On May 7, 2018 Aeterna Zentaris Inc. (NASDAQ:AEZS) (TSX:AEZS) reported financial and operating results for the first quarter ended March 31, 2018 (Press release, AEterna Zentaris, MAY 7, 2018, View Source [SID1234526158]).
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Recent Key Developments
Continue to exceed terms of licensing and assignment agreement with Strongbridge Ireland Limited in support of its Macrilen (macimorelin) commercial launch in the U.S. targeted for summer of 2018
Diligently prepare European Medicines Agency (EMA) D120 regulatory response to Marketing Authorization Application (MAA) of macimorelin for anticipated submission in July 2018
Actively seeking out-licensing partners for macimorelin in Europe
Expanding resources to actively assist in identifying potential marketed products in the U.S. market
Financial condition and capital structure significantly improved
— Upfront payment of $24 million received from Strongbridge in January 2018;
— As of March 31, 2018, $24.5 million of unrestricted cash and cash equivalents;
— Approximately 16.4 million Common Shares outstanding as of March 31, 2018
Financial Highlights
Revenues $24.7 million
Research and Development ("R&D") Costs $0.8 million
General and Administrative ("G&A") Expenses $2.8 million
Selling Expenses $1.6 million
Net Finance Income $1.9 million
Income Taxes $6.9 million
Net Income $14.4 million
Working Capital $19.6 million
Commenting on recent key developments, Michael V. Ward, President and Chief Executive Officer for Aeterna Zentaris, stated, "We ended first quarter 2018 in the strongest financial position in the past decade. Our licensing agreement of Macrilen (macimorelin) in the U.S. and Canada with Strongbridge demonstrates the success of our development initiatives and better positions us to monetize our rights by licensing in territories outside of the United States and Canada."
First Quarter Highlights
Revenues
Licensing revenue was $24.6 million for the three months ended March 31, 2018, as compared to $0.1 million for the same period in 2017. The increase is primarily due to the recognition in January 2018, of the $24.0 million upfront payment received from Strongbridge for the license of Macrilen(macimorelin) as earned revenue in accordance with International Financial Reporting Standards (IFRS) 15, Revenue from Contracts with Customers as it is a "right to use" license. In addition, due to events that occurred in 2018, we consider our performance obligations under the Zoptrex licensing agreements to be fulfilled, therefore we recognized deferred revenues of $0.5 million relating to non-refundable upfront payments it previously received for licensing and technology transfer arrangements that it entered into with respect to the development of Zoptrex in various territories.
Sales commission and other were $90,000 for the three months ended March 31, 2018, compared to $153,000 for the same period in 2017. During 2018, we received a $90,000 termination agreement payment from our customer. In 2017, those revenues mainly resulted from our sales team exceeding pre-established unit sales baseline thresholds under our co-promotion agreement to sell Saizen. We also generated sales commission in connection with our promotion of APIFINY.
Operating Expenses
R&D costs were $0.8 million for the three months ended March 31, 2018, as compared to $2.5 million for the same period in 2017. The decrease in R&D costs is mainly attributable to lower comparative third-party costs.
Additionally, the decrease in our R&D costs for the three months ended March 31, 2018, as compared to the same period in 2017, is attributable to lower employee compensation and benefits costs, as well as lower facilities rent and maintenance costs. A substantial portion of this decrease is due to the realization of cost savings in connection with our ongoing efforts to streamline our R&D activities.
Third-party costs attributable to Zoptrex and Macrilen (macimorelin) decreased considerably during the three months ended March 31, 2018 as compared to March 31, 2017, mainly since we completed the clinical portion of the ZoptEC trial and the Macrilen (macimorelin) trial in 2017 and 2016, respectively. Third-party costs attributable to Macrilen (macimorelin) incurred in 2017 are related to the detailed analysis of the results as well as the preparation of the New Drug Application filing, which was submitted on June 30, 2017.
Excluding the impact of foreign exchange rate fluctuations, we expect that we will incur overall R&D costs of between $1.0 million and $2.0 million for the year ended December 31, 2018.
G&A expenses were $2.8 million for the three months ended March 31, 2018, as compared to $1.9 million for the same period in 2017. The increase is primarily related to fees associated with the Strongbridge License Agreement.
Excluding the impact of foreign exchange rate fluctuations and the recording of transaction costs related to potential financing activities (not currently known or estimable), we expect that G&A expenses will range between $8.0 million and $10.0 million in 2018.
Selling expenses were $1.6 million for the three months ended March 31, 2018, as compared to $1.5 million for the same period in 2017. Most of the selling expenses for the three months ended March 31, 2018 were for the payment of fees for the execution of the Strongbridge License Agreement. For the three months ended March 31, 2017, the costs were for our sales force co-promotion activities as well as our sales management team. Based on currently available information, we expect selling expenses to range between $1.8 million and $2.1 million in 2018.
Net finance income was $1.9 million for the three months ended March 31, 2018, as compared to $1.5 million, for the same period in 2017. The increase in finance income is mainly attributable to the change in fair value of warrant liability. Such change in fair value results from the periodic "mark-to-market" revaluation, via the application of pricing models, of outstanding share purchase warrants. The closing price of our common shares, which, on the NASDAQ, fluctuated from $1.46 to $2.41 during the three months ended March 31, 2018, compared to $2.45 to $3.65 during the same period in 2017, also had a direct impact on the change in fair value of warrant liability.
Net income for the three months ended March 31, 2018 was $14.4 million (or $0.88 per share), as compared to a net loss of $4.1 million (or $0.31 per share) for the same period in 2017. The increase in net income for the three months ended March 31, 2018 is a result of the revenue recognition of the $24.0 million upfront payment received for the Strongbridge License Agreement.
Liquidity, Cash Flows and Capital Resources
At March 31, 2018, we had $24.5 million of cash and cash equivalents. We expect existing cash balances and operating cash flows will provide us with adequate funds to support our current operating plan for at least the next twelve months and for the foreseeable future.
Conference Call
The Company will host a conference call to discuss these results on Tuesday, May 8, 2018, at 8:30 a.m., Eastern Time. Participants may access the conference call by telephone using the following dial-in numbers:
Toll-Free: 877-407-8029, Confirmation #13679691
Toll: 201-689-8029, Confirmation #13679691
A replay of the conference call will also be available on the Company’s website for a period of 30 days. For reference, the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the first quarter 2018, as well as the Company’s audited consolidated financial statements as at March 31, 2018, 2017, 2016 and 2015, can be found at www.zentaris.com in the "Investors" section.