Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Robert Flamm - IR

Prabha Fernandes - President and CEO

Analyst

Alan Carr - Needham & Company

Brian Lian - SunTrust Robinson Humphrey

Stephen Brozak - WBB Securities

Stephen Willey - Stifel Nicolaus

Juan Sanchez - Ladenburg

Cempra Inc (CEMP) Toyama Exclusive Agreement Conference Call May 13, 2013 4:30 PM ET

Operator

Good day ladies and gentlemen, and welcome to the Cempra Call regarding the Exclusive Agreement with Toyama Chemical Company. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this call maybe recorded.

I would now like to turn the call over to Robert Flamm at Russo Partners. Please begin.

Robert Flamm

Thank you, Natalia. Good afternoon and welcome to Cempra’s corporate update call regarding the signing of an exclusive licensing and development agreement for solithromycin with Toyama Chemical Company Limited, a subsidiary of FUJIFILM Holdings Corporation in Japan.

Throughout today’s call, management will be making forward-looking statements including the timing regarding the developments and launch of solithromycin in Japan, the market needs for solithromycin in Japan, milestone payments and other statements that are not historical facts.

Such statements may include the words, plan, will, expect, believe, may, could, would or similar words, you are cautioned to not place undue reliance on those forward-looking statements, which are only predictions to reflect the company's beliefs, expectations and assumptions based on currently available information and speak only as of the time they are made.

Risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements include the cost, timing, regulatory review and results of Toyama’s and our studies in clinical trials, our need to obtain additional funding and our ability to obtain future funding on acceptable terms, our anticipated capital expenditures and our estimates regarding capital requirements, the possible impairment of or inability to obtain intellectual property rights and the cost of obtaining such rights from third parties and other risks identified in our SEC reports.

For a discussion of these and other factors, please refer to the risk factors described in our filings with the SEC. For forward-looking statements, we claim the protection of the Private Securities Litigation Reform Act of 1995.

I will now turn the call over to Prabha Fernandes, President and CEO of Cempra. Prabha?

Prabha Fernandes

Thank you, Robert. Good afternoon everyone and thank you for participating on today’s call giving us the opportunity to share with you the exciting news about the licensing and development agreements for solithromycin with Toyama Chemical Company. I will provide a brief overview of the agreement and then open the floor for questions.

As you have read in this afternoon’s news release, Toyama will have the exclusive rights to develop and commercialize solithromycin in Japan for all indications except (inaudible). Cempra will receive an upfront payment of $10 million as well as up to $60 million in milestone payments from Toyama based on achievements of certain objectives.

Following solithromycin’s launch into the Japanese markets we will receive tiered royalties that will be adjusted based on the level of sales. Toyama is an excellent partner of Cempra in Japan. They are well-known and well-regarded participants in Japan’s antibiotic markets. They have an extensive portfolio of antibiotics on the markets and infectious disease is one of Toyama’s three core product development areas.

We are excited that Toyama has agreed to commit significant resources to develop and commercialize solithromycin in Japan, to bring solithromycin a new important and much needed antibiotic to the Japanese market. We look forward to working with Toyama through this process. Japan could be an important market for solithromycin. It is the second largest antibiotic market in the world with sales of about $4 billion.

Macrolides, which account for about $700 million in sales in Japan, have been widely used in Japan because of their safety, efficacy, spectrum and availability for adults and children. Solithromycin shows potent antibacterial effects against pneumococcal and Mycoplasma isolates which have developed resistance to macrolides on the market.

Solithromycin has the potential to be as new, safe, effective and convenient antibiotics that will enable physicians to continue to treat respiratory tract infections with the macrolides. So this is our brief update on our licensing and development agreement. We would now like to open the floor to questions. Operator?

Question-and-Answer Session

Thank you. (Operator Instructions). The first question is from Alan Carr of Needham & Company. Your line is open.

Alan Carr - Needham & Company

Hi. Thanks for taking my questions and congratulations on the deal. Wondering if you could tell us a bit more around the financials for the deal in terms of the milestones, are they tied to developments, regulatory or indoor commercial events. And then can you characterize the royalties whether they are high single, double-digit that sort of thing? Thanks.

Prabha Fernandes

Thank you, Alan, and thank you for your good wishes. So the milestones are based upon various developments. You must remember that in Japan much of the development for clinical trials must be repeated. They take our data into consideration the Phase I, Phase II data and then they develop the dosage. So it’s a slightly abbreviated version but they are pretty much do the Phase I and Phase II over there. And so that will be obviously showing the Japanese, the Toyama people that this is going to be as effective as we have seen here.

So with that I cannot tell you exactly when the milestones will be reached, but they are based upon the development path, some of the patent regulatory issues as well as commercialization.

Alan Carr - Needham & Company

And any comment on royalties or any resolution there? A higher resolution?

Prabha Fernandes

Yeah, so again, I cannot give you the exact royalties, but they are double-digit royalties and it’s all based upon reaching certain objectives.

Alan Carr - Needham & Company

Okay. And what are your plans in terms of other Asian rights over that matter, other regions in terms of out licensing solithromycin?

Prabha Fernandes

So, as you know we are a biotech company and we are open to good partnerships. We are delighted with the Toyama partnership, we like them very much. We know that the resistance raised to macrolides is over 95% for pneumococcal and also in Mycoplasma in many parts of Asia. So solithromycin could be a valuable product for other Asian markets also as well as the rest of the world. So as a biotech company, we always look for partnerships, but we will be moving towards the NDA with already one partner on board.

Alan Carr - Needham & Company

Thanks for taking my questions and congratulations again.

Prabha Fernandes

Thank you very much.

Operator

Thank you. And the next question is from Brian Lian of SunTrust. Your line is open.

Brian Lian - SunTrust Robinson Humphrey

Hi. Thanks for taking questions and congratulations.

Prabha Fernandes

Thank you, Brian.

Brian Lian - SunTrust Robinson Humphrey

Can you just remind me of what the standard-of-care is in Japan for Community Acquired Bacterial Pneumonia and where solithromycin might be effective considering the paradigm?

Prabha Fernandes

Yes, so as in the past, in the United States standard-of-care is very similar for CABP throughout the world actually. In adults, you can use a third-generation cephalosporin plus a macrolide in many cases in Japan; macrolides are used in PORT-I and PORT-II pneumonia as used to be used here. As resistance has happened, people have changed to fluoroquinolones, which is very similar to what has happened here. In children, of course, you cannot use fluoroquinolones in the United States, and because of the need for treating broadly for Mycoplasma in and a typical tosufloxacin, which is a product from Toyama, is used to treat children.

Brian Lian - SunTrust Robinson Humphrey

Okay. And then you touched upon something first answer to Alan’s questions, but as far as resistance raised in Japan, are they as high as in China to the macrolides?

Prabha Fernandes

It is high. We don’t know the exact percentage throughout the country because it was not the nation-wide publication I have, but we know it’s at least 80% in some regions of Japan, so I expect it to be quite high.

Brian Lian - SunTrust Robinson Humphrey

Okay. And then finally, does Toyama have any rights or options on other Asian markets?

Prabha Fernandes

No, it’s only Japan.

Brian Lian - SunTrust Robinson Humphrey

Okay. Thanks very much. Congratulations.

Prabha Fernandes

Thanks again.

Operator

Thank you. The next question is from Steve Brozak of WBB Securities. Your line is open.

Stephen Brozak - WBB Securities

Congratulations. This is really exciting. A lot of the questions I was thinking about have been asked. But I do want to ask on a more personal and direct note. Probably you got a remarkable experience in dealing with overseas especially with Japan. Can you give us any color on why you chose partnering and any details? Then I got one follow-up after that.

Prabha Fernandes

Okay. So thank you Steve and thank you for your time today. In Japan, there are only about three or four at the most companies involved with antibiotics at all. So companies like Takeda for instance who used to be big in antibiotics are no longer in antibiotics, very similar to the western worlds, okay? So, if you think about who are the big players in antibiotic and who has shown commitment over the last 20 to 30 years to antibiotics, it is Toyama.

I have had a relationship with Toyama since the 1980s and they have been steadily in this space, they have made antibiotics and worked on them and commercialized them, and never given up on this space. They have been in a space now, which is now growing because of the resistance, and they are already there. We have a personal friendly relationship with this company. They have excellent chemists, excellent pharmaceutical development folks and can also commercialize.

Stephen Brozak - WBB Securities

Okay. That actually leads me to the next question because obviously we are seeing a dearth of developments in new antibiotics. Now that you’ve got a strong partner, now what are your thoughts in terms of, now that you got a strong partner, now the possibilities are for your next generation products and for potential other partnering in those types of products, what are your thoughts there? And I don’t want to obviously hold you anything, but what are your thoughts in terms of potential there? And now I’ll hop back in the queue.

Prabha Fernandes

So, we have, as you know not only solithromycin but we have TAKSTA in our portfolio. And these are Phase III programs which we’ll be running and will be expensive. However, we know that there will be a need. So if a good product comes to our mind, if a good, even an early stage program comes to our mind and they do because we do edit articles and so on for journals, in which case we may very well bring it up with our board and consider another molecule. It could come from here, it could also come from Japan, and we would certainly consider something, which would be a value added program at Cempra.

Now we would not take on (inaudible) program of some sort. This would have to be a real blockbuster type innovative molecule.

Stephen Brozak - WBB Securities

Again, congratulations on this great news. Thank you.

Prabha Fernandes

Thank you very much.

Operator

Thank you. The next question is from Steven Willey of Stifel. Your line is open.

Stephen Willey - Stifel Nicolaus

Hi, good afternoon and congratulations as well.

Prabha Fernandes

Thank you, Steve.

Stephen Willey - Stifel Nicolaus

Just, I guess with respect to kind of Toyama’s aspirations are developing with the drug, is it going to be in community-acquired pneumonia only. Do they express any interest in developing the drug for say gonorrhea as well, and does that influence the milestones or the royalties at all?

Prabha Fernandes

Their development path in Japan is quite different from here. It’s a very good question. They do not do this CABP PORT-II to PORT-IV with very clear guidance as we do in the United States. They use a different regulatory path in Japan; it’s more realistic as to how patients actually get treated. They will be studying it perhaps not against the Quinolone.

They may choose another drug to study, which is their standard-of-care. So their development program will be different. However, respiratory tract infection market is very large for macrolides, and this is the market, which will be first addressed by Toyama. The exact development program I’m sure they will reveal it, and it should not come from me.

Stephen Willey - Stifel Nicolaus

Okay. So there has been maybe some discussion around other indications, but their path at this point is just kind of strictly CABP.

Prabha Fernandes

Let’s leave it that it will certainly be for respiratory tract infections.

Stephen Willey - Stifel Nicolaus

Fair enough. And then, I just guess from a bigger picture perspective, kind of what the extra funds now lie to, and should we assume if and when you guys get concrete regulatory guidance which are comfortable with in terms of moving forward to the IV to oral step down, that study should initiate sometime now in the second half of this year?

Prabha Fernandes

Yeah, so that’s a good question too. So as you know last year we did a tight fund raise to be ready to start our IV to oral in the last quarter of this year, we intend to do that. Our Board is intent on us doing that because we cannot lose our traction we have to get to that NDA timeline. We will have our results from our end of Phase II meeting in the first half of this year itself, so we will know that. And this, the upfront from Toyama will certainly help us towards that IV to oral study, but it is going to require us to obtain more funding towards that study. However, it is not by self-sufficient to provide the capital for the full study of course.

Stephen Willey - Stifel Nicolaus

Okay. That’s helpful. Congratulations.

Prabha Fernandes

Thank you.

Operator

Thank you. (Operator Instructions). The next question is from Juan Sanchez of Ladenburg. Your line is open.

Juan Sanchez - Ladenburg

Hi guys, congratulations.

Prabha Fernandes

Thank you, Juan.

Juan Sanchez - Ladenburg

One brief question. Which one of the Asian market is the most, the largest or the most important for you guys, Japan, China or others? How competitive was this transaction?

Prabha Fernandes

Okay. So it’s an excellent question. So if you look at the body mass and the number of people in the world, obviously China and India are big. But the Japan is the second largest antibiotic market, and as I mentioned the total antibiotic market is over $4 billion in Japan. And the macrolide market alone is over $700 million in Japan. I do not believe the numbers in China or other countries has come close to that.

Juan Sanchez - Ladenburg

Got it. Thank you.

Prabha Fernandes

Sure.

Operator

Thank you. (Operator Instructions). And there are no further questions at this time. I’d like to turn the call back for closing remarks.

Prabha Fernandes

So thank you all for listening to our call. We look forward to updating you on oncoming events in the next few months. Thank you very much.

Operator

Ladies and gentlemen, this concludes today’s program. You may now disconnect. Good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cempra Management Discusses Toyama Exclusive Agreement Conference (Transcript)
This Transcript
All Transcripts