Q1 2023 Paratek Pharmaceuticals Inc Earnings Call

Participants

Adam Woodrow; President & Chief Commercial Officer; Paratek Pharmaceuticals, Inc.

Evan Loh; CEO & Director; Paratek Pharmaceuticals, Inc.

Randall B. Brenner; Chief Development & Regulatory Officer; Paratek Pharmaceuticals, Inc.

Sarah Higgins; VP of Finance, Controller & Principal Accounting Officer; Paratek Pharmaceuticals, Inc.

Julian Reed Harrison; Director & Biotechnology Analyst; BTIG, LLC, Research Division

Kambiz Pashneh-Tala Yazdi; Equity Associate; Jefferies LLC, Research Division

Wing Cheung Yip; Research Analyst; H.C. Wainwright & Co, LLC, Research Division

Presentation

Operator

Greetings, and welcome to the Paratek Pharmaceuticals First Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, May 9, 2023. It is now my pleasure to turn the conference over to Sarah Higgins, Vice President of Finance and Principal Accounting Officer. Please go ahead.

Sarah Higgins

Good afternoon, and welcome to Paratek's First Quarter 2023 Earnings and Corporate Update Conference Call. A press release with the company's financial results was issued earlier today, and we have also posted slides on our website to which we will refer on this call. Both can be found at www.paratekpharma.com.
Participants on today's call are Evan Loh, Chief Executive Officer; and Adam Woodrow, President and Chief Commercial Officer, both of whom will be -- will present prepared remarks. Randy Brenner, Chief Development and Regulatory Officer; Michael Bigham, Executive Chairman, and I will be available for questions.
Before I turn the call over to Evan, I would also like to point out that we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to consult the risk factors discussed in our 2022 Form 10-K and other SEC filings for additional detail. Evan?

Evan Loh

Thank you, Sarah. Good afternoon, and thank you all for joining our First Quarter 2023 Financial and Corporate Update Call. Over the first 4 years of NUZYRA's U.S. launch, its commercial success continues to clearly differentiate its core commercial performance as one of the most successful IV oral antibiotic launches in the last decade. Strong demand, coupled with disciplined execution, resulted in consistent year-over-year growth in NUZYRA's core commercial business.
NUZYRA generated net U.S. sales of $26.2 million in the first quarter of this year, a 32% increase from $19.9 million in the same quarter of the prior year.
Consistent with past performance expectations, we saw a modest decrease in net sales in the first quarter of this year compared to the fourth quarter of last year, which is likely due to the annual insurance resets that occur at the beginning of each year. Encouragingly, we saw momentum in overall sales growth in the latter half of the first quarter that has continued through April. In addition, we have seen some early signals of a potential improvement in the overall hospital business environment.
As you can see on the right side of this slide, we are pleased to report that our trailing 12-month net revenue has now surpassed the $100 million threshold, an important milestone in the evolution and consistent upward trajectory of NUZYRA's commercial growth. The hospital and community segments have both contributed significantly to the year-over-year growth in the NUZYRA core commercial business.
These positive trends allow us to have confidence in reiterating our full year 2023 revenue guidance of $143 million to $158 million as captured on this slide. Paratek is focused on three pathways to NUZYRA revenue generation. First, NUZYRA's core commercial business, the main driver of our current revenue growth. Having both once-daily oral and IV formulations enables NUZYRA to have clinical utility in every setting of care. Second, nontuberculous mycobacteria disease or NTM, NTM represents a promising future growth opportunity in the orphan disease space. NTM or the M. abscessus subtype is an ultrarare disease with currently no approved therapies anywhere in the world.
In the U.S., the Phase IIb study continues to enroll to plan with completion expected by the end of this year. In the U.S. alone, Paratek estimates that NTM abscessus represents a potential $1 billion addressable market opportunity. Outside the U.S., we believe that Japan has a total addressable market comparable in magnitude to that seen in the U.S. Given the magnitude of this potential, we have prioritized our regulatory and out-licensing efforts in Japan.
Given the amount of inbound interest and stage of negotiations, we expect to be able to announce a Japanese partnership by the end of this year. In 2023, we have also initiated regulatory activities in Europe and anticipate a regulatory advice process to be completed this year, which we believe will accelerate potential partnering discussions for this region as well.
Third, U.S. government opportunities. We believe that there is broad potential for NUZYRA's use across the U.S. government, not only through our BARDA BioShield public-private partnership for anthrax, but across the health and human services sectors that address pandemic preparedness needs and broadly across the Department of Defense as an important agent to protect our active war fighters.
Now I would like to review Paratek's first quarter 2023 financial highlights. Total revenue for the first quarter of 2023 was $31.2 million compared to $24.9 million for the same period in the prior year. Total revenue for the first quarter was comprised of the following: NUZYRA net U.S. sales of $26.2 million, a 32% increase from $19.9 million for the same period in the prior year. Government contract service and grant revenue earned from cost reimbursement under the BARDA contract of $3.8 million, a 12% decrease from $4.3 million for the same period in the prior year.
Collaboration and royalty revenue of $1.2 million, a 71% increase from $0.7 million for the same period in the prior year, which primarily represents royalty revenues earned on sales of NUZYRA in China, and on sales of Seysara in the United States.
R&D expenses were $7.3 million for the first quarter of 2023 compared to $7.5 million for the same period in the prior year. SG&A expenses were $33.5 million for the first quarter of 2023 compared to $27.6 million for the same period in the prior year. The increase in SG&A expenses is primarily the result of costs incurred in connection with the NUZYRA community expansion. Consistent with our commitment to accelerate our pathway to profitability, we are targeting a significant reduction to our annualized fourth quarter 2022 spend rate through operational efficiencies and active management of cash and expenses, enabling us to announce 2023 full year expense guidance in the range of $160 million to $170 million.
This range includes the following components: core business R&D and SG&A expenses of $145 million to $150 million and reimbursable BARDA R&D and U.S. onshore expenses of $15 million to $20 million. As seen in the orange bar on the far left, R&D and SG&A expenses in the fourth quarter of 2022 totaled $68.1 million, which included a contingent nonrecurring charge of $21.9 million. Excluding this charge, R&D and SG&A expenses in the fourth quarter of 2022 totaled $46.2 million, which included the full cost burden of the community sales force expansion completed in the second half of last year.
As depicted in the orange bar in the graph on the right, annualizing the fourth quarter 2022 R&D and SG&A expenses of $46.2 million would have resulted in a full year 2023 spend of approximately $185 million. Compared to this annualized expense account, the company projects a 2023 expense guidance in the range of $160 million to $170 million as depicted in the blue bar on the right, which represents a reduction of approximately $20 million in full year R&D and SG&A expenses for 2023.
And finally, Paratek had cash and cash equivalents of $45 million as of March 31, 2023. I would now like to turn the call over to Adam. Adam?

Adam Woodrow

Thanks, Evan. The growth of NUZYRA in both the hospital and community settings continues to progress according to plan and our progress represents a material difference in trajectory compared to all other oral broad-spectrum branded antibiotics most recently launched. As seen on the left panel of this slide, disciplined execution has resulted in an impressive year-over-year growth in NUZYRA's core commercial business, evidenced by the 32% increase in net revenue from Q1 2023 versus Q1 2022.
On the right panel of this slide, first quarter gross demand, the leading indicator of future sales growth, increased year-over-year by 50% over the same quarter in the prior year. As a brief reminder, gross demand represents all orders from hospitals and associated accounts as well as prescriptions fulfilled by our specialty pharmacy partners in the community. This is the key metric we use to determine forward-looking progress towards our commercial goals.
The difference between net sales and gross demand in any quarter is driven by inventory fluctuations throughout the distribution channel, a timing issue and gross to net discounts. As Evan noted earlier, we saw a modest reduction in first quarter net sales compared with the fourth quarter of last year, primarily due to annual insurance resets. Importantly, we also saw a modest increase in gross demand compared to the prior quarter.
Both results were in line with our expectations and a similar magnitude compared to the same period in the prior year. As a result of this quarter's performance, combined with the sales momentum we have seen through April, we maintain our confidence in achieving the growth required to meet our full year revenue guidance for the core commercial business of $125 million to $135 million. As seen on this slide, we continue to see growth across both the hospital and community sectors of our core commercial business. With the investment to date in the community expansion, we're seeing an acceleration in the share of prescription days of therapy generated by this team. Total prescription days of therapy generated by the community-based representatives remain on track to exceed the prescription days of therapy generated by the hospital-based representatives by the end of 2023.
We continue to believe that the expansion of the community sales team and the associated medical support will maximize long-term growth for NUZYRA. As you can see on Slide 17, in contrast to the headwinds we've seen during the last half of 2022, there appears to be potential early signals of an emerging recovery in the hospital setting, which is both encouraging and welcomed. This shift may be a result of two factors: First, an improving macro environment with regard to recruitment and staffing within the hospital setting; and second, a subtle but important change in our messaging within the hospital.
While our physician targeting remains ID physicians and critical care pulmonologists, our message is now focused on discharge on oral NUZYRA therapy in patients with a known or suspected resistant pathogen who also have a complicating comorbidity. This shift leans into the dominant once-daily oral usage pattern we have seen for NUZYRA in this setting of care.
In addition to these early and positive trends in the hospital business dynamics, since February, we're also seeing a steady increase in new hospital prescribers, as shown in the dark blue bars on this slide. This trend is a good signal for new growth in the hospital business after the headwinds of the last 2 quarters. In addition, we continue to see a quarter-over-quarter increase in new community prescribers as seen graphed here in the pale blue bars. With new prescribers increasing in both the hospital and community settings and a strong start to the second quarter, we look forward to sharing details around our continued progress and momentum during our next earnings call. With that, I would now like to open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions) And our first question is from the line of Kambiz Yazdi with Jefferies.

Kambiz Pashneh-Tala Yazdi

A couple of questions for me. First, can you provide some details on the operational efficiencies that enabled your OpEx reduction? Second question is what percent of the patients have you enrolled in your NTM study. And then as a third question, how confident are you in securing Japanese partnership by the end of the year? And what stage of negotiations are you in?

Evan Loh

Kambiz, it's Evan. I'll take the first question. As stated in our prepared remarks, we continue to pursue a number of operational efficiencies across the organization in an effort to achieve our projected full year 2023 OpEx savings of approximately $20 million. These efforts include reducing or eliminating spend on external consultants, reducing or eliminating costs associated with certain agencies and elimination of any spend associated with noncritical activities.
As you could see, these efforts began early in the first quarter of this year and will continue through the duration of 2023. Importantly, all operational efficiencies being pursued and implemented will be balanced to maintain our projected top line revenue growth for full year 2023. For your second question around the patients enrolled in the NTM study, I'll hand this over to Randy.

Randall B. Brenner

It's Randy Brenner talking. We don't generally give out super specifics around our NTM enrollments. I can tell you that we're quite pleased with the progress that's been happening in the first quarter of this year, and we remain on target to plan to make our enrollment completion by the end of this year.

Evan Loh

Great. Thank you, Randy. And for your third question, Kambiz, how confident are you in the Japan partnership by the end of the year? And at what stage are you in terms of our negotiations. So thank you for that question. Look, I think importantly, there was a very important milestone that Randy and his regulatory team led over the duration of last year through early February of this year, which is to gain clarity on the regulatory pathway for Japan with an output from a formal PMDA meeting that provided guidance in terms of the design of the trial and which resulted in us or giving us an understanding of this being a relatively small single Phase III study of approximately 100 subjects.
Clarity there has, I think, led to us receiving significant inbound interest, and we are in receipt of multiple nonbinding indications of interest. We look forward to progressing these discussions towards our stated goal of a deal by the end of 2023, and in terms of us, in terms of today, I think it's inappropriate for us to be commenting publicly on the exact timing for this based upon the stage of discussions, but we still feel confident that we'll be able to consummate a transaction by the end of this year.

Operator

And our next question is from the line of Ed Arce with H.C. Wainwright.

Wing Cheung Yip

This is Thomas Yip asking a couple of questions for Ed. So perhaps for NUZYRA, can you tell us for your community expansion, what are the major impacts that you have observed so far in the U.S. market and since you went over some early traction in the hospital setting, any kind of initiatives there in that market as well?

Evan Loh

So maybe I'll have Adam discuss some of the positive factors that are going on within the community expansion. Adam?

Adam Woodrow

So I mentioned, obviously, the early traction we're seeing with the hospital -- with the community expansion. That's really a function more of the fact that we now have more representatives on the ground. We've gone into new territories. And in some cases, what we've done is we've divided up profitable territories into 2, because they've got a great deal of potential. And as a consequence, that's why you're seeing that acceleration that's going on in the prescriptions and prescription days of therapy with the primary care field force.
I also obviously mentioned the encouraging trends that we've seen in the hospital, and I put those obviously in my prepared remarks. We think that, that's actually a function of staffing conditions in the hospitals along with improved patient flow. In addition to the data I've shown, I'm pleased to report that we are actually seeing these improving trends continue, actually, not just in the back end of the last quarter, but they seem to have carried over into the second quarter. And while it's too early to comment on whether we think these trends are sustainable through 2023, we are encouraged with the progress that we've seen to date.

Wing Cheung Yip

And then perhaps somewhat of a financial question. Previously, you mentioned there's a path to reaching a breakeven point. Is that still a long-term goal? And can you outline some major factors in order to achieve that goal?

Evan Loh

Yes. Look, I think that when we look at our business, we continue to remain extremely pleased with our current upward trajectory in terms of our core commercial business. We feel very confident in our full year guidance, and we're able today to reiterate that guidance with approximately 25% to 35% year-over-year growth projected for this year.
As we think about our business, we see operational efficiencies and opportunities here to consider places where we could be more efficient. And we do think that, that's absolutely core to our ability to create a path to profitability. And we are very focused on that currently. And as you can see, we've already begun those efforts with our projected $20 million in year-over-year savings compared to an annualized fourth quarter of 2022 carryforward expense run rate.

Operator

And our next question is from the line of Julian Harrison with BTIG.

Julian Reed Harrison

First, on the heels of the ATS Conference last month. Wondering if you could talk a little more about the feedback you've been receiving from the medical community on the NUZYRA's potential for treating NTM infections. And then you've been very clear on your guidance to the Japan deal for NUZYRA by the end of this year. I guess I'm wondering if South Korea rights would likely be a separate transaction? And if so, when could we maybe expect that to materialize?

Evan Loh

Yes. So Julian, it's Evan. Thank you for the question. I'll take the second question first, and then I'll hand it over to Randy to talk about NTM. Your question around South Korea is an interesting one because when you look at the total addressable market in Japan, it's actually fairly comparable to what we actually see in South Korea as well.
We would prefer to have a partner that could actually oversee and develop and commercialize the product in Japan and South Korea, currently, though our inbound interest has been more for Japan being the focus. That being said, we do -- actually in terms of our nonbinding indicative interest have had -- some of these potential partners actually expressed interest in South Korea as well.
So it's all on the table for us. And I would not I think, be fulsome without mentioning also Europe as well. It is something that has come in frame more recently in terms of discussions that we've been having with potential strategic partners there. And Randy could speak to this also that we will be actually -- we're in the process of getting off the ground with a similar regulatory process where we have high confidence that we'll be able to, number one, achieve orphan disease designation and number two, to receive Scientific Advice by the end of this year in terms of the pathway that we would take going forward. Maybe with that, I'll leave it over to -- here to Randy.

Randall B. Brenner

Julian, it's Randy Brenner. Just regards to your NTM question, we've -- really since the day we launched, we received significant amount of inbound interest around the potential for NUZYRA to treat NTM, particularly mycobacterium abscessus through our medical team. And that interest over the last 4 years really just continues to grow exponentially.
We obviously don't have the indication so don't proactively speak about NTM. But questions come into us all the time. And I think you've seen our publications that have been put out there since the launch of NUZYRA over the last 4 years, and there's a significant amount of data that continually gets generated, which -- and as data gets generated, more unsolicited questions coming through our medical team about the potential to use NUZYRA for NTM.
We last -- couple of weeks ago did have an NTM poster for NUZYRA. That's part of our real-world evidence IIR program that we have out there that looked at the short and long-term durability of efficacy for NUZYRA, which again showed data that was interesting to potential KOLs and as other publications do generate some inbound interest and questions from the medical community. So we continue to feel good about our NTM program and our Phase II study, which is why we're doing it. And the publications that are out there continue to further support the hypothesis that we've laid out before starting that program.

Evan Loh

Julian, I think that the other point that I would make, and I really appreciate one of the slides that you actually had in your report about Paratek, which is to look at the combinatorial use of NUZYRA. One of the things that's important in these patients with NTM abscessus or in MAC for that matter, is that the standard of care is multiple antibiotics in combination; number one, to reduce the rate of resistance, but this is a bacteria that is very, very difficult to eradicate, if not impossible, to eradicate. That being said, I think that with us realizing that, Randy and his team undertook checkerboard studies to look at synergism and/or antagonism with all of the commonly used either IV or oral antibiotics for NTM abscessus as well as MAC, just to remind the listeners, we saw 0 antagonism with any of these agents.
And in fact, with a couple of these classes, we actually saw synergism, which is actually great data that our doctors have spoken to and noted in terms of the opportunity. So when you have a once-daily oral that's well tolerated, as Randy has said here, we do believe that there continues to be nearly daily inbound inquiries into the opportunity to think about the different places that NTM can make a difference in the clinical outcomes of these very desperately ill patients.

Operator

And there are no further questions in the queue at this time. I will now turn it back for closing remarks.

Evan Loh

Thank you, operator. We look forward to keeping you apprised of our continued progress. Goodbye for now.

Operator

That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.