Paratek Pharmaceuticals, Inc.
Q1 2013 Earnings Call Transcript

Published: 8 May 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Transcept First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host today, Leone Patterson. Please begin.

[Leone D. Patterson:]

Good afternoon. Thank you for joining us today to discuss the Transcept Pharmaceuticals' 2013 first quarter results. My name is Leone Patterson, Vice President and Chief Financial Officer of Transcept. Joining me on the call today is Tom Soloway, Executive Vice President and Chief Operating Officer. I would like to extend apologies on behalf of Glenn Oclassen, our President and Chief Executive Officer, who is unable to join us today, due to a family emergency. Today we released financial results for the quarter ended March 31, 2013. A copy of this press release is available on our website. We remind you that this conference call will contain forward-looking statements that are intended to be covered under the Safe Harbor provided by the Private Securities Litigation Reform Act. Examples of such statements include, but are not limited to, our beliefs regarding the timing, size and nature of commercial opportunities for Intermezzo, including managed care placement, as well as physician and patient acceptance; our beliefs regarding the key challenges facing the market acceptance of Intermezzo, including what we believe to be the factors affecting producibility to effectively address such challenges; our expectations regarding the trajectory of prescriptions for Intermezzo and the timing of such projections; our expectations regarding the nature, timing, impact and benefit of the Intermezzo direct-to-consumer advertising campaign; our beliefs regarding intellectual property and product exclusivity for Intermezzo and its importance and duration, including plans or results, relating to litigation proceedings with generic drug manufacturers; our expectations regarding the period over which we offset against revenue, the $10 million contribution related to the direct-to-consumer advertising campaign led by Purdue; our plans, strategies and ability to identify and acquire new product assets for in-licensing or acquisition, the nature of such products and the ability of these products to create additional shareholder value; and our expectations regarding uses of cash for the acquisition and development of new product opportunities. These statements are based on information that is available to us today. We may not actually achieve our goals, carry out our plans or intentions or meet the expectations or projections disclosed in our forward-looking statements, and you should not place undue reliance on these statements. Our forward-looking statements do not reflect the potential impact of any in-licensing agreements, acquisitions, mergers, dispositions, joint ventures or investments that we might enter into or terminate. Actual results or events could differ materially, and we assume no obligation to update these statements as circumstances change, except as required by law. For additional information concerning the factors that could cause actual results to differ materially, please see the Forward-Looking Statements section in today's press release and the Risk Factors section of our Form 10-K for the year ended December 31, 2012 and the 10-Q we plan to file on or about May 9, 2013 for the quarter ended March 31, 2013. I will now turn the call over to Tom Soloway.

[Thomas P. Soloway:]

Thank you, Leonie. Intermezzo, our lead product, is the first and only prescription sleep aid approved for use as needed for the treatment of insomnia, when a middle-of-the-night awakening is followed by difficulty returning to sleep. In the past, prescription sleep aids, including oral zolpidem, doses of 5 to 12.5 milligrams, have been designed to be used only at bed time and it required 7 to 8 hours of remaining time in bed. At doses of 1.75 milligrams and 3.5 milligrams, Intermezzo was especially formulated to be rapidly absorbed when taken by an insomnia patient who awakens in the middle of the night and has difficulty returning to sleep, and is the first drug ever approved by the FDA for this indication. Intermezzo was launched in April 2012 by our marketing partner, Purdue Pharma. While the initial launch generated steady month-to-month prescription growth, the overall sales results have not met our expectations. We believe that the reasons for this include the long history among prescribers of addressing all manifestations of insomnia with bed time sleep aids and the challenge of modifying this ingrained habit pattern with the Intermezzo middle-of-the-night as-needed dosing strategy. In addition, there continue to be challenges in building manage care access from Intermezzo. Given the current trajectory of Intermezzo prescriptions, we have received many questions from analysts and investors about our relationship with Purdue, our pipeline and our plans to build shareholder value. Our relationship with Purdue remains strong. Purdue has invested heavily to build the Intermezzo brand, including a recent contribution to a direct-to-consumer advertising campaign, as well as the inclusion of their 525 breadth analgesic sales force in the Intermezzo selling effort. While both Purdue and Transcept are committed to maximizing the success of Intermezzo, we recognize that over time the investment made by Purdue must align with the sales results achieved. Internally, our entire management team is focused on building additional shareholder value by identifying and acquiring new product assets. Our position to execute on this strategy is strong. It includes an improved product, a balance sheet with approximately $80 million of cash and no debt and a senior team with deep and proven experience in the development and NDA approval of innovative pharmaceutical products. Throughout the remainder of 2013, we plan to build -- we plan to put these significant assets to use in building a pipeline of products that address unmet needs in the field of neuroscience. We are targeting opportunities that leverage our neuroscience development capabilities, and are considering a range of situations that are consistent with our attention to prudently manage our cash resources and build shareholder value. The unifying theme among all opportunities under advanced consideration is that we can reach important value inflection milestones within our current cash resources. In this regard, the entire senior team remains focused on bringing one or more of these opportunities to closure during 2013. I will now turn the call back over to Leone Patterson to review our financial performance for the period, after which, we will open the call for your questions.

[Leone D. Patterson:]

Thanks, Tom. Transcept had $81.1 million of cash, cash equivalents and marketable securities as of March 31, 2013. During the quarter ended March 31, 2013, Transcept spent, on average, approximately $1.5 million per month, which did not include cash inflows from stock option exercises or revenue received from Purdue. For the quarter ended 2013, Transcept recorded $0.5 million of royalty revenue on Intermezzo net sales generated by Purdue. The royalty revenue was offset by $6.3 million, related to a $10 million contribution by Transcept, in December 2012, to an Intermezzo direct-to-consumer advertising campaign led by Purdue. This resulted in negative net revenue of $5.8 million for the quarter ended March 31, 2013. There was no revenue during the first quarter of 2012. Research and development expense for the quarter ended March 31, 2013, was $1.8 million, compared to $2.4 million for the same period in 2012. The decrease between periods is primarily related to the wind down of our Phase II study for the TO-2061 program. General and administrative expense remained flat between periods at approximately $2.8 million. Net loss for the quarter ended March 31, 2013, with $10.5 million or $0.56 per basic and diluted share, compared to net loss of approximately $5.2 million or $0.37 per basic and diluted share for the quarter ended March 31, 2012. The increase in net loss of $5.3 million was primarily due to the contribution to the Intermezzo DTC campaign. At March 31, 2013, there were 18.8 million shares of common stock outstanding and 3.9 million shares of common stock related to outstanding options and warrants. That concludes our prepared remarks for this afternoon. We will now open the call to your questions. Operator, you may now review the instructions for Q&A.

[Operator:]

[Operator Instructions] Our first question comes from Jason Gerberry with Leerink Swann.

[Jason M. Gerberry:]

Just a couple. Maybe for starters, Tom, the scripts for Intermezzo over the last 4 weeks look to be kind of stepping down a little bit from the peak levels. Any factors that we should be aware of that might have driven the weakness?

[Thomas P. Soloway:]

Jason, I think it's as we said, I think it's sort of multifactorial. Clearly, we did announce at the end of last year that Purdue reduced the dedicated sales force to Intermezzo that they launched with 275 reps down to 90 reps. That may have had some impact. And then we've also seen, recently, we said that the bulk of the DTC campaign was going to run in the first quarter, and we've recently seen sort of a trail down on the TV portion of that, so that might add a little bit to it. But by and large, they haven't trailed down too much. They're really -- I would call them flat, at least to our eyes, at this point in the up or down, sort of, noise level.

[Jason M. Gerberry:]

Okay. And then, I guess, on the Purdue front. Have they provided any indication, whether they'll continue beyond July with the DTC program? I believe we should think about the clock is starting on it in January and that runs through July. Or you said the bulk in the first quarter, so I'm just curious where does spend go from here?

[Thomas P. Soloway:]

Yes. I think our -- this is going to sort of address, kind of, the entire Purdue relationship. Our relationship with Purdue remains strong. We have a lot of discussions with Purdue about the working group levels of the joint commercialization committee and in our joint development committee, certainly as well at the CEO level. And we're both clearly disappointed with where Intermezzo is today. It has not lived up to expectations and both parties, I think, want to do what's right for Intermezzo and for their respective investments in Intermezzo. Ultimately, what transpires down the road winds up being in the hands of Purdue, that's where our agreement is written. And we are in conversations with them in the sort of fluid environment right now to sort of sort out what the next set of strategies and tactics are on the life cycle of Intermezzo. Whether or not that includes continued television advertising, I guess, remains to be determined. I think there are probably a lot of different possibilities, but I think what would be most important in terms of making that decision is for Purdue to decide where they get the most marketing efficiency from their dollar, and we'll figure where we'll go from there.

[Jason M. Gerberry:]

Okay. And I'll just ask one more, and then jump into the queue. But my understanding was that Intermezzo was, sort of, broadly getting tier 3 coverage right now on commercial plans. Can you just confirm that? And then what is the typical co-pay differential right now on Intermezzo versus generic Ambien IR?

[Thomas P. Soloway:]

Sure. We haven't really provided any update on managed care. Generally, I can say that we do have reasonable representation on tier 3. It's not perfect, but managed care continues to be one of the anchors on the launch of Intermezzo and, I think, of many other products that you see in the market today. The environment is certainly shifting out there. As it relates to co-pay differentials, this is sort of off the cuff without hard data in hand, but most tier 3 plans, depending on what your deductibles are and where you are, a tier 3 copayments can run from $50 to $75. And generic Ambien, for all intents and purposes, is free. I mean, you can get a script of generic Ambien 10, 20 tablets for $5. So clearly, Purdue has stepped up to the plate and put in place the co-pay cards, which we've discussed previously, those are still in place. But those aren't always perfectly used 100% of the time, and you probably do it with some scripts because of high co-pays.

[Operator:]

[Operator Instructions] I'm not showing any other questions in the queue at this time. We do have one follow-up from Jason.

[Jason M. Gerberry:]

I guess if I'm the only one asking questions -- I guess, just, Tom, on OpEx, just -- as the R&D wind down, should that go to 0 next quarter? And how should we think about G&A? Is that roughly going to be about $2.8 million a quarter, absent any sort of changes in the corporate structure?

[Leone D. Patterson:]

This is Leone. Thanks for the question. As we mentioned, we have been winding down TO-2061 in this quarter and we would expect that cost to be-- the R&D expense line to be fairly low with -- as we only are pursuing any internal projects going forward, and absent any BD activities, obviously, with the activities that we have planned, that should we be successful with those, we would see the R&D line, obviously, start to show an increase again. But we would expect that the come down somewhat given that the TO-2061 program has been wound down. As it relates to G&A, we do expect that to remain fairly flat, but -- and as we continue to pursue due diligence activities, obviously, as it relates to the BD activities, we would see that to sort of stay where it is for this time being. But if we do enter, again, the BD agreement, then we would obviously see some increase on the R&D line.

[Operator:]

Now I would say I'm not showing any other questions in the queue. I'd like to turn it over to Mr. Soloway for closing comments.

[Thomas P. Soloway:]

Thank you, operator, and thanks for participating this afternoon on our call, and we look forward to keeping everyone updated with regard to the progress on Intermezzo and our business development activities over time as we have additional news. Thank you. That concludes our call for today.

[Operator:]

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference, you may now disconnect. Good day.