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Paratek Pharmaceuticals Inc  (NASDAQ:PRTK)
Q4 2018 Earnings Conference Call
Feb. 27, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Paratek Pharmaceuticals Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Ben Strain, Executive Director, Investor Relations and Corporate Communications. Mr. Strain, you may begin.

Ben Strain -- Executive Director, Investor Relations and Corporate Communications

Good afternoon, and welcome to Paratek's fourth quarter and full-year 2018 earnings and corporate update conference call. A press release for the company's fourth quarter and full-year results was issued earlier today, and we have also posted slides on our website that will be referred to on this call. Both can be found at www. paratekpharma.com.

Participants on today's call are Michael Bigham, CEO and Chairman of the Board; Adam Woodrow, Chief Commercial Officer; Douglas Pagan, Chief Financial Officer; and Evan Loh, President, Chief Operating Officer and Chief Medical Officer, will be available for Q&A.

Before I turn the call over to Michael, 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 risk 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.

Michael?

Michael Bigham -- Chairman and Chief Executive Officer

Thank you, Ben. Good afternoon, and thank you all for joining our fourth quarter and full-year 2018 earnings call and corporate update.

2018 was a highly productive year for Paratek, and we are seeing this strong momentum continue into 2019. In October, as you are aware, the FDA approved NUZYRA for the treatment of adults with community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections in both once-daily oral and IV formulations.

We have subsequently launched NUZYRA in the US just earlier this month. The commercial launch of NUZYRA represents a significant milestone for Paratek, and exemplifies our commitment to provide physicians and patients with a new and differentiated therapeutic option in the fight against serious community-acquired infections.

While still early, the launch is progressing as planned. We have created a solid foundation for the launch of NUZYRA, including concerted efforts to secure institutional access, building a world-class antibiotic sales team and establishing a secure supply chain. In addition, our experienced medical affairs team continues to expand its interactions with the medical community. All of these activities share the common goal of providing physicians and patients with a positive experience with NUZYRA.

In addition to the launch earlier this month, the New England Journal of Medicine published detailed results from our OPTIC and OASIS-1 Phase 3 clinical trials of NUZYRA. We believe this publication in such a prestigious journal is an affirmation of the potential positive clinical role NUZYRA can play in supporting the battle against the growing health challenge of antibiotic resistance.

This noteworthy publication will also help to inform -- to further inform treatment decisions by physicians, as they are compelled to confront the growing number of serious often life-threatening community-acquired infections. Late last year, we filed two patent term extensions in the United States for NUZYRA. Through these two patent term extensions, we believe we have significantly lengthened the patent exclusivity for NUZYRA, such that we now have protection into at least October 2030 in the United States.

Given the significant long-term revenue potential for NUZYRA, we believe this added protection has the potential to further drive substantial long-term value for the benefit of all shareholders. We also continue to make important progress in the evaluation of the efficacy and safety of omadacycline to treat urinary tract infections. Urinary tract infections are one of the most commonly diagnosed bacterial infections.

Today, treating physicians are limited by a lack of broad spectrum well-tolerated once-daily oral antibiotics. There is a compelling rationale for the potential use of omadacycline to treat urinary tract infections based upon the high levels of the drug present in human urine, combined with its known in vitro activity against key UTI pathogens.

Our first Phase 2 study is actively enrolling patients to evaluate oral-only omadacycline in uncomplicated urinary tract infections. And in November, we dosed the first patient in a second Phase 2 study to evaluate the potential safety and efficacy of oral and intravenous omadacycline for the treatment of acute pyelonephritis, which is a common subset of complicated urinary tract infections. We look forward to providing top-line data from both studies in the second half of this year.

We have also had additional conversations with the FDA with respect to the CABP study design of our agreed upon post-marketing requirement. We anticipate providing an additional update on our next earnings call. Outside the US, our Marketing Authorization Application with the EU for omadacycline is under review, and we anticipate a decision in the second of 2019.

As a reminder, we are seeking approval in both community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections. We also took additional steps to further strengthen our balance sheet, with the recently announced royalty-backed loan agreement with Healthcare Royalty Partners, as it relates to our SEYSARA royalty under our agreement with Almirall, our partner in the US.

We believe the structure of this loan agreement allows us to extend our near-term cash runway beyond the first quarter of 2021, while also allowing us to participate in the potential upside from the long-term revenue opportunity for SEYSARA. As a reminder, Almirall launched SEYSARA in the US in January of this year. SEYSARA is a once-daily, oral, narrow spectrum tetracycline-derived antibiotic with anti-inflammatory properties for the treatment of moderate to severe acne in the community setting. We are entitled to receive tiered royalties at rates ranging from high single to low double digits of net US sales of SEYSARA and we retain all ex-US rights.

With that, I will now turn the call over to Adam. Adam?

Adam Woodrow -- Chief Commercial Officer

Thanks, Michael. As previously mentioned, earlier this month, we launched NUZYRA in the United States, a significant achievement for Paratek. While still early in the launch, we are pleased with the progress thus far. NUZYRA had the opportunity to fulfill an important unmet medical need in the marketplace, as the first, once-daily, oral and IV antibiotic in nearly 20 years, with a broad label to treat both CABP and skin infections.

We believe the market is underserved. And to-date, it has been receptive to a new safe and effective treatment option, particularly one with convenient oral and IV options that could potentially minimize hospital stays. NUZYRA provides an alternative option when resistant pathogens are suspected, and can effectively address the patients that may not be appropriately treated by the existing generic options.

Aside from suspected resistant pathogens, other reasons of generic option might not be suitable, include a patient with a beta-lactam allergy or one with renal or hepatic impairment, or quite simply, the physician has safety concerns with the generic option. A good example of this would be the ever-expanding warnings associated with criminal use. Our primary goal early in the launch phase is ensuring that physicians and patients have a positive experience with NUZYRA. We continue to devote significant efforts on this front.

We have all our agreements in place with the NUZYRA supply chain, which includes major distributors like McKesson, AmerisourceBergen, sometimes called ASD and Cardinal. In addition, through CVS, Option Care, Walgreens and Panther, we can confirm NUZYRA can now be found in approximately 300-plus retail locations across the United States, enabling seamless access to the oral therapy.

Distributors of NUZYRA provide a suite of services, which include assisting with the transition of patients from hospital to home on either the oral or the IV therapy, providing clinical management, patient education and also adherence monitoring. In addition, our distributors provide comprehensive pharmacy and medical benefit coverage assistance. We believe that these considerable efforts will facilitate both the near-term and long-term adoption of the NUZYRA as a new effective treatment option for serious community-acquired bacterial infections.

Success for NUZYRA starts in the hospital, with the potential for an even larger opportunity in the community market beyond year two. In our initial effort, over the first year of launch, we will be focused on the early adopting hospital specialists such as the IV doctors and pulmonologists within the identified 800 to 850 key US hospitals.

We have launched NUZYRA with 40 hospital representatives targeting these early adopting healthcare professionals in the identified key hospitals. Our goal is to expand the team to approximately 80 by the end of 2019.

In concert with the launch, we are also providing additional tools that will provide comfort and certainty within the decision-making matrix that physicians use when prescribing antibiotics. This includes antimicrobial susceptibility tests or ASTs, and the KEYSTONE Surveillance Program. ASTs are used by physicians to determine the likely effectiveness of antibiotics against specific bacterial pathogens and serve as a key component in prescribing the appropriate antibiotic to treat a specific infection.

To date, three ASTs have already been cleared by the FDA and are commercially available for use with NUZYRA. We have also partnered with JMI Laboratories to develop a comprehensive initiative called KEYSTONE that provides access to current antimicrobial surveillance susceptibility data, including NUZYRA. KEYSTONE is designed to play an essential role in monitoring the prevalence of antimicrobial resistance in the United States over time.

As we mentioned last quarter, we will be focused on gaining institutional access for NUZYRA. These hurdles include navigating drug utilization committees, formulary committees and the recent mandates to have stewardship committees. While the sales force have only been in the field for less than a month, early indicators remain on track and we expect to achieve our targets for covered lives and institutional access.

It is customary with new antibiotics for hospitals to pursue a trial and adoption approach, and we are beginning to see this play out in the marketplace. While still early in the launch, we continue to see significant long-term commercial potential for NUZYRA, given its competitive attributes, broad label and its ability to be used in every setting of care based on its ease-of-use characteristics and once-daily oral and IV formulations.

We look forward to providing quarterly updates on our progress in the months ahead as the launch progresses.

And with that, I'll now turn the call over to Doug.

Douglas W. Pagan -- Chief Financial Officer

Thank you, Adam. For the fourth quarter of 2018, Paratek reported a net loss of $22.8 million compared to $21.9 million for the same period in 2017. For full-year 2018, Paratek reported a net loss of $112.4 million, compared to $89.1 million for the same period in 2017.

The company recorded $17.1 million in revenue for full-year 2018, compared with $12.6 million for 2017. 2018 revenue was driven primarily by two milestone payments related, respectively, to NUZYRA and SEYSARA regulatory approvals. Research and development expenses were $11.8 million and $57.5 million for the fourth quarter and full-year 2018, respectively, compared to $14.2 million and $60.1 million for the same period in 2017.

The modest decrease for both periods was driven primarily by lower clinical study costs, offset by higher costs associated with headcount, including stock-based compensation expense, manufacturing of omadacycline and those associated with additional regulatory activities.

General and administrative expenses were $25.3 million and $63.7 million for the fourth quarter and full-year 2018, respectively, compared to $11.7 million and $37.0 million for the same periods in 2017. The increase in general and administrative expenses for both periods was driven by higher compensation-related costs associated with increased headcount, including stock-based compensation expense as well as higher spend related to the US launch of NUZYRA.

We ended the year with $292.8 million in cash, cash equivalents and marketable securities and $229 million in debt. Based upon our current operating plans, we believe that our cash resources, together with the proceeds from the recently announced $32.5 million royalty-backed loan agreement with Healthcare Royalty Partners, will enable us to fund our expenditures beyond the first quarter of 2021.

Before I hand the call back over to Michael, I would like to reiterate the 2019 guidance we provided earlier in this year. We continue to expect 2019 NUZYRA net product revenues to be between $10 million and $13 million, and we'll expect to provide an update to the annual guidance this summer during our earnings call following the second quarter.

With that, I'll turn the call back over to Michael for his closing comments.

Michael Bigham -- Chairman and Chief Executive Officer

Thank you, Doug. In closing, our primary focus today as a company is on launching NUZYRA in the United States, gaining institutional access and ensuring that physicians and patients have a positive experience with NUZYRA. We look forward to providing regular updates on our commercial progress through our quarterly earnings calls. We will remain disciplined from an OpEx perspective, as well as continue to make judicious investments in the most promising potential new indications for NUZYRA.

We have identified several compelling life-cycle opportunities for NUZYRA, including UTI, our ongoing work with the Department of Defense and then oral-only indications for CABP. These activities have the potential to benefit patients in need, as well as to further drive long-term value for the benefit of our shareholders.

And with that, we will open the floor to questions.

Questions and Answers:

Operator

At this time, we'll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Adnan Butt, Guggenheim Securities. Please proceed with your question.

Adnan Butt -- Guggenheim Securities -- Analyst

Thanks. And first, congrats on getting the New England Journal Publication. I'll have two just on the financial side. First, in terms of the burn guidance of the cash runway, what level of cap spending does it anticipate and are there developments for OMC that could make you updated?

And then, second, on the royalty debt agreement for SEYSARA, could you go through the mechanics of how that will work? Will you be recognizing royalties? How much of that will be committed to the payback? Thanks.

Douglas W. Pagan -- Chief Financial Officer

Yeah. Thanks, Adnan. This is Doug. Great question. So, thank you. So the pneumonia spending, what we've talked about in the past and continued to include in our burn, our study is a study at similar sized to what we did for our Phase 3. I think the specifics and the duration of that study or studies, if they're broken up, will still -- are still to come and through consultation with FDA, which will happen later this quarter. And we will be prepared to speak a little bit more about that next quarter. So, it's still inclusive of everything we expect to spend on the PMR.

On the SEYSARA royalty, so let me talk about how that will work. The company will collect the royalty payments from Almirall. We will book those as revenue. In turn, we will pay 100% of the proceeds, the cash proceeds that come in to Healthcare Royalty to pay down the interest expense first for the quarter, and then any residual amounts beyond that quarter's interest will reduce the principal. And that will happen continuously until the loan balance of $32.5 million is paid down debt. And I should say that using Almirall's guided peak revenue numbers of $150 million to $200 million, we expect that payoff to happen in four to five years.

Moreover, after that loan is paid in full, the obligation ceases, the royalties continue to come to Paratek and we will have them in our -- we'll have the benefit of those, at which time we can keep them and continue to drop that value to the bottom line, and/or consider options for refinancing in the future with those cash flow streams, which should at that time be more certain and in general, lower cost of capital.

Does that help on that?

Operator

Our next question comes from Dewey Steadman, Canaccord Genuity. Please proceed with your question.

Dewey Steadman -- Canaccord Genuity -- Analyst

Hi. Thanks for taking the questions. I guess, for Adam, what initial feedback are you getting from prescribers on NUZYRA? And what's the profile of the patient, sort of the bleeding-edge patient that is getting NUZYRA therapy at this point?

Adam Woodrow -- Chief Commercial Officer

So, patient -- I'll start with the patient profiles. The patient profiles where NUZYRA is obviously an option in pneumonia space patient that have penicillin allergy. Patients that can't take, for whatever reason, a quinolone or obviously, a patient has got a history or has some risk factors for Clostridium difficile because the tetracyclines are low propensity to induce that.

In addition, patients in the skin side are predominantly patients that have got renal or hepatic impairment or multiple medications. As regards to feedback, most of the feedback we're working through at the moment is around formularies and institutional access, and we've not seen anything that's unexpected. It's actually very much in line with what we were anticipating.

Operator

Our next question comes from Jason Gerberry, Bank of America. Please proceed with your question.

Chi Fong -- Bank of America Merrill Lynch -- Analyst

Hi. Good evening, everybody. This is Chi on for Jason. Thanks for taking up the questions. Just maybe a few on the patent term extensions. Can you talk about what the expected timing on when these would be granted? Maybe provide some granularity on what type of patents these are and whether they apply to both the oral and the injectable formulations? Thank you.

Evan Loh -- President, Chief Operating Officer and Chief Medical Officer

Hi, Chi. It's Evan. These were -- because we had two NDAs, one IV and oral that were approved on the same day. Paratek had the opportunity to extend a second patent. And when we look at the second patent that we had on our slide, it was a key method of used patent that has the extension out to October of 2030.

Operator

Our next question comes from Mike Ulz, Baird. Please proceed with your question.

Michael Ulz -- Robert W. Baird & Co. -- Analyst

Hey, guys. Thanks for taking the question. Maybe just a quick one for Adam here with respect to formulary access. Maybe you can provide some color there in terms of the progress you're making and if there's anything unusually you're seeing there that you hadn't expected previously? Thanks.

Adam Woodrow -- Chief Commercial Officer

The simple answer to that is not seeing anything unusual. As you could imagine, this is a process that you have to follow. It's not just about formulary access, as I've tried to sort of explain in the past. It's as much about institutional access. There were times when you may not even be on formulary and you're still going to get used.

But you do need in some cases to be on formulary before you can be used and we're seeing all of those examples. And as I said before, there's nothing really that's come along that's been unexpected in terms of where we are. I'll be providing a lot more detail on the next quarterly call.

Michael Ulz -- Robert W. Baird & Co. -- Analyst

Great. Thanks.

Operator

Our next question comes from Ami Fadia, SVB Leerink. Please proceed with your question.

Sheldon Fan -- SVB Leerink LLC -- Analyst

This is Sheldon on for Ami. I have two questions. Can you talk about your thoughts around the potential for changing the economic incentives for antibiotic developments? What initiatives are currently under way? And what type of changes would you consider game changing in the field?

And my second question is regarding the ramp of NUZYRA in the US. What leading indicators should we be watching forward to get more visibility into those ramps? Thanks.

Evan Loh -- President, Chief Operating Officer and Chief Medical Officer

Hi. It's Evan. Thank you for the questions. I'll take the first one and I'll leave the leading indicators on to Adam. As you know, there continues to be a lot of work that the antimicrobial working group as well as others are doing on Capitol Hill. But also we are partnering with discussions specific with HHS, as well as CMS to look at opportunities for potentially a DRG carve-out. But in addition to that, as you know that the DISARM Act was actually put forth as a bill between a bipartisan bill between Senator Bob Casey and Orrin Hatch at the end of last year.

That bill, because of the events on Capitol Hill, that bill was not brought forward, but we just actually received a note today from Senator Casey that he remains committed to actually filing that again and DISARM Act again and DISARM, to be specific is really very similar to the ERG carve-out in the sense that it is actually providing for a separate payment scheme specifically for antibiotics in the hospital setting. So, we'd be very excited about that, and I do think that will be very helpful momentum for the sector.

Adam?

Adam Woodrow -- Chief Commercial Officer

I mean, fundamentally, there were two main key performance metrics that we are going be looking at and we will be sharing with the -- with you going forward. The first is covered lives. We obviously have a product that's available in the managed markets, and we are going to be very closely monitoring reimbursement. And we've got certain objectives that we shared in the past, getting 33% of those covered lives in the first three months and then 66% before they enter at 12 months.

And then institutional access, as I mentioned before, in the targeted institutions, they will be going to. And just to remind everybody what institutional access is, that's where the drugs either on formulary or has been purchased by a hospital, or they have a policy in place that enables a specialty or a group of doctors to use NUZYRA.

Operator

Our next question comes from Michael Higgins, Ladenburg Thalmann. Please proceed with your question.

Michael Higgins -- Ladenburg Thalmann & Co. -- Analyst

Thank you for taking the questions, guys. Just to follow up on the early feedback from the CEO. So, nothing unusual from the CMC guys. Any adjustments to the pitch that you've come out the door with, as your reps are reaching there, the target audience goes back? Or is the reception been in line with the expectation? And then just looking ahead to 2020, what might be that size of the sales force needed? I think we're a bit early here but just a broad range would be helpful. Thanks.

Evan Loh -- President, Chief Operating Officer and Chief Medical Officer

So, in terms of adjustments to the pitch, no. It's very much in line with expectations. We're really quite pleased with the fact that we don't seem to have missed any thing through the research in terms of our approach. There's some minor tweaks here or there. We do find it beneficial to start with the discussion and actually have, physically, the oral in front of the physicians because as they are used to only seeing IVs, they forget that there's oral anti-infectives out there and immediately that makes the tone different.

In terms of 2020 and the size of the sales force, well, first off, we want to make sure that we're going to plan and that everything goes the way that we are expecting from a sort of sales trajectory. And that's why the plan for us is, if everything works well, we will continue with our expansion to get to 80 before the end of the year and that has been done to actually make sure that we can hit the flu season of 2019. It's too early to really comment on where we're going to go from there on.

Operator

Our next question comes from Ed Arce, H.C. Wainwright. Please proceed with your question.

Thomas Yip -- H.C. Wainwright & Co. -- Analyst

Hey, guys. This is actually Thomas Yip for Ed. Thanks for taking the question. Just have a quick one related to the Healthcare Royalty. So, what happens if the royalty is higher than the interest for that period? Do you have the option to delay the paydown of principal? And what happens if the royalty is lower than interest in any specific periods? Thanks.

Douglas W. Pagan -- Chief Financial Officer

Yeah. Thank you for the clarifying question. So the answer to the first is simple, is no, there's no option to defer payment. So, as the payment exceeds the interest payment, it immediately funds the royalty. If the royalty payment is low -- sorry, if the royalty payment is below the interest level, there will be a set aside in the early periods but thereafter, it will be 100% of whatever payment comes in will serve set (ph). So the interest will just roll over.

I should hasten to add that this loan is backed only and solely by the royalties of SEYSARA and is not recourse to the parent. You'll see when the contract is issued or posted on our SEC filings, it's in a special purpose subsidiary. So, this will not impact the (inaudible) or borrower of the parent company.

Operator

We have reached the end of the question-and-answer session. And I would like to turn the call over to Michael Bigham for closing remarks.

Michael Bigham -- Chairman and Chief Executive Officer

Thank you. As there are no more questions, we will conclude today's call with a very brief closing comment. Specifically, to thank you all again for our time and attention today and to say that your continued interest in NUZYRA and Paratek are very important to us.

We very much appreciate your support, and we recognize that this journey would not be possible without your support. Thank you. And we look forward to keeping you apprised of our continued progress. Goodbye for now.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 29 minutes

Call participants:

Ben Strain -- Executive Director, Investor Relations and Corporate Communications

Michael Bigham -- Chairman and Chief Executive Officer

Adam Woodrow -- Chief Commercial Officer

Douglas W. Pagan -- Chief Financial Officer

Adnan Butt -- Guggenheim Securities -- Analyst

Dewey Steadman -- Canaccord Genuity -- Analyst

Chi Fong -- Bank of America Merrill Lynch -- Analyst

Evan Loh -- President, Chief Operating Officer and Chief Medical Officer

Michael Ulz -- Robert W. Baird & Co. -- Analyst

Sheldon Fan -- SVB Leerink LLC -- Analyst

Michael Higgins -- Ladenburg Thalmann & Co. -- Analyst

Thomas Yip -- H.C. Wainwright & Co. -- Analyst

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