Paratek Pharmaceuticals, Inc.
Q1 2017 Earnings Call Transcript

Published: 7 May 2017

[Operator:]

Greetings and welcome to the Paratek Pharmaceuticals' First Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Paul Arndt, Managing Director of LifeSci Advisors. Thank you, Mr. Arndt. You may begin.

[Paul Arndt:]

Thank you, Devin. Good morning everyone. This is Paul Arndt, Managing Director of LifeSci Advisors, Paratek's Investor Relations firm. And welcome to Paratek's first quarter 2017 update and earnings conference call. A press release of the company's first quarter financial results was issued earlier this morning and can be found at www.paratekpharma.com. The agenda for today's call is as follows

[Michael F. Bigham:]

Thank you Paul, good morning and thank all of you for joining our earnings call and corporate update for the first quarter. I am pleased to report that Paratek continues to make considerable progress on the clinical development program for omadacycline and that we remain well positioned to deliver upon our projected milestones through the end of this year and into 2018. Most notably we announced early last month for positive top line results from our Phase 3 pivotal registration study of omadacycline in community acquired bacterial pneumonia or CABP. This study demonstrates the potential of omadacycline to treat CABP which remains a significant and serious health issue particularly given the rise of resistant pathogens to currently available treatments. Importantly the successful study together with our previously announced successful Phase 3 study in skin infection satisfy the regulatory filing requirements of our special protocol assessment with the FDA. In both Phase 3 studies omadacycline was efficacious and was shown to be generally safe and well tolerated. With the positive efficacy data from our -- from both of our skin and pneumonia Phase 3 studies now in hand we have narrowed the projected window of time to file our NDA from what had been the first half of 2018 to what is now as early as the first quarter of 2018. Our EMA filing is expected to follow later in the same year. As you will recall we are awaiting the results of our ongoing once daily oral only Phase 3 study in skin infections as the data from the study will be included in our regulatory submissions. However, we have already initiated preliminary efforts to prepare our regulatory submission package for omadacycline as well as begun to expand our pre-commercialization efforts in anticipation of a potential product approval as early as the end of next year. We're also pleased to have recently announced our licensing and collaboration agreement to develop, manufacture, and commercialize omadacycline with our partner Zai Lab in the Greater China territory which includes the People's Republic of China, Hong Kong, Macau, and Taiwan. Zai Lab is a leading privately held biopharmaceutical company located in Shanghai that specializes in bringing transformative medicines to the Chinese market. It is estimated that per capita use of antibiotics is significantly higher in China than in the U.S. with resistant pathogens becoming an increasing and severe problem in China. This collaboration provides further external recognition of the clinical and commercial potential of our product candidate globally. Under the terms of the agreement Zai Lab will pay Paratek an upfront payment of $7.5 million followed by additional milestone payments based upon regulatory advancement of the program in China and the U.S. as well as commercial milestone payments based on future sales. Paratek will receive a low double-digit to mid teens percent royalty on net sale. Importantly the timing of this agreement is strategic and that it now enables Zai Lab to potentially pursue a green channel filing in China which the China Food and Drug Administration has established to allow for expedited regulatory review of qualifying product candidates. Approval through this accelerated fast track pathway or green channel pathway would allow for the potential extension of market exclusivity as well as the possibility of enhanced market access with pricing tiers and insurance payments through the basic medical insurance or BMI in China. With respect to our ongoing clinical development program for omadacycline in the U.S., enrollment of our Phase 3, once daily oral only skin study is nearing completion. We now expect to be able to announce top line results from this study in mid July. As a reminder we believe that the once daily oral only dosing regimen is a strategically important element of our "stay home" strategy for omadacycline. We believe that the broad spectrum activity of omadacycline and its well tolerated once daily oral dosage form offer significant potential to effectively treat infections while allowing patients to stay home. As such this treatment regimen could avoid the significant cost, inconvenience, and potential complications that arise from hospitalization. We plan to include the results of this study in our NDA submission package for the FDA. As our Phase 3 clinical program for omadacycline unfolds we continue to proactively share the considerable depth and breadth of our clinical data with the scientific medical and investment communities. As you know we are committed to sharing data as early as possible through peer reviewed publications in medical conference presentations. To that end just last week in Vienna, Austria at the European Congress of Clinical Microbiology and Infectious Disease or ECCMID, we had 13 presentations including 11 posters and two oral presentations. Information associated with these presentations can be found on our website. Evan will share highlights later in this call. During the first quarter, positive Phase 3 clinical results were also announced on our second product candidate sarecycline. As you will recall, sarecycline is a new once daily oral, well tolerated, narrow spectrum tetracycline-derived antibiotic with potent anti-inflammatory properties for the potential treatment of acne and rosacea. Together with our partner Allergan we reported positive results from two identical Phase 3 registration studies of sarecycline to treat acne vulgaris. Allergan has publicly announced plans to submit an NDA in the U.S. in the second half of 2017. And as a reminder Allergan owns the U.S. rights to sarecycline, Paratek retains the ex-U.S. rights. On the operational front we recently expanded our office in King of Prussia, Pennsylvania to accommodate anticipated future growth notably in our manufacturing, commercial, and medical affairs organizations. With an active presence in both the Philadelphia and Boston areas, Paratek is strategically well positioned to continue to recruit top talent from both markets. During the quarter we further strengthened our balance sheet which Doug will discuss later in the call. With two positive phase studies now in hand, these additional financial resources give us the flexibility needed to begin to invest more actively in the preparation of our upcoming regulatory submissions as well as expand our pre-commercialization activities. In sum, the momentum around omadacycline continued to build strongly this past quarter. We announced the positive Phase 3 study in CABP. We advanced the Phase 3 study with an oral only dosing regimen to near completion. We established this strategically important collaboration for China and we strengthened the balance sheet. Importantly these activities are being driven by a motivated, experienced team focused on making omadacycline available to patients. With that I will turn the call over to Evan Loh, our President, Chief Operating Officer, and Chief Medical Officer to provide an update on the development program. Evan.

[Evan Loh:]

Thank you Michael, good morning everyone. We have continued to make significant progress in the first few months of the year in our sarecycline and omadacycline Phase 3 registration programs. With respect to sarecycline we announced positive Phase 3 data for the treatment of acne vulgaris. Along with our partner Allergan we announced in March that sarecycline was superior to placebo at the 12 week, co-primary efficacy endpoints in both studies and appears to provide meaningful clinical benefits for patients. The efficacy data was balanced against a generally safe and well tolerated profile consistent with what had been seen in the Phase 2 acne study and what we believe is needed for this to be an important once daily, narrow spectrum, oral antibiotic therapy for acne. We see the positive results of the Phase 3 trials with sarecycline as great news for patients and further validation for the importance of the tetracycline based chemistry platform that Paratek used to create it. As you know omadacycline is the primary focus of our internal development efforts. As Michael mentioned we are very pleased with the positive top line results of our IV to oral pneumonia study also known as the OPTIC study. As a reminder omadacycline met the pre-specified primary and secondary efficacy endpoints for the FDA when compared to moxifloxacin. For the FDA primary endpoint, the omadacycline and moxifloxacin early clinical response rates were 81.1% and 82.7% respectively. In addition, omadacycline non-inferiority in oral secondary efficacy endpoints. Omadacycline also achieves statistical non-inferiority for the EMA co-primary efficacy end points which were measured at the post human evaluation five to 10 days after completion of therapy at a 97.5% -- interval in the port 3 and port 4 patients. These port 3 and port 4 patients in the OPTIC study comprised 85% of the total population and also they represent the highest severity index of patients we studied. As a reminder we predefined a 97.5% conference interval, a more stringent test of non inferiority as recommended by the EMA. Omadacycline demonstrated a clinical success rate of 88.4% compared to 85.2% from moxifloxacin in the ITT population and in the CE population omadacycline achieved a clinical success rate of 92.5% compared to 90.5% for moxifloxacin. In the OPTIC study omadacycline was generally safe and well tolerated. Treatment emergent adverse events in the omadacycline were low and comparable to those of moxifloxacin. The overall incidence of GI events was low. Rates of vomiting were 2.6%, nausea 2.4%, and diarrhea at 1% compared to 1.5%, 5.4%, and 8% respectively for moxifloxacin. In addition we are pleased to see that there were no cases of clostridium difficile colitis nor pseudomembraneous colitis in the omadacycline arm compared to 7 and 1 documented cases respectively in moxifloxacin arm. The absence of clostridium difficile colitis adverse events with omadacycline treatment in our clinical studies is consistent with what we observed, like what we have observed preclinically with omadacycline and the historically lower rates seen with earlier generation tetracycline derivatives. Clostridium difficile related adverse events are a frequent and potentially life threatening complication associated with the use of antibiotics most commonly with quinolones and cephalus [ph]. This complication frequently leads to re-hospitalizations that can be protracted. In fact our clinical advisors have informed us that this effect is so problematic that it is leading to a clinical trend towards a systematic reduction in the use of quinolones in both the United States and Europe to reduce the incidence of this complication. We see the potential for a reduced risk of closer clostridium difficile as an important, potential differentiator for omadacycline as physicians and hospitals are seeking alternatives to the quinolones. With the completion of the CABP trial we now have clinical experience with more than 1500 patients. This is a robust data set and it continues to fuel our growing confidence in the potential of omadacycline to be an effective and well tolerated treatment for community acquired bacterial infections. Just last week we made 13 data presentations at the ECCMID meetings in Vienna, Austria. I'm going to briefly share with you some of the key highlights. Importantly we presented an analysis of microbiology data from the OASIS Phase 3 study demonstrating that once daily treatment with IV to oral omadacycline is effective in treating the most frequently isolated bacterial pathogens associated with skin infections including methicillin-resistant Staphylococcus aureus or MRSA. This new microbiology analyses further increased the body of evidence regarding the utility of omadacycline against serious community acquired infections and pathogens with known resistance patterns including MRSA. Additionally we presented new data from a Phase 1 study confirming that omadacycline effectively penetrates lung tissue and epithelial lining fluid and has a broad anti-microbial activity against those bacteria most commonly associated with a community acquired bacterial pneumonia. Intravenous dosing of omadacycline at 100 milligrams produced steady state concentrations in the plasma, epithelial lining fluid or ELF and alveolar cells that were three fold higher than Tigecycline in healthy subjects. Our observed long concentrations along with the minimum inhibitory concentration values for respitory pathogens support the recent efficacy results of omadacycline in the OPTIC study. Data from this phase 1 study demonstrated the safety of omadacycline compared to Tygacil reporting no serious adverse events following IV treatment with either compound including an appreciably lower incidence of gastrointestinal adverse events compared to Tigecycline. Finally, we presented results from two cost benefit analyses suggesting that IV to oral omadacycline if approved has the potential to create savings for both hospitals and payers. As Michael mentioned all of the information from our ECCMID presentations can be found on our website. In all the ECCMID Congress provided us with an exciting and dynamic environment for an interactive dialogue with key scientific and medical stakeholders to discuss the breadth and depth of our data. Such activities are crucial to our efforts to build awareness and understanding omadacycline as we prepare for registration and potential approval. Our Phase 3 oral only skin study known as the OASIS 2 study is nearing the end of enrollment. As you have heard we expect to be able to share these top line results with you in mid July. As a reminder our oral and IV formulations are bioequivalent. Based on our observations in both the OASIS and OPTIC studies, the high rate of transition to the oral formulation, the robust efficacy at the post treatment evaluation, and the observed safety profile during the oral phase of these Phase 3 studies further strengthens our confidence in the oral formulation. The OASIS 2 study is a randomized double blind, double dummy multicenter study in adults with moderate to severe skin infections. The active comparator is twice daily linezolid and the primary endpoint for the FDA is clinical success at the early clinical response assessment two to three days after the first dose of study drug. The EMA co-primary end points are the investigators assessment of clinical response 7 to 14 days after the completion of treatment for the modified intent to treat or MITT population and the clinically evaluable or CE populations. The FDA and EMA primary endpoints are identical to the primary endpoints assessed in the OASIS trial. Overall we are pleased with the consistency and benefit risk equation that we have demonstrated in over 1500 patients treated and exposed to Type II omadacycline. We are mobilizing our resources internally to assemble a new drug application for the FDA and are very much looking forward to sharing these data with the U.S. and European regulators as we complete our pre NDA activities. In addition to our clinical program we are excited about our collaboration with the U.S. Army Medical Research Institute of Infectious Disease or U.S. AMRIID to examine the potential efficacy of omadacycline against the bioterrorism organisms responsible for plague and anthrax. This collaboration is jointly sponsored by the medical countermeasures system or MCS and the Defense Threat Reduction Agency or DTRA of the Department of Defense to conduct pharmacokinetic and efficacy studies in large animals at U.S. AMRIID. This program is progressing well and if successful omadacycline could be an important option in the prophylaxis and treatment of these potentially weaponized bioterrorism pathogen threats. So in conclusion we've had a very productive and rewarding start to 2017 from the clinical development perspective. We continue to push forward with the many facets of the omadacycline development program and we look forward to sharing more information and data with you in the coming months. Now Doug will share an update on our financial results for the quarter. Doug.

[Douglas W. Pagán:]

Thank you Evan. We continue to be in a strong financial position as we advance the late stage development program for omadacycline. The company ended the quarter with $139.6 million in cash, cash equivalents and investment and $39.1 million in debt. Our first quarter operating expenses were $26.8 million, research and development expenses were $18.7 million for the quarter-ended March 31, 2017 compared to $24.3 million for the same period in 2016. The decrease was primarily driven by lower clinical study comp and reduced manufacturing production costs for omadacycline. General and administrative expenses were $8.4 million for the quarter ended March 31, 2017 compared to $6.3 million for the same period in 2016. The increase was primarily driven by higher consulting and legal fees, employee compensation costs, and other administrative expenses. During the first quarter and the period leading up to the filing of our 10-Q, we strengthened the balance sheet by raising an additional $78.7 million net through sale of equity under our ATM program. As of May 1, 2017 the ATM program had approximately $6.9 million available for sale. These additional financial resources provide us the flexibility needed to begin to invest more actively in the preparation of our upcoming regulatory submissions and the expansion of our pre-commercialization activities. Based on current operating assumptions proceeds from the recent sale of equity together with the remainder of our cash, cash equivalents, and marketable securities and anticipated upfront and regulatory milestone payments from our collaboration partners will fund operations into the second quarter of 2019. While it was a matter of corporate policy we do not comment in advance on our future financing activities. Given our recent ATM activity we feel it appropriate in this circumstance to provide some general guidance. Specifically with the current strength of our balance sheet we have no plans at this time to sell additional equity including through the ATM. And with that I'll turn the call back over to Michael to close. Michael.

[Michael F. Bigham:]

Thank you, Doug. As you have heard we've enjoyed a very strong start to the year. We are now following the top line data from our Phase 3 IV to once daily oral study in pneumonia. We advanced our Phase 3 once daily, oral only skin study to near completion. We have established a strategically important collaboration for omadacycline in China and we strengthened our balance sheet to allow us to actively pursue the next leg of our journey towards potential approvals and commercialization of omadacycline. In addition along with our partner Allergan we reported positive top line data from two successful Phase 3 studies of sarecycline for the treatment of acne vulgaris with Allergan publicly announcing plans to file an NDA with the FDA before the end of this year. We are pleased with the progress that we have made to date and we believe we are well positioned to deliver upon our future commitments. With two successful Phase 3 studies now in hand we are shifting our focus to preparing our regulatory filing and expanding our pre-commercialization activities. As the wealth of data on omadacycline continues to grow, we are increasingly confident in the potential omadacycline to be an effective and a much needed addition to the armamentarium of antibiotics available to physicians for the treatment of severe bacterial infection particularly when resistance is of concern. We appreciate that we have been entrusted with the development of what we believe to be an important new antibiotic and we remain committed to the continued professional development of a drug candidate that we believe has the potential to become an important primary treatment option for serious infections in the future. This opportunity motivates us all at Paratek as we move closer to our collective goal of making omadacycline available to patients in need and to the physicians entrusted with their care. We very much appreciate your continued support, this important journey would not be possible without it, thank you. And with that we will now open the floor to questions.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from the line of Kevin DeGeeter with Ladenburg Thalmann. Please proceed with your question.

[Kevin DeGeeter:]

Good morning guys, thanks for taking my questions. Just a couple for me, can you just elaborate with regards to your comments on our free commercialization activity, specifically should we think about those as focused primarily on your medical education, just pharmaco economics studies, just on a high level where should we look for both your focus and additional news on free commercialization activity?

[Adam Woodrow:]

Kevin, this is Adam. In fact you spoke only in terms of where we are focusing our activity. Very soon you'll start seeing some unbranded medical education around the need for new broad spectrum antibiotics. We will continue with the health economics and the health economic work that you saw at ECCMID and we got initially some new work around epidemiology that sort of sets the scene in CABP and then later you'll see how omadacycline fits in to that regimen. I can tell you that again as we saw in the skin infections, when you have the utility of a broad spectrum one style IV and oral drug that can minimize hospitalizations, the economics are very favorable both from a hospital perspective and a payers perspective. In addition to those two areas obviously we are building out the organization in terms of people and the same to be said for the medical science liaison group.

[Kevin DeGeeter:]

Okay, and then maybe one more from me and then I will get back in the queue. With regard to business development around omadacycline, specifically a potential partner in Europe, based on your discussions at ECCMID and elsewhere, do you anticipate that completion of the oral dosing regimen of the OPTICS study and the readout on that is a guiding factor to accelerating conversations with potential European partners or do you think most partners were and are primarily focused on the CABP data as a primary consideration when thinking about your potential partner?

[Michael F. Bigham:]

Yeah, hi Kevin, Mike Bigham. Thank you for the question. No, I don't think we get the sense that the oral only study is a guiding factor per se. I do think -- we do think that the CABP study was an important milestone for the drug candidate just because of the significant opportunity that CABP presents. And so I think that has clearly made an impact and have been noticed. We were only work I think will simply be additive on the margin and for reasons as we've discussed in the past strategically we think that an important study because of how it opens up the community setting going forward for the indication. As regards general business development, as you know from our earlier conversations our focus has been to in the near term to look at "regional" deals such as the Zai Lab deal with China. Europe continues to be a focus going forward. Within the U.S. our goal is to basically retain the U.S. for as long as possible and until such time as we find a partner and an opportunity where we can access the community setting more broadly because we're not going to be able to do that on our own since we're going to focus on the hospital setting. Hard to predict timing, basically if you look at the history of antibiotics, the business development activities in the broader sense tend to be back-end weighted. Meaning as you approach approval or post approval that's when most of the activity has occurred. My sense is that we are probably in that historical framework. But it's also clear that interest level has risen appreciably.

[Kevin DeGeeter:]

Terrific, thank you for taking my question.

[Operator:]

Thank you. Our next question comes from the line of Chiara Russo with Cantor Fitzgerald. Please proceed with your question.

[Chiara Russo:]

Yeah, hey guys, good morning. Just a couple of questions here for you. First, on sort of the expectations around that oral only trial, expecting to rate out this summer, do you expect to see more sort of GI event given the oral dosing, is there any sort of expectations around a little bit of shift, any adverse event profile?

[Evan Loh:]

Hey Chiara, it is Evan. How are you doing, thank you for the question. Look as you said in the past I think we expect the oral only ABSSI trial or now as we're naming it the OASIS 2 trial, it's continued to enroll well. And in terms of our expectations in terms of top line data the first reminder is that the oral is bioequivalent to the IV formulation and it continues to perform well from a PK parameter perspective. I think the other nice component of our data so far from both of our OASIS and OPTIC studies we had a high rate of transition to the oral formulation and that has resulted in robust post-treatment evaluation efficacy overall. The oral formulation as you know has generally been safe and very well tolerated. I think that when you look at the historical differential between what we've seen in terms of mild rates of -- mild severity rates of nausea vomiting. We have historically tended to see a little bit more with the oral. And as you all know we actually in the first couple of days increased the oral daily dose to 450 milligrams as part of our loading dose to replicate the IV loading dose that we have. So I do think that the rates will be higher than what we saw in the OPTIC study and I think we'll just let the data play out at that point.

[Chiara Russo:]

Okay, that is good. And then my next question is sort of circling to sort of the ECCMID data that you guys presented, you had some nice posters out, particularly you did a nice sort of side by side comparison between tigecycline and omadacycline, I was wondering if you could sort of discuss maybe how that better colors the omadacycline product profile?

[Evan Loh:]

As we said and especially with the IV formulation and as it relates to the compound itself which is a test of tolerability and safety when you look at an IV only administration. We were extremely pleased to see the differential rates of nausea and vomiting. As you saw from that poster the nausea rates were nearly 50% with Tygacil and our rates were actually de-minimus compared to that and even the vomiting rates were dramatically lower. What was also noted on the posters was that all of the subjects in the Tygacil arm actually had to take antibiotics in order to meet the therapy and two individuals actually could not complete the therapy. And so we see that differential as I think further buttressing our belief that this is a compound that will actually be well tolerated in the community setting and it really performed overall very well.

[Chiara Russo:]

Okay, and lastly on the Zai Lab, I know there's a little bit of chatter that I heard coming out from that sort of kind of walk me through maybe the thought process as to why that particular deal now and maybe provide a little additional information on the drug approval process in China and why that particular partnership is strategic for you guys?

[Michael F. Bigham:]

Sure, it is Mike Bigham. The timing of the Zai Lab deal was strategically important because of the regulatory pathway that has been created within China that's often referred to as the so-called green channel filing pathway which for certain qualifying drug candidates which omadacycline would qualify for. Could you get the accelerated regulatory review. You also would qualify for extended market exclusivity as well as preferred elements or preferred market access through the payment system that is available in China. So for all of those things and there was a time clock associated with when and how you can approach the green channel filing and getting a deal signed in essence in the spring time of 2017, i.e. now. Left open that possibility to enable Zai to pursue the green channel filing. So there is significant upside for omadacycline and by extension for us and Zai Lab by doing it now. So that was the rationale.

[Chiara Russo:]

Okay, there was a significant time component window that you guys want to sort of fall into.

[Michael F. Bigham:]

Absolutely, and the time was now.

[Chiara Russo:]

Alright, great, thank you guys so much.

[Operator:]

Thank you. Our next question comes from the line of Burt Hazlett with BTIG. Please proceed with your questions.

[Robert Hazlett:]

Thanks. Thanks for taking the question and congratulations on all the progress. A couple of I guess fairly simple ones, in terms of the NDA submission in the U.S. what are the guiding items there, what is the guiding item?

[Adam Woodrow:]

You know Bert as Michael has said that we believe that the current OASIS trial and OPTIC trials together satisfied the elements of our spa agreement. While the CABP trial and the skin trial are actually are complete. We still are guiding towards the NDA being filed as early as the first quarter of 2018. We do have pre NDA discussions with the FDA coming later this year but we also feel that it's important that the oral in skin trial actually be included as part of that NDA submission. So, we'd like to see that actually trial gets completed and then we can actually start with bigger -- our NDA filing materials. Now I think we will expect and I do think there are a few preclinical studies in order to complete, in order to make sure that the file has every element that we believe that the FDA will be looking for.

[Robert Hazlett:]

Okay, thank you for that. And I know you had a longstanding focus on manufacturing. Could you describe in terms of the manufacturing structure that you have, any outsource manufacturers, I am forgetting if it's single source or multi-source and do any of those manufacturers have any 43's or warning letters they are currently working on, again just a reminder?

[Evan Loh:]

Yeah, just as a reminder thanks for the question Bert. We have single source in terms of our suppliers, we have revealed -- have shared recently that three of the four suppliers, all of their suppliers are actually based in Europe. We have Zaipan [ph], we have Carbogen, we have Almac currently and we have one other supplier that is actually responsible for our intravenous production as well. So there are no active 43 or warning letters that we are aware of with any of our manufacturers and we continue to work on identifying alternative and secondary sourcing suppliers.

[Robert Hazlett:]

Okay, thanks, that's good news. And then just touching on sarecycline for one minute, could you just describe a little bit more about your intentions with the ex-U.S. rights and what you might consider with the U.S. economics that you have? And then forgive me if they have been presented but what are the expectations for the data presentation for the Phase 3 for sarecycline?

[Michael F. Bigham:]

Hi Bert, Mike Bigham. To take the last part of your question first, we don't -- we are not currently aware of what the plans are for the presentation of the data. Our partner Allergan drives that process and they will I'm sure announce that in due course. But we don't know that as of today. With regard to the ex-U.S. rights to sarecycline obviously you're aware that Allergan has U.S. rights, outside the U.S. we still retain the rights. Our goal is to monetize those rights in some fashion and it is hard to be too explicit about at this point. There are parties interested in different parts of the world. One of the challenges with regard to sarecycline and say for example in Europe it would require additional Phase 3 studies because recall that the study in the U.S., the twin studies done by Allergan used as a comparative, essentially a placebo controlled trial which is appropriate for the United States. In Europe currently they require studies with an active comparator. So some additional studies would be required in Europe and so that obviously is being factored into any conversations we have with prospective European partners. And so at present we don't factor in very much in our financial forecasts from monetization of the ex-U.S. rights though we believe something will be forthcoming. What we are principally focused on of course in the U.S. with Allergan we do have the milestones associated with NDA acceptance and approval and frankly the largest element of the economics that will flow to us from sarecycline in the U.S. has to do with the royalty that we have we will receive from sales of sarecycline. I think as you know from our earlier conversations we are actively looking at the potential of monetizing those royalties versus basically not monetizing though with the course of time we'll look at that and decide what is the most appropriate way to monetize that stream and when.

[Robert Hazlett:]

Okay, Well congrats again on the progress and we look forward to the date upcoming. Thanks.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from the line of Paul Matteis with Leerink. Please proceed with your question.

[Paul Matteis:]

Hey, thanks for taking my questions. I have a couple, one on the oral only skin study, it sounds like you're expecting a higher rate of GI adverse events. Are you at all concerned with discontinuations and how much visibility do you have in that with the study still blinded? The second one is for Adam, I'm wondering Adam if you could talk now with full data how you're thinking about the pricing of the IV as well as the oral? And then I have one follow-up.

[Evan Loh:]

Hey Paul, it is Evan. Thank you for the questions. As far as the oral only study goes no is the answer relative to higher rates of discontinuations. We know that from the current studies that the oral is very well tolerated and we have exceedingly low rate of discontinuations and reported rates of -- the reported incidences of nausea and vomiting are generally in the mild category. So, I think that you are right, that we may have a little bit higher rates of the overall GI events compared to what we may have seen in the skins, I mean in the pneumonia study. But I think that overall we feel that we continue to have good confidence in the overall safety and tolerability profile of omadacycline.

[Adam Woodrow:]

Paul it is Adam. With regard to the pricing, look I think I have said this before, it is a little bit early to be finalizing the ultimate pricing. We've used data logs as you know -- in all of the modeling that we've done. We will be finalizing the pricing and as we get into 2018 but we do believe that omadacycline offers value beyond current products and potential competitors. And it does fit well with the antibiotic stewardship initiatives that exist today. I think if we believe that if we're approved we're going to be able to offer this well tolerated one stage bioequivalent oral and IV dosing formulation in multiple indications that potentially enables faster discharge of patients from the hospital creating savings for both the hospital and the payer. And you've seen examples of what that can give from a value perspective that the ECCMID Congress in terms of the sort of upper bounds of the pricing. And we also know that if you use the oral we can avoid a hospitalization altogether and that compares even more significant cost savings. So these attributes along with the current pricing environment for antibiotics which is much more favorable lead us to believe that it is a clear value proposition for omadacycline in the appropriate patient type. And it's that work that we're doing at the moment and making sure that we understand that dynamic between the hospital and the community that we're working on the moment for.

[Paul Matteis:]

Great, and Adam how are you thinking about or maybe not and just in terms of you give us the price, right, I'm sure it's not totally finalized but how you think about the relative price of the IV versus the oral and what goes into that thinking?

[Adam Woodrow:]

Well, there are prices -- price points for IV's in the hospital that cause antibiotics stewardship committees and pharmacists to pushback very much on the formally acceptance. And we know there's a sort of sliding scale there. The last time we did that work was a couple of years ago so I'd like to repeat that before I can give you the numbers. But we do know that there is a price point where resistance to the price of the IV becomes less because there's less of a budget impact in there and you'll see in up and coming meetings, scientific congresses the impact or what we call the budget impact model for omadacycline which will better demonstrate what the impact is on the hospital foundary. That clearly leads you to believe that if you've got the ability to have some sort of differential pricing it is something that you need to consider and it certainly was something that was done by prior antibiotics where they've priced the IV a little bit lower than perhaps the oral. One of the other things obviously we consider is we've got very, very different dosing regimens here and there's one of the things that we also know about certain payers is they like milligram for milligram pricing which is obviously another option for us.

[Evan Loh:]

Okay, Paul it is Evan. Just as a reminder, going back to your original question the oral only OASIS study remains blinded. We don't have any visibility on what we ultimately will see. My reference points were really going back to what we have actually seen in the OASIS trial in terms of the overall rates of GI tolerability in terms of nausea and vomiting.

[Paul Matteis:]

Okay, thanks, maybe one more quick question that is commercial focus, so in the community right now for skin assuming a patient is sick but not that sick they will often get a generic. And then if they fail that generic and they get sick they will often go into to the hospital, where does an oral only regimen of omadacycline fit into the treatment paradigm and who do you target to market it so that reimbursement of a branded oral only product is I guess used in lieu of a hospitalization, like how does that whole dynamic work?

[Adam Woodrow:]

So, right now patients often would cycle round through their primary care physician or these emergency clinics and those are the places that you would be targeting for an oral only regimen that has sort of 96% efficacy which is what we saw obviously in the clinical trial, at least in the IV oral. What the oral only trial will give us I don’t know, but I suspect based on what we've seen so far with omadacycline it will be highly efficacious. And what you're trying to do is to in essence capture that patient before they are so bad that they do need to be hospitalized and that maybe after one, two, or even three treatments. I mean the one thing I can say about skin infections in particular is it doesn't carry a huge mortality burden. There are some challenges if left untreated you can sometimes unfortunately see patients who lose limbs but it is one of those indications where you do have time to intervene. And today what happens after they've tried one or two options they just get admitted for IV therapy. In the future with omadacycline available potentially one could see a scenario where omadacycline is used to avoid that hospitalization. And as I said before the targets for that would be the primary care clinics and these emergency clinics.

[Paul Matteis:]

Great, thanks Adam.

[Operator:]

Thank you. Our next question comes from the line of Yasmeen Rahimi with H.C. Wainwright. Please proceed with your question.

[Yasmeen Rahimi:]

Thank you, this is Yasmeen Rahimi on behalf of Ed Arce. So a number of questions, the first line directed to Evan, can you share with us maybe some of the differences and similarity in terms of OASIS 1 versus OASIS 2 and regards to patient equipment, types of infections? And then the second question is assuming that OASIS 2 is not positive, would you still go ahead and file on the data that you have got on OASIS 1 and OPTIC? And then I have one follow up for Adam.

[Evan Loh:]

Hi Yasmeen, thank you very much for the question. I will do the second question first, yes the -- our original spot agreements with EFA, were based on a single ABSSI IV to oral and a single pneumonia trial IV to oral. And we believe that our current two studies actually satisfy that. So in fact we would proceed with a filing independent of the ultimate efficacy with regards to OASIS 2. That being said we continue as we said earlier that the oral formulation has continued to perform very consistently in a very robust fashion and that we continue to have good confidence with regards to the fact that we have actually been able to publish and share with you that the oral only loading dose actually has been able to replicate the IV loading dose with regards to area under the curve. And as such we believe this trial has been -- has a great -- we have great confidence that this trial has potential for being positive. I think that the two different studies, I think just to let you know about the oral only skin trial again as I said earlier it's a Phase 3 randomized double blind multicenter trial in adults with ABSSI and we are comparing once daily omadacycline to twice daily oral linezolid. That studies -- this study is about enrolling at about 704 patients at approximately 50 centers all in the United States. The primary efficacy endpoint as defined in the protocols, a number of subjects with clinical success of the early clinical response assessment 48 to 72 hours after the first dose of study drug per FDA guidance and that is identical to the endpoint that we used in the OASIS trial. And again the primary end points for EMA will be the clinical response of the post therapy evaluation also known as test of cure. And we will be looking in the co-primary endpoint populations of the MITT and CE population. So overall I think that the study design mimics what we have in terms of the OASIS study design with the only exception being that we in fact have replaced the IV loading dose with an oral loading dose for the first two days.

[Yasmeen Rahimi:]

Okay, great that's good to know. It's almost identical to each other in every sense from inclusion to exclusion in the number of sites and types of infection. So, that definitely helps investors to think about going into the data. And then the question for Adam is simply on how do you see the marketplace in terms of omadacycline versus [indiscernible], I know we don't have data right now here but at the end of yearly, wondering if you should read out so how do you view the two candidates?

[Adam Woodrow:]

Well I suppose it will all depend on what the data looks like. There's always room in the community acquired by two -- space from new agents. It is really difficult for me to comment on their data. I can tell you that what we have here clearly in our hand based on the data that we've seen so far is a highly efficacious, very well tolerated, once a day IV and oral product and the other thing that I think is in our favor is really the right heritage. There's a known heritage with the tetracycline crosses and we clearly provide a valuable alternative to quinolones and in some cases the cephalus warrants especially given the most recent C. diff data that came out. It was quite remarkable and the response that we got from our most recent couple advisory boards, you know the C. diff we've had for some time, some really nice preclinical and in vitro work to show that the tetracycline class is not a known sort of major promoter of C. diff infections. But what was nice about the community acquired bacterial pneumonia trial is we actually saw that play out in the actual Phase 3 scenario where we saw eight cases in quinolone and none in ours. That's actually a major benefit for any new drug that's trying to find a foothold into in the hospital and clearly provides us with an opportunity to be a valid alternative to quinolones specifically in patients that either have known C. diff history or potentially have C. diff risk factors.

[Yasmeen Rahimi:]

Great, thank you so much. Thank you again for the continued progress and for taking the question.

[Operator:]

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Mr. Bigham for closing comments.

[Michael F. Bigham:]

Thank you. Thank you all for your time and your attention, your questions, and your continued support. Your investment dollars are making it possible for an experienced and motivated team to develop a promising and much needed new antibiotic trend. With two positive Phase 3 studies now in hand we are shifting our focus as we mentioned to preparing regulatory submissions for both the FDA and the EMA as well expanding our pre-commercialization activities. It is at least to us genuinely awe inspiring to recall the deep scientific insight followed by nearly two decades of rigorous pharmaceutical and clinical development that are required to arrive at where we are today. But now we have omadacycline to show for these considerable efforts. And for us it has been well worth the journey. We believe deeply that the work we are doing is important for us all. It is more than possible that one day in the future each of us will have occasion to use omadacycline. We are inspired by that thought. Thank you again for your time and attention this morning. We look forward to keeping you apprised of our progress, good bye for now.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you and have a wonderful guy.