Paratek Pharmaceuticals, Inc.

Greetings and welcome to Paratech Pharmaceuticals' fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ben Strain, Vice President of Investor Relations.

Good afternoon and welcome to Paratech's fourth quarter and full year 2020 earnings and corporate updates conference call. A press release for the company's fourth quarter and full year results was issued earlier today and we've also posted slides on our website that will be referred to on this call. Both can be found at www.paratechpharma.com. Participants on today's call are Evan Lowe, CEO, Adam Woodrow, President and Chief Commercial Officer, Randy Brenner, Chief Development and Regulatory Officer, Michael Bigum, Executive Chairman, and Sarah Higgins, Vice President of Finance, Controller, and Principal Accounting Officer, will also be available for questions. Before I turn the call over to Evan, I would 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 SEC filing for additional details. Evan?

Thank you, Ben. Good afternoon, and thank you all for joining our fourth quarter and full year 2020 earnings and corporate update call. Before I provide an overview of our corporate highlights, I would like to thank all of our Paratech employees who have worked tirelessly and courageously throughout 2020 to ensure the continued commercial success of Musaira and the advancement of Paratech's mission to provide lifesaving medicines for patients in need in this challenging pandemic environment. I would also like to acknowledge and thank those selfless and dedicated healthcare professionals who each and every day are putting themselves at risk being at the bedside to save lives of patients in need. The strong quarter-over-quarter revenue growth seen through the first three quarters of 2020 continued into the fourth quarter as New Zyra generated net revenue of $12.4 million, a 14% increase over the third quarter. For the full year 2020, New Zyra generated $38.8 million, which was at the high end of our most recently communicated commercial range, well exceeding our original core business New Zyra commercial sales guidance of $28 million that we had provided in February of last year. Our belief and confidence in the long-term commercial success of New Zyra continues unabated based upon the 2020 performance metrics of New Zyra through continued strong demand in the hospital care settings. Throughout 2020, we continue to execute and deliver against our objectives, targeting our priority hospitals while providing educational scientific exchange to ensure that physicians understand and appreciate New Zyra's unique profile. New Zyra's one stately well-tolerated oral and intravenous formulation combined with New Zyra's broad-spectrum profile, offers a much-needed new, life-saving antibiotic for patients with serious community-acquired infections. In today's COVID environment, New Zyra's ability to minimize hospital stays with the oral formulation is especially relevant for many prescribers and a potentially meaningful benefit for patients. New Zyra's continued quarter-over-quarter growth in 2020 is not only a significant achievement in a volatile and rapidly evolving healthcare setting, but a reflection of the clinical importance and the positive patient outcomes with Neuzira in the hands of clinicians. The launch success to date has established Neuzira as one of the most successful antibiotics launched in the last five years. We've always believed that Neuzira's product profile makes it a very attractive option for community use, specifically its broad-spectrum profile and once-daily oral formulation. With access to Neuzira now firmly in place, combined with significant support from infectious disease specialists who have been successfully treating patients in the hospital setting, we believe that the time is right now, two years post-launch, to further strengthen our launch trajectory by expanding commercial promotion into the primary care setting. The community expansion will initially focus on the larger of the two approved indications, serious skin infections, which in our estimation is an approximately $2.2 billion addressable market opportunity. Adam will provide more details on this exciting commercial development for New Zyra. As noted on this next slide, in 2021, we will be focused on a number of exciting and potentially transformative priorities in what should be a catalyst-rich year for both Paratech and New Zyra. In addition to the community expansion of the New Zyra launch into the primary care setting, We anticipate that these catalysts include two barter procurements of Nuzaira for the Strategic National Stockpile, the FDA decision on the Nuzaira SNDA for the oral loading dose in CAP, the initiation of a Phase IIb study for Nuzaira in NTM abscesses, and the approval of Nuzaira in China for both skin infections and pneumonia, which will trigger a $6 million milestone payment from ZyLab to Paratech. Randy will provide additional details on both. the NTM and BARDA programs in his prepared remarks. Before I hand the call over to Adam, I would now like to provide Paratech's fourth quarter and full year 2020 financial highlights and review our 2021 financial guidance. Fourth quarter 2020 total revenue was $16 million, an increase of 17% over the prior quarter and 78% over the fourth quarter of 2019. Newsira contributed $12.4 million in net U.S. sales in the fourth quarter, an increase of 14% over the prior quarter, and an increase of 130% over the fourth quarter of 2019. Fourth quarter 2020 government contract service and grant revenue were $2.8 million versus $2.7 million in the third quarter of 2020. Of note, no revenue was generated from the BARDA contract in 2019 as it was executed near the end of December of that year. Full year 2020 total revenue was $46.9 million with New Zyra generating $38.8 million in net U.S. sales in 2020, a 237% increase over the prior year, while government contract service and grant revenue and collaboration and royalty revenue contributed an additional $8.2 million in 2020. Fourth quarter R&D expenses were $6.3 million compared to $9.1 million for the same period in the prior year. Full-year 2020 R&D expenses were $23.9 million compared to $39.6 million in 2019. The decrease in both periods is primarily the result of lower clinical study costs, partially offset by an increase in expenses incurred under the BARDA contract and third-party manufacturing process scale-up to meet expected future demand for New Zyra. Fourth quarter SG&A expenses increased $3 million to $24.3 million when compared to the same period in the prior year due to costs incurred to realign our hospital territories and our community expansion. Full year 2020 SG&A expenses were $89.9 million compared to $89.1 million in the prior year. Now, turning to our 2021 financial guidance. I will begin on the left side of this slide, which is focused on R&D and SG&A expense. Full year 2021 R&D and SG&A expense is expected to be between $150 and $155 million, comprised of two components. The first component is the core business R&D and SG&A expense of $130 million, which is represented by the dark blue stack of the 2021 histogram bar. This represents an increase of 20 percent over 2020, but as noted in the leftmost dark blue 2019 histogram bar, a level of core business R&D and SG&A expense that is consistent with 2019 pre-pandemic levels. The expected and modest increase in the core business R&D and SG&A expense in 2021 compared to 2020 will be driven by allocation of capital to the primary care expansion and the initiation of the Phase 2B study in NTM. Both efforts will drive, in our estimation, significant value for both Paratech and for all shareholders. The other component of full year 2021 R&D and SGA expense will be driven by BARDA R&D and manufacturing onshoring costs, both of which are subject to full BARDA reimbursements, which is anticipated to range between $20 to $25 million. Turning now to the right side of the slide, Paratech estimates full year 2021 total revenue to range between $166 and $177 million. I'd like to provide a breakdown of this estimated revenue range. The majority of this full year 2021 revenue range estimate consists of 2021 New Zyra U.S. net product sales, which are expected to range between $138 to $144 million. This sales revenue range estimate includes between $68 to $62 million from the core Musaira commercial business represented by the green stack in each of the revenue histogram bars and an additional $76 million from two expected barter procurements for the S&S represented by the orange stack in the 2021 revenue histogram The first of these two BARDA procurements is expected to occur in the first half of the year, with the second BARDA procurement occurring in the second half of the year. The balance of the 2021 revenue full year consists of royalty and collaboration revenue of approximately $8 million and BARDA government contract service and grant revenue between $20 to $25 million. Again, this BARDA contract service and grant revenue provides 100% reimbursement with the estimated full year 2021 BARDA R&D and SG&A expenses, as noted previously. While we do not typically provide quarterly guidance, we anticipate the core New Zyra commercial business to be modestly impacted in early 2021 due to the ongoing COVID pandemic, limiting face-to-face interactions with hospital-based physicians, a lighter-than-normal flu season, and the reorganization of our contracted hospital sales force, which Adam will provide more details on shortly. Our revenue guidance assumes an acceleration in the second half of 2021, driven not only by our expectation that hospital access will improve as vaccination coverage brings us closer to herd immunity, but also by the maturation of both the hospital-based sales team and the community sales expansion, which just kicked off this month. Late in the fourth quarter, we also entered into a $60 million non-recourse loan agreement with an affiliate of OurBridge Healthcare Investment Advisory. This loan will be repaid using 100% of the royalty proceeds from our license and collaboration agreement with XyLab, plus an initial 2.5% revenue interest from the company's U.S. net sales of New Zyra, the latter of which will carry an initial annual cap of $10 million per year. All Xilab-related milestone payments, including the near-term USIRA approval milestone, are excluded and remain 100% with Paratech. The net proceeds of the loan, together with cash on hand, was used to prepay in full all obligations outstanding under the company's amended and restated loan and security agreement with Hercules Capital. Importantly, I would like to emphasize that the Arbridge loan is non-recourse to Paratech and extends the maturity and amortization period to as late as 2032, which is up to nine years beyond that of the Hercules facility. We believe that this financing, as structured, provides further strategic flexibility to our balance sheet and materially strengthens our overall cash position. Based upon our current operating plan as just described, we anticipate our existing cash, cash equivalents, and marketable securities of $125.2 million as of December 31, 2020, provide for a cash runway through the end of 2023 with a pathway to cash flow break-even. I would now like to turn over the call to Adam.