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Edited Transcript of TTPH earnings conference call or presentation 14-Mar-19 8:30pm GMT

Q4 2018 Tetraphase Pharmaceuticals Inc Earnings Call

WATERTOWN May 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Tetraphase Pharmaceuticals Inc earnings conference call or presentation Thursday, March 14, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Watt

Tetraphase Pharmaceuticals, Inc. - Principal Financial & Accounting Officer

* Guy MacDonald

Tetraphase Pharmaceuticals, Inc. - CEO, President & Director

* Jennifer Viera

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

* Larry Tsai

Tetraphase Pharmaceuticals, Inc. - Chief Medical Officer

* Larry G. Edwards

Tetraphase Pharmaceuticals, Inc. - COO

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Conference Call Participants

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* Alan Carr

Needham & Company, LLC, Research Division - Senior Analyst

* Antonio Eduardo Arce

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Edward Andrew Tenthoff

Piper Jaffray Companies, Research Division - MD & Senior Research Analyst

* Fang-Ke Huang

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Kevin Kedra

G. Research, LLC - Research Analyst

* Stephen Douglas Willey

Stifel, Nicolaus & Company, Incorporated, Research Division - Director

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Tetraphase Pharmaceuticals' Fourth Year and 2018 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Jennifer Viera, Corporate Communications. You may begin.

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Jennifer Viera, Tetraphase Pharmaceuticals, Inc. - Executive Director of Corporate Communications & IR [2]

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Thank you. Good afternoon, and thank you, everyone for joining us on today's call. With me today are Guy MacDonald, President and Chief Executive Officer; Larry Edwards, Chief Operating Officer; Dr. Larry Tsai, Chief Medical Officer; Chris Watt, Senior Vice President of Finance; and Dr. Jacques Dumas, Chief Scientific Officer. On the call, Guy will make introductory remarks, highlighting recent corporate developments; Larry will provide an update on the XERAVA launch; Dr. Tsai will provide an update on our pipeline; and Chris will provide an overview of our fourth quarter and year-end 2018 financial results. Guy will then conclude, and we'll open the call to questions.

Before we begin our formal comments, however, let me remind you that during today's conference call, we will be making forward-looking statements that represent the company's intentions, expectations or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's press release and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. Information discussed on today's call is accurate as of today, and we do not necessarily intend to update this specific information in the future.

I would now like to turn the call over to Guy MacDonald. Guy?

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [3]

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Thank you, Jennifer, and good afternoon to everyone. 2018 was an exceptional year for Tetraphase, culminating in the U.S. Food and Drug Administration and the European Medicine Agency's regulatory approvals for XERAVA for the treatment of complicated intra-abdominal infections or cIAI and the subsequent U.S. launch. These approvals capitalized our transition from a development-stage company to a revenue-generating commercial-stage biopharmaceutical company.

They were the results of many years of hard work and dedication by our employees to address the growing and urgent need for differentiated new antibiotics to combat serious, often life-threatening, multidrug-resistant infections. XERAVA fulfills that need, providing physicians with a new, effective and safe medication that they can use for not only confirmed infections, but empirically, an important distinction that enables earlier intervention with the potential to save lives.

With this differentiated clinical profile and broad labeling as well as responsible and accessible pricing, we believe XERAVA will become an increasingly important component of the antibiotic treatment arsenal particularly, in hospitals and healthcare institutions, where pathogen resistance is a very real and ongoing threat. Launched in mid-October, XERAVA is off to a solid start in the U.S. making progress with target institutions.

During 2018, and reflecting just 9 weeks of commercial availability, XERAVA generated net revenues of $178,000. This is very much where we expected to be when you take into account the timing of launch and the fact that we used a specialty distributor model, where you do not see large stock-ins, which can inflate initial performance.

Larry Edwards will go into more detail in a moment, but our objectives for XERAVA in 2019 will be: to continue to execute our plan set forth last year; expanding pull through from the Tier 1 accounts, which comprise the first phase of our targeted launch; and expanding our reach to additional Tier 2 accounts, which comprise the second phase of our launch and which is now underway.

We're confident we'll see continued and increasing adoption of XERAVA as our field team further educates physicians and formulary decision-makers on XERAVA's safety and efficacy profile and the role it can have in delivering improved outcome for their patients. To devote the resources necessary to achieve a successful U.S. launch, we've made the decision to delay launching in the EU5 independently and to carefully consider the best path forward in that region. We remain confident that we will bring this life-saving treatment to patients in the EU and want to do so in a way that best positions us for success.

Our partnership with Everest Medicine Limited also continues to progress. We entered into this collaboration just over a year ago and already Everest has made rapid progress advancing eravacycline and engaging regulatory authorities in China. In October 2018, Everest obtained regulatory approval from the China National Medical Product Administration, formerly referred to as the China FDA, to begin a Phase III clinical trial of eravacycline and cIAI. At-risk plans begin enrolling patients in this trial in the first half of 2019.

We also made progress with our development pipeline in 2018. These candidates represent potential new medicines from our tetracycline total synthesis discovery platform, targeting Acinetobacter baumannii, respiratory infections and now acute myeloid leukemia, a potential new therapeutic area for us. We look forward to completing the bronco pulmonary disposition study for TP-6076 later this year and presenting the first preclinical data for TP-2846, our candidate for AML, in April. The progress we made across our business in 2018 has put us in a position for a strong 2019.

To discuss more of our XERAVA launch progress, I'd now like to turn the call over to Larry Edwards. Larry?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [4]

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Thanks, Guy, and good afternoon, everyone, on the call. Today's call represents our first opportunity to update you since launching XERAVA in the U.S. last October, and we're encouraged by the progress that we've made so far.

As outlined previously, our launch execution strategy comprises 2 phases, the first targeting Tier 1 accounts, which are the highest institutional users of antibodies defined by days of therapy and accounting for around 60% of the Gram-negative marketplace. And the second focused on Tier 2 accounts, which constitutes approximately 30% of the Gram-negative market and together represent about 90% of the Gram-negative market.

Our plan was to hyper target the Tier 1 accounts during our first quarter of launch, and I'm happy to say that by the end of 2018, our sales force have met the goal and engaged with 100% of their Tier 1 hospitals, and they're on track with the second phase objective to reach a 100% of their Tier 2 accounts by the end of the first quarter of 2019.

With this breadth of coverage, we've seen an impressive 70% reorder rate for XERAVA and with the first 9 weeks of launch, and we continue to see these high reorder rates into the first quarter of 2019. This is impressive and actually is an anomaly considering that the last several antibodies that have launched that reorder rates anywhere from 10% to 35% at week 9.

Our goal is now to maintain that high level of reordering, while bringing on additional count. Securing inclusion on hospital formulators is another significant component of our launch strategy, and we expect to see additional traction with increased use translating into product revenue growth as XERAVA is added to hospital formularies.

During our first quarter of launch, 74% of our sales came from all formulary or pending formulary review account.

Since antibody formulary reviews typically take place first of the year, semiannually or on a quarterly basis, our mid-October 2018 launch meant that we had to wait until the first quarter of 2019 for many of these reviews. I'm pleased to say that we have more than 400 hospital formulary reviews already completed or scheduled to occur by midyear.

So far, we've had 100% formulary acceptance rate, and that's defined as on-formulary with restrictions or on-formulary with no restriction and have secured positions on more than 100 formularies during the launch quarter, some are very large integrated delivery networks.

We believe the clinical benefit to XERAVA and to -- the attractive price point are compelling and help lower the barrier to entry for formulary inclusion for many, if not all the institutions with whom have been -- we've been engaging and position us well for additional formulary pull through in the months ahead.

In the first quarter we brought on a team of 3 strategic market access executives to help drive formulary acceptance from the top-down as the regional business directors and the regional account managers continue to focus on the bottoms-up approach of gaining formulary access.

Further facilitating hospital use of XERAVA, there are now 3 antimicrobial susceptibility tests or ASTs available for eravacycline.

And prior to launch, approximately 200 accounts had ordered eravacycline ASTs for research use only, demonstrating their eagerness to assess, firsthand, erava's activity against pathogens in their institution.

During the first quarter of launch XERAVA's usage has been the strongest in the inpatient setting and is responsible for about 75% of our sales with the remaining 25% of sales coming from the outpatient setting. Patient days of therapy are a good indicator for usage metric, and our patient days of therapy are 2 to 5x larger than any recent hospital antibiotics launched at week 9.

Feedback from the sales force tells us that XERAVA is being used as a replacement for carbapenems and other beta lactam in areas where the resistance is high, and in multiple other cases XERAVA is being used as an alternative to tigecycline, minocycline or other drugs to fight multidrug-resistant infections in patients who cannot tolerate the side effects of these drugs. Additional feedback we've heard most commonly is healthcare practitioner's enthusiasm for XERAVA's potent efficacy in treating broad-spectrum pathogens.

Further, some physicians have revert to XERAVA as a utility drug as it can be used for many different patients, including those with renal impairment as XERAVA eliminates the need for dose adjustment for these patient populations.

The pool of patients that XERAVA can benefit further differentiates it from other antibodies and extends it -- and extends to other high-risk patients such as those with previous hospitalization, recent ICU stays, overly with comorbidities or those coming in from long-term care or skilled nursing facilities as well as those with previous clostridium difficile infection or at risk of having a C. diff infection. Overall, the trends we're seeing across several metrics from formulary reviews to patient days of therapy to reordering rates are very encouraging.

We're pleased with the progress we're making and anticipate increased traction as additional formularies are secured and our field sales force educates physicians and institutional decision-makers on the important roles XERAVA can play in improving outcomes for patients with complicated intra-abdominal infection.

As someone who has launched multiple antibodies, I know this takes time in patients, and we remain focused and competent that our strategy of penetrating the impaired market segment and are seeing consistent early signs of success. We look forward to continuing to update you as the launch progresses.

With that, I'll turn the call over to Dr. Larry Tsai.

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Larry Tsai, Tetraphase Pharmaceuticals, Inc. - Chief Medical Officer [5]

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Thank you, Larry. We continued to build upon the growing body of scientific research supporting XERAVA and our pipeline candidates. In October, the company presented data related to XERAVA at the Infectious Disease Society of America's IDWeek.

We highlighted results from a post hoc analysis of XERAVA's Phase III data, which showed high clinical cure and microbiological eradication rates with XERAVA among patients with cIAI and concurrent bacteremia. We also presented data from a Phase I randomized placebo-controlled double-blind multiple-offending dose study demonstrating positive safety, tolerability and pharmacokinetic results for TP-6076, which is in development for the treatment of infections caused by Acinetobacter baumannii and other multidrug-resistant pathogens.

Also in October, we announced positive data at the American College of Clinical Pharmacy 2018 Global Conference from a post hoc analysis of 2 Phase III trials of XERAVA in higher risk populations obese patients and those with altered renal function, providing further evidence of XERAVA's effectiveness as an impaired treatment for cIAI across multiple-patient types without dose adjustment.

Regarding TP-6076, a fully synthetic tetracycline antibiotic that has shown potent activity against multidrug-resistant Gram-negative pathogens in preclinical studies, a Phase I bronco pulmonary disposition study at the compound is underway to confirm appropriate therapeutic lung levels to treat infections caused by Acinetobacter baumannii and other multidrug-resistant pathogens. Results of this study, which are expected in the second half of 2019 will inform our future development plan for TP-6076.

Looking ahead, we are excited to have 4 poster presentations, providing a deeper look at clinical data for XERAVA and earlier-stage compounds at the 29th European Congress of Clinical Microbiology and Infectious Diseases or ECCMID, which will take place in Amsterdam in April. Two of the posters will highlight XERAVA data, specifically the in vitro activity of XERAVA and comparators against Gram-positive and Gram-negative bacteria isolated from European patients in 2017.

A third poster will present the result of our multiple-ascending dose studies of the intravenous and oral formulations of TP-271, which is demonstrated potent in vitro activity against community and bio threat respiratory pathogens. And the fourth poster will highlight the in vivo efficacy of TP-6076 against Acinetobacter baumannii in urine [thigh] and lung infection models. We look forward to presenting these data on XERAVA and our pipeline candidates at ECCMID.

Beyond our antibiotic pipeline candidates, we introduced a new candidate, TP-2846, which we are evaluating for the treatment of acute myeloid leukemia, or AML. Emerging from our tetracycline total synthesis platform discovery efforts, TP-2846 represents an exciting first entry into a potential new therapeutic area for us, but one for which our expertise in tetracycline has a meaningful applicability and relevance. There are decades of research and a large body of literature showing that tetracyclines hold potential as anticancer agents. TP-2846 has emerged as a lead candidate for treatment of AML, demonstrating potent in vitro and in vivo activity.

The evidence is preclinical, but it is very encouraging and in April 2019, we will present some of these data at the American Association for Cancer research or AACR annual meeting. We are gratified by the progress we have made with our development programs during the past year and look forward to multiple data presentations across our entire product portfolio in the coming months.

Now I'll turn the call over to Chris to go through our financials in more detail.

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Christopher Watt, Tetraphase Pharmaceuticals, Inc. - Principal Financial & Accounting Officer [6]

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Thanks, Larry. As of December 31, 2018, Tetraphase had cash and cash equivalents of $107.8 million, which included proceeds from the first tranche from our previously announced loan and security agreement with Solar Capital Limited for up to $75 million that we entered into in November, 2018.

We anticipate that cash and cash equivalents and expected revenue from sales of XERAVA will be sufficient to fund operations into the third quarter of 2020. Total revenues were $4.3 million in the fourth quarter of 2018, a 72% increase over the $2.5 million recognized in the same period in 2017. Included in the fourth quarter of 2018 were product revenues of $178,000 from the sale of XERAVA, which we commercially launched during the quarter as well as $3.2 million in collaboration revenue related to progress made by Everest Medicines in the advancement of eravacycline in China. Also included in revenues was $928,000 in government contract revenue from our agreements with BARDA, NIAID and CARB-X.

Moving forward, we expect some government revenue in 2019, but less than we received in 2018. Further, we're entitled to receive additional milestone payment from Everest when certain regulatory events occur.

Turning to expenses. Research and development expenses were $10.7 million for the fourth quarter of 2018 compared to $18.5 million for the fourth quarter of 2017. This decrease in year-over-year R&D expense reflected lower clinical trial costs due to the completion of our IGNITE Phase III clinical trials for XERAVA in the first quarter of 2018 as well as lower chemistry, manufacturing and controls or CMC expenses, related to XERAVA.

Selling, general and administrative expenses for the fourth quarter of 2018 increased to $14.7 million from $7.9 million for the same period in 2017. This increase in SG&A expenses year-over-year was primarily due to an increase in commercial launch-related expenses for XERAVA and related G&A infrastructure investments.

Moving forward, we expect 2019 SG&A expenses to remain largely in line with fourth quarter of 2018 results. For the fourth quarter of 2018, Tetraphase had a net loss of $21.5 million or $0.40 per share compared to a net loss of $23.5 million or $0.46 per share for the same period in 2017. For the year, we significantly reduced our loss in 2018 compared to the prior year, closing 2018 with a net loss of $72.2 million or $1.37 per share compared to a net loss of $114.8 million or $2.63 per share for 2017. Additional details of our financial performance for the fourth quarter and for the full year of 2018 may be found in our press release, which we issued earlier today.

I'll now turn the call back over to Guy for closing remarks.

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [7]

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Thanks, Chris. In closing, we remain committed to executing a successful commercial launch of XERAVA in the U.S. and are encouraged by early launch trends.

We have a solid foundation in place and are at the beginning of what we expect to be a continued growth phase for XERAVA. We know this will be a marathon, not a sprint, and we're well positioned for success and appreciate your support along the way.

With that, we can now turn the call over for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Ted Tenthoff with Piper Jaffray.

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Edward Andrew Tenthoff, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [2]

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A couple of quick questions, if I may. Firstly, I saw how you broke out the cost of goods sold and I wanted to try to understand sort of what the components were there and what you see as sort of a go forward cost of goods sold?

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [3]

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Chris?

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Christopher Watt, Tetraphase Pharmaceuticals, Inc. - Principal Financial & Accounting Officer [4]

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Ted, this is Chris. Our COG is definitely made up of a combination as you would expect of both our direct XERAVA manufacturing costs as well as other periodic costs such as shipping, storage and third-party logistics cost. And certainly as XERAVA grow, revenue grows, these costs will be expected to come -- become a much lower percentage of revenue. We're not providing any specific guidance on revenue or COGS at this point for the year of 2019, but we certainly expect our gross margin to continuing to improve over time.

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Edward Andrew Tenthoff, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [5]

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Okay, great. And then I wanted to get a sense, Larry, if I may, from the first 9 weeks appreciating very, very early. Where is XERAVA being used? Is it more in the confirmed infection side? Is it more on the empiric side? Do you have any granularity at that level yet?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [6]

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Yes, so Ted that's a good question. I mean, really -- so obviously, this is all qualitative and that what we've heard back from the field sales force and the regional business directors, it's probably a split. It's a split of being a replacement for carbapenems or an alternative to carbapenems or your beta lactams and patients at risk of having resistant pathogens. I mean then it's also for some confirmed infections or even patients that have failed other options, and it's been thrown in there for those patients. So I think right now, it's a mix as we continue to bring more and more institutions on in 2019, we see more and more formularies pushing more towards a beta lactam-spearing type of alternative.

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Edward Andrew Tenthoff, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [7]

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Okay, cool. And then for Guy, the decision going into delaying Europe, is this really a resource decision? Tell us a little bit more kind of about that and what your plans might be in Europe?

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [8]

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So I mean I think as everyone knows, our plan was to start in the second half of this year with a staggered launch beginning in the U.K. and Germany. I think as we've looked at the resources we really need to focus on the U.S. launch, I mean that's by far the most critical thing that we're doing here, and so it really has been a choice of really using the resources that we would've done for Europe to focus them on the U.S. I mean, it's as simple as that. We'll reevaluate it as we move through the year and look if it makes sense for us to still continue to do that on our own or be it a little later or whether we'll look for a partner.

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Operator [9]

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And our next question come from the line of Stephen Willey with Stifel.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [10]

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Just curious, so what proportion of the Tier 1, 2 accounts, I guess, are represented within the 400-formulary reviews that are either already completed or scheduled through midyear?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [11]

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Yes. So I -- Steve, this is Larry, I think when you look at what percentage of our Tier 1s are represented in the overall formularies -- so I would say that the way we track them is that we're tracking our Tier 1 to 2 then 3, so I'd say the vast majority probably 80% to 85% are the Tier 1 and 2 institutions. Those are the ones that we really kind of had the representative focusing the vast majority of their time on. Some of your smaller institutions, obviously, that's why we've gotten maybe 15% to 20% that falls in there because it's easier to gain access and then make formulary decisions quicker.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [12]

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Okay. And then -- and for some of those institutions that are granting formulary acceptance, but in the context of restrictions. Can you speak to what some of those restrictions might be?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [13]

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Sure. Yes, as expected -- I mean, I would've said that probably 100% of the formulary wins would be with an ID restriction, and that's typical for most antibiotics. What we've seen is kind of a smattering across-the-board of either ID or critical care restricted in some institution that there's not an ID but maybe some of your smaller community-based institutions don't have an ID that's on staff there so they may have it restricted to pharmacy or even to surgery, we've seen. We have oddly enough seen some also and even some larger IDNs where it's just been on formulary with no restriction, which I would've thought that would have been a very small amount, so we're seeing across-the-board a mix.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [14]

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Okay. May be just a couple of housekeeping questions. So just on R&D, not looking for guidance at all, but should we think of, I guess, a run rate relative to 4Q looking consistent? Or are there additional cost to kind of come out of that number, just given that there's presumably still some CMC and IGNITE trial costs that are embedded within that 4Q?

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Christopher Watt, Tetraphase Pharmaceuticals, Inc. - Principal Financial & Accounting Officer [15]

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Steve, this is Chris. Yes, I guess that's probably the right way to think about it that continuing 4Q for the time being. It's probably not too far-off, but a gradual decrease over time.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [16]

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Okay, that's helpful. And then just lastly, on the Solar loan agreement, are there any covenants there just with respect to minimal cash requirements? Out of curiosity.

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Christopher Watt, Tetraphase Pharmaceuticals, Inc. - Principal Financial & Accounting Officer [17]

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Yes, there's a $10 million minimum liquidity requirement.

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Operator [18]

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And our next question come from the line of Ed Arce with H.C. Wainwright & Co.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [19]

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Three for me here. First, just to confirm I heard it correctly earlier, you had said so far 100% formulary acceptance, which includes over a 100 facilities. When exactly, up until what point would that cutoff be? That's question number one. Secondly, what sort of early anecdotal feedback have you been -- have you received from physicians specifically, in terms of the patient profiles? I know you've discussed this a little bit, but if you could -- and also with regards to empiric versus the confirmed and how doctors are beginning to use that? And then lastly, how should we think about the usefulness of script data, understanding the underlying demand growth and given obviously, the spotty capture rate that these have across the institutions.

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [20]

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It's Larry, thanks for the question. So I think I can probably tackle all three of these. So the first one is the question of the 100% formulary acceptance at greater than 100 institutions and what was the time point. I believe if I captured that correctly. So we cut that off, being that this is the quarterly earnings call, we cut that off at 4Q, so that's not including what's happened so far in the first quarter. Feedback on patients, so similar to what I mentioned a little bit earlier, it's about a 50-50 of what we've seen so far, so we're hearing again this is qualitative -- from the field is that we're seeing some use as a carbapenem alternative or beta lactam alternative. We're also seeing some use on patients where there's penicillin allergies and they see this as an alternative versus going to a quinolone, and then we're also seeing use in some confirmed -- or even in patients that were on multiple drugs not doing well, and this was thrown in because they couldn't tolerate, so they were either refractory or tolerant to the current therapy there were on. So I think that we've had a mix, which we anticipated at launch that you do get a lot of mix where you -- maybe a patient isn't doing well on something so they put them on this. So I think as we move into the first quarter of this year, we'll start to see that shift a little bit more towards the empiric side. And the third question is a good one and one I get quite frequently is our ex data. So if you're looking at Symphony, IQVIA whatever data that you're looking at, how reliable? I think it's directional at best. I mean if you look at it -- and some of the challenge is, everybody has a different distribution model. We do not go to wholesalers, so we go through a 3PL that goes out to specialty distributors, not every specialty distributor actually reports back to IQVIA or through symphony, so you could be missing 1, 2, maybe even 3 FDs. Also you have multiple hospitals, even some large IDNs, you can look at some IDNs as large as 50 to 60 hospitals that don't report data through either of those either. And then if you're looking at nonretail data, which typically, you have to differentiate between Symphony and IQVIA, you're also missing retail data as well then. So hopefully I answered that question.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [21]

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Yes that's about what I had figured, so appreciate that Larry, and I'll try to squeeze one last one if I could. It strikes me that given the acceptance rate so far and the reorder rates, which obviously, means that there have been some initial orders launched right before the holiday season, the early trends do look quite good and I'm wondering, again, anecdotally what feedback you've gotten from the facilities in the mix over their considerations, what -- how much did the pricing affect or factor into all of that?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [22]

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Sure. So this is Larry, again, I'll answer that one. So I mean it's odd, Ed, in that after launching multiple antibiotics and anti-infective products, this is probably one of the first products that we've ever launched where it's kind of open arms and that most of the feedback we're getting from hospitals, physicians, HCPs, they appreciate the price point, we listen, we've made the drug accessible for patients that need therapies that need unmet medical needs, so I think the price point is definitely helped a lot and it aligns nicely with our strategy. And then also the way that the representatives are out there talking about the drug in an appropriate manner, and not saying this drug is for everyone that walks into the ED, it's specifically for patients that are at risk for having a resistant pathogen with complicated intra-abdominal infections.

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Operator [23]

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(Operator Instructions) And our next question comes from the line of Edward Nash with SunTrust Robinson Humphrey.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [24]

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This is Fang-Ke Huang for Edward Nash. Just a quick question on the reordering rates. You mentioned other companies have a 10% to 35%, you guys have a 70%, so besides the pricing and other factors that contribute into the higher reordering rates, you seen so far?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [25]

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Yes, so you're correct. I said that we've got about a 70% reorder rate. I think there's multiple things that go into that. One, is our focus from an incentive comp perspective was for representatives to get a pull through on reorders, so one thing that we find is once an institution starts to reorder, it become somewhat more of a habit forming and maybe even leads to a protocol in place for those appropriate patients. So that's one reason I think that we've had such strong reorder rates. And I do think that it is some reflection of the price and then continued overutilization of carbapenems or beta lactams with an increase and then ESPR rates, and I think there's some data that's just popped in a timely manner that's benefited us like the MERINO trial showing the pip/tazo really isn't a replacement for carbapenems and patients with ESBL bacteremia. So I think a lot of things have come together for us, and that's what's helped us with that 70% reorder rate.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [26]

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Great. And second one just to follow-up on the acceptance rate, and you mentioned that by the year-end '18 you have 100%. Do you have any data for the first quarter so far? And what has the acceptance rate been for the first quarter?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [27]

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So that's a great question, and I look forward to answering that on our next earnings call.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [28]

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Okay, great. And third question, I want to just -- so you guys are starting to look at some of the cancer indication and just in the long term, is there some set direction the company going to go? Like one part of it is going to be antibiotics and the second part will be focused on cancer? Is that the long-term goal for the company?

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [29]

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I mean right now, most of our resources as you expect are focused on the launch of XERAVA in the U.S., and that's our primary goal. I think we've always spoken before that having opportunities divest into other hospital products makes sense as we move forward. This was a logical output of our discovery platform to move into AML. We're really excited about the preclinical data, which we'll talk about more later this month, but our initial -- our focus right now, is really all antibiotics and just a very small amount in AML.

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Operator [30]

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And our next question comes from the line of Kevin Kedra with G. Research.

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Kevin Kedra, G. Research, LLC - Research Analyst [31]

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Maybe just piggyback on that last one. Few of your peers, we've actually seen them kind of moving away from their pipeline assets in their early-stage discovery. You guys seem to be more ramping that up the AML opportunity, so given that the focus is on XERAVA and the time line that these drugs take to ramp-up and turn around to be profitable, why does it continue to make sense for you guys to invest in that early-stage pipeline? And then I just had a couple of follow-ups.

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [32]

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I mean, I think there's a good rationale for why we're doing what we're doing, Kevin. I mean I think clearly, where we have obviously 3 pipeline programs right now, TP-271, we've developed at this stage in partnership with NIAID, so it's been minimal resources internally and then funded externally. 6076 we still believe is a very exciting Acinetobacter compound, and the amount of time and people focused on that is very small and to get to this next important stage of seeing what our lung levels are for this product is very, very important to us. And lastly, at this point, the AML program has really been in our research group with just a couple of people. We're running preclinical studies. Clearly, as we move forward, obviously we've reassess the resources we put into that, doing it ourselves and how that compares, but almost I'd say 98%, 99% of our funding right now is supporting XERAVA in the U.S, and we think it's important that we continue to have more than one program, and I think as you've seen with all companies, it's pretty tough to survive with a single asset, so we're looking for many different ways to try and build out our portfolio.

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Kevin Kedra, G. Research, LLC - Research Analyst [33]

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That's helpful. And then secondly wanted to ask, given the launch you guys are going to be in your first your full year, we've got a sense of where recent launches have been in their first full year in kind of $6 million to $7 million range of revenue. I know you said you don't want to give any sort of guidance, but any reason to believe that you guys shouldn't be able to put XERAVA into a similar revenue trajectory as what some of your peers have been able to do in their first year?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [34]

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Yes, okay. I mean this is Larry. I'll answer that somewhat. I think that when you look at our strategy going after the empiric market, it's definitely different than what a lot of the recent drugs coming to market have went after. Most of them either because of a label forcing them to go after a last line therapy or just due to price and their kind of strategy to go after a niche market. They've had a slower uptake. I mean again, I think that -- we're seeing consistent signs that show a very positive launch trend, so without giving guidance, which we're not doing on this call, I think that things look very positive for us in 2019.

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Operator [35]

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And our next question come from the line of Alan Carr with Needham & Company.

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Alan Carr, Needham & Company, LLC, Research Division - Senior Analyst [36]

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Larry, can you go over the number of accounts you have in Tier 1 and Tier 2? And then I was hoping you can come back to oncology in terms of rationale for tetracyclines. So maybe you can go over some of the data that led to you -- led you to pursue this indication in the first place and how this platform might give you an advantage?

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Larry G. Edwards, Tetraphase Pharmaceuticals, Inc. - COO [37]

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Yes, so Alan, thanks for the question. So this is -- the first Larry. I'll take the first question. So I think that when you look at what we're covering from a Tier 1 perspective, so you're looking at close to about 600 hospitals on the Tier 1 side. Tier 2 is closer to about 700, 750, so little over 1,300 hospitals, which equates to about 90% of the Gram-negative days of therapy. So that's where we're focusing the vast majority of our efforts and that's really where we're trying to pull through most of the formulary wins at as well. That answer the question?

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Alan Carr, Needham & Company, LLC, Research Division - Senior Analyst [38]

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Yes, thanks. I was just trying to get the -- a reminder on the number. And then on oncology.

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Larry Tsai, Tetraphase Pharmaceuticals, Inc. - Chief Medical Officer [39]

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Yes, so this is the other Larry. So we look at the AML program for TP-2846 as sort of the natural outgrowth of our proprietary chemistry platform, that we view so far to generate differentiated antibiotics, but you're sort of alluding to -- there's decades of research that have shown that tetracyclines hold great potential as anticancer agents, but until now, tetracyclines as a class have never been optimized for oncology indications, and that's really because of the limitations of the traditional semi synthetic methods, but again, through our proprietary and productive tetracycline discovery platform, we were able to optimize 2846 as a potent tetracycline to address this oncology indication. And the compound is demonstrated in vitro and in vivo activity and preclinical leukemia models, so we're really excited about presenting the data at the AACR meeting and building further on this encouraging preclinical data set.

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Alan Carr, Needham & Company, LLC, Research Division - Senior Analyst [40]

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So Guy, you said, you answered the question earlier that antibiotics will remain a priority. How -- I'm wondering how far are you going to take this oncology program internally here? What's the plan? Do you plan to collect a little bit of clinical data and then out license it? Or what's -- or do you plan to just develop it internally but -- and we try it out over a longer period of time? What's the strategy?

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [41]

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I mean, I think at this point we're just finishing the preclinical data, so it's still obviously very early. We're really leaving our options open at this time. I mean clearly as a company, we believe you need to have multiple assets to be successful in the hospital space. This may be something we decide to continue on our own or we may choose to license it out, but clearly at this point, we don't and haven't made that decision.

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Alan Carr, Needham & Company, LLC, Research Division - Senior Analyst [42]

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Have you decided whether or not to run a Phase I yourself even? Or no?

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [43]

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We're going to provide an update on that once we get through the preclinical data.

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Operator [44]

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And it looks like we have a follow-up question from the line of Ted Tenthoff the Piper Jaffray.

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Edward Andrew Tenthoff, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [45]

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So yes, just following-up with AML. I think that makes a lot of sense and kind of following-up on Alan's question, is this something that would have potential applicability beyond hematologic cancers? Or in other hematologic cancers beyond AML? And then secondly, have you taken down or what are the provisions to take down additional debt from Solar?

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Larry Tsai, Tetraphase Pharmaceuticals, Inc. - Chief Medical Officer [46]

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I can answer the first part of the question with regard to the AML program. We're going to be presenting data at AACR that establishes sort of some of the preclinical evidence for the potential application of 2846 to AML and to other cancers. So maybe we just kind of defer the discussion till we present that data at AACR.

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [47]

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Chris?

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Christopher Watt, Tetraphase Pharmaceuticals, Inc. - Principal Financial & Accounting Officer [48]

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Yes, it's Chris. The question on the deck, we've only drawn the first tranche of $30 million and there are certainly there -- we have the ability to draw out a second tranche based on certain revenue milestones thresholds, but the guidance that I just provided in terms of our cash runway running out through into Q3 of 2020, does not assume that, that is drawn upon, it's just based on our current cash balance and the -- and our expected revenue from XERAVA.

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Operator [49]

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And our next question is a follow-up from the line of Edward Nash with SunTrust Robinson Humphrey.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [50]

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Just want to ask the option in China. You mentioned Everest is going to initiate Phase III trial in second quarter '19. Have they given any guidance in terms of when the trial is going to be complete and when the data can come out? And what are the associated milestone payment to you guys?

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Guy MacDonald, Tetraphase Pharmaceuticals, Inc. - CEO, President & Director [51]

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No, we haven't given guidance on either of those at this time, we're really pleased with how quick things have gone so far. We've clearly -- going to start Phase III a lot faster than we thought and we're very excited about the opportunity in China, and we'll provide some answers to that once the study is underway.

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Operator [52]

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Ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to Jennifer Viera for any closing remarks.

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Jennifer Viera, Tetraphase Pharmaceuticals, Inc. - Executive Director of Corporate Communications & IR [53]

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We want to thank everyone for joining us and if you have any questions, please reach out to Investor Relations at Tetraphase. Have a good evening. Buh-bye.

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Operator [54]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.