AEZS Aeterna Zentaris Inc

Aeterna Zentaris Inc. (NASDAQ: AEZS) (TSX: AEZS) (“Aeterna” or the “Company”), a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests, today reported its financial and operating results for the second quarter ended June 30, 2020.

The Company also provided an update on its clinical program to expand the use of macimorelin for the diagnosis of childhood-onset growth hormone deficiency (“CGHD”), an area of significant unmet need, and its plans to expand macimorelin for the diagnosis of adult growth hormone deficiency (“AGHD”) in Europe and other key markets.

“We are pleased with the progress we have made over the last quarter across our business, despite the challenges of the COVID-19 pandemic. The health and safety of our team remains a top priority and as such, we continue to actively take steps to ensure the highest level of safety for our employees. We are incredibly grateful for their dedication and maintaining operations amidst navigating these unprecedented times. I am happy to report that we have been fortunate enough to not have experienced any significant delays or impacts to our operations to date from the pandemic,” commented Dr. Klaus Paulini, Chief Executive Officer of Aeterna.

“We have continued advancing the development of macimorelin for CGHD, which we believe represents a significant opportunity for the Company and, if approved, has the potential to significantly increase the available patient population for macimorelin. Additionally, the EMA accepted our modification to the Pediatric Investigation Plan (“PIP”), which streamlined our clinical efforts, allowing the P02 Study protocol to comply with requirements from both the EMA and FDA,” added Dr. Paulini.

Recent Highlights

• Successfully raised a total of $19 million, including a registered direct offering priced at-the-market under Nasdaq rules for gross proceeds of $7.0 million and a public offering for gross proceeds of $12 million to the Company;
• Regained compliance with minimum stockholders’ equity requirement for continued listing on Nasdaq;
• Announced that the abstract on study results of the Company’s first pediatric study on macimorelin has been selected for presentation at the 22nd European Congress of Endocrinology (e-ECE 2020) being held September 5-9, 2020;
• Executed on expanding intellectual property portfolio for macimorelin with the filing of two additional patent applications;
• Entered into an exclusive distribution and related quality agreement with Megapharm Ltd., a leading Israel-based biopharmaceutical company, for the commercialization of macimorelin in Israel and the Palestinian Authority;
• Received European Medicines Agency (“EMA”) acceptance of modification request of the Company’s PIP for macimorelin as originally approved in March 2017, which covered the conduct of two pediatric studies and defined relevant key elements in the outline of these studies; and
• Achieved positive results for the pediatric dose-escalation study, Study P01, of macimorelin, indicating favorable safety and tolerability data for the use in childhood-onset growth hormone deficiency testing.

Dr. Paulini concluded, “On the commercial side we continue to work diligently to expand macimorelin for AGHD in key global markets around the world. Our distribution agreement with Megapharm was an important milestone for the Company to address the interesting market opportunity in Israel and the Palestine Authority. In Europe, we are encouraged by our ongoing partnership talks and hope to communicate more about those in the near-term. Beyond macimorelin, we are actively seeking opportunities to re-establish a development pipeline and look forward to providing more updates as they become available.”

Macimorelin Clinical Program Update

The Company’s lead product, macimorelin, is the only United States Food and Drug Administration (“FDA”) approved oral drug indicated for the diagnosis of AGHD and is currently marketed in the United States (“U.S.”) under the tradename Macrilen™, by Novo Nordisk. Aeterna is currently developing macimorelin for the diagnosis of CGHD, an area of significant unmet need, in collaboration with Novo Nordisk.

Upcoming Anticipated Program Milestones

• Commence CGHD safety and efficacy study, Study P02 (multi-national, including U.S.); and
• Advance business development efforts to secure a marketing partner for macimorelin for the diagnosis of AGHD in Europe and other key markets.

Financings Completed After June 30, 2020

On July 7, 2020, the Company closed a public offering of 26,666,666 units at a price to the public of $0.45 per unit, for gross proceeds of $12 million, before deducting placement agent fees and other offering expenses payable by the Company, estimated at $1.5 million. Each unit contained one common share (or common share equivalent in lieu thereof) and one investor share purchase warrant to purchase one common share. In total, 26,666,666 common shares, 26,666,666 investor share purchase warrants at an exercise price of $0.45 per share expiring July 7, 2025 and 1,866,667 placement agent warrants with an exercise price of $0.5625 per share, expiring July 1, 2025 were issued.

Additionally, on August 3, 2020, the Company announced that it had entered into a securities purchase agreement with several institutional investors in the United States providing for the sale and issuance of 12,427,876 common shares at a purchase price of $0.56325 per common share in a registered direct offering priced at-the-market under Nasdaq rules for gross proceeds of approximately $7.0 million, closing on August 5, 2020. Concurrently, the Company also issued to the purchasers unregistered warrants to purchase up to an aggregate of 9,320,907 common shares. The warrants are exercisable for a period of five and one-half years, exercisable immediately following the issuance date and have an exercise price of $0.47 per common share. In addition, the Company has issued unregistered warrants to the placement agent to purchase up to an aggregate of 869,952 common shares, with an exercise price of $0.7040625 per share and an expiration date of August 3, 2025.

On August 4, 2020, prior to closing the recently announced financing, the Company had approximately $17 million cash and cash equivalents. Based on current expectations, management believes it has sufficient capital to fund operations through 2023.

Summary of Second Quarter 2020 Financial Results

All amounts are in U.S. dollars

For the three-month period ended June 30, 2020, the Company reported a consolidated net loss of $3.5 million, or $0.15 loss per common share (basic), as compared with a consolidated net income of $0.2 million, or $0.01 income per common share (basic) for the three-month period ended June 30, 2019. The $3.7 million decline in net results is primarily from a change in fair value of warrant liability of $6.1 million partially offset by a reduction of $2.3 million in operating expenses.

Revenues

• The Company reported total revenue for the three-month period ended June 30, 2020 of $0.07 million as compared with $0.2 million for the same period in 2019, representing a decrease of $0.13 million. The 2020 revenue was comprised of $0.01 million in royalty revenue (2019 - $0.01 million), $nil in product sales of Macrilen™ (macimorelin) to Novo (2019 - $0.13 million), $0.04 million in supply chain revenue (2019 - $0.04 million) and $0.02 million in licensing revenue (2019 – $0.02 million).

Operating Expenses

• The Company reported total operating expenses for the three-month period ended June 30, 2020 was $1.5 million as compared with $3.8 million for the same period in 2019, representing a decrease of $2.3 million. This decrease arises primarily from a $0.8 million decline in general and administrative expenses, a $0.8 million decline in restructuring costs, a $0.4 million decline in research and development costs, and a $0.3 million decline in selling expenses. The impact of our June 2019 restructuring in our German subsidiary, namely payroll and share based compensation costs, is a key influence in the declines in general and administrative expenses, selling and research and development expenses.  
• The further impact on the decline in research and development costs is attributed to the different phases of activity of Study P01. In the first half of 2019, study activities included study start with document development, medication manufacturing, study feasibility testing at different sites and clinical trial applications in Hungary, Poland, Belarus, Russia, Ukraine and Serbia, while in 2020, all sites had completed their enrollment and clinical activities.

Net Finance (Costs) Income

• The Company reported net finance costs for the three-month period ended June 30, 2020 was $2.0 million as compared with a net finance income of $3.9 million for the same period in 2019, representing a decrease of $5.9 million. This is primarily due to a $6.1 million change in fair value of warrant liability offset by $0.2 million from changes in currency exchange rates. Effective June 16, 2020, the Company registered the common shares underlying the 2,608,696 investor warrants and 243,478 placement agent warrants issued on February 21, 2020 and the 3,325,000 investor warrants issued on September 20, 2019 by way of a registration statement which removed the cashless exercise option for registered warrants.

Consolidated Financial Statements and Management’s Discussion and Analysis

For reference, the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the second quarter of 2020, as well as the Company’s audited consolidated financial statements as of June 30, 2020, will be available at www.zentaris.com in the Investors section or at the Company’s profile at www.sedar.com and www.sec.gov.

About Aeterna Zentaris Inc.

Aeterna Zentaris Inc. is a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests. The Company’s lead product, Macrilen™ (macimorelin), is the first and only U.S. FDA and European Commission approved oral test indicated for the diagnosis of adult growth hormone deficiency (AGHD). Macrilen™ is currently marketed in the United States through a license agreement with Novo Nordisk and Aeterna Zentaris receives double-digit royalties on sales. Aeterna Zentaris owns all rights to macimorelin outside of the U.S. and Canada.

Aeterna Zentaris is also leveraging the clinical success and compelling safety profile of macimorelin to develop it for the diagnosis of child-onset growth hormone deficiency (CGHD), an area of significant unmet need.

The Company is actively pursuing business development opportunities for the commercialization of macimorelin in Europe and the rest of the world, in addition to other non-strategic assets to monetize their value. For more information, please visit www.zentaris.com and connect with the Company on Twitter, LinkedIn and Facebook.

Condensed Consolidated Statements of Comprehensive (Loss) Income(in thousands, except share and per share data) (unaudited)

		Three months ended						Six months ended
		June 30						June 30
		2020			2019			2020			2019
		$			$			$			$
Revenues
Royalty income		10			8			24			21
Product sales		—			129			1,016			129
Supply chain		40			39			81			45
Licensing revenue		18			18			37			36
Total revenues		68			194			1,158			231
Operating expenses
Cost of sales		12			101			874			101
Research and development costs		189			571			508			1,099
General and administrative expenses		1,141			1,923			2,265			3,560
Selling expenses		199			495			447			799
Restructuring costs		—			773			—			773
Impairment of right of use asset		—			64			—			401
Gain on modification of building lease		(34	)		—			(219	)		—
Impairment of prepaid asset		—			—			—			169
Total operating expenses		1,507			3,927			3,875			6,902
Loss from operations		(1,439	)		(3,733	)		(2,717	)		(6,671	)
Gain (loss) due to changes in foreign currency exchange rates		130			(6	)		26			58
(Loss) gain on change in fair value of warrant liability		(2,139	)		3,926			331			1,865
Other finance (costs) income		(2	)		19			(311	)		43
Net finance income (costs)		(2,011	)		3,939			46			1,966
Net (loss) income		(3,450	)		206			(2,671	)		(4,705	)
Other comprehensive (loss):
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation adjustments		(209	)		(110	)		1			(26	)
Items that will not be reclassified to profit or loss:
Actuarial (loss) on defined benefit plans		(1,418	)		(756	)		(30	)		(1,491	)
Comprehensive (loss)		(5,077	)		(660	)		(2,700	)		(6,222	)
Net (loss) income per share [basic and diluted]		(0.15	)		0.01			(0.12	)		(0.28	)
Weighted average number of shares outstanding:
Basic		23,515,579			16,622,415			22,519,497			16,532,090
Diluted		23,515,579			17,260,016			22,519,497			16,532,090

Condensed Consolidated Interim Statements of Financial Position

		As at June 30, 2020		As at December 31, 2019
(in thousands)		(Unaudited)
		$		$
Cash and cash equivalents		6,743		7,838
Trade and other receivables and other current assets		1,937		1,869
Inventory		375		1,203
Restricted cash equivalents		313		364
Property, plant and equipment		25		35
Right of use assets		190		582
Other non-current assets		8,086		8,090
Total assets		17,669		19,981
Payables and accrued liabilities and income taxes payable		1,697		3,596
Current portion of provision for restructuring and other costs		107		418
Current portion of deferred revenues		596		991
Lease liabilities		222		903
Warrant liability		12		2,255
Non-financial non-current liabilities (1)		14,104		14,281
Total liabilities		16,738		22,444
Shareholders' equity (deficiency)		931		(2,463	)
Total liabilities and shareholders' equity (deficiency)		17,699		19,981

_________________________

(1) Comprised mainly of employee future benefits, provisions for restructuring and other costs and non-current portion of deferred revenues.

COVID-19 In 2020, the COVID-19 pandemic began causing significant financial market declines and social dislocation. The situation is dynamic with various cities and countries around the world responding in different ways to address the outbreak. The spread of COVID-19 may impact the Company’s operations, including the potential interruption of our clinical trial activities and the Company’s supply chain, or that of the Company’s licensee. For example, the COVID-19 outbreak may delay enrollment in the Company’s clinical trials due to prioritization of hospital resources toward the outbreak, and some patients may be unwilling to be enrolled in the Company’s trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay the Company’s ability to conduct clinical trials or release clinical trial results and could delay the Company’s ability to obtain regulatory approval and commercialize the Company’s product candidates. The pandemic may also impact the ability of the Company’s suppliers to deliver components or raw materials on a timely basis or at all. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the spread of an infectious disease. The Company’s licensee may be impacted due to significant delays of diagnostic activities in the U.S. To date, the Company has not experienced significant business disruption from COVID-19.

Forward-Looking Statements

This press release contains forward-looking statements (as defined by applicable securities legislation) made pursuant to the safe-harbor provision of the U.S. Securities Litigation Reform Act of 1995, which reflect our current expectations regarding future events. Forward-looking statements include those relating to the Company obtaining approval of macimorelin for CGHD and the resulting potential to significantly increase the available patient population for macimorelin, the Company’s ability to expand macimorelin for AGHD in key global markets around the world, including its ability to secure a marketing partner for macimorelin for the diagnosis of AGHD in Europe and pursue market opportunities in Israel and the Palestine Authority, the commencement of the CGHD safety and efficacy study and the impact of COVID-19 on the Company’s operations, including regarding the potential interruption of the Company’s clinical trial activities and the Company’s supply chain, or that of the Company’s licensee, as well as the impact COVID-19 may have on hospital staffing and treatments, the Company’s ability to fund operations through 2023, and may include, but are not limited to statements preceded by, followed by, or that include the words "will," "expects," "believes," "intends," "would," "could," "may," "anticipates," and similar terms that relate to future events, performance, or our results. Forward-looking statements involve known and unknown risks and uncertainties, including those discussed in this press release and in our Annual Report on Form 20-F, under the caption "Key Information - Risk Factors" filed with the relevant Canadian securities regulatory authorities in lieu of an annual information form and with the U.S. Securities and Exchange Commission. Known and unknown risks and uncertainties could cause our actual results to differ materially from those in forward-looking statements. Such risks and uncertainties include, among others, our ability to raise capital and obtain financing to continue our currently planned operations, our ability to continue to list our Common Shares on the NASDAQ, our ability to continue as a going concern is dependent, in part, on our ability to transfer cash from Aeterna Zentaris GmbH to Aeterna Zentaris and the U.S. subsidiary and secure additional financing, our now heavy dependence on the success of Macrilen™ (macimorelin) and related out-licensing arrangements and the continued availability of funds and resources to successfully commercialize the product, including our heavy reliance on the success of the License Agreement with Novo, the global instability due to the global pandemic of COVID-19, and its unknown potential effect on our planned operations, including studies, our ability to enter into out-licensing, development, manufacturing, marketing and distribution agreements with other pharmaceutical companies and keep such agreements in effect, our reliance on third parties for the manufacturing and commercialization of Macrilen™ (macimorelin), potential disputes with third parties, leading to delays in or termination of the manufacturing, development, out-licensing or commercialization of our product candidates, or resulting in significant litigation or arbitration, uncertainties related to the regulatory process, unforeseen global instability, including the instability due to the global pandemic of the novel coronavirus, our ability to efficiently commercialize or out-license Macrilen™ (macimorelin), our reliance on the success of the pediatric clinical trial in the European Union (“E.U.”) and U.S. for Macrilen™ (macimorelin), the degree of market acceptance of Macrilen™ (macimorelin), our ability to obtain necessary approvals from the relevant regulatory authorities to enable us to use the desired brand names for our product, our ability to successfully negotiate pricing and reimbursement in key markets in the E.U. for Macrilen™ (macimorelin), any evaluation of potential strategic alternatives to maximize potential future growth and shareholder value may not result in any such alternative being pursued, and even if pursued, may not result in the anticipated benefits, our ability to take advantage of business opportunities in the pharmaceutical industry, our ability to protect our intellectual property, and the potential of liability arising from shareholder lawsuits and general changes in economic conditions. Investors should consult our quarterly and annual filings with the Canadian and U.S. securities commissions for additional information on risks and uncertainties. Given these uncertainties and risk factors, readers are cautioned not to place undue reliance on these forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments, unless required to do so by a governmental authority or applicable law.

Investor Contact:

Jenene Thomas JTC Team T (US): +1 (833) 475-8247 E: aezs@jtcir.com