Paratek Pharmaceuticals, Inc.

Greetings and welcome to the Paratech Pharmaceuticals fourth quarter and full year 2022 earnings call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Tara Higgins, Vice President of Finance and Principal Accounting Officer. Please go ahead.

Thank you. Good morning and welcome to Paratex Year-End 2022 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.paratechfinance.com. Participants on today's call are Evan Moe, Chief Executive Officer, who will present prepared remarks, as well as Adam Woodrow, President and Chief Commercial Officer, 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?

Thank you, Sarah. Good morning, and thank you all for joining our year-end 2022 Financial and Corporate Update Call. 2022 was a very successful year for Paratech. Paratech generated a total revenue of $160.3 million, primarily as a result of robust Nuzara core commercial sales growth. Nuzara generated full-year 2022 net U.S. sales of $136.8 million, which included $98.7 million from the core commercial business, a 45% increase compared to net U.S. sales of $68.2 million in the prior year, and $38.1 million from the second procurement of New Zyra under the BARDA contract. Strong demand coupled with disciplined execution resulted in consistent year-over-year growth in New Zyra's core commercial business with a triple-digit compounded annual growth rate since New Zyra's U.S. launch in February of 2019. This growth has come from both the hospital and community settings, more recently with the community expansion being the primary driver. As seen on this next slide, over the four years of New Zyra's US launch, its commercial performance continues to clearly differentiate New Zyra as one of the most successful IV oral antibiotic launches in the last decade. As you can see illustrated on this next slide, we remain focused on three pathways to New Zyra revenue opportunities. First, New Zyra's core commercial business. This continues to be the main driver of our current revenue growth. Having both once daily oral and IV formulations enables New Zyra to have clinical utility in every setting of care. Despite the headwinds in the hospital setting that we observed in the second half of last year, as we enter 2023, we continue to project strong year-over-year commercial growth, especially in the community setting based upon continued positive metrics we are seeing in the majority of existing and new territories that we opened last year as part of our community expansion efforts. Second, non-tuberculous mycobacterial disease, or NTM. NTM represents a promising future growth opportunity in the orphan disease space. NTM of the M-obsessus subtype is an ultra-rare disease with currently no approved therapies anywhere in the world. In the U.S. alone, Paratech estimates that NTM Obsessus represents a potential $1 billion addressable market opportunity. Outside the U.S., we believe that Japan has a similar degree of unmet need and a total addressable market comparable in magnitude to that seen in the U.S. Given this potential, we have prioritized our outlisting efforts in Japan. In fact, in February, we held our fifth meeting in the last 12 months with the PMDA and have aligned on a registration program for NTM abscesses in Japan. The completion of this regulatory process is an important milestone in creating momentum for our ongoing discussions with potential partners. We've also initiated regulatory activities in Europe and anticipate a similar regulatory advice process to be completed this year for NTM. This process will garner both orphan drug designation and provide clarity on the development requirements to enable New Zyra's approval in Europe for NTM. As with the approach in Japan, completion of this regulatory process will be important to generating momentum in our partnering discussions for this region. In the U.S., the Phase IIb study continues to enroll with completion now expected by the end of this year. This modest delay in enrollment was due in part to the constraints on healthcare resources that shifted investigator activities away from clinical study research efforts back to bedside patient care, as well as hesitancy on the part of NTM patients with underlying pulmonary disease who were reluctant to venture into the hospital setting for care. Third, U.S. government opportunities. We believe that there is broad potential for new zyrus use across the U.S. government, not only through our BARDA BioShield public-private partnership that is aimed at protecting all Americans against bioterrorism threats such as 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 warfighters. Our BARDA program continued to progress well in 2022 with several on-shoring and animal study milestones. A 2022 highlight from our BARDA-supported on-shoring program included the completion of tablet validation and manufacturing. As a result, U.S.-manufactured NuZyra tablets are now commercially available. The anthrax animal rule development program continued to progress on plan. Data delivered from our pilot efficacy study in rabbits at year end triggered our second barter procurement. This study provided unequivocally positive data in all three doses of imatocycline, demonstrating 100% efficacy. All rabbits infected with anthrax and treated with imatocycline survived to 45 days, which is the primary endpoint in an anthrax treatment model. Importantly, All rabbits infected with anthrax who were not treated with hematocycline died within 72 hours. These data have been accepted and will be presented at the ASM Micro Conference in June. These clear and unambiguous results support our high level of confidence that the Animal Rule Program will yield a successful label expansion for both the treatment and prophylaxis of pulmonary anthrax along with future government procurements. Now I'd like to review Paratech's 2022 financial highlights as well as our revenue guidance for 2023. Fourth quarter total revenue was $75.6 million compared to $31.8 million for the same period in the prior year. Total revenue for the fourth quarter was comprised of the following. New Zyra net U.S. sales of $66.4 million, a 22.1% increase from $20.6 million in the prior year, which includes $28.3 million in net sales from the core commercial business, a 37% increase year-over-year compared to the same period in the prior year, and $38.1 million in revenue from the second procurement of New Zyra under the BARDA contract. Government contract and grant revenue earned from cost reimbursement under the BARDA contract was $8.4 million, an 83% increase from $4.6 million for the same period in the prior year. Collaboration royalty revenue was $0.8 million, which primarily represents royalty revenues earned on sales of Cesara in the U.S. Full year 2022 total revenue was $160.3 million, compared to $130.2 million for the prior year, an increase of 23% over the prior year. Total revenue for 2022 was comprised of the following. First, New Zyra generated net U.S. sales of $136.8 million, a 29% increase from $106.1 million in the prior year. Net U.S. sales was comprised of the following, $98.7 million from the core commercial business, which represents a 45% year-over-year increase compared to full-year net U.S. sales of $68.2 million in the prior year, and $38.1 million from the second procurement of New Zyra under the BARDA contract. Second, government contract service and grant revenue earned From cost reimbursement, under the BARDA contract was $21.1 million, a 33% increase from $15.9 million in the prior year. Third, collaboration and royalty revenue of $2.4 million, which primarily represents royalty revenues earned on sales of CESARA in the U.S. R&D expenses were $14.3 million for the fourth quarter of 2022 compared to $10.4 million for the same period in the prior year. R&D expenses were $37.8 million for the year ended December 31, 2022, compared to $30.4 million in the prior year. The increase in R&D expenses in both periods was primarily due to costs for activities reimbursed under the BARDA contract and costs incurred for the Phase 2b NTM study. SG&A expenses were $53.8 million for the fourth quarter of 2022, compared to $44 million for the same period in the prior year. SG&A expenses were $145.6 million for the year ended December 31, 2022, compared to $119.4 million in the prior year. The increase in SG&A expenses in both periods was primarily due to costs incurred in connection with the New Zyra community expansion and travel costs as a result of the lifting of COVID restrictions. During the fourth quarter of 2022, as a result of New Zyra's strong sales since launch, Combined with increased confidence in our projected future sales, we accrued a contingent non-recurring compensation charge of $21.9 million payable in 2027. Excluding this charge, combined R&D and SG&A expenses for the full year 2022 were $161.5 million. Now turning to our full year 2023 revenue guidance. which, as you can see in this slide, is expected to be in the range of $143 to $158 million. This includes the following. NSIRA net U.S. sales, which are expected to be between $125 and $135 million, part of government contract service and grant revenue between $15 to $20 million, and royalty and collaboration revenue of approximately $3 million. We expect to reduce full-year 2023 R&D and SG&A expense below that incurred in 2022. More detailed operating expense guidance will be provided during the company's first quarter 2023 earnings call. Paratech had cash and cash equivalents of $34.2 million as of December 31, 2022, which combined with the $36.4 million in cash received from BARDA for the second procurement of Musaira yielded a pro forma balance of $70.3 million as of January 4th, 2023. This balance alone may not be sufficient to fund operations through 12 months from the filing date of our 2022 Form 10-K. We expect to address our future cash needs primarily through a combination of product sales, royalties, public or private equity offerings, debt or other structured financings, strategic partnering opportunities, government procurements, and active management of cash and expenses through operational efficiencies. If these activities are successful, the company expects to be able to fund operations beyond the first quarter of 2024 and to accelerate its pathway to profitability. In closing, the new Zyra commercial business continues to demonstrate robust year-over-year growth, as expected, across both the hospital and community sectors. and our development programs continue to progress the plan. With that, I would now like to open up the call for questions.