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AEterna Zentaris, Inc. (NASDAQ:AEZS)

Q4 2013 Earnings Conference Call

March 21, 2014 8:30 AM ET

Executives

Paul Burroughs - Director of Communications

David Dodd - President and CEO

Dennis Turpin - SVP and CFO

Jude Dinges - SVP and CFO

Richard Sachse - Chief Scientific and Medical Officer

Analysts

Pamela Bassett - Maxim Group

George Zavoico - H.C. Wainwright

Thomas Yip - MLV and Company

Mick Cooper - Edison

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 Fourth Quarter and Full Year 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 everyone. With me today are David Dodd, President and CEO; Dennis Turpin, Chief Financial Officer; Richard Sachse, Chief Scientific Officer 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, March 21, 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 will disseminate the updates to the investing public.

Its now my pleasure to introduce the President and CEO of Aeterna Zentaris, David Dodd.

David Dodd

Thank you, Paul. Good morning and thank you for your interest in Aeterna Zentaris. The past few months have been a period of transition and progress in our company operations, with a focus on three items; maximizing the efficiency and effectiveness of our organizational design and talent alignment. Second, achieving a more productive product portfolio of development process, including internal development programs, as well as business development activities targeted to obtain either late stage development programs, or on the market products. And finally, ensuring a competitive ability to successfully commercialize products, as the company transforms into a commercial stage business.

In line with these goals, we have further strengthened our leadership team, with the addition of Dr. Richard Sachse, as we noted, is Chief Scientific Officer and Chief Medical Officer.

We have also completed a comprehensive review of our existing portfolio, resulting in an increased focus in our resources from our lead programs, related to MACRILEN for the evaluation of Adult Growth Hormone Deficiency and our pivotal Phase 3 ZoptEC trial in endometrial cancer, utilizing our compound zoptarelin doxorubicin.

Our intent to transform the company into a highly competitive organization, commercializing important products, which improve lives of patients and increase opportunity for successful growth and development of shareholder value.

Recently, continued progress was achieved, with a successful filing of our new drug application for Macimorelin Acetate, now under the trade name MACRILEN, in which adult growth hormone deficiency will be diagnosed, and the expanded patient recruitment for our ZoptEC Phase 3 trial.

Now recall, that MACRILEN is an oral ghrelin agonist for use in evaluating AGHD. The NDA is currently under substance [ph] of a review by the FDA. Our PDUFA date is November 5, 2014, and upon approval MACRILEN would become the first available oral product for use in evaluating adult growth hormone deficiency.

We are currently working on completing our commercial launch plans and activities within the United States. We believe we have a strong value proposition with this product. It's accurate. Its comparable to the current standard procedures, which we will remind you are not FDA-approved. Our product is safe. It has been demonstrated to be well tolerant. Its convenient. Its an oral versus an IV or IM. It’s a simple execution. A single blood troll is possible; and compared to the current standard, the insulin tolerance test, we have a shorter follow-up and less medical supervision during the doctor's visit, during the medical visit.

Endocrinologists have indicated a true, very strong desire for an alternative to the insulin tolerance test. So our product approval will have the only FDA-approved product for use in this indication. It’s a good opportunity. As we mentioned before, about 40,000 evaluations for AGHD are performed in the U.S. and about the same, around 36,000-40,000 in Europe annually. And then there is expansion opportunity within the initial indication related to traumatic brain injury, where it results in a pituitary function deficiency, resulting in potential growth hormone deficiency.

There, we have an opportunity to see, eventually, should we be successful in developing this opportunity, a 100,000 to 120,000 additional evaluations on an annual basis, really opening the market up. All of this within our initial labeling. And as we have indicated, we are initially focused only on adult use, but we are very interested in pediatric use, and we have been preparing our, what we believe, were the necessary plans and programs, in which we can sit down and have a discussion with regulatory authorities, to be able to pursue pediatric use with this product.

Our lead oncology compound, as you recall, zoptarelin doxorubicin, represents an exciting concept in oncology, providing a targeted therapy approach to administering very strong powerful chemotherapy. Zoptarelin doxorubicin is a engineered or hybrid molecule, composed of a synthetic peptide carrier, linked to the widely used and well known chemotherapeutic agent doxorubicin, which specifically targets LH-RH receptors.

Our current ZoptEC Phase 3 trial, as you recall, compares zoptarelin doxorubicin to doxorubicin alone, and second line treatment for women with advanced recurring, or metastatic endometrial cancer, and is conducted a special protocol assessment from the FDA.

It will involve 500 patients in North America, Europe and Israel. We are very happy to report to you that we now have in excess of 100 patients randomized in this trial, and we continue to see improved productivity to the point that we are slightly ahead of where our plan hovers [ph] at this point. So our main focus going forward for the remainder of this year, is to complete our clinical science initiation and the readiness preparation and to reach the expected patient enrolment, so that we can be able to report our first interim results in the first half of 2015.

Endometrial cancer, as you know, is an important unmet medical need, a large market opportunity. It represents the most invasive gynecologic cancer in women. Approximately about 53,000 new cases expected in the U.S. alone this year, and almost 100,000 new cases in the seven major markets by 2019, with about one-fifth or 20% recurrent disease. Today unfortunately, there is no approved therapy in the United States and throughout most of Europe for this situation. We have worldwide rights to the compound, and we continue to have active discussions with potential parties about rights and other geographies, for which we would not personally focus. I will remind you, our goal is to focus our commercialization efforts, generally in North America and in the EU.

I will just comment on, to remind you that there is an investigator-driven Phase-II trial in prostate cancer, which we have continued to stay in touch with and monitor, and we hope to see some initial results, perhaps by the end of this year. We stay in close contact with the investigator there, and we look forward to reporting news to you, as we receive news.

Finally, we continue our intense efforts on obtaining on the market revenue producing products, that will further establish us as a competitive operating company. We have several promising opportunities currently in review and discussion in this area. And lastly, on the financial side, we are able to significantly improve our cash position over this past year, in order to secure the necessary funds, focus on two major milestone and goals that we have; to be prepared and financed to be able to commercialize and launch MACRILEN, and to be able to fund our efforts up to the interim results with zoptarelin doxorubicin, and we are now fully prepared for both of those events.

And with that, I will turn the call over to our Chief Financial Officer, Dennis Turpin, who will provide more details on our financial situation. Dennis?

Dennis Turpin

Thank you, David. First, let me update you on our cash position. Our cash and cash equivalents totaled $43.2 million as of December 31, 2013, compared to $39.5 million as of December 31, 2012. This balance excludes of course, our more recent January public offering of 11 million units, which generated net proceeds of approximately $12.2 million. We now have the necessary funding, to continue to advance our business plan, more particularly, as mentioned by David, the ongoing Phase 3 ZoptEC trial, and the expected launch of MACRILEN in the evaluation of adult growth hormone deficiency.

Regarding our annual burn rate; our 2013 annual operating burn was approximately $20 million compared to $31 million for 2012. The year-over-year decrease is explained by net cash provided by operating activities of our Cetrotide business, which was transferred to Merck Serono in October of 2013. Operating cash flows from this business, which is now classified as discontinued operations, were $10.1 million and include a one time long term payment of €2.5 million plus additional payments related to the transfer of corresponding assets.

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, which contributes to close to 30% of all clinical and regulatory costs associated to the ZoptEC trial, as well as our preparation for the launch of MACRILEN, we now expect that our overall operating burn in 2014 will range from $33 million to $35 million.

Now more details about our results for the year ended December 31, 2013. First, as I mentioned a moment ago, the Cetrotide business has been classified as discontinued operation, and is presented separately in our financial statements for all periods presented. We had monetized the royalty stream related to the sales of Cetrotide in the sales of in-vitro fertilization back in 2008. Additional milestone payments were made by healthcare royalty partners to the company prior to 2013, and no more significant inflow was expected from that business, except from the manufacturing of the product, which was not generating operating earnings to the company.

Revenues from continuing operations were $6.2 million for the year ended December 31, 2013, compared to $2.1 million for the same period in 2012. The increase is largely attributable to the accelerated recognition of deferred revenues from [indiscernible] and related to the former development by the company of Perifosine.

R&D costs net of the refundable tax credit and grants were $21.3 million for the year, compared to $20.6 million for the same period in 2012. Net income for the year was $6.3 million compared to a net loss of $20.4 million for the same period in 2012. The year-over-year decrease in our net loss is mainly due to higher net income from discontinued operations, and higher revenues, which was partially compensated by higher operating costs and lower finance income.

So thank you for your attention. Now David.

David Dodd

Thank you. At this point we are interested in questions you may have and open to taking those. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Jason Kolbert with Maxim. Please go ahead.

Pamela Bassett - Maxim Group

Good morning. It's Dr. Pamela Bassett in for Jason Kolbert. So congratulations on your progress. I would like to know more about your commercial infrastructure plans for MACRILEN and beyond. Could you give us more detail around your buildup?

David Dodd

Sure. As we have discussed and mentioned in the past, as you may already imagine, this is an area led by endocrinologists, there are not a lot of people that conduct growth hormone deficiency evaluations. We are looking at a target of around 2,000 to 2,500 endocrinologists that we will be targeting, that will require around 20 or so representatives that we would go forward with them. We are also looking at pursuing additional compatible products, so that our reps would have more value that they would carry into the office.

But our plan is, to directly address the endocrinologist and the approximately 30 centers in the United States that engage in these ongoing evaluations for growth hormone deficiency. So very tight market, and one in which we can focus on with limited resources. And also, there are no samples utilized in this particular product area. So normally, the biggest expense one tends to deal with when you are launching a product we won't have to deal with, so we believe this is an ideal market for a company such as ourselves, to be able to launch our commercial activities with, very tightly focused, very simple to have.

We will be 100% of the noise in this category, because there are no other approved products out there. There are no other products being marketed out there, so the noise related to this type of product and all will be 100% of ourselves, [indiscernible].

So for those reasons, we are very excited about it, because it enables us to demonstrate to the organization internally, as much as anybody that we are capable of commercializing, and yet its still a viable market, when you look at 40,000 current tests and with the upside from the TBI, so we look at it and we are quite excited about it.

Pamela Bassett - Maxim Group

That's great. I appreciate the review. Staying with MACRILEN for a minute, if you pursue the pediatric indication, what will the timeline look like and what do you think the clinical trial design is likely to be?

David Dodd

Well the answer to both of those right now is, we don't know, because we will learn that when we sit down with the FDA to discuss our proposal, which is what we are putting together right now. Our process is to lay out what we believe would be appropriate, necessary and sufficient, to be able to conduct the programs, both from a clinical perspective and if we believe, we need to do any type of a characterization or a pre-clinical type of work, and we will present that to the regulatory agency, we will reach an agreement and then we will go forward.

I do want to mention although, the market, pardon me, is about one-tenth the size, prior to what we hope to do, is prior to going out with the pediatric indication. We are very interested, and it will not take a lot of resources, but to commercialize it also in Canada, so that we have it commercialized in North America.

The regulatory registration requirements for Health Canada, will basically be based upon, what we currently have submitted to the FDA.

Pamela Bassett - Maxim Group

Thank you.

Operator

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

George Zavoico - H.C. Wainwright

Hi, good morning everyone.

David Dodd

Good morning George, how are you?

George Zavoico - H.C. Wainwright

Good. Thanks. Question about the TBI and the logistics of growing out that market from the endocrinology to the trauma or neurology space. In practice, would the neurologist or the trauma specialist use the test, or would they refer to an endocrinologist to one of these centers, the 30 centers that you talk about? Because TBI obviously occurs probably in a whole lot more than just 30 centers. So could you talk a little bit how -- and you mentioned, it goes from 40,000 to 120,000 potential cases. So its clearly -- probably on different burner to grow into that space. So could you, talk a little bit about how you are planning to do that, and how it might work?

David Dodd

Exactly. I will make one comment, George, and I am going to turn it over to Jude to walk you through our thinking on that. But to answer your upfront question, we believe it will be a discharge, a patient will then be given the guidance to go to their endocrinologist and Jude will explain why that is the case?

Jude Dinges

I think the endos are going to own these tests as they have in the past, and a lot of that has to do with the payors, the insurance companies, want to make sure that people really have a pro forma deficiency, because there is reduce [ph] of growth hormone agents, as you know. So the endocrinologists are very used to dealing with the rules and the guidelines and the structure of properly diagnosing these patients. So we think they are probably going to own these TBI patients, if and when they get them, and eventually they do get them now, but its not real fluent from the hospital to the endo.

So of course, we hope to expect that, and David mentioned, discharged protocols are basically guidelines that hospitals give patients when they leave the hospital for a follow-up, and we also believe the military will have an interest in easy to use accurate tests like this for troops coming back from the wars of the last decade or so. So we are going to approach it starting with the endocrinologists and work backwards and then work the hospitals that tend to have the higher volume TBI admissions.

George Zavoico - H.C. Wainwright

What's the delay, or if there is one, between the actual trauma and the need for this test, or any sort of indication, symptomatic indication that there might be a growth hormone deficiency? Is it days, weeks, how urgent would it be for the patient coming off of a TBI?

Jude Dinges

Well, we don't know that for sure right now, because these patients have a lot of problems. If you have a traumatic brain injury, you have a lot of other potential issues, and certainly growth hormone release is one of those, but its not the only one, and part of the challenge is when the leave the hospital, they are not going to go immediately to the endocrinologist, right? They are going to be following up with the neurologist or a neurosurgeon or even their primary care physician, if they are stable.

So part of it is just awareness that we are going to build and we think that there is a lot of momentum, certainly in the media now, around TBI etcetera. And while they have got one of the reasons why some of these patients are not getting these tests after TBI, has to do with the fact that there isn't a FDA approved test. The ITT is rather brutal, using physician's words, in terms of how it makes the patients feel, etcetera. So again, we feel that our value proposition is good overall versus IV push. 75 minutes versus four hours, etcetera, so we think we are going to expand that market, in part, because we have an FDA approved drug, that is easy to use.

David Dodd

George, this is David. I will mention the existing guidelines for evaluating a patient that has a moderate to severe TBI -- is the current guidelines recommend evaluation at points three, six and 12 months post a traumatic event, injury event for growth hormone deficiency specifically. Now that isn't being done routinely today, because of the insulin tolerance test, and because of the insulin tolerance test sort of dynamics, its hard to get patients to come back at three, six and 12 months to go through that process.

So what we plan to do is, focus on the fact that their existing guidelines, that we now have a product that will facilitate the implementations of those guidelines in a much more patient and clinician friendly manner.

George Zavoico - H.C. Wainwright

The fact that they are in the current guidelines certainly is helpful. You don't have to educate the folks that are in charge of revising the guidelines there. That should be of help. Next question, I mean, you just spoke about MACRILEN and zoptarelin. You have a deeper pipeline, you have the cancer vaccine, you have a dual kinase inhibitor, and you have the research group in Frankfurt. What are your long term plans for progressing that pipeline? Are you going to try and do it yourself? You are going to seek licensees?

David Dodd

We are going to seek all the above. We are focused today. What we have done is, we have heavied up our focus, increased our focus on these two major value drivers we have in front of us. We have our first NDA, with the PDUFA date. So what we have done is, we are focusing to do everything we can to move both of these projects across our goal line so to speak, and that's critical to us.

Now at the same time, we recognized that we have the capabilities and we have a lot of interesting projects. Early stage though, but they are not at a stage of being in the clinic and all. So we are focusing our resources and our activities, and that then removes from what otherwise we might be doing on more earlier stage work and all, but at the same time, we continue to with discussions, with other parties about these programs. We continue to evaluate different ways in which we might work, so that we can continue to advance our internal programs now.

But I would say that our focus today is to think more broadly about our portfolio and less of a focus of the origin of that portfolio, meaning, this does not all have to start from the very beginning internally and all. Our goal and our focus and our team, our leadership team in Frankfurt is all together in thinking now that, what we want to do is have a vibrant, fluid portfolio process, so that we are advancing on a continuous basis, programs with the concept of clinical testing, as the first big goal for us.

Right now, until we have products and greater cash generation of revenues, we have to work with the resources we have. But we continue to work with our internal programs, at the same time, we are looking to, as we have mentioned defined products, we can begin to sell as soon as possible, to be able to own it [ph] and to be able to better fund some of those earlier stage programs.

George Zavoico - H.C. Wainwright

Thanks. I am glad you have -- you said in your prepared remarks, you are very close or at least you are in deep discussions on a number of potential in-licensing candidates. And finally my last short brief question, you probably won't be able to answer, because it is too far away from the event. What are you thinking about pricing for the MACRILEN test?

David Dodd

We are thinking that we don't disclose it until we launch the product.

George Zavoico - H.C. Wainwright

That's what I thought.

David Dodd

But remember, we had pointed out before, we believe we can bring some really good economic value to the marketplace, as well as obviously, to our shareholders. And what we mean by that, we look at the billing level, when people conduct the insulin tolerance test, and the materials cost around $150 to $300, something like that, to doing that, but the billing costs could be in excess of $3,000. So we believe that we have a lot of room in there to price the value we are bringing, which we tried to tick off in the niche marketplace. We have several, what I call, value enhancers related to this product and all. Its faster and simpler, its friendlier, all those types of things, and we also believe that we will be able to price it well, and deliver good value for the company, and yet at the same time, our goal is to deliver a lower total billing costs, than what the insurers and the payers are used to seeing.

George Zavoico - H.C. Wainwright

Great. Thank you very much for all of that. Appreciate it.

David Dodd

You're welcome. Thanks very much George.

Operator

(Operator Instructions). Your next question comes from the line of Thomas Yip with MLV and Company. Please go ahead.

Thomas Yip - MLV and Company

Hi good morning everybody. Thank you for taking my question.

David Dodd

Hi Thomas. Good morning.

Thomas Yip - MLV and Company

Hi. Good morning. You guys guided to the first interim data readout from ZoptEC in first half 2015, so I am just wondering, what should we expect from that readout?

Dennis Turpin

To understand well your question, when is the data readout? Is that your question Thomas?

Thomas Yip - MLV and Company

No, no. You guys guided to first half of 2015. So can you give us more details and what kind of data should we expect in the interim readout?

Dennis Turpin

Okay. At the interim readout, what kind of data.

Richard Sachse

Yeah, we have according to the protocol, planned an interim readout by a data safety monitoring board. So this is an independent data safety monitoring board, as it is typical for large Phase 3 programs in oncology. And what they are really doing, some sort of futility analysis as well as revealing potential safety issues on the compound. So what we don't get back from them, is really the detailed results, but the message that we will get from them is, either go ahead, which is obviously then a positive message now, stop the trial, because there are safety [indiscernible] or the futilities. So this is the sort of data that we get from our first interim analysis, and again, it will be done by an independent data safety monitoring board.

Jude Dinges

We anticipate midyear, next year.

Thomas Yip - MLV and Company

Mid year next, right that's 2015. That's right. Okay. So its primarily futility analysis. Okay. So my next question is related to MACRILEN, so obviously the U.S. market is you know -- all the rage right now, everyone is talking about the U.S. launch. But what about the ex-U.S. markets, more specifically, are there any regulatory processes that you guys are planning on -- undertaking in 2014?

David Dodd

Yes. For us to pursue registration, and we are interested in registration in the EU and Europe. We are required to also have data on use of the pediatric population. So the preparation of this program, and the discussions we will have with our regulatory authorities here in the U.S., to determine and agree upon the necessary sufficient protocol, for pursuing pediatric population, is critical to also being able to potentially register in Europe, because we cannot register or submit to Europe, till we have those data. So it is an area of interest, but it will require us to go through the process of first generating the pediatric information.

As I mentioned earlier today, we can't give you a timing on that, because until we sit down and have the discussion with regulatory authorities, we don't know what the agreed upon protocol planning, and sort of timing of that program will be. But as soon as we have that, we will then begin to communicate that, so they have some insights of what general dates we are targeting, for basically commercialization or registration in Europe.

Thomas Yip - MLV and Company

Okay. That's fair enough. Thank you again for taking my questions.

David Dodd

Thank you.

Operator

Your next question comes from the line of Mick Cooper with Edison.

Mick Cooper - Edison

Hi. My questions are largely answered, so I am just following on from the last question regarding MACRILEN outside North America. Are you looking at partnerships potentially to help accelerate the process and -- so that's maybe, you can bring forward some timelines for that and other products in the pipeline?

David Dodd

The answer is yes, we have and continue to have discussions both on different geographies, which would -- where people have some interest in looking at the potential application utilization of this compound in other geographies, and we have also had -- since we announced that the product accepted for review, we have had several registered parties step forward that would like to some way, collaborate and participate with us, recognizing again, that it does not take a lot of reps and all, but it fits in certain markets, as you can imagine. Now we have had several interested parties come forward with that, and we are open to all such discussions. Our goal is to certainly optimize the commercialization and penetration, especially that penetration curve, as quickly and as strongly as possible.

Mick Cooper - Edison

Thank you.

Operator

(Operator Instructions).

David Dodd

I would assume that there are no other questions at this point. If that is the case, I want to thank everybody for your interest. Again, thank you for your interest in Aeterna Zentaris. As evident from this phone call, that as our company progresses, we are shifting where there is greater interest in terms of what we are about to be commercializing hopefully in the not too distant future, versus discussions of the latest project that's advancing towards an IND. All of these are important steps in the development of our company, but we mostly look forward to keeping you updated, as we have progressed the company towards being a commercial related entity that we are going to be discussing in the latest sales and marketing share performance of our achievements.

So we look forward to updating you next quarter. Again, thank you for your interest and have a wonderful weekend.

Operator

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

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