Paratek Pharmaceuticals, Inc. (NASDAQ:PRTK) Q1 2023 Earnings Call Transcript May 9, 2023
Operator: Greetings. And welcome to the Paratek Pharmaceuticals’ First Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded, Tuesday, May 9, 2023. It is now my pleasure to turn the conference over to Sarah Higgins, Vice President of Finance and Principal Accounting Officer. Please go ahead.
Sarah Higgins: Good afternoon. And welcome to Paratek's first quarter 2023 earnings and corporate update conference call. A press release with the company's financial results was issued earlier today, and we have also posted slides on our website to which we will refer on this call. Both can be found at www.paratekpharma.com. Participants on today's call are Evan Loh, Chief Executive Officer; And Adam Woodrow, President and Chief Commercial Officer, both of whom will present prepared remarks. Randy Brenner, Chief Development and Regulatory Officer; Michael Bigham, Executive Chairman, and I will be available for questions. Before I turn the call over to Evan, I would also like to point out that we will be making forward-looking statements, which are based on our current expectations and beliefs.
These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our 2022 Form 10-K and other SEC filings for additional detail. Evan?
Evan Loh: Thank you. Sarah. Good afternoon, and thank you all for joining our first quarter 2023 financial and corporate update call. Over the first four years of NUZYRA’s US launch, its commercial success continues to clearly differentiate its core commercial performance as one of the most successful IV oral antibiotic launches in the last decade. Strong demand, coupled with disciplined execution, resulted in consistent year-over-year growth in NUZYRA’s core commercial business. NUZYRA generated net US sales of $26.2 million the first quarter of this year, a 32% increase from $19.9 million in the same quarter of the prior year. Consistent with past performance expectations, we saw a modest decrease in net sales in the first quarter of this year compared to the fourth quarter of last year, which is likely due to the annual insurance resets that occur at the beginning of each year.
Encouragingly, we saw momentum in overall sales growth in the latter half of the first quarter that has continued through April. In addition, we have seen some early signals of a potential improvement in the overall hospital business environment. As you can see on the right side of this slide, we are pleased to report that our trailing 12-month net revenue has now surpassed the $100 million threshold, an important milestone in the evolution and consistent upward trajectory of NUZYRA’s commercial growth. The hospital and community segments have both contributed significantly to the year-over-year growth in the NUZYRA core commercial business. These positive trends allow us to have confidence in reiterating our full year 2023 revenue guidance of $143 million to $158 million as captured on this slide.
Paratek is focused on three pathways to NUZYRA revenue generation. First, NUZYRA's core commercial business, the main driver of our current revenue growth. Having both once daily oral and IV formulations enables NUZYRA to have clinical utility in every setting of care. Second, non-tuberculous mycobacterial disease or NTM. NTM represents a promising future growth opportunity in the orphan disease space. NTM of the M.abscessus subtype is an ultra-rare disease with currently no approved therapies anywhere in the world. In the US, the phase 2b study continues to enroll to plan, with completion expected by the end of this year. In the US alone, Paratek estimates that NTM abscessus represents a potential $1 billion addressable market opportunity.
Photo by National Cancer Institute on Unsplash
Outside the US, we believe that Japan has a total addressable market comparable in magnitude to that seen in the US. Given the magnitude of this potential, we have prioritized our regulatory and out licensing efforts in Japan. Given the amount of inbound interest and stage of negotiations, we expect to be able to announce a Japanese partnership by the end of this year. In 2023, we have also initiated regulatory activities in Europe and anticipate a regulatory advice process to be completed this year, which we believe will accelerate potential partnering discussions for this region as well. Third, US Government opportunities, we believe that there is broad potential for NUZYRA’s use across the US government, not only through our BARDA, BioShield public private partnership for Anthrax, but across the Health and Human Services sectors that address pandemic preparedness needs and broadly across the Department of Defense as an important agent to protect our active war fighters.
Now I would like to review Paratek’s first quarter 2023 financial highlights. Total revenue for the first quarter of 2023 was $31.2 million, compared to $24.9 million for the same period in the prior year. Total revenue for the first quarter was comprised of the following. NUZYRA net US sales of $26.2 million, a 32% increase from $19.9 million for the same period in the prior year. Government contract, service and grant revenue earned from cost reimbursement under the BARDA contract of $3.8 million, a 12% decrease from $4.3 million for the same period in the prior year. Collaboration and royalty revenue of $1.2 million, a 71% increase from $0.7 million for the same period in the prior year, which primarily represents royalty revenues earned on sales of NUZYRA in China and on sales of SEYSARA in the United States.
R&D expenses were $7.3 million for the first quarter of 2023, compared to $7.5 million for the same period in the prior year. SG&A expenses were $33.5 million for the first quarter of 2023, compared to $27.6 million for the same period in the prior year. The increase in SG&A expenses is primarily the result of costs incurred in connection with the NUZYRA community expansion. Consistent with our commitment to accelerate our pathway to profitability, we are targeting a significant reduction to our annualized fourth quarter 2022 spend rate through operational efficiencies and active management of cash and expenses, enabling us to announce 2023 full year expense guidance in the range of $160 million to $170 million. This range includes the following components.
Core business R&D and SG&A expenses of $145 million to $150 million and reimbursable BARDA, R&D and US onshore expenses of $15 million to $20 million. As seen in the orange bar on the far left, R&D and SG&A expenses in the fourth quarter of 2022 totaled $68.1 million, which included a contingent nonrecurring charge of $21.9 million. Excluding this charge, R&D and SG&A expenses in the fourth quarter of 2022 totaled $46.2 million, which included the full cost burden of the community sales force expansion completed in the second half of last year. As depicted in the orange bar in the graph on the right, annualizing the fourth quarter 2022, R&D and SG&A expenses of $46.2 million would have resulted in a full year 2023 spend of approximately $185 million.
Compared to this annualized expense account, the company projects a 2023 expense guidance in the range of $160 million to $170 million as depicted in the blue bar on the right, which represents a reduction of approximately $20 million in full year R&D and SG&A expenses for 2023. And finally, Paratek had cash and cash equivalents of $45 million as of March 31, 2023. I would now like to turn the call over to Adam.
Adam Woodrow: Thanks, Evan. The growth of NUZYRA in both the hospital and community settings continues to progress according to plan. And our progress represents a material difference in trajectory compared to all other oral broad spectrum branded antibiotics most recently launched. As seen on the left panel of this slide, disciplined execution has resulted in an impressive year-over-year growth in NUZYRA's core commercial business, evidenced by the 32% increase in net revenue from Q1, 2023 versus Q1, 2022. On the right panel of this slide, first quarter gross demand, the leading indicator of future sales growth, increased year-over-year by 50% over the same quarter in the prior year. As a brief reminder, gross demand represents all orders from hospitals and associated accounts, as well as prescriptions fulfilled by our specialty pharmacy partners in the community.
This is the key metric we use to determine forward looking progress towards our commercial goals. The difference between net sales and gross demand in any quarter is driven by inventory fluctuations throughout the distribution channel, a timing issue and gross to net discounts. As Evan noted earlier, we saw a modest reduction in first quarter net sales compared with the fourth quarter of last year, primarily due to annual insurance resets. Importantly, we also saw a modest increase in gross demand compared to the prior quarter. Both results were in line with our expectations and of similar magnitude compared to the same period in the prior year. As a result of this quarter's performance, combined with the sales momentum we have seen through April, we maintain our confidence in achieving the growth required to meet our full year revenue guidance for the core commercial business of $125 million to $135 million.
As seen on this slide, we continue to see growth across both the hospital and community sectors of our core commercial business. With the investment to date in the community expansion, we're seeing an acceleration in the share of prescription days of therapy generated by this team. Total prescription days of therapy generated by the community based representatives remain on track to exceed the prescription days of therapy generated by the hospital based representatives by the end of 2023. We continue to believe that the expansion of the community sales team and the associated medical support will maximize long-term growth for NUZYRA. As you can see on slide 17, in contrast to the headwinds we've seen during the last half of 2022, there appears to be potential early signals of an emerging recovery in the hospital setting which is both encouraging and welcomed.
This shift may be a result of two factors. First, an improving macroenvironment regards recruitment and staffing within the hospital setting and second, a subtle but important change in our messaging within the hospital. While our physician targeting remains ID physicians and critical care pulmonologists, our message is now focused on discharge on oral NUZYRA therapy in patients with a known or suspected resistant pathogen who also have a complicating comorbidity. This shift leans into the dominant, once daily oral usage pattern we have seen for NUZYRA in this setting of care. In addition to these early and positive trends in the hospital business dynamics since February, we're also seeing a steady increase in new hospital prescribers as shown in the dark blue bars on this slide.
This trend is a good signal for new growth in the hospital business after the headwinds of the last two quarters. In addition, we continue to see a quarter-over-quarter increase in new community prescribers as seen graphed here in the power blue bars. With new prescribers increasing in both the hospital and community settings and a strong start to the second quarter, we look forward to sharing details around our continued progress and momentum during our next earnings call. With that, I would now like to open up the call for questions.
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