Paratek Pharmaceuticals, Inc.
Q2 2013 Earnings Call Transcript

Published: 7 Aug 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Transcept Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Tom Soloway, Executive Vice President and Chief Operating Officer of Transcept. Sir, you may begin.

[Thomas P. Soloway:]

Thank you, operator, and good afternoon. Thanks for joining us today to discuss the Transcept Pharmaceuticals 2013 second quarter results. My name is Tom Soloway, Executive Vice President and Chief Operating Officer of Transcept, and joining me on the call today are Leone Patterson, Vice President and Chief Financial Officer; and Glenn Oclassen, our President and Chief Executive Officer. Today we released financial results for the quarter ended June 30, 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; our beliefs regarding our plans and ability to collaborate with Purdue to successfully commercialize and derive value from Intermezzo; our beliefs regarding the nature of Purdue's sales force and strategies to maintain and accelerate Intermezzo prescription growth; our plans strategies, timing and ability to build additional shareholder value by identifying and developing new product assets and the nature of such opportunities and their potential to reach important value and inflection milestones within our current cash resources. 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 may 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 August 8, 2013, for the quarter-ended June 30, 2013. I will now turn the call over to Glenn Oclassen.

[Glenn A. Oclassen:]

Thanks, Tom. As you know, Intermezzo, our lead product remains the first and only prescription sleep aid that the FDA has 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 that time and it required 7 to 8 hours of remaining time in bed after dosing. Intermezzo, at doses of 1.75 to 3.5 milligrams, was specially formulated to be rapidly absorbed when taken by an insomnia patient whose particular sleep problem is middle-of-the-night awakening, and Intermezzo 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 launch generated monthly prescription growth initially, the overall sales results have not met our expectations. We continue to believe that Intermezzo will play an important role in the treatment of insomnia, characterized by middle-of-the-night awakenings, and we're working closely with Purdue to derive value from this important asset. Purdue continues to promote Intermezzo with its 525 rep analgesic sales force and is employing a number of nonpersonal promotional strategies to maintain and accelerate prescription growth. As we work with Purdue to determine the future path of Intermezzo, our internal team is focused on building shareholder value by identifying and developing new product assets. Our position to execute on this strategy is strong. It includes our approved product, a balance sheet with approximately $77.5 million of cash with no debt and a senior team with proven experience in the development and NDA approval of innovative pharmaceutical products. Throughout the remainder of 2013, 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're targeting opportunities that leverage our neuroscience development capabilities and we're considering a range of situations that are consistent with our intention to prudently manage our cash resources while building shareholder value. A 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 before the end of 2013. I'll now turn the call over to Leone Patterson to review our financial performance for the period after which, we'll open the call for questions. Leone?

[Leone D. Patterson:]

Thanks, Glenn. Transcept had approximately $77.6 million of cash, cash equivalents and marketable securities as of June 30, 2013. During the quarter-ended June 30, 2013, Transcept spent, on average, approximately $1.3 million per month, which does not include cash inflows from stock option exercises or revenue received from Purdue. For the second quarter of 2013, Transcept recorded $0.5 million of royalty revenue on Intermezzo net sales generated by Purdue. The royalty revenue was offset by $0.3 million related to a $10 million contribution by Transcept in December 2012 with an Intermezzo DTC advertising campaign led by Purdue. This resulted in net revenue of $0.2 million for the quarter-ended June 30, 2013, compared to $0.5 million for the quarter-ended June 30, 2012. Research and development expense for the quarter-ended June 30, 2013, was $0.9 million, compared to $2.9 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 for the quarter-ended June 30, 2013, was approximately $3 million, compared to $2.7 million for the same period in 2012. The increase of approximately $0.3 million reflects an increase in salary and related benefits as well as increased provisional expenses. We also recorded a onetime goodwill impairment charge of $3 million during the quarter-ended June 30, 2013, as a result of an impairment analysis that concluded that the entire carrying value of our goodwill was impaired. Net loss for the quarter-ended June 30, 2013, was $6.7 million or $0.36 per basic and diluted share, compared to a net loss of approximately $5.1 million or $0.30 per basic and diluted share for the quarter end June 30, 2012. The increase in net loss of $1.6 million was primarily due to the goodwill impairment charge of $3 million, partially offset by a reduction in research and development expenses related to the wind down of the TO-2061 development program. At June 30, 2013, there were 18.8 million shares of common stock outstanding and 3.8 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 the line of Bill Tanner with Lazard Capital Markets.

[William Tanner:]

Glenn, I appreciate the fact that you're probably limited in what you could say and perhaps it's premature to say what's a post mortem. But I guess as you look at what the -- where the delta between how Intermezzo has performed and how you guys thought it might be, what that could be attributable to. And then in the event that in the future, there's some realignment, I guess, of ownership or responsibilities, is this an asset that you think could be effectively relaunched and resuscitated?

[Glenn A. Oclassen:]

Well, obviously, Bill, I don't look at Intermezzo from an entirely unbiased point of view. We put an enormous amount of energy into getting that drug approved. And I've never been involved with another product that made sense to people in a way that Intermezzo did, that has as a rapidly acting, very low-dose product that help you get back to sleep on those many nights when you wake up and can't do so. I mean all that having been said, we haven't gotten definitive feedback from Purdue as to what their intentions are for the future. But we know that they're in the process of reviewing the launch and all of what's happened since then. I continue to believe in the product. I continue to believe, in particular, in the prospects of selecting physician targets who are more likely than a very busy primary care practice physician, more likely than that kind of physician, to engage in a more thorough dialogue with the patient with regard to their sleep problems. I think that may be a key to the future of the product, but that obviously remains to be seen. Suffice to say that we continue to believe in Intermezzo, but we don't yet know exactly what is going to happen going forward with the product, because that decision, at this point in time, is essentially in Purdue's hands.

[William Tanner:]

And then is this something that if, for example, you were to get it back in some fashion, I mean would it be relatively simple for people to look at what has transpired and understand what the shortcoming actually was? Because, I guess, from where we sit and the people we've talked to, we would kind of agree that seems to be clear need for this drug and if the messaging isn't out there, then maybe it's not surprising the traction hasn't been gotten. So maybe, I guess, in short, would people look at this as a --is it -- it is damaged goods somewhat or just an asset that was not properly supported?

[Glenn A. Oclassen:]

I think we can be pretty sure that any -- for instance, other marketing partner that we might go to would want to take a hard look at the launch of the drug and where the causative factors are for Intermezzo not reaching what we all seem to feel was its potential. So I think that there's going to be a research process, if you will, an analytical process, in putting together a new relationship to make the drug a success. We believe, however, just based on our own experience with this and in working with Purdue, that there is an opportunity in the future. We think that the likely path will be a specialty path, but I will tell you that, at this point, that opinion is not as a result of exhaustive research, that is yet to come.

[William Tanner:]

And then I guess just a final question. I mean, you mentioned that there's an assessment that's ongoing. Is there a date certain at which a decision is going to be made or do you guys apprized as to the progress there?

[Glenn A. Oclassen:]

They've not given us a deadline. But I believe there is an active process going on that cannot extend indefinitely beyond that. I don't, at this point, have a hard date as to what their goal is.

[Operator:]

Our next question comes from the line of Charles Duncan with Piper Jaffray.

[Charles C. Duncan:]

I wanted to ask you kind of a question that's a follow on to that. Would you believe that this is a challenge with pricing or clinical value? Or is it perhaps a problem with messaging to the physicians or identification of patients or helping patients to identify their underlying insomnia causes?

[Glenn A. Oclassen:]

I think that, on the pricing side, Intermezzo is priced essentially the same as Ambien CR was before it went off patent and as LUNESTA, sorry. How quickly we forget. As LUNESTA is now, that's in the $5 to $6 range per tablet. So I don't think that there's a fundamental issue attached to that. Clearly, a physician -- in order to rationally prescribe Intermezzo, a physician has to determine whether the patient who says, "Doc, I'm having some trouble sleeping." Whether they mean that they're having trouble going to sleep at bedtime or are they having middle-of-the-night awakenings? And that requires that the doc step out of his or her normal routine, and that requires some motivation. It's more difficult, in my opinion, to motivate a very busy primary care physician to do that, than it is, for instance, a psychiatrist whose practice is, to a great extent, based on a dialogue with the patient. So that is part of the basis for our thinking going forward that specialty marketing may be the key to making Intermezzo a success. But you're -- if what I understand you to be saying is correct, you're absolutely right that there's more of an interaction with the patient that is required to prescribe Intermezzo. And that is out of context, if you will, with the history of hypnotic prescriptions because they've always been for drugs that were meant to be dosed at bedtime and meant to be active all night, whereas, Intermezzo is meant to be dosed in the middle of the night and only meant to be active for roughly half the night. And so it's a quite different situation and is going to require clearly a different approach.

[Charles C. Duncan:]

And I'm sure you've probably laid awake in bed thinking about this, but have you thought about what a right-sized approach to say a niche-oriented -- or a niche-oriented approach would be? Would that take roughly, call it, 40 people? Or what kind of sizing are we talking about?

[Glenn A. Oclassen:]

The most recent numbers that I've seen is that there are about 83 million sleep prescriptions written per year, and approximately 15%, 18% in some -- at some points in time, even 20% of those prescriptions are written by psychiatrists. So that amounts to, even at the low end, something on the order of 16 million prescriptions a year. Most of the prescriptions written by psychiatrists are written by somewhere between 10,000 and 15,000 physicians. And launching an effort against a target of that size with 50 people is perfectly credible and has successful precedent. Once you get against that -- a target audience of that size, once you get to something on the order of 100 or 120 reps, you're starting to hit the point of diminishing returns. So I would say that it would -- you'd be in a position to start -- if you were going to take a psych-focused -- utilize a psychiatry-focused strategy that's starting with about 50 people and working your way toward 100 based on success, would be a credible effort.

[Charles C. Duncan:]

Seems like an opportunity to me. Last question is regarding in-licensor of other development stage assets. You said that you wanted to finish something this year, can you provide any additional color in terms of, call it, development stage or things that you ideally would like to bring in?

[Glenn A. Oclassen:]

Charles, I can not at this point. Our goal is to be able to do so before the end of the year. And we are convinced that, that is a rational goal. But it's going to get a bit longer before we can present those issues, those opportunities publicly.

[Charles C. Duncan:]

But to be clear on -- or help me understand some of the things you were saying in your prepared remarks, you said that within your current cash constraints, you could get to a significant value-added milestone. Could that be either conduct a clinical study or finish a clinical study, or do something like that?

[Glenn A. Oclassen:]

Those are certainly the kind of milestones we're talking about. Clearly, the main thing is that we're not looking at assets where it would require more than we have available, to hit meaningful targets that we would expect to significantly increase value. We're working very hard to manage our cash successfully and to move forward on a successful strategy within the constraints of the cash that we currently have available.

[Charles C. Duncan:]

And last question regarding this, and I'll let you hop. Any chance that any of those, call it, neuroscience opportunities that you're looking at fall within the psychiatry realm or could there even be some potential, call it, orphan disease candidates?

[Glenn A. Oclassen:]

Well we -- neuroscience, to us, is relatively focused. We're looking at assets actively -- in detail, looking at assets that are both within -- specifically within psychiatry and some that are not, either entirely or even largely within, psychiatry, but are still very clearly neuroscience assets. Obviously, there is benefit, at least potential benefit, in the future if we stick within the psych category. But given the current uncertainties on Intermezzo, we haven't confined our search entirely just to psych.

[Operator:]

[Operator Instructions] Our next question comes from the line of Jason Butler with JMP Securities.

[Christopher T. Radom:]

This is Chris Radom in for Jason. Just wondering if you could describe for me what your current dialogue with Purdue is? And on the promotion strategy, if there are any changes you can tell us about?

[Glenn A. Oclassen:]

Well, Purdue made the determination early this year, right around the first of the year, that they were going to reassign all of the personal promotion to their 525 rep analgesic sales force and that continues to be the case. And that, at this point, right now, consists of virtually all of the promotional effort. Certainly, the great majority of any money invested in the promotion of the product. There are ancillary promotional tools being used, but the real energy is with the Purdue analgesic sales force. Going forward, we talk to Purdue regularly, but these decisions are in their hands. We can comment and maybe even advise, but we don't get to decide. And so we're watching and waiting for them to come to a point where they set a new path, and we have not yet reached that point, but we don't expect this process to go on indefinitely.

[Operator:]

[Operator Instructions] Our next question comes from the line of Jason Gerberry with Leerink Swann.

[Jason M. Gerberry:]

Sorry, I jumped on the call a little late, so I apologize if I missed this. But as far as this process with Purdue is concerned, just -- if I understand this correctly, have you proposed any -- could you talk about any ideal outcomes that you might be thinking about in terms of what you've proposed? Or are you just kind of waiting for -- to see what Purdue does in terms of next steps?

[Glenn A. Oclassen:]

Well ideal outcome is that we find a way to turn Intermezzo into the kind of success that we all expected in the first place. We've had a variety of discussions that have been ongoing now for the better part of the year with the Purdue as it began to become clear that the performance of the product wasn't living up to the expectations. But we're -- at this point, we're really waiting on them. And we just have to wait and see what they decide they want to do going forward. They're clearly as dismayed with regard to the performance of the product as we have been, particularly considering the investment they made in this, which was very substantial. But I expect that at some point in the reasonable future that we'll get an indication from them as to where they want to go from here. If indeed we wind up with the product back under our banner then, obviously, we have to determine where we go from there. And make sure that whatever transition occurs is as graceful as possible. But we're not to that point yet. Literally, we believe they have not come to a place where they've made a decision as to what they want to do. And, therefore, that they're not communicating that to us isn't a matter of they're just not being willing to open up, it's a matter that they haven't made up their minds where they want to go.

[Operator:]

I would now like to turn the call back to Glenn Oclassen for any further remarks.

[Glenn A. Oclassen:]

Well, thank you, all. I appreciate the fact that this call sounds an awful lot like last quarter's call did and that's frustrating for all of us. Suffice to say is that we're working real hard to put the money that we have on hand to work to the benefit of shareholders over the middle and long-term. And we look forward to being able to discuss, in a much more comprehensive fashion, our plans for the future sometime later this year. Many thanks, and I'll look forward to communicating with you further as we go forward.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect and, everyone, have a great day.