Paratek Pharmaceuticals, Inc. (NASDAQ:PRTK) Q3 2022 Earnings Conference Call November 3, 2022 4:30 PM ET
Company Participants
Sarah Higgins – VP, Finance, Controller & Principal Accounting Officer
Evan Loh – CEO & Director
Adam Woodrow – President & Chief Commercial Officer
Randall Brenner – Chief Development & Regulatory Officer
Conference Call Participants
Antonio Arce – H.C. Wainwright & Co.
Operator
Good day, and welcome to the Paratek Pharmaceuticals Third Quarter 2022 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Sara Higgins, Vice President of Finance and Accounting Officer. Please go ahead.
Sarah Higgins
Good afternoon, and welcome to Paratek’s Third Quarter 2022 Earnings and Corporate Update Conference Call. A press release of 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, MD, Chief Executive Officer; Adam Woodrow, President and Chief Commercial Officer; and Randy Brenner, Chief Development and Regulatory Officer; Michael Bigham, Executive Chairman, and I will also 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 SEC filings for additional detail. Evan?
Evan Loh
Thank you, Sarah. Good afternoon, and thank you all for joining our third quarter 2022 earnings and corporate update call. The strength in continued growth of Paratek’s core commercial business in the third quarter of 2022 was driven by our unwavering commitment to disciplined operational execution, combined with NUZYRA’s many clinically important product attributes. These include once-daily oral and IV formulations, which enables use in every setting of care, proven clinical efficacy against resistant pathogens in two FDA-approved indications and a favorable safety and tolerability profile.
Our U.S. commercial launch performance continues to materially differentiate NUZYRA as one of the most successful oral IV antibiotics launched in the last decade. Having both once-daily oral and IV formulations has enabled NUZYRA to have potential clinical utility in multiple settings of care. Strong demand, coupled with disciplined execution, continues to generate year-over-year growth in NUZYRA’s core commercial business.
Net sales from our core business increased from approximately $19.4 million in the third quarter of 2021 to $25.5 million this past quarter, which represents a 31% year-over-year growth. As you’ll hear from Adam, this growth in net sales of NUZYRA continues to be driven by strong demand, which we believe is the most important predictor of long-term product growth. Importantly, NUZYRA’s trailing 12-month core commercial revenue performance, as seen in the figure on the right, demonstrates an upward growth trajectory that we expect to continue for the remainder of the year and into 2023 as the community and institutional sales teams broaden and deepen their access points and connections to physicians.
We continue to prioritize three principal pathways to NUZYRA revenue generation. First, NUZYRA’s core commercial business. This continues to be the main driver of our current revenue growth performance, and we remain on track to deliver between $95 million to $105 million in net sales this year. Operationally, we have completed the second wave of our commercial and medical expansion into the primary care setting. Adam will tell you a bit more about the impact of these newly deployed resources on our business during his prepared remarks.
Second, we believe NUZYRA has global potential with a promising future growth opportunity in the orphan disease space with nontabriculous mycobacteria or NTM. Paratek hosted a well-received Investor Day on October 3 to update investors on the global market opportunity for both NTM abscesses and Mycobacterium avium complex, or MAC, and to lay the foundation for future ex-U.S. partnering discussions.
Third, U.S. government opportunities. We believe that NUZYRA’s broad utility against antimicrobial resistance, wound infections and bio terrorism pathogens should make it an important life-saving component of the U.S. government strategy and tactics being formulated to address today’s emerging threats. These opportunities with NUZYRA include procurement deliverables under the BARDA BioShield contract and other stockpiling initiatives for pandemic preparedness under both HHS and within the Department of Defense.
As the first step in that journey, we are very proud to have recently announced that U.S.-manufactured NUZYRA tablets are now commercially available. Before I turn the call over to Adam, I would like to review Paratek’s third quarter 2022 financial highlights.
Total revenue for the third quarter of 2022 was $30.2 million, a 24% increase from $24.4 million for the same period in the prior year. Revenue earned in the third quarter of 2022 was comprised of $25.5 million in net U.S. sales from the NUZYRA core commercial business, a 31% increase from $19.4 million for the same period in the prior year. $4.4 million in revenue earned under the BARDA contract and $0.3 million in royalty revenue. Research and development expenses were $8.5 million for the third quarter of 2022 compared to $7.9 million for the same period in the prior year. The increase in R&D expenses was primarily the result of costs incurred under our BARDA contract.
Selling, general and administrative expenses were $33.8 million for the third quarter of 2022 compared to $26 million for the same period in the prior year. The increase in SG&A expenses were primarily the result of costs incurred for the expansion of NUZYRA promotion into the primary care setting. Paratek reported a net loss of $20.9 million or $0.38 per share and $18.2 million or $0.37 per share for the third quarter of 2022 and 2021, respectively. Paratek ended the quarter with $57 million in cash, cash equivalents and marketable securities. Based upon commercial revenue performance and operational expenditures, we remain confident in reiterating our full year 2022 financial guidance.
I would now like to turn the call over to Adam. Adam?
Adam Woodrow
Thanks, Evan. The commercial launch of NUZYRA in both the hospital and community settings continues to progress according to plan. As Evan noted earlier, disciplined execution has resulted in impressive year-over-year growth in NUZYRA’s core commercial business as evidenced by the 31% increase in net sales over the same quarter in the prior year. NUZYRA’s trailing 12-month revenue performance as seen in the graph on the right, continues to demonstrate an upward growth trajectory. As shown on Slide 13, third quarter gross demand, the leading indicator of future sales growth increased by 52% over the same quarter in the prior year, with a trailing 12-month growth of 68%. These data maintain our confidence in the continued long-term growth of our core commercial business.
As a brief reminder, gross demand represents all orders from hospitals and associated accounts as well as all prescriptions fulfilled by our specialty pharmacy partners in the community. This is the key metric we use to determine progress towards our commercial goals. The difference between net sales and gross demand is driven by inventory fluctuations throughout the distribution channel, a timing issue, and our gross-to-net discounts for the current reporting period.
As you can see from Slide 14, NUZYRA’s growth trajectory is noticeably more successful than other recent oral IV antibiotic launches. In Q3, both segments of our business, the hospital and community saw growth in demand. However, specifically in the third quarter of this year, while the NUZYRA Hospital business continued to grow, it did so at a slower pace than we had anticipated. While there have been material improvements in the hospital environment overall, there continues to be residual effects of the pandemic that have reduced the overall volume of patients in the hospital system, impacting overall antibiotic utilization. In addition, we are still experiencing some restrictions in physical access for our sales representatives to certain hospital systems.
In the hospitals that have resumed more normal activities, I am pleased to report that we’ve received numerous recent successful formulary reviews. Our sales team in these hospitals are now working on pull-through activities, and we expect to see the results of these efforts over the coming quarters. Our focus in the hospital continues to be on ID positions and critical care pulmonologists that care for patients with known or suspected resistant pathogens who also have a complicating comorbidity. The value of NUZYRA’s oral formulation to expedite discharge from the hospital to home is appreciated by both patients and physicians. In addition to the cost savings realized by the health care system, a shortened length of stay also reduces the risk for patients to pick up a hospital-acquired infection with yet another resistant bacterial pathogen.
As promised, our second wave of expansion into the primary care setting is now complete. This included an increase in the number of sales representatives, medical science liaisons and territories covered in primary care. We now have approximately 85 Paratek specialty representatives working in the community. Early performance indicators suggest that these new representatives are performing to plan with prescription and activity data consistent with our prior community expansion in 2021. Our continued investment in the community has resulted in accelerating NUZYRA prescription demand in Q3 as seen on this slide. As a result, NUZYRA’s revenue performance is clearly outpacing other more recent oral IV community launches.
The community-focused sales team continues to be a key driver of growth and has increased their share of prescription days of therapy to 40% by the end of September, averaging 36% for the third quarter. Prescription days of therapy generated by the community-based representatives remain on track to exceed the Rx DOTs generated by the hospital-based representatives by the end of 2023. We continue to believe that the expansion of the community sales and medical support will yield long-term performance success for NUZYRA’s commercial revenue growth. Our focus with the community-based team is to concentrate on prescribing podiatrists, primary care physicians and a select number of dermatologists. NUZYRA’s value proposition for both pneumonia and skin infections is in keeping patients out of the hospital, enabling treatment at home by using oral NUZYRA and targeting those patients with a known or suspected drug-resistant pathogen who also have a significant comorbidity such as renal impairment or diabetes.
For those of you that track flu numbers, you will have also noticed that the CDC is reporting a major up tick in flu-like symptoms for this time of year. This often serves as a leading indicator of a substantial pneumonia season. We have prepared our sales team to capitalize on this opportunity if this indicator continues to follow these early data trends into something more significant. This includes identifying and developing relationships with high-value pneumonia physicians based on their historical quinolone use as this signifies that the physicians have many of our NUZYRA pneumonia patient types, i.e., a patient with a known or suspected resistant pathogen and at least one significant comorbidity.
As always, our overall objective remains in gaining new trialists and repeat usage by building awareness and establishing trust and credibility with physicians who are saving lives and treating serious community-acquired infections each and every day.
And with that, I’d now like to turn the call over to Randy.
Randall Brenner
Thank you, Adam. Consistent with our strategic priorities, our field medical team is engaging health care providers in both the hospital and community settings. The community MSL team continues to engage in scientific exchange with primary care physicians and podiatrists, focusing on emerging resistant patterns and treatment challenges with today’s skin and pneumonia patients while identifying the unmet medical needs of today’s older standard of care antibiotics. The hospital MSD team continues to engage with infectious disease thought leaders, [indiscernible] and pneumonia guideline authors, formulary decision-makers, and NTM referral center physician leaders with scientific conversations that highlight the current clinical need and potential future life cycle development and research opportunities for omadacycline.
We continue to expand our educational efforts and scientific exchange in order to reach KOLs and community practices through focused scientific meetings, journals and medical education. Paratek participated in a number of important in-person military and scientific congresses. Peer-reviewed data presented at these conferences furthers the understanding of the utility of NUZYRA for serious community-acquired and combat-associated infections. Highlights include real-world health outcomes data for patients treated with oral and IV NUZYRA for skin infections, bone and joint infections and pneumonia.
Additional in vitro and human data were also presented, which further supports NUZYRA as an antibiotic with low potential to induce C. difficile due to its in vitro potency and minimal disruption of the human gut microbiome. Lastly, a claims analysis, strengthened the value proposition for NUZYRA and that patients treated with NUZYRA were less likely to seek additional care in an emergency room or urgent care or require hospital admission.
With regards to our Project BioShield contract, together with BARDA, we continue to execute on all deliverables. Initiation of the pulmonary anthrax pilot efficacy study in occurred in October of 2022, and top-line data from this study is expected by the end of the year. BARDA’s received positive top-line data from this study will trigger the process for the purchase of our second NUZYRA procurement valued at approximately $38 million. We are working with BARDA on a plan to execute the second procurement by the end of the year, but revenue recognition tied to BARDA, accepting the delivery of the product may drift into early 2023.
Recently, the U.S. on shoring program reached a significant milestone, completing the on shoring of the tablet manufacturing and validation process, making U.S.-based NUZYRA tablets now commercially available. This milestone represents the first of several steps in creating an end-to-end U.S. supply chain for NUZYRA with U.S.-produced active pharmaceutical ingredient available in 2023 and vials commercially available in 2024. With more than 90% of all antibiotics us in the U.S. during 2022 sourced from China and India, continued disruptions in global supply chains due to international turmoil and the ongoing challenges of the COVID pandemic making the U.S.-based supply chains more important than ever.
With regards to life cycle initiatives for NUZYRA, we continue to advance the evidence generation and development program for the orphan indication of NTM pulmonary disease caused by mycobacterium abscesses. These data in total span the scientific continuum from in vitro data to clinical studies and real-world evidence, resulting in future publications and physician papers. Importantly, enrollment continues in the Phase IIb randomized study of pulmonary NTM infections caused by mycobacterium tests with top-line data expected at the end of 2023.
Cirtec hosted a successful Investor Day on October 3rd to update investors on the global market opportunity for NTM for both mycobacteria obsesses and MAC and to summarize key takeaways from the company’s ongoing scientific program in NTM. This event highlighted the significant unmet need for patients suffering from this chronic rare and life-threatening pulmonary disease and lays the foundation for ex U.S. partnering discussions.
Specifically, there are large market opportunities in Japan, Korea and Europe. Efforts remain ongoing to formalize the agreements of the NTM development program in Japan, a series of meetings with the Japanese regulatory authority have already been conducted in 2022 with formal feedback expected in the first quarter of 2023. We believe this will be a catalyst to advance our ex-U.S. partnership discussions.
I look forward to providing additional updates in future meetings. And at this point, we would like to open the line for questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions]. We can now take our first question from Antonio Arce of H.C. Wainwright & Co.
Antonio Arce
Great. Congrats on your continued progress. I joined a bit late, so you may have already gone over this, but I wanted to ask if you could provide a little more detail than what’s on the release. What’s driving the current — what appears to be some current headwinds commercially. Noting that the sales number for the third quarter is a 1.5% growth over the previous quarter. And any helpful insight on to what you’re doing in particular with the expanded sales force? And then I have a follow-up.
Evan Loh
I’ll take that. Look, we know from — you asked where the headwinds have come from. There are a couple of factors. We know from the billing and utilization data that was in the hospitals, that there was a pretty reduction in the number of patients that were flowing through the hospital system during that specifically during the third quarter, so much so that the broader antibiotic market in the hospitals actually was in decline. Now we obviously outperformed the market because we still did see some growth. But if you add that to the fact that we saw a slight draw down in our gross to net — sorry, in our inventory, you actually see a delta there between our net sales and our sort of demand number. So the headwinds are really the patient flow and the patient numbers and this sort of slowdown in terms of the inventory that we were expecting, and that’s a timing issue and we’ll wash through the system. Now we’ve seen this sort of situation with the hospitals before and they invariably come back. So we’re expecting to see that tick back up again in the next quarter.
Antonio Arce
Okay. And then off of your recent Investor Day discussing the NTM opportunity, wondering if there’s any update. I know you just went over this, but if you could give us some detail around the updates in terms of partnership opportunities globally and any other updates beyond the trial itself with that program.
Evan Loh
Randy, do you want to take that?
Randall Brenner
Sure. Thanks, Evan. So , we are — as I said, we’re actively in discussions with the PMDA. We feel it’s pretty important to complete those discussions and some partners who are actively in discussions with us and in the data room have asked us to do that. The PMDA process has a series of what they call informal meetings to assure some of the smaller questions we’re aligned on before you go to what’s called a formal consultation. That formal consultation is the only one that gets and then potential partners can get a really good understanding of what the development program might look like in Japan. So that — we have that meeting planned on the books for early in the first quarter of 2023. But in the meantime, we do have several potential partners who have been expressing interest to or asking questions that are reviewing data [indiscernible].
Evan Loh
We also understand, based upon some work that we have done, that there is also — there are also opportunities outside of Japan that include South Korea as well as Europe. As a reminder to the folks listening in on the call, is that we have been able to preserve market exclusivity in these most important markets to us, Japan as well as in Europe. And we believe that there is a total addressable market that is substantial. And we think that because of this rare disease unmet need that there’s opportunity in a rather typical orphan disease setting for us. And I think that based upon recent precedents, because of the rare disease situation or setting that there’s parity pricing opportunities in Japan as well as in Europe, which supports the way we look at the total addressable market.
Operator
[Operator Instructions]. We have no further questions over the phone.
Evan Loh
Thank you, operator. So just in closing, I’d like to say that Paratek continues to be well-positioned in building momentum for long-term growth. A successful launch always begins with the right product with the right attributes that patients need today. We have that product in NUZYRA, which is a life-saving, once-daily, broad-spectrum oral and IV antibiotic that has clinical value for physicians in every setting of care. Our team has always been committed to a disciplined focus on execution and delivering on future value creation through life cycle management. Thank you for your time and attention today. We look forward to keeping you apprised of our continued progress. Goodbye for now.
Operator
This concludes today’s call. Thank you for your participation. You may now disconnect.
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