AEterna Zentaris Inc. (AEZS)

[chmcnfunds]

Aeterna Zentaris' (AEZS) CEO David Dodd on Q3 2016 Results - Earnings Call Transcript

Nov. 9, 2016 12:44 PM ET|2 comments | About: AEterna Zentaris, Inc. (AEZS)
Q3 2016 Earnings Summary

Q3 2016 Earnings Conference Call

November 09, 2016 08:30 AM ET

Executives

Philip Theodore - Senior Vice President & General Counsel

David Dodd - President and Chief Executive Officer

Genevieve Lemaire - Vice President of Finance and Chief Accounting Officer

Jude Dinges - Senior Vice President and Chief Commercial Officer

Analysts

Jason Kolbert - Maxim Group.

Swayampakula Ramakanth - H.C. Wainwright & Co., LLC

Operator

Greetings and welcome to the Aeterna Zentaris Third Quarter 2016 Financial Results and Operating Results. At this time, all participants are in 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 Phil Theodore, for Aeterna Zentaris. Thank you, Mr. Theodore. You may now begin.

Philip Theodore

Good morning and welcome, everyone. I’m Philip Theodore, Senior Vice President & General Counsel of Aeterna Zentaris. I’m the leader of today’s call.

With me are David Dodd, President and CEO; Genevieve Lemaire, Vice President of Finance and Chief Accounting Officer; Jude Dinges, Chief Commercial Officer.

During this call, we will 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, Wednesday, November 9, 2016 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.

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

David Dodd

Good morning and thank you for joining us. We entered the third quarter with $21.1 million of unrestrictive cash and cash equivalents which is indicative of an average monthly use of cash and operations of $2.3 million during the nine-month period ended September 30th. We still expect the use of average of between $2.5 million and $2.7 million of cash for operations per month in 2016.

After the end of Q3, we concluded a successful financing transaction which substantially improved our financial condition on the eve of the completion of our two pivotal Phase III trials. We raised $7.56 million of gross proceeds from the sale of common share, pre-funded warrants and warrants that are registered direct offering on November 1. Also between September 14 and October 14, we raised approximately $2.3 million in gross proceeds from the sale of common shares pursuant to our ATM program.

Therefore, we have the funds necessary to complete our pivotal Phase III trials to report top-line results from both and to file a new drug application for Macrilen during the first half of 2017. If the results of that trial weren't doing so.

While we will need to raise additional funds before we are able to bring a product to market we expect that reporting favorable top-line results from one or both of our clinical trials will permit us to do on favorable terms.

Also after quarter end, we concluded our fourth license agreement for Zoptrex with a specialized therapeutics agent for the territories of Australia and New Zealand. We received an upfront payment and will receive additional milestone and royalty payments if have positive top-line results and as commercialization of the product proceeds.

Specialized Therapeutics is a successful specialty oncology competitor in that region and we are delighted to have their confidence of Zoptrex and to have them as our commercial licensee. Recruitment of patients for our confirmatory clinical trial of Macrilen was concluded after quarter end.

We are confident in our ability to complete the trial and report top-line results in early 2017. We are also on track to file an NDA for Macrilen during the first half of 2017 if the results of the trial support.

Since the regulatory review period for the Macrilen confirmatory study is six months, we could begin commercializing the product late in 2017. As noted in our press release we expect to release top-line results for both our Phase III clinical trials of Zoptrex and Macrilen in the first quarter of next year.

If approved Macrilen will be the only FDA approved drug for assessing adult growth hormone deficiency. We expect that endocrinologists will rapidly abandon the insulin college test in favor of the much simpler and much safer use of Macrilen for the assessment.

We believe that Macrilen represents a $30 million to $50 million market opportunity in U.S. alone and then approximately 40,000 confirmatory tests for adult growth hormone deficiency or AGHD will be conducted each year after the introduction of Macrilen.

We believe that there is an opportunity to significantly expand that market, if we are able to convince medical practitioners who follow existing Endocrine Society guidelines for the evaluation for brain injury patients for AGHD. We are continuing to study this market and are working with a leading pricing consultant to assist us with our access and reimbursement strategy.

Zoptrex if approved will be the only FDA approved treatment for advanced, recurrent or metastatic endometrial cancer. We believe this represents a $300 million to $500 million annual market opportunity in the US and that there is significant additional upside for other indications including ovarian and prostate cancer, both of which have already been the subject of Phase II trials.

For comparison like the [indiscernible] doxorubicin currently generates approximately $500 million in annual revenues in the U.S. it is nearly a coded form of doxorubicin lacks the targeting mechanism of Zoptrex and appears to represent a slide improve on over standard doxorubicin.

As a result, upon FDA approval we will hope to displace most of the [indiscernible] doxorubicin used within our indication fairly quickly. These two Phase III clinical trials represent potentially significant near-term value drive. Few companies can look forward to the completion of two Phase III clinical trials at about the same time.

If one or both of our trials were successful, we would expect to see the creation of significant value for our shareholders. Confirmatory Phase III trials protocol Macrilen and the straightforward, which is why we will be able to complete in just about one year.

We recruited approximately 150 patients in several groups, consisting of those with high medium and low risk of having AGHD and a group of healthy volunteers. Approximately 25% of the patients were recruited in the U.S. overall, there were approximately 25% of the total patient within each of the four groups.

Each patient was randomized to receive either the insulin tolerance test or Macrilen. The results of the test were recorded and after brief washout period, the participant was evaluated using the other treatment or procedure. A small number of participants were asked to undergo continued evaluation with Macrilen to satisfy the EMA's request for generation of data or reproducibility of the test.

You will recall that our confirmatory Phase III trials design to satisfy the EMA’s requirements as well as the FDA’s. We expect to be able to report top-line results in early 2017, because the trial is so straightforward. Primary end-point s of the study or the percentage of negative and positive agreement between the insulin tolerance test and Macrilen.

Our NDA preparations is in very good shape as we will be updating many of the modules from the previous [indiscernible] and expect to be able to submit the NDA during the first half of next year and because we have a six month review period to begin commercializing Macrilen before the end of 2017.

And let's take a few minutes to review the background related to the medical need for and value opportunity potential for the Macrilen. Growth hormone is the hormone created by the pituitary gland that plays a critical role in health throughout life. Most of us are familiar with the role growth hormone plays in the development stature and body maturation in early child growth and development.

However, in adults, growth hormone is a potent regulator of various elements of our ongoing health. Critical to maintain the appropriate balance of metabolism, cell growth, cell reproduction and cellular regeneration. In other words, growth hormone is a critical regulator on our ongoing health and wellbeing throughout life.

Deficiency of growth hormone has consequences in adults just has it does in children. Typical presentations within adult growth hormone deficiency include the diminishing body mass, or bone density as well as numerous physical and physiological symptoms.

There are numerous causes of AHGD as compared to growth hormone deficiency in children. While in adults, it is more complicated to initially identified patients who might be suffering from AGHD. Regardless the primary method of confirming growth hormone deficiency in both children and adults is the same, provocative testing.

Primarily using the insulin tolerance test referred to as ITT. This has been the gold standard over the past 30 to 40 years. The ITT is the standard of provocative testing for growth hormone deficiency in fact throughout the world.

Treatment for growth hormone deficiency or GHD in either children or adults is straightforward. It consists of the administration of recombinant growth hormone. Beginning at the time of confirmed diagnosis until the endocrinologist determines that such treatment is no longer necessary.

In children this is typically when they complete their growth, usually around ages 18 or 19. In adults, it continues from the point of confirmed diagnosis throughout the remainder of their live. In adults, growth hormones therapy provides a host of meaningful benefits resulting in improvement and quality of life for most patients. Macrilen potentially represents a significant improvement in the way endocrinologist will evaluate AGHD.

It will be dispensed in a form of the powder in a sachet, which will be dissolved in water. The endocrinologist will determine the amount of solution which the fasting patient will drink based on the patient’s body weight.

The Macrilen that the patients drinks will enter the blood stream where it will travel to the pituitary gland. In the pituitary gland, it will bind to the ghrelin receptor and calls the pituitary gland if it is healthy to secrete growth hormone.

After a brief waiting period, a nurse or physician’s assistant will draw a blood sample from the patients. Then the patient will be discharged and would be able to drive himself or herself home or to work and to complete his or her daily routine.

The growth hormone level will be measured in the blood drawn after administration on Macrilen using a standard test that can be performed by any clio lab and will be compared versus a predefined cut-offs value.

If the patient’s pituitary gland is healthy, the growth hormone level in the post administration blood sample will be above the cut-off level. If it is not the endocrinologist knows that the patient’s pituitary gland is not healthy and thus the patient is suffering from AGHD.

Now let’s some compare this with the current gold standard for evaluating AGHD. The illustration on top of the slide depicts the administration of the insulin tolerance test or ITT. It beings with the blood draw from a [Indiscernible] patients and it gets complicated to somewhat scary.

The patient is placed in a medical setting and receives an insulin injection to induce a hypoglycemic state. Following the insulin injection the patient must be continuously monitored by a physician, because the results of induced hypoglycemic can be detrimental to one’s health.

In fact, the procedure requires such close physician monitoring that some hospitals and clinics refuse to allow it to be performed in their facilities. Moreover, the procedures is contraindicated in specific patient groups such as patients with cardiovascular disease or patients with seizure disorder.

Following the insulin injection, blood is drawn from the patients several times so that the physician can monitor the patient's blood glucose levels. But also to measure of growth hormone plasma concentrations, when the desired to agree the hypoglycemia is produced including hypoglycemic symptoms, a final blood draw is taken and the patient is allowed to recover.

The patient must be observed during the recovery and depending on symptoms severity may require to receive a glucose drinking solution or even a glucose infusion. Moreover, the patient is not able to drive or to return to work. The blood samples are sent to the Clio lab where they undergo the same testing used following the evaluation with Macrilen.

We believe that the insulin tolerance test is sufficiently complicated, dangerous and expensive. The endocrinologist are discouraged for evaluating patients for AGHD and medications. We also believe that many patients who should be tested for AGHD avoid such if the intended test is the ITT.

In fact we believe that is likely why most traumatic brain injury patients are not evaluated according to the existing Endocrine Society guidelines. Changing this paradigm with the approval and availability of Macrilen represents a significant commercial opportunity for us if the product is approved and a significant improvement in the marrow testing for adult growth hormone deficiency. So we believe that there is a compelling commercial case for Macrilen. Let me also remind you that the ITT is not an FDA approved procedure.

What really sets Aeterna Zentaris apart is that we have another compound Zoptrex to which in our opinion the commercial case is even more compelling. Now let me explain why. As you know, overall survival is the primary end point of our pivotal Phase III study of Zoptrex. We are seeking to demonstrate through our Zoptrex study that patients who receive Zoptrex survive longer than patients who receive doxorubicin.

The conclusion of a study with an overall survival end-point is reached when a predetermined number of patients in the trial die. Only then is it reasonable to compare the survival of the patients who received the investigational drug with the survival of the participants who did not.

Success of our study depends on patients who are randomizing Zoptrex attaining a statistically meaningful difference in median overall survival as compared to those randomized on doxorubicin.

The women who enrolled in our study were afflicted with locally advanced, recurrent or metastatic endometrial cancer that progressed after they receive one care chemotherapy regiment with platinum and [indiscernible] either as adjuvant or first line treatment.

We designed our study around this type of patients, because we believe that their treatment represented the greatest medical need. Our goal is to increase the overall survival beyond what could be expected with doxorubicin alone while reducing the potential drastic side effects typically associated with doxorubicin such as cardio toxicity.

We completed enrollment in the study at the end of the second quarter of 2015 and dosing was completed in February of 2016. The period of overall survival is now longer than we assumed when we designed the trial. As a result, it is taking longer than we expected to complete the trial.

Although we don't know the breakout between those on Zoptrex versus those on doxorubicin, we are encouraged that these patients are continuing to survive and we look forward to the completion and results reporting of this clinical program.

Our current expectation is that we will report top-line results during the first quarter of 2017 and then we'll be able to file a new drug application for Zoptrex during the second half of 2017 based upon supportive results.

As a result of the increased interest in the non-U.S. rights to Zoptrex we created an electronic data room and are admitting parties who are potentially interested in licensing the product. There has been quite a bit of interest, at this time we will entertain offers for smaller territories, but intend to postpone discussions with parties interested in the larger territories and so after we receive top-line results.

If top-line results are positive, we believe the rights to Zoptrex in large territories such as the EU will be very valuable. The interest in Zoptrex is indeed gratifying. We have not disclosed the amount of upfront payments we received from our last three licensees, because of the wish to maintain the confidentiality of the commercial terms of their transactions with us. Of course, we must respect their wishes.

These transactions are important to us for two reasons. Firstly, indicate that other companies share our optimism about the potential of Zoptrex. Second, if Zoptrex is approved in the territories of our licensees we can expect to receive both milestone and royalty payments from our licensees as they commercialize the product in their respective territories.

Now I'll turn the call over to Genevieve Lemaire our Vice President, Finance and Chief Accounting Officer who will provide more information about our third quarter financial results.

Genevieve Lemaire

Thank you David and good morning everyone. Most what I will be covering is presented in more detail in our interim consolidated financial statements and MD&A for the third quarter which were filled yesterday.

From an operating expense standpoint, our main operating activity during the third quarter included ongoing efforts associated with our clinical development initiatives guest. As well as to a lesser extent with our commercial operation and general and administrative activity.

Total operating expenses amounted approximately $8 million for the quarter ended September 30, 2016. Representing a 4% increased if we compared to the same period in 2015. Which mainly explained by R&D costs.

Our total R&D cost in the quarter were approximately $4.5 million as compared to $4.1 million in the third quarter of 2015. The increase in R&D expenses about the 400,000 and mainly attributable to the new [indiscernible] clinical trial for Macrilen, which started during the second half of 2015.

The first patient was enrolled in the fourth quarter of 2015 and we announced completion of patient recruitment in the fourth quarter of 2016. We continue to realize the benefit of lower employee compensation and benefits costs and lower other costs. A substantial portion of which is due to the realization of cost savings in connection with our efforts to streamline our R&D activities and to increase our commercial operations flexibility by reducing our R&D staff.

Our pivotal Phase III trial of Zoptrex and complimentary Phase III pivotal trial Macrilen continues to be the primary driver of our third-party R&D expenses. Excluding the foreign exchange rate fluctuation, we now expect that we will incur overall R&D cost of between $17 million and $19 million for the year ended December 31, 2016.

The increase as compared to [Indiscernible] guidance for 2016 as mainly explained by the infinitive additional adjustments that will be made to a contract with Argaman which are mainly due to increased timeline.

Looking now to our G&A expenses. The recent quarter ended September 30, 2016, G&A expenses totaled approximately $1.6 million as compared to G&A expenses of $1.9 million during the same period in 2015. The 300,000 quarter-over-quarter reduction in G&A cost was attributable to the realization of cost savings in connection with our corporate restructuring, which was announce in the fourth quarter of 2015.

Our 2016, [indiscernible] G&A cost was now a range between $7 million and $8 million which exclude any online instructing program as included in transaction cost related to the warranty due in connection with the November 2016 operating, which was announce in September 30, 2016.

From a commercial operation standpoint. We continue to [indiscernible]. Selling expenses during the third quarter of 2016 were approximately $1.8 million and we are essentially unchanged compared to the selling expenses during the same period in 2016. We are still comfortable with our estimate at total selling cost in 2016 we were in a range between $7 million and $8 million.

We reported net finance income of approximately $1.6 million in the third quarter of 2016 as compared to net finance cost of approximately $7.9 million during the third quarter of 2015. The variance is mainly attributable to the in fair value of our warrant liability, which resulted from the periodic mark-to-market valuation of our outstanding warrants.

The mark-to-market warrant valuation during the quarter was mainly impacted by the exploration of the remaining [Indiscernible] warrants. And that intend the closing price of our common share on the NASDAQ was more stable in 2016 are some greater to the same period in 2015.

From a cash flow standpoint, we used approximately $5.7 million of cash in operation in the third quarter of 2016, as compared to approximately $7.2 million in the same period in 2015. We used less cash in the third quarter of 2016 than in the prior year quarter, primarily due to the increase in trade accounts payable as compared to June 30, 2016, as well as the upfront cash payments received in consideration for the license issued to [Indiscernible].

During the nine month period ended September 30th, our average monthly cash flow used in operation was approximately $2.3 million. We intend to now expect that our average monthly cash flow used in operation will range between $2.5 million and $2.7 million in 2016. We ended the quarter with unrestricted cash and cash equivalents of approximately $21.1 million.

And now, I’ll turn back the call over to David, who will entertain questions.

David Dodd

Thank you, Genevieve. My colleagues and I will now answer your questions. I’m therefore turning the call to the operator for instructions on the question-and-answer period.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first is coming from the line of Jason Kolbert with Maxim. Please proceed with your question.

Jason Kolbert

Congratulations, very exciting a lot of progress on the quarter. Can we talk just a little about exactly where you are in terms of the Zoptrex trail? Help me understand kind of the process of going through closing the data set, doing this statistical and now offset and then we are reporting the data and I wonder if you can give me a little bit tighter granularity in terms of when exactly we might see the data and a similar set of questions for Macrilen.

David Dodd

Sure, Jason. This is David. Thank you, good question. So as of couple of days ago we have 371 events of deaths minimum of 384 to lock the database. Now as we have mentioned in recent calls and on this call also the rate of deaths has slowdown considerably we believe there is likelihood that we will reach the minimum number possibly this month. And the process that we will go through is once we achieve a number of around 375 we will inform all sights that the next patient visit - they schedule the last patient visit for each patient log. And then as we reset minimum, we will then lock the database.

Now since there are 125 sites and over 500 patients in this trial and about a 130 remaining, we are 129 now remaining and all when we get a report that there are 371 deaths as you might imagine there probably at that point more than that I don’t know what the number is, maybe we're at 375 already, because the process is if someone in the family needs to report the death to the clinical office which then reports it to the CRO et cetera, et cetera.

And it's usually not the first thing someone wants to do when a loved one has passed away. And so there is a timing factor in there, but the process we will go through will be the following. As soon as we reach a point that we then inform and all sites notify the patients to be scheduled for their last visit and all. We will then go lock the database down, every site needs to be visited before we have the CRO all the case report forms check, all the quality assurance has to be done leading to then the quality sign out from the appropriateness of the database to then being addressed statistically. In total, it is estimated that it takes about eight weeks from the point in which we lock the database at the patient level to when we have top-line results.

If we are correct on this then we would be looking at the early part of next year that we would be receiving and the process of receiving a top-line result is that the CRO whatever [indiscernible] present them, everything is reviewed, it's a very formal process as you might imagine and its signed off. And then at that point we will issue a press release and possibly hold a conference call.

Right now we're anticipating that to occur promptly - excuse me on Zoptrex that would be in early to mid February, I apologize I was thinking Macrilen. So that would be in early to mid February as everything we see going on right now.

With Macrilen, we have now ended the recruitment, we may this week complete all enrollments of the patients and all and then we will go through the process, same type of process. On a smaller scale there are about 29 sites, we previously thought there were 30 in all, but there were actually 29 full productive useful sites. So we have 29 sites, quicker process to go through, our anticipation is in the very early part of January we will be able to announce and report the top-line results for Macrilen.

Jason Kolbert

David that's really helpful and it does help me appreciate the timing. When you look at the internal resources in your ability to kind of process two trials at the same time. I just wonder if that’s a little bit of a constraint and at the same time, help me understand when your BD [indiscernible] should we be expecting a lot of activity, because I would think at this point that of the BD state pharma opportunities around both products right now would be starting to ease off. So the stress factors on management have to be really high right now.

David Dodd

And the excitement, so we actually have five clinical programs that cover these two products, because we have the reproducibility study, we have the QT study, so those are three for Macrilen. We have the clinical trial program for Zoptrex, the PK study also, et cetera. So our team has been managing five clinical programs that relate to these two products now.

We have engaged external resources to assist in the dossier preparation, in some instances they have already begun on their portion of it, fortunately for Macrilen much of the elements of the dossier were already done a few years ago. So there is not a lot of work, obviously the clinical work is the full clinical design. Now that is lieu in all.

So in that way we will be focused in doing that. We are doing most of that on ourselves but with some external system. We have some very good external systems in several of the sections that going to an NDA for Zoptrex. That process is already become for those elements of the NDA for which they can already be addressed. Obviously the rate limiting one is the final clinical types, but there is a lot of other corporation can be done and our team is managing that well.

We are seeing increased activity behind both products interest. We setup data rooms for both products, we have companies that are in those data rooms reviewing for products including for the locations that we have already announced, but also for Canada, for Latin America, for Japan, for Europe in those territories.

But Eastern Europe we have companies that are actively reviewing in some cases we've already receive proposals, which we are holding off, because it relate to larger territories and we preferred to wait to see top-line results. Where there territories that are not as major territories. We believe it’s worthwhile and beneficial to go ahead and conclude the agreement as we've done three times now and make the announcements and all and so the marketplace understands the interest that we're seeing in that.

Otherwise, in terms of business development activities, as you might imagine, our primary focus as this stage is very heavily on these tow products and during everything possible. Not just prepared the dossiers but prepared for commercialization.

Assuming Macrilen is successful, we will be launching that products approximately a year from that. And there is a lot that has to be done between now and then organizationally, operationally making decision which will be done internally versus externally. This is our primary focus.

Yes we were prepared for in 2014, we had set everything out, we would be able to roll out the launch of our product in January 2015. You revisit it, you look at it, you reassess, but we're spending a lot of time in preparation in that area right now. And then, managing the relationships that we have from our business developer where there continues to be increase interest in these two products.

Jason Kolbert

David, thank you very much. Congratulations on all the progress. They are pretty, very, very exciting time going forward.

David Dodd

Thank you.

Operator

[Operator Instructions]. Our next question is from the line of Swayampakula Ramakanth with H.C. Wainwright. Please go ahead with your question.

Swayampakula Ramakanth

Thanks. Good morning David. Congratulations on the quarter and then [indiscernible] at this point. My first question is on Zoptrex, can you remind us what your understanding is with the FDA and the EMA since the study that you are doing. If per data is it's very positive [indiscernible].

David Dodd

So we are working under a special protocol assessment with the FDA and with the median overall survival is a primary input. We do not have a defined increment between Zoptrex and doxorubicin that it is the minimal that has to be achieved for approval. Based upon the information in the data that was review and presented in the Phase II trial where it showed - with the qualifiers of the Phase II of not having a competitor in there and being a relatively small trial of 42 patients.

We did demonstrate however 14.9 months of meeting overall survival and that's was significantly more than what had previously been seen and published about for doxorubicin. The maximum has been nine before 9.2 month. Although it wasn’t specifically stated, the element of zero cardio toxicity being observed in our Phase II program appears to have been an element of real interest, because the possibility of having a product with this type of safety profile would be a major change relative to the [Indiscernible] of chemotherapeutic agents, especially doxorubicin.

And so obviously events important element we've always focused on. We hope to demonstrate a material difference and side effects specifically perhaps cardio toxicity. We are expecting zero in a trail of the size and all, but we would not be surprised to see that there was a meaningful difference that would allow them the clinician, the oncologist to either use greater cycles rather than the current or protocol regiment which max is at six cycles. So in our own trial the FDA has allowed nine cycles of our products, they limit no more than six for doxorubicin.

So that's a basis of what we are working on. If the results support what we believe are sufficient for a [Indiscernible] priority review we will request such, but we are anticipating for all of our planning reasons a one year review. So we submitted and in the second half then we would expect to be commercializing and about a year from that. Does that help to shed some light on it?

Swayampakula Ramakanth

Yes, that's fantastic. It's very good. Again on the Zoptrex in terms of the [Indiscernible] and I do understand you cannot talk all about the financial details, but in general, what are the terms that you are looking for that makes you comfortable so that you can walk up to the table and think about signing a [Indiscernible] companies.

David Dodd

You mean for the larger territories?

Swayampakula Ramakanth

Yes.

David Dodd

There are a couple of ways we look at that and that's another reason why we think it's more important to have top-line results. Clearly if we have supportive results and we are talking about major territories such as EU. So then we would see a more substantial upfront and we don’t want to define it, because we don’t know what companies might be thinking of their in the data room and all, but you see up fronts when there are licenses established in oncology of successful Phase III products and all.

So we think we are out of the somewhere in the competitive range there. However, we also are very interested and willing to consider a cross licensing where someone would receive the rights to Zoptrex for their interested geography and we would receive the reciprocal rights of a product that they might have that would be complementary say to oncology for the U.S. And that is a way that we believe will help us to more strongly build our portfolio and move forward.

There will be still be elements of royalties to each other and of course it is creative, as we would be working together with that partner. We have engaged in such discussions, we do have such types of concepts in discussion. But in one sense we find that perhaps more to our liking, because at this stage and juncture of the company if we can build a stronger portfolio behind our oncology products, we think that will have much greater long-term value than receiving an upfront cash payment. When we've seen pretty fast cash generation with the commercialization of these two products.

So what we would do with the cash is probably go out to find a product that we would either have to hunt for or that we would receive the rights in earlier stage and then have to engage in development. So we're very interested in that reciprocal rights concepts and all and where it makes sense because of the other party that's expressed an interest in Zoptrex we are having those types of discussions now.

With Macrilen frankly, what we have found is very little interest until next summer. And then, because of the state of where we are, probably in that type of thing, we started receiving meaningful inquiries and discussions as we then were able to validate that in addition to the U.S. and Europe the ITT is pretty much the standard of provocative testing in Japan, in other parts of the Asia-Pacific region, in South America.

And so companies who are in the endocrine space or in the metabolism and endocrinology space in those territories we have begun to engage in discussions in the data room they have entered. And that really has occurred just more recently, starting this summer and when we went to the international bio meeting, we were frankly surprised at the level of interest we were receiving on Macrilen. No proposals to-date, but certainly the activity was a surprise and has been encouraging.

Swayampakula Ramakanth

Great, actually your talk about soft licensing brings me to the next question, but this is regarding the resources that you have on the [indiscernible] to get a commercial structure growing in the U.S. and also you know what kind of additional resources would you need to get started on the free market activities or do they want to wait till you get all this data before you start thinking about.

Jude Dinges

Sure. RK it’s an excellent question, we have just concluded a meeting with our board yesterday, in which the primary focus was how do we transition from the company we have today to an operating company that has all the capabilities and resources necessary to commercialize our first product a year from now. And so we had successful and encouraging discussion on that.

The good news is that we don't require 25 additional people; we require a fraction of that because our model will be in main areas we will outsource. We don’t plan to build an internal pharmacovigilance department. We certainly need to have someone who can facilitate and manage that external relationship that we will have.

We will work externally with people related to accessory imbursement 3PL; we will have people internally small, very small staff to ensure that our compliance programs are inflation operating well. We will utilize a few additional staff and I emphasize a few additional staff internally, but we have mapped out all the processes all the element we need and all of that has focused into new budget for 2017 that we will be reviewing in just few weeks with the board and we have gone through with off.

And so our additional staffing is minimal from the standpoint of what we need to add, they will be on our payroll and we believe by the outsource and we will be a leverage to expertise to have much better support that we otherwise would have. Relative to the Macrilen in terms of a sales force, we pretty much have the number we would need right now.

Now depending on how you look at and how your profile the adult endocrinologist out there in the areas where they are - one might from with around 27 reps, that one needs and we have on our on our rose today 23. So that's a small increase and as you might have imagine when you talking to difference between 23 to 27 whether not you actually have to do 27 may be just a relook at it and you may end up determining that you may need thirdly now.

When we look at in the future about a year later, assuming Zoptrex comes forward, that will not be a separate sales force we've satisfied our sales that given the timing, giving the nature of Macrilen. We were have plenty of times to establish it as the core product for assessing adult growth hormone deficiency.

And then may be a marginal increase to be able to reach out to some of the medical oncologist that we know we can cover. We have the number to cover the gynecological oncologist. But when we look at that, we have time to look at that and how we address the field selling and commercial development of Zoptrex as it comes forward.

But we have been focused, I would say in the asses our number one activity going forward now is towards the implementation of the process map. We have laid out to be ready to not only just sell the product, be able to ship the product, be able to manage and forecast and understand what we need from inventory interact with our three parts of supply chain element. Interact with the 3PL process, all of that we have to spend quite a bit of time on and as you might imagine, we had done - we had prepared for all in 2014, but we certainly have revisited and gone in great detail now and we will begin to roll it out as we go into 2017.

Swayampakula Ramakanth

Thank you, thank you for that elaborate answer. Congratulation again on the quarter and then [indiscernible] to the end of the year. Good luck about it.

David Dodd

Thank you for your interest.

Operator

[Operator Instructions] Thank you. There are no additional questions at this time. I will turn the floor back to management for concluding remarks.

David Dodd

Thank you. And thank everyone for your continued and supportive interest in the transformation of Aeterna Zentaris. Truly it is transformational, because between now and the next couple of weeks to few months, we are going to be reporting on some very exciting results.

Hopefully they will be positive, they will be supportive and based upon that we will then proceed towards a very significant valuable transformation of this company into being a commercial entity. Working towards our goal of being a profitable company by the end of 2018 based upon having both Macrilen and Zoptrex out in the marketplace.

So again, thank you for your continued interest and support. We look forward to keeping you updated. Have a great day.

Operator

This concludes today’s conference. Thank you for your participation. You may now disconnect your lines at this time.

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