Paratek Pharmaceuticals (PRTK) Q2 2022 Earnings Call Transcript

Paratek Pharmaceuticals (PRTK)
Q2 2022 Earnings Call
Aug 03, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Paratek Pharmaceuticals second quarter 2020 earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sarah Higgins, vice president, finance and principal accounting officer. Please go ahead.

Sarah Higgins -- Vice President, Finance and Principal Accounting Officer

Good afternoon, and welcome to Paratek's second quarter 2022 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, M.D., 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 -- Chief Executive Officer

Thank you, Sarah. Good afternoon, and thank you all for joining our second quarter 2022 earnings and corporate update call. The strength and continued growth of Paratek's core commercial business in the second 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, proven clinical efficacy against resistant pathogens in two approved indications, and a favorable safety and tolerability profile.

Our U.S. commercial launch performance continues to differentiate NUZYRA as one of the most successful IV oral antibiotics launched in the last decade. Having both formulations enables NUZYRA to have clinical utility in every setting of care. Strong demand, coupled with disciplined execution, resulted in a significant year-over-year second quarter growth in NUZYRA's core commercial business.

This momentum is being driven by our ongoing expansion in the community setting, improved access to physicians in both the hospital and community, a growing number of successful formulary reviews and a significant increase in NUZYRA prescription access. Net sales from our core NUZYRA commercial business increased from approximately $14.9 million in the second quarter of 2021 to $25.1 million this past quarter, which represents a 68% year-over-year growth. As you'll hear from Adam, this growth in net sales continues to be driven by strong demand for NUZYRA. Importantly, as you can see on the right side of this slide, NUZYRA's trailing 12-month core commercial revenue performance continues to demonstrate a consistent and significant upward growth trajectory that we expect to continue through the balance of this year.

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. Second, nontuberculous mycobacteria disease, or NTM, represents a promising future growth opportunity in the orphan disease space.

NTM of the M. abscessus subtype is a rare disease with currently no approved therapies. In the U.S. alone, Paratek estimates that NTM abscessus represents a potential $1 billion addressable market opportunity.

We believe that the ongoing data generation and the results from the Phase 2b study will provide the potential to support future NTM treatment guideline inclusion and/or NUZYRA label changes. Third, U.S. government opportunities. We believe that NUZYRA's broad utility against antimicrobial resistance, wound infections and bioterrorism 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. Now I would like to review Paratek's second quarter 2022 financial highlights. Total revenue for the second quarter of 2022 was $29.6 million, compared to $19.6 million for the same period in the prior year when excluding the first procurement of NUZYRA under the BARDA contract of $37.9 million.

Revenue in the second quarter of 2022 was comprised of $25.1 million in net U.S. sales from the NUZYRA core business, a 68% increase from $14.9 million for the same period in the prior year, $4 million in revenue earned under the BARDA contract, and $0.6 million in royalty revenue. Research and development expenses were $7.6 million for the second quarter of 2022, compared to $6.5 million for the same period in the prior year. This increase was primarily due to costs incurred for drug manufacturing and other nonclinical studies.

Selling, general and administrative expenses were $30.3 million for the second quarter of 2022, compared to $27.1 million for the same period in the prior year. This increase was primarily the result of costs incurred for the NUZYRA community expansion. Paratek reported a net loss of $17.6 million or $0.33 per share and net income of $9.7 million or $0.20 per share for the second quarter of 2022 and 2021, respectively. Paratek ended the quarter with $69.4 million in cash, cash equivalents and marketable securities.

Based on 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 -- President and Chief Commercial Officer

Thanks, Evan. The commercial launch of NUZYRA in both the hospital and community settings continues to progress according to plan. As Evan noted earlier, strong demand and disciplined execution has resulted in impressive year-over-year growth in NUZYRA's core commercial business as evidenced by the 68% year-over-year increase in net sales. Gross demand, a leading indicator of net sales, also increased by 64% during the same period, furthering our expectation and confidence in continued commercial growth through the second half of this year.

NUZYRA's accelerated growth in the second quarter can be attributed to several factors. Environmentally, we saw a reduction in both the number and severity of Omicron cases, which in turn led to an increase in physical access for face-to-face promotion in both the primary care and outpatient office-based settings when compared to the prior quarter. In addition, we have seen several hospitals open their doors to sales representatives in terms of physical access. Further, we are seeing a resumption in formulary reviews and stewardship committee meetings, resulting in additional NUZYRA access and availability in certain hospitals.

These activities are another important leading indicator that hospitals are starting to resume business as usual as these meetings were largely put on hold throughout 2020 and 2021. Notably, we expect to see continued improvement in the field forces physical access to hospitals, combined with more NUZYRA access and availability through increased formulary and stewardship reviews as we go through the year. Our focus in the hospitals continues to be on IV physicians who care for patients with known or suspected resistant pathogens who also have a complicating comorbidity. We know that the oral formulation of NUZYRA enabling early discharge is valued by both patients and for physicians.

In addition to the cost savings realized by the healthcare 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. Recent formulary agreements have also improved NUZYRA prescription access in the community setting, which has provided additional momentum for the community salesforce. For example, NUZYRA was recently added to three national Medicare formularies, which significantly increased the number of nationwide covered Medicare beneficiaries to nearly 60%. NUZYRA is now one of the most accessible branded oral antibiotics on the market with limited or no restrictions across both commercially insured and Medicare patient populations.

This excellent payer access, along with our co-pay and patient assistance programs, enables us to fill almost 95% of all written prescriptions. NUZYRA is a once daily oral and IV formulation with two indications, excellent payer access, and as such, is used in every setting of care. For these reasons, NUZYRA has set itself apart from other recent branded IV oral competitive launches. Further contributing to the strong year-over-year growth seen in the second quarter was the strategic decision to focus on a skin first detail in the community market late in the first quarter due to the lack of a traditional flu season.

This strategic shift in combination with refining our targeting approach has driven continued prescription growth in the community setting. In the community, we concentrate on high-decile prescribing podiatrists, primary care physicians and a select number of dermatologists. Our value is in keeping patients out of the hospital by using oral NUZYRA in those patients with a known or suspected drug-resistant pathogen and a significant comorbidity such as renal impairment or diabetes. As you can see from this slide, based upon these targeted marketing efforts and ever-improving payer access, we anticipate that the community prescription data therapy generated by the primary care field force will exceed those generated from the hospital field force toward the end of 2023.

Looking at our commercial performance to date, combined with our historical trends, we believe the second half of the year will remain strong with significant growth throughout the balance of this year. In the community, as I noted in the last quarter, we have begun to expand our community salesforce by adding a total of 35 to 40 representatives this year. This is based on favorable market access and productivity potential. Most of these are brand-new territories.

In a small number, we added an additional representative to an existing geography. We are pleased to say we now have approximately half of these expansion representatives already onboard with the remainder on schedule to be in the field by Q4. Our focus remains on 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'll now turn the call over to Randy.

Randy Brenner -- Chief Development and Regulatory Officer

Thanks, Adam. Consistent with our strategic priority to ensure the success of the community expansion just described by Adam, the Medical Affairs Team continues to expand its scientific reach into the community. First, we have successfully hired and onboarded all of the planned 2022 community-based medical science liaisons, or MSLs, who will engage in scientific exchange with community healthcare providers focusing on resistance patterns and challenges with today's skin and pneumonia patients, including limitations with the current treatment options. The new MSLs, as seen on this map, entered the field in early July and are geographically placed to complement the commercial community expansion.

Second, we are expanding education and scientific exchange to reach community practices through community-focused scientific meetings, journals and medical education. Notably, a supplement to the Journal of Family Practice was published in June and delivered to over 100,000 primary care and family medicine providers. The supplement is also available electronically and the link can be found in our press release. With regard to the BARDA program, together with BARDA, we continue to execute on all deliverables under the contract.

We are in the final stages of preparatory activities for the initiation of the pilot efficacy study in rabbits, with topline data from this study expected by the end of the year. As previously mentioned, BARDA's receipt of positive topline data from this study will trigger the process for the purchase of our second NUZYRA procurement valued at approximately $38 million. The U.S. onshoring program continues to progress with some key milestones in 2022.

Notably, the onshoring of the tablet manufacturing and validation are complete with commercially available U.S.-based NUZYRA tablets anticipated in the second half of this year. Amid rising international turmoil and a global pandemic, a U.S.-based supply chain for a commercially available antibiotic is particularly important. Finally, the BARDA-funded FDA post-marketing commitments continue to progress with enrollment in NUZYRA's first pediatric study, the Pediatric PK study, beginning during this quarter. With regards to life cycle initiatives for NUZYRA, we continue to advance the development program for the orphan indication of NTM pulmonary disease caused by mycobacterium abscessus, including both nonclinical and clinical studies.

In addition to orphan designation, in June FDA granted NUZYRA Fast Track designation for the treatment of NTM for all subspecies of NTM, including both mycobacterium abscessus and mycobacterium avium complex, or MAC. The Fast Track designation opens the door for more frequent dialogue with the FDA and the opportunity to expedite development of NUZYRA as an option to help patients with NTM pulmonary disease, as well as healthcare providers who struggle to manage these devastating lung infections. Enrollment in the Phase 2b randomized study of pulmonary NTM infections caused by mycobacterium abscessus began in 2021 with topline data expected at the end of 2023. During the second quarter, Paratek raised awareness of this trial through our partnership with NTM IR, a patient advocacy group, as well as a poster presentation at the Colorado Mycobacteria Conference.

Following the encouraging data from our investigator-initiated hollow fiber system model of MAC, Paratek has initiated additional nonclinical studies to evaluate the activity of omadacycline alone and in combination with commonly used antibiotics against MAC. These studies include both an in vitro model and an in vivo mouse model. As a reminder, there are an estimated 100,000 cases of NTM pulmonary disease caused by MAC in the U.S., which is 10 times more prevalent than mycobacterium abscessus. There also continues to be a growing body of evidence of real-world use of NUZYRA in NTM, supporting the potential utility in treating these patients.

In the second quarter, posters summarizing real-world experience with NUZYRA in NTM were presented at two conferences. In these, 90 patients were treated with NUZYRA as part of combination antibiotic regimens for up to 23 months, with authors concluding NUZYRA is generally well tolerated and shows promise as a potential new agent in the treatment of NTM infections. Finally, efforts remain ongoing to formalize the agreements of the NTM development program in Japan. A series of meetings with PMDA, the Japanese regulatory agency, have already been conducted in 2022 with additional meetings planned for the second half of the year.

These efforts will form the basis of licensing and partnership discussions in Japan. We remain excited about the ongoing data generation efforts around NTM and we'll provide further updates at a future investor event being scheduled for this fall. At this point, we would like to open the line for questions. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Suji Jeong with Jefferies. Please go ahead.

Suji Jeong -- Jefferies -- Analyst

Hi. Good afternoon. I have two questions. The first one is I wanted to ask you about your current expectations for the timeline of the second BARDA procurement, especially when you expect to receive the $38 million from BARDA, and is that receipt might spill over to the first quarter of next year? And my second question is, how do you think the demand in sales contributed by the hospital-based use of NUZYRA will look like for the remaining of this year.

Thank you.

Evan Loh -- Chief Executive Officer

Hi, Suji, it's Evan. Thank you very much for the questions. For the first question with regards to the procurement, I'd like to hand this over to Randy.

Randy Brenner -- Chief Development and Regulatory Officer

Great. Thanks, Evan. Hi, Suji. As you know and as I said in my prepared remarks, the positive topline data delivery to BARDA is the trigger for the process that we'll execute upon the second procurement.

We continue to believe that we will have data provided to BARDA from that study in the latter part of this year, at which point that will start the process around BARDA's acceptance and acceptance of the procurement and the payment. As we said, we anticipate it to be a yearend event, but what we can't control is the time that BARDA may take toward the end of the year to execute around their process. While we think it may occur in 2022 toward the end of the year, there is a chance that it will slip into the early part of 2023.

Evan Loh -- Chief Executive Officer

For the second question in terms of how the hospital prescriptions and business will continue to contribute to our growth, Adam?

Adam Woodrow -- President and Chief Commercial Officer

Yeah, thanks. I think as you saw on the slide, which represented a part of our business which is in the community, you can see that the sales in the community continue to grow that are actually contributed by the hospital doctors. That's the blue bar that was in the chart. Of course, we also have a hospital business that wasn't represented there that's also growing.

And that actually is growing quite nicely at the moment. As I mentioned, we're starting to see more formal reviews and stewardship committee meetings and NUZYRA is being offered in more hospitals now than it was before, and we expect that to continue. Our hospital contribution will continue throughout this year and probably continue for as long as we keep investing in it.

Suji Jeong -- Jefferies -- Analyst

Great. Thank you.

Operator

The next question comes from Ed Arce with H.C. Wainwright. Please go ahead.

Ed Arce -- H.C. Wainwright -- Analyst

Great. Thanks for taking my questions, and congrats on another strong quarter of sales growth. A few questions for me. First, I wanted to ask about the Phase 2b NTM study.

You mentioned that you believe positive results from this study would be supportive of both guideline inclusion, as well as label expansion. Looking to get a little more detail around what gives you that confidence and kind of set the stage around that.

Evan Loh -- Chief Executive Officer

Hi, Ed. Thanks. It's Evan. Thank you for the question.

I'll hand this over to Randy.

Randy Brenner -- Chief Development and Regulatory Officer

Thanks again, Evan. Hey, Ed, so two parts to this question. Number one, as you've heard me say before, this study is the first of its kind. It's the first really randomized controlled study ever done in mycobacterium abscessus.

It's certainly the first randomized placebo-controlled study done in any of these devastating lung diseases. We feel from historical experiences that randomized trials are generally the gatekeeper to absolute inclusion in guidelines. And you see that across many of the anti-infection disease guidelines. So having a randomized trial as part of your review of a Guideline Committee in itself will lend itself to guideline inclusion.

If it doesn't get into the guidelines before the study even completes depending on when the guidelines are updated. As you know, guideline updates take many, many years to be done and often for many of the indications that we focus mostly on, really are only updated every five to 10 years. We watch that closely as well. As far as the label expansion part goes, we've been consistently noting that this is a Phase 2 study and is designed as such.

However, because of the ultra-rare nature of this disease, the orphan and now Fast Track designation we received from FDA on top of the totality of data that just continues to be generated for NUZYRA, whether it's on the nonclinical side or even through the real-world setting, we think that we will, assuming robust data from our Phase 2b study, that we'll be in a good position to have discussions with FDA. Looking at the totality of evidence for this product to think about what potential label expansions there may be an opportunity for. That's where we stand with regards to the two components of the question that you asked.

Ed Arce -- H.C. Wainwright -- Analyst

Great. Thanks. And staying with NTM a bit further, toward the end of your prepared remarks, you mentioned a future investor event this fall. Any details you could share at this point around that?

Evan Loh -- Chief Executive Officer

Thanks, Ed, for the question. We are in the planning stages currently based upon the inbound interest with regards to NUZYRA for NTM, both on the abscessus side, but now, on the MAC side that we are receiving through our Medical Affairs Group. We think that this is a timely event that will allow us to actually review more robustly the in vitro and in vivo animal data that we are currently accruing. In addition to that, we are trying to see whether we can find particular NTM investigators to participate along with us, and we look forward to giving you a date when we have a date certain that we can actually pull this off.

But we do believe it's a fall event.

Ed Arce -- H.C. Wainwright -- Analyst

Fantastic. One last one for me, if I may, probably for Adam. I think I heard there were 35 to 40 reps added this year, or was that by yearend? And I'm just kind of curious around the numbers as that progresses, where it is right now and where would you expect it by yearend?

Adam Woodrow -- President and Chief Commercial Officer

Yeah, we're going to add 35 to 40 by the year -- by the end of the year. That will get us to about 80, 85 representatives. And our plan, obviously, after that is to add another 35 to 40 in the middle of next year, and then again, the following year. And I should be clear these are all in the community.

There is an opportunity for us to probably add a few more hospital representatives based on our analysis, but what I want to see is that this sort of return to normality that we're starting to see in the hospital is maintained.

Ed Arce -- H.C. Wainwright -- Analyst

Yeah, very helpful. Thanks again.

Adam Woodrow -- President and Chief Commercial Officer

Thank you, Ed.

Operator

The next question comes from Bert Hazlett BTIG. Please go ahead.

Bert Hazlett -- Jefferies -- Analyst

Thank you for taking the questions. Congratulations on a solid performance in the quarter. Great to see. A couple of questions for me.

First is, as you -- could you actually give a general breakdown between the IV and oral in terms of the revenue this quarter?

Adam Woodrow -- President and Chief Commercial Officer

That's about 90/10, so 90% of our business is in oral.

Bert Hazlett -- Jefferies -- Analyst

OK. Great. And then, as you -- just looking at the operations and the growth of the business, thanks for the additional clarity with the reps. I think we grew from about $27.6 million in terms of SG&A to about $30 million, roughly $3 million in growth.

Is that the trajectory of increased spend for SG&A that we should expect throughout the remainder of the year?

Randy Brenner -- Chief Development and Regulatory Officer

I think when you take a look at that delta today in terms of this past quarter, Bert, I think that's really a reflection of our expansion and the commitment of resources into the community salesforce currently. We continue to remain confident in terms of our operating expenditures that were very much in line with what we've guided in terms of full year.

Bert Hazlett -- Jefferies -- Analyst

OK. Great. And then, just thinking kind of looking at flu seasons and patterns, and obviously, COVID has had a material impact with regard to flu, is there any sense that flu season might return to normal in the fall of 2022? I know it's tough to predict, but just your sense there. Or more normal.

Evan Loh -- Chief Executive Officer

Yeah, I think it's really hard to predict. I mean, if you had to look at the current surveillance date in terms of Southern Hemisphere, both in terms of Australia and other southern hemisphere countries, they are actually having a very robust flu season. That being said, again, those countries like Australia have been very assiduous with regards to coverage of their population with regards to COVID vaccines. And I think that for us, we will be ready to take advantage of a more traditional flu/pneumonia season when and if it materializes.

One thing that I would like to emphasize though, unlike pneumonia, which has a fairly large variance in terms of seasonality to its presentation, we know that skin is an infection that in fact is all year round. And as we noted in our last call, our early strategic pivot to skin as a first line detail at the end of the first quarter based upon what we were seeing in terms of pneumonia rates augured well for what we actually saw in our second quarter. Which was very robust year-over-year growth in the second quarter, driven primarily by the skin indication. So that's something that is with us all year round and I would not minimize it nor do I believe that the pneumonia season in and of itself is absolutely critical for the kind of growth projections that we are continuing to see in terms of our demand, which continues to remain strong and will continue through the balance of this year.

Which allows us to have the confidence to reiterate our 2022 financial guidance.

Bert Hazlett -- Jefferies -- Analyst

That's terrific. Just I'm going to ask these two together, two more for me. One is cost of goods. As the U.S.

operations come online, should we think about cost of goods any differently with regard to gross margins? And then, I'll get back -- actually, the next deliverable beyond this one for BARDA, could you just remind us what that next deliverable is? Again, you've been very clear for the rabbit study this year, but the one following that, what is the deliverable? Thanks so much.

Evan Loh -- Chief Executive Officer

Randy, do you want to take the BARDA question?

Randy Brenner -- Chief Development and Regulatory Officer

Yeah, sure. Sure, Bert. With regards to the -- I think when you say deliverable, you're probably referring to the next procurement milestone. The next procurement milestone is a combination of studies for both the PEP and the treatment program.

At the time where BARDA and Paratek were speaking about providing some more clarity on what the procurement triggers would be, it was around the same time where we extended the BARDA contract to also include the PEP program. The next trigger will be a combination of studies around both monkey and rabbits for treatment and then some pilot work for PEP. We expect that that program is somewhere in the areas of 18 to 24 months from the timing of around the second procurement. As we get deeper into the PEP program, I'll be able to provide more specificity on what that timing looks like, but there's a lot of moving pieces right now because of the fact that there's multiple studies included, not like this procurement, which is just a single study.

Hold tight on that, and as we get through the early part of next year, we'll be able to provide more specificity on exactly when we think the second, the third procurement will come through. But you could assume 18 to 24 months.

Bert Hazlett -- Jefferies -- Analyst

Thank you. And then, cost of goods shifting at all?

Randy Brenner -- Chief Development and Regulatory Officer

Yeah, Bert, can you just repeat your question again for me?

Bert Hazlett -- Jefferies -- Analyst

Yes. As the U.S. manufacturing operations come online in domestic manufacturing, is there -- should we think of any material changes in cost of goods for NUZYRA?

Randy Brenner -- Chief Development and Regulatory Officer

Yeah. Look, I think that one of the things that we're very proud of is the fact that we have now the ability through our private public partnership with BARDA to actually have two supply chains for commercial manufacturing of NUZYRA. In addition to the U.S. supply chain being actually also being utilized for the BARDA procurements going forward.

Our European supply chain remains intact, functions extremely efficiently, and again, to emphasize, is FDA-inspected and approved. As we think about the biggest drivers for a reduction in cost of goods, it's gonna be volume, and as our demand goes up, we will see those costs going down. But I think for the near term, I think the margins may be slightly reduced, but not materially.

Bert Hazlett -- Jefferies -- Analyst

OK. Thanks, and congratulations again on a great quarter.

Randy Brenner -- Chief Development and Regulatory Officer

Thanks, Bert.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Evan Loh for any closing remarks. Please go ahead.

Evan Loh -- Chief Executive Officer

Thank you, operator. Paratek continues to be well-positioned 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, a life-saving, once-daily, broad-spectrum oral and IV antibiotic that has clinical resonance in every setting of care.

Further to that, 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

[Operator signoff]

Duration: 0 minutes

Call participants:

Sarah Higgins -- Vice President, Finance and Principal Accounting Officer

Evan Loh -- Chief Executive Officer

Adam Woodrow -- President and Chief Commercial Officer

Randy Brenner -- Chief Development and Regulatory Officer

Suji Jeong -- Jefferies -- Analyst

Ed Arce -- H.C. Wainwright -- Analyst

Bert Hazlett -- Jefferies -- Analyst

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