Æterna Zentaris Management Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 6.13 | About: AEterna Zentaris, (AEZS)

Æterna Zentaris (NASDAQ:AEZS)

Q3 2013 Earnings Call

November 06, 2013 8:30 am ET

Executives

Paul Burroughs - Director of Communications

David Alan Dodd - Chief Executive Officer, President and Director

Dennis Turpin - Chief Financial Officer and Senior Vice President

Paul Blake - Chief Medical Officer and Senior Vice President

Jude Dinges - Chief Commercial Officer and Senior Vice President

Analysts

George B. Zavoico - MLV & Co LLC, Research Division

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 Third Quarter 2013 Financial and Operating Results Conference Call. [Operator Instructions] Thank you. Mr. Paul Burroughs, Director of Communications, you may begin your conference.

Paul Burroughs

Thank you. Good morning and welcome, everyone, to Aeterna Zentaris' 2013 Third Quarter Financial and Operating Results Conference Call. With me today are David Dodd, President and CEO; Paul Blake, Chief Medical Officer; Dennis Turpin, Chief Financial Officer; Nick Pelliccione, Senior VP, Regulatory Affairs and Quality Assurance; and Jude Dinges, Senior VP and 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, November 6, 2013, 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 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 President and CEO of Aeterna Zentaris, David Dodd.

David Alan Dodd

Thank you, Paul, and thank you, everyone, for your interest in Aeterna Zentaris. It's a delight to be here today and to be able to discuss the success and progress since we last spoke. You'll recall that since joining the company, we have consistently outlined our 5 core objectives we have this year in the company. In no particular order, they include the successful transition of Cetrotide to Merck Serono; the completion of the preparation of our NDA for macimorelin acetate, submission of that and the commercial preparation for that -- for the subsequent launch of the product; implementation and continuation of the ZoptEC trial for endometrial cancer; our business development activities; and also our ongoing financing. We'll discuss each of these today.

I'm delighted as to -- that we completed successfully the transfer of Cetrotide manufacturing rights and the manufacturing license. It was granted to Merck Serono. They currently market Cetrotide worldwide for in vitro fertilization. You may recall our target date was the 1st of October. We achieved that, and that triggered a $3.3 million onetime payment. As a reminder, you'll recall that in November of 2008, we have monetized our Cetrotide royalty stream for $52.5 million to HealthCare Royalty Partners, formerly Cowen HealthCare Royalty.

So Cetrotide is no longer reflecting any generation of revenue, either for manufacturing rights or royalties on the sales. However, we will continue to receive remuneration over a 3-year transition period to assist Merck Serono during this time frame. So Cetrotide completed. We're pleased. The team did an outstanding job and we're very proud of them.

As we've announced just in the last couple of days, macimorelin acetate, we successfully submitted our NDA for that on Monday. We had previously said, at the last conference call, we expect do that by the end of summer, which would have been in September. We didn't achieve that, but we did subsequently have it submitted. The reason we didn't achieve it was simply, we continued to be involved in some of negotiations with a third-party contract manufacturer that evolved -- ended up successful and all, but it just took a little bit longer for those negotiations and all.

So now we have it submitted, we'll be awaiting the 60-day time period where they will indicate -- the FDA indicates the acceptance of a filing and a reviewing. And at the same time, we continue with our commercial launch plans. As you know, we've announced, just recently, the hiring of Jude Dinges as our Senior Vice President and Chief Commercial Officer. Jude is here today and, depending on your questions, can certainly comment on how we are focusing and where we are with the commercial plans in anticipation for that product and all.

We believe we have a strong value proposition with this product. Not only is it accurate, safe and convenient, it clearly is comparable to the standard -- the insulin tolerance test, which I'll remind you is not approved for this indication. Our product is safe. It's well tolerated. It's oral versus an IV administration. Very simple execution. Patient fast overnight, comes into the endocrinologist's office over a 75-minute time period, has 2 to 3 blood draws. The blood's sent to a reference lab for the standard blood test, and the patient can then -- can go about continuation of their day. Much shorter follow-up is required with insulin tolerance test, much less medical supervision. The insulin tolerance test is contraindicated to certain key populations and core populations. It's a difficult test to administer. Ours are very simple. The endocrinologists have indicated a true, strong desire for an alternative to the ITT.

Remind you, there are about 40,000 tests for adult growth hormone deficiency performed annually in the U.S., and another 36,000 in Europe. This is on an annual basis and all. We expect, as we commercialize this product, that we will significantly penetrate in this and become the leading measure for evoking growth hormone release, from which the normal test has been done.

We also have the opportunity in patients who are hospitalized for traumatic brain injury. There are 215,000 adults hospitalized for TBI in the United States annually. About 1/5 of those, or another 40,000, need to be tested at 3, 6 and 12 months post their injury, their trauma, and that would add another 120,000 additional tests. This is not a new indication. It is an area where we'll need to help educate the clinical community that there is a method to conveniently and accurately be able to measure this now, but it could lead to significant market expansion. And then there's also the opportunity in the pediatric community. That will require additional clinical development on our behalf, but that is being budgeted and laid out and reviewed right now for us.

We also have, as you'll recall, an ongoing Phase II investigator-driven trial funded by the Michael DeBakey VA Center under a credo between our company and that center. This trial will involve 18 to 26 patients. So far, there's 7 patients, they have been completed the protocol and all. If you have any questions, we have Paul Blake here, who's -- who'll be happy to answer any questions you may have.

This is -- cachexia is defined as involuntary weight loss of at least 5% of the pre-illness body weight over the previous 6 months. It affects, in the United States, about 1 million patients and represents about 20% of all cancer deaths. And today, there is no approved treatments for this condition. We believe that macimorelin acetate, as a ghrelin agonist, could be an ideal type of therapy for this. And so we'll continue to monitor and support this ongoing investigator-initiated trial.

Since our last discussion, we have expanded significantly the implementation of our ZoptEC Phase III trial in endometrial cancer, which looks at zoptarelin doxorubicin compared to doxorubicin. As you'll recall, our product is our LHRH receptor-targeting compound. This product is looked at as a second-line treatment for women with endometrial cancer who are resistant to platinum/taxane-based chemotherapy. You'll recall the trial will involve 500 patients in approximately 120 sites located in North America, Europe, Israel and other countries. Approximately 20 to 25 countries will be involved in this study.

Our first patient dose was announced in July. We're now concentrating our efforts on optimizing the program implementation. We have -- 25% of our sites are open, including across all regions. The first in Canada opened yesterday. Another opens today, and more will continue to be opening as we go forward yet this week and next week. Patient recruitment is now in the double digits. And we have completed the investigator meetings across all regions. We had them in Amsterdam, Budapest and Dallas. Plus we've had less formal meetings at some of the medical associations with people who are involved in this.

This is an area of significant need. Endometrial cancer is a highly unmet medical need, large market opportunity. It's the most invasive gynecologic cancer in women, with 95,000 new cases expected in the U.S. and Canada and the European Union just this year. About 1/5 are recurrent disease. And I'll remind you that, currently, there are no approved drug products for therapy in North America in this area. We hold worldwide rights to this compound. And we continue to have active discussions on partnerships, and we will seriously consider this, especially regarding geographic rights.

And in addition to our endometrial cancer program, we have a Phase II trial, you'll recall, on prostate cancer. That's ongoing, with 28 patients recruited so far. That's up from 8 last quarter. And the trial will involve up to 37 patients. Our Phase II trial in triple-negative breast cancer, we have 3 sites open and, currently, 7 patients enrolled. And we also have previously discussed a Phase II trial in bladder cancer. In that regard, we're currently reviewing our options with this trial simply because we want to make sure we are utilizing all of our resources appropriately. And where we are developing in the clinic, we have enough resources to progress that in a timely manner. That's a general review we're doing across all of our programs.

Another product that's also under review for clinical development is AEZS-120, which is our novel oral tumor cancer vaccine for prostate cancer. We have approval from the Danish regulatory authorities and ethics committee to initiate a Phase I proof-of-concept trial. And this is another product that, in addition to the bladder cancer, we are evaluating if now is the right time to progress with it or if we want to utilize the resources to support our current programs and all.

Let me just again reaffirm our new strategy of restructuring and what we've been doing so far. We're prioritizing or looking at all of our projects that we have -- clinical, nonclinical business front. We have appointed Jude Dinges. We continue to focus on what we say are our 3 critical Ps of people, programs and priorities. And we'll continue to do so and to keep you updated. We're quite active in the area of business development and have a number of opportunities we continue to evaluate.

Since we last spoke, we also have backed away and closed down several of the opportunities we had been evaluating. And as material events occur in that regard, should we announce -- should we achieve in the near future, we'll make an announcement of a product that we'll be bringing in and commercializing. And as soon as we are ready and able to, we'll keep you aware of that.

So at this point, I'd like to turn it over to our Chief Financial Officer, Dennis Turpin, for our financial review and update.

Dennis Turpin

Thank you, David. First, let me update on our cash position. Our cash and cash equivalents totaled $24.8 million as of September 30, 2013, compared to $39.5 million as of December 31, 2012. The company has no debt. Taking into account our current guidance, as disclosed in our MD&A, including the receipt of EUR 2.5 million upfront payments from Merck Serono during last week, we now expect to finish the year 2013 with over $24 million in cash and cash equivalents.

Regarding our burn rate. Cash flows used in our operating activities for the 3-month period, ended September 30, 2013, were $8.4 million, as compared to $7.1 million of cash flow used during the same period in 2012. This increase is mainly related to higher disbursements with respect to our R&D costs associated to our Phase III ZoptEC trial. We expect net cash used in operating activities to decrease significantly in the fourth quarter of 2013 as compared to the third quarter of 2013, mainly due to the EUR 2.5 million upfront payment, already mentioned, received from Merck Serono. Taking into account our successful transition of Cetrotide manufacturing to Merck Serono, our co-development and profit-sharing agreement with Ergomed, as well as the initiation of a Phase III ZoptEC trial with zoptarelin doxorubicin in endometrial cancer, we now expect that our overall operating burn in 2013 will be lower than $26 million.

Finally, more details about our results of the third quarter ended September 30. Revenues were $21 million for the 3-month period ended September 30, 2013, compared to $7.1 million for the same period in 2012. The increase is largely attributable to the acceleration of the recognition of previously deferred revenues received in connection with the 2008 sale of the Cetrotide royalty stream to HealthCare Royalty Partners.

R&D costs, net of refundable tax credits and grants, were $6.2 million for the 3-month period, compared to $4.3 million for the same period in 2012. Net income for the 3-month period ended September 30, 2013, was $3.8 million, compared to a net loss of $6.6 million for the same period in 2012. The significant increase is due largely to the significant increases in royalty revenues, which are noncash, and in net finance income, which also is noncash, partially offset by higher net R&D costs.

So thank you for your attention. Now, David.

David Alan Dodd

Okay, thank you. At this point in time, my colleagues and I will be happy to entertain your questions.

Question-and-Answer Session

Operator

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

George B. Zavoico - MLV & Co LLC, Research Division

A couple of brief questions, I think. Congratulations on the progress on the trials. It seems to me that your patient recruitment is going very well at this point. Thanks for the update on that. Can you go over, David and Paul, perhaps, what your time line expectations for ZoptEC? And what its overall cost will be over the next couple of years?

David Alan Dodd

Sure. I'll start and then I'll hand it over to Paul if we might want to add some more. We expect a $30 million sort of out-of-pocket cost, probably a total cost, including our staffing of around $40 million. We've previously communicated we think it will be about a 3-year program. So we should complete, I think, enrollment around the end of '15, early '16, I believe that's correct there. I don't know what else I should point.

Paul Blake

July 2015 is our target for full recruitment.

David Alan Dodd

Okay.

George B. Zavoico - MLV & Co LLC, Research Division

I'm sorry, Paul, what?

Paul Blake

July 2015.

David Alan Dodd

2015. He's given you more specificity than I would have, but that's fine. That's why I said 2015. So anyway...

George B. Zavoico - MLV & Co LLC, Research Division

That's the complete recruitment? Sorry, that's the complete recruitment?

David Alan Dodd

That's our -- that's what we're working on. And we literally monitor on a weekly basis. With Ergomed, we get reports that show sites opening versus planned, patients being screened, patients being dosed. Obviously, at the beginning, it's -- there is less predictability and all. But now that we're into it several months, we've -- it's comfortable. We're getting good information, so we stay on top of it. As I said, we see a report internally every week or so.

George B. Zavoico - MLV & Co LLC, Research Division

That's great. With regard to AEZS-130, macemorilin, it seems to me, especially with the new hire -- and welcome aboard. I think it looks like you're at least planning to commercialize much of this yourself. You see this is an important opportunity. Any -- although you did mention, perhaps, some geographical deals? Or did I misunderstand that to...

David Alan Dodd

That was related to 108 more, where we're having discussions and all. There is some expressed interest on macimorelin acetate for geographic participation, I guess I would call it there. But our plans are to commercialize it ourselves. As we'd previously communicated, if one breaks down the marketplace of the endocrinologists, certainly in the United States, then one is looking at somewhere between 10 and 20 sales reps necessary to successfully and to appropriately cover the people that generate this business and all. So it's a very tight type of thing and it makes a lot more sense for us to do it ourselves, especially as part of our goal to define ourselves as a full-operating specialty pharma company and all. So we are planning on it. I'm going to ask Jude Dinges to -- if he likes to just comment and add a little color to what is -- how we're looking at it, what's involved there, and you'll also get an introduction to Jude.

Jude Dinges

]

Certainly, one of the great new levers with this product is that a handful of people control it. And there's 5,500 endocrinologists in the U.S. Only half do these tests, and about 800 do the bulk of the tests. So it's very attractive to us that we can get our hands around the market pretty easily. And even though it's a small or modest-sized market, and we're real excited about it. Not to mention the value proposition. It's safe, accurate and much more convenient for patients and physicians. We think we have a winner here.

George B. Zavoico - MLV & Co LLC, Research Division

So the -- you just did the NDA the other day, so there'll be the 60-day review.

Jude Dinges

]

Right.

George B. Zavoico - MLV & Co LLC, Research Division

And then it will be a standard, what, 10-month review you're expecting?

David Alan Dodd

I think we've planned for 12. But, yes, it can follow after the 60-day, you're correct.

George B. Zavoico - MLV & Co LLC, Research Division

After the 60. So, a 10-month review?

David Alan Dodd

Yes.

George B. Zavoico - MLV & Co LLC, Research Division

Okay. So obviously, you didn't -- probably not a whole lot has been done other than starting to plan. You've got a lot of time to hire. And would these be the same -- this 10 to 20 sales reps, theses would be the same ones that they would detail to the trauma folks, the neurologists, or would you have...

David Alan Dodd

Yes.

George B. Zavoico - MLV & Co LLC, Research Division

It would be the same? Okay.

David Alan Dodd

Yes. Yes.

George B. Zavoico - MLV & Co LLC, Research Division

All right. So there's no need to expand on that?

David Alan Dodd

No. No.

George B. Zavoico - MLV & Co LLC, Research Division

And in terms of, like, guidelines and standard operating procedures regarding brain trauma, obviously, are insulin -- the ITTs being done now for these patients pretty much on a regular basis? Or is there more education just to be able to expand the tests more?

David Alan Dodd

It's really more education. I think we looked into the data. And the data we've garnered shows that only about 10% of the patients hospitalized for traumatic brain injury are being evaluated. So there's -- 90% of them are being missed on this opportunity. So it indeed is the medical education that's also a big opportunity. Paul, do you want to comment?

Paul Blake

Yes. I think, George, in the specific situation of looking for pituitary hormone deficiencies after traumatic brain injury, neurologists would very little reluctant to conduct an insulin-tolerance test. I think you'd be particularly concerned about its safety in that setting.

David Alan Dodd

So we think, given the alternative that we will be presenting, we're going to have an ideal product that's easy to use, simple to use, safe for the patient. It's a straightforward to be able to introduce that to these physicians and all, and let them know now it makes sense that they ought to be evaluating these patients.

George B. Zavoico - MLV & Co LLC, Research Division

Now, who does those tests in the TBI? Does the neurologist consult with an endocrinologist? Or does the neurologist order the tests himself?

Jude Dinges

]

It's mainly the endocrinologist. The patient will end up there, eventually, for probably other symptoms. And -- but endos, as far as our research indicates, they do almost all of these tests.

Paul Blake

George, I think it's probably a changing field. As people are starting to may pay more attention to traumatic brain injury, that might evolve.

David Alan Dodd

Yes. Yes.

George B. Zavoico - MLV & Co LLC, Research Division

I imagine you might get some football players in there, too, probably?

David Alan Dodd

Absolutely. The military.

Paul Blake

Well, the military.

George B. Zavoico - MLV & Co LLC, Research Division

The military as well, yes.

David Alan Dodd

Look in the VA.

Paul Blake

A new focus, yes. So...

George B. Zavoico - MLV & Co LLC, Research Division

Okay. And it sounds like you're -- Dennis, it sounds like you're building a nice foundation with your capitalization, selling the Cetrotide royalty and everything. That's -- you got a good bit of cash going forward. Time to plan and move forward on the other programs. So thank you all very much.

Operator

[Operator Instructions] There are no further questions at this time. I'll turn the call back over to the presenters.

David Alan Dodd

So, thank you. Again, we appreciate everyone's interest. We achieved significant progress and success during the last quarter since our last phone call. As we've said, we'll keep you updated on each of these objectives. And then each quarterly phone call, we'll keep you updated on the progress, both of our clinical programs, the ZoptEC trial, other programs, as well as macimorelin acetate, any additional developments that we may be announcing in the interim. Thank you, and have a wonderful day.

Operator

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

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