Paratek Pharmaceuticals, Inc.
Q3 2018 Earnings Call Transcript

Published: 7 Nov 2018

[Operator:]

Greetings, and welcome to the Paratek Pharmaceuticals Third Quarter 2018 Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Ben Strain, Executive Director of Investor Relations and Corporate Communications for Paratek Pharmaceuticals. Ben, please go ahead.

[Ben Strain:]

Good afternoon, and welcome to Paratek's Third Quarter 2018 Earnings and Corporate Update Conference Call. A press release for 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 Michael Bigham, CEO and Chairman of the Board; Douglas Pagán, Chief Financial Officer; Adam Woodrow, Chief Commercial Officer; and Evan Loh, President, Chief Operating Officer and Chief Medical Officer will also be available for Q&A. Before I turn the call over to Michael, I would 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 everyone 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 third quarter earnings call and corporate update. It has been an exciting and productive 3 months for Paratek, during which we achieved several significant milestones. Most notably, we received 2 drug approvals within a single 24-hour period, remarkable. The FDA approved NUZYRA, the brand name for omadacycline, for the treatment of adults with community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections in both IV and oral formulations. The FDA also approved SEYSARA, for the treatment of inflammatory lesions of non-nodular, moderate-to-severe acne vulgaris. Adam and his team continue to make significant progress with our NUZYRA pre-commercialization activities as we move toward a February 2019 launch in the U.S. We are very much looking forward to this long-awaited opportunity to make a meaningful difference in the future treatment landscape for community-acquired pneumonia and skin infections. We'll continue to keep you informed of our progress in the months ahead as we approach the U.S. commercial launch of NUZYRA. We are also in active discussions with the FDA with respect to the CABP study design of our agreed post-marketing requirement. We expect the additional CABP study will require no more than 800 patients, a size similar to that of our OPTIC study. We anticipate having additional clarity around the study design in early 2019. Outside the U.S., we recently submitted the Marketing Authorization Application in the EU for omadacycline. That review proc has already started. As a reminder, we are seeking approval on both community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections. We also continue to make important progress towards advancing our life cycle initiatives with omadacycline by expanding our efforts to explore its potential to treat urinary tract infections. Recall that our first Phase II study was focused on treating uncomplicated urinary tract infections. This study is actively enrolling patients. Our second Phase II study will be evaluated in the potential utility of omadacycline for the treatment of acute pyelonephritis, a common subset of complicated UTIs where the kidneys become infected. We expect to dose our first patient in the pyelonephritis study very soon as sites are actively screening patients. As a reminder, 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. We look forward to sharing top line data from both studies in the second half of 2019. In early October, Paratek had a significant presence at IDWeek in San Francisco, where we shared additional data highlighting the continued importance of omadacycline in community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections. Notably, we presented an important analysis demonstrating omadacycline's clinical efficacy against a broad collection of clinical isolates with known tetracycline resistance, as well as demonstrating an improvement in quality of life in patients with ABSSSI that were treated with omadacycline. In regard to SEYSARA, our partner, Almirall, has announced plans to launch in January 2019. As a reminder, SEYSARA is a once daily, oral, narrow spectrum, tetracycline-derived antibiotic with anti-inflammatory properties for the treatment of moderate-to-severe acne in the community setting. We are entitled to receive tiered royalties at rates ranging from high single to low double digits of net U.S. sales of SEYSARA. We retain all ex U.S. rights to the drug. Finally, we continued to strengthen our balance sheet over the past several months. Most recently, we extended the interest-only period for Hercules term loan as a result of the FDA approval of NUZYRA. We also received 2 milestone payments in conjunction with the recent approvals. We are in the $12 million milestone from Almirall for the FDA approval on SEYSARA. And we've received a $5 million milestone from Zai Laboratory upon the FDA approval of NUZYRA. Both milestone payments will be reported as revenue in the fourth quarter 2018 financial statements. These achievements, along with the potential monetization of the SEYSARA royalty stream, have the potential to bring us close to cash flow breakeven. With that, I will now turn the call over to Adam.

[Adam Woodrow:]

We continue to make significant progress across the commercial organization in preparation for our February 2019 launch. NUZYRA has the potential to fulfill an important unmet medical need as the first, once daily, IV and oral antibiotic in nearly 20 years, with a broad label to treat both CABP and skin infections. Market research continues to highlight the need for safe and effective new treatment options, particularly those with a convenient IV and oral option that can potentially minimize hospital stays, or in some cases, avoid a hospital admission altogether. Because resistance represents a critical concern in the infectious disease space, we are excited about the potential for NUZYRA to address this ever-growing unmet medical need. As discussed at our Investor Day 2 weeks ago, success to NUZYRA and Paratek begins in the hospital, with the potential for a broader opportunity in the community market beyond year two. Our primary focus over the first years of launch will be directed towards the early adopting specialists, such as ID doctors and pulmonologists within the 800 to 850 key U.S. hospital accounts that we have identified. To achieve this, we have planned to launch NUZYRA with a team of approximately 40 hospital representatives targeting these early adopting HCPs who reside in these high-potential institutions. This team of 40 will expand to approximately 80 by the end of 2019 and, throughout the year, will be supported by an existing inside sales team and medical science liaisons. Since our Investor Day, we began hiring our hospital representatives by extending our first offers to several highly qualified candidates. We are encouraged by the talent we've interviewed thus far, and believe we can build a world-class antibiotic sales force. After extensive research, which included engaging with our key stakeholders, those such as the hospital institutions and payers, our pricing research is now complete. Our analysis confirms the importance of minimizing potential hospitalization and is accepted by both the hospitals and the commercial payers. Given NUZYRA's overall safety and efficacy profile, with the ability to treat CABP patients and skin patients effectively in every setting of care with its convenient once daily, IV and oral formulations, NUZYRA will have a wholesale acquisition cost of $345 per 100-milligram vial for IV administration. And a wholesale acquisition cost of $197.50 per 150-milligram tablet for oral administration. As you will recall, the maintenance dose for the oral formulation is 300 milligrams once daily. This announcement now allows for some formulary committees, in particular government payers, to consider NUZYRA for priority formulary review prior to product availability and launch. Now, as with the recent antibiotic launches, we will be focused on gaining institutional access. These hurdles include navigating drug utilization committees, formulary committees and the recent mandates to have stewardship committees. It is also customary with new antibiotics for hospitals to pursue a trial-and-adoption approach. That said, we do see significant long-term commercial potential with NUZYRA, given its unique attributes, broad label and its ability to be used in every setting of care. We look forward to providing periodic updates on our progress in the months ahead. And with that, I'll now turn the call over to Doug.

[Douglas Pagán:]

Thank you, Adam. For the third quarter of 2018, Paratek reported a net loss of $32.1 million or $1.01 per share compared to a net loss of $21.3 million or $0.77 per share for the same period in 2017. R&D expenses were $16 million for the third quarter of 2018 compared to $12.1 million for the third quarter of 2017. This increase was primarily driven by manufacturing production costs for NUZYRA, higher FTE-related costs and expenses associated with regulatory activities. D&A expenses were $13.6 million for the third quarter of 2018 compared to $8.2 million for the third quarter of 2017. This increase was primarily due to additional headcount and higher marketing, market access and commercial consulting costs as the company continues to prepare for February 2019 launch of NUZYRA. We ended the quarter with $310.9 million in cash, cash equivalents and marketable securities, and $228.7 million in debt. Based upon our current operating plan, we anticipate that our existing cash resources, together with inflows from estimated NUZYRA product sale and royalty payments from Almirall, will enable us to fund our expenditures through the first quarter of 2021. I'll now turn the call over to Michael for his closing comments.

[Michael Bigham:]

Thank you, Doug. In closing, our primary focus today is on the preparations for and implementation of our plans associated with the anticipated launch of NUZYRA in the U.S. We are continuing to advance our pre-commercialization activities towards an anticipated product launch in February of 2019. And we look forward to providing you progress on our efforts in the months ahead. We will remain disciplined from an OpEx perspective. We believe that our continued investment in NUZYRA, given its commercial potential, will meaningfully benefit all shareholders. As you know, we have several compelling life cycle opportunities with NUZYRA. Investing in additional indications, including UTI, and our ongoing work with the Department of Defense, in addition to working toward an all-only indication in CABP, has the potential to drive long-term transformative value for all shareholders. We look forward to keeping you apprised of our activities and progress, and with that, we will now open the floor to questions.

[Operator:]

[Operator Instructions]. Our first question today is coming from Bert Hazlett from BTIG.

[Robert Hazlett:]

Apologies if you've covered this, Michael, but could you remind us of the EU strategy? Again, congratulations on the MAA submitted in October. But could you remind us of the strategy and the timing with regard to approval? And with an antibiotic, maybe, if Adam could comment on the reimbursement situation in Europe, whether it's strenuous as other therapeutic categories might be. And then I have a question on life cycle as well.

[Michael Bigham:]

Yes. With respect to the EU, as you know, as you indicated, the MAA is on file and it's under active review currently. And our goal, ultimately, is to have a partner help us commercialize in the EU. Ideally, we'd have that partner on board some time before the actual application is accepted and approved, which would be the sometime in the end of 2019, and those conversations are ongoing. I think it is important to note, not that anyone here does not know it already, that the economic opportunity in Europe is not nearly as promising per se as in the U.S.. The vast majority of the economics for the antibiotic space does reside in the U.S. But that said, we are looking, obviously, for some way to capture the potential value in the EU. Adam, you want to talk a little about the anticipated reimbursement environment there in the EU?

[Adam Woodrow:]

Yes. So from a reimbursement perspective, it's in an acute-care setting. The payers are willing to pay for new antibiotics as there's much realization that there's a shortage of new antibiotic opportunities or options in Europe as it is here in the United States. The difference is the actual ultimate price that you negotiate with the individual governments is significantly lower than you can get the reimbursement for here in the United States. The other challenge, of course, as you're probably aware, is that even after approval, getting that access in each of the countries is a local situation, and it can take anywhere up to 2 to 3 years in some cases for some countries to give access post approval in Europe, and nothing's really changed there for an antibiotic compared to any of the other drugs that are coming to market in those spaces.

[Robert Hazlett:]

And then just with regard to the biodefense utilization and the potential there, clearly, there's a different approval pathway. Could you just discuss what potential timing looks like in terms of data or consideration for that utilization for NUZYRA?

[Evan Loh:]

Bert, it's Evan. So the biodefense pathogens that we are pursuing are, as a reminder, plague and anthrax. And also as a small reminder, we actually have published both efficacy and prophylaxis data that we're efficacious in a mouse model. And as part of the animal rule, we are obligated to then investigate both PK-established dose finding as well as efficacy studies in large animals, and we are well underway in that particular process. We continue to have a very good relationship with the Department of Defense. And for funding these particular studies, we are in the process of initiating dose-ranging studies currently, and we think it's probably a 2-to-3 year journey to have those efficacy studies completed. And at the back end of that, based upon discussions we've had, we believe that there's opportunity for potential stockpiling as it relates to those bioterrorism organisms.

[Operator:]

Our next question is coming from Adnan Butt from Guggenheim Securities.

[Adnan Butt:]

Could you clarify a bit that the CABP study that you think is part of the post-marketing commitments, is it going to be an IV-to-oral only study? Or do you think you'll be able to include an oral-only arm in there?

[Evan Loh:]

Adnan, it's Evan. Thank you the questions. We're still having ongoing discussions with the FDA. I think the patient population was very similar, with the goal towards also looking at efficacy and safety. With that being said, we believe that there's an opportunity for us, based upon our discussions as well as FDA guidance, to consider a embedded oral-only dosing arm to potentially achieve that. And part of that will -- we'll be able to come back to you once we have established those parameters with the FDA.

[Operator:]

Our next question is coming from Louise Chen from Cantor Fitzgerald.

[Sudan Loganathan:]

This is Sudan Loganathan in for Luis. So my question is, as you continue forward with your launch preparations, is there any more color you have on how we should think about the launch curve based on the progress you've made so far with hospitals, payers and contracting? And then, what are your expectations for the formulary access at launch versus how access would change in the first few months to years after a commercialization?

[Adam Woodrow:]

Look, we gave some color, obviously, at the Investor Day in terms of what we're expecting. If you go back to the launch curves, you can see slow start, but obviously, we believe, with the attributes that we've got, we can catch up. It's just going to take some time. It won't happen in year 1. It will happen beyond that. And the reason we're confident that we'll get there is because we have the ability to be used in different settings of care compared to the drug -- drugs that you see on this launch curve that are IV-only. But those early days are all about getting through those formulary committees, getting your place on guidelines, and that just takes time.

[Operator:]

Our next question is coming from Jason Gerberry from Bank of America.

[Chi Fong:]

This is Chi on for Jason. One for me. Can you talk a little bit about potential opportunity to expand label for NUZYRA omadacycline into other form of pneumonia? How should we think about other pneumonia such as HCAP or healthcare-associated pneumonia?

[Evan Loh:]

Chi, it's Evan. In terms of label expansion, we all recognize the importance of the community space with our well-tolerated, once-daily world. And as part of that, the earlier questions specifically addressed our interest in figuring out a path forward for only-oral CABP indication. That being said, as we've said before, Chi, based upon the microbiology profile of omadacycline, the -- particularly the pathogens that you typically see in hospital-acquired pneumonia or ventilator-associated pneumonia are not really the pathogens that we have shown potent in vitro activity for. And so thus, HAP and VAP are actually not on our life cycle management plan.

[Operator:]

Our next question is coming from Laura Chico from Raymond James.

[Laura Chico:]

I have one on the pricing. Adam, if you could share any color or help us understand a little bit, you did a lot of pricing research to get to these figures. I'm just curious, kind of, if you can walk through your rationale or how you actually arrived at the differential pricing on the IV versus the oral format? And then, secondarily, related to that, how should we be thinking about kind of gross to net as we're kind of going over the first couple years in the model here? Obviously, you're going to be more focused on the hospital setting, but just wondering, how we should think about kind of the moving parts there?

[Adam Woodrow:]

So let me start with the gross to net. Gross to net, we're, obviously, not going to give specifics there, but you can, for modeling purposes, suspect that we would have normal sort of gross-to-net margins that you'd expect to see for IV drugs in the hospital and orals out in the community. Nothing unusual. Nothing different or special or unique about our gross-to-net margins other than that they're going to be in line with what you'd expect to see. From a -- why do we have a slight differential there, this is all about the value. I mean, we've talked about pricing per value and making sure that we satisfy, what are in essence, to stakeholders. We have 1 stakeholder which is the hospital that are working under sort of narrow margins within DRGs. And then you've got the commercial payers that are interested in what am I paying for -- in the outpatient setting compared to what I'm paying in the inpatient setting. And that's how we came to the -- this slight differential that you see between these 2 drugs in terms of the difference between -- what is in essence when you think about it, it's about $340 a day versus $395 a day.

[Operator:]

[Operator Instructions]. Our next question is coming from Kevin Kedra from G. Research.

[Kevin Kedra:]

First, maybe, want to build on the question about the pricing, and how you think about the utilization I guess, is more of what I'm thinking. How much do you think you're going to see used in the IV setting versus the oral when you kind of do your early modeling? And was that kind of the factor in how you thought about the pricing? And then, secondly, we have been seeing a bit of activity in the antibiotic space, with a few assets either changing hands or potentially changing hands. How to deal today with VIBATIV? Just wondering, how you see Paratek's role in potential consolidation or licensing activity in the industry? Do you feel that, that's an opportunity for you guys given your balance sheet and some of the valuations that seem to be out there?

[Adam Woodrow:]

So I'll deal with the first question, and then we'll get Mike to answer the second one. So on the first question with regard to splits. I'll actually deal with two things or -- first and foremost, in terms of indications, we anticipate we're seeing similar utilization by indicational, though, there's a slight edge in the community-acquired pneumonia space just by virtue of the fact there's so few competitors in that space and nothing launched for some time. You asked specifically about IV versus oral. We anticipate actually seeing a little bit more IV use early on compared to oral or almost sort of 50-50. If you recall, our clinical trials show sort of about 3 to 4 days of IV with 5 to 6 days of oral. It's actually going to be closer to 50-50 early on. And the reason for that is that in the early days, we tend to be used in the more severe patients as these physicians tend to try and test the product in the more severe patient cases. And as a consequence, we'll probably see a little bit more IV than we saw in the clinical trial setting. And that's just something that we know from history. What will happen, though, overtime is that we will see a switch and a move more towards the oral as they come to know and trust omadacycline. So as we move out beyond year 1, you'll start to see a move more towards sort of 30-60 -- 30-70 and potentially a steady state even sort of 25-75 IV oral in terms of utilization. But certainly, early days. It could well be as much as 50-50 IV versus oral. Mike, do you want to deal with the, I think, consolidation's question?

[Michael Bigham:]

Yes. So thank you. The second question with regard to what's going on currently in the antibiotics space, consolidation, et cetera. Clearly, in NUZYRA, our strategic plan to judiciously add to our pipeline over time, and it is not our goal to remain the 1-product company. But adding to the pipeline, clearly, has to be done properly, strategically and in a way that is financially prudent. And so as part of that comment, yes, the balance sheet is strong today for us. Much of those monies are clearly earmarked for predominantly for the launch of NUZYRA as well as expanding the indications for NUZYRA. Maybe because we don't want to shortchange that drug. That drug is clearly "a pipeline and a product" given its unique label and attributes. So first and foremost, we really want to maximize the value of the asset we have in our hands that's already been through the approval process. But that said, we are keen to add, again, judiciously to the balance -- to the pipeline as the balance sheet allows. Some products currently out there, we were aware of generally the antibiotics in this space. We liked the profile of several of them and we'll monitoring it. But for now, our primary focus, as I said during prepared remarks, is really focusing on the preparations for and the implementation of our plans for the successful launch of NUZYRA.

[Operator:]

We've reached end of our question-and-answer session. I'd like to turn the floor back over to Michael for any further closing comments.

[Michael Bigham:]

Thank you. As there are no more questions, we will conclude today's call with a very brief closing comment, and that is specifically to thank all of you for your time and attention again today. Your continued interest in NUZYRA and Paratek are very important to us, and we very much appreciate your support. We do fully appreciate that this journey would not be possible without you. We look forward to keeping you apprised of our continued progress, and goodbye for now.

[Operator:]

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.