Paratek Pharmaceuticals, Inc. (NASDAQ:PRTK) Q4 2022 Earnings Call Transcript

Paratek Pharmaceuticals, Inc. (NASDAQ:PRTK) Q4 2022 Earnings Call Transcript March 16, 2023

Operator: Greetings, and welcome to the Paratek Pharmaceuticals Fourth Quarter and Full Year 2022 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Higgins, Vice President of Finance and Principal Accounting Officer. Please go ahead.

Sarah Higgins: Thank you. Good morning, and welcome to Paratek’s year end 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, Chief Executive Officer, who will present prepared remarks, as well as Adam Woodrow, President and Chief Commercial Officer; Randy Brenner, Chief Development and Regulatory Officer; Michael Bigham, Executive Chairman, and I will be available for questions. Before I turn the call over to Evan, I would also like to point out that we will be making forward-looking statements, which are based on our current expectations and beliefs.

These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our 2022 Form 10-K and other SEC filings for additional detail. Evan?

Evan Loh: Thank you, Sarah. Good morning, and thank you all for joining our year end 2022 financial and corporate update call. 2022 was a very successful year for Paratek. Paratek generated a total revenue of $160.3 million, primarily as a result of robust NUZYRA core commercial sales growth. NUZYRA generated full year 2022 net U.S. sales of $136.8 million, which included $98.7 million from the core commercial business, a 45% increase compared to net U.S. sales of $68.2 million in the prior year and $38.1 million from the second procurement of NUZYRA under the BARDA contract. Strong demand, coupled with disciplined execution, resulted in consistent year-over-year growth in NUZYRA’s core commercial business with a triple-digit compounded annual growth rate since NUZYRA’s U.S. launch in February of 2019.

This growth has come from both the hospital and community settings, more recently with the community expansion being the primary driver. As seen on this next slide, over the four years of NUZYRA’s U.S. launch, its commercial performance continues to clearly differentiate NUZYRA as one of the most successful IV oral antibiotic launches in the last decade. As you can see illustrated on this next slide, we remain focused on three pathways to NUZYRA revenue opportunities. First, NUZYRA’s core commercial business. This continues to be the main driver of our current revenue growth. Having both once-daily oral and IV formulations enables NUZYRA to have clinical utility in every setting of care. Despite the headwinds in the hospital setting, that we observed in the second half of last year, as we enter 2023, we continue to project strong year-over-year commercial growth, especially in the community setting based upon continued positive metrics we are seeing in the majority of existing and new territories that we opened last year as part of our community expansion efforts.

Second, nontuberculous mycobacteria disease or NTM. NTM represents a promising future growth opportunity in the orphan disease space. NTM of the M. abscessus subtype is an ultra-rare disease with currently no approved therapies anywhere in the world. In the U.S. alone, Paratek estimates that NTM abscessus represents a potential $1 billion addressable market opportunity. Outside the U.S., we believe that Japan has a similar degree of unmet need and a total addressable market comparable and magnitude to that seen in the U.S. Given this potential, we have prioritized our outlasting efforts in Japan. In fact, in February, we held our fifth meeting in the last 12 months with the PMDA and have aligned on a registration program for NTM abscessus in Japan.

The completion of this regulatory process is an important milestone in creating momentum for our ongoing discussions with potential partners. We’ve also initiated regulatory activities in Europe and anticipate a similar regulatory advice process to be completed this year for NTM. This process will garner both orphan drug designation and provide clarity on the development requirements to enable NUZYRA’s approval in Europe for NTM. As with the approach in Japan, completion of this regulatory process will be important to generate momentum in our partnering discussions for this region. In the U.S., the Phase 2b study continues to enroll with completion now expected by the end of this year. This modest delay in enrollment was due in part to the constraints on health care resources that shifted investigator activities away from clinical study research efforts back to bedside patient care as well as hesitancy on the part of NTM patients with underlying pulmonary disease who were reluctant to venture into the hospital setting for care.

Photo by Volodymyr Hryshchenko on Unsplash

Third, U.S. government opportunities. We believe that there is broad potential for NUZYRA’s use across the U.S. government, not only through our BARDA BioShield public-private partnership that is aimed protecting all Americans against bioterrorism threats such as anthrax, but across the health and human services sectors that address pandemic preparedness needs and broadly across the Department of Defense as an important agent to protect our active war fighters. Our BARDA program continued to progress well in 2022 with several onshoring and animal study milestones. A 2022 highlight from our BARDA supported onshoring program included the completion of tablet validation and manufacturing. As a result, U.S. manufactured NUZYRA tablets are now commercially available.

The anthrax animal rule development program continued to progress on plan. Data delivered from our pilot efficacy study in rabbits at year-end triggered our second BARDA procurement. This study provided unequivocally positive data in all three doses of omadacycline demonstrating 100% efficacy, all rabbits infected with anthrax and treated with omadacycline survived to 45 days, which is the primary endpoint in an anthrax treatment model. Importantly, all rabbits infected with anthrax who were not treated with omadacycline died within 72 hours. These data have been accepted and will be presented at the ASM-Microbe Conference in June. These clear and unambiguous results support our high level of confidence that the Animal Rule Program will yield a successful label expansion for both the treatment and prophylaxis of pulmonary anthrax along with future government procurements.

Now I’d like to review Paratek’s 2022 financial highlights as well as our revenue guidance for 2023. Fourth quarter total revenue was $75.6 million compared to $31.8 million for the same period in the prior year. Total revenue for the fourth quarter was comprised of the following: NUZYRA net U.S. sales of $66.4 million, a 22.1% increase from $20.6 million in the prior year, which includes $28.3 million in net sales from the core commercial business, a 37% increase year-over-year compared to the same period in the prior year; and $38.1 million in revenue from the second procurement of NUZYRA under the BARDA contract. Government contract and grant revenue earned from cost reimbursement under the BARDA contract was $8.4 million, an 83% increase from $4.6 million for the same period in the prior year.

Collaboration and royalty revenue was $0.8 million, which primarily represents royalty revenues earned on sales of SEYSARA in the U.S. Full year 2022 total revenue was $160.3 million compared to $130.2 million for the prior year, an increase of 23% over the prior year. Total revenue for 2022 was comprised of the following: First, NUZYRA generated net U.S. sales of $136.8 million, a 29% increase from $106.1 million in the prior year. Net U.S. sales was comprised of the following: $98.7 million from the core commercial business, which represents a 45% year-over-year increase compared to full year net U.S. sales of $68.2 million in the prior year and $38.1 million from the second procurement of NUZYRA under the BARDA contract. Second, government contract service and grant revenue earned from cost reimbursement under the BARDA contract was $21.1 million, a 33% increase from $15.9 million in the prior year.

Third, collaboration and royalty revenue of $2.4 million, which primarily represents royalty revenues earned on sales of SEYSARA in the U.S. R&D expenses were $14.3 million for the fourth quarter of 2022 compared to $10.4 million for the same period in the prior year. R&D expenses were $37.8 million for the year ended December 31, 2022, compared to $30.4 million in the prior year. The increase in R&D expenses in both periods was primarily due to costs for activities reimbursed under the BARDA contract and costs incurred for the Phase 2b NTM study. SG&A expenses were $53.8 million for the fourth quarter of 2022 compared to $44 million for the same period in the prior year. SG&A expenses were $145.6 million for the year ended December 31, 2022, compared to $119.4 million in the prior year.

The increase in SG&A expenses in both periods was primarily due to costs incurred in connection with the NUZYRA community expansion and travel costs as a result of the lifting of COVID restrictions. During the fourth quarter of 2022, as a result of NUZYRA’s strong sales since launch, combined with increased confidence in our projected future sales, we accrued a contingent nonrecurring compensation charge of $21.9 million payable in 2027. Excluding this charge, combined R&D and SG&A expenses for the full year 2022 were $161.5 million. Now turning to our full year 2023 revenue guidance, which, as you can see in this slide, is expected to be in the range of $143 million to $158 million. This includes the following: NUZYRA net U.S. sales, which are expected to be between $125 million and $135 million; BARDA government contract service and grant revenue between $15 million to $20 million; and royalty and collaboration revenue of approximately $3 million.

We expect to reduce full year 2023 R&D and SG&A expense below that incurred in 2022. More detailed operating expense guidance will be provided during the company’s first quarter 2023 earnings call. Paratek had cash and cash equivalents of $34.2 million as of December 31, 2022, which combined with the $36.4 million in cash received from BARDA for the second procurement of NUZYRA yielded a pro forma balance of $70.3 million as of January 4, 2023. This balance alone may not be sufficient to fund operations through 12 months from the filing date of our 2022 Form 10-K. We expect to address our future cash needs, primarily through a combination of product sales, royalties, public or private equity offerings, debt or other structured financings, strategic partnering opportunities, government procurements and active management of cash and expenses through operational efficiencies.

If these activities are successful, the company expects to be able to fund operations beyond the first quarter of 2024 and to accelerate its pathway to profitability. In closing, the NUZYRA commercial business continues to demonstrate robust year-over-year growth as expected across both the hospital and community sectors, and our development programs continue to progress to plan. With that, I would now like to open up the call for questions.

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Q&A Session

Operator: And our first question comes from Suji Jeong with Jefferies.

Suji Jeong: Hi, good morning. Thanks for taking my question. On the NTM program, you guys said that the interaction with the Japanese regulator has been concluded. Could you give us a little bit more details as to what the regulators are looking for a Phase 3 program? Thank you.

Randall Brenner: Good morning, Suji, it’s Randy Brenner. Yes, thank you for your question. We’ve — as we said in the past, we anticipated that a small single Phase 3 study would be able to support registration in Japan. And as Evan noted in his remarks, we’ve now completed that regulatory process and really have agreed with PMDA that, that is the case in Japan. So we are planning and having discussions with potential partners of rather single — a single Phase 3 study, looking at the microbiological endpoint, which the rest of the world continues to focus on from a regulatory perspective versus the FDA, which has shifted over to a symptom response endpoint similar to our Phase 2b study. And we think the study is a very reasonable from a size perspective and will allow a partner to work with Paratek to complete a single Phase 3 study for a relatively derisked asset in a short period of time that allows them to get to market in a relatively quick period.

Suji Jeong: Thank you. If I could ask one more follow-up question. In the U.S. for Phase 2b, when do you expect to have top line data?

Randall Brenner: Yes. So as you saw in the press release and as you heard in Evan’s remarks, we did see a modest slowdown at the end of the year with regards to enrollment. We think that’s due to a number of factors, which included, if you remember, the tripledemic that happened with COVID, RSV and flu where ID docs in the health care system has really shifted away from clinical research and back to treating patients. And in addition, we saw what you generally see with NTM patients and other patients with lung challenges is that they don’t like to expose themselves to respiratory viruses so the patients themselves ultimately shut down, they don’t come into hospitals, they don’t go to doctors’ visits, et cetera. So those are a couple of things that are contributing to the factors.

As we said, we expect enrollment to be done now by the end of the year. It is a three-month primary endpoint, as you know. And then shortly after that, we’ll be able to provide data. So right now, we’re saying first half of 2024 and as we get further specificity on the enrollment throughout the year, we might be able to focus that down a little bit more.

Suji Jeong: Okay. Thank you.

Operator: Our next question comes from Robert Hazlett with BTIG.

Robert Hazlett: Yes, thank you for taking the question. Congratulations on the growth in the prospects moving forward. I have two questions. One is really on the trajectory of R&D expense and how we should think about maybe the breakdown between spend on NTM and other efforts versus maybe that — that’s reimbursed relative to BARDA. I think we had 14 in the quarter and certainly a 37.8 for the year. How do we think about that line going forward, specifically? And then again, the breakdown between what is required for BARDA versus NTM and how to think about that waning over time? I would imagine that would drop fairly significantly in 2024. Is that the right way of thinking about it? Thanks.