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Edited Transcript of PRTK earnings conference call or presentation 27-Feb-19 9:30pm GMT

Q4 2018 Paratek Pharmaceuticals Inc Earnings Call

RICHMOND Mar 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Paratek Pharmaceuticals Inc earnings conference call or presentation Wednesday, February 27, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Woodrow

Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP

* Ben Strain

Paratek Pharmaceuticals, Inc. - Executive Director of IR & Corporate Communications

* Douglas W. Pagán

Paratek Pharmaceuticals, Inc. - CFO

* Evan Loh

Paratek Pharmaceuticals, Inc. - President, Chief Medical Officer, COO & Director

* Michael F. Bigham

Paratek Pharmaceuticals, Inc. - Chairman & CEO

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Conference Call Participants

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* Adnan Shaukat Butt

Guggenheim Securities, LLC, Research Division - Senior Analyst

* Chi Meng Fong

BofA Merrill Lynch, Research Division - Research Analyst

* Dewey Steadman

Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst

* Michael Eric Ulz

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Michael John Higgins

Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst

* Wing Cheung Yip

H.C. Wainwright & Co, LLC, Research Division - Research Analyst

* Xiaozhou Fan

SVB Leerink LLC, Research Division - Associate

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Presentation

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Operator [1]

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Greetings. Welcome to the Paratek Pharmaceuticals Fourth Quarter and Fiscal Year of 2018 Earnings Conference Call. (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.

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Ben Strain, Paratek Pharmaceuticals, Inc. - Executive Director of IR & Corporate Communications [2]

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Good afternoon, and welcome to Paratek's Fourth Quarter and Full Year 2018 Earnings and Corporate Update Conference Call. A press release with 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 Pagán, 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'll 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.

Michael?

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Michael F. Bigham, Paratek Pharmaceuticals, Inc. - Chairman & CEO [3]

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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 U.S. 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 III 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 2 patent term extensions in the United States for NUZYRA. Through these 2 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 II 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 II 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 CAP study design of our agreed-upon post-marketing requirement. We anticipate providing an additional update on our next earnings call.

Outside the U.S., our Marketing Authorization Application with the EU for omadacycline is under review, and we anticipate a decision in the second half 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 royalties under our agreement with Almirall, our partner in the U.S. 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 U.S. in January of this year. SEYSARA is a once-daily oral, narrow-spectrum tetracycline-derived antibiotic with the anti-inflammatory properties for the treatment of moderate to severe acne in the community setting. We are entitled to receive tiered royalties in rates ranging from high single to low double digits of net U.S. sales of SEYSARA, and we retain all ex U.S. rights.

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

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [4]

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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 patients that may not be appropriately treated by the existing generic options. Aside from suspected resistant pathogens, other reasons a 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 genetic option. A good example of this would be the ever-expanding warnings associated with quinolone 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, for 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 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 2. 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 U.S. hospitals. We have launched NUZYRA with 40 hospital representatives targeting these early-adopting health care 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 the physicians use when prescribing antibiotics. This includes antimicrobial susceptibility tests or ASTs and the KEYSTONE surveillance program. AST is 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, 3 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.

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Douglas W. Pagán, Paratek Pharmaceuticals, Inc. - CFO [5]

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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 2 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 administered expenses for both periods was driven by higher compensation-related costs associated with the increased headcount, including stock-based compensation expense as well as higher spend related to the U.S. launch of NUZYRA.

We ended the year with 20 -- $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.

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Michael F. Bigham, Paratek Pharmaceuticals, Inc. - Chairman & CEO [6]

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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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Adnan Butt, Guggenheim Securities.

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Adnan Shaukat Butt, Guggenheim Securities, LLC, Research Division - Senior Analyst [2]

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First, congrats on getting that New England Journal publication. I'll have 2 just on the financial side. First, in terms of the burn guidance, 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?

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Douglas W. Pagán, Paratek Pharmaceuticals, Inc. - CFO [3]

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Yes. Thanks, Adnan. This is Doug. Great questions, both. Thank you. So the pneumonia spending, what we've talked about in the past and continue to include in our burn, our study is a study similar sized to what we did for our Phase III. 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'll 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. 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 4 to 5 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. I mean, does that help on that?

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Operator [4]

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Our next question comes from Dewey Steadman, Canaccord Genuity.

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Dewey Steadman, Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst [5]

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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?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [6]

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So patient -- I'll start with the patient profiles. The patient profiles where NUZYRA is obviously an option are in pneumonia space patients, sort of -- or penicillin allergy, patients that can't take, for whatever reason, a quinolone or, obviously, a patient's got a history or has some risk factors for Clostridium difficile because the tetracycline has a low propensity to reduce that. In addition, patients in the skin side, predominantly patients that have got renal or hepatic impairment or are on 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.

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Operator [7]

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Our next question comes from Jason Gerberry, Bank of America.

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Chi Meng Fong, BofA Merrill Lynch, Research Division - Research Analyst [8]

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This is Chi on for Jason. Just maybe a few on the patent-term extensions. Can you talk about what the expected timing on when these will 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.

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Evan Loh, Paratek Pharmaceuticals, Inc. - President, Chief Medical Officer, COO & Director [9]

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Chi, it's Evan. These were -- because we had 2 NDAs, 1 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.

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Operator [10]

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Our next question comes from Mike Ulz, Baird.

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Michael Eric Ulz, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [11]

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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 unusual you're seeing there that you hadn't expected previously.

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [12]

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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 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.

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Operator [13]

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Our next question comes from Ami Fadia, SVB Leerink.

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Xiaozhou Fan, SVB Leerink LLC, Research Division - Associate [14]

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This is Sheldon on for Ami. I have 2 questions. Can you talk about your thoughts around the potential for changing the economic incentives for antibiotic developments, what initiatives are currently underway 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 U.S., what one leading indicator should we be watching for to get more visibility into the ramp?

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Evan Loh, Paratek Pharmaceuticals, Inc. - President, Chief Medical Officer, COO & Director [15]

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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 antimicrobials working group as well as others are doing on Capitol Hill, but also we are partnering with discussions specifically with HHS as well as CMS to look at opportunities for potentially a DRG carve-out. But in addition to that as you know, 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 DISARM Act again. And DISARM, to be specific, is really very similar to a DRG carve-out in the sense that it's actually providing for a separate payment scheme specifically for antibiotics in the hospital setting. So we're very excited about that, and I do think that, that will be very helpful momentum for the sector. Adam?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [16]

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I mean, fundamentally, there are 2 main key performance metrics that we're going to be looking at and we'll 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're going to be very closely monitoring reimbursement. And we've got certain objectives that we've shared in the past, getting 33% of those covered lives in the first 3 months and then 66% before the end of 12 months. And the institutional access, as I mentioned before, in the targeted institutions that will be going to. And just to remind everybody what institutional access is, that's where the drug's either on formulary or has been purchased by hospital or they have a policy in place that enables a specialty or a group of doctors to use NUZYRA.

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Operator [17]

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Our next question comes from Michael Higgins, Ladenburg Thalmann.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [18]

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Just to follow up on the early feedback from the field, sounds like nothing unusual from the [TMT] guys. Any adjustments to the pitch that you've come out of door with as your reps are reaching there, the target audience for [that]? Or has the reception been in line with the expectations? 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.

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [19]

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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 anything 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 they're so used to only seeing IVs, that they forget that there's oral anti-infectors out there, and immediately, that sort of 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're 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 is being 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.

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Operator [20]

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Our next question comes from Ed Mars (sic) [Ed Arce], H.C. Wainwright.

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Wing Cheung Yip, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [21]

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This is actually Thomas Yip for Ed. Just have a quick one related to the loan with Healthcare Royalty. So what happens if the royalty is higher than the interest for that period? Do you have the option to delay the pay-down of principal? And what happens if the royalty is lower than the interest in any specific period?

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Douglas W. Pagán, Paratek Pharmaceuticals, Inc. - CFO [22]

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Yes. Thank you for the clarifying question. So the answer to the first is simple, it's no, there's no option to defer payment. So as the payment exceeds the interest payment, it immediately funds 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 service that, 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 recoursed 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 credit worthiness or borrower of the parent company.

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Operator [23]

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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.

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Michael F. Bigham, Paratek Pharmaceuticals, Inc. - Chairman & CEO [24]

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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 your 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.

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Operator [25]

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