Cempra Inc (NASDAQ:CEMP)
Q2 2013 Earnings Conference Call
July 30, 2013 4:30 PM ET
Robert Flamm - IR, Russo Partners, LLC
Prabhavathi Fernandes - Founder, President and CEO
Mark W. Hahn - EVP and CFO
Alan Carr - Needham
Stephen Brozak - WBB Securities
Stephen Willey - Stifel Nicolaus
Good day, ladies and gentlemen, and welcome to the Cempra Second Quarter 2013 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this call may be recorded.
I will now introduce your host for today's conference, Robert Flamm of Russo Partners. You may begin.
Thank you, Ashley. Good afternoon and welcome to Cempra's second quarter first half financial and operating results conference call. Joining me on the call are Prabha Fernandes, the President and Chief Executive Officer; and Mark Hahn, the Chief Financial Officer at Cempra.
Before I turn the call over to Prabha, I would like to point out that management will make forward-looking statements during this conference call. Such forward-looking statements include statements about the timing of the completion and announcement of results of the solithromycin oral Phase 3 clinical trial and community-acquired bacterial pneumonia, the timing of the completion and announcement of results of the Phase 2 clinical trial of Taksta for prosthetic joint infections; the timing of initiation of IV-to-oral Phase 3 clinical trial of solithromycin and community-acquired bacterial pneumonia; the timing of initiation and completion announcement results of the solithromycin pediatric study in biodefense pathogen studies; financial guidance 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 these forward-looking statements, which are only predictions and 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 our studies and clinical trials, our anticipated capital expenditures and our estimates regarding our capital requirements, our need to obtain additional funding, and our ability to obtain future funding on acceptable terms; 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 would now turn the call over to Prabha Fernandes, President and CEO of Cempra. Prabha?
Thank you, Robert. Good afternoon everyone. Welcome to our teleconference presentation on our second quarter and first half of 2013 financial results, and update on our activities at the company. I will provide a brief overview of the events that occur during the second quarter of 2013; as well as update you on our guidance for our clinical programs. Mark will provide a financial overview for the quarter and the first half of the year.
The second quarter of 2013, included a series of important events that brought clarity to our solithromycin development program. Let's start with solithromycin; several events that occurred in the quarter have clarified that drugs planned passed towards approval for community-acquired bacterial pneumonia or CABP in the United States.
First, we successfully completed a follow-on equity offering, that raised about $54 million. This, along with other sources, has provided us the capital necessary to complete the solithromycin Phase 3 program in CABP and submit our NDA to the FDA, based on our current projections for the studies and trials we expect the FDA to require.
Second, we signed an exclusive license and development agreement for solithromycin in Japan; The Toyama Chemical Co. Ltd., a subsidiary of FUJIFILM Corporation. This deal is a collaborative arrangement with the leader in antibiotic development and marketing in Japan, that involves not only the development of solithromycin in Japan, but also the sharing of data and other information for the benefit of both our programs worldwide. It also provided us with $10 million upfront payment that we can apply to solithromycin Phase 3 CABP program in the U.S. Additional milestone payments totaling up to $50 million are expected, based on predefined milestones. Double digit royalties on sales would be paid to Cempra, provided certain sales and contract levels are met in the future.
Third, we were awarded a contract from the Biomedical Advanced Research and Development Authority, which we frequently refer to as BARDA, that will substantially fund pediatric development of solithromycin, as well as test solithromycin against biodefense pathogens. This contract will possibly enable us to include a -- pediatric include indication in solithromycin's label. New antibiotics for treating infections in pediatrics are urgently needed, and we believe that solithromycin could be very useful in treating infections, by resisting pathogens in children.
Finally, the end of Phase 2 meeting with the FDA for solithromycin, has provided what we believe has cleared its direction on what is required to submit the NDA for CABP. This includes two double blind controlled and randomized Phase 3 studies, one is the ongoing -- the solithromycin oral study versus moxifloxacin and the second is the IV-to-oral step-down trial, also compared to IV and oral moxifloxacin or AVELOX.
Both studies, they enroll about 800 patients and use the same primary endpoint, non-inferiority in the early clinical response rate. We expect to obtain top line data for the oral Phase 3 trial in mid-2014. We plan on starting the IV-oral Phase 3 trial during the fourth quarter of this year. We plan on providing a guidance, as to the anticipated announcement of top line results of the IV-to-oral trial, after it is initiated.
At (inaudible) in May, we present the data on the first 25 evaluable patients from solithromycin's Phase 2 study with patients with uncomplicated gonorrhea. The drug demonstrated 100% efficacy in (inaudible) infection. The study is now closed after 59 patients have been enrolled. All evaluable patients, and a total of 42 patients had culture-proven gonorrhea, were successfully treated with solithromycin, and Dr. Edward Hook presented these results in the International Society for Sexually Transmitted Disease Research in July in Vienna. Solithromycin is Phase 3 ready for this indication now.
Based on the recent end of Phase 2 meeting with the FDA, a single Phase 3 study of solithromycin and uncomplicated bacterial urethritis and gonorrhea infections, would likely be sufficient if the Phase 3 CABP trials are successful. Treatment of Chlamydia [pool] infection may be included as a secondary endpoint. The specific protocol remains under discussion.
Moving on to Taksta; as you may know, Taksta is our oral, loading dose formulation of Fusidic Acid, which is an anti-staphylococcus drug with a long history of safety and efficacy outside of the United States. We are developing a Phase 3 prosthetic joint infection or PJI for which current antibody therapy is limited to intravenous infusions over six weeks. Previously we had noted, that it had up to 10.5 years of U.S. market exclusivity, based on Hatch- Waxman, the GAIN act, and six months pediatric exclusivity.
During the second quarter, the patents on the Taksta loading dose formulation was issued by the U.S. Patent and Trademark office. This provides patent protection into 2029, with additional years for patent term extension. The Phase 2 trial of Taksta in PJI continues to enroll, and we are planning to announce interim data by the end of 2013.
We have submitted a number of abstracts for presentation at the Interscience Conference on Antimicrobial Agents and Chemotherapy commonly known as ICAAC, which occurs on September 10, 2013. We will let you know the details of these presentations if accepted, at that appropriate time. We will be presenting at the Robert W. Baird Healthcare Conference on September 10 and 11, in New York and the Stifel Healthcare Conference in September 11 and 12 in Boston.
That is the current status of our program, now I would like to turn the call over to Mark Hahn, our CFO, to review the financials. Mark?
Mark W. Hahn
Thank you, Prabha, and good afternoon. Cempra reported a net loss of $4.2 million or $0.16 per share for the first quarter of 2013. This compares to a net loss of $9.5 million or $0.45 per share in the second quarter of 2012.
Revenue was $4.6 million for the quarter and first half of 2013, which included $4.3 million of $10 million upfront payment from Toyama Chemical Company, and $232,000 related to our BARDA contract. The remaining $5.7 million for the Toyama upfront payment is recorded as deferred revenue on the balance sheet, and will be recognized into revenue, as we launch solithromycin.
Research and development expense was $6.3 million, a 15% decrease over the $7.4 million of R&D spend in the second quarter of 2012. The decrease resulted primarily from license and milestone payments to Scripps Research Institute and Optimer Pharmaceuticals during the second quarter of 2012, which did not recur in 2013.
General and administrative expense was $2.1 million, a 17% increase over 2Q 2012, driven primarily by increased stock compensation expense, professional fees and increased staffing.
For the first six months of 2013, Cempra reported a net loss of $14.6 million, or $0.57 per share. This compares to a net loss of $13 million or $0.76 per share for the first six months of 2012.
Research and development expense was $13.7 million, a 47% increase over the $9.3 million of R&D spend in the first six months of 2012. The increase was due to the initiation of both the oral solithromycin Phase 3 trial in CABP and the Taksta Phase 2 trial in PJI during the fourth quarter of 2012. General and Administrative expense was $4.7 million, a 72% increase over the $2.7 million during the first six months of 2012.
Our cash and equivalents balance at June 30th, was $121.6 million. The increase from December 31 was driven by the $54 million raised in the June follow-on equity offering; the $10 million upfront payment from Toyama Chemical; and the $5 million draw under our venture debt arrangement, less operational expenses that were incurred in the first half of the year.
We expect cash and equivalents to provide capital for our current programs through 2015, including the Phase 3 solithromycin IV-to-oral study, which is anticipated to be initiated during the fourth quarter of 2013. This projection does not include any funds from any possible future partnerships or financings. Prabha?
Thank you, Mark. That is all for today. So operator, we are now ready for questions.
(Operator Instructions). Our first question is from Alan Carr of Needham and Company. Your line is open.
Alan Carr - Needham
Hi. Thanks for taking my questions. A couple of them relating to solithromycin. Can you comment on how enrolment is going for the oral Phase 3 trial? I think you guided for first half, now its mid-2013? Then the second is, with regards to the IV-oral solithromycin trial, what's the distribution of sites or where do you expect the distribution sites to be, U.S. versus ex-U.S., I am wondering how important it is that you get particularly serious infections in this trial, in order to show a difference between the two drugs? Thanks.
So, thank you Alan. Yes, we are enrolling in our oral Phase 3. We have not announced the enrolment, because as you know, it's a seasonal disease, for some months look higher and some months look lower. We are enrolling in Russia, in Eastern Europe, in Europe, as well as sites are opening up in Latin America, U.S. of course has been enrolling for a while. So enrolment is going okay, and we do expect right now to release the data mid next year. Again, we don't know Alan, what the winter months are going to be, coming up. It has been pretty cold in North Carolina right now, so maybe it will be a good winter for us, so we will get CABP season throughout the country, but it will all depend on what CABP is like in this coming year, and enrollment will happen, as summer is going on in Latin America right now.
Alan Carr - Needham
Okay. Go ahead.
Let me [do] the second question. For the IV-to-oral, we expect to start that at the end of this year, the last quarter of this year, as we had done during the financing, I think you know that. We will be enrolling, some of the sites we use will be the same. These are those who have the hospitals bed, obviously who get intravenous. Of them, especially in the U.S., are urgent care centers. So it will be different centers in the U.S., a lot, who gets the IV drug. But the countries for distribution will be the same as what we have used for the oral study, except a few more possibly in Eastern Europe, and we are going to use some Asian sites, like in Taiwan and in Hong Kong, we will be having some sites there, we expect. And these are -- still we have to go and check out these sites, if they are ongoing, and then we will let you know where those sites would be open.
We do expect that to have PORT-III and PORT-IV patients in the majority. We know that some of the reasons, let's say who couldn't get into oral studies, because they need an IV drug. So IV most certainly will be -- we expect to be a faster enrollment, because generally, you can just imagine that any patient coming into the ER is pretty sick usually, and would want to get admitted, and the doctors who want to admit them (inaudible) [16:11] the risk. So we do expect enrolment of PORT-III and PORT-IV to go well in our IV-to-oral study, and oral study is enrolling high quality patients right now. We have been very careful, as you know, for the MITT, as well as the chest X-rays and other things that the FDA wants.
So we do expect to have a very high quality two studies within the timeframes we have said we would do.
Alan Carr - Needham
Okay thanks. And then, regarding the urethritis indication, is that dependent on another round of meeting with the FDA? It looks like you made your progress in your discussions with them or is it, it's still dependent on raising some non-dilutive capital for that?
Okay. So with the FDA, we do have some clarity. We will respond to them in writing, and get approval for the protocol in writing. We are also discussing the same things with EMA, because gonorrhea is a worldwide disease, like some of these other infections, and we would like approval in both countries, in both Europe and here. So we are looking at it over there too. So we will address both gonorrhea and Chlamydia, and the FDA has clarified that they want Chlamydia also, because patients get treated with (inaudible) plus azithromycin to cover Chlamydia. And the question is how do you rule Chlamydia to be cured, because you are doing a map of the DNA and be there, 7 days later, and yet the patient can be cured.
So we are writing the protocol to involve a little bit longer period of looking at these patients, to see that they are cured of the Chlamydia infection. We will submit those protocols to the FDA, but not looking for another meeting on for gonorrhea. I think they are very clear as to what they wanted, and they always want in writing, and we can always have a phone call, they have been pretty open. As you know, gonorrhea is now to [a DB] pathogen, and so there will be a priority request on that.
For the funding, we still expect not to come to any public market, and require additional money. We are waiting for the grant funding, which -- for NIH funding to happen for the gonorrhea study.
Alan Carr - Needham
Thanks very much.
Thank you. Our next question is from Steve Brozak of WBB Securities. Your line is open.
Stephen Brozak - WBB Securities
Congratulations Dr. Fernandes. This is really remarkable news for this quarter. I will dive right into it, because you mentioned about soli, and I want to make sure that there is clarity here. Can you tell us what the advantage is, both in terms of efficacy and safety solithromycin has over the current standard of care, and how you can improve that standard of care? And I have got one follow-up after that.
Okay. Thank you very much Steve. Appreciate you taking the time to listen today. Today, if one needs just an intravenous treatment, you have two drugs, cephalosporins such as ceftriaxone and plus the macrolide azithromycin. There is a great deal of resistance to azithromycin, so it's not used in monotherapy and it's not approved for mono therapy in moderate to severe (inaudible). Ceftriaxone is approved, but is injectable. So you would be in the hospital for seven to 10 days on ceftriaxone, and if a drug is working, doctors generally do not switch. We have been told that it costs about $8,000 per day in the hospital for the patient. Ceftriaxone is a good drug. But you need two drugs, ceftriaxone plus azithromycin and the cost of hospitalization and the risk of additional infections, why you are in the hospital.
Now as you know, hospitals do not get reimbursed, if you get a secondary infection in the hospital, the hospital acquired infection. Now with ceftriaxone, as well as the fluoroquinolones (inaudible), there is a risk of C. difficile colitis because of [infected] bowel flora, and also shifts in bowel flora, and we all know that normal flora is very important.
Now the second choice is -- current therapy is a fluoroquinolone such as levaquin or moxifloxacin or avelox. Now fluoroquinolones are not allowed for the treatment of community acquired pneumonia, in countries such as the United Kingdom, Australia, etcetera, because they consider it misuse of a good drug. For CABP, just because, it wipes out the bad flora and is high risk for C. difficile colitis. And CMS has also put the guidelines, that U.S. hospitals must reduce C. difficile colitis.
In addition, there is the risk of tendonitis, which has -- in very large numbers raced ahead, and now there is a lifelong risk of tendonitis, if one takes a fluoroquinolone, and that is of course the result of Achilles rupture.
So that is the current standard of care, because the bulk had become resistant. You've increased the doses of fluoroquinolones, you've increased the doses of ceftriaxone, because bacteria have gained a moderate level of resistance, they give higher doses of drug to capture that resistance strains. But there is only so much increasing in doses one can do, before they both are no good anymore, and you need an alternative drug.
Now with solithromycin, it's mono therapy. You use a single drug, and if you do it for one or two days, perhaps you can go home on an oral of the same drug very quickly. So you have reduced hospital costs, reduced side effects with less drugs, that you have only one drug, and on top of that, you have less risk of hospital acquired infection, and solithromycin is not expected to cause any shifts in bowel flora.
Stephen Brozak - WBB Securities
Okay. That was as detailed as anyone can ask for, so I will make my next one very specific. Can you give us an idea of what you would expect -- or what are the KOLs basically telling you right now, about your drug? And obviously, what I am looking for is, the focus on, what feedback they are giving you in terms of future acceptance?
So the first thing of course is, macrolides are very well known in the past, because you know both Biaxin and Z-PAK had performed very well in the community. In the hospital, they have used as an add-on to ceftriaxone. So we have to prove that we can replace two drugs, which is what our Phase 2 study did, and our Phase 3 study will do, if our results are successful. So replacing two drugs is a paradigm shift, the use of a single macrolide to treat community-acquired bacterial pneumonia.
Then the second part is the spectrum of activity. It covers pneumococci of course. It covers all multidrug pneumococci. We have tested thousands of strains worldwide, and there are no resistant pneumococcus. We cover Haemophilus, we cover Mycoplasma, we cover Legionella. You must understand, that in Japan, it's only a flight away to Japan and to China. 95% of pneumococcus and mycoplasma today in those countries are resistant to all of the existing macolides, and a high rates of resistance of the quinolones. In fact, in those countries, macolides are just not used for these infections anymore. So there is a very big need for new macolide, and of course, they will be coming here, if they are in Asian countries right now, which is always what has happened in that [minutiae].
Today, the resistance rates of pneumococcus in the United States is 44%. When we went in IPO last year, it was only 36%. So you can see in the short period of one year, it has gone up by over 10%. So the rates are only going to go up, and we need an alternative drug.
Now solithromycin is also going to be used in pediatrics, because that's what they are going to be studying it for. We hope it will be used in pediatrics and special population, and other drugs just cannot be used in those settings orally, because there aren't any in that space, which can be used orally and safely. And of course, in other indications, which again we are looking at now.
Stephen Brozak - WBB Securities
Again, congratulations on this quarter, and I look forward to seeing the results that come back; because, obviously there is a big need, and this is the only stop-gap and the only answer right now. Anyway, congrats. Thank you.
Thank you, Steve.
Thank you. Our next question is from Eun Yang of Jefferies. Your line is open.
Hi Dr. Fernandes. This is [John Rand] on behalf of Eun Yang. Just a couple of questions. First, when does the QT studies for solithromycin start? Previously noted, it was starting in the second half of 2013, and then also, whether the FDA meeting for Taksta, NDA has been scheduled, and then a couple of follow-ons.
So thank you. Yes, it's a very good point. When we raised money, we also raised money for the thorough QT study, not just the IV study. The protocol is being submitted, and we will start our thorough QT study in the second half of this year. We have fixed our CRO, and we are moving right along to do that deal. So we expect to have those results, at the end of the year. So that is a good thing. But as you know, for the thorough QT, we have had a very safe intravenous Phase 1, where we have already exposed the heart to very high levels of solithromycin, and the ketoconazole drug interactions, we have exposed very high levels of solithromycin, and not seen any QT effect in either of those large studies, and also in the (inaudible) was negative.
So we do have to check the box and do the thorough QT study. But going forward, quite well into that study.
Now, what was the second question?
Whether the FDA meeting for Taksa NDA is scheduled?
Okay. So have not yet scheduled the Taksa study, because we had mentioned that we would be looking for an orphan indication for Fusidic Acid. We have applied for that with the FDA, and we are waiting to hear back. We don't know if we will get an orphan indication. If we do, then the path forward is different than from the regular path. So we are waiting for that. For this we have been -- when we submit a request for a meeting, it applies to that particular route.
Okay thank you. Then just a couple of quick follow-ons. Why solithromycin oral Phase 3 data was slightly delayed? We noted from mid-2014 from the first half of 2014 previously. So just trying to explore that. And then secondly, when the Phase 3 data from IV to oral solithromycin data coming out, that you guys start in the fourth quarter of 2013?
So we don't know, we could very well finish it on June. The problem is when you say June, I guess in English it could be mid or not. So we don't know exactly which day it's going to finish, but we do expect to finish sometime in mid next year, on that oral CABP study. As I mentioned, we don't know -- we cannot predict, and no one can predict what the flu season is going to be this coming winter.
What was the second question you had?
The second question, if you start any Phase 3 trial for oral solithromycin, the Phase 3 data coming out, that you guys start in the fourth quarter?
So if we start the IV study, we are going to release when it will be finished when we start it, because then we know exactly, which month we start it. So we will make that announcement. But generally, it takes two winters and two summers to enroll in a Phase 3 study for CABP.
Thank you. (Operator Instructions). Our next question is from Stephen Willey of Stifel. Your line is open.
Stephen Willey - Stifel Nicolaus
Thanks for taking the question. Forgive me if this was already mentioned, but I think the Taksa timeline for the interim data was pushed out a little bit for the first half of the year, so I guess, one, could you tell me if that's correct, and I guess, two, if it is correct, is that a function of enrollment or is that a function of you just trying to get to a little bit more interim data before you present that?
No, no. So Steve, thank you for calling in. We will be announcing the interim results in the last quarter of this year, that's what we have always said and discussed with that. These will be just -- it's an open label study. So whatever patients have enrolled, we will just (inaudible) what is its effect and how many patients have enrolled, and the outcome of those patients to-date, because they will be treated for a long period of time, as you know. So we will be discussing that at the end of this year. And that study is expected to enroll about 15 patients mid next year.
Stephen Willey - Stifel Nicolaus
Okay. Thank you for that clarification. What's (inaudible) behind the positive culture rates that you are going to be getting out of the Phase 3 oral cap, and do you get that color in real time, just with respect I guess, what the microbiological diagnosis rate is within the study?
So we see the microbes, we cherish our microbes, as these microbes are being isolated. We have seen Streptococcus pneumonia, we have Legionella, we see Mycoplasma, we see Haemophilus, we see some gram-negative, (inaudible) is not what they are trying to treat, that means they may have some chronic infection.
So we have seen all of the above that we want to see in the air. We have been very good diagnosis of the (inaudible) antigen positive, pneumococcal antigen positive. We have seen everything which we typically see. As I mentioned, our quality for study has been exceedingly high. We do have a high isolation rate. I don't think I can tell you exact numbers, because as you know, we are enrolling on a daily basis, as those numbers change on a daily basis. But it's a very good number. We also have very good chest X-rays and all of the other criteria for pneumonia.
Stephen Willey - Stifel Nicolaus
Okay. That's helpful color. Thank you very much, and congrats on the progress.
Thank you. Thank you very much.
Thank you. Our next question is from John Looney of (Inaudible). Your line is open.
Continue to be impressed with what you are doing. Thanks so much.
Hi. Thanks a lot.
You're very welcome.
I am not showing any further questions in the queue. I'd like to turn the call back over to management for any further remarks?
So thank you all for listening to our call, and for the questions, enjoyed speaking with you. We look forward to updating you on upcoming events, and good evening.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.
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