pediatric use. We've not had those discussions yet. We're prepared to have those, but we've always decided it would be best to await the outcome of our current PDUFA date before engaging in the next stage discussions for further clinical development. But that will be the manner in which we would follow through on that. So both from geographic opportunity, specifically Canada, we're taking the steps there. Relative to Europe, Europe would require pediatric work also. So there, following the PDUFA action and all, we will then determine to what degree we'll go forward immediately or either -- depending on what comes out, what we have to do. And so we will go engage and define and clarify the clinical and whatever, if there has to be any preclinical PK studies, et cetera, that may be necessary to pursue pediatric indication, and that would then give us the basis for European registration.

[Swayampakula Ramakanth:]

And then, on the ZoptEC study, can you please remind us how many events are necessary to initiate the interim look? And in terms of -- considering the current rate of enrollment, when do you think you can complete the 500-patient enrollment? And also when do you anticipate getting a final readout?

[David Alan Dodd:]

Okay. We currently have over 300 total patients participating in the trial. The first interim analysis will be with 128 events. Based on our statistician's analysis and all, we anticipate that, that will occur in the first half of 2015. Second interim analysis will be at the point of 192 events. Again, at this point, that is projected to be around fourth quarter of 2015, as long as the rate continues in terms of what we're tracking on, and the total number of events in the trial is 384.

[Swayampakula Ramakanth:]

Okay, that's great. And then one last question. This is more like a housekeeping question for me. In terms of -- Dennis, in terms of you have mentioned of an operational burn at the range of $34 million to $36 million, what are the assumptions behind that number? And especially, I'm trying to understand, is there an assumption for foreign exchange included in it? And that's what I'm trying to understand, where the $34 million to $36 million was coming from.

[Dennis Turpin:]

Yes, so the major assumption behind the burn of 2014 is that the R&D level will be between $24 million and $26 million, okay? As far as SG&A, we expect that the level of SG&A will be slightly higher than the SG&A of 2013, okay?

[Swayampakula Ramakanth:]

Okay.

[Dennis Turpin:]

So the major project again, as a focus, will be on ZoptEC trial. I think we will focus on that to the level of more than 80% of our third-party investments in this trial, and Ergomed is still sponsoring this study. They invest 30% of that trial with us.

[Operator:]

[Operator Instructions] Your next question comes from the line of George Zavoico with MLV & Co.

[George B. Zavoico:]

The very interesting end of the day today was the PDUFA. I'm really hopeful that you had a positive decision. I think you will. My question relates to the R&D -- change of strategy with regard to R&D. It sounded like most of the folks that were being terminated were on the R&D side. And so that suggests that it's mostly the Frankfurt location. You also had a fairly interesting pipeline behind zoptarelin. And I'm wondering if you could comment on what is moving forward, what's being dropped and what your long-term priorities for R&D are as you become a commercial spec pharma company.

[David Alan Dodd:]

Let me just mention, I'm going to it turn over to Richard, this was all intended to make us hopefully more productive but also more flexible. And the move is out of being so heavily oriented in drug discovery in the early stages but to strengthen our ability to develop projects and all. But at the same time, we feel very strongly on what we would consider our platforms that we're using in development and will continue to, and that's also -- that's the 2 items, the cytotoxic peptide conjugate type of platform and then also our cell-signaling. And with that, I'm going to turn it over to Richard to expand more on these comments about our projects and where we're really excited about. Richard?

[Richard Sachse:]

Thanks, David. In fact, as you said, it's mostly the Frankfurt site which was affected by the reorganization. And the goal is to make best use of our available resources to be flexible to optimize our effectiveness, and that was really the major goal. In terms of pipeline, and David already mentioned that we are very happy with our platform, and zoptarelin doxorubicin is obviously the frontrunner, which may prove the entire concept in the clinic. And we certainly do have very promising follow-up candidates, which you see in our pipeline. AEZS-138, which is a very promising candidate, which we could, depending on the outcome of the ZoptEC study, immediately bring into development. And development, both the nonclinical development as well as the clinical development, is really the area that we want to strengthen in the future, because this is where we see our strength. This is where we see that we can create most value, and we are going to further strengthen this in the future. The other very strong asset that we have is our kinase platform in the cell-signaling process. And we had a press release earlier this year on our Erk inhibitor, AEZS-134, which was -- and the poster presented at the AACR earlier this year was selected as one of the most important -- one of the 10 most important poster presentations there. So this is a very promising platform. In particular, this compound, we believe that we are in a competitive stage and we further strengthened this entire platform.

[George B. Zavoico:]

Okay. And then a question about the sales force, the Ascend and the Aeterna sales forces. So there -- between the 2 companies, of course, is there -- what are the incentives? Are they equal across Macrilen and EstroGel? In other words, are the Ascend representatives, would they be more incentivized to pitch and promote EstroGel than Macrilen and vice versa for the Aeterna reps? Or is everything pretty much equalized?

[David Alan Dodd:]

We're working together with Ascend to make them balance so that they're equalized. Given the timing, we'll have full promotion starting the week of November 17, field selling all behind EstroGel. And then with the launch of Macrilen, Macrilen will take the priority during the launch period and all, and we'd work that out and everything, from incentives to selling direction, management, et cetera, will all be consistent. So that from the standpoint of a rep, every territory will be handled in the same manner.

[Operator:]

And we have no further questions at this time. I'll turn the call back over to our presenters for any closing remarks.

[David Alan Dodd:]

All right, thank you. This is David. And again, today is a very important day. We'll keep everyone updated as the day proceeds. Most of all, I want to thank you all for your continued interest as we move this company forward. And we look forward to updating you as new events and activities occur. Thank you.

[Operator:]

And this concludes today's conference call, you may now disconnect.