Paratek Pharmaceuticals, Inc.
Q3 2013 Earnings Call Transcript

Published: 10 Nov 2013

[Operator:]

Good day, ladies and gentlemen and welcome to the Transcept Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the call over to Tom Soloway, Executive Vice President and Chief Operating Officer. You may begin.

[Tom Soloway:]

Thank you and good afternoon. Thank you for joining us today to discuss the Transcept Pharmaceuticals 2013 third quarter results. My name is Tom Soloway, Executive Vice President and Chief Operating Officer of Transcept. 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 September 30, 2013. A copy of this press release is available on our website. During this call, we will discuss and may receive questions regarding our upcoming special meeting of stockholders and actions we are taking relating to certain stockholders’ demands and therefore certain information to be discussed on this call maybe deemed to be solicitation material. You should be aware that we have filed with the SEC a preliminary proxy statement in connection with the special meeting. We urge our stockholders to read our preliminary proxy statement and any other documents filed with the SEC, because they contain important information about the proposals for the special meeting. 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 and TO-2070, our beliefs regarding our plans and ability to collaborate with Purdue to successfully commercialize and derive value from Intermezzo, including the possibility of reacquiring Intermezzo, our beliefs regarding the nature of Purdue’s sales force and strategies to maintain Intermezzo prescription growth, our beliefs regarding our plans and ability to collaborate with Shin Nippon Biomedical Laboratories to successfully develop TO-2070, including the nature, size and timing of payments under our license agreement, our beliefs regarding the potential benefits and cost of TO-2070, and similar or competing products and product candidates, our beliefs regarding the timing, value and cost of human and animal bioavailability data with respect to TO-2070, our plans, strategies, timing and ability to increase stockholder value, including by exploring a range of strategic initiatives and implementing expense reductions and our beliefs and expectations regarding our special meeting of stockholders scheduled for December 19, 2013 and the nature of the proposals put forth by our stockholders for such meeting. 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. The 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 November 7, 2013 for the quarter ended September 30, 2013. I will now turn the call over to Glenn Oclassen.

[Glenn Oclassen:]

Thanks, Tom. As you know, Intermezzo, our lead product remains 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 milligrams to 12.5 milligrams have been designed to be used only at bedtime and have required seven to eight hours of remaining time in bed after dosing. Intermezzo at doses of 1.75 milligrams and 3.5 milligrams was specially formulated as a sublingual tablet to promote rapid absorption when taken by an insomnia patient whose particular sleep problem is waking up in the middle-of-the-night. 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 initial launch generated month-over-month prescription growth, the overall sales results have not met our expectations. We continue to believe that Intermezzo has the potential to play an important role in the treatment of insomnia, characterized by middle-of-the-night awakenings and we are working closely with Purdue to derive value from this important asset, including the possibility that Transcept may reacquire Intermezzo. Purdue continues to promote Intermezzo with its analgesic sales force and is implying a number of non-personal promotional strategies to maintain prescription run rates, which over the last quarter have been trending between approximately 1,500 and 1,700 prescriptions per week. As we work with Purdue to determine the future path of Intermezzo, we have continued our efforts to create new shareholder value through a licensing agreement with Shin Nippon Biomedical Laboratories to develop a novel and rapidly absorbed intranasal powder formulation of dihydroergotamine or DHE to treat acute migraine. The agreement grants Transcept the global development and commercialization rights to the chronic candidate also known as TO-2070. Preclinical data suggest that TO-2070 may offer significant migraine treatment benefits beyond those provided by less convenient and more invasive DHE drug delivery methods, such as injection, liquid nasal sprays or pulmonary inhalation. TO-2070 is designed to provide these benefits at a relatively low cost via a unique and proprietary nasal powder drug delivery system that can be easily self-administered by patients. Under the terms of the agreement, Transcept paid SNBL an upfront technology license fee of $1 million and may pay development milestones totaling $6.5 million through FDA approval of our new drug application. Following the launch of TO-2070, Transcept may pay SNBL an additional $35 million in commercialization milestones tied to the achievement of specified annual sales levels. Additionally, Transcept may pay tiered low double-digit royalties on annual net sales. Our agreement with SNBL enables our companies to work together to develop a potentially important new DHE-based therapeutic for acute migraine, which is among the most common neurological disorders. There are approximately 30 million migraine cases each year in the United States alone and we estimate that the worldwide therapeutic market exceeds $3 billion. While I would urge our stockholders to be cautious about projecting value with respect to TO-2070 based on other migraine products in our evaluation of TO-2070 before signing the deal with SNBL, we took some comfort in the fact that Allergan acquired MAP Pharmaceuticals in 2013 for a total consideration of $958 million. We believe that the major driver in Allergan’s decision to acquire MAP was Allergan’s desire to acquire the marketing rights to MAP’s lead drug candidate, Levadex, which is a DHE product delivered via a pulmonary inhalation system. We note that Levadex while it’s a much later-staged product than TO-2070 has not yet been approved by FDA. DHE has a long history of use in migraine and an established safety profile. DHE is primarily administered via intramuscular and intravenous injection and migraine experts have considerable experience in predicting clinical outcomes based on the bioavailability produced by these formulations. We thus believe that the human bioavailability data that we will be generating maybe an important predictor of the potential clinical success of TO-2070 in the treatment of migraine. Based on data from an animal model PK study, we believe that TO-2070 has the potential to deliver therapeutic doses of DHE as rapidly as an intramuscular or a subcutaneous injection. And we are planning to conduct a human bioavailability study from which we would expect to receive data not later than the third quarter of 2014. We estimate the direct program development costs through completion of this study, including the upfront milestone of $1 million to range between $4 million and $5 million. We believe that this study, if successful, will significantly increase the potential value of TO-2070. Before I turn the call over to Leone Patterson to review our quarterly financial performance, I would like to take a moment to discuss our upcoming special meeting of stockholders. On October 3, 2013, we received a request from Roumell Asset Management, Retrophin Incorporated and SC Fundamental to hold a special meeting of stockholders to recommend that our Board cancel our unanimously adopted tax benefit preservation plan and to remove four members from our Board of Directors. These proposals are not endorsed by our board and we strongly urge that our shareholders vote against these proposals. Our board and management team remains deeply committed to Transcept and to its shareholders and to enhancing shareholder value. While we share that this may have felt by our shareholders over the market uptake of Intermezzo and its effect on our stock price, we are implementing strategies that we believe will create the greatest return for all shareholders. As we have indicated in the past, we are actively pursuing a number of key initiatives that we believe may unlock this value. These include exploring a range of strategic alternatives with Leerink Swann LLC who are our financial and strategic advisors, including but not limited to a possible sale, business combination, partnership, or return of capital to shareholders. In addition, we are making measured and appropriate investments in our DHE development program for the treatment of acute migraine. As previously discussed, our objective for the DHE program is to complete a key human pharmacokinetic study with this product candidate in the third quarter of 2014 or earlier. We believe that this study, if successful, will increase the value of our DHE program and could make Transcept more attractive to potential strategic partners. We are also continuing to work with Purdue Pharma, our U.S. marketing partner for Intermezzo to develop and implement strategies to maximize the value of Intermezzo, which may include Transcept reacquiring the product or arranging for its sale by Purdue Pharma to a third-party. And finally, we are implementing appropriate expense reductions to enable the organization to achieve these goals at the lowest possible costs. We will provide specific guidance on our expense reduction efforts and our expectations regarding future expense levels in the coming weeks. In order to allow us to execute these initiatives, we strongly encourage our shareholders to vote against the proposals set forth by Roumell, Retrophin and SC Fundamental. I also encourage those shareholders who have remaining questions regarding the proxy materials to call me personally to discuss the strategic direction that we are taking. I will now turn the call over to Leone Patterson to review our financial performance for the period after which we will open the call for questions. Leone?

[Leone Patterson:]

Thanks, Glenn. Transcept had approximately $75.8 million of cash, cash equivalents and marketable securities as of September 30, 2013. During the quarter ended September 30, 2013, Transcept spent on average approximately $900,000 per month, which does not include cash inflows and stock option exercises or revenue received from Purdue. For the third quarter of 2013, Transcept recorded net revenues of $400,000 primarily related to the royalty revenue on Intermezzo net sales generated by Purdue compared to $10.4 million for the quarter ended September 30, 2012. This included a $10 million intellectual property and milestone payment. Research and development expense for the quarter ended September 30, 2013 was $2.4 million compared to $3.1 million for the same period in 2012. The decrease between periods is primarily related to the wind down of our Phase 2 (indiscernible) in the treatment of OCD partially offset by approximately $1.4 million of its expense associated with our DHE program. General and administrative expense for the quarter ended September 30, 2013 was approximately $2.7 million compared to $2.5 million for the same period in 2012. The increase of approximately $200,000 reflects an increase in legal consulting and other professional expenses. Net loss for the quarter ended September 30, 2013 was $4.7 million, or $0.25 per basic and diluted share compared to net income of approximately $4.9 million, or $0.26 per basic share and $0.25 per diluted share for the quarter ended September 30, 2012. The increase in net loss of $9.6 million was primarily due to the $10 million patent milestone payment received during the third quarter of 2012. At September 30, 2013, there were 8.8 million shares of common stock outstanding and 4.5 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) I am showing no questions at this time.

[Glenn Oclassen:]

Operator, thank you very much and thank you all for participating in this afternoon. We look forward to further updating you with regard to the progress of our ongoing strategic efforts. And operator, that concludes our call today. Thank you.

[Operator:]

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