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Aeterna Zentaris (NASDAQ:AEZS)

Q1 2014 Earnings Call

May 09, 2014 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

Richard Sachse - Chief Scientific Officer, Chief Medical Officer and Senior Vice President

Analysts

Jason Kolbert - Maxim Group LLC, Research Division

Graig C. Suvannavejh - 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 First Quarter 2014 Financial and Operating Results Conference Call. [Operator Instructions] Thank you. And 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, 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, May 9, 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 it, 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. Good morning. Thank you for your interest in Aeterna Zentaris. We are most pleased with our continued progress, and we look forward to updating you on our activities.

During the more recent quarter, our drug development focus was on our 2 lead programs, MACRILEN, an adult growth hormone deficiency; and our pivotal ZoptEC Phase III trial in endometrial cancer with zoptarelin doxorubicin.

As for MACRILEN, which is our novel orally active ghrelin agonist for use in evaluating growth hormone deficiency in adults, in January, our NDA was accepted for a substantive review by the FDA with a PDUFA date of November 5 of this year. Over the last few months, we've continued to refine our launch of commercialization plan in the U.S. This includes hiring of experienced leadership in marketing, payer reimbursement and the identification of contractual sales force to target 30 core centers for growth hormone evaluation in adults and approximately 2,500 endocrinology specialists.

On approval, MACRILEN will become the only FDA-approved product for use in growth hormone deficiency in adults or AGHD. We believe that we have a strong value proposition. MACRILEN is accurate, is comparable to the current standard procedures, it's safe, it's well tolerated. It's as convenient as the insulin tolerance test, which is currently referred to as the standard for use in evaluating AGHD, as you may recall, is not approved for that indication. Our product is oral versus IV or IM administration. It's a simple execution. A simple blood draw is possible, shorter follow-up, less medical supervision.

The initial annual market opportunity consists of the approximately 40,000 evaluations that are conducted today in adults. That's the initial targets to low-hanging fruit. However, there are significant potential increase of opportunity resulting from addressing those adults who suffer from traumatic brain injury, of which we estimate an additional 180,000 of potential opportunity of evaluations. Where does that 180,000 come from? Well, there are 950,000 emergency department visits or hospitalizations annually among adults resulting from a TBI episode. From those almost 1 million, approximately 1/3 will be classified as moderate to severe TBIs, traumatic brain injury, but approximately 60,000 of those developing growth hormone deficiency. The current recommendations are that GHD patients resulting from a TBI should be evaluated at 3, 6 and 12 months following the TBI episode. That 60,000, therefore, translates to a potential of 180,000 additional tests just in the U.S. alone.

However, the remainder of the year our focus will be on finalizing our launch and commercialization preparation for MACRILEN and determining our development plan to expand in other indications such as pediatrics, as well as pursuit of additional registration in different geographies. At the time we launch this product from a promotional share of voice, we will be providing an excess of 75% and close to 100% of all the promotional voice in this category.

Now for zoptarelin doxorubicin, which is our lean oncology compound. As you may recall, zoptarelin doxorubicin is an engineered molecule composed of a synthetic peptide carrier linked to the widely used and well-known chemotherapeutic agent, doxorubicin. Our product specifically targets LHRH receptors. This targeted chemotherapy is intended to provide a more impactful delivery of a very well-defined, well-known chemotherapeutic agent, doxorubicin, with fewer side effects than is typically experienced.

During the quarter, our efforts were focused on ensuring successful patient recruitment to secure a first interim analysis in the first half of 2015 for our current trial. I'm pleased to report that the trial is on track from a patient recruitment and site opening basis. We now have an excess of 100 sites open, and over 140 patients have been recruited. Recall that as our ZoptEC Phase III trial compares zoptarelin doxorubicin to doxorubicin alone as second-line treatment for women with advanced, recurrent or metastatic endometrial cancer conducted under an SPA from the FDA. Our trial will involve 500 patients in approximately 120 sites located in North America, Europe and Israel. As you recall, endometrial cancer is a highly important unmet medical need, a large market opportunity. It's the most invasive gynecologic cancer in women. There are approximately 53,000 new cases expected this year alone in the United States and almost 100,000 new cases in the 7 major markets with about 20% of them in recurrent disease. There's no systemic treatment approved in the U.S. and throughout Europe, and we hold worldwide rights to this compound.

During the rest of the year, our goal is to complete clinical site initiation as mentioned earlier to reach the number of patients recruited to ensure the first interim analysis for the ZoptEC Phase III trial during the first half of next year.

I want to comment on our earlier-stage developments. We were pleased that at the recent annual meeting of the American Association of Cancer Research, our presentation of our Erk inhibitor known as AEZS-134 was one of only 11 posters that were singled out for having significant and greatest impact towards the future treatments of cancer. This signaling pathway approach to treating various cancers may become a critical tool someday for oncologists. We are clearly in the front tier of development in this approach and we're looking forward to the further progress with this class of compounds.

In the area of business development, we continue to aggressively pursue opportunities to in-license, acquire and/or promote existing marketed products as part of our strategy to transition to a commercial entity and we'll continue to do so. We anticipate more to report in this area in the near future.

Finally, we are very pleased with this week's announcement regarding our selection of Charleston, South Carolina as the location of our North American and global commercial operations. As a result, we are closing our office in Basking Ridge, New Jersey. In Charleston, over the next 5 years, we expect to implement a staff to support the areas of commercial operations, business development, regulatory and quality assurance, manufacturing, management, clinical and product development, as well as various administrative functions. In conjunction with our plan, the Coordinating Council for Economic Development of South Carolina has approved job development credits to our company.

So why did we pick Charleston? Well, it's a very dynamic business community. Its GRP growth is outpacing the nation by 20%, its employment growth is 5x the national average, the population growth is 3x the national average and South Carolina is the top state throughout the United States for a foreign direct investment. Furthermore, we were highly impressed by the commitment to life science as demonstrated by the leadership of South Carolina and the emergence of Charleston as a collaborative center for research and development in the biopharmaceutical industry, and we especially appreciate the personal welcome mat extended to us by Governor Haley.

In summary, for the rest of 2014, our focus will be on our 2 lead compounds, MACRILEN and zoptarelin doxorubicin. On continuing to develop a commercial portfolio through in-licensing and other means and on improving our resource and organizational efficiency through better flexibility and productivity of operational and development processes.

I'll now turn the call over to our CFO, Dennis Turpin, for more details on our financial activities. Dennis?

Dennis Turpin

Thank you, David. First, let me update you on our cash position. Our cash and cash equivalents totaled $45.3 million (sic) [$45.8 million] at March 31, 2014, as compared to $43.2 million at December 31, 2013. This balance includes the impact of our most recent public offering of 11 million units, which generated net proceeds of approximately $12.2 million. We have the necessary funding to continue to advance our business plan, and more specifically, our ongoing Phase III ZoptEC trial with zoptarelin doxorubicin in endometrial cancer and prelaunch activities associated with MACRILEN in the evaluation of adult growth hormone deficiency.

Regarding our burn rate. Our average monthly operating burn for the first quarter was about $3.2 million. We incurred higher R&D costs as compared to the same quarter in 2013 as we continue to advance our Phase III ZoptEC trial. Additionally, our overall operating burn in the first quarter was impacted by the absence of commercial activities related to our Cetrotide business, which was transferred to Merck Serono in the fourth quarter of last year. Taking into account our ongoing Phase III ZoptEC trials, we continue to expect that our overall operating burn in 2014 will range from $33 million to $35 million. However, this estimate does not take into account the impact of any decision that will be made regarding our strategic review of R&D activities, as well as the impact of our potential partnerships to come.

In terms of our statement of comprehensive loss, we recorded no revenues from continuing operations. Instead, revenues associated with the transition of the services provided to Merck Serono had been recorded within discontinued operations.

R&D costs, net of refundable tax credit and grants, increased, as I mentioned earlier, to $5.3 million for the first quarter from $4.4 million in the same period in 2013 as we advanced our ZoptEC trial.

Overall, our net loss for the first quarter was $4.4 million compared to net income of $1.9 million for the same period in 2013. The quarter-over-quarter decrease in net income is mainly due to lower net income derived from our discontinued operations, to lower license fee revenues and to higher R&D costs, partially compensated by higher net finance income, which includes noncash gains recorded in connection with our periodic reevaluation of our warrant liability.

Thank you for your attention. Now back to David.

David Alan Dodd

Thank you, Dennis. My colleagues and I will now answer your questions. I'm therefore turning the call over to the operator to provide instructions on the question-and-answer period.

Question-and-Answer Session

Operator

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

Jason Kolbert - Maxim Group LLC, Research Division

David, in terms of the communications with the FDA, had a lot of Q&A and can you give us any additional insights into how that -- how you're heading as you approach that PDUFA towards the end of the year?

David Alan Dodd

Sure, thank you. Relative to the MACRILEN NDA, we have passed the mid-cycle review process, which was a very good discussion with the entire FDA team, positive. We answered the questions. They asked the questions, we answered them, so we felt real good about it. Our next events will include, obviously, the preapproval inspection, which will include not just ourselves, but all of elements of our supply chain that will include the couple of different partnerships that we have. That'll be the end of the summer. And then from there, we'll be focused on moving towards the PDUFA date. But to date, we've had continued interaction with the FDA. We've answered their questions. They continue to go do their job and ask the different elements and we answered their questions. It's going well, I think that's the way I would look at it.

Jason Kolbert - Maxim Group LLC, Research Division

Okay. And as you approach the PDUFA date, can you just give us some insight as to how the G&A spending may change as you ramp towards production? Or will you wait until you're actually approved before you make the commitment to bring the sales force on it?

David Alan Dodd

We have previously indicated and indicated in today's comments also that we will be utilizing a contract sales force arrangement. So the field reps will be through a CSO. There will be approximately 20 or thereabouts of them that we will pay for. The management team, both from a product management and from a sales management, will be our team. We are recruiting and interviewing and actually beginning to hire now on the management level, but we're doing this in a very paced process, which means that we're not hiring all the management all upfront and all. If we were anticipating or looking towards a first quarter launch of MACRILEN based upon, let's say, a working assumption of a PDUFA date, it would make no sense for us to bring in the sales management team at this time. It's about the time we need to be getting someone in from the product management and spending full time behind the various issues of the commercial launch process and all. So in that regard, we'll see a little bit of change there, but with other changes that we're having in the company and all will be compensating for these new investment areas and all. So we have a paced plan. We'll bring the sales force management-owned at the time, right at a time that we begin to do the interviewing with the CSO for our reps and all. We'll bring in the product manager, there'd be one individual sooner, where we can continue to outsource for certain expertise and support, we will do that. So we'll manage our SG&A in that manner. Dennis wants to add something also, Jason.

Dennis Turpin

And Jason, our guidance is that SG&A will remain to the same level than the first quarter for the second quarter, and we will update you on our next conference call for more precision on the third and fourth quarter.

Operator

[Operator Instructions] And your next question comes from the line of Graig Suvannavejh with MLV & Co.

Graig C. Suvannavejh - MLV & Co LLC, Research Division

Just a -- question just on the R&D strategic review. So I was down at AACR. I thought the poster presentation that you have there was very interesting, but just given where the company is moving towards, and while I say that it seems as if it's moving more towards a commercially focused company, how should we be thinking about how you're thinking about this R&D review?

David Alan Dodd

We are very keen on what we know today about AEZS-134, which means we don't know a lot because it's preclinical, as you know. We -- our focus is certainly to become a commercial operation as soon as possible and the reason why is no company survives without doing that, obviously, because we have to be able to generate revenues, replenish the reinvestment and all. At the same time, no company is sustainable without a vibrant growing portfolio. And our approach going forward, as we have commented on more recently, will be a combination of internal and external and all. What we have done recently is focus our investments towards our lead programs, which are MACRILEN and the ZoptEC trial, because we think it's critical to demonstrate to the investment community, to our shareholders, and most importantly, to ourselves that we're going to translate into an operating company and all. At the same time, our dilemma has been how do you -- how do we continue to support and show progress with an AEZS-134, our Erk inhibitor, this development area that we believe has some real opportunity behind it and all. Coming out of the poster presentation, obviously, other people saw the posters, they're interested in it. We're looking for, let's say, collaborative ways in which we might be able to continue to develop the program. At this time, we're not aggressively funding it because we have made, I think, the appropriate decision to focus on the MACRILEN and the zoptarelin doxorubicin, but we certainly are open to discussions with others and are looking for ways to be able to progress that. So it's not that we are going away from the R&D, it's that we are focused on transitioning into being a more balanced company. And hopefully, as revenues begin to build and all, we'll be able to accommodate some of these interesting earlier-stage programs more consistently.

Graig C. Suvannavejh - MLV & Co LLC, Research Division

Okay, that's very helpful. And then just a question on your BD efforts in terms of -- given where we are now versus the last quarter and your comments around we should expect to see something shortly, but can you give us maybe a sense of how you are seeing the market right now for products. Are there any things that are changing in terms of are prices going up? Are they going down? Are there more products available? Just -- and also if you could give us a sense of what types of products ideally are you looking for?

David Alan Dodd

Sure. We're looking for products that are not strategic to the current owner and that our -- obviously the fit -- that we can sell that do not require primary care activity because that would require certain investment levels that we are going to make and all. So we're looking for ones that we can go more deeply into a specialty type area and all. A $200 million product is not what we're looking for. So we're looking at products ideally in a revenue range of anywhere from that $5 million to $10 million, $25 million to $30 million and those types of things and. It would be ideal to have -- if it fits with -- if there's anything out there, which we continue to pursue and look at that might fit with a MACRILEN in some manner or endocrinology, that's certainly of interest and all. We are not averse to copromotion to get started in this regard because we want to begin to define our brand as a commercial entity. And certainly, a very efficient way in doing that would be to do a promotion -- copromotion agreement, working with someone else or taking up a product or product line for which they are not investing commercial activity because perhaps it's too small, nonstrategic, et cetera. And also, we're looking for ways that we can be creative on minimizing any transfer of cash towards that agreement. So if it's a promotion agreement, we may package it into at-risk selling and commercialization activities. By our part, we might look at it as a structured type of payment. So we're looking at approaches that make sense from that way. But generally, the product, ideally, we'd like to have products in oncology or endocrinology, but we're not averse to other areas if we feel we can have sufficient amount of impact and go deep on that prescribing a community and not having to go mile-wide, inch-deep, so to speak.

Graig C. Suvannavejh - MLV & Co LLC, Research Division

And my last question, if I may, just relates to the doxorubicin program and the interim data that you're expecting in the middle of 2015. Could you remind us what the triggering events may be around that interim analysis or...

David Alan Dodd

I'll ask Richard to -- Richard Sachse, our Chief Medical Officer and CSO. Richard?

Richard Sachse

Excellent question. The triggering event is actually 1/3 of the overall events. So as you may remember, the clinical endpoint here is overall survival. And triggering event for this interim analysis is having about 134 events and this then will trigger this interim analysis performed by our Data and Safety Monitoring Board.

Operator

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

David Alan Dodd

Thank you. Again, I want to thank everybody for your interest in Aeterna Zentaris and for our continued progress in building the business, moving it forward with our goal of becoming a commercial entity as soon as possible and delivering sustainable growth and performance. Thank you.

Operator

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

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