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Tetraphase Pharmaceuticals Inc (NASDAQ:TTPH)
Q2 2019 Earnings Call
Aug 8, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Tetraphase Pharmaceuticals Second Quarter 2019 Financial Results Conference Call. [Operator Instructions]

I will now turn the call over to Maria Stahl, Chief Business Officer.

Maria Stahl -- Chief Business Officer

Thank you. Good afternoon, and thank you for joining us today. With me on the call are Larry Edwards, President and CEO; and Chris Watt, Senior Vice President of Finance. On today's call, Larry will discuss recent developments and will provide an update on the XERAVA launch. Chris will provide an overview on our second quarter 2019 financial results. And Larry will conclude and open the call to questions.

Before we begin our formal comments, let me remind you that during today's conference call, we will be making forward-looking statements that represent the Company's intentions, expectations or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's press release and the Company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. Information discussed on today's call is accurate as of today, and we do not necessarily intend to update this information in the future.

I would now like to turn the call over to Larry Edwards.

Larry Edwards -- President and Chief Executive Officer

Thank you, Maria, and good afternoon, everyone. Thank you for joining us on our call today. It's an honor to be leading Tetraphase at such a critical time, and to be addressing our shareholders publicly for the first time as a Company's newly appointed CEO. With our new streamlined commercial focus, the Board of Directors and my predecessor Guy Macdonald, recently made the decision to appoint me to President and CEO, effective August 1. It's a privilege to be leading the Company and working with such a driven team, and I'm committed to delivering on our mission to make XERAVA accessible to patients on a global level.

As you know, the second quarter was an important one for Tetraphase, as we made critical decision to undertake a corporate reorganization aimed to maximize the commercial opportunity of XERAVA. XERAVA is a well differentiated antibiotic that has a broad spectrum of coverage, and has a very reasonable and appropriate price point. As antibiotic resistance rate continued to increase and inappropriate initial empiric therapy continued to be a problem, we expect XERAVA to become an increasingly important component of the antibiotic treatment arsenal for complicated intra-abdominal infection. With our newly focused organization, we believe we can continue to execute a successful launch, which remains our number one priority.

Before we dive into an update on XERAVA launch, I'd like to briefly reiterate some of the details of our recent reorganization, which we implemented back in June. The goal was to enable the Company to focus all of its resources on the commercial success of XERAVA, and it was comprised of the elimination of our internal resource functions, as well as 20% reduction in the workforce and several management changes.

Once again, we would like to recognize that Tetraphase owes many of its innovations, including the discovery of XERAVA, TP-271, TP-6076, TP-2846 to its foundational chemistry platform. And we thank all the current and former employees for their dedication and commitment over the years. We are now exploring out [Indecipherable] opportunities for our innovative early stage antibiotics and oncology portfolio. While we focus our efforts on XERAVA, we continue to believe in the potential of these assets, including TP-2846, which generated compelling early preclinical data for potential use at the treatment for acute myeloid leukemia and potential solid tumors. We look forward to ongoing strategic discussions to find the best partner to further develop these compounds.

Turning to a commercial update for XERAVA, I'm pleased to say that our sales force continues to make significant progress with prescribing physicians across the U.S. In the second quarter, XERAVA's net revenues grew 133% from first quarter of 2019, to over $800,000, which demonstrates a consistent doubling of revenues quarter-over-quarter. We're encouraged by the steady growth and the positive feedback we continue to receive from healthcare providers, who not only value the clinical benefits of XERAVA, but also appreciate our appropriate empiric pricing strategy.

Many physicians applaud XERAVA's broad label and high clinical cure rates in patients with MDR pathogens, including ESBLs, Acinetobacter, MRSA, VRE and polymicrobial infections. Physicians also feel the ability to use XERAVA in patients with penicillin and beta-lactam allergies is a critical advantage, while others believe the minimal risk of clostridium difficile developing in patients treated with XERAVA is a major asset. Most physicians believe that XERAVA is a logical alternative to beta-lactams for patients with complicated intra-abdominal infections.

Our launch execution strategy, as we've outlined in previous quarters is comprised of two phases. The first was targeting Tier 1 accounts, which are the highest institutional users of antibiotics defined by days of therapy and represent approximately 60% of the gram-negative market. And the second is focusing on Tier 2 accounts, which constitutes approximately 30% of the gram-negative market. We accomplished our goal of reaching Tier 1 accounts during the first quarter of launch, and all Tier 2 accounts by the end of first quarter of 2019. So with this breadth of coverage, we continue to see impressive reorder rates of greater than 50% for XERAVA, as of the end of the second quarter, with reorder rates being as high as 65% within our Tier 1 accounts segment.

This scope of coverage and continued frequent engagement with top-tier accounts delivered impressive new customer growth, which equated to about 20% month-over-month growth during the second quarter, with over a 150 new customer ordering in the second quarter. The recent growth of our customer base combined with high reorder rates signal a shift from steady progress to increased traction. Our goal now is to continue to expanding our customer base and maintain progress with returning customers.

Securing inclusion of hospital formulary is another significant component of our launch strategy. We have a 99.7% formulary acceptance rate at our key target institutions. We're also pleased to report that the second quarter of 2019 had the most Tier 1 and Tier 2 formulary wins to-date, and more impressively, we surpassed the goal of being available at 400 institutions by midyear. XERAVA is now available at more than 500 institutions, and there are approximately 300 formulary reviews pending or planning to take place by end of fourth quarter.

We believe some of the success is due to adding a team of three strategic market access executives to help and drive formulary acceptance at the C level, as well as key integrated delivery networks and larger infusion centers, while our regional business directors and regional account managers continue to focus on the ground level with ID physicians, clinical pharmacists, critical care intensivists, hospitalists and surgeons.

To give you an idea of the initial XERAVA usage by formulary status, as of the end of second quarter, 19% of our sales came from off-formulary accounts, 25% from pending formulary review accounts, and then 56% from formulary -- on-formulary and available with our without restriction. The proportion of our sales is steadily trending more toward accounts that have XERAVA secured on formulary. Our goal is to continue to generate demand for XERAVA, pull through formulary wins and bring on new accounts.

During the second quarter, XERAVA usage has been the strongest in the in-patient setting, which was responsible for 64% of our sales, while the home health setting is responsible for 25%. Beyond the in-patient and the home health setting, long-term care facilities and clinics drove approximately 11% of our growth. We continue to see XERAVA being used as a replacement for carbapenems and other beta-lactams in area where resistance is high. And in multiple other cases XERAVA is being used for patients who have penicillin allergies, or who have additional co-morbidities. We also note that XERAVA does not require dose adjustment for renal impairment, which is being recognized as a key factor for usage by physicians since many ICU and [Indecipherable] patients have renal insufficiencies.

In terms of patient usage, through 37 weeks of launch, XERAVA has accumulated anywhere from 3 to 10 times more patient days of therapy, as well as more units sold than any recent IV hospital antibiotic launch. Behind the increased adoption of XERAVA is a dedicated -- is the dedication and persistence of our tenured field sales force that continue to focus on Tier 1 and Tier 2 institutions, as well as key infusion centers, educating healthcare professionals, and providing tools that show the benefits of XERAVA for patients.

An important point I'd like to draw your attention to is, just this week, the U.S. government agency Centers for Medicare and Medicaid Services, or CMS announced several significant changes to hospital antibiotic reimbursement effective October 1, 2019. The change is a part of a rule known as the inpatient prospective payment system full year 2020 final rule, which should help level the playing field, so that clinicians can choose the most appropriate antibiotics for their hospitalized patients without fear of putting the hospital's finances. And we hope it'll be an additional incentive for clinicians to consider XERAVA when treating patients.

There is a clear unmet need for non-beta lactam agents that can cover resistant pathogens and potentially improve patient outcomes. Greater than 80% of antibiotics used to treat complicated intra-abdominal infections are beta-lactams, and resistance continues to increase due to selective pressures put on this class. With XERAVA, healthcare professionals now have another option.

We believe the launch is trending in the right direction from formulary acceptances to formulary review schedule, to reorder rates, to patient days of therapy, all continue to be on an upward trajectory. With an anticipated revenue to mirror this trajectory, as additional formularies are secured, and as our sales force converts physician engagement into XERAVA usage. Based on the directional indicators thus far, we believe our strategy of targeting empiric usage for XERAVA is working, but it will continue to take time. We look forward to continuing to update you as the launch progresses.

With that, I'll turn the call over to Chris to go through the financials in more detail.

Christopher Watt -- Senior Vice President, Finance

Thanks, Larry. As of June 30, 2019, Tetraphase had cash and cash equivalents of $71 million and 54.3 million shares outstanding. The Company expects that its cash and cash equivalents, as well as expected revenue will be sufficient to fund operations into the middle of the third quarter of 2020. As Larry mentioned, a reduction in force was supplemented as part of our recent corporate reorganization, and this along with our other cost saving efforts will result in an approximate $8.2 million reduction in net cash required for operating activities on an annualized basis. We've substantially completed the reorganization and will incur approximately $2.4 million of pre-tax charges for severance and other costs.

Another cost saving item worth noting from Q2 is that we also received approval for the supplemental new drug application from the FDA for our new manufacturing facility for XERAVA in Greenville, South Carolina, underscoring our commitment to XERAVA, increasing our manufacturing capabilities and reducing our cost of goods.

For the second quarter of 2019, Tetraphase reported a net loss of $22.9 million, or $0.42 per share compared to a net loss of $9.5 million, or $0.18 per share for the same period in 2018. Total revenues were $1 million for the second quarter of 2019, compared to $11.6 million for the same period in 2018. Total revenues for the second quarter of 2019 consisted of XERAVA product revenue of $0.8 million, as well as government contract revenue of $0.2 million. The decrease in total revenues for the second quarter of 2019 compared to the same prior year period was primarily due to both a decrease in revenue from our collaboration with Everest Medicines, and government revenue, offset in part by XERAVA revenue.

Research and development or R&D expenses for the second quarter of 2019, were $8.1 million compared to $14.4 million for the same period in 2018. The decrease in R&D expenses for the second quarter compared to the same prior year period was primarily due to a decrease in activity across all of our pipeline programs versus the prior year, and lower license and milestone payments to Harvard University versus those that occurred in the second quarter of 2018.

Selling, general and administrative or SG&A expenses for the second quarter of 2019, were $15.1 million compared to $7.2 million for the same period in 2018. This increase in SG&A expenses for the second quarter compared to the same prior year period was primarily due to an increase in commercial related expenses for XERAVA. Additional details on our financial performance for the second quarter may be found in our press release issued earlier today.

I'll now turn the call back over to Larry for closing remarks.

Larry Edwards -- President and Chief Executive Officer

Thanks, Chris. So in closing, we're pleased to see the key XERAVA launch metrics continue to trend in the right direction. And with the recent reorganization, we know we have the right structure and strategy in place to enable a successful commercial launch of XERAVA. As I mentioned in the beginning of the call, there is a clear unmet need and a significant market opportunity for XERAVA. We are all working diligently to reach the goal of bringing this important new antibiotic to the patients in need. We're grateful for your support, and look forward to providing future updates.

With that, we can now turn the call over for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Ed Arce from H.C. Wainwright. Your line is open.

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

Hello, everyone. This is Thomas Yip, asking a couple of questions for Ed. So first, regarding the 154 new ordering customers in second quarter, approximately what percentage of growth that they represent from 1Q '19 numbers?

Larry Edwards -- President and Chief Executive Officer

Percent of growth is probably about 40% of our growth, so we still have very high reorder rates. So we continue to have the -- reorder rates higher than 50%, so that's still driving a lot of the growth that we have in the product.

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

Okay. Thanks. Thanks for the color. And then speaking of the reorder rate among the 50% customers who reorder, approximately what portion had reorder more than once?

Larry Edwards -- President and Chief Executive Officer

So the question is, how many of the reorder rates are more than once?

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

Yes.

Larry Edwards -- President and Chief Executive Officer

Yes. So the vast majority of what we see are most institutions are ordering anywhere from 3 to 5 times, and they go all the way out to on a weekly basis. So typically what we're finding is, once a hospital orders, we continue to have -- as I mentioned with our Tier 1, which are the larger institutions, have a 65% reorder rate. So we're finding with the larger institutions, once they start using it, they continue to use it.

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

Okay, that sounds good. And then regarding the new formulary reviews for the rest of the year, can you go over what are some of the major factors that can drive success in those reviews?

Larry Edwards -- President and Chief Executive Officer

I think a lot of it is -- the ones that typically now that we're 37 plus weeks out, you know, what, some of the driving probably important behind those are ones that want to see usage. So they're not the early adopters, so they want to what hospitals in the area have added at the formulary. So I think some of it is pull through and some of the ones we currently have formulary on, also some of it is testing and validation. So now that we have multiple option from a testing perspective, that's a key piece.

And I think lastly then probably one of the key pieces is getting things integrated into the physician ordering system. So a lot of them -- once they add something to formulary, they also then have to add it into dependent upon what their CPOE is. It could be Cerner, Epic, whatever. That's another key piece of ensuring addition to formulary, but really after the formulary pull through.

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

Okay. That makes a lot of sense. Thank you again for taking all the questions. And congratulations on the progress whatsoever.

Larry Edwards -- President and Chief Executive Officer

Thank you. Appreciate it.

Operator

[Operator Instructions] I'm showing no further questions at this time. [Operator Closing Remarks]

Duration: 18 minutes

Call participants:

Maria Stahl -- Chief Business Officer

Larry Edwards -- President and Chief Executive Officer

Christopher Watt -- Senior Vice President, Finance

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

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