Achaogen Inc.
Q4 2018 Earnings Call Transcript

Published:

  • Operator:
    Good day and welcome to the Achaogen Inc. Fourth Quarter and Year 2018 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Gary Loeb, General Counsel. Please go ahead, sir.
  • Gary Loeb:
    Thanks, Anna. Good afternoon, everyone, and thanks for joining. A press release with the company’s fourth quarter and full-year 2018 financial results was issued today and can be found on our company website. This conference is being recorded and will also be available on our website, www.achaogen.com for 30 days following the conference call.
  • Blake Wise:
    Thank you, Gary. Good morning to everyone and thank you for joining us for our fourth quarter earnings call and corporate update. I’m joined today by Janet Dorling, Chief Commercial Officer; Zeryn Sarpangal, Chief Financial Officer; and Gary Loeb, General Counsel, who you just heard from. In our brief remarks today, we will provide the customary ZEMDRI update, the financial update and mention a few other corporate highlights. 2018 was an important year for Achaogen, as we saw the FDA approval of ZEMDRI to treat patients with complicated urinary tract infections, who have limited treatment alternatives. The team accomplished several important milestones in 2018.
  • Janet Dorling:
    Thank you, Blake, and good afternoon, everyone. As we preannounced in February and you saw in today’s press release, fourth quarter ZEMDRI net product sales were approximately $0.5 million, and for the year, net revenues were about $0.8 million. In an effort to conserve capital, we significantly reduced our field force this quarter to a few targeted field-based employees that are currently able to cover accounts that represent 70% of our sales to date. We continue to see promising outpatient demand, with 75% of our sales in the outpatient setting, and the remainder in the hospital or hospital outpatient department. I’ll now share our leading indicator metrics that turned our progress in building the foundation for the ZEMDRI launch. Through Friday, March 1, we have 155 formulary approvals with a 99% approval rate, well over 300 accounts set up for therapeutic drug management, over 100 unique accounts that have ordered ZEMDRI and over 200 physician-owned infusion centers that are under contract. We remain committed to ensuring patient and physician access to ZEMDRI, as we continue our strategic review. We continue to hear from physicians that ZEMDRI is an important medicine and is needed for their multi-drug resistant complicated urinary tract infection patients, particularly those experiencing recurrent infections after treatment with other antibiotics. I’ll now hand the call over to Zeryn.
  • Zeryn Sarpangal:
    Thanks, Janet. For the fourth quarter of 2018, our net product sales were approximately $0.5 million and contract revenues of $1.5 million. For the full-year 2018, our net product sales were approximately $0.8 million and contract revenues of $7.9 million. On the expense side, for the fourth quarter of 2018, our R&D expenses were $13.4 million and SG&A expenses were $16.9 million. For the full-year 2018, our R&D expenses were $103 million and SG&A expenses were $71.4 million. The R&D expenses for the full-year include a $7.5 million milestone payment to Ionis for the approval of ZEMDRI, as well as costs related to the manufacturing of ZEMDRI, which was fully expensed prior to product approval. In addition, our full-year operating expenses include restructuring charges of $23.5 million related to our July and November 2018 restructuring, of which 33% is cash-related. These charges include severance and related employee costs, as well as non-cash fixed asset impairment and net facility exit costs.
  • Blake Wise:
    Thanks, Zeryn. As always, we appreciate your continued support, and we’ll update you on our progress going forward. We’re now ready to take questions. Operator?
  • Operator:
    Thank you. We will take our first question from Alan Carr, Needham & Company. Please go ahead.
  • Alan Carr:
    Hi. Thanks for taking my questions. I guess, can you talk more about what’s changed under the restructuring? What’s the nature of the sales organization versus where it was before the restructure? And then can you also comment on how you sense how the drug is being used right now for types of infections and that sort of thing?
  • Janet Dorling:
    Sure. I’ll take that one. Thanks for the question, Alan. So as I mentioned, we made the hard decision to significantly reduce our field team and this is across commercial and medical affairs. And as of March 1, we have limited, but flexible and focused field team. Our remaining employees are focused on in areas of the country, where we have seen early adoptions and that we believe have high potential moving forward. As I mentioned, these are areas with strong demand and for us that means often a lot of outpatient demand with, of course, a mix of inpatient accounts as well. And to be clear, we – at this point, with our organization, we’re planning to mainly support current accounts and organic sales, as it will be challenging to drive significant new demand going forward.
  • Alan Carr:
    And what do you think limiting uptake when it comes to CRE in the hospital with bloodstream or pneumonia or something like that? Is it because not on formulary yet, or what do you think is going on there?
  • Janet Dorling:
    Yes, I do think that part of it is getting on formulary, especially when there are other options in the hospital that are being currently used. So they’re not as in a rush to put the product on in – especially in those patient types. But as more hospitals add the product to formulary and more physicians become comfortable using it. I – we have seen limited use in CRE patients, and I would expect we would continue to see that.
  • Alan Carr:
    So potentially has that worked way through this formulary process, is that – you expect it to pick up, is that fair?
  • Janet Dorling:
    I wouldn’t say that. But I think just to be transparent relative to the interest and multi-drug resistant recurrent complicated urinary tract infections, I would still say, I would expect that to be the majority of our use and then time will tell…
  • Alan Carr:
    Okay.
  • Janet Dorling:
    …for CRE patients who are more critically ill, yes.
  • Alan Carr:
    And then with respect to C-Scape, I assume that given the cash constraints that will sit there and be in a Phase 1-ready state for now until the strategic alternatives are sorted out, is that fair?
  • Blake Wise:
    So we’ve – like I mentioned in my prepared remarks, C-Scape is ready to enter the Phase 1 clinical pharmacology study. And our plan remains to continue with that program and we haven’t given more specific guidance on timing in 2019 for when we might enter that Phase 1. But we completed all the work that was necessary to get the drug product to a point where it would be ready to go into that study.
  • Alan Carr:
    All right. Thanks for taking my questions.
  • Blake Wise:
    Thanks, Alan.
  • Operator:
    We will take our next question from Chris Shibutani from Cowen. Please go ahead.
  • Chris Shibutani:
    Great. Thank you. Perhaps if you could comment on some of the regulatory situations. You mentioned in the press release that you have the MAA Day 120 questions. Any color you can provide there in terms of your capacity to move forward? And anything that characterizes the nature of those questions thinking in terms of, again, from the strategic alternative standpoint, I think, a lot of the incentives that are being contemplated stemmed from the idea that perhaps there would be an incentive to pursue full development of drugs, and you imagine that the European regulatory status being in process is something that would still make ZEMDRI and you guys eligible for such consideration?
  • Blake Wise:
    Sure. Thanks, Chris. So maybe at the highest level of the MAA and progressing the MMA remains a top priority in the company, and the team is working very hard on the regulatory process. And so as is typical in Day 120 questions, we’re addressing a range of questions posed by the co-rapporteur and believe the team is constructive of what we think are really strong positions and strategies in response to their questions. So based on the questions that we received and our continued dialogue with the rapporteurs, we continue to expect the potential approval by late 2019 or early 2020, largely dependent on whether we have oral arguments with EMA, but everything presses forward on the MAA as well.
  • Chris Shibutani:
    So I brought that up in part, because amongst various ways that we track what’s happening with the industry, it’s become very clear that large pharma has not been attentive to developing antibiotics. And I think, Lord Jim O’Neill, who historically has been a prominent economist with and is quite outspoken through his role with a welcome trust, continued to propose different options to perhaps incentivize whether it’s penalizing those who don’t develop antibiotics versus also creating incentives. Can you give us any sense for where we are? It seems as if the folks who recognize the challenge have been screaming into a canyon for quite a while. We are probably at a critical point, not just for you guys, but for the industry in the space. So is there something that you can help us with, particularly as you’re exploring your strategic alternatives where you see something that might actually move forward or catch or somehow inflect this trend, where larger pharma companies are just not seeing the value proposition or the economic returns on developing antibiotics, which as we’ve expressed in our written research has been puzzling and has to come to an end at some point. But is there anything that you’re seeing? Would you try to monitor this space, but you’re in the leads with that, what are you hearing?
  • Blake Wise:
    Yes. So I think today’s article and the comments by Lord O’Neill were quite interesting and he’s very outspoken. And I don’t know that he has the magic board that would be the fix. But I appreciate the ongoing attention to the issue, and he has a platform of which he’s speaking from and that’s appreciated by all of us in the industry. So a couple of things, maybe one general comment and then more specific one around what might happen, in our view, soon that could be useful. I think all the right stakeholders are at the table, and that includes, of course, the smile about – smaller biotech companies who are doing the bulk of the R&D in the space, but also larger pharma, along with IDSA and PEU and I think agencies, both governmental and non-governmental BARDA included who are looking for the right solutions. And I think they range from trying to fix hospital-based reimbursement for products that are in the hospital and the DRG system just presents a very challenging problem for novel antibiotics. I think that’s a potentially near-term thing that could see legislative support. But I think in the more concrete near-term, we’ve seen BARDA take a very tangible step with the issuance of their RFI for the potential for awards, where you would see for the first time stockpiling of antibiotics that have activity against bio-threat pathogens like plague and tularemia. And this would enable BARDA to continue to support, that’s been so important through the development stages, into the commercial stage and looking at FDA-approved products and potentially contributing in a way that would meet their needs from a bio-threat perspective and help companies that are launching antibiotics. And so we now await the potential for an RFP. They did make a public presolicitation notice. They posted that laid out some timelines and said, they were seeking a potential RFP in March that could have proposals due in May with a potential for awards being granted in the August or September timeframe, their fiscal year ends in September. So that’s a concrete area that I think, we’ve been quite focused on and talked about publicly and could be helpful for us specifically if we were successful. And in the face of our strategic review, that could be meaningful from a value perspective and could just help the industry, I think, more broadly given their commitment.
  • Chris Shibutani:
    Okay, great. We continue to wish you well with the restructuring efforts and the strategic alternatives. Thanks, Blake.
  • Blake Wise:
    Thanks, Chris.
  • Operator:
    We take our next question from Katherine Xu from William Blair. Please go ahead.
  • Katherine Xu:
    Hi, good afternoon. I’m just wondering with the European submission, I guess, just wondering whether you are still talking to potential European partners in the – in light of this strategic review. And also just maybe you just summarize for us what you thought about sort of a compilation of factors that is affecting this relatively slow launch, if you could benchmark with some other launches, that would be very helpful? Thank you.
  • Blake Wise:
    Thanks, Katherine. So yes, on the ex-U.S. side, so advancing the MAA and as part of our strategic review and as you’d expect, we’re evaluating all options. I can’t comment further on any specifics at this time, but you should assume that we’re looking at everything. And then from factors, within the face of a launch, maybe Janet can comment.
  • Janet Dorling:
    So I think there are a couple of things that are maybe industry or market-specific than a couple of things that are specific to us. So from a bigger picture perspective, I think launching antibiotics into the hospital space, especially with a very good policy of stewardship in place, things tend to move slower. And people are being thoughtful with good reason, but I think this is something that everyone experiences, again, it’s not specific to us. And depending on when you launched and what you launch and what competitive set was there, that also, of course, are important factors to compare. In our case, clearly, we’ve been reducing the size of our field organization over the last six to eight months, and we’ve had a couple of different reduction. So I think, specifically to ZEMDRI, you can expect a full launch and a fast-pace launch when you’re reducing your commercial and medical affairs infrastructure. So that obviously has an impact on our ability to deliver launch metrics that might be in line with other launches.
  • Blake Wise:
    Thank you.
  • Operator:
    We take our next question from Ed Arce from . Please go ahead.
  • Ed Arce:
    Hi. Thanks for taking my questions. Couple for me. Just wondering if you could provide any commentary around the relative impact so far of the NTAP? And any sort of qualitative commentary from physicians around how that’s helpful in their facilities? And then secondly, a question around C-Scape. And this – starting the Phase 1, it’s clear that you worked through the new revised drug product. And I’m wondering if you could just do a quick review of what’s changed over the last few months? Thank you.
  • Janet Dorling:
    Sure. So I’ll start and just talk a little bit about NTAP, and then I’ll hand it over to Blake for the C-Scape question. So the perspective that we have on NTAP is that, it’s never a negative. It’s a positive thing in all the conversations we’ve had. The place where we feel like it has been most positive is, thinking about the drug for formulary when you look at the overall cost of the drug to the hospital for their Medicare patients, as well as an independent acknowledgement of the drug providing significant clinical benefit and being novel, which are requirements for the NTAP application process. When it comes to physicians and pharmacists individually, pharmacists are not so impressed by NTAP unless they have a very sort of holistic view of their finances for the hospital, because ultimately, they’re managing their budget and the NTAP doesn’t give refunds back into their particular pharmacy budget. And physicians, if they understand NTAP, again, it’s positive. And if they don’t, then when we explain it to them, again, generally, they’re positive. But whether it’s a big driver of sales, not yet, because this would be inpatient in the hospital and we would need significant hospital use to really show that it could be a motivator for people to make individual prescribing physicians at some point. You want it?
  • Blake Wise:
    Yes. I mean, on C-Scape, Ed, so your specific question was what’s changed in the last few months, and specifically, Ed, we’ve been working, as you know, on the drug product and specifically around making sure we have a drug product that we think can achieve the target exposures required for success in the subsequent Phase 1 and ultimately in Phase 3, and BARDA supports C-Scape as well. So we’ve been working closely with them on this preclinical work that we’ve been doing. So I feel good about the progress that we’ve made. And now we’re in a place where we have the right drug product and are just cautious about specific guidance around where we will now take that. But do anticipate that we have what we need for the Phase 1 study as the next step.
  • Ed Arce:
    Okay, great. One follow-up, if I may. Just a bigger picture question around the strategic review as you’re looking on continuing the launch somewhat restricted as it is with ZEMDRI and also the potential to reenter the clinic with C-Scape and looking at potential revenues from not only in U.S. and Europe, but other potential markets ex-U.S. Is there – in any of these considerations any specific potential scenarios that are off the table with regards to the review? Thanks.
  • Blake Wise:
    No. I mean, I would say that as a part of the review, we’re evaluating any and all options. And as I said before, I’m not going to give a lot of specifics beyond that, but I consider everything on the table.
  • Ed Arce:
    Thanks, again.
  • Blake Wise:
    Thanks, Ed.
  • Operator:
    We will take our next question from Kevin Kedra from G. Research. Please go ahead.
  • Kevin Kedra:
    Thanks for taking the question. First, on the European filing Day 120 questions. Any sense of how the European regulators are looking at bloodstream infection and the CARE study relative to how it was viewed by the FDA and U.S. regulators? And anything that you’ve learned from the process in the U.S. that you may be able to apply with your European filing to perhaps have a more favorable outcome? And then in the U.S., any update on correspondence from the FDA in your dispute resolution on bloodstream infection? And then I just have a couple of strategic review follow-ups.
  • Blake Wise:
    Okay, Kevin. So maybe I’ll take those in reverse order. So from the FDA perspective on the dispute resolution, so as you all know, the FDA denied the first round appeal and we’ve got, I think a thoughtful response from them. And so we’re currently evaluating our options at the next steps, which could include the possibility of a further meeting with the division or further appeal with FDA generally. So that’s where things stand on that side. And on the MAA side, and we’ve obviously learned a lot through the FDA process. And so I think, we’re well prepared for all of the questions that have been asked from the European regulators around the Day 120 questions. So all that is useful as we respond and crack responses for the MAA. In terms of where things might go with them, I think, it’s a little premature to try to predict where things will end up. But I think we have both the date of the team and the experience where we have been to the FDA to give a strong response to the MAA.
  • Kevin Kedra:
    That’s helpful. On the strategic review, first spend probably close to five months since you guys announced it. Are there any rate limiting steps to the strategic review? Are there certain elements that need to play out before you – you’re able to make a decision or come to a resolution on what’s the right path to go? And in general, how much is time factor into the way that you evaluate this? I mean, you guys obviously have limited runway in cash. At what point does it make sense to take what’s available versus what ideally would be the best opportunity?
  • Blake Wise:
    So I guess, I’ll answer that fairly generally, which is – when we entered the strategic alternatives process, we knew it take time and it is. We’ve engaged with a large number of parties since we kicked off the process yet new parties have continued to enter the process as you know, as recently as within recent weeks. And so, there’s just things things take time to play through. And in general, we’re evaluating all options and our goal is to maximize value and I just can’t make any more specific remarks on timing or doing some something specific.
  • Kevin Kedra:
    And maybe just one final question. Are there any inventory purchase obligations related to ZEMDRI for 2019? Thanks.
  • Janet Dorling:
    So we have specific commitments related to our Hovione agreement, which we have disclosed, and we have various purchase commitments associated with it. So those would be in 2019 and beyond, but there’s nothing specifically that’s changed around that.
  • Kevin Kedra:
    Can you just remind us of kind of magnitude of those commitments?
  • Janet Dorling:
    So for 2019, they’re not necessarily significant. For 2020 and beyond, we have some minimum purchase commitments, but nothing specifically for 2019.
  • Kevin Kedra:
    Thanks.
  • Operator:
    We take our next question from Difei Yang from Mizuho. Please go ahead.
  • Unidentified Analyst:
    Hey, good afternoon, guys. This is Alex on for Difei. Taking you for taking the question. I was just wondering if you could maybe comment a bit more on the commercial and sales performance of ZEMDRI so far in 2019 versus 4Q 2018? Thank you.
  • Janet Dorling:
    Yes, we’re not making any specific comments on that, so I won’t be giving you any numbers. But in general, I think we’re continuing to build on our commitments to set the foundation with our leading indicator metrics and driving sales through a focus in outpatient setting. And then that we feel we’ll strengthen in the inpatient setting as we continue to make progress of formulary views. However, as I mentioned with the limited number of people we have in the field across commercial and medical affairs, we don’t think we’ll be making progress at the same rate, which I guess, is stating the obvious. So hopefully, that’s some helpful commentary.
  • Kevin Kedra:
    Thank you.
  • Operator:
    It appears there are no further questions at this time. I would like to turn the conference back to our host for any additional or closing remarks.
  • Blake Wise:
    So thank you very much for your questions and continued support. We look forward to keeping you updated on progress. Thank you.
  • Operator:
    Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect. Good-bye.