Paratek Pharmaceuticals, Inc.
Q3 2021 Earnings Call Transcript

Published: 8 Nov 2021

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the Paratek Pharmaceuticals, Third Quarter 2021 earnings call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. Should you need assistance during the conference call, you may signal an operator by . I would now like to turn the conference over to Sarah Higgins, Vice President Finance Controller, and Principal Accounting Officer, please go ahead.

[Sarah Higgins:]

Good afternoon and welcome to Paratek's third quarter 2021 earnings and corporate update conference call. The press release with the company's third quarter results was issued earlier today, and we have also posted slides on our website that will be referred to on this call. Both can be found at www. paratekpharma.com. Participants on today's call are Evan Loh, Chief Executive Officer, Adam Woodrow, President and Chief Commercial Officer, and Randy Bryan, our Chief Development and Regulatory Officer. Michael Begum, Executive Chairman, and I will also be available for questions. Before I turn the call over to Evan, I would also like to point out that we will be making forward-looking statements which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. Evan?

[Evan Loh:]

Thank you, Sarah. Good afternoon and thank you all for joining our third quarter earnings and corporate update call. Paratek remains focused on excellent and operational execution and delivery against our stated corporate priorities in order to generate value for patients and our shareholders. Accordingly, we believe that our performance and deliverables in 2021 has continued to validate the long-term commercial growth potential of NUZYRA. As you can see from this next slide, NUZYRA's quarter-over-quarter growth continued through the third quarter of this year, generating $19.4 million in net sales from the core NUZYRA commercial business alone, which is a 30% increase over the second quarter of 2021, and a 78% increase over the same period in 2020. We're extremely proud of the 30% quarter-over-quarter growth in the core NUZYRA or commercial business, despite ongoing challenges from the COVID-19 pandemic. History tells us that the third quarter tends to be our strongest quarter of growth each year since launch. Going forward, based upon the strength of the launch dynamics generated to-date, we expect to see continued quarter-over-quarter growth. As seen in this next slide, the comparative monthly commercial revenue curve summarized here, continues to validate that NUZYRA's commercial performance to date represents one of the most successful antibiotics launched in the last five years. Also, the NUZYRA commercial launch dynamics continues to materially differentiate from any other IV oral recent antibiotic launches. We believe that the strength of the commercial business is driven by disciplined operational execution combined with NUZYRA 's many clinically important product attributes that include, first, broad-spectrum efficacy, including resistant pathogens across to common indications. Second, a favorable safety profile consistent with NUZYRA 's tetra cycling heritage. And third, convenient once-daily oral and IV formulations that enable NUZYRA's utility in multiple settings of care. Adam will provide more details on the ongoing launch of NUZYRA in his prepared remarks. We remain focused on 3 foundational paths to revenue opportunities driven by the unique attributes of NUZYRA. First, our core commercial business in both the hospital and community settings is the main driver of our current revenue performance. Armed with the oral dosing regimen and pneumonia at the end of the third quarter, we expanded the community launch in anticipation of this year's fall, winter pneumonia season. This is an important catalyst that we believe will expand the commercial growth opportunity for NUZYRA in both the hospital outpatient and primary care settings. Second, we believe there is broad potential for NUZYRA to use across the U.S. government. Our BARDA BioShield public private partnership represents the cornerstone of our initial efforts to address this broader government opportunity. BARDA's commitment to this unique partnership was further validated by the newly awarded option, providing additional funding to expand the development NUZYRA under an FDA animal rule development program for Anthrax. This option provides $19 million of incremental funding to the original development program, bringing the total value of the contract up to approximately $304 million. Third, Non-Tuberculous Mycobacteria disease or NTM, represents a promising future growth opportunity in the orphan disease space. In August, we announced that FDA granted orphan drug designation for NUZYRA for the treatment of NTM broadly. In October, we announced the enrollment of the first patient in our Phase 2b NTM study, which is focused on the subset of patients with newly diagnosed pulmonary NTM obsesses, which represents by our internal estimates, an addressable market in the U.S. alone of approximately $1 billion. We're excited about the long-term potential role of NUZYRA in the treatment of patients with NTM obsesses for which there are no FDA approved therapies. Randy will provide more details on our NTM program later in his prepared remarks. Our lifecycle expansion into exploring the potential of NUZYRA as a therapeutic agent against bio-terrorism pathogens and other rare infectious types speaks to the plethora of clinical opportunities for NUZYRA to save lives and protect all Americans from life-threatening bacterial infections where resistance is of concern, as well as from a national pandemic preparedness perspective. Before I hand the call over to Adam, I would now like to provide Paratek's third quarter 2021 financial highlights. Third quarter 2021 total revenue was $24.4 million, which is comprised of the following. NUZYRA generated $19.4 million in net U.S. sales from our core commercial business alone during the third quarter of 2021, representing a 78% growth compared to $10.9 million in the third quarter of 2020. Government contract service and grant revenue earned from costs reimbursement under the BARDA contract was $4.5 million for the third quarter of 2021, compared to $2.7 million in the third quarter of 2020. We continue to anticipate a modest step-up in contract service and grant revenue earned under the BARDA contract as we move through the balance of this year, driven by activities associated with the U.S. on-shoring of NUZYRA manufacturing, the continued enrollment of the FDA post-marketing required study of NUZYRA in ammonia, and further progress of the pre -clinical in - vitro and large animal pharmacokinetic studies in the Anthrax program. Research and development expenses were $7.9 million for the third quarter of 2021, of which $4.9 million was related to costs reimbursed under the BARDA contract compared to R&D expenses of $6.7 million for the same period in the prior year. The increase in R&D expenses for the third quarter of 2021 is primarily due to FDA post-marketing requirements associated with the approval of NUZYRA or which are fully reimbursed under the BARDA contract. The remaining increase was mainly the result of startup costs incurred for the Phase 2b NTM study. Selling general and administrative expenses were $26 million for the third quarter of 2021 compared to $20.9 million for the same period in the prior year. The increase in SG&A and expenses was primarily the result of costs incurred for the NUZYRA community expansion. We reported a net loss of $18.2 million or $0.37 per share for the third quarter of 2021, compared to a net loss of $20.9 million or $0.46 per share for the same period in the prior year. We anticipate net revenue of NUZYRA will be at the higher end of the previously indicated range of $100 to $106 million, which includes $38 million NUZYRA procurement by BARDA in June of 2021. Total revenue is expected to be within the previously indicated range of $128 to $139 million. Total R&D and SG&A expenses are projected also to be within the original guidance range of $150 to $155 million. As of September 30th, 2021, Paratek had $111 million in cash and cash equivalents. Based upon our current operating plan, we anticipate our existing cash and cash equivalents to provide for a cash runway through the end of 2023 with a pathway to cash flow break-even. I would now like to turn the call over to Adam. Adam?

[Adam Woodrow:]

Thanks, Evan. Commercialization of NUZYRA in both the hospital and community setting continues to progress well with month-over-month growth in the third quarter, resulting in $19.4 million in net sales as can be seen on slide 11, an impressive 30% increase over the prior quarter. Equally important, gross demand also increased by 4.5 million over the prior quarter. And thus, growth continues to be driven by demand. I'd like to provide a little color on this progress. As a reminder, our initial strategy was to focus solely on the hospital business for the first two years. Building endorsement with the key influences in the antibiotic sector, while in parallel, working with priors to establish profitable market access in the community setting that would also enable effective fulfillment of prescriptions in the outpatient setting. Our experience told us that these two factors needed to be achieved before we expanded into the community. As we entered 2021, we had over two-thirds of our prescriptions being generated by the infectious disease doctors, the key clinical influences in antibiotic selection. In addition, 90% of all prescriptions written by foreigners NUZYRA were being filled. With both these key success factors in hand, we expanded our promotional effort into the community setting, specifically to primary care physicians, pediatrists, and a select group of dermatologists. Before I update you on our progress with our primary care expansion, I wanted to provide more detail on the business as it relates to the hospitals. Hospitals and the adjacent sides of care remain an important part of our core commercial business, with 75% of net sales related to our hospital promotion. Our promotional approach with hospital-based physicians, predominantly infectious disease doctors and critical care pulmonologist, continues to focus on enabling early patient discharge or hospital avoidance through utilization of our oral dosing form in select patient types. More specifically, those with suspected resistant pathogens and co - morbidities, including diabetes, or other levels of organ dysfunction, or those with allergies. These factors make antibiotic selection challenging to physicians as the current IV only generic options have efficacy gaps due to bacterial resistance, complicated dosing regimens due to organ dysfunction, or frankly are not appropriate due to anticipated side effects from allergies or other complications and risks such as The ability to discharge a patient on NUZYRA is effective and well-tolerated oral is an attractive option, especially in today's COVID environments, where neither the patient nor physicians wish for the patient to stay in the hospital setting one day more than necessary. We anticipate that the hospital business will expand and might benefit as COVID-related access challenges subside and hospital starts to operate more in an endemic environment rather than a pandemic one. Now, turning to the community expansion. Our estimates suggest the total addressable community market in the United States for skin and pneumonia infections is in an excess of $3.7 billion. Current generic oral options in these 2 markets have challenged with safety and resistance concerns. Slide 13 nicely illustrates the level of bacterial resistance, saying with some of the more commonly used generic oral antibiotics prescribed by primary care physicians for pneumonia. With these strep pneumonia resistance rates ever increasing, we believe NUZYRA offers a more effective and well-tolerated treatment option. By the end of September, we had over 40 fully trained primary care specialists detailing both our oral-only skin and pneumonia indications to a target audience of community by its physicians. Our promotional message is to provide primary care physicians with an oral-only treatment option for serious community-acquired skin infections and pneumonia that can potentially avoid the need for hospitalization. Starts at home, stay at home with NUZYRA resonates with physicians, especially in today's COVID-19 environment where hospital avoidance at all costs is a priority for patients. NUZYRA's once-daily, well-tolerated oral and intravenous formulations combined NUZYRA'S broad-spectrum profile offer a much needed life-saving antibiotics, which is uniquely positioned to be applicable in every setting of care, including in the hospital with these potential to minimize hospitals size. And in the community when NUZYRA efficacy has the potential to avoid hospitalizations or together. These attributes have enabled NUZYRA's update to materially differentiate from any recent IV oral antibiotics launched in the United States. I should remind everyone, this strong performance of our core commercial business does not include any borrowed procurements. Our promotion of NUZYRA in the community remains on track and is closely mirroring the small pilot we conducted in 2020. We continue to see primary care physicians and podiatrists try NUZYRA earlier more frequently and after fewer sales calls when compared to hospital-based positions. We maintain our belief that the foster uptight in the primary care setting is likely the result of the tremendous unmet need in the community for new, effective and well-tolerated once-daily oral antibiotic, combined with the absence of stewardship committees and formerly restrictions found in the hospital. 9 months in from the start of our expansion, we are now beginning to see an increasing impacts from the community promotion with both primary care doctors and podiatrists starting to make a meaningful contribution to our overall prescriber base, accounting for the remaining 25% of net sales. In addition, we continue to prioritize access to treatment, maintaining a steady rate of prescription fulfillment, which has continued to be over 90%. We expect skin and pneumonia prescriptions from the community setting to continue to increase as the primary care sales force deepen their relationships with their prescriber networks. In summary, we anticipate that the momentum in both the hospital and community settings will continue with the promotion with the oral-only dosing for community acquired pneumonia during this fall-winter influenza season. We will maintain our focus on gaining new trial list and repeat usage by building awareness and establishing trust and credibility with physicians, who are saving lives and treating serious community-acquired infections each and every day. And with that, I'd now like to turn the call over to Randy.

[Randy Brenner:]

Thank you, Adam. As Evan noted earlier in this call, we were excited to recently have announced the activation of the additional option and the expansion of our Project BioShield contract. The update to the contract exercised an additional option value to $31.6 million to not only continue the development program for the Anthrax treatment indication, but now also includes an sNDA program for an indication focused on prophylaxis against Anthrax referred to as post-exposure prophylaxis or PEP. The addition of the full PEP program increased the overall value of the contract by $19 million. We also continue to partner with BARDA to advance our FDA post-marketing commitments. As a reminder, this is valued at approximately $77 million and includes reimbursement of our ongoing adult pneumonia post-marketing study commitment, our pediatric program and its entirety, and the ongoing Microbiologic Surveillance Program. The cap PMR has been enrolling since early this year and our first pediatric pK is in the startup study initiation phase right now. Together with BARDA, we continue to make progress on the animal rule development program as well. Efforts this year remained focused on the evaluation of the in vitro activity against multi-drug resistant Bacillus anthracis strains, as well as the pharmacokinetics of Omadacycline in both rabbit and nonhuman primate animal models for inhalation anthrax. The data from these studies will support the upcoming pilot efficacy studies. We're also pleased to report on the continued progress of our onshoring program for the manufacture of NUZYRA in the United States. Paratek and our U.S. onshoring partners have completed the knowledge transfer at initial analytical and process development for the NUZYRA API process and have ordered the necessary equipment, have begun construction of the facilities to enable commercial production of API. Work is also ongoing at our partners for the planned U.S. drug product facilities. We anticipate having commercially available tablets produced in the United States by the end of next year. For the NUZYRA IV drug product, we have selected our U.S. onshoring partner and now in the beginning phases of knowledge transfer and the initiation of the process development work. Consistent with our commitment to build NUZYRA's long-term value, we continue to actively pursue lifecycle initiatives for NUZYRA Beyond Project BioShield. These include label expansions in our approved indications, NTM, government research, and other areas of scientific interest. In May, we received FDA approval of our sNDA for the oral loading dose regimen for the community acquired bacterial pneumonia indication. This achievement, as noted by both Evan and Adam, has augmented the clinical breadth of the community launch and the timing of the approval aligns well with the fall-winter pneumonia season approaching. In order to further support this community expansion, medical fairs has been expanding the scientific exchange needs at the prescribers in the primary care setting. This includes the expansion of a small number of targeted community-based education medical science liaisons, who are engaging in scientific exchange with community health care providers. We have strategically placed them in densely populated metropolitan areas with the large presence of primary care practitioners. Education is focused on community antimicrobial resistant trends, the most up-to-date clinical care algorithms, and the most pressing unmet needs associated with their treatment options. Feedback on this team and primary care's physicians interest in education has been very positive to date. An important and additional life cycle expansion effort includes our continued commitment to advance our non-clinical and clinical data generations and development program for non-tuberculous mycobacteria pulmonary disease caused by Mycobacterium abscessus or NTM. Pulmonary NTM abcsessus is a rare and orphan disease with no FDA -approved therapies. Feedback from the scientific community has continued to highlight the unmet need for an efficacious and well-tolerated once-daily oral antibiotic to treat infections caused by Mycobacterium abscessus. In fact, FDA recently granted NUZYRA orphan drug designation for the treatment of NTM, not only for NTM obsesses, but for all sub species of NTM, including Mycobacterium Avium Complex MAC. This designation from FDA further reinforces and validates the unmet need in this underserved patient population. In addition, the orphan designation will provide for more frequent interactions with FDA on this program, PADUF fee waivers for future SG&A submissions, additional R&D tax credits associated with the development work for NTM, opportunities to apply for research grants, and 7 years of MAC exclusivity for the orphan indication at approval. The scientific data focused on NUZYRA and NTM continues to be generated in public by Paratek, individual scientific leaders in the field, as well as through our investigator-initiated research or IIR programs. Most recently, an important non-clinical study conducted in collaboration with Johns Hopkins was recently published that evaluated the activity of a Omadacycline against Mycobacterium abscessus using both in vitro and in vivo approaches. First from an in vivo perspective, the Omadacycline exhibited potent MICs against the panel of 32 Mycobacterium abscessus clinical isolates, several of which were resistant to antibiotics that are commonly used to treat Mycobacterium abscessus disease. In addition, Omadacycline, when combined with clarithromycin, azithromycin cefdinir, or rifabutin nor an azalid exhibited synergism against several Mycobacterium abscessus strains and Omadacycline did not exhibit any antagonism with all antibiotics tested. We believe these data provide meaningful scientific information that clinicians need in order to choose the best combination antibiotic therapies for such a devastating bacterial pathogens. Also in this study, efficacy of Omadacycline was evaluated in an in vivo mouse model of lung infection against 4 Mycobacterium abscessus strains. The dose equivalent to the 300 milligrams standard oral dose was used and was demonstrated to be effective in this model with bactericidal activity, another index of antibiotic potency observed after the first 2 weeks of treatment against all 4 Mycobacterium abscessus strains. In addition to this important pre -clinical data, clinical case series continue to be published. At IDWeek last month, there was a poster presented as seen on the left side of this slide, showing data from 31 NTM patients in an ongoing real-world study treated for up to 20 months with once-daily oral NUZYRA. In this real world study, Omadacycline continues to be safe and well-tolerated with good patient outcomes. The authors continued to conclude that a Omadacycline may be a potential option for therapy of NTM infections and that larger perspective real world studies are essential to further confirm these early clinical findings. In addition, as a reminder, 2 NTM experts who are also NTM treatment guideline authors collaborated on a published review article earlier this year that expands on the current treatment guidelines for the treatment of pulmonary Mycobacterium infections. The office highlighted the need -- highlighted the potential for the oral formulation of , given the lack of currently available oral treatments options and listed it first in order of preference for the new oral options they considered. The authors also noted anecdotally that some clinical experience has been seen, but clinical trials in this disease are urgently needed, thus, the excitement that we have for the randomized Phase 2B study in NTM obsesses, which is now enrolling patients. This study will be the foundation for the next step discussion with regulatory authorities and further scientific evaluation. The study is a 3 month randomized double-blind placebo-controlled monotherapy design that will enroll approximately 75 patients with pulmonary NTM infections caused by Mycobacterium abscessus. As this is a rare disease, enrollment is estimated to take approximately 2 years. We believe this is the first placebo controlled study in this chronic and rare disease. Study will provide a much needed clinical dataset of efficacy and safety data in Mycobacterium abscessus patients. In addition to NTM, data generation will continue to expand throughout 2021 and into 2022 in other important scientific areas through multiple avenues. We remain excited about the level of interest there continues to be with the Omadacycline, leading to ongoing research collaborations with several other government and academic laboratories focused on generating data and diseases such as malaria, sexually transmitted infections including gonorrhea, bio threats, as well as other difficult-to-treat pathogens of interest to the military. In addition, our IRR program and collaborative studies continue to support research and publications in many areas of interest which include NTM, anti-inflammatory activity, C. difficile, and osteomyelitis, where a rat model of MRSA osteomyelitis was just published last week. In 2021 alone, the IIR program and collaborative studies have resulted in the acceptance of 20 manuscripts for publication that address the use of NUZYRA in special pathogens, special populations, 4 disease states that will further define that unique therapeutic profile. Our peer-reviewed publications have provided the foundational scientific content to inform treatment decisions and play a critical role in optimizing patient outcomes. On the regulatory side, the ongoing Omadacycline and year review in China continues to make progress with the approval expected later this year that will trigger a $6 million milestone payment from Zai Lab to Paratek. We believe that approval and launch in China, as well as the additional data generation opportunities being pursued by Paratek will further broaden the potential of NUZYRA to reach into new and clinically important patient populations. Antibiotics are truly global products and the crisis of antimicrobial resistance continues to progress unabated. We believe based upon the totality of data generated to-date, that NUZYRA is an important clinical option for physicians to stabilize in serious community-acquired infections where resistance is of concern. At this point, we would like to open the line for questions.

[Operator:]

Thank you. We will now begin the Question-and-Answer session. Our first question comes from Suji Jeong of Jefferies. Please go ahead.

[Suji Jeong:]

Good afternoon and thanks for taking my question, and also congratulations on the good quarter. I have a couple of questions about the NUZYRA in community launch. Could you comment on what percentage of the net sales came from pneumonia this quarter, and whether you're seeing an increase in that pneumonia cases? And also you mentioned the 25% of the net sale came from the community setting. I'm just wondering if that came from the patients who got discharged from hospital, or is it just purely community, primary care setting? And lastly, my third question is, do you have any plans to expand the sales force in the community setting in the near future and what would you like to see before making such decision? Thank you.

[Adam Woodrow:]

Thanks Suji. I'll take those. I'll start with the question about -- is that discharge. No, we take out those come from hospital-based positions upon discharge. So the 25% is actually generated by the primary care and the podiatry specialties. And so that's a standalone amount. As regards to the pneumonia side, it's just a bit too early to start that we only started that promotion in September, so it's a bit difficult to predict or to give you the exact numbers right now in terms of how much of that is pneumonia because it's only just started. The vast majority in the last quarter was skim. We were in the peak of our skim season and it's exactly what you'd expect. It was also the only thing we were promoting for the vast majority of that quarter. And then, as we got an expansion, we'll do what we've done in the past. We've been pretty judicious with our balance sheet, we've not tried to over-stretch ourselves. But where we see success, we will expand and there's clearly an opportunity to expand in that community setting, it is a target rich environment. We've got plenty of positions that we're not reaching because we don't have the geographic scale at this present time. But if things continue to progress the way they are, which is along the plan and what we've seen from the pilot, then there is plans to continue to add representatives at the appropriate time and that will be sometime in the future, probably sometime in the middle of next year.

[Suji Jeong:]

Okay, thank you.

[Operator:]

Our next question comes from Bert Hazlett of BTIG. Please go ahead.

[Robert Hazlett:]

Yeah. I just want to follow-up on the sales force. Congratulations on the progress first and foremost, but on the sales force question, what are the -- some of the metrics that you're using to evaluate that additional potential horsepower in the field. Just again, given the material traction that you have here. And I have 1 or 2 others.

[Adam Woodrow:]

So Bert, what we track obviously are prescriptions generated per representative. We saw in our pilot that the primary care representatives we're reaching cash flow break even within about 10 to 12 months, provided in the group that we've got at this present time do the same thing. We'll be good to start looking at other opportunities in other territories, and that's what we'll do.

[Robert Hazlett:]

Okay. Thank you.

[Evan Loh:]

It's Evan. Just one other thing that maybe Randy can comment on as well. This is as Adam said, I think a target rich environment. That being said, I think that there's an opportunity here for a lot of medical education. And Randy has a very focused group of MSLs that he's placed in a very strategic way that hopefully will identify also some growth opportunities. Randy, did you want to speak to that?

[Randy Brenner:]

Yeah, I think what we're seeing early on in this program is that primary care physicians are actually really excited about the opportunity for some education around antimicrobial resistance and that it is a very information-starved set of physicians who don't really understand antimicrobial resistance in a lot of detail, particularly in the regions that they're in. So they've actually opened their arms to a significant amount of education to date and we expect that to continue and that they become more educated on antimicrobial resistant trends in their region, as well as some of the challenges with existing antibiotics should only make Adam's teams job a little bit more easier.

[Robert Hazlett:]

Okay. Terrific. Then kind of 2 other lines of question. One is the NTM abscessus effort and the trial. Realizing it's a rare disease but you've started enrollment. Do you think you are being conservative with regard to the 2-year enrollment period for the 75 patients in that study? Just in general, I'd love your views.

[Randy Brenner:]

Yeah, I mean, we're not being overly conservative. I mean, it is a subset, as you know, NTM is a subset of the overall NTM population. We think there's only 8,000 to 10,000 of those in the U.S. We're looking at early diagnosed patients with even limits the patient size significantly more or so. We feel pretty good with the estimates that we've given to-date. We've seen based on our screening rates to date, as well as what we're seeing from enrollment, we're pretty much exactly on target where we anticipated as far as percentages of numbers of patients per month per center. So I think at the current time, we're still pretty comfortable that the 2 years is the right number.

[Robert Hazlett:]

Okay. Thanks. And then just 1 other general question with regards to the opportunity to China and your partner Zai Lab. Just a little bit more about the framing of the relationship with Hanoi and then just what your sense is about market opportunity? We frame it in various ways and the range is quite considerable. Love to hear your thoughts on how you think about the market opportunity for Omadacycline in China.

[Evan Loh:]

Yeah, so maybe I'll start and then talk -- and then have Adam handle what the commercial opportunity may look like. Zai Lab has devoted a tremendous amount of resources and expertise to this particular program, conducting their trials as well as moving it through the China FDA process, which we believe continues to be on track for an approval before the end of this year. The Hanoi relationship is one in which they've chosen, I think a top-tier commercial organization and from what we understand is that they've designated somewhere in the range of several 100 representatives upon launch that have been trained and are waiting anxiously for the approval with the first deployment to the Tier 1 cities through China. And Tier 1 is not the only place that this will be, but I think it's a great place to start and we think that there is a very big opportunity there. With that, maybe Adam, you can speak a little bit more to what the China commercial opportunity may represent.

[Adam Woodrow:]

Yes. So our understanding is that they're targeting some of the top 400 provinces and areas that they want to go into. It's difficult to predict how far this can go. But because, as you rightly say, the commercial potentially is enormous. I suspect that -- what they'll do is see how this first initial promotion goes. And if it goes well, we'll see an expansion of that organization as they as they move out because they are -- even though it's a huge number of representatives buy our standards, but China is quite small. And when I say small, it's literally the top cities that they're targeting. They obviously like ourselves with regard to the fact that we could expand in the community setting. There you can expand into other areas, and that will probably be determined by the successful that they say.

[Robert Hazlett:]

Terrific. Thanks again. Look forward to more growth of the product in the U.S. and overseas. Thanks.

[Operator:]

Our next question comes from Ed Arce of H.C. Wainwright and Co. Please go ahead.

[Ed Arce:]

All right. Great. Thanks for taking my questions and let me add my congrats on a strong quarter of growth. Firstly, I wanted to ask about the key factors that in your view drove that 30% quarter-over-quarter growth. And perhaps thinking about it from another perspective, are there any barriers that remain to be opened up to further accelerate that growth? That's first question. Second is the split between the hospital and community. You already mentioned it's already at 75% to 25% just 9 months into the promotion. Most of that in . I'm wondering if you have a sense for when the community opportunity cross over the 50% threshold. Do you have a sense for when that timing might be? And then lastly, third question around the new facilities that you're building now and the pills being manufactured entirely in the U.S. by the end of next year. Wondering if you can discuss if there's any potential for incremental benefit to the COGS. Thank you so much.

[Adam Woodrow:]

So I'll take the first 2 parts of that and then I'll let -- I think Randy handle the third one. In terms of the first part of the question, which was -- are any barriers or what drove the growth. Third quarter is often the peak, the skin infections. And it's frankly -- it is what drives that third quarter. We were promoting oral-only, skin for most of that. And we were in this of the peak of the skin infection season. And we know that NUZYRA fulfills a really tremendous unmet medical need in that spice for a really effective oral antibiotic that covers MRSA, particularly where you got resistance and patients that have got other co - morbidities such as diabetes, organ dysfunction, or allergies and that drove the growth in that third quarter. It was actually seen across the board and was pretty broad-based, and it included both hospitals and the adjacent sizes of care and obviously also the community part of the business. Which leads us nicely into the second part of your question. We actually do believe that we will start to see the pneumonia side pick up as we move into the flu season. All indications from our monitoring at this present time, although they could be quite a significant flu season, and what that normally means is that there's a strong bacterial pneumonia season on the back of it and we'd like to see if we can take advantage of that. We'd probably see most of that benefit as we move into next year. As regards to when do we think that we would sort of see a switch to the primary care side being larger than the hospital side, that's actually a difficult one to predict. The hospital business has had obviously a 2-year headstart, it's still continuing to grow. We are seeing some really wrap it up spike in the community side of the business. But they're trying to catch up at the same time as a bg chunk of their business is also growing relatively quickly. But I think it's fair to say that it will be more a function of as we add representatives, that timeline will shrink. But you could foresee at some point where we got a primary care sales force that's significantly larger than the hospital field force. That at that point, you've got to tip into the community side of the business being larger than the hospital side. I should remind everyone on the call that actually the 2 costs for the business are actually of equal size. They're both around about $3.5 billion in terms of size. There's just a higher density prescribing in the hospital side of the business. And at some time, the sort of restrictions on access that we're seeing in the hospitals will go away and we will continue to focus on that side of the business. And so I wouldn't much try and predict what that is. We're only, as you know, 9 months in and I'd need a little bit more data to predict when we'd see a tipping point.

[Evan Loh:]

I think that the -- just to build on what Adam said to answer one of your questions at the barriers to overcome. I think the one that we're anticipating coming next year is that the COVID pandemic will get under better control. We've seen a lot of volatility in terms of where that pandemic has led to across-the-board closures of hospitals in terms of market access. And we think that given the fullness of -- over the fullness of time, that that will resolve itself to a point where the current commitment that Adam has will, I think yields even more benefit over time. Maybe we can go now to the new facilities. You with us, Randy?

[Randy Brenner:]

Yeah, so it's Randy. Thanks for your question about the on-shoring. We're obviously very excited about the opportunity to go through this on-shoring process. Our technical operations team has done an amazing job, working really closely with BARDA and our CMO partners to move this forward in a really quick amount of time. Just want to clarify, we're not building facilities per se. We're using existing CMO partners who are right fitting their facilities for the manufacturing of NUZYRA. That being said, we anticipate that with increased scale and increased growth will generally come increase in COG, better decreases in COGs, I should say. So we anticipate a modest decrease over time as the scale and demand continues to increase for NUZYRA.

[Ed Arce:]

Great, fantastic. And then perhaps just 1 quick follow-up. Just to confirm the size of two the sales force is now, You have roughly 45 for the hospital and just over 40 now in the community, is that correct?

[Randy Brenner:]

Yeah, that's correct.

[Ed Arce:]

Great. Thank you, everyone.

[Adam Woodrow:]

Thank you, Ed.

[Operator:]

Our next question is a follow-up from Suji Jeong of Jefferies. Please go ahead.

[Suji Jeong:]

Thanks for taking my follow-up questions. Just a quick one on the BARDA contract on the prophylaxis for Grand. It's $19 million, you said on top of existing lines, I noticed that there is $30 million associating the prior one that is tied to supplement and prophylaxis animal development. I'm just wondering -- just confirming that $90 million is on top of the existing one. And for debt funding, is that similar to ensuring activity where it's reimbursed every quarter or do you expect to receive any month?

[Randy Brenner:]

Yeah. So you're correct in your assumption that the 19 million in additional dollars, the original contract that was signed with what we call the Clinda Contract Line Item Number 3 for that $13 million included. Some of the treatment of prophylaxis studies and 2 small PEP studies. So the expansion of the contract activated that option, but also expanded it to include a full development program for PEP, which is why that additional $19 million. So that's where we get the $31.4 total for the option being exercised earlier this quarter -- last quarter. With regards to the payments, this is very typical to our current activities we have for all of our programs, both the treatment, the on-shoring, as well as the PMR commitments, it is a 100% cost reimbursement. So we get reimbursed on our costs actually on a monthly basis.

[Evan Loh:]

Yeah. And we see that incremental investments for a second sNDA program, Suji to be a further validation of BARDA's commitment to NUZYRA and the importance of this product as it relates to being able to fight bio-terrorism pathogens from protecting all American civilians and leading down the road to what we see as a robust opportunity with regards to future procurements for the SNS.

[Suji Jeong:]

Great. They clarified. Thank you.

[Evan Loh:]

Thank you, Suji.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Loh for any closing remarks.

[Evan Loh:]

Thank you, Operator. As there are no more questions, we will conclude today's call. In closing, I'd like to thank you all for your time and attention today. Your continued interest in NUZYRA and Paratek are important to us. The journey of making NUZYRA commercial success is well underway as the wealth of microbiologic data and clinical outcome studies on NUZYRA continues to expand, we're increasingly confident in the potential of NUZYRA to be an effective and a much needed addition to the armamentarium of antibiotics available to physicians to save lives in multiple settings of care. The opportunities ahead of us to be able to provide a novel life-saving antibiotic to patients, motivates us all at Paratek. We look forward to keeping you apprised of our continued progress. Goodbye for now.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.