Earnings Transcript for AEZS - Q1 Fiscal Year 2018

Executives: Michael V. Ward - CEO James Clavijo - CFO

Analysts: Olga Smolentseva - H.C. Wainwright

Operator: Greetings and welcome to Aeterna Zentaris Reports First Quarter 2018 Financial and Operating Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael V. Ward, Chief Executive Officer for Aeterna Zentaris. Thank you, Mr. Ward, you may now begin.

Michael V. Ward: Thank you. Good morning and welcome everyone. My name is Michael Ward, President and CEO of Aeterna Zentaris. And with me today is James Clavijo, our Chief Financial Officer; and Brian Garrison, Senior Vice President of Global Commercial Operations. During this call, we will be making forward-looking statements regarding future events and the performance of Aeterna Zentaris. The forward-looking statements are subject to risks and uncertainties that could cause actual events and results to differ materially from the forward-looking statements. These risks are described in further detail in the Company’s press releases and reports filed with the SEC and Canadian Securities Regulatory Authorities. These forward-looking statements represent the Company’s judgment as of today, Tuesday, May 8, 2018 and we assume no obligation to update any of these forward-looking statements unless we are required to do so by applicable law or by a securities regulatory authority. We appreciate you’re joining this call. My comments today will center on the Company’s continuing positive transformation in the first quarter of 2018 with a focus on our out-licensing strategy for Macrilen, the only FDA approved drug in the United States for assessing growth hormone deficiency in adults. We ended first quarter 2018 in the strongest financial position in the Company’s past decade. Our licensing agreement of Macrilen in the U.S. and Canada with Strongbridge demonstrates the success of our development initiatives and now better positions to monetize our rights by licensing in territories outside of the United States and Canada. We continue to be focused on strong execution of the contractual obligations of Strongbridge. Last month, we met with the leadership team of Strongbridge for the first joint steering committee under our licensing arrangement. We are impressed with their pathways for its launch and plans to put Macrilen into the hands of practitioners. We have completed most of our transition activities with Strongbridge and now have a strong path forward for the next key phase in collaborating on the pediatric investigation plan. Our strategic focus for the balance of 20018 is to complete EU approval and registration activities for mass macimorelin and secure ex-U.S. license agreements for macimorelin. I now turn the discussion over to James who will provide more information about our first quarter 2018 fiscal year financial results.

James Clavijo: Thank you, Michael. Good morning, everyone, and thank you for joining us. Most of what I will be covering this morning has been presented in more detail in our consolidated financial statements and in our management’s discussion and analysis of operations for the first quarter ended March 31, 2018, which were filed yesterday. Revenues for the three months ended March 31, 2018 were $24.6 million as compared to $0.1 million for the same period in 2017. Revenues for the period ended March 31, 2018 were higher, primarily due to the recording of the upfront payment of $24 million received from Strongbridge. Based on the new revenue recognition standards, IFRS 15, recording of revenue from customers must follow a detailed five-step approach. Based on our conclusion of this approach, we determined that the payment provided a right to use payment and therefore we were required to record the entire amount at time of receipt and not amortize the payment. Operating expenses for the three months ended March 31, 2018 totaled $5.3 million versus $5.9 million in the comparative prior year quarter. On a comparative basis, 2018 saw a sharp decrease in our R&D expenditures and realization of cost savings in connection with our ongoing efforts to streamline our R&D activities. R&D expenses for the three months ended March 31, 2018 was $0.8 million compared to $2.5 million for the same period in 2017. The decrease is primarily related to a reduction of third-party costs, lower employee costs and lower facilities costs. Also affecting our operating results for the three months ended March 31, 2018 was a $1.8 million gain for the change in fair value recorded in connection with our warrant liability. This non-cash Mark to market revaluation reflects the increase of our common share price during the first quarter of 2018. Comparatively, in 2017 a gain of $1.4 million was recognized. During the quarter ended March 31, 2018. We recorded income tax expense of $6.9 million. This expense was higher than expected due to a recorded deferred tax assets and income tax recovery taken in 2017 for $3.5 million. We expect the income tax liability to decrease for the rest of 2018. Cash from operations provided approximately $16.7 million of cash during the three months ended March 31, 2018 as compared to cash used from operations of $7 million for the same period in 2017. This increase in cash provided by operating activities for the first quarter 2018 was a result of the upfront cash payment received from the Strongbridge licensing agreement. As of March 31, 2018, our unrestricted cash reserves were $24.5 million. Thank you.

Michael V. Ward: Thank you, James. We will open the conference call for questions. I am therefore turning the discussion over to the operator for instructions on the question-and-answer period.

Operator: [Operator Instructions] Our first question is coming from Olga Smolentseva from H.C. Wainwright. Your line is now live.

Olga Smolentseva: Hi. It’s Olga Smolentseva for RK from HCW. Good morning, Michael, James and Brian. How are you doing? Congratulations on the successful quarter.

Michael V. Ward: Thank you.

Olga Smolentseva: I had a few questions. First, could you provide a little bit more color on how our European partnership is going? Secondly, what are you planning in terms of potential marketed products, what kind of market products are you looking for and are planning to build a sales force or what are your future plans?

Michael V. Ward: Thank you, Olga. I think I’ll take the second question first. Macrilen is our only marketed product at this point. Our new focus, our strategy is that of in the endocrinology, therapeutic and diagnostic space. And so, James, Brian and myself, and some others from our Frankfurt operations are at various conferences looking for opportunities for us to rebuild our pipeline. On the first question, I was a little -- I think, I missed what the question was. So, if you wouldn’t mind repeating it.

Olga Smolentseva: Sure. Maybe a little bit more color on how European -- searching for European partner is going?

Michael V. Ward: Okay. Yes. So, we have been in discussions with several potential licensing partners in the -- what we’re assessing from those discussions is that they are going to wait until we submit our answers to the day 120 questions. We found that to be the same case in the United States when we were looking for a licensing partner. They were waiting closer to the time of FDA approval before getting into some serious discussions with us. And then, once we did get approval from the FDA, those discussions were very serious and went very quickly. And we’re finding that the same process will probably take place in Europe as well. We’ve had some exploratory discussions. We’ve identified three or four potential strategic partners. We had discussions with them. But, again, they’re waiting for our submission of our answers to the EMA. And we anticipate that those -- that submission will probably take place in July of this year.

Olga Smolentseva: Thank you so much. And just to clarify, so, you are looking to build pipeline in endocrinology space as well?

Michael V. Ward: Yes.

Operator: Thank you. Ladies and gentlemen, we’ve reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

Michael V. Ward: Well, thank you for your continued support and interest in Aeterna Zentaris. I look forward to updating you again when we discuss second quarter 2018 results.

Operator: Thank you. That does conclude today’s teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your presentation today.