Earnings Transcript for AEZS - Q4 Fiscal Year 2017

Executives: Michael Ward - CEO James Clavijo - CFO Brian Garrison - SVP of Global Commercial Operations Nicola Ammer - Chief Medical Officer and VP of Clinical Development

Analysts: Michael Okunewitch - Maxim Sean Lee - H.C. Wainwright

Operator: Greetings and welcome to Aeterna Zentaris Reports Fourth Quarter and Year End 2017 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. Mr. Ward, you may now begin.

Michael Ward: Good morning and welcome everyone. My name is Michael Ward, Chief Executive Officer of Aeterna Zentaris. And with me today is James Clavijo, our Chief Financial Officer; Brian Garrison, Senior Vice President of Global Commercial Operations; and Dr. Nicola Ammer, Chief Medical Officer and Vice President of Clinical Development. 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 U.S. and Canadian Securities Regulatory Authorities. These forward-looking statements represent the company's judgment as of today, Wednesday, March 28, 2018 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 this call. My comments today will center on the company's positive transformation in the fourth quarter of 2017 with the focus on our out-licensing strategy for Macrilen, the only FDA approved drug in the United States for assessing growth hormone deficiency in adults. As announced on January 17 of this year, we out-licensed Macrilen in the United States and Canada to Strongbridge Biopharma. We are now in a better position to maximize additional value of Macrilen by licensing in territories outside of the United States and Canada and long-term striving to build our product of portfolio by acquisition or licensing. Our transaction with Strongbridge confirmed our earlier strategy to position the company to maximize the value of Macrilen upon FDA approval. We are now focused on flawless execution of the contractual obligation for Strongbridge. We have been working with the exceptional leadership team at Strongbridge to transition Macrilen and on target to support their efforts to successful launch Macrilen as early as possible. Transition activities include completion of all registration of related translates to Strongbridge, execution of safety data and exchange agreements, completion of technology transfer activities and then the appointment of personnel to joint security committee who will meet for the first time on April 10, 2018. Finally, we are transitioning on the collaboration on completion of the pediatric investigation plan with Strongbridge. Additionally, our strategic focus is to complete EU approval on registration for macimorelin, secure U.S. license agreements for macimorelin and continued adjustment of the operating plan in Germany and the United States to reduce non-essential expenses. We have also made significant strides strengthening our leadership team with the addition of James Clavijo who joined us on March 5 as Chief Financial Officer. James brings over two decades of significant financial experience to the company. James also joins Aeterna from Tri-Source Pharma, where he most recently served as Chief Financial Officer prior to serving as CFO at Tri-Source Pharma. Clavijo also served for five years as the Chief Accounting Officer at Soligenix, a public biopharmaceutical company. James is highly skilled with building effective financial systems, organization restructuring, and developing solutions leading to financial and operational improvements. We are dedicated to building out accomplished team to take us through the successful out-licensing of Macrilen. I will now turn the discussion over to James who will provide more information about our fourth quarter and 2017 fiscal financial year results.

James Clavijo: Thank you, Michael. Good morning everyone and thank you for joining us. Most of what I’ll be covering this morning has been presented in more detail on our consolidated financial statements and in management's introduction and analysis of operations for the fourth quarter and year ended December 31, 2017 which were filed today. Revenues for the three months ended December 31, 2017 of 0.2 million were essentially flat with the comparative prior year quarter. On year-to-year basis 2017 revenues of 0.9 million were also essentially the same when compared to the prior year. Operating expenses for the three months ended December 31, 2017 totaled 3.8 million versus 7.6 million in the comparative prior year quarter. On a year-to-date basis the fiscal year 2017 operating expenses were 24 million versus 30 million for the 2016 fiscal year. On a comparative basis, 2017 saw a sharp decrease in our R&D expenses primarily related to the third-party cost, lower employee costs, and lower facilities costs. These reductions in costs are part of the ongoing efforts to streamline our R&D activities further attributed to this reduction and the cost of the conclusion of the Macrilen clinical trials and the discontinuance of the Zoptrex program. In addition, the elimination of sales representatives as part of the restructuring efforts also contributed to this reduction. We also had effect from our operating results for the three months ended December 31, 2017 was a $2.2 million charge attributable to 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 fourth quarter of 2017. Comparatively, in 2016 a charge of 4.4 million was recognized. During the year ended December 31, 2017 we also took an accounting charge for income tax recovery of 3.5 million for the recording of a deferred tax asset. We used approximately 22.9 million of cash in operations during the three months ended December 31, 2017 as compared to 29 million for the same period in 2016. This decrease in cash used in operating activities for the fourth quarter 2017 was the result of restructuring and program changes as described earlier. As of December 31, 2017 our unrestricted cash reserves were 7.8 million. During the quarter we also utilized our ATM program which contributed cash of approximately 8 million. Thank you.

Michael Ward: Thank you, James. We will now 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 from the line of Jason McCarthy with Maxim. Please proceed with your question.

Michael Okunewitch: Hi, this Michael Okunewitch on behalf of Jason McCarthy. I just wanted to know if you could provide a bit more clarity on the expected timing and dynamics of the U.S. launch like how you expect sales to ramp and then the same for Europe?

Michael Ward: Well Michael, the Strongbridge has the commercial rights to Macrilen in the U.S. I listen to their call, I think about 7 to 10 days ago where they indicated that they were not making any forecast but they expect it to launch Macrilen near the end of Q2 of this year. For your second question, we are undergoing EMA registration of macimorelin over a year. We’re not allowed to use the name Macrilen so we are using the generic name macimorelin. We have just received last week the 120-day questions that come in from the EMA and our teams are carefully reviewing those questions that came in and we anticipate being in a position to file response to the EMA to these questions sometimes in July of this year and if there are further questions that stop the clock, we would hope that macimorelin could launch near the end of 2018 or early 2019 in - yes if approval is given by the EMA for macimorelin. As part of our strategy we will be out-licensing macimorelin in Europe as we are in the U.S. and Canada.

Michael Okunewitch: And then just how did you expect the sales dynamics when you launch or are you not looking to give guidance on that?

Michael Ward: No, we're not going to be giving guidance that would be - we would be looking towards Strongbridge would publicly state what they think it is and then we would probably discuss it with them before we came out with our own forecast. Since they have the licensee rights we are going to follow what they have to say.

Michael Okunewitch: Okay, thank you. That answers that question very well. And then I just wanted to know that also with Macrilen approved now, what do you see as the next steps for development further down the line after everything with macimorelin is handled?

Michael Ward: Well, one of the reasons James was just recently hired as for us to really go out and work with Brian Garrison who is on the call and our Business Development Executive in Frankfurt, Germany. And look for those opportunities we’re looking for products in the endocrinology space. But I think at this point we’re just really focused on flawless execution of providing support to our licensees. With respect to Strongbridge we are operating presently and in the near future as their supply chain. And so very successful with that success and then what we find an opportunistic acquisition to make we will evaluate and to see that if our Board approves it.

Operator: Our next question is from the line of Sean Lee of H.C. Wainwright. Please proceed with your questions.

Sean Lee: I see that the expenses have come down quite a bit over the last quarter, and is that trend expected to continue into quarter one. And also what are the operations that are still left in Europe in particular and do you expect that to wind-down further over 2018?

Michael Ward: Sean, I want James to talk about the first question on the financial but for the operations in Germany we had as you recall major restructuring plan announced in Q2 of 2017. It might have been a little too aggressive and we retained all the expertise related to Macrilen that might have been part of the severance program. So, we’re pretty comfortable where we stand in Frankfurt. We have 15 employees three or four which are part-time over there now but that is the nucleus for the team that brought Macrilen to approval and that will be handling the EMA registration activities and the clinical development plans for Macrilen for pediatric indication. And in terms of development, most of our labs were closed as part of the restructuring back in early 2017. So at this point we're mostly focused on - for future product pipeline or products that they are approved already that might not be commercially viable for larger companies. So I think moving forward we’re going to be more of a business development opportunistic company then augment our pipeline. With respect to the financials, I’ll let James respond.

James Clavijo: Yes, I mean our operating expenses for 2018 we expect those to range in the $12 million area, so that’s a significant decrease from prior years.

Operator: Thank you. At this time, I’ll turn the floor back to Mr. Michael Ward for closing comments.

Michael Ward: Thank you, everyone. And thank you for your continued support and interest for Aeterna Zentaris. I look forward to updating you again when we discuss first quarter 2018 results.

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