Q2 2019 Earnings Call

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I will now turn the call over to Maria stall Chief business Officer.

Thank you good afternoon, and thank you for joining us today with me on the call are Larry Edwards, President and CEO and Chris Watt Senior Vice President of Finance on todays call Larry will discuss recent developments and we'll provide an update on those are all the launch Chris will provide an overview on our second quarter 2019 financial result, and Larry will conclude and open the call to questions.

Before we begin our formal comments, 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 FCC, 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 information in the future.

I would now like to turn the call over to Larry Edwards.

Thank you Maria and good afternoon, everyone. Thank you for joining us for our call today.

It's an honor to be leading tetraphase, that's such a critical time to be addressing our shareholders publicly for the first time as a company's newly appointed CEO .

With our new streamline commercial focus the board of directors of my predecessor, Guy Macdonald recently made the decision to appoint me to President CEO effective August 1st.

It's a privilege to be leaving the company in working with such a driven team I'm committed to delivering on our mission to make <unk> accessible to patients on a global level.

As you know the second quarter was an important one for tetraphase as we'd made critical decision to undertake a corporate reorganization aim to maximize the commercial opportunity gives robin.

The Robbins are well differentiated antibiotic that had a broad spectrum of coverage as a very reasonable and appropriate price point.

Antibiotic resistance rates continue to increase and inappropriate initial impaired therapy continues to be a problem. We expect terravia to become an increasingly important component of the antibody treatment Arsenal for complicated intra abdominal infections.

With our newly focused organization. We believe we can continue to execute a successful launch which remains our number one priority.

Before we dive into an update on throttle launch I'd like to briefly reiterate some of the details of our recent reorganization, which we implemented back in June the goal was to enable the company to focus all of its resources on the commercial successes rather.

It was comprised of the elimination of our internal resource function as well as 20% reduction in the workforce and several management changes.

Once again, we would like to recognize that tetraphase owes many with innovations, including the discovery of the robber TP 271 P. P. 60, 76 T. P 20, 846 truth foundational chemistry platform and we think all the current and former employees for their dedication and commitment over the years.

We're now exploring out why can get opportunities for our innovative early stage antibiotics cannot oncology portfolio.

While we focus our efforts on to Robert we continue to believe in the potential of these assets, including TP two a four six which generated compelling early preclinical data for potential use as a treatment for acute myeloid leukemia and potential solid tumors.

We look forward to ongoing strategic discussions to find the best partner to further develop these compounds.

Turning to commercial update first Rob I'm pleased to say that our sales force continues to make significant progress with prescribing physicians across the U.S.

And the second quarter's Robert net revenues grew 133% from first quarter of 2019 to over 800000, which demonstrates a consistent doubling of revenues quarter over quarter.

We're encouraged by the steady growth and the positive feedback we continue to receive from health care providers not only value the clinical benefits for the Rabah, but also appreciate are appropriate and tiered pricing strategy.

Many physicians applaud throb as broad label and high clinical cure rates in patients with MTR pathogens, including FPL athlete backed or MRF say very compelling microbial infection.

Physicians also fueled the ability to use robin patients with penicillin and beta lactam allergies is a critical advantage why others believed the minimal risk of clustered him to fulfill develop in a patients treated with regard to the major asset.

Most physicians believe that is Rob as a logical alternative to beta lactam for patients with complicated intra abdominal infections.

Our launch execution strategy as we've outlined in previous quarters, it's comprised of two phases.

The first was targeting tier one accounts, which are the highest institutional users of antibody defined by days of therapy and represent approximately 6% of the gram negative market.

And the second is focusing on tier two accounts would constitute approximately 30% of the gram negative market.

We accomplish our goal of reaching tier one accounts during the first quarter of launch and all tier two accounts by the end of first quarter of 2019.

This breadth of coverage, we continue to see impressive reorder rates of greater than 50% for the rather at the end of the second quarter with reorder rate being as high as 65% within our tier one account segment.

The scope of coverage and continue frequent engagement with top tier accounts delivered impressive new customer growth, which equated to about 20% month over month growth during the second quarter with over 150, new customer ordering in the second quarter.

The recent growth of our customer base combined with high reorder rate signal a shift from steady progress to increase traction for going out to continue expanding our customer base and maintain progress with returning customers.

Procurian inclusion on hospital formulary is another significant component of our launch strategy.

We have a 99.7% formulary acceptance rate at our key target institution.

We're also pleased to report that the second quarter of 2019 at the most tier one and tier two formulary wins to date and more impressively, we surpassed the goal of being available at 400 institutions by mid year.

It's Rob is now available at more than 500 institution and there are approximately 300 formulary review pending a plane to take place by in the fourth quarter.

We believe some of the success is due to adding a team of three strategic market access executives to help drive formulary acceptance.

Acceptance at the C level as well as key integrated delivery networks and larger infusion centers.

While our regional business directors and regional account managers continue to focus on the ground level with I'd positions clinical pharmacists critical current sense, the hospitalists and surgeons.

To give you an idea of the initial is a rather usage by formulary status as of the end of second quarter, 19% of our sales came from off formulary counts 25 from pending formulary review account and then 56 from formulary on formulary and available with or without restriction.

The proportional or failed to steadily trending more towards accounts that have the robbins cured on formulary.

Our goal is to continue to generate demand for draw the pull through formulary wins and bring on new accounts.

During the second quarter is Robert usage has been the strongest in the inpatient setting which was responsible for 64% of our sales while the home health setting is responsible for 25%.

Beyond the inpatient and the home health setting long term care facilities and clinics drove approximately 11% of our growth.

We continue to see Terravia being used as a replacement for Carbapenems and other big Black hands, an area where resistance to tie in multiple other cases, Rob is being used for patients who have penicillin allergies or have additional co. Morbidities. We also note that the Robert does not require dose adjustment for renal impairment, which is being recognized as a key factor for usage by position since many IC you whenever we patients have renal insufficiency.

In terms of patient usage through 37 weeks of launch as Rob has accumulated anywhere from three to 10 times more patient days of therapy.

As well as more units sold than any recent IB hospital antibiotic launch.

Behind the increased adoption as Rob as a dedicated is the dedication and persistence of our tenured field sales force.

They continue to focus on tier one and tier two institutions as well as key infusion center of educating healthcare professionals and providing tools that show the benefits as Robert for patients.

An important point I'd like to draw your attention to is just this week the U.S. government agencies centers for Medicare and Medicaid services or CMS.

And now several significant changes to the hospital antibiotic reimbursement effective October Onest 2019.

The changes are part of a rule known as the inpatient prospective payment system for your 2020 final rule, which should help level the playing field. So that clinicians can choose the most appropriate antibiotic for their hospitalized patients without fear of hurting the hospital finances, we hope it will be additional incentive for clinicians to considers robin when treating patients.

There was a clear unmet need for non beta lactam agents that can cover resistant pathogens and potentially improve patient outcomes greater than 80% of antibiotics used to treat complicate inter abdominal infections or beta lactam and resistance continues to increase due to selective pressure put on this class with the rather health care professionals now have another option.

We believe the launch is trending in the right direction from formulary acceptances to formulary reviews scheduled to reorder rates to patient days of therapy, all continue to be on an upward trajectory within pay to revenue to mirror. This trajectory as additional formulas are secured and as our sales force converts physician engagement and as Robert usage.

Based on the directional indicators, thus far we believe our strategy of targeting empiric usage for Zurab is working but it will continue to take time, we look forward to continuing to update you as a loss progressive.

With that I will turn the call over to Chris to go through the financials in more detail.

Thanks, Larry.

As of June Thirtyth, 2019, Tetraphase had cash and cash equivalents of $71 million and 54.3 million shares outstanding.

The company expects that its cash and cash equivalents.

As well as expected revenue will be sufficient to fund operations into the middle of the third quarter of 2020.

As Larry mentioned a reduction in force was implemented as part of our recent corporate reorganization and this along with our other cost saving efforts will result in an approximate $8.2 million reduction in net cash required for operating activities on an annualized basis.

We have substantially completed the reorganization and will incur approximately $2.4 million of pre tax charges for severance and other costs.

Another cost saving item worth noting from Q2 is that we also received approval for the supplemental new drug application from the FDA for our new manufacturing facility for is a rather in Greenville, South Carolina, underscoring our commitment to the rabah, increasing our manufacturing capabilities and reducing our cost of goods.

For the second quarter of 2019, Tetraphase reported a net loss of $22.9 million or 42 cents per share compared to a net loss of $9.5 million or 18 cents per share for the same period in 2018.

Total revenues were $1 million for the second quarter of 2019 compared to $11.6 million for the same period in 2018.

Total revenues for the second quarter of 2019 consisted of the robber product revenue of $2.8 million as well as government contract revenue of $2.2 million.

The decrease in total revenues for the second quarter of 2019 compared to the same prior year period was primarily due to both a decrease in revenue from our collaboration with Everest medicines and government revenue offset in part by the rubber revenue.

Research and development or R&D expenses for the second quarter of 2019 were $8.1 million compared to $14.4 million for the same period in 2018.

The decrease in R&D expenses for the second quarter compared to the same prior year period was primarily due to a decrease in activity across all of our pipeline programs versus the prior year and lower license and milestone payments to Harvard University versus those that occurred in the second quarter of 2018.

Selling general and administrative or SGN expenses for the second quarter of 2019 or $15.1 million compared to $7.2 million for the same period in 2018.

This increase in SGN, a expenses for the second quarter compared to the same prior year period was primarily due to an increase in commercial related expenses for Rob.

Additional details on our financial performance for the second quarter may be found in our press release issued earlier today.

Ill now turn the call back over to Larry for closing remarks.

Thanks, Chris.

So in closing were pleased to see the keys are Rob launch metrics continue to trend in the right direction and with the recent reorganization. We know we have the right structure and strategy in place to enable a successful commercial launch as Robert.

As I mentioned in the beginning of the call. There is a clear unmet need and its Connecticut market opportunity Braava.

We are all working diligently to reach the goal, bringing this important new antibiotic to the patients in need.

We are grateful for your support and look forward to providing future updates with that we can now turn the call over for questions operator.

Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue.

Spreads the bounty.

Okay.

Your first question comes from the line of Ed RC from H.C. Wainwright.

Your line is open.

Hello, everyone, a there's probably about a couple of questions Brad.

So first regarding the horrific before a new ordering customers in second quarter.

Approximately what percentage growth does that represent some one Kevin I think another.

A person growth is probably about 40% of our growth. So we still have very high reorder rate. So we continue to have the reorder rate higher than 50%.

So that's still driving a lot of the growth that we have in the product.

Okay. Thanks, Thanks for the color and then.

Speaker off the reorder rate amongst the circuits and customers who reorder.

Approximately what portion.

Reorder more than once.

So the question is how many of the reorder rates are more than once.

Yes, yes majority the vast majority of what we see are most institutions are ordering anywhere from three to five times and they go all the way out to on a weekly basis. So typically what we're finding is once a hospital orders. We continue to have as I mentioned with our tier one which are the larger institutions have a 65% reorder rate. So we're finding with the larger institutions once they start using that they continue to use it.

Okay, that's Oscar.

And then regarding the new formulary review for the rest of the year.

Okay Golar what are some of the major factors that can drive success in those review.

I think a lot of it is you know the ones that typically now that were 37 plus weeks out what some of the driving probably important to behind those are ones that want to see usage. So theyre not the early adopters. So they want to know what hospitals in the area have added to formulary. So I think some of it is pull through and some of the ones. We currently have formulary on also some of it is testing and validation. So now that we have multiple option from a testing perspective, that's a key piece.

And I think lastly, then.

Probably one of the other key pieces is getting things integrated into the physician ordering system. So a lot of them once they add something to formulary. They also then have to add it into dependent upon what they are.

Cps, we is it could be cerner epic whatever that's another key piece of ensuring addition to formulary, but really also the formulary pull through.

Okay that makes sense.

Thank you again for taking my questions and congratulations on the progress we're thorough.

Thank you appreciate it.

Again, ladies and gentlemen few other question at this time. Please press the Star then the number one keep on your Touchtone telephone.

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