Earnings Transcript for AEZS - Q3 Fiscal Year 2017

Executives: Michael Ward - CEO Jeff Whitnell - Interim CFO Richard Sachse - CMO and CSO

Analysts: RK Swayampakula - H.C. Wainwright

Operator: Greetings and welcome to the Aeterna Zentaris Reports Third Quarter 2017 Financial and Operating Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Ward, Chief Executive Officer for Aeterna Zentaris. Thank you, Mr. Ward, you may now begin.

Michael Ward: Thank you. Good morning and welcome everyone. This is Michael Ward, Chief Executive Officer of Aeterna Zentaris. And with me today is Jeff Whitnell, our Interim Chief Financial Officer and Richard Sachse, our Chief Medical Officer and Chief Scientific Officer During this call, we will be making forward-looking statements regarding future events and the performance of the 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 US and Canadian securities regulatory authorities. These forward-looking statements represent the company's judgment as of today, Thursday, November 9, 2017 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 these statements, if we do so, we will disseminate the updates to the investing public. We appreciate you joining us this morning, during this call my comments will center around the company's laser focus and preparation for FDA approval of Macrilen by December 30 of this. Macrilen will be the only the FDA approved drug in the United States for assessing growth hormone deficiency in adults and represents a potential game changer for the endocrinology community and patients given its potential to reduce the burden of testing options currently available. We've made progress building out a stronger management team and adopting a disciplined process for review of plans, resources and opportunities. The addition of Jeff Whitnell who joined us on September 25, 2017 as Interim Financial Officer is testimony to our dedication to improve our team. Mr. Whitnell brings over three decades of experience to the company and is accomplished financial executive. He is highly skilled at building effective financial systems, organizational restructuring and developing solutions leading to financial and operational improvements. Since joining the company, Mr. Whitnell has helped create a business model focused on cost containment, zero-based budgeting and preserving cash reserves to prepare for the Macrilen launch, including streamlining our global finance department. Additional strategy is to further maximize the value of intellectual risk capital for Macrilen include adjusting the reduction in forced plan in Germany and retaining key employees who contributed to the development of Macrilen. We have also retained Stifel Nicolaus as strategic advisor to our strategic review committee of our Board of Directors. At the executive level, we retained Reilly Connect, a communications firm, bringing in three decades of experience in all aspects of communications and marketing in the health pharmaceutical and health sector to strength our messaging. This has been a quarter of strategic change. We are dedicated to building out accomplished and dedicated team to take this through the approval and commercialization of Macrilen and have made significant strides in this quarter to demonstrate our commitment to better position the company to maximize the value of Macrilen upon its approval. I will now turn the discussion over to Jeff who will provide more information about our third quarter financial results.

Jeff Whitnell: Thank you, Michael. Good everyone, thank you for joining us. Most of what I'll be covering this morning has been presented in more detail in our consolidated interim financial statements and in the management's discussion and analysis of operations for the third quarter of 2017 which the company filed yesterday. Regarding the income statement, a few comments, revenues for the three months ended September 30, 2017 of $241,000 were essentially flat with the comparative prior year quarter. On a year-to-date basis, 2017 revenues of $745,000 were higher than preceding 2016 year-to-date revenues due to nine months of earned sales commissions in 2017 versus four months of earned sales commissions in 2016. Operating expenses for the three months ended September 30, 2017 totaled $7.4 million versus $8 million in the comparative prior year quarter. And on a year-to-date basis September 2017 operating expenses were $20.2 million versus $22.5 million for the comparative 2016 year-to-date period. The third quarter 2017 operating expenses included approximately $3.1 million of restructuring charges. These restructuring charges pertain to our facility in Germany and include both severance and owners contract lease charges. Also affecting our operating results for the three months ended September 30, 2017 was a $2.6 million charge attributable to 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 third quarter of 2017. On a year-to-date basis we recognized finance income for our warrant liability of $2.7 million for 2017. This non-cash mark-to-market revaluation reflects the decrease of our common share price from January 1, 2017 through September 30, 2017. We used approximately $5.5 million of cash in operations during the three months ended September 30, 2017 as compared to $5.7 million for the same period in 20165. This decrease in cash used in operating activities for the third quarter 2017 was the result of our rigorous cost containment efforts and disciplined spending. As of September 30, 2017, our unrestricted cash reserves are $12.2 million. During the quarter, we also utilized our ATM program which contributed cash of approximately $3.3 million. I appreciate your attention and will now turn the discussion back to Michael.

Michael Ward: Thank you, Jeff. We will open the conference all for questions. And therefore the discussion over to the operator for instructions on the question-and-answer period Thank you.

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

Unidentified Analyst: Hi, there. [indiscernible] on behalf of Jason Kolbert. I'd like to just ask about the strategy for driving adoption with the planned launch of macro in 2018?

Michael Ward: Sure. That's a great question Jason. We have been working months with several outsourced partners. We are working with - from a distribution standpoint we're working with ICS which is a subsidiary of AmerisourceBergen. We are also going to be utilizing the telesales program that they have at AmerisourceBergen. Their sales representatives and their reimbursement team as well. We're also using D2 Pharma as part of our reimbursement strategy because as we know, we - you can launch a drug, but if there isn't reimbursement coverage, the launch will not be a successful as you would otherwise hope to have. From the European side, our supply chain is ready to go, we have weekly calls with our supply chain partners. So we still anticipate early February 2018 launch of the product upon giving approvals by the FDA on December 30. We intend to build out own sales force. As I look at the kind of the heat map for pituitary and endocrinology centers. I'd like to have an accomplished sales team situated in those areas where we would see the most use of our product in those centers. So we are in process of looking for a VP of sales to build out a sales team. And our sales team is just going to be focused on where the - where we see growth hormone deficiency centers are located and being prescribed.

Unidentified Analyst: So are you planning to increase the sales force now or after approval.

Michael Ward: Well, we had a contract sales organization, we've had I guess have done for several years. That agreement expires today. And rather than renew it, it really wasn't the right group of professionals for us to sell Macrilen, we're looking more for those who have more scientific degrees, those who have been in endocrinology and pituitary centers and worked with endocrinologists. We would rather handle it ourselves rather than the contract that important piece out. We will probably start hiring at the mid December. I know a lot of the large pharma companies are in the midst of restructuring, so we think we have a lot of talent out there to recruit from, but we will review recruiting for the geographies in which we believe the largest usage of Macrilen would initially be used, which would be the pituitary centers and endocrinology centers.

Unidentified Analyst: And just one more quick question. Looking forward, what are your plans to expand Macrilen? Are you just going to focus on the US right now? I mean, like other geographies or indications?

Michael Ward: We are engaged in out-licensing for ex-US. So we are only going to be selling in the US. We will look for partners outside the US. Dr. Sachse can talk about what we've recently done. I think it was earlier this week, which would - and Richard, if you wouldn't mind just letting Jason know what filing we just made.

Richard Sachse: Yes. Thanks. As you know, we had our NDA with FDA on the 30th of June and subsequent to these interactions with the FDA, we engaged into discussions with the European regulatory agencies, had a meeting with our [indiscernible] as well as with the EMA, and both meetings really were very encouraging, leading us in the end to submit our MAA to the EMA, meeting the 6th of November time window. The submission is currently under former validation by the EMA and we hope to lead actually the revenue cycle that will start later this month following a formal validation.

Operator: [Operator Instructions] Our next question comes from the line of RK Swayampakula with H.C. Wainwright.

RK Swayampakula: I'm sorry if some of these questions have been asked before, because I just got on the call myself. In terms of the Macrilen application with the FDA, could you please highlight for us what sort of communications you all had with the FDA at this point, especially after filing your response to the CRO?

Michael Ward: Surely and RK, I will have Dr. Sachse who has been on the frontlines of those communications. Richard, could you?

Richard Sachse: Thanks, RK for the question. We had submitted our NDA as I just stated on the 30th of June, following intensive discussions with the FDA during a meeting back in March this year, during which we agreed with the FDA on a path forward. Following our submission, FDA communicated with us on the PDUFA date, which is determined for the 13th of December this year. And now the package is under review by FDA. We receive [Technical Difficulty] was critical so far in our opinion. Also, FDA already did some site inspections at some of the clinical sites that were involved in the Phase 3 study and the outcome of all these inspections was very good. We're still looking forward to a site inspection of our own office here in Frankfurt and we have the feeling that the submission is well on track and we are looking forward to a hopeful tool on the 13th of December this year.

RK Swayampakula: And in terms of having enough material once you get on launch, I know you talked a little bit from the previous - from Jason's questions on commercialization, but just trying to understand regarding having enough material and what sort of a launch are you kind of expecting, are you planning to start up at really key centers initially and then pushing it across the country? How do you want to progress with this launch?

Michael Ward: So, RK, we are going to be focusing on the key teaching hospitals, key pituitary centers that our market researchers identified. We recently have gone out with a kind of a market sizing survey that we had a third-party prepared for us and based upon our own co-promotion deal with the size of the product, we have gathered some entail. So we have identified certain pituitary centers and endocrinology centers where we believe the most use of Macrilen would be prescribed. Those will be where we initially target. If we really want to get early adoption with those, we have a fairly strong relationship and Dr. Sachse can probably attest to that as well, with some of our KOLs who conducted some of our clinical studies. So we're hearing very good things from our KOLs on Macrilen once it becomes approved and just kind of weaving all that together, we have a fairly solid plan for launch where we would initially send our reps and then from there, we would go to the community based hospitals, but again with what we've seen, our plan is really in the first year to focus on where the key endocrinologists have their practices and put our sales force and our third-party sales force through AmerisourceBergen and other distributors into those centers to educate them about the approval and use of Macrilen.

RK Swayampakula: Great. And one last question for me. Is the management continuing to plan to conduct studies outside of the current indication, like for example, TBI was something which had been flagged and so I'm just trying to figure out if you're continuing to think about it and want to do a study in that indication?

Michael Ward: Yes. And I can turn this over to Dr. Sachse because we have both the TBI in our radar as well as pediatric and we've actually had a bit of a head start on what we would do for pediatric in Europe. So, Richard, if you wouldn't mind just elaborating a little bit more.

Richard Sachse: Yeah. RK, as we pointed out previously, TBI is not a separate indication, because what we, our label in the end will state that Macrilen - will hopefully state that Macrilen will be indicated for the evaluation of growth hormone deficiency. And this doesn't rule out a particular cause of growth hormone deficiency. In other words, all of the patients that have TBI do already quality for administration with Macrilen and do already qualify for undergoing the evaluation of the diagnosis with Macrilen. In fact, quite a significant number of the patients in our Phase 3 study were patients suffering from a TBI. Nevertheless, we are still in discussion with some of the centers who have a lot of patients in TBI and who aim to study the value of the growth hormone treatment in such patients and obviously for - before treating those patients, they need to be diagnosed and we are currently evaluating to what extent our drug could be used for such diagnosis in larger studies and this would obviously help us in the placement of Macrilen. But never forget the indication will not exclude patients with TBI, it will be rather part of the label. For pediatrics, this is certainly something that we want to follow on and that we need to follow on. As we previously alluded to, in order to file a MAA in Europe requires that you have agreed with the EMA on a pediatric development plan. We communicated earlier this year that we have agreed with the European EMA on the pediatric development plan and our plan is to engage into such development as soon as possible, however, we also want to have FDA involved and therefore, our plan is as soon as we have approval for, as we engage in to discussions with FDA on the pediatric development plan and then start it off.

Operator: Mr. Ward, there are no further question at this time. I'll turn the floor back to you for any final comments.

Michael Ward: Thank you. Thank you, everyone for your continued support and interest in Aeterna Zentaris. I really look forward to updating you again when we discuss full year 2017 results.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.