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Edited Transcript of PRTK earnings conference call or presentation 6-Aug-19 8:30pm GMT

Q2 2019 Paratek Pharmaceuticals Inc Earnings Call

RICHMOND Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Paratek Pharmaceuticals Inc earnings conference call or presentation Tuesday, August 6, 2019 at 8:30:00pm 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

* Evan Loh

Paratek Pharmaceuticals, Inc. - CEO & Director

* Michael F. Bigham

Paratek Pharmaceuticals, Inc. - Executive Chairman

* Randall Brenner

Paratek Pharmaceuticals, Inc. - SVP of Regulatory, Quality & Technical Operations

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Conference Call Participants

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* Chi Meng Fong

BofA Merrill Lynch, Research Division - Research Analyst

* Kevin Kedra

G. Research, LLC - Research Analyst

* Michael John Higgins

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

* Robert Cummins Hazlett

BTIG, LLC, Research Division - MD & Biotechnology 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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Welcome to the Paratek Pharmaceuticals Second Quarter 2019 Earnings Call. (Operator Instructions)

I would now like to turn the conference over to Mr. Ben Strain, Vice President of Investor Relations and Corporate Communications. Please go ahead.

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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 Second Quarter 2019 Earnings and Corporate Update Conference Call. A press release with the company's second quarter 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, Executive Chairman; Evan Loh, CEO; Adam Woodrow, President and Chief Commercial Officer; and Randy Brenner, Chief Development and Regulatory Officer. And Sara Higgins, our Vice President of Finance, Controller and Principal Accounting Officer, will also be available for questions.

Before I hand 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. - Executive Chairman [3]

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Thank you, Ben. Good afternoon, and thank you all for joining our second quarter 2019 earnings call and corporate update. We are encouraged with the progress we made in the second quarter, advancing the commercial launch of NUZYRA in the United States. In parallel, we have continued to make strong progress towards several important milestone events expected throughout the balance of this year. Evan and Adam will highlight our performance and upcoming milestones in greater detail.

We believe the performance of NUZYRA seen in the first 5 months on the market represents the initial foundation for the continued future growth of this franchise product, and we are encouraged by our early achievements. The essential elements for future growth are being carefully and methodically established.

Before I hand the call over to Evan, I would like to highlight some of the recent leadership changes we announced in late June. As many of you are aware, Evan Loh was promoted to CEO. I would like to thank Evan for his steadfast service and consummate professionalism over the many years he has devoted to Paratek. He has worked in close partnership with me these past 5 years as Paratek was built from a small private development-stage company into a leading public antibiotics company with 2 approved antibiotics: NUZYRA and SEYSARA. In connection with this announcement, Adam Woodrow has also been promoted to President and will retain his current Chief Commercial Officer title, while Randy Brenner has been promoted to Chief Development and Regulatory Officer. Each of these 3 proven pharmaceutical executives has been responsible for the success of many commercialized drugs prior to joining Paratek, including once working together as a team to develop and launch a leading antibiotic in their past. Paratek is in very strong hands. Congratulations, Evan, Adam and Randy. I look forward to continuing working closely with you to lead Paratek into the next phase of its growth.

Evan?

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Evan Loh, Paratek Pharmaceuticals, Inc. - CEO & Director [4]

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Thank you, Michael. I'm honored to have the opportunity to lead Paratek to the next phase of growth, to continue to further establish Paratek as a leader in the anti-infective space and that the close partnership with Michael will continue to ensure delivery in lockstep with our strategic priorities. I remain focused on creating significant value for our shareholders while maintaining a clear focus on our commercialization and life cycle expansion opportunities for NUZYRA, maintaining financial discipline and working closely with Adam to ensure that patients will have access to this potentially life-saving therapy.

Let me begin with some financial highlights for the quarter. We generated revenues of $2 million, of which $1.7 million was attributable to NUZYRA net sales. Our partner Almirall also continues to see success in their U.S. launch of SEYSARA. We recorded SEYSARA royalty revenues of $300,000.

SG&A expenses were $20.9 million for the second quarter of 2019 compared to $12.9 million for the same period in 2018. The increase was primarily the result of the addition of a contract sales force, higher marketing, trade and distribution fees and additional costs in support of the commercialization of NUZYRA.

R&D expenses were $10.7 million for the quarter in 2019 compared to $14.8 million for the same period in 2018. This decrease was primarily the result of the capitalization of NUZYRA commercial supply costs, which were partially offset by higher clinical study costs associated with our Phase II UTI program. We continue to remain disciplined from an OpEx perspective, balanced against investments in areas we believe will create long-term shareholder value.

We ended the quarter with $252.3 million in cash, cash equivalents and marketable securities. We expect this strong cash position will fund the company's operating expenses, capital expenditures and debt service beyond the first quarter of 2021.

From a commercial perspective, the U.S. launch of NUZYRA continues to progress well. We saw a significant increase in demand, continued success in securing institutional and payer access, and positive momentum and awareness metrics across our targeted prescribers. For example, as a metric for progress in payer access, at the end of the second quarter, approximately 50% of commercial lives in the U.S. now have access to NUZYRA, and approximately 60% of the 400-plus institutions we are targeting now have institutional access. We have also continued extensive and coordinated efforts across the commercial and medical organizations, educating prescribers on the potential benefits of NUZYRA and building awareness.

As a result of these efforts, market research suggests aided awareness within our target prescribers has increased from 27% at launch to greater than 50% today. These metrics tell us that we are making progress in establishing the foundation necessary for future commercial growth. We believe that these leading indicators bode well for the future commercial success of NUZYRA.

Now turning to our guidance. We are maintaining our previously provided guidance range of $10 million to $13 million for 2019 NUZYRA net sales. Our guidance assumes appreciable acceleration in net product revenue growth in the second half of 2019. We believe this acceleration will be partially driven by recent initiatives, including increasing the size of the field force to approximately 60 sales representatives in time for the fall flu pneumonia season, further expanding institutional access within our group of 400-plus targeted hospitals and securing 1 or more contracts specific to certain governmental organizations. We expect the full impact of these initiatives to be evident in the latter half of this year and extend into 2020 and beyond. The timing of and the results from these initiatives could cause actual results to vary from this guidance.

I would now like to turn the call over to Adam to review the commercial performance in greater detail. Adam?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [5]

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Thanks, Evan. The U.S. launch of NUZYRA continues to progress well, and we are encouraged by several early leading indicators seen in the first 5 months on the market. We're particularly encouraged by the strong early interest in our once-daily oral formulation. We also believe we are setting the stage for significant sustained growth in usage in the years ahead. In fact, the NUZYRA launch has outperformed other more recent antibiotic launches over a similar time frame on the market. And this is a testament to the strong product attributes and profile of NUZYRA.

As the first once-daily oral and IV broad-spectrum antibiotic that's been approved in nearly 20 years, we believe that NUZYRA has the opportunity to address important unmet needs in the empiric treatment of both community-acquired skin infections and community-acquired pneumonia whilst also addressing antibiotic-resistant pathogens, which are causing failures with the older generic antibiotics. In addition, we believe that NUZYRA's safety and tolerability profile provides a much needed alternative to existing antibiotic regimens, such as the quinolones that have growing safety concerns as they -- as have been highlighted in their black box warnings.

NUZYRA's key attributes are resonating with the medical community. In recent market research, of the physicians aware of NUZYRA, approximately 95% have stated an intent to use. As Evan mentioned, NUZYRA generated $1.7 million in net sales in the U.S. in the second quarter compared to $1.3 million seen in Q1. This is an increase of 26% versus the first quarter. Accounting for inventory, NUZYRA's gross revenue demand increased from approximately 250,000 in the first quarter of 2019 to approximately $1.7 million in the second quarter of 2019, a significant increase. Success for NUZYRA starts in the hospital with specialists, and our initial outreach continues to be directed towards early-adopting specialists, including ID doctors, pulmonologists

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Over 50% of commercial lives in the U.S. now have access to NUZYRA.

We have also started to observe strong improvements with the government payers such that we have achieved close to 50% access in Medicaid. On July 1, NUZYRA was granted pass-through status and received a unique C-code, which helps facilitate utilization of NUZYRA's IV formulation in the hospital outpatient setting. You may have also noticed that NUZYRA was recently granted a J-code, which will be effective October 1. This is a full quarter earlier than the current coding cycle. The J-code is particularly important for reimbursement in all settings of care for the IV formulation. As expected, there are a number of institutions that have deferred using NUZYRA IV until these codes were available. We believe that receiving these codes, particularly the J-code earlier than anticipated, will eliminate one of the more problematic hurdles all new IV antibiotics encounter early in the launch.

Based on our early launch experience, we have recently activated a judicious expansion of the sales force to increase our geographical footprint. We anticipate adding and training approximately 30 additional customer-facing professionals, with 20 of those being sales representatives in preparation for the upcoming influenza pneumonia season. We are energized by our progress to date. We believe we're on the right path with NUZYRA and are well positioned for long-term commercial success. We look forward to reporting on our progress in the quarters ahead.

And with that, I'd like to turn the call back over to Evan.

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Evan Loh, Paratek Pharmaceuticals, Inc. - CEO & Director [6]

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Thanks, Adam. As we look towards the balance of this year, we have several important potential value drivers which we believe should enhance value for all our shareholders. We continue to pursue several compelling life cycle opportunities for NUZYRA to further broaden the potential of NUZYRA to reach into new and clinically important patient segments, including oral-only pneumonia; UTI, both complicated and uncomplicated subsets; along with encouraging progress with regards to potential partnerships with the Department of Defense. Further, we have submitted a proposal to BARDA in response to its recent Project BioShield request for proposal, or RFP, aimed at developing novel technologies focused on biothreat pathogens such as anthrax and plague.

Our clinical program to evaluate the efficacy and safety of omadacycline to treat urinary tract infections remains on track. Urinary tract infections are one of the most commonly diagnosed bacterial infections with approximately 30 million scripts written per year in the U.S. alone. The rising resistant rates seen with the quinolone class, along with their attendant safety concerns as reflected in extensive black box warnings, have left treating physicians with a limited pool of viable treatment options to treat UTI. In short, there is a large and growing unmet need for a new broad-spectrum, well-tolerated oral antibiotic. There's 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. One of our 2 ongoing Phase II trials is designed to evaluate an oral-only omadacycline treatment regimen in patients with uncomplicated urinary tract infections.

The second of our ongoing Phase II studies is designed to evaluate the potential efficacy and safety of oral and intravenous omadacycline for the treatment of acute pyelonephritis, a common subset of complicated urinary tract infections. These studies are designed to provide the data we need to determine how best to position omadacycline in these underserved indications and to inform us on potential future registration paths for NUZYRA. I am pleased to be able to report that both of these studies are now fully enrolled, and we look forward to sharing top line data with you in the fourth quarter of this year.

We have also agreed on a path forward with FDA to evaluate an oral-only dosing regimen for NUZYRA in community-acquired bacterial pneumonia. The study is designed to demonstrate that our oral-only dosing regimen will be comparable to the PK of our proven IV followed by oral dosing regimen in patients with pneumonia. The FDA has requested PK profiles from approximately 20 CAP patients to support the approval of this labeling language. We anticipate that the study will initiate in the fourth quarter of this year, and based upon the small size of the required trial, we anticipate a submission and potential approval for this new posology in time for the 2020 influenza pneumonia season.

Outside the U.S., our Marketing Authorization Application, or MAA, with the EU for omadacycline remains under review. In Europe, our 10-year market exclusivity for NUZYRA in the EU begins with the first approval. Therefore, ensuring approval of both the skin and pneumonia indications at the same time remains our priority to maximize the value of NUZYRA upon an EU launch. As you may recall, EU guidance traditionally requires 2 Phase III studies for indication for approval. Based upon recent discussions with our assigned rapporteur and co-rapporteur, they continue to suggest that a second pneumonia trial may be required for a CAP approval.

While the review continues through the second half of the year, we will continue to provide further justification on the unmet need for new pneumonia agents in the EU as well as how we believe that our existing program of 3 successful pivotal trials supports approval for both indications. If the ultimate CHMP recommendation is to approve only a skin indication, we will likely withdraw our application to preserve our exclusivity and wait for the completion of the U.S. post-marketing requirement pneumonia trial, thus allowing for both indications to be approved in the EU concurrently. As you know from our historical commentary, the EU represents only a modest market opportunity compared to the U.S. Our goal to partner in the EU, once both indications are approved, remains unchanged.

Earlier this summer, we also submitted a response to an RFP issued from BARDA for Project BioShield. The intent of Project BioShield is to provide government funding to support the required late-stage development activities needed for FDA approval of a biothreat indication and for the purchase of the selected therapeutics for the Strategic National Stockpile in advance of the biothreat indication. In addition to these base awards, the BARDA BioShield program may also provide funding for supplemental clinical program efforts related to any FDA post-marketing requirements. The mandatory criteria to be considered for an award include: first, an asset that is either late-stage in development for a pneumonic indication or approved with a pneumonic indication; second, proven or promising activity against resistant pathogens and known biothreat pathogens; and lastly, a developed and established supply chain.

Based upon the approved label for NUZYRA in pneumonia, combined with the promising in vitro and in vivo animal data against select biothreat pathogens already in hand, we believe that NUZYRA is well positioned to compete for funding from this program. We expect that a decision regarding any such award will be made this year.

We're also encouraged by recent progress in Washington with respect to how antibiotics are reimbursed. The DISARM Act of 2019, with bipartisan support, was recently introduced to the House. It is intended to alleviate many of the reimbursement challenges that have disadvantaged the anti-infective space by decoupling the payment for antibiotics from the DRG. This House bill closely matches a similar bill, also known as a DISARM Act, which was introduced in the Senate several months ago, also with bipartisan support.

Also, this Friday, the IPPS final rule from HHS was published with a revised NTAP reimbursement schedule for QIDP antibiotics, accompanied by a broad listing of 18 new ICT -- ICD-10 codes that was centered around resistance to established generic antibiotics that will be eligible for augmented DRG payments. We're encouraged by this progress and now believe we are closer than ever to meaningful payment reform for antibiotics.

With that, we will open up the floor to questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Ami Fadia of SVB Leerink.

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Xiaozhou Fan, SVB Leerink LLC, Research Division - Associate [2]

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This is Sheldon on for Ami. Congratulations on the good quarter. Could you share any colors on the revenue contribution from IV and oral formulation for the past 2 quarters, and also the relative contribution from the 2 indications? And also, could you also talk about the status of adoption of -- for the IV and oral dose?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [3]

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I just want to check that I've got your question correctly. You're asking about the relative distribution between IV/oral, the indications, and the third one, I couldn't -- I didn't get.

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Xiaozhou Fan, SVB Leerink LLC, Research Division - Associate [4]

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Third one is the current status of adoption for IV and oral across different types of institutions?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [5]

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Okay. So firstly -- I'll deal with that one first. We are pleased with the progress that we've made so far with regard to adoption. We've now got 60% of our targeted institutions that have institutional access. And as a reminder, institutional access basically means that the product's either on formulary or they bought it or that there's a specialty or an ID consult that will allow utilization within the institution.

As regards the split, right now it's probably about 85% oral, 15% IV, which is a little bit higher on the oral side than we expected. We're seeing really good oral adoption. We're really pleased with it. Some of that's actually also driven by the fact we've made so much headway in the outpatient space with regard to reimbursement with the payers because as I've mentioned, we're now seeing sort of 50% of the payers reimbursing, not just in the insured, but also in the Medicaid space, and that's really starting to have an impact in terms of lost prescriptions.

And in terms of the actual indications, the vast majority, about 80% of it is on label. It's too early to call what the overall split will be between the CAP and the skin indications. Like all antibiotic, you will get a small amount of off-label utilization, which we're also getting. One final thing I should mention is that whilst that split with regard to the IV and oral is quite distinct in terms of -- at this present time, it's clearly significantly more on the oral side, the coding that we've just seen with regard to the C-code and the J-code that will arrive in October will significantly enhance the ability to get reimbursed for the IV side from a hospital perspective.

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Operator [6]

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Our next question comes from Bert Hazlett of BTIG.

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Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [7]

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Congrats on the progress in laying the foundation for future growth. Just with regard to the -- 2 things. First of all, the data readout with regard to Phase II in UTI, could you just remind us exactly when we should get the results? And the details that we will be looking for, Evan, for what would be considered a success in this Phase II trial.

And then the government biodefense contracts, again, seems to be a relatively new process that you're involved in. Could you just kind of take us through the step-by-step, what we should be thinking about in terms of awards? And then in terms of the -- if there is an award, what size or types of awards that might be granted? For instance, is there something for R&D reimbursement? Or would there be potential for direct purchases of NUZYRA?

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Evan Loh, Paratek Pharmaceuticals, Inc. - CEO & Director [8]

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Bert, it's Evan. Thank you very much for the questions. And I think when you look at the 2 UTI studies, we're pleased to, as we said, report that the studies have completed enrollment, and it will be in the fourth quarter that we'll be able to share with you top line data from both of those studies. I think when we look at the particular endpoints, as you recall, these were adaptive trials in design, and we had multiple arms evaluating the full spectrum of dosing regimens that will ensure our ability to make sure that we have the right -- the maximal dose that patients could tolerate to be able to evaluate the 2 co-primary endpoints, which will be primarily symptom resolution in terms of clinical symptoms as well as improvement or amelioration with regards to microbiologic response. And there are certain thresholds that are -- have been published by the FDA in terms of guidance that we'll be looking at. So we'll be looking at both of those endpoints.

And because of the adaptive trial design and because of the robustness of the size of these trials, we think that these will provide very good guidance because with an adaptive trial approach, there will be uneven randomization primarily to enhance the number of patients actually in the most effective arms. And so hopefully, those numbers will be exciting for us to look at and help guide the path for the future in terms of thinking about how we could design a registration path for NUZYRA.

So as far as the Project BioShield, this is a program that was announced through their request for information. Based on what's publicly available, that the RFP is a competitive process with potentially up to 2 awards, as they've stated publicly, and we believe has the potential to be significant for the designated awardees. As we noted, Bert, there is 3 main parts. There is the base program that specifically funds for moving a biothreat approval through the Animal Rule, plus a base procurement of up to 2,500 treatment courses for the Strategic National Stockpile.

If you were to take, for example, anthrax, as an example, the CDC and WHO recommend a 60-day course of therapy. And there is extension of that in the subsequent 4 years for up to 75 more -- 7,500 more full courses that could be added to the Strategic National Stockpile. And as they've noted and as we had in our prepared remarks, that the initial acquisition could be actually acquired prior to the actual approval of the particular indication.

The second component of this is that there is potential cost sharing for FDA required post-marketing commitments. And we think that given the label that we have with NUZYRA, the fact that we have a pneumonic indication and that we have an established supply chain, plus, as you're aware, the published in vivo and in vitro data, specifically around animal efficacy in anthrax, I think, well positions us to compete for these awards.

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Operator [9]

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The next question comes from Michael Higgins of Ladenburg Thalmann.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [10]

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Congratulations, guys, on the early results. I was hoping you can give us some insights as to what we've seen so far this year in terms of stocking in Q1 and Q2. How has that affected the reported numbers?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [11]

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So from a stocking perspective, if you think last month, I think...

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Evan Loh, Paratek Pharmaceuticals, Inc. - CEO & Director [12]

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Last quarter.

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [13]

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Sorry, last quarter, when we would -- I had the same question, about 85% of the sales were stocking and 15% was true demand. I think it's fair to say it's the complete opposite this quarter, it's closer to 85% true demand, with 15% being stocking. And that stocking just represents making sure that the institutions and the wholesalers have sufficient supply to keep the adequate stock on hand because obviously, with the growth in demand, what you require to keep a couple of weeks on hand is more stock. So we're not surprised to see a bit of increased stocking. You will continue to see that with any drug that grows over time. But just to put it into perspective, it's about 85%, 15%.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [14]

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Okay. That's very helpful. I know it's early, and it's hard to get a sense of where the drug is being used per your comments. Just trying to get a sense for has there been any respiratory use at this point. Is it primarily skin? Would expect some off-label use, as you've mentioned. I was just trying to get a sense so far of how much use is in skin versus respiratory.

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [15]

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There's a bit more use in skin. Remember, the pneumonia season was very short for us because we came in right on the tail end, that was in February. And we actually changed the focus because we've got 2 seasonal indications. From sort of around September through March, you focus on pneumonia because that's the sort of influenza and secondary bacterial pneumonia season. And then skin is actually seasonal. You see more skin infections in the summer. So we had a very, very short CAP season. So whilst we're seeing more utilization in skin than pneumonia, it's not surprising given the season that we're in at this present time because we're in that skin season at this present time. And that is also the sort of first line -- that's actually the first detail that we do at this present time. We've switched from the February to skin because of the seasonality.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [16]

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And then lastly, the benefits that you pose in the C. diff and those that are predisposed to C. diff, is that something that we'll find will be more pronounced in the winter season? Or is that something that's been a benefit so far, given your comments of how skin is a bit more common here in the summer?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [17]

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No, C. diff is not seasonal. It occurs all the time. There's so many things that can affect C. diff in an institution. And if you've got a -- an institution has got a problem with C. diff, it will be there all the time. The fact is C. diff and the lack of C. diff is associated with tetracyclines in general, which obviously is clearly a benefit for us having, to date, not seen a case of C. diff. It's a message that resonates with certain institutions, specifically the ones that have a problem and those that obviously treat elderly who had multiple courses of antibiotic.

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Operator [18]

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The next question comes from Jason Gerberry of Bank of America.

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Chi Meng Fong, BofA Merrill Lynch, Research Division - Research Analyst [19]

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This is Chi on for Jason. I guess the first one would be in terms of sales force expansion targeting 60 reps by end of 2019. How should we think about the SG&A for 2020 and sales force size relative to end of 2019? And I guess the second question going back to the split of IV and oral for NUZYRA. Are you seeing most of the oral utilized in -- as a discharge from inpatient hospital, as a discharge from ER or in a community setting? Just kind of want to see, curious, given you have such a sizable distribution to oral, are you seeing physicians basically comfortable with prescribing -- discharging patients on NUZYRA, even though that they may not have been initiated on NUZYRA IV to begin with?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [20]

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So in answer to that question, the simple answer is, yes. Physicians are comfortable simply discharging patients on oral without having initially initiated with an IV. But we're also seeing utilization of our oral in a pure office-based system. Some of these physicians that work in the hospital also work in the outpatient setting, and we're certainly seeing some utilization of NUZYRA oral in the outpatient setting, where there's not been a hospital visit specifically from the emergency room. As regards to the impact on -- the other question you had was around SG&A.

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Chi Meng Fong, BofA Merrill Lynch, Research Division - Research Analyst [21]

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How should we think about -- yes, how should we think about sales force expansion relative to 2019's 60 reps guidance?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [22]

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Yes. So I mean clearly, from our perspective, the reason we've gone to 60 representatives is we're doing a focused approach based on where we see opportunity. And we've taken a very judicious approach to our expansion, not just because we don't see the point of expanding into places where we're not seeing any traction or where we don't anticipate getting in traction -- getting traction, but also to make sure that we are managing our SG&A and our expenses very, very closely.

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Operator [23]

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The next question comes from Kevin Kedra of G. Research.

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Kevin Kedra, G. Research, LLC - Research Analyst [24]

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Congratulations, Evan, on the promotion and to the rest of the team. Maybe going a bit more into the IV-versus-oral split. First, you mentioned the stocking, you gave good color there, but just wondering if there's -- can you give anything on kind of the mix of stocking between the IV and oral? I mean given the use that you're seeing in oral, I would imagine that stocking might be a little bit higher in the channel right now for the IV than for the oral.

And then secondly, also given kind of the use that you're seeing with oral, any change to the time lines or thinking about when you might start being more active in promoting this in the community? I know the initial plan was to kind of [spin] up in the hospital for 2 years and then expand into the community. But given where you're seeing early use, does that change at all?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [25]

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Thanks for the question, Kevin. I've got the -- the first thing on the stocking, you're quite right. There is a slight difference. There's obviously a lot more stocking of the oral than there is the IV. I mean the IV basically is distributed through 3 distributors. The oral needs to be distributed more broadly, and we have oral available in quite a number of retail settings. And as a consequence, there's a larger volume of the stocking is in the oral side. Whilst -- I don't want people to get too comfortable with the 85-15 split IV/oral at this present time in terms of sales because there's a lot of initiatives, most notably the C-code and the J-code that's coming, that will have an impact on reimbursement. And we always knew that some of the institutions, certain places where they use IV antibiotics, wouldn't come onboard until they had assurance of reimbursement, and that's what the C-code and the J-code give you, which is assurance of reimbursement without the vagaries of the payers. And as a consequence, getting those -- getting the C-code as we expected on time and the J-code a bit earlier, we actually think that that's going to have some meaningful difference in terms of the adoption of the IV going forward. So we may see that sort of ratio of IV to oral change a little bit.

In answer to your question about the oral utility and the uptake we've seen in the outpatient setting and whether that will have an impact on the company's desire to look at entering into the sort of community space a bit earlier, clearly, this is something that we are going to review. By the end of this year, I suggest that we're going to have such meaningful access in the outpatient setting that we really do need to look closely at whether we want to focus some of our attention on the outpatient setting. But as you know, to do that, it's likely we're going to need to think about potentially partnership as one of those options.

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Kevin Kedra, G. Research, LLC - Research Analyst [26]

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All right. That's helpful. And then you mentioned the possible need of doing a second CAP study to get European approval. You also have a request from the FDA to do kind of a follow-on CAP study just to kind of cement the FDA approval there. Are those essentially going to be -- or is there any opportunity to kind of roll those into one study? And is that built into -- is anything like that built into your cash run rate -- cash runway projection that you gave into 2021?

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Evan Loh, Paratek Pharmaceuticals, Inc. - CEO & Director [27]

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Yes. So I'll -- Kevin, thanks for the question. It's Evan. I'll just answer the cash runway question, and then maybe I can have Randy talk a little bit more about the CAP study design that we're contemplating at this point. So the CAP PMR has been contemplated within our runway. And we feel that given the PK study, the small PK study that we generally have a path of agreement on with FDA, it allows us to have a little bit more flexibility with regards to the design of the CAP PMR study. And with that, maybe I can have Randy, our Chief Development and Regulatory Officer, speak a little bit to what that might entail.

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Randall Brenner, Paratek Pharmaceuticals, Inc. - SVP of Regulatory, Quality & Technical Operations [28]

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Sure. Yes, thanks, Evan. So your specific question around the ability to use -- if we're required to do a second study in Europe, to use the FDA pneumonia post-marketing requirement to fulfill that need, the answer is yes. Our intention would be to use a single study to fulfill the need for the second study in Europe as well as the post-approval commitment we agreed to with the FDA. So that would build in some efficiencies there with regards to the number of studies we need to run.

With regards to the oral CAP study that Evan just mentioned, the small PK study that we talked about in the prepared remarks, that is a different study, as you -- as Evan noted, a small number of patients. That study is also within our existing cash runway. That study, we plan to start in the fourth quarter of this year. Because of the small numbers of patients, it is a PK study in pneumonia patients, so the pneumonia season is the right time to run that study. We anticipate that, that study will be done in time for us to get a supplemental NDA into the FDA to gain approval of oral start on CAP in our label by the start of next year, the 2020 pneumonia season.

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Operator [29]

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The next question comes from Ed Arce of H.C. Wainwright.

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Wing Cheung Yip, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [30]

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This is actually Thomas Yip asking a couple of questions for Ed. First question, can you outline what you have seen as some of the main factors driving NUZYRA traction so far?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [31]

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So from a traction perspective, look, it's what we've always felt. The IV-to-oral and the fact that we do have an oral option; the fact that we cover the resistant pathogens that cause problems for these physicians; the ability to get the patients out of the hospital quickly, which is why we're seeing the oral; and the fact that we've got a drug that doesn't cause C. diff as a byproduct of utilization, all of those factors and those messages resonate. It's the reason why when we were questioning doctors that have awareness of NUZYRA, that 95% of them have given us an idea that they would like to prescribe it.

The other thing I should say is that we should never take away from the fact that we've got a once-a-day drug, which is different to many of the drugs that they use for discharge today. Many of them are twice or 3 times daily, and that is something that is clearly seen as an advantage.

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Wing Cheung Yip, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [32]

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Okay. Yes, that's very helpful. And then regarding -- from a commercial standpoint, what are some key characteristics of early-adopting hospitals and clinics that you have seen? And also, what are the percentages of these new accounts have preordered so far?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [33]

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So I'll tell you something quite interesting. The larger teaching institutions are definitely those that tend to be the ones that adopt a little bit earlier. Part of the reason for that, we've come to realize, is that they're less worried about the coding issues, they were less worried about the reimbursement issues that we've seen with some of these others that are waiting for C-codes and the like before they'll adopt. That's been very, very clear from the early utilization. These institutions are extremely well funded.

They're also the institutions that have problems with beds. And in general, some of the other places that we've seen utilization have similar characteristics to some of the teaching hospitals in that their beds are completely full and they're desperately trying to get patients out. And that's where our oral once-a-day comes into play, and we've seen utilization in that setting.

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Wing Cheung Yip, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [34]

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Okay. And again, maybe approximately what percentage or what's the fraction of your accounts so far have preordered NUZYRA?

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Adam Woodrow, Paratek Pharmaceuticals, Inc. - Chief Commercial Officer & VP [35]

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We are not sharing that information at this present time.

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Wing Cheung Yip, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [36]

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Fair enough. Congratulations on NUZYRA's progress so far.

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Operator [37]

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This concludes the question-and-answer session. I would now like to turn the conference back over to Dr. Evan Loh, Chief Executive Officer, for any closing remarks.

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Evan Loh, Paratek Pharmaceuticals, Inc. - CEO & Director [38]

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As there are no more questions, we will conclude today's call with a brief closing comment here. In closing, I'd like to thank you all for your time and attention today. Your continued interest in NUZYRA and Paratek are important to us. The journey of making NUZYRA a commercial success is underway. The unique profile of NUZYRA, specifically our once-daily, well-tolerated oral, is well positioned for long-term commercial success. We very much appreciate your support and interest. We look forward to keeping you apprised of our continued progress. Goodbye for now.

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Operator [39]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.