Paratek Pharmaceuticals, Inc.
Q4 2021 Earnings Call Transcript

Published: 14 Mar 2022

[Operator:]

Greetings and welcome to the Paratek Pharmaceuticals’ Full Year 2021 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Higgins, Vice President of Finance, Controller and Principal Accounting Officer. Thank you. You may begin.

[Sarah Higgins:]

Good morning and welcome to Paratek’s year end 2021 earnings and corporate update conference call. A press release of the company’s financial results was issued earlier today and we have also posted slides on our website to which we will refer 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 Brenner, Chief Development and Regulatory Officer. Michael Bigham, 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 morning and thank you all for joining our year end 2021 corporate update call. Before I begin my overview of Paratek’s 2021 performance and our growth strategy for 2022, I would like to comment on a world that now faces geopolitical uncertainty, including the potential use of or exposure to biological and/or chemical weapons. As world leaders elevate their focus on preparedness and protecting their citizens and war fighters, we believe that NUZYRA’s broad utility against antimicrobial resistance, wound infections and bioterrorism pathogens, should make it an important lifesaving component of the U.S. government strategy and actions being formulated to address these emerging threats. The entire Paratek team is committed to providing NUZYRA in support of these efforts, if and when the need arises. Now, I would like to review our performance in 2021, which was a very successful year for Paratek. As you will see on the next slide, net sales from NUZYRA’s core commercial business for the full year landed at the top end of our guidance range at $68.2 million. Strong demand, coupled with disciplined execution resulted in consistent year-over-year growth in NUZYRA’s core business with a triple-digit compounded annual growth rate since NUZYRA’s U.S. launch in February of 2019. Net sales from our core business, has increased each year since launch from $11.5 million in 2019 to $68.2 million in 2021. We anticipate this growth profile to continue in 2022 with an estimated 50% increase year-over-year that will result in net sales from NUZYRA’s core business of between $95 million to $105 million. As seen on this next slide, our commercial launch performance over the first 3 years of its U.S. launch continues to materially differentiate NUZYRA as one of the most successful IV oral antibiotics launched in the last decade. 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 are illustrated on this slide. These include once-daily oral and IV formulations that enables utility in every clinical setting of care; proven clinical efficacy against resistant pathogens in two approved indications; and a favorable safety and tolerability profile. As you can see illustrated on this next slide, we remain focused on three pathways to NUZYRA revenue opportunities

[Adam Woodrow:]

Thanks, Evan. Commercialization of NUZYRA in both the hospital and community settings continues to progress well. As Evan noted, strong demand and consistent execution has resulted in impressive year-over-year growth in NUZYRA’s core commercial business. Net sales from our core business increased 76% year-over-year from $38.8 million in 2020 to $68.2 million in 2021. We anticipate that this growth will continue in 2022, with an estimated 50% increase year-over-year to a range of between $95 million to $105 million in net sales from the NUZYRA core business. Equally important, gross demand has increased 84% year-over-year from $44.3 million in 2020 to $81.7 million in 2021. Thus, growth continues to be driven by demand. I’d like to provide a little color on our progress and expectations for the coming year. As a reminder, our initial launch strategy was to focus on the hospital business for the first 2 years. Our objectives were to build endorsement and prescribing with key influencers in the antibiotic space, namely ID physicians. In addition, we wanted to establish consistent and broad-based market access in the outpatient setting before expanding our promotion into the community setting, which we then initiated during the first quarter of 2021. By the end of 2021, we had approximately 90 customer-facing sales representatives split equally between the hospital and the community. The hospital team continued to grow NUZYRA throughout 2021 despite several COVID-related headwinds. These challenges included limited physical access to certain key hospitals, the near absence of formulary and stewardship reviews, and a continued reduction in face-to-face contacts with infectious disease doctors during the ongoing COVID panic. Despite these headwinds, we continue to see annual double-digit growth in the core NUZYRA commercial business in hospitals and their adjacent sites of care. This segment of our business accounts for 75% of our prescription days of therapy. As the year unfolds, we expect to see the hospital business evolve more in line with our pre-COVID experiences. More specifically, COVID patient hospitalizations are falling in concert with the decline in Omicron COVID cases and we’re seeing an increase in the rates of elective surgical procedures. Further, we believe that there will be a return to more frequent and regularly scheduled formulary stewardship committee reviews. As the hospital environment continues to improve, we anticipate significant revenue growth from the hospital segment in 2022. Our focus in the hospitals continues to be on the ID physicians who cares for patients with known or suspected resistant pathogens with multiple comorbidities. We continue to feel confident that the oral formulation of NUZYRA enabling early discharge of these patients will remain an important value proposition for hospital physicians. In addition to the cost savings realized by the healthcare system, a short length of stay also reduces the risk for patients to pick up a hospital-acquired infection with yet another resistant bacterial pathogen. In this next slide, based on projected patient data, primary market research and the geographic coverage of our sales team, we believe that there will be approximately 300,000 skin and pneumonia patients that fit the NUZYRA target patient profile by 2028 in the hospital setting. Today, our internal data allows us to estimate that we are approximately 1.5 – we have a 1.5% share of this addressable market opportunity, and we believe that we can grow this share to between 6% and 12% by 2028. Importantly, these patients represent on-label NUZYRA’s addressable market opportunities for skin and pneumonia only. As previously discussed, we expanded our promotional effort into the community setting in 2021. Our focus continues to be on primary care doctors, podiatrists and a select group of dermatologists. We are pleased with the data trends associated with this commercial expansion and see earlier trial and usage with these physicians when compared with hospital-based physicians. The community segment of the business already makes up 25% of our prescription days of therapy. Combined with the hospital business, as seen in the slide, during Evan’s prepared remarks, we continue to see meaningful separation of NUZYRA’s core commercial growth from other recent IV oral launches. With broad-based market access established, combined with the earlier adoption by targeting physicians in the community setting, we remain confident in the potential of NUZYRA in this market segment. Ultimately, the goal of our community expansion is to reach 160 representatives in the community in a phased approach. In 2022, we plan to add approximately 40 additional sales representatives to broaden our geographic coverage and increase our penetration into new and existing territories. Aligned with our historical disciplined approach to capital allocation, we will strategically increase the associated medical science and reimbursement resources needed to support the expansion into these new territories. The cost of this expansion is already incorporated into the expense guidance Evan provided earlier. Future expansions will be driven by the success of the current plan. Our promotional approach to both skin and pneumonia in the community, like the hospital, is to focus on patients that have suspected resistant pathogens with concomitant comorbidities or allergies. This patient type is very poorly served by the existing generic oral options in the market today. Our estimate, based on IQVIA data, market research and geographic coverage is that there will be approximately 750,000 skin and pneumonia patients who fits this demographic in 2028. By this time, we believe we can achieve between 9% to 14% market share. Importantly, these patients represent NUZYRA’s on-label addressable market opportunities for skill and pneumonia. As you can see on this next slide, we expect that the community-generated business will reach parity with the hospital-derived business in terms of prescription days of therapy by the end of 2023. Based upon our internal analytics from the first 3 years of commercial launch, combined with these market share projections, we expect that there will be consistent and continued year-over-year growth in both the hospital and community. In summary, given the dosing flexibility of a once-daily, well-tolerated broad-spectrum oral and IV formulation, we continue to focus on our two-pronged approach, with a dedicated hospital team, focused on early hospital discharge and our community team focused on hospital avoidance. We expect continued year-over-year growth in both the hospital and community settings. Hospital promotion is fundamental to our business given the influence it has on the outpatient setting of care. Revenue growth here, however, is more closely tied to the return to normal in terms of hospital access, formulary reviews and elective surgical procedures. The community setting will see revenue and prescription days of therapy fee growth a little faster year-over-year as we add more promotional effort broaden our geographic coverage and penetrate more deeply into the primary care and podiatry prescriber base. Our focus in both settings remains gaining new trialists 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:]

Thanks, Adam. The development, manufacturing and medical affairs teams had a very productive 2021 across multiple fronts with a number of upcoming and exciting 2022 deliverables. The plan for our commercial community expansion, just described by Adam, in addition to our hospital-focused medical team, medical affairs ran a pilot program of a small number of targeted community-based medical science liaisons, or MSLs, to engage in scientific exchange with community healthcare providers. Excuse me, they were strategically placed in densely populated metropolitan areas with a large presence of primary care practitioners and supported medical education. Feedback on this team and the interest of primary care physicians in education clearly supports the additional MSLs that will be hired in 2022 in parallel to the planned commercial community expansion. As Evan noted earlier in this call, we are very pleased with the progress we have made to date under our Project BioShield contract. Last year, we were excited to announce that BARDA accepted delivery in June of the first NUZYRA procurement as well as the activation of an additional option in September that led to the expansion of our Project BioShield work and increase the overall value of the contract by $19 million. Together with BARDA, we furthered the work performed for both the anthrax treatment and PEP development programs under the animal rule. Efforts last year were focused on the valuation of the in vitro activity against multidrug-resistant Bacillus anthracis strains as well as the pharmacokinetics of omadacycline in both rabbit and non-human primate animal models for inhalation anthrax. The data from the PK studies support two pilot animal efficacy studies, the first of which is in rabbits and is targeted for the fourth quarter of 2022. Our amended BARDA contract formalized the trigger for purchase of the second NUZYRA procurement valued at $38 million, upon BARDA’s receipt of positive top line data from this rapid pilot efficacy study. We also continue to partner with BARDA to advance our FDA post-marketing commitments. As a reminder, this work includes reimbursement for the following activities

[Operator:]

Our first question comes from Ed Arce with H.C. Wainwright. Please proceed.

[Thomas Yip:]

Hi. Good morning everyone. This is Thomas Yip asking a couple of questions for Ed. Congratulations on a great quarter. First, over the past couple of slides, can you go over the market opportunity of NTM caused by MAC compared to the opportunity of NTM caused by mycobacterium abscessus that you estimated at $1 billion?

[Randy Brenner:]

Yes. Hi Thomas, this is Randy. So, you have seen in our corporate deck, and you have heard us speak before, and Evan mentioned in his opening remarks that we have done a pretty thorough market assessment for Mycobacterium abscessus and believe that in the U.S., the market is about $1 billion opportunity. What we know for Mycobacterium Avium Complex, or MAC, is that the number of patients is about 10x larger in the U.S. from MAC than it is Mycobacterium abscessus. So, that – you can assume that the market opportunity is significantly larger than the $1 billion market opportunity for Mycobacterium abscessus.

[Evan Loh:]

The other thing that – Thomas, it’s Evan. The other thing that we have learned in terms of our market research is that there are several other regions in the world that have prevalence of NTM Mycobacterium abscessus disease that is comparable to what we see in the U.S., specifically Japan and South Korea together, and we are exploring. As we have mentioned before in the past, opportunities there to think about what a development path might look like. We also see that setting as a potential springboard to potential strategic partnerships as we look to ensure that there is the right amount of support for a registration type of program in those particular regions.

[Thomas Yip:]

Understood. And then perhaps on the clinical side, for NTM with MAC, what would the plans be to enter the clinic, or is it possible to start a new study in 2022? And what’s the overarching clinical strategy here?

[Randy Brenner:]

We continue to evaluate the potential clinical strategy for MAC, Thomas. The data is relatively recent. So, we are working through what a clinical development program might look like. We know that the next step is to do some in vivo work in MAC to ensure that the in vitro potency that we saw in the hollow fiber model translates over into an in vivo model, but we will come back to folks with the plans for any clinical program for MAC. And as Evan mentioned earlier, the MAC opens up potential discussions with partners outside the U.S. as well. So, we would like to think about MAC from a global perspective.

[Evan Loh:]

I think it’s important to note also that in these particular orphan disease settings that publications continue to drive I think physician, knowledge and comfort with considering new innovative antibiotic options for this type of devastating chronic disease. We are very encouraged by some of the real-world evidence that Randy mentioned that NUZYRA has been used in these particular settings for daily oral therapy, for upwards of 2 years with very good safety and tolerability data. And we believe that our commitment here to the physician community and the patients is to publish as much as we can, both on an in vivo, in vitro as well as a clinical utility basis for both NTM abscessus. And now that we have the MAC data, we will be exploring opportunities to further the scientific knowledge base in MAC pulmonary disease as well.

[Thomas Yip:]

Understood. We certainly look forward to the new pre-clinical data. And then perhaps one question regarding NUZYRA other than the impressive U.S. growth that we have seen and projected for 2022 as part of your 2022 guidance, $2 million in royalty and collaboration revenue, is this primarily royalty revenue from Zai lab? And what’s your outlook in the Chinese market?

[Evan Loh:]

Yes. Sarah, did you want to take that?

[Sarah Higgins:]

Sure, happy to. I will address maybe the financial impact and then you can talk about the market. The $2 million in royalty revenue that we projected are related to sales of sarecycline in the U.S., so that’s our second product that’s on the market and is licensed to Almirall. And Evan, do you want to take – sorry, and as it relates to the Zai milestone – excuse me, Zai royalty. As you recall, we entered into a loan agreement with R-bridge Capital and the royalties from sales by Zai are going over to that lender until we repay the loan in full, which was, as a reminder, $60 million that we executed late last year.

[Evan Loh:]

Thomas, the launch in China, as Randy noted, got underway in December of 2021. We know that Zai is working hard to get the product listed on the NRDL listing schedule in China. And I think they have guided somewhere within the next year that, that will be accomplished, and we do think that the commercial success story there will – I think will accelerate once that listing is actually taking place.

[Thomas Yip:]

Understood. Thank you so much for taking all my questions. Looking forward to a great year.

[Evan Loh:]

Thank you very much.

[Operator:]

Our next question comes from Bert Hazlett with BTIG. Please proceed.

[Bert Hazlett:]

Thank you. Congratulations on all the progress. You have covered a lot of the topics I was going to ask about. But just – could you give us a little bit more with regard to the timing and the scale of this second phase of expansion into primary care? And does the characterization of this as a second phase of expansion mean that there is potential for a third phase? And are any other structures maybe corporate partnerships or otherwise or any of the structures for expansion in consideration at all? Thank you.

[Evan Loh:]

Adam, do you want to take that?

[Adam Woodrow:]

Yes. Thanks, Bert. So, we are going to put 40 – as Evan mentioned, we are going to put 40 representatives in. We will probably start that around the middle of this year. One of the things that we know is that it takes approximately 12 months for a newly minted community sales representative to reach profitability actually in the field. So, growth this year is really driven by the success of the last year’s reps who basically now funded themselves and have enabled us to continue to expand. Our plan is if things continue to go to the plan, we will look to expand every year for the next 3 years until we get to that 160 number at around about the same sort of time, which is midyear each year.

[Bert Hazlett:]

Okay. And again, just following up, were there any other structures contemplated other than a build-out internally?

[Adam Woodrow:]

Yes. Of course, we have looked externally and we still continue to look externally. Ideally, if we had the resource, we would like to get there quicker. One way to do that, as you know, Bert, is to look to partner. The fact remains that there are very few companies out there that have got only one product in their bag in a community setting. It’s not an area right now where there are a lot of available field forces looking for additional products, but it’s certainly something we considered and would continue to consider because it will obviously accelerate our growth and revenue projections.

[Evan Loh:]

Well, we can’t predict, Bert, is what’s going to happen, and I believe this is evolving quickly here that the COVID pandemic as it falls into becoming more endemic, will open up opportunities for both the hospital as well as from the community side. If those events lead to more acceleration in terms of our forecast and our overall commercial performance success, as we have seen to-date, obviously, we like to bring forward more expansion on the community side as our capital structure allows for. But one of the things that has been important to us is to be disciplined with regards to this. And we would like to see, as we have said before, future expansions being driven by the success of what we are currently planning for this year’s expansion.

[Adam Woodrow:]

Yes. I think one thing I would add, Evan, is that our community expansion has been done under the shadow of COVID all the way through. We have never experienced what is like to promote NUZYRA in the community without that sort of shadow in place, unlike what happened with us in the hospitals where we did get 12 months before COVID came along. And we know that we were certainly growing faster pre-COVID than we have grown post-COVID. So, as Evan alludes to, should the environment improve, it may enable us to expand quicker.

[Bert Hazlett:]

Well, thank you for that. Congratulations on the progress.

[Evan Loh:]

Thank you.

[Operator:]

There are no further questions in queue at this time. I would like to turn the call back over to Evan Loh for closing comments.

[Evan Loh:]

Thank you, operator. In closing, I would like to note today that we are facing the so-called silent pandemic due to the rise of antimicrobial resistance around the globe. It is real, it is getting worse, and it clearly appears in-negligible. As we have just experienced from the current COVID pandemic in the modern world, pandemics start regionally, but can very quickly become global. Bacteria do not care about regional borders and are happy to use humans as their host for both replication and transport accordingly, not only life-saving globally, but also vital to U.S. national security. Paratek and NUZYRA are dearly positioned to help address not only the AMR challenge, but other bioterrorism pathogens that could threaten the lives of all Americans. We look forward to keeping you apprised of our continued progress. Goodbye for now.

[Operator:]

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation and have a great day.