Nabriva Therapeutics plc
Q4 2020 Earnings Call Transcript

Published: 11 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Nabriva Therapeutics Fourth Quarter 2020 Financial Results Call. . I would now like to hand the conference over to your speaker today, Mr. Gary Sender, Chief Financial Officer. The floor is yours.

[Gary Sender:]

Thank you, and good afternoon, everyone. Welcome to Nabriva's conference call and webcast to discuss the fourth quarter and full year 2020 earnings and business updates. Before we begin, I would like to remind everyone that this conference call and webcast will contain forward-looking statements about the company. These statements are subject to the risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events.

[Theodore Schroeder:]

Thank you, Gary, and thanks to everyone joining our call this afternoon. Starting with a review of 2020, there is no doubt that COVID-19 made for a challenging year for the world, the pharmaceutical industry and for Nabriva. I am so incredibly proud of the perseverance and dedication demonstrated by everyone on the Nabriva team. For 2020 -- for Nabriva, 2020 represented a year of making great strides and shifting our focus to serve patients in the community and building positive momentum heading into 2021. One of our major achievements last year was obtaining the U.S. rights from Merck to promote and distribute SIVEXTRO for patients with acute bacterial skin and skin structure infections, also known as ABSSSI. Gaining the rights to SIVEXTRO provided a complementary product alongside our first marketed drug, XENLETA, which was approved by the FDA in August 2019 for the treatment of adults with community-acquired bacterial pneumonia, or CAP. It's a testament to Merck's confidence in our ability to market innovative antibiotics. We remain keenly focused on business development opportunities as we move forward. At the same time of the SIVEXTRO transaction, Nabriva announced a partnership with Amplity Health, a leading contract sales organization. Through Amplity, we are now pleased to have 60 sales representatives deployed, reaching almost 8,000 community health care providers. This effort, coupled with the continued excellent managed care coverage for XENLETA, has positioned us well towards our commercialization goals to expand the awareness and prescription growth for both products in the community setting.

[Jennifer Schranz:]

Thank you, Ted. I'm excited to provide an update on our life cycle management activities for XENLETA. While a great deal of effort has been rightfully focused on diagnostics, vaccines, and therapeutics for the COVID-19 pandemic, innovation directed at the silent epidemic of antimicrobial resistance continues to fail to meet the growing unmet medical need. Since its founding in 2006, Nabriva has been driven to develop new agents to address antimicrobial resistance. XENLETA discovered in the labs at Nabriva represents the first antibiotic with a truly novel mechanism of action approved in the U.S. and Europe in over 20 years. To fully leverage XENLETA's unique characteristics, our team is actively advancing projects focused on important unmet medical needs that XENLETA may have the potential to address. Turning to Slide 16. I would like to discuss the first of these projects focused on the treatment of bacterial exacerbation in patients with cystic fibrosis. Cystic fibrosis is a rare multisystem disease. The major cause of morbidity and mortality in patients with CF is pulmonary complications due to the vicious cycle of airway obstruction, inflammation, and infection that ultimately leads to end-stage lung disease. This process results from mutations in the CFTR gene that leads to impaired ion transport across cells and various organs. As shown on Slide 17, an abnormal CFTR protein leads to an imbalance of ion regulation, depleting water, decreasing PH, and increasing mucin polymer cross links in the airways. As a result, Mucus becomes dehydrated, thick and sticky and cannot be efficiently cleared by the muco-ciliary system. Mucus buildup leads to obstruction, chronic inflammation, and bronchiectasis, creating an environment right for bacteria to multiply, overtake the host defenses and ultimately cause acute and chronic bacterial infection. Turning to Slide 18. Data from the Cystic Fibrosis Foundation Research Registry demonstrate that Staphylococcus aureus is the most prevalent organism isolated from the respiratory tract of CF patients with 70% having staph aureus and up to 26% with persistent methicillin resistant Staphylococcus aureus or MRSA colonization.

[Gary Sender:]

Thanks, Jennifer. On Slide 26, I've listed some key financial highlights. Nabriva generated total revenue of approximately $2.5 million in the fourth quarter and $5 million for the full year 2020. Fourth quarter revenues were driven by approximately $2 million in collaboration revenues, including our portion of SIVEXTRO sales. Other revenue consists of XENLETA product sales of $47,000 and continued grant income from the Austrian government. Full year revenues include $2.8 million in collaboration revenue, including our portion of SIVEXTRO sales commencing in the last week of September as well as milestone payments from our partners in China and Canada. Also included in full year revenues was $108,000 of XENLETA product sales and $2.2 million in research premiums and grant income from the Austrian government. In 2020, in particular, we actively managed our expenses to optimize resources. We always want to ensure that our investments in commercial activities achieve our expected returns. Our operating expenses increased by $6.2 million in the fourth quarter compared to the third quarter of 2020, primarily due to SG&A expenses resulting from the relaunch efforts in the community with the expansion to 60 sales reps in late November. Additionally, in the fourth quarter, we recorded a noncash reserve for a minimum contract obligation associated with our contract manufacturing partners. We expect that our commercial investments will increase in 2021, as we fully realize the full year impact of 60 reps and the potential for a modest expansion as we monitor the macro environment and access to physicians. We ended the fourth quarter with cash of $41.6 million, an increase of $0.2 million from the third quarter, driven by proceeds from our December financing, cash flows from collaborations and grants offset by our fourth quarter investments. In March 2021, we completed a registered direct offering to bring in an additional $23.4 million of net proceeds into the company. Together with ATM proceeds received in 2021, we expect that our current cash balances will fund operations into the fourth quarter of 2021. Let's now look at the details of our P&L and balance sheet. Please advance to Slide 27. Slide 27 provides details of our P&L, and I ask that you look at the notes on the right side. Our full year 2020 revenues of $5 million were driven primarily by collaboration revenue and government grants. Collaboration revenue included contribution from SIVEXTRO sales in the fourth quarter and the last few days of September. XENLETA product sales were impacted by us not investing in commercial efforts from April until the end of September and by the second quarter write-down of IV inventory, resulting in full year sales of $108,000. This was clearly below our expectations coming into the year. And as I said, we optimized and preserved the resources as we and everyone tried to manage the uncertainties of the pandemic. R&D expense was significantly lower year-over-year due to a decrease in development activities. SG&A expense was lower compared to 2019 due to the termination of our sales force in April 2020 and a significant reduction in commercial efforts until the community relaunch of XENLETA and SIVEXTRO in late September 2020. We continue to allocate our resources in a thoughtful manner and make investments where the expected return is justified. Interest expense was significantly lower, given the reduction in our debt balances. Please turn to Slide 28, which has our December 31 balance sheet. We previously discussed our cash balances. Inventory has increased primarily as a result of supply purchases in accordance with our contractual obligations. Prepaid expenses increased due to the payments made to our contract manufacturing partners for a new XENLETA inventory. Year-over-year debt balances are significantly lower due to the pay down of debt, which occurred in the first quarter of 2020. Please advance to Slide 29. Focusing on SIVEXTRO revenues for a moment, I'd like to provide more color around the transaction, specifically as it pertains to revenue recognition. We currently receive a percentage of Merck's gross sales, and we record those sales under collaboration revenue in our financial statements. Once Nabriva begins selling SIVEXTRO under its own NDC code and meets the requirements for distribution, we will record 100% of net sales under product revenue. One could expect our reported SIVEXTRO sales to increase by a mid- to high single-digit multiple as we go from what, in effect, is like an earned royalty on Merck sales to 100% consolidation of net sales. And the overall economics are better for Nabriva, and our gross profit from SIVEXTRO will meaningfully contribute to our marketing and selling investments. For the next part of the call, Ted will make some closing remarks, and then we will head into a Q&A session. Ted?

[Theodore Schroeder:]

Thanks, Gary. In conclusion, on Slide 31, I want to focus on our priorities for 2021. Last year, based on market dynamics and our excellent managed care coverage, we adapted our commercialization strategy and pivoted to the community. As we look at what we have accomplished in 2020 and where we are headed this year, we absolutely believe this was the right decision. We believe that this best serves the needs of patients that require short course, novel anti-infective therapies for both CAP and ABSSSI. The addition of SIVEXTRO, a well-known antibiotic, has certainly facilitated greater access to providers, leading to meaningful discussions about XENLETA's benefits. Based on its promotional responsiveness and brand recognition, we anticipate seeing the return of historical peak sales trends for SIVEXTRO by mid-2022. We recently announced the publication of a study documenting the high rates of macrolide resistant Streptococcus pneumoniae throughout the United States. As a reminder, Streptococcus pneumoniae is the leading cause of bacterial pneumonia in the United States, an example of a macrolide is azithromycin or a Z-Pak. The data showed that while the overall rate of macrolide resistance was 39.5%, more concerning macrolide resistance in respiratory isolates was greater than or equal to 25% in every region of the U.S. Macrolide resistance was also shown to be significantly more common in outpatients versus inpatients. An updated 2019 guidelines issued by the Infectious Diseases Society of America and the American Thoracic Society, it was stated that macrolides should not be used as monotherapy if resistance rates are above 25%. And instead, physicians should consider other antibiotics. We believe that these data further support our medical education around the appropriate use of XENLETA for the treatment of adult patients with CAP, and our focus goes beyond CAP. As we discussed, we are seeking potential expanded indications for XENLETA in patients with cystic fibrosis. This could be a $100 million to $150 million per year incremental revenue opportunity so well worth a focused clinical trial investment. And we will continue to look for business development opportunities to license XENLETA outside of the United States and seek more complementary assets for our U.S. business. Work continues on CONTEPO, and we remain hopeful that the FDA will find ways to approve drugs awaiting foreign manufacturing inspections. There are headwinds that we and others continue to battle, given the ongoing impact of the COVID-19 pandemic. For example, the CDC has reported data showing that fewer people are getting sick this year with the flu. In fact, there has been a 95% drop in flu cases year-over-year, equating to a significant dip in antibiotic prescriptions overall. But Nabriva team has experienced flexible and patient focused. We demonstrated our nimbleness in 2020, and I am confident that our results will improve. Before we begin Q&A, I want to take a moment to personally thank Gary for his leadership, hard work and insights over the past, almost, 5 years. It was important to me and to Gary to have him consult for an extended period of time as he turns his attention to serving on boards. I want to officially welcome Dan Dolan as the company's incoming CFO. Dan will become the CFO after tomorrow's close of business, and I look forward to benefiting from his more than 20 years of experience. Additionally, I also would like to thank Jennifer for her contributions as Nabriva's Chief Medical Officer and wish her the very best. Gary and Jennifer helped in important chapters of Nabriva's long history, and we are grateful for their efforts throughout this critical period. I would now like to ask the operator to open up the line for questions.

[Operator:]

. You have your first question comes from the line of Ed Arce from H.C. Wainwright.

[Ed Arce:]

First question is on the expected ramp in SIVEXTRO, now that you have your full sales force in place and trained and out making calls and also importantly, with SIVEXTRO also kind of helping complementarily with the calls. First question is around the statement that you gave on the pathway as you move into the second quarter ending this year's run rate, excuse me, for SIVEXTRO, aligning with the historic peak trends by mid-2022. I wonder if you could explain a bit more what you mean by that statement? And also, if you could help us with some sort of quantification of that, even if perhaps just a range would be helpful.

[Theodore Schroeder:]

Yes. Sure, Ed. Thanks for the question. I think I'm going to let Gary talk about the financial pieces. The one thing I would say in response is kind of what would drive the business for the rest of the year. One thing that is true about SIVEXTRO is there is some seasonality associated with skin and construction infections just like -- not quite as severe as antibiotics for respiratory infections, but overall prescriptions across all kinds of infections have been depressed because of the pandemic. And so we do expect, as we see things open up more, people are out and about doing things and we move into the warmer months. We do expect to see a rise in the overall market, and that will benefit SIVEXTRO. And then a return to the kind of prescription trends we were seeing from Merck prior to them pulling personal promotion of the product. And so it will take some time for us to rebuild those relationships and get samples, remind people of the product, but there's a built-in base of prescribers that we are targeting to get them reenergized. Gary, I don't know if you wanted to talk about kind of the financial impacts of that.

[Gary Sender:]

Yes. Ed, so if you use kind of IMF data in 2019 and kind of dollarize it, you'd roughly -- you'd see that roughly the sales were about $60 million on a gross basis. So what we hope is that through the very focused effort that we've talked about, maybe some lessening of the COVID headwinds that by the middle of next year, we could get back to levels like that. And again, right now, we are recording basically a -- which was, in effect, a royalty on Merck's gross sales. But once we flip to having the Nabriva zone brand in which we expect in early in the second quarter, we will start to record 100% of the net sales on our product revenue line. And so that one should expect to see a pretty big increase there. Because, again, we're -- in fact, we're getting a royalty today, and we will eventually be booking 100% of net sales.

[Ed Arce:]

Right. Right. Okay. And then just from a big picture perspective, as we think about the cadence of sales from both products through the year, is it -- I'm just trying to confirm that my sense about this is correct. But through the year, I would imagine XENLETA is still going to be the overwhelming majority of revenues, you would expect for this year?

[Theodore Schroeder:]

Yes. Gary, you want to talk about that.

[Gary Sender:]

Yes. I mean, Ed, we don't give specific product forecasts, but I think certainly, XENLETA is in a very early stage of its product life cycle, right? I mean, we launched yes, and that's right. So in light -- yes, one should expect that SIVEXTRO would be larger just because it is a more established brand. And whereas with XENLETA, we're still in the early stages of educating community-based physicians about its attributes.

[Ed Arce:]

Right. Of course. And if I may, one question perhaps for Jennifer. On your opportunity with CF, again, appreciate all of the detail around the thesis here. But wondering specifically, as you begin to prosecute this potential and look for confirmation that this could work, where do you think is perhaps the areas of risk where it could fail. And in particular, I'm wondering -- I realize that, of course, in CAP, XENLETA has excellent penetration in the lung. But CF, as you mentioned, is a whole different story. It's a very heavy thick Mucus, and it's been a problem for other drugs in penetration as well. So I'm wondering if that's one of the areas that you're especially keen on understanding, any thoughts there would be helpful.

[Jennifer Schranz:]

Yes, for sure. Thank you. That was a good question. And certainly, the track record for treatment, especially for some of the aerosolized treatments have unfortunately have had some failed Phase III studies. And I think where we saw the fact that we have extremely good activity for both staff and MRSA and in fact, we do have breakpoints from MRSA awarded by the CLSI. I think your point being -- it's important to get the sputa from cystic fibrosis patients because there are some differences in the type of staff that grow over time in this environment, as you mentioned, the thick Mucus, the biofilms, the anaerobic environment. So we'll be looking at the in-vitro activity of lefamulin, from the sputa of contemporary cystic fibrosis patients to look at activity and compare it to non-CF patients. We also are interested in looking at from a PK perspective. When we do our Phase I study, we're going to be looking at concentrations of lefamulin and murine obviously for metabolites, but also specifically in the sputa and so we're getting ready to look at that as a bit of a perhaps surrogate. We also have done a lot of work in the earlier program for XENLETA and did see very high penetration into tissues. It's one of the key attributes of lefamulin and it goes to tissues. And that would be the glandular tissue around in the area where you might be concerned of the bacteria kind of hiding in a sanctuary spot. So I think the Phase I study will inform dosing and patients and tolerability. I think, the nonclinical work will help us with in-vitro activity. We also are looking at doing an animal model in CF. You also look at lefamulin to look at probability of target attainment as well. So I think the totality of data that we'll be able to get from these -- both nonclinical and clinical program and from what we understand from our global advisers, that is sufficient information for them to inform future development. And at that point, then we would make some decisions whether additional studies would be needed.

[Theodore Schroeder:]

Yes. To kind of put that into perspective, the good news here, I think, is that we can get those answers with relatively low spend and understand whether the current commercial product -- the oral product actually is appropriate. And our scientists, in Vienna, think that it is. The benefit there from a patient standpoint is that the obvious convenience certainly way better patient convenience than having to be hospitalized and put in an IV antibiotic for these exacerbations. I think from our perspective, it takes a 5-day prescription for community-acquired pneumonia and turns it into a 30-day prescription, and that patient at today's pricing would be worth about $8,000. And it wouldn't be unusual to see that same patient have 2 or 3 exacerbations per year, which would put us squarely in a kind of a rare disease model for incremental business above CAP. So it's worth the effort. There's -- it's not all coming out of the -- directly out of the Nabriva treasury. There is some grant funding that supports some of these activities, and it's relatively straightforward to get an answer. So we'll know whether there's a future program or not for a pretty insignificant spend.

[Operator:]

You don't have any more questions at this time. Ladies and gentlemen, that concludes this conference call. Thank you for participating. You may now all disconnect.