Paratek Pharmaceuticals, Inc.
Q1 2019 Earnings Call Transcript

Published: 9 May 2019

[Operator:]

Ladies and gentlemen greetings and welcome the Paratek Pharmaceuticals' First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this program is being recorded. It is now my pleasure to introduce your host Ben Strain. Thank you. You may begin.

[Ben Strain:]

Good afternoon and welcome to Paratek's first quarter 2019 earnings and corporate update conference call. Our press release with the company's first quarter results was issued earlier today and we've also posted slides in our website that will be referred to on this call. Both can be found at www.paratekpharma.com. Participants on today's call are Michael Bigham, CEO and Chairman of the Board; Adam Woodrow, Chief Commercial Officer; and Evan Loh, President Chief Operating Officer, and Chief Medical Officer. Before I turn the call over to Michael, I would also like to point out that we'll 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. Michael?

[Michael Bigham:]

Thank you, Ben. Good afternoon and thank you all for joining our first quarter 2019 earnings call and corporate update. The start of 2019 marked the transformation of Paratek into a fully integrated development to commercial organization with the early February launch of NUZYRA in the United States. NUZYRA is the first once daily oral and intravenous broad spectrum antibiotic in nearly 20 years with FDA approval to treat both pneumonia and skin infections. While there are no modern analogs, history tells us it takes sustained effort, education, and patience to establish momentum for a new antibiotic in the hospital setting after which the adoption of the community setting for once daily ore daily like NUZYRA can accelerate. We are encouraged by several early leading indicators that we believe have begun to set the stage for growth and usage in the months and years ahead. Our efforts have been focused on establishing a robust supply chain and distribution channel and actively educating and building awareness with the key clinical stakeholders on the potential benefits that NUZYRA offers, while simultaneously working diligently to ensure that patients have to this potential life-saving therapy. In these first eight weeks U.S. market, NUZYRA generated $1.3 million in net revenue along with Paratek having achieved several of our early launch benchmarks, which we believe are necessary to create a strong foundation for long-term commercial success. We estimate approximately 85% of NUZYRA revenues in the first quarter were related to the inventory build with the specialty pharmacies for the oral formulation. We also recorded royalty revenue of $0.3 million which included royalties earned from SEYSARA sales in the U.S. Other successes in the first quarter include significant progress from a reimbursement perspective. In fact approximately one-third of commercial lives in the U.S. had access to NUZYRA by the end of the first quarter. Market research suggests that aided awareness within our target prescribers has increased from 27% to 48% since launch, a result of extensive and coordinated effort across our commercial and medical organizations. Additionally, among health care providers who are aware of NUZYRA, over 90% of them have or are interested in prescribing NUZYRA. And we have achieved institutional access in over 50% of the approximately 400-plus targeted institutions. We believe these leading indicators bode well for future use and we are encouraged by these early achievements. The stage for future growth is being carefully and methodically established. I would now like to turn the call over to Adam to review the commercial performance in greater detail. Adam?

[Adam Woodrow:]

Thanks Michael. As previously mentioned, we launched NUZYRA in the United States in early February a significant achievement for Paratek. As the first once daily oral and IV broad spectrum antibiotic in nearly 20 years, we believe that NUZYRA has the opportunity to address important unmet medical needs in the empiric treatment for both skin and CAP, whilst also addressing antibiotic resistant pathogens which are causing failures with all older genetic antibiotics. In addition we believe our safety and tolerability profile provides a much needed alternative to certain antibiotics regiments an example being the Quinolones. NUZYRA generated $1.3 million in net revenues in the United States in its first eight weeks on the market. We estimate approximately 85% of NUZYRA revenues in the first quarter were related to the initial inventory build within the specialty pharmacies and hospitals who purchased the product. The vast majority of this build was for the oral formulation and we do not anticipate further material expansion of this inventory in the second quarter. We believe this approach has adequately supplied our specialty pharmacy distribution channel to help ensure that NUZYRA is available in those regions where we have field force activity. This ensures physicians and patients have a positive first experience with NUZYRA which is vital to a successful launch. Continuity of care with a once daily IV to oral NUZYRA enables minimization of hospital stays and will continue to remain an important focus for us. As we mentioned last quarter success for NUZYRA starts in the hospital with the specialists with the expansion into the community market beyond the second year. Our initial outreach has been directed toward early adopting specialists including IV doctors, pulmonologists, hospitalists and ER physicians within an identified 400-plus key U.S. hospitals. We are focused on delivering our message through a number of channels, targeting prescribers and decision makers within these prioritized U.S. hospitals. As also disclosed previously, we plan to expand our sales team and the number of hospitals we target by the end of 2019. We will incorporate the learnings from the early launch to gauge the cadence and level of additional expansion. As history tells us and as we have shared you in the past, the hospital setting is challenging for new antibiotics. In our key targeted hospitals and integrated delivery networks, we've been focused on gaining institutional access for NUZYRA. Institutional access in the hospital setting is slowed by a myriad of access constraints that have actually built-up over the past several years. These holds include navigating drug utilization committees, formulary committees, the recent mandates to have stewardship committees and also formulary budget constraints that often favor access to generic antibiotics, which frequently have reduced efficacy and safety concerns. That all said, we are making steady progress in raising awareness and are starting to develop trial use with NUZYRA, which we believe will lead to further adoption. Now as Michael mentioned, we've achieved institutional access in over 50% of the approximate 400 targeted hospitals. This provides us with a great opportunity. While there are no shortcuts to working one's way through this multilayered process, we believe we are laying the right foundation. Our experiences taught us that steady efforts over time will be rewarded with growing demand for NUZYRA, a once daily IV and oral in broad spectrum antibiotic that has the potential to minimize hospital stays. We believe setting the stage in the hospital will serve as a vital springboard into the broader community opportunity. Whilst eight weeks in a short time in the life of a drug, we are energized by much of the progress and recognize that our efforts have only just begun. We believe we're on the right path with NUZYRA and we're well-positioned for long-term commercial success. We look forward to reporting on our progress in the quarters ahead. And with that, I'd now like to turn the call over to Evan.

[Evan Loh:]

Thanks, Adam. The U.S. launch of NUZYRA successfully underway, we continue to pursue a number of compelling lifecycle opportunities for NUZYRA broadening the potential of NUZYRA to reach into new market segments, while continuing to present important new clinical and microbiological data to further the understanding of NUZYRA's clinical utility. Before I highlight these potential life cycle value drivers, I would like to acknowledge and thank the NUZYRA and SEYSARA scientific and clinical development teams who have worked tirelessly with commitment and passion enabling these products to be available for patients today. Last month, we announced that this team was awarded the American Chemical Society's 2019 Heroes of Chemistry award, recognizing the innovation and approval of both of these novel agents. This is a great honor and a testament to the expertise of the chemists and the skill sets of the clinical development teams that today provide clinicians access to two new effective and well-tolerated therapies. As you all know Paratek has continued to deliver our commitment to data transparency. To that end at the 29th European Congress of Clinical Microbiology and Infectious Diseases or ECCMID, we shared nine NUZYRA clinical and microbiology presentations. These presentations continued to highlight the efficacy and safety profile of NUZYRA adding to the growing body of evidence of NUZYRA's utility against life-threatening infections. A key scientific highlight included a subgroup analysis where NUZYRA showed no difference in efficacy or safety in obese, overweight and healthy weight skin infection patient compared to Linezolid. These data suggest that regardless of body mass, a fixed dose -- a fixed dosing strategy does not impact the efficacy and safety profile of NUZYRA. The data provide reassurance to the clinician that complex adjustments in dosing based upon body mass are not needed, again demonstrating the simplicity and ease of use of NUZYRA with no dose adjustments being needed in patients with comorbidities. Beyond the core CAP and skin approved indications, we continue to make important progress in the evaluation of the efficacy and safety of Omadacycline to treat urinary tract infections. Urinary tract infections are one of the most commonly diagnosed bacterial infections with approximately 30 million scripts written per year in the U.S. alone. Given the rising resistant rates and the associated extensive safety concerns seen with quinolones today treating physicians have limited options due to a lack of broad spectrum well-tolerated oral antibiotics. There is a compelling rationale for the potential use of omadacycline to treat urinary tract infections based upon the high levels of the drug present in human urine combined with its known in vitro activity against key UTI pathogens. Our first Phase 2 study is designed to evaluate oral only omadacycline in uncomplicated urinary tract infections. Our second Phase 2 study is designed to evaluate the potential efficacy and safety of oral and intravenous omadacycline for the treatment of acute pyelonephritis, a common subset of complicated urinary tract infections. These studies are designed to provide the data we need that determine how best to position omadacycline in these underserved indications. We look forward to providing top line data from both studies in the second half of this year. We've also had additional conversations with the FDA with respect to achieving an oral-only indication in CAP. These discussions have included a potential accelerated path forward regarding an oral-only indication that can be achieved within our current cash runway projection. Once an agreement is reached with the FDA in the months ahead we will provide further details at that time. Outside the U.S., our marketing authorization application or MAA with the EU for omadacycline remains under review and continues to progress now that we have submitted our day 120 responses. We anticipate a CHMP opinion in the second half of 2019. As a reminder, we are seeking approval for both pneumonia and skin infections. With that, I will now turn the call back over to Michael. Michael?

[Michael Bigham:]

Thank you, Evan. Before I conclude, I will review the relevant financials for the first quarter. For the first quarter of 2019, we reported a net loss of $35.6 million compared to a net loss of $27.8 million for the same period in 2018. Revenue earned during the first quarter of 2019 was attribute to net U.S. NUZYRA product revenue of $1.3 million and royalty revenue of $0.3 million, which included royalties earned from SEYSARA sales in the U.S. R&D expenses were $11.4 million for the first quarter of 2019 compared to $14.9 million for the same period in 2018. This decrease was primarily related to the capitalization of NUZYRA commercial supply costs, which was appropriately classified as an R&D expense until the FDA approval of NUZYRA last year. SG&A expenses were $23.3 million for the first quarter of 2019 compared to $11.9 million for the same period in 2018. The increase was primarily driven by the contract sales organization and the additional costs in support of the commercialization of NUZYRA. We ended the year with $257.9 million in cash, cash equivalents and marketable securities with $229.2 million in debt, which includes $159 million of convertible notes. Based upon Paratek's current operating plan, we anticipate our existing cash, cash equivalents and marketable securities of $257.9 million as of March 31, 2019 estimated NUZYRA product sales and the SEYSARA royalty-backed loan which was funded on May 1 2019. All of which will fund company operating expenses, capital expenditures and debt service beyond the first quarter of 2021. In closing, our focus remains on the successful launch of NUZYRA in U.S., which includes continuing to build awareness further establish broader access and ensuring that physicians and patients have a positive experience with NUZYRA. We're encouraged by the progress to-date and we look forward to providing regular updates on our commercial activities through our quarterly earnings calls. We have several compelling life cycle opportunities with NUZYRA

[Operator:]

Thank you. [Operator Instructions] Your first question comes from the line of Dewey Steadman from Canaccord Genuity. You are now live.

[Dewey Steadman:]

I guess on the biodefense opportunity you guys have mentioned this in the past and didn't really discuss it in your prepared remarks, how should we approach that opportunity? And what would be the timing and expense of a DoD purchase should that work out? And how does that contrast with the BioShield program from BARDA? And in -- what are the differences in those two programs? Thank you.

[Evan Loh:]

It's Dewey, its Evan. Thank you for the question. As we've discussed in the past and as Michael mentioned in his prepared remarks, we have an ongoing research program with the DoD that's specifically aimed at achieving approvals through the Animal Rule for bioterrorism organisms such as anthrax and plague. And that is also consistent with the -- a program that we ran several years ago specifically looking at small animals and now we're looking to expand that into a second animal species, specifically around the demands of understanding the pharmacokinetics and ultimately prophylaxis and efficacy. So that's a standalone program that's moving forward on its own. Project BioShield that you mentioned the -- there was a preprogram announcement that came out in the early part of the spring but just as of this afternoon the actual request for proposals was actually announced by BARDA this afternoon. And that is a separate standalone program specifically looking at the question of whether there is an application that could fulfill several criteria that include activity against bioterrorism organisms including anthrax and plague, having a pneumonic indication as well as having an intravenous and an oral formulation. When we look at this particular request for proposal that we believe omadacycline is well-positioned and we will -- we plan to pursue it.

[Operator:]

Thank you. Our next question comes from the line of Robert Hazlett from BTIS. You are now live.

[Robert Hazlett:]

Thanks. It's BTIG. Thanks. Congratulations on the progress guys. Just as a follow-up initially to that last question. Is there any particular timing with regard to the BioShield program? It seems like the RFP just released so, but I'd be interested in any timing with that? And the second question is with regard to the expansion of sales force. Adam, could you give a little more color on some of the details with regard to the expansion you expect by around year-end? Thank you.

[Evan Loh:]

So Bert, its Evan. I'll take the first question and then Adam can take the second question. Thank you for that. The -- I look at the application announcement that just came out about an hour ago. From our reading it's about a six week deadline to June 21st, which is when the applications have to go in. We believe also that the funding would have to be within the current government fiscal cycle. And so the award would have to be received by the end of September, so probably by October 1st.

[Adam Woodrow:]

Hi, Bert, it’s Adam. Look, we've always said we're going to plan to expand the sales force by 2019. We, obviously, want to see how the traction for the drug goes. And we'll look at the cadence and the growth and where we actually see traction before we make a call. But I can tell you that we're already in the early phases of looking at our expansion plans. We'll give more information on that probably at the next call.

[Robert Hazlett:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Ed Arce with H.C. Wainwright. You are now live.

[Thomas Yip:]

Hello, everyone. This is Thomas Yip. I have couple of several questions for you. Thank you for taking the questions. So first, you mentioned that 85% of NUZYRA revenue in 1Q is due to inventory buildup. Can you give us an idea how many weeks that amount of inventory represents?

[Michael Bigham:]

Well, actually really what we're trying to do and the way that the inventory build is sort of made up is most of it's gone to specialty distribution units and retail pharmacies. What that basically means is as we try to make sure that we've got product, oral product predominately in retail outlets where our representatives work. So, it's not really -- I can't give you a weekly because it just depends on where that prescription is. It's just to make sure there's actually product available should a prescription come in from that local geography.

[Thomas Yip:]

Okay, got it. Thanks for clarifying. And then another metric that we are looking at is data awareness, which increased from 27% to 48%. Can you remind us of the details of aided awareness and how it's captured?

[Adam Woodrow:]

Yeah. So the way we've done our -- the way we present that basically just so you understand, we only really look at where we're working. So it's targeted at the institutions and specialties that we're calling on. The way the awareness works is you ask individuals, are they aware of any antibiotics they'll give you a list of names and specifically in the community acquired pneumonia and skin obviously because of the indications we're after. And then they'll give you a list that's unaided. After you ask that question, you then ask are you familiar with the following antibiotics? And you'll give the list of antibiotic that you know are in that space and they'll tick the ones that they know. The ones they don't know, they won't tick. That's the difference between aided and unaided. We're really pleased with what we've seen. And we've got really high numbers here. It's 48% since launch which in essence it was actually six weeks after the launch. So it's a very large recognition of the work that has gone on pre-and post the launch. And we're really encouraged with what we're seeing here.

[Operator:]

Thank you. Our next question comes from the line of Jason Gerberry from Bank of America. You are now live.

[Jason Gerberry:]

Hi, good evening. Thanks for taking my questions. I guess just can you just remind us the -- as you think about the ultimate revenue opportunity for NUZYRA, can you kind of quantify -- not in specific terms disproportionately the second 400 institutions do you anticipate that they are a meaningful contributor? How would you kind of apportion the first 400 institutions versus the second 400? And then my second question just in terms of the SG&A spend in the quarter, can you just give us the sense is this a good approximation of the run rate until you add the additional 40 reps? Thanks.

[Adam Woodrow:]

So actually, the first question will answer your second question. The proportion that's in the additional 400 hospitals actually is no different in orders of magnitude in terms of the size and the potential. The only difference is, is that we've gone to the sites that we believe have got the greatest opportunity for earlier adoption and where the processes can run a little bit smoother than some of the others. So we try to identify the places that have a history of bringing in branded antibiotics quicker than the ones that are still -- still were used branded antibiotics, but were a little bit slower to adopt. So to answer your question, they both have the same sort of potential. The difference is the 400 that we have not approached right now are a little bit slower to adopt.

[Michael Bigham:]

And the question with respect to SG&A. As you know and as you've seen as we mentioned, the SG&A expense was about $23 million for the first quarter of 2019. We anticipate that that number will built modestly through 2019 in concert with increased commercial effort and activity. So it basically is a reasonable proxy I think overall.

[Jason Gerberry:]

All right. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Ami Fadia from SVB Leerink. You are now live.

[Ami Fadia:]

Hi, good evening. Thanks for the question. Adam maybe a question for you. So as you mentioned the majority of the sales were stocking at the specialty pharmacies. Can you help us and you also do not anticipate any further expansion in the inventory, what type of coverage do you have with the stocking with regards to sort of the key regions that you're targeting? And then just -- yes go ahead. And then I'll have a follow-up.

[Adam Woodrow:]

Just to answer that question. So right now most of the inventory build is in these sort of retail outlets that you alluded to. And I could tell you we're in over about 300 or so outlets which are aligned very much with our sort of 400 target hospitals. Although there is some obviously some stocking within the hospital institutions. It's very difficult for us to actually identify whether -- when we see something go into a hospital, whether it's specifically for a patient or whether the hospital is just putting something into their pharmacy and putting it on the shelf. So for now we have taken the approach of giving you this guidance.

[Ami Fadia:]

And then the remaining 15%, is that utilization of the drug and where is that coming from? And if you could sort of just gives us some early feedback on whether you've seen patients transition from being treated in a hospital in to an oral?

[Adam Woodrow:]

So the remaining sort of estimate for 15% which obviously is the first eight weeks of launch is our best estimate at this present time for demand and utilization. What I can tell you is we're really encouraged with what we've seen from a utilization perspective, because we've seen use of NUZYRA in every setting of care. What that really means it is we've seen the use of the IV in the hospital and in some cases in the outpatient setting and we've seen use of the oral in the hospital and in that outpatient setting. So this is obviously an encouraging start for us.

[Ami Fadia:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of [indiscernible] from Ladenburg Thalmann. You are now live.

[Unidentified Analyst:]

Hi. Thanks for taking my call. A few questions. First one on that UTI trials. I was wondering if you could give some detail on when to expect results from both trials whether it’s third quarter or fourth quarter and which one would come first or both at the same time.

[Michael Bigham:]

I think when you look at the design of both of those trials as we said they are looking at two different indications the oral only in the uncomplicated setting and then the IV and oral and complicated UTI setting. Our current projections are that we will have these data as we said in our prepared remarks before the end of this year. Yeah, about the same time.

[Unidentified Analyst:]

About the same time? Okay. Thank you. And you mentioned also that you're looking for an expedited test to approval of the oral only for CAPs. And I was wondering if you could get a little more detail on when you expect to announce the -- what those plans would be and when you would have an FDA decision on that. And am I right to assume that this would not include an additional trial?

[Michael Bigham:]

Just for clarity's sake for indication expansion, you would always need some type of clinical trial in order to generate efficacy and safety data. We are currently in active discussions with the FDA discussing the requirements that are needed to get an oral only and we believe that supplementing efficacy and safety with pharmacokinetics would be a way for us to further look toward that path forward. That being said, I think, we'll have additional clarity in the coming months. And it will be a modest sized trial without material impact on our current runway.

[Unidentified Analyst:]

Okay. Thank you. Yeah.

[Michael Bigham:]

Yeah. I think the other -- and the other clarifying point that I would want to make here is that we think there is potential for this -- a potential expedited path to have the label update in time to support our planned community launch.

[Unidentified Analyst:]

Okay. Thank you. Last question on NUZYRA approval in China. I was wondering if you have an update kind of when that might happen, what might be required and when you might be receiving milestone payments from your partner there.

[Michael Bigham:]

Yeah. I think that they are still in the process of having discussions with the China FDA and we will report those out to you when we have further clarity on those milestones.

[Unidentified Analyst:]

All right. Thank you very much.

[Michael Bigham:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I would like to turn the floor back over to management for closing.

[Michael Bigham:]

Thank you. As there are no more questions, we will conclude today's call with our brief closing comment. Thank you all for your time and attention today. Your continued interest in NUZYRA and Paratek remain important to us and the journey of making NUZYRA a commercial success has begun and the unique profile of NUZYRA specifically our once daily, well-tolerated oral is positioned well for long-term commercial success. We very much appreciate your support. This journey would not be possible without you and we look forward to keeping you apprised of our continued progress. Goodbye for now.

[Operator:]

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation and have a wonderful day.