PRTK - Paratek Pharmaceuticals Inc. (PRTK) Q4 2022 Earnings Call Transcript
2023-03-16 14:14:06 ET
Paratek Pharmaceuticals, Inc. (PRTK)
Q4 2022 Earnings Conference Call
March 16, 2023, 08:30 AM ET
Company Participants
Sarah Higgins - VP, Finance, and Principal Accounting Officer
Evan Loh - CEO
Adam Woodrow - President and Chief Commercial Officer
Randall Brenner - Chief Development and Regulatory Officer
Conference Call Participants
Suji Jeong - Jefferies
Robert Hazlett - BTIG
Ed Arce - H.C. Wainwright
Presentation
Operator
Greetings, and welcome to the Paratek Pharmaceuticals Fourth Quarter and Full Year 2022 Earnings Call. [Operator Instructions] 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.
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.
Question-and-Answer Session
Operator
[Operator Instructions] 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.
Evan Loh
Bert, it's Evan. Thank you for the question. I think your estimates here are actually very consistent with how we're looking at it. We think that the R&D programs in BARDA will continue forward with our animal studies continuing to progress and the expansion of our animal studies into the nonhuman primate sector, as we've already shared with you as well. Because of the modest delay that we've talked about with regards to the enrollment for the NTM Phase 2b study, we believe that the current efforts will continue in a fairly consistent manner through the balance of this year. And as you said, will start to decline in the early part of 2024.
Robert Hazlett
Okay. Great. Thank you. And then one other quick question on the kind of the size, structure and emphasis of the sales force. Any evolution in terms of thinking is with the commercial sales now expected to be above $100 million in '23. And just how are you thinking about how that is comprised in terms of size or structure, any additional evolution there? Thank you.
Evan Loh
Yes. One of the things that we've been very excited about is the community expansion. We continue to see, I think, very, very positive metrics that have reinforced our confidence in our long-term forecast and growth as we continue to invest in the community expansion. As we look at 2023, we currently do not have plans for community expansion and -- but that continues to be within our revenue guidance of $125 million to $135 million. And as we evaluate progress over time, we will evaluate the right time for future expansion in the context of our broader strategic business priorities.
Robert Hazlett
Okay. Thank you for that. Congrats on the results. Thank you.
Evan Loh
Thank you, Bert.
Operator
And our next question comes from Ed Arce with H.C. Wainwright.
Ed Arce
Great. Thanks for taking my questions. And congrats on the continued progress and growth in NUZYRA. I wanted to ask about the NTM program. As you just mentioned now and before in your prepared remarks, that program now looks to read out Phase 2b data sometime in the first half of next year. I'm just wondering, as you look towards the longer term for that program, once you get the data, what would be sort of the next steps? I would imagine you would want to meet with the agency. But in terms of time lines and structure of the eventual pivotal program, assuming it's positive, would you expect to have one or two trials? And just general thoughts about the time lines going forward out to market of the drug?
Randall Brenner
Yes. Ed, it's Randy. So I'll take your question. There were a couple of components and pieces to it. Just to reiterate, ultimately what our goal of our Phase 2b study, it's continued to be is really what I refer to as a 3-tiered approach. The first tier is to generate and publish important data on the potential of NUZYRA to affect symptom response in patients with NTM.
That's -- as the -- as you and I have spoken in the past, as the FDA continues to focus much stronger on symptom response than they do microbiological response for the broader NTM population. So that sort of publication and scientific exchanges continues to be an important component of our study planning.
The second piece of that is really the guideline inclusion. We expect as being the only randomized controlled study ever done in Mycobacterium abscessus. We think that this study will be instrumental to shoring up NUZYRA's inclusion in the NTM abscessus treatment guidelines as well.
The third component of our strategy is where you were getting towards is what can we do with the study from a regulatory perspective, particularly in the U.S. And we will, as you suggested, once we have the data from this study, go back and speak to FDA. And I continue to believe that if the data is robust from this study, combined with everything else that we've continued to generate over time, including preclinical data as well as the large number of case series that continue to get published on NUZYRA use in NTM abscessus. I think we have a good position to talk to FDA about its potential to be included in labeling. That being said, they still obviously have the ability to request another Phase 3 study.
We have not contemplated that to date as a company. And I think as we get further into these regulatory discussions, we could consider what that might look like. That being said, now that we have clarity from Japan on what a Phase 3 study in Japan and the rest of the world may look like, I think, although not being a primary endpoint of symptom response, that study as well, will certainly provide additive support for any discussions we have with the FDA.
Ed Arce
Great. Thanks Randy. Appreciate it.
Operator
As there are no further questions at this time, I would like to turn the floor back over to the CEO, Evan Loh for closing comments. Please go ahead.
Evan Loh
Thank you, operator, and thank you all for listening in today. We look forward to keeping you apprised of our continued progress. Goodbye for now.
Operator
This concludes today's Paratek Pharmaceuticals conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
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Paratek Pharmaceuticals, Inc. (PRTK) Q4 2022 Earnings Call Transcript