AEterna Zentaris Inc. (AEZS)

[chmcnfunds]

Aeterna Zentaris' (AEZS) CEO David Dodd on Q2 2016 Results - Earnings Call Transcript

Aug. 10, 2016 1:38 PM ET| About: AEterna Zentaris, Inc. (AEZS)

Q2 2016 Earnings Conference Call

August 10, 2016 8:30 AM ET

Executives

Brooke Geiger - Associate Director, Administration and Communications

David Dodd - President and Chief Executive Officer

Genevieve Lemaire - Interim Vice President, Finance and Chief Accounting Officer

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

Jude Dinges - Senior Vice President and Chief Commercial Officer

Analysts

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

Jason Kolbert - Maxim Group, LLC

Operator

Greetings and welcome to the Aeterna Zentaris Second 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 Ms. Brooke Geiger, for Aeterna Zentaris. Thank you, Ms. Geiger. You may begin.

Brooke Geiger

Thank you, Christine. Good morning and welcome, everyone. I am Brooke Geiger, Associate Director of Communications and Administration of Aeterna Zentaris. I am 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; and Richard Sachse, Chief Scientific Officer and Chief Medical 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, August 10, 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. This is an exciting time for Aeterna Zentaris. We are approaching a major inflection point for our company as we expect to complete two pivotal Phase 3 studies during the coming months and report top-line results for the Macrilen confirmatory study prior to yearend.

Regarding Zoptrex, we expect to report top-line results in the first quarter 2017. I will say more about this later, but let me first provide a brief summary of our achievements during the second quarter.

We ended the quarter, second quarter, with $26.2 million of unrestricted cash and cash equivalents, which is indicative of an average monthly use of cash in operations of $2.5 million, during the six month period ended June 30, which is slightly below the burn rate guidance we provided in our first quarter MD&A. Therefore, we now believe that our average monthly use of cash in operations during the remainder of 2016 will range between approximately $2.5 million and $2.7 million.

At the end of the quarter we had approximately $9.9 million common shares outstanding, which is essentially the same number of shares we had outstanding when we completed our last financing in December of 2015.

As noted in our press release, we continue to expect completion of our pivotal Phase 3 clinical trials of Zoptrex and Macrilen in 2016. Recruitment of patients for our confirmatory clinical trial of Macrilen was behind schedule at the end of the quarter. However, our COO substantially caught up during July and enrollment is now back on-track.

The study design is rather straight forward, so we don’t anticipate any problems in completing this study and reporting top-line results this year. We expect to file an NDA for Macrilen during the first-half of 2017 if the results of our confirmatory study warrant doing so.

Since the regulatory review period for the Macrilen confirmatory study is six months, we could begin commercializing this product late in 2017. We are very excited about the commercial prospects for Macrilen. If Macrilen is approved it will be the only FDA approved test available for the evaluation of adult growth hormone deficiency. Its advantages compared to other methods of evaluating condition are compelling.

Furthermore, it has been granted orphan-drug designation by the FDA for diagnosis of AGHD. We own the world-wide rights to this patented compound and have significant patent protection left. Our U.S. composition-of-matter patent expires in 2022. And our U.S. utility patent runs through 2027.

In the U.S. alone, we believe that approximately 40,000 confirmatory tests for adult growth hormone deficiency are conducted each year, which represents our target market at commercialization. We believe that Macrilen will be used for 40% to 50% of such tests during the first year after test reduction, and that the percentage will grow to 85% within the first three years of commercialization.

Furthermore, we believe that this is a significant opportunity for Macrilen in the evaluation of adult growth hormone deficiency in traumatic brain injury patients. As reported by the CDC, Center for Disease Control and Prevention, approximately 215,000 adults were hospitalized for TBI in the United States each year.

Because approximately 20% of such patients are estimated to be at risk of developing growth hormone deficiency, TBI patients are a potentially significant market expansion for Macrilen. For Zoptrex, we are seeking to demonstrate through our pivotal Phase 3 study that the patients who receive Zoptrex survived longer than patients who received doxorubicin.

In addition, we hope to demonstrate the risk-benefit ratio is improved for these patients receiving Zoptrex compared to those who receive doxorubicin. Certainly, in our case with the overall survival and the side-effect profile, the success of our study depends on attaining statistically meaningful differences as compared to doxorubicin.

Recall that this clinical program was fully enrolled at the end of the second quarter of last year, 2015, and that dosing was completed in February of 2016. More recently, the number of monthly events, which in a survival trial represents the monthly number of patient deaths, has been declining. This indicates that the remaining approximately 150 patients are living longer than we have previously expected, although, we don’t know the breakout between those on Zoptrex versus doxorubicin.

But as a result our current expectation is the clinical portion of the trial will conclude by the end of October, and that we will report top-line results during the first quarter of 2017. Recently our efforts to leverage Zoptrex have generated success.

Immediately after conclusion of the second quarter on July 1, we entered into License, Tech Transfer and Supply Agreements with affiliates of Orient EuroPharma for Taiwan and Southeast Asia. We received an upfront payment and will receive additional milestone and royalty payments, if we have positive top-line results and as commercialization of the product proceeds in these territories.

On July 31, we also concluded license and supply agreements with Rafa Laboratories for Israel and Palestinian territory. Again, we received an upfront payment and we will receive milestone and royalty payments.

Relative to our commercial activities after a strong first quarter, our second quarter results were negatively impacted from the apparent seasonality within the growth hormone supplementation market.

For Saizen, new-patient-starts and statements of medical necessity for the product were down 47% and 41% respectively in the second quarter as compared to the first quarter. This business appears to be much more seasonal than we have anticipated. However, we are working with EMD Serono to add adult endocrinologist targets to our selling efforts, which we believe should mitigate the impact of this seasonality.

We recognize that adult patients are obviously less driven by the school calendar of the pediatric patients, who are currently our targets.

An exclusive promotion rights to APIFINY, the only cancer-specific non-PSA blood test for the evaluation of the risk of prostate cancer commenced on June 1, which was too late in the quarter to contribute any meaningful impact in our financial results. However, as we transitioned to our expanded coverage of the APIFINY, June represented our best month to date and significantly exceeded our May results.

Recall that in late February, we initiated our selling of APIFINY in select areas of the U.S. This was more recently expanded to our exclusive promotional agreement, which we initiated in June. Although results are early, we are pleased with the results of promotion of the product and are looking forward to meaningful revenue contribution from APIFINY during future quarters.

During the quarter, second quarter that is, we made the decision to end our co-promotion of EstroGel, effective as of September 1, 2016. We had high hopes for the success of our co-promotion of this product. However, due to circumstances beyond our control of this has resulted being a disappointment. We concluded that it’s now better that we focus our efforts on products that have a greater likelihood of success. Furthermore, we expect to reduce our selling costs by approximately $350,000 per year, as a result of this decision.

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

Genevieve Lemaire

Thank you, David, and good morning, everyone. Most of what I will be covering has been presented in more detail in our condensed interim consolidated financial statement and MD&A for the second quarter, which were filed yesterday. I will just pause for a minute to let you look at the current slide.

From an operating expense standpoint, our main operating activities during the second quarter included ongoing efforts associated with our clinical development initiatives, as well as to a lesser extent with our commercial operations, and general and administrative activity. Total operating expense amounted to approximately $7.3 million for the quarter ended June 30, 2016, down from approximately $8.2 million in the prior year quarter. This represents 11% reduction.

Our total R&D costs in this quarter were approximately $3.7 million as compared to approximately $4.5 million in the second quarter of 2016. The reduction in R&D expenses by approximately $0.8 million is mainly attributable to a lower comparative third-party cost. The decrease in third-party cost is mainly attributable to the fact that dosing of patients in the ZoptEC trial was completed in February 2016.

This was partially offset by the increase in the third-party cost for Macrilen, because we started the new confirmatory Phase 3 clinical trial for that product during the second-half of 2015. The overall decrease in R&D costs is also explained by lower employee compensation and benefit costs and lower other costs.

A substantial portion of this decrease is due to the realization of cost savings in connection with our effort to streamline our R&D activity and to increase our commercial operations and flexibility by reducing our R&D staff.

Our pivotal Phase 3 trial of Zoptrex and our confirmatory Phase 3 clinical trial of Macrilen continue to be the primary driver of our third-party R&D expenses. Excluding the impact of foreign exchange rate fluctuation, we now expect that we will incur overall R&D cost of between $16 million and $17 million for the year ended December 31, 2016.

The decrease in our expected R&D cost is mainly explained by savings attributable to the fact that the FDA agreed that do not need to conduct any additional toxicity study for Zoptrex.

Switching now to our G&A expenses, during the quarter ended June 30, 2016, G&A expenses totaled approximately $1.9 million and we’re essentially unchanged as compared to G&A expenses during the same period in 2015. For 2016, we believe that G&A costs will range between $6 million and $7.5 million, which exclude any restructuring program and transaction costs that we could incur in relation to a potential financing activity.

From a commercial operation standpoint, we continued during the quarter to incur costs related to our contract sales force and our own management staff in support of our promotion agreements for EstroGel, Saizen, and APIFINY.

Selling expenses during the second quarter of 2016 were approximately $1.7 million and were essentially unchanged compared to selling expenses during the same period in 2015. We are still comfortable with our estimate that total selling cost in 2016 will range between $7 million and $8 million.

As David mentioned, we also expect to reduce our annual selling expenses by approximately $350,000 beginning with Q3 as a result of our decision to end our co-promotion for EstroGel.

We reported net finance income of approximately $0.2 million in the second quarter of 2016 as compared to net finance cost of approximately $7.2 million during the second quarter of 2015. The variance is mainly attributable to the change 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 was effected by the issuance of 3.1 million additional share purchase warrants in 2015, and by the closing price of our common share on the NASDAQ.

Furthermore, the assumption that has been applied to determine the fair value of the alternate cashless feature included in the Series B Warrants significantly impacted the mark-to-market valuation during the second quarter of 2015.

From a cash flow standpoint, we used approximately $6.3 million of cash in operation in the second quarter of 2016, as compared to approximately $8.1 million in the same period in 2015. We used less cash in the second quarter of 2016 than in the prior year quarter, primarily because our operating expenses declined by approximately $0.8 million on a quarter-over-quarter basis.

During the six month period ended June 30, 2016, our average monthly cash flow used in operation was approximately $2.5 million, which is slightly below the lower-end of the range we estimated last quarter. We now expect that our average monthly cash flow used in operation will range between $2.5 million and $2.7 million in 2016. This slight decrease in our expected full-year cash needs, since previous guidance, is mainly explained by the expected decrease in R&D costs, partially offset by the commission revenues that are lower than expected.

We ended the quarter with unrestricted cash and cash equivalents of approximately $26.2 million, however, our cash and cash equivalent at the end of June will not be sufficient to fund our operation for the 12-month period following such date. And as a result, our second quarter financial statement, contained a footnote, disclosing material uncertainties related to events and conditions that may cast substantial doubts about our ability to continue as a going concern for at least one year from June 30, 2016. We expect to address the situation before the end of the year.

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 am therefore turning the call over to the operator for instructions on the question-and-answer period.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] One moment please, while we poll for questions. Thank you. Our first question comes from the line of RK Ramakanth with H.C. Wainwright. Please proceed with your question.

Swayampakula Ramakanth

Good morning, David and team. Thank you for taking my questions. The first question is regarding Macrilen program. So when - by the time you’re done with the study and I want to understand what sort of top-line data can we expect on this before you put out your full analysis of the data?

David Dodd

Sure. I’m going to ask - first of all, thank you for your interest RK. But I’m going to ask Richard Sachse to just to give you a little bit of insight on what the top line data will represent. Richard?

Richard Sachse

Yes, thanks, RK, for this question. As you mainly aware, we are comparing in the study our test with the gold-standard, the insulin tolerance test. And in this respect, the primary endpoint will be the positive and negative agreements with the insulin tolerance tests and also the overall agreement. And this is actually then reflected in our top line results that we will analyze the primary endpoint.

In addition to this, the study is, from an operational point, a little bit complex, although the design is very straight forward. And this is related due to the fact that we have enrolled approximately 25% of the patient with a high likelihood of having the disease, 25% of the patients having a low likelihood of the disease and the rest of them will have an intermediate likelihood or will be healthy volunteers.

We also need to ensure that we will have approximately 25% of the patients coming from the U.S. and this will all be then analyzed in subsequent sub-analysis. But again, the primary endpoint is really the agreement with the gold-standard insulin tolerance tests.

Swayampakula Ramakanth

Okay. Thank you. So from my understanding, the data from this can be used for filing both in the U.S. and in Europe, is that correct?

Richard Sachse

This is our understanding. We discussed the protocol with FDA and we discussed the protocol with EMA. And in our understanding the protocol design meets the expectations of both agencies. Eventually, we are very confident that the results then will meet the primary endpoint, but this has to be seen.

Swayampakula Ramakanth

Okay. And, David, you were saying that you expect an initial adoption rate of about 40% and eventually getting up to 85%. So when you say at 40% are we talking about the total population of this condition or is that the 40% of patients who are utilizing the gold-standard right now that you want to get market share out of them?

David Dodd

It’s a little bit different from both of those, which is the 40% of the 40,000 existing adults who are tested on annual basis now. So today the vast majority of those are receiving the insulin tolerance test and there probably are some for which the insulin tolerance test may be, as Crawford [ph] indicated, they may be getting the glucagon stimulation test.

Recent issuance by the American College of Endocrinology has come out I believe in February online. It just came out within the past few weeks, I think, hardcopy; in their journal are the updated guidelines, which discussed the weakness in the GST or the Glucagon Stimulation Test as an alternative. And I think it even cites macimorelin or Macrilen as something that’s coming forward with some anticipation.

So when we talk about the penetration in the marketplace, we look at the fact that today there are - as we have said, there are approximately 40,000 adults who are tested on an annual basis, primarily using the ITT. And we have, based upon our expectation and understanding of our product versus these alternative products or procedures, that’s what we anticipate, a very rapid penetration and uptake in the first year and then over the first three years.

Swayampakula Ramakanth

Okay. And then regarding Zoptrex, it’s very nice to see that - you have three agreements just in the last few months. Does this stop here going into the data phase or you think there is lot more interest and you don’t want to stop making any of these BMD [ph] arrangements?

David Dodd

RK, we have a lot of interest continuing in the evaluation of Zoptrex for non-U.S. territory. At the recent BIO meeting in San Francisco in June, we met with in excess of 50 companies. And firstly, every one of those included a focus on the rights of Zoptrex in their respective territory, be it other Asian territories, Latin America, parts of Europe, et cetera and all.

So there is very high interest in that. What we have decided to do, because as you pointed out, we are in sort of this convergence towards top-line results. As we have set up a procedure, and procedure very straight forward is several companies coming out of the BIO meeting have signed CDAs. And then they are able to go into our data-room, which we have setup, which includes all of the information of Zoptrex with the exception of obviously the final data that we are converging towards and all.

They have a specified period of time in which they can review it. If they have continued interest they will then submit to us a non-binding agreement or non-binding term sheet of what they received based upon an assumption of success coming out of the Zoptrex file.

We’ve already received one of those to review and all, but we will wait furthermore - with further discussions and negotiations, until we have the top-line results. But this is a very good procedure and quite frankly we are doing - we have the exact same procedure set up now for Macrilen. And we have several companies in that data-room, some are companies at both, but we have companies in both data-rooms evaluating.

But in each instance, because we are so close to top-line results, we felt - we both sides felt that it would make more sense to at least allow someone get into the data, against development. And then based upon the assumption of successful outcome provide us an outline of the types of terms they would be willing to then move forward with.

Swayampakula Ramakanth

Okay. On the other end of the BMD, you just decided to let go EstroGel. But are you still looking for assets to bring in or your resources are sort tight up that you want to concentrate on getting Macrilen and Zoptrex out before getting distracted with other BMD situations?

David Dodd

Yes, thank you. We continue to be and we are highly focused on in-licensing opportunities of products for which we would fully manage and all. So when we set up our commercial operation, it was not established to be a co-promotion company on our operation. We did that because we’ve recognized that without having a footprint in the marketplace, our ability to seriously convey our interest and be considered a serious contender for in-licensing opportunities of others’ assets was extremely small, because people said, we don’t take you seriously and all.

And then, since these two products, it has been three products, we’ve had - we certainly hope to do as well as possible with them. But the basis for stepping into that arena with co-promotion has always been to establish a footprint upon which we can then in-license products and begin to post to book revenues and fully manage them now.

We currently continue in active negotiations of some opportunities. They generally are 505(b)2 development projects and they either are at the stage of on the market or soon to be on the market, which could mean that they are at the stage of being submitted with rather short review times or about to be submitted. So we’re not focused on any, as we would say, consider development projects. They have to be at that - our end of commercialization, and we continue on that regard.

Now, because of our balance sheet, we obviously are challenged because of the economics and they are expected in a transaction, we have to then approach it in a more creative way. So we certainly - if it is an opportunity that will require a material upfront that - it’s not an opportunity at this time we can pursue. We decided to move away from it pretty quickly.

However, if we’re able to establish and it fits well with one of our products in endocrinology or in oncology and all, and we can show how we have the ability and knowledge et cetera that we can restructure a proposal differently and all, and that’s how we’re working right now.

Swayampakula Ramakanth

Thank you. Thank you, David. Thanks for taking my questions. I’ll get back into the queue.

David Dodd

Thank you, RK.

Operator

[Operator Instructions] Our next question comes from the line of Jason Kolbert with Maxim. Please proceed with your question.

Jason Kolbert

Hi, David, I’d like to talk a little bit about the design of the Zoptrex trial and kind of throw a kind of a scenario question at you. Given the fact that this trial is 80% powered, 500 patients enrolled and event-driven, and I don’t remember exactly, but I think it’s something like 375 or 372 events. If there were no difference between active and controlled, given the last enrollment - so given the last enrolled patient, when would you based on historical data expect to hit your event mark?

And you could tell where I’m going with this question, because it seems like we’ve gone beyond that, which is could be for a lot of reasons based on clinical medicine. But it could be suggestive that we’re actually seeing an efficacy difference. And I want to follow-up with this about what the approval criteria would be talking about safety versus efficacy. But let’s just focus on the event-rate and if they were no different between active and controlled, when would you expect to hit that magic event number?

David Dodd

The numbers 384 events is a minimum. But I’m going to turn it over to Richard to take you through the other elements in sort of our general thinking.

Jason Kolbert

Yes, thank you.

Richard Sachse

Thanks, Jason. It’s a logic question. The response to that question is not that straight forward, because the achievement of the 384 event not only depends on the last treatment, it also depends on when particular patients are enrolled. It’s not that all of the patients were enrolled at the same time, but it was rather an enrollment over a period of approximately one to two years. So it’s very difficult to come up with an estimation on when the achievement would have been achieved, if both treatments has been equal.

We obviously have done our calculations and we have observed the event rate from the very beginning, and based on that - as David already stated, based on that the event-rate slowed down. And now you can come up with a lot of speculations and at these days there may be many reasons to explain it. We actually tend to feel positive about it and as you are very well aware this is a fact that you can observe in quite a variety of different oncology trials with overall survival at a particular endpoint.

So in other words, we see a prolongation of what we have initially planned; this is a slower event-rate. Obviously, a longer survival rate as we initially planned. And now we just have to wait and see until we reach the 384 events.

Jason Kolbert

Fair enough. I understand, and I know, you understand my question. And I was just curious, but I’m glad that the delay you could interpret as positive. Can we talk a little bit about the approval standard? I mean, one of the things that’s becoming more and more evident is can you be approved on a better toxicity profile with an equivalent efficacy? And can you just give us some insight and to your discussions with regulators in terms of what they are thinking and what you are thinking?

Richard Sachse

Okay. The protocol has been discussed with FDA during a Special Protocol Assessment at the time when the study was designed. And at that point in time, the thinking was that Zoptrex would be potentially more efficacious and safer as compared to the standard therapy doxorubicin. Obviously, in an ideal world we would observe a better efficacy and a better safety, and this is what we hope for.

On the other hand, there are certainly other scenarios, which might end up with a significant better efficacy, but an equal safety or vice versa. It could be a significantly better safety and equal efficacy. In all of these scenarios, we believe the product would have some potential value and the definitive criteria would still need to be discussed with FDA.

We did not engage into additional discussions with FDA about specific criteria that they would want to see after the Special Protocol Assessment. We obviously had additional FDA indirections on other parameters. And as Genevieve has just reported in our financial statement, we were able to agree with FDA on our current tox programs, and we were able to save quite a significant amount of money here.

But as I said, we did not engage into further discussions, this remained to be seen. We believe we would have a viable product in either case if efficacy or safety would be significantly better than doxorubicin.

Jason Kolbert

Thank you. Those questions and those answers are very helpful. Can we change gear to Macrilen? And David, I knew this is kind of your sweet spot, because it seems to me that promotion and commercialization are going to be critical here, replacing kind of an antiquated test with a much more convenient test, and then looking at the potential to expand to TBI.

So can you share with us a few minutes on what you’re thinking about in terms of the commercial strategy? Obviously, you want to have the most rapid launch you can achieve. And I know this is one of your core strengths, as the CEO, your experience in this management team.

So can you talk just a little bit about what you’re thinking in terms of what the commercial strategy might look like for the launch of Macrilen?

David Dodd

Absolutely, I’m going to make some comments and then turn it over to Jude. But I would just say that, Macrilen is a - it is indeed a most exciting opportunity of product. When one looks at it and you look at this as a disruptive type of entry as opposed to entering a market that exists and you compete for market share. This is a displacement type of opportunity and all.

And that makes it - there are few of those [who have] [ph] an opportunity to go after it. And that becomes very exciting. And then, also - and why is that? Because there’s such an unmet need and a huge need for that.

Just last week, Richard and I were meeting with leading clinical-endocrinologists, who were also highly involved in the development of Macrilen and all. And then you hear about the expectation of the entry of this product. These recent guidelines that were just issued on hard copy, but we’re allowed earlier this year to talk about the glucagon stimulation test and what a poor alternative it is to the insulin tolerance test.

Therefore, say it will - our product could potentially have even a higher and faster uptake than what we have hoped to see, believed to see and all. So from that standpoint, it’s sort of a sales-persons’ product to be able to go out to a very concentrated group of people that move the part, meaning the endocrinologists and all, in a highly focused manner and be able to taking something that they are waiting for, that they are looking for and they realize a very important need for it.

I’m going to ask Jude to pick up from here, because he can take you through exquisitely on all the elements we’re tooling to get prepared for this entry in the market development.

Jude Dinges

And so, Jason, these key - initially, the key to success with Macrilen will be what we do at prelaunch around getting the product covered and picking a channel between pharmacy benefit and medic. So right now, when the patient gets tested with ITT or glucagon, that is a medical procedure and that is billed on their medical benefit, right? So Macrilen, even though it’s not a therapeutic, it is a drug. And we believe since it’s not IV or IM, meaning it’s not - does not have to be injected into the patient, will or could be adjudicated on the pharmacy benefit.

Now, that is a subtle but very important difference, because distribution model, the way it’s billed, the way it’s managed in the insurance companies is different on the pharmacy benefit than it is on the medical benefit. So ITT today is billed on the medical benefit and most of the cost to that test is due to the procedure. So it’s four to five hours, it’s injected. The doctor has to be very close to the patient, et cetera.

The cost of that is mainly the procedure. Macrilen will be potentially an hour or so, it will not be injected, it will be taken orally and it’s a drug that could be managed to the pharmacy benefit. So we believe the cost to administer Macrilen is going to be much less. And so we’re working on all of those things right now, distribution model, contracting strategy with the payers.

And we believe a lot of the work has to be done upfront to get all that right before we launch. And then once we launch, remember, it will be the only product available on the market that has an approved FDA label. So it will have a label, we believe it’s very powerful. And so, the clinicians, we also know all the KOLs and they’re very excited about this. They all know about it. It’s a very small market. But they are all very in-tuned with these procedures. They don’t like doing the ITT generally in the U.S.

And the final piece of the puzzle is this market is controlled largely by no more than 2,000 doctors. So it is a sweet spot, in that a small number of clinicians basically control this market. We believe we’re going to have a very compelling value proposition with Macrilen as it is oral, it will be approved. We believe it’s going to be safe. It has to be seen yet, but we believe it’s compelling.

We wish it was a bigger market, but it is a very compelling product, so…

David Dodd

Jason, let me give an example of the - one of the several benefits that this product will provide. Today, if an adult in Alaska is thought to suffer from a growth hormone deficiency, that adult has to travel to Seattle to have an insulin tolerance test. And no one will conduct an insulin tolerance test in Alaska, due to the required medical supervision and all.

So think of that cost that now has to go into the system. So one has to travel to Seattle, all of that, to go through a scheduled procedure that’s going to take approximately four hours and all. We were at a major facility last week. It is up until a year ago in Seattle, even though patients who travel to Seattle they did not administer the ITT, because none of the endocrinologist felt comfortable in doing it.

So those patients will have to go to another facility either in Seattle or somewhere else. So what now can happen going forward is that that same patient sitting in Alaska, wherever they are, can simply go into a physician’s office or an endocrinologist office and be administered Macrilen, and that cost out of system is suddenly eliminated, and same people or all people are happy or the clinician is happy or the patient is happy.

And so these are just some of the items we see that we keep telling, so there really a point of differentiation upon which we can build for this product.

Jason Kolbert

Okay, David and Jude, thank you very much. I really appreciate the comprehensive answer. It’s very exciting to watch this kind of the data from both of these trials comes to fruition.

David Dodd

Good. Thanks, Jason.

Operator

It appears we have no further questions at this time. Mr. Dodd, I would now like to turn the floor back over to you for closing comments.

David Dodd

Thank you. And I want to thank everyone who has listened in and asked questions, for your continued support, and supportive interest in the transformation of Aeterna Zentaris. Indeed, these are exciting times, because a few companies or certainly a few development-stage companies sitting at - or at a point where they have two completing Phase 3 registration oriented trials that are going to be completed and top-line results reported within the next six months and all.

So we look forward to updating you regarding further progress when we discuss third quarter 2016 results. Any material updates or occurrences or activities occur in the interim, we look forward to announcing those. So again, thank you for your continued interest and support. Have a wonderful day.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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http://seekingalpha.com/article/3998386-aeterna-zentaris-aezs-ceo-david-dodd-q2-2016-results-earnings-call-transcript?part=single

(I have no shares)

AEZS