Aeterna Zentaris Inc.
Q4 2014 Earnings Call Transcript

Published: 18 Mar 2015

[Operator:]

Good morning. My name is Jonathan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aeterna Zentaris Q4 and Full Year 2014 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, Wednesday, March 18, 2015, 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 will disseminate the updates to the investing public. It is now my pleasure to introduce the Chairman and CEO of Aeterna Zentaris, David Dodd.

[David Dodd:]

Good morning. Thank you for your interest in Aeterna Zentaris, and our continued progress in building a successful biopharmaceutical company. In 2014, we achieved significant progress in our goal transitioning into a specialty biopharma company as we established our commercial structure, signed a co-promotion agreement with Ascend Therapeutics for Estrogel and successfully implemented our sales force of 19 representatives in support of this exciting product. Estrogel is leading non-patch transdermal brand replacement therapy commercialized in the U.S. It 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. Estrogel represents an exciting market opportunity for our company. In 2013, the market for estrogen replacement therapy was estimated $3.6 billion in annual sales in the U.S. with non-cash transdermal products being the fastest growing segment, generating approximately $100 million in annual sales. Our focus for Estrogel is to grow and differentiate the brand, achieving a leading category position in every territory we occupy. While our selling has only recently begun, our representatives were reporting success in their daily promotional activities and promising receptivity among their target healthcare providers. We expect to start reporting our commission revenues in the first quarter of this year. We are targeting to surpass a certain base level of units sold; an incremental to this target baseline will derive a high percentage of commissions. Our activities of late November and December were focused on training the sales force and introducing them to the key targeted physicians related healthcare providers. As for overall commercial activities, we are actively seeking opportunities to further expand our commercial portfolio through successful in-licensing acquisition or promotion of already marketed products with a focus on endocrinology, oncology and women's health. Relative to our development program, zoptarelin doxorubicin, our lean oncology compound currently ends in the ZoptEC Phase 3 trial, which compares it to doxorubicin alone as second line treatment for women with advanced, recurrent or metastatic endometrial cancer conducted under a special protocol assessment for the FDA. The primary endpoint is an improvement in overall survival as compared to standard doxorubicin. As a reminder, our CRO Ergomed is paying 30% of the out-of-pocket clinical regulatory cost up to $10 million. To-date enrollment in this trial exceeds over 400 patients out of the expected total 500 patients and all centers are operational. Patient recruitment continues to be in line with our goal of ensuring the first interim analysis in the first half of this year, which will be at 128 events. By year end, the second interim analysis of 192 events occurring will be expected or is expected. Total patient recruitment is anticipated by the end of this year, with completion of the trial by the end of 2016. Looking forward, we are beginning to develop our commercial plan for zoptarelin doxorubicin regarding the launch strategy in North America and Europe, as well as establishing additional partnerships in strategic territories for the rest of the world. To that effect, during the fourth quarter, we signed an exclusive license and technology transfer agreement for zoptarelin doxorubicin and endometrial cancer, with Sinopharm A-Think for China, which also includes Hong Kong and Macau, and that which is one of the major domestic markets in the world for pharmaceutical products. Sinopharm is responsible for the development product registration and commercialization of the product in their respective territories. Under the terms of the agreement, we received a non-refundable $1.1 million fee. We are also entitled to additional payments upon receiving certain pre-established regulatory and commercial milestones. Furthermore, we will receive royalties on future net sales of zoptarelin doxorubicin in their territories of China, Hong Kong and Macau. Recall that zoptarelin doxorubicin is an engineered molecule, patented, composed of a synthetic peptide carrier linked to the widely used and well-known chemotherapeutic agent doxorubicin. This treatment is intended to provide a more impactful delivery of doxorubicin with fewer side effects than is typical. As you may know, endometrial cancer is an important unmet medical need with a large market opportunity. It represents the most common gynecological malignancy with approximately 52,000 new cases expected in the U.S. alone this year and we estimate that the potential annual market opportunity exceeds $500 million with North America representing between $300 million and $400 million and Europe estimated between $150 million and $250 million. Zoptarelin doxorubicin is potentially the first FDA approved medical therapy for recurrent endometrial cancer. This could result in rapid adoption as a core therapy for patient management and treatment. As for macro and as previously announced in November of last year, we received the complete response letter from the FDA for our NDA for use in evaluating adult growth hormone deficiency or AGHD. The complete response letter stated that the NDA could not be approved as submitted. The complete response letter states that a new confirmatory clinical study will be necessary to demonstrate the efficacy of masculine in the evaluation of AGHD. The FDA also indicated that a thorough QT study evaluating the effect of Macrilen, only QT interval would be necessary as a result of a reported serious event of electrocardiogram QT interval prolongation that occurred in the trial for which attribution to the drug cannot be excluded. We intend to announce a decision regarding the future development Macrilen in the near-term taking into account various considerations, including prior recent discussions with the FDA and various leading endocrinologist in the field. We continue to believe that Macrilen represents a strong value proposition and we look forward to updating you as our plans solidify. Finally, we continue our efforts to streamline R&D activities, increased commercial operations capability and overall flexibility. This initiative is resulting in a reduction of 31 staff, mainly affecting drug discovery and pre-clinical stage programs. Today, we are more sharply focused with greater flexibility and ability to drive towards our goal of becoming a growth-oriented competitor actively developing customers while ensuring that we have a vibrant, attractive portfolio of future growth products. For the remainder of 2015, our primary focus will be on the following, Estrogel achieving success in every territory we occupy, adding registered products to our commercial portfolio, the ZoptEC Phase 3 trial to ensure the first interim analysis in the first half and complete patient recruitment by year-end on Macrilen to resolve or report our decision on the future clinical development and the evaluation of AGHD and to complete our restructuring program. Finally, we recently announced the completion of a public offering that further strengthens our balance sheet, position us well towards successfully executing these programs that we believe are critical in building a valuable AEterna Zentaris. I will now turn the call over to our CFO, Dennis Turpin for more details on this and other financial activities. Dennis?

[Dennis Turpin:]

Thank you, David. First, let me update on our cash position. Our cash and cash equivalents totaled $34.9 million as of December 31, 2014. This is compared to $43.2 million at December 31, 2013. This balance excludes, of course, our more recent March public offering of 59.7 million units, which generate net proceeds of approximately $34.5 million. We now have the necessary funding to continue to advance our strategic initiatives, more particularly the ongoing Phase 3 ZoptEC trial as well as our business development and commercial opportunity. Regarding our annual burn rate, our 2014 annual operating burn was approximately $31 million and an average of $2.6 million per month, which is slightly lower than our previous guidance. Taking into account, our ongoing Phase 3 ZoptEC trial with zoptarelin doxorubicin in endometrial cancer and the co-development and profit sharing agreement with Ergomed, who contributes to close to 30% of all out-of-pocket clinical and regulatory costs associated to the ZoptEC trial as well as our expected investments in earlier stage programs, we now expect that our overall operating burn in 2015 will range from $33 million to $35 million. Now, more details about our results of the year ended December 31, 2014. Revenues from continuing operations were virtually absent in 2014 as compared to $6.2 million for the year ended December 31, 2013. In 2013, we recognized the remaining upfront payment revenue associated with the former development by the company of 2014 and with our license agreement signed with Yakult Honsha in Japan. Net R&D costs were $23.7 million for the year ended December 31, 2014 compared to $21.3 million for the same period in 2013. The year-over-year increase is mainly related to the recording of the restructuring provisions related to our resource optimization program. SG&A costs were $13.7 million for the year ended December 31, 2014, compared to $12.3 million for the same period in 2013. The year-over-year increase is mainly related to the establishment of our commercial infrastructure. Net loss for the year was $16.6 million compared to a net income of $6.8 million for the same period in 2013. The year-over-year decrease in our net income is mainly due to higher R&D investments, higher SG&A costs and lower license fee revenues as well as lower net income from discontinued operations, partially offset by higher finance income. Thank you for your attention. Now, David.

[David Dodd:]

Thank you, Dennis. My colleagues and I will now answer any questions you may have. To that end, I am turning to this call back over to the operator who will provide instructions on the question-and-answer period.

[Operator:]

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

[Jason Kolbert:]

Hi. Good morning, guys. Thanks for the rundown. A couple of questions, can you talk a little bit about what the product launch of the HRT patch is going to look like and help us understand what it is going to take to make that a bigger segment of the $3 billion market.

[David Dodd:]

Jason, I didn't understand when you said the patch. Do you mean, Estrogel?

[Jason Kolbert:]

Yes.

[David Dodd:]

Okay. Estrogel is not a patch. It is a clear gel.

[Jason Kolbert:]

Sorry. My mistake.

[David Dodd:]

That is okay. It is already on the market. It does approximately $25 million from the 34 territories that ASCEND have and actually ranks number one in its category in every territory in which they have had a representative, so it is on the market already. Now, we implemented in late November, our training and then selling and then in the month of December was actually focused on our sales representatives becoming acquainted with their territories and also with the sampling. When we sample our Estrogel, it is actually four months use of that, so we are in the process just now through this first quarter of actually seeing the results of that first cycle of calling on and it being introduced to these new accounts and introducing the product and sampling and we have had significant sampling success and inter-success [ph] and let me also just ask this time Jude Dinges to comment, because I know he has been with the of the sales managers and all and going through just over the last few days. Jude, would you like to?

[Jude Dinges:]

Yes. As David said, we have had very good reception by the physicians and very good feedback. The samples are moving. Really the reps, on average, they have between 130, 150 targets and they are getting around their territories, but we have had no significant obstacle on selling it. It just needs reach and frequency share of voice and we expect to grow this brand significantly this year.

[Jason Kolbert:]

Thank you. I know. I appreciate that, but help me understand a little bit about how much detailing and kind of share of voice has this product been getting before your involvement and how will your involvement now kind of change the program and what steps will you take in order to ensure that you are kind of maximizing the market share possible. David, if you could just kind of touch again. I know you mentioned it briefly on the economics of how the revenues work and how you benefit, that would be very helpful to me.

[David Dodd:]

Jude, I will touch on both of those if you do not mind. Previously, there have been 34 territories occupied by ASCEND rep. The sales, this is their only product and they had built a base on a very large category of $25 million brand and in doing that, so therefore detailing 100% of their time has been spent detailing this one brand, so within the category of the transdermal non-patch category, I do not know exactly what the share of voice was, but they represented the largest share of voice which probably is partly responsible for why in each of their territories Estrogel has ranked number one in their category, so it has been very successfully responsive to promotion there. We have been getting conjunction with ASCEND, is not on top of the same territories, but we have added an additional 19 territories that has been identified through analysis, market research data, analysis of prescribing habits et cetera and all that that. These would be the most responsive ones that we needed to be able to cover and all, so those are the 19 that we carried. Now there are 53 sales reps and we represent 19 out of the 53 and the we are selling 100% behind this one brand, same type of activity that was going on following the same promotional program everything, so we have significantly increased the overall share of voice for this brand in the overall marketplace, and at the same time have introduced a share of voice component for the brand within those 19 territories. From that standpoint, it is direct selling, calling on the offices just as the 34 have been doing and we anticipate from doing that that we will be able to replicate and hopefully we will even do a better job than our colleagues at ASCEND, but to replicate the success they have had in making this the number one brand in respective territories and its categories, so that is what we are focused on doing. The way, in which the economics work, I can't be specific about the percentage amount, because we just cannot. That is under the confidentiality between both companies, but there is a baseline, because although there were not sales reps in the territories previously because people are aware of this product just through general promotion OB/GYNs et cetera, so there is a baseline of prescriptions in every territory, so we generate a commission back to Aeterna Zentaris based upon all sales above the baseline that we established for every territory and it is very strong as I mentioned a high percentage of the sales, so it's a strong commission rate and it is based upon exceeding the baseline and our reps have individual goals monthly [ph] of the usual stuff and we monitor it and have just started receiving our first reports on how activity is going and all. We monitored additionally the degree of responsiveness and sampling and as we said, we recognize that as result of the marketing plans, where it is a full month supply, typically it takes about four to six weeks for a woman to see a change, say, on her symptoms from estrogen replacement and it is because of that ASCEND had decided that they do a full month supply, so are our entire first month was basically loading up the offices and are working with the healthcare providers on sampling and now it is just direct selling to pull the brand through.

[Jason Kolbert:]

Okay. That is a very comprehensive rundown. I have a better understanding. Thank you so much. Congratulations on the turnaround. One last question, now that you have a look pretty significant cash balance, does this mean that we should be expecting, you are still on the hunt for the right product acquisition opportunities?

[David Dodd:]

Yes, absolutely. Outside of our development programs zoptarelin doxorubicin, and Macrilen and outside are now selling of Estrogel are primary activity and major focus is on building this portfolio of products already on the market and we hope that we will be able to provide some updates soon in the near-term of some additions to that.

[Jason Kolbert:]

Right. Terrific. Thanks guys.

[David Dodd:]

Thank you.

[Jude Dinges:]

Thank you, Jason.

[Operator:]

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

[RK:]

Thank you. Good morning, David and Dennis. Hope you are doing well.

[David Dodd:]

Thank you, RK.

[RK:]

Thinking about ZoptEC, can you give us a little bit more color on how the trial is progressing? What is the hurdle rate that ZoptEC needs to achieve to make it successful? When would we hear next about how the progress is going of the trial?

[David Dodd:]

Sure. I will comment, then I am going to ask Richard if he wants to add to that. As I mentioned, we now have in excess of 400 patients in the program that was in excess of 415 patients in the program relative to the targeted number of 500. All sites were operational, so approximately 120 sites there. It is progressing. It is on track for us to report the first interim results in the first half of this year. We expect and we anticipate that indeed will occur. That report is not anticipated to provide any detail, but more likely the drug safety monitoring board will recommend that we continue the trial. If they were to have any concerns, they would probably provide greater elaboration on that than they would on the recommendation to continue the trial and all. Let me just say at this point, Richard if you would like to add anything to that?

[Richard Sachse:]

Yes. Thanks, David. First of all, let me confirm with you that the improvement is going very well. We have now about 20 patients enrolled in the study, so we are very well in line with the goals that we announced that we will have the interim analysis the first one in the first half of this year and the second one in the second half of this year and have the trial completed by the end of next year. In terms of what we are trying to achieve as you - let me please remind you on the properties of the zoptarelin doxorubicin, first of all, it is a targeted therapy, so we expect that the drug will reach the sales in a more targeted manner and thus exploiting better safety profile as well as a better efficacy profile. What we hope to see is of course a benefit in terms of both safety and efficacy. On the other hand, in the end it needs to be carefully evaluated and both aspects I would guess provide a clear benefit to the patient with a good safety or with a good efficacy benefit, because all place are held to improve the safety and the risk benefit profile current treatments and that has actually the overall goal to improve the risk benefit profile of the current treatment.

[RK:]

Okay. Thanks. Regarding Europe and also Asia, we understand that you have this agreement with Sinopharm to do this. Do you know what the plans are, what kind of progress Sinopharm is achieving regarding development and registration in Asia? What are your current plans for getting this trial approved in European Union?

[David Dodd:]

Currently, since the signing at the beginning and the announcement of the agreement with Sinopharm beginning of December, we been in the process transferring the technology. They have been in the process of incorporating all that and going through they have had questions back, so our respective teams are working together. They will have responsibility for the full development and commercialization in their market, markets of China, Hong Kong and Macau. We have a joint steering committee of between the two companies and our first steering committee meeting will be in April of next month, so we are organizing for that and putting together our respective plans, so it is in the early stages, but immediately upon signing and the establishment of the agreement, we began the process of transferring the necessary information to them so that they could begin their work, so it is actively underway and we have our person and team on our side, they are communicating with them on an ongoing basis, and myself, I look forward to our upcoming first steering committee and then moving forward with that. We have mentioned previously, as you may recall that our plans are to commercialize this ourselves in North America as well as and in Europe. Relative to the U.S., we anticipate that if we were to launch with zoptarelin doxorubicin alone we would be requiring around 30 to 50 sales representatives. If we have additional products in an oncology portfolio at that point in time, we are probably looking more at the 70 to 100 sales representatives that we would place behind this.

[RK:]

Okay. Taking the queue from what you just said regarding if we have just this product in their bag, then you need 30 to 50 sales rep, so are there any plans in your commercial development to bring in, I know their camps are - so that you can always have more in the bag once it comes to market?

[David Dodd:]

Again, we are very interested in building on oncology portfolio, and especially related to gynecologic oncology and all, because that fits very nicely with us as well as in the in the theme of women's health care also. As you know we had, albeit small each of them, but two successful Phase 2 studies behind zoptarelin doxorubicin. In addition to endometrial cancer, we had one in ovarian cancer. Both trials, although conducted separately, demonstrated very favorable side effect profile, no reported cardio toxicity and they both also indicated overall survival of the 15 months compared to standard doxorubicin, the literature as you may recall is around seven to nine months, so it is very promising and we have a full plan of lifecycle management behind this compound based upon success in our current program in endometrial cancer we would then proceed into further indication development and working to really develop this molecule for applications making it a very important tool in the hands of oncologists and for their patients in a number of barriers in oncology. Our goal is to have additional products even at the time that we would be launching this, so in advance of that, so indeed we are working and focused very heavily on trying to bring oncology products into the commercial for our organization.

[RK:]

Okay. Thank you very much for that. One last question more operationally, so regarding the German operations, I do understand that you are being winding down that business over there, so how much of it is done? How much is left and what sort of associated cost would you need to incur during 2015?

[David Dodd:]

I think, we would say it is incorrect to refer to it as winding down the operations. What we decided was that we would move out of the basic drug research and drug discovery, which is what the focus has been on our restructuring, and instead we would focus on strengthening our development capabilities and all. Then our model for portfolio development going forward from an internal aspect would be to utilize business development and other means to identify compounds that are beyond the proof of principle that fit within our therapeutic areas and then bring those in and have a much stronger development capability and all, so our reduction has been largely in the drug discovery and preclinical areas and there we have proceeded in some manners that we think we will give us greater flexibility and capability in the area of drug discovery but not caring the full burden ourselves and we hope to be making some relevant announcements to that effect in the not too distant future and all, so that will clarify how we will be looking at drug discovery in one of the matters that which we will be. We are very interested in strengthening our development capabilities. We have just recently added an additional clinical physician to our team there, so it is a restructuring and reorganizations. Although we have reduced overall staff by 31, we have been able to strengthen it both in the area of commercial operations in the area of clinical and development-type things or activities. Thank you.

[RK:]

Thank you. David for correcting my understanding and also educating me. Thank you..

[David Dodd:]

No. You are welcome. We are very proud of what we are focused on and what is being accomplished now by our team.

[Operator:]

[Operator Instructions] Your next question comes from George Zavoico with JonesTrading. Please go ahead.

[George Zavoico:]

Hi, everyone. Good morning. I would just follow-up a little bit on that question. You had a pipeline behind Macrilen and zoptarelin. What is happening to those assets?

[David Dodd:]

Well, the AEZS-120, which is our oral prostate cancer vaccine, as you may recall we announced last year that we were not going forward with the Phase 1 a clinical program, which had been approved and that particular assets, we continue to have on a list of discussing with other companies to see if there is not a better developer to handle that. Then our Erk-inhibitor program, one of our primary objectives for this year is to optimize the product for development, so translated from the potential compound for development to have it is an optimize a product for development and all, so that program is budgeted and we will be accomplished. It has not been scheduled and was never scheduled for the first quarter, but we believe we will accomplish that during second quarter and we hope to be able to do a little bit more on the Erk-inhibitor program. Relative to that program, although it is pre-clinical, the area in cell signaling of Erk-inhibitor is a very exciting area. This is the area in which last year we were recognized at the American Association Cancer Research, where our presentation was one of 10 out of 10,000 posters that occurred at that very important meeting as one of the potentially most influential in the field of oncology in the future and all. We have looked at where other companies are in the development of Erk-inhibitors from an IP standpoint, from a publication standpoint and we believe that we are fairly competitive with that group of people who are working in that area and we do not want to fall behind, so that is why we have committed to optimizing this compound, this product for development and seeing if we not might be able to squeeze out some additional work to take this forward also. The other products as you know fall behind it. We have our LHRH-disorazol Z, which is a follow-on molecule to zoptarelin and doxorubicin that compound or that potential product rather becomes important based upon the success that we hope to see with zoptarelin and doxorubicin. That is how we have focused on our development program and how we placed them in particular priorities. Let me just say, Richard, is there anything you would like to add to that.

[Richard Sachse:]

Nothing really to add, because you covered everything. Let me just emphasize again the importance our competitiveness around the Erk-inhibitor. We really believe that we have a very competitive compound, which is currently undergoing optimization so that we have a compound ready for development. The other thing is the AEZS-138 this was also a set which is very promising potential and as David stated it is more or less to some extent tied to the success of the ZoptEC study and then could immediately brought forward and this holds a lot of promise drug as well.

[Dennis Turpin:]

I will just add that related to our Erk-inhibitors part of the activity last year was that our team met with some world experts in this field as part of the assessment of determining where we stand in it. Do we have a competitive compound that we did want to fall in love with our own compound and find out it really wasn't competitive and we received very promising or, call it, reports our assessment in that again we would contributed to our commitment to this compound going forward.

[George Zavoico:]

By optimization, you do not have to fiddle with the structure anymore. Is it mainly of formulation dosing-type issue?

[Richard Sachse:]

It is a work on the molecules itself.

[George Zavoico:]

There are some structure modifications that you still might try?

[Richard Sachse:]

Yes.

[George Zavoico:]

Okay. With the 31 people being laid off, what is your headcount distribution now in Germany, Quebec…

[David Dodd:]

Sure. This time last year, we had 91 people in the company of which with 74 in Germany. Richard, the current headcount just to be correct is what in Frankfurt now?

[Richard Sachse:]

The headcount from next month onward is planned to be 41 and these are people really being active in the company, because of early pension and because of childhood absent or maternity leave, the real number might be number different, but the actual workflow [ph] will be 41 next month.

[George Zavoico:]

Then what is the total headcounts for AEZS- [ph] now?

[David Dodd:]

At 52.

[George Zavoico:]

52. Okay. How much cost savings do you anticipate from that reduction though go to your bottom-line?

[David Dodd:]

Sure. Dennis do you want to comment?

[Dennis Turpin:]

How much, what?

[David Dodd:]

He was asking what will be the savings be based upon as a result of salary savings.

[Dennis Turpin:]

We have a provision for restructuring costs of $2.5 million that was registered during the year. Just to let you know, we still have about $1.5 million of disbursement related to that. The restructuring costs represent approximately the savings that we are doing in terms of the salaries ongoing work for the year.

[David Dodd:]

Yes.

[George Zavoico:]

Okay. It was basically what it costs last year is what you [ph] saved this year?

[David Dodd:]

Yes. We made about one year, but that rents just taking into account, so each year going forward we will save.

[Dennis Turpin:]

Yes.

[George Zavoico:]

Yes. Okay. Thank you very much and good luck going forward.

[David Dodd:]

Thanks, George.

[Dennis Turpin:]

Thanks, George.

[Richard Sachse:]

Thanks, George.

[Operator:]

There are no further questions at this time. I will now turn the call over to Mr. Dodd.

[David Dodd:]

Thank you. Again, I appreciate as always everyone's interest in Aeterna Zentaris. We look forward to updating you as we go forward. As the venture to occur, we will update you in between each quarters call. Thank you and have a wonderful day.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.