Cempra's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Oct.29.13 | About: Cempra, Inc. (CEMP)

Cempra, Inc. (NASDAQ:CEMP)

Q3 2013 Earnings Conference Call

October 29, 2013; 04:30 p.m. ET

Executives

Prabha Fernandes - President & Chief Executive Officer

Mark Hahn - Chief Financial Officer

Robert Flamm - Investor Relations, Russo Partners

Analysts

Alan Carr - Needham & Company

Eun Yang - Jefferies

Stephen Brozak - WBB Securities

Stephen Willey - Stifel Nicolaus

Juan Sanchez - Ladenburg

Operator

Good day ladies and gentlemen and welcome to the Cempra Inc., third quarter 2013 financial results conference call.

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).

I will now like to turn the conference over Robert Flamm of Russo Partners. Please begin.

Robert Flamm

Thank you, Victoria. Good afternoon and welcome to Cempra's third quarter 2013 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, completion and announcement of results of the IV-to-oral Phase 3 clinical trial of solithromycin and community-acquired bacterial pneumonia; the timing of initiation, completion and announcements of results of the solithromycin pediatric studies and 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 results 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 these described in our forward-looking statements include the cost, timing and regulatory review and results of our studies and clinical trials, our anticipated capital expenditures and our results regarding our capital requirement, our need to obtain additional funding, 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.

Prabha Fernandes

Thank you, Robert. Good afternoon everyone. Welcome to our teleconference presentation on our third quarter, 2013 financial results and update on our activities at the company. I will provide a brief overview of the events that occurred during the third quarter of 2013, as well as update you on our guidance of our clinical programs. Mark will provide a financial overview for the quarter and the first nine months of the year.

Our activities during the third quarter: We are focused on positioning the company to execute on its ongoing and future projects following the second quarter of 2013 that included multiple milestones, including the BARDA contract for solithromycin and the Toyama license and development agreement for solithromycin in Japan.

Regarding solithromycin, one Phase 3 trial in ongoing and the second trial is expected to be initiated during this quarter. We have chosen SOLITAIRE to be in the trial name. We continue to enroll patients in what we now call the SOLITAIRE Oral Phase 3 clinical trial in patients with community-acquired bacterial pneumonia or CABP. Based on enrollment trends to-date, we expect that we will make available top-line date in the middle of 2014.

As you may know CABP is a seasonal disease, so we will have more clarity on this timing early next year. Solithromycin is the only antibody that we are aware of that is in clinical trial for CABP. What we find extraordinary about our current Phase 3 oral study in CABP, is that a number of patients enrolled to-date are over 70 or 80 years of age, some are more than 90 years of age. CABP is a very serious disease in this patient population and as you may know, it is the number one cause of death from an infection.

The standard of care for these elderly patients is hospitalization and treatment of intravenous ceftriaxone and oral azithromycin. Hospitalization is expensive for patients and payers and it involves the additional risk of infections acquired in the hospital. Broad-spectrum antibiotics such as ceftriaxone and fluoroquinolones like Avelox can affect normal intestinal flora and the use is associated with C. difficile or colitis.

What we find astonishing is that these elderly patients who would normally get admitted are going home on oral medications preserving the quality of life for patients and their family, while reducing risk for these patients.

Since these date are blinded, we do not know what the patients have been administer. What we do know is that patients with PORT-III and PORT-IV pneumococcal pneumonia have been successfully treated with oral antibodies and sent home in our trial.

In the third quarter we completed the solithromycin’s hepatic insufficiency study and reported top-line results in September. This was an important safety study as it demonstrated key safety and tolerability of solithromycin, even in patients with mild to severe chronic liver disease. In addition, the pharmacokinetic analyses showed that no dosage adjustments were needed to compensate for decreased liver function in this patient population.

Oral solithromycin was designated as Qualified Infectious Disease Product or QIDP by the U.S. FDA for the indication of CABP. This is the first antibiotic that we are aware of that has been designated a QIDP for CABP. More recently the intravenous formulation for CABP was also awarded the same designation. The designation enabled the company to benefit from certain incentives, including priority review.

Related to these announcements we presented several abstracts at this year’s ICAAC, included three late-breaker abstracts. Solithromycin demonstrated activity against a range of pathogens, including several such as Group B Streptococcus; Bordetella pertussis, the organism that causes whooping cough and which has made a comeback in recent years and also enterococci, which are proposed qualified infectious disease pathogens.

Back in June we provided guidance on our clinical path towards approval for solithromycin in CABP, based on an end-of-Phase 2 meeting with the FDA. Recently we held a CMC, end-of-Phase 2 meeting with FDA, CMC standing for the chemistry side. Based on that meeting, we believe that we have a clear path towards an NDA submission for both the oral capsule and intravenous bio formulation.

We have initiated work on the pediatric suspension, which is being conducted under the BARDA contract. This is the first new antibiotic being developed in a pediatric oral suspension in over two and a half decades. Macrolides have enjoyed use in pediatrics, but antibiotic resistance has led to an urgent need for a new antibiotic for pediatric use. We have also initiated the work to determine the activity in solithromycin against bio-terror pathogens described under the BARDA contact.

We are working with our Japanese partners at Toyama to develop (inaudible) pediatric suspension. At the same time they are advancing the oral capsule formulation through Phase 1 trials in adults in Japan.

There is frequent exchange of information on all aspects of solithromycin development between the two companies in our shared program. Solithromycin is a global development program. In addition to aiming at U.S. FDA regulatory approval, we are also expecting to submit marketing authorization requests to the EMA, antibiotic resistance in particular.

Macolide resistance is high in many European countries as it is in the United States. We have met with regulatory bodies in several European countries and our development plan has been presented and discussed with them. We are optimistic that solithromycin will be viewed favorably when we do submit the MAA.

Although a few years away from expected launch, we have initiated certain commercialization activity. Branding the product is important to recognition. As noted earlier, our clinical trial name is SOLITAIRE; SOLITAIRE Oral, SOLITAIRE IV, SOLITAIRE Pediatrics, etcetera. This emphasizes the name, as well as mono therapy, a single drug to treat these infections.

As part of the Phase 3 trials, we are collecting pharmacoeconomic data that we believe will support the pharmacoeconomic advantages of using solithromycin over existing antibiotics.

We are also building pricing models in the United States, as well as in individual European countries. All the information we are gathering will be used to build the global product dossier, which will articulate the solithromycin value proposition for global payers. That is the comprehensive clinical, economic and humanistic evidence to support the solithromycin value story.

In short, the dossier will provide a strategic framework for market access and will include market specific evidence requirements for access and reimbursement and outlining the technology appraisal process and expectation for our fourth generation macrolide, the very first fluoroketolide.

Our current plan is to develop a sales and marketing infrastructure for the United States hospital market, while evaluating a partnership for the U.S. Primary Care market, as well the European hospital and community market. In Japan Toyama Fujifilm is expected to commercialize solithromycin in that large macrolide market. These are some highlights of the ongoing development work on solithromycin.

Now for an updated of our second product, Taksta. As you may know, Taksta is our overloading 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 it to treat prosthetic joint infections or PJI, for which current antibiotic therapy is limited to IV infusions over several weeks.

A Phase 2 trial of Taksta in this patient population was started in the fourth quarter of 2012. In September we revised the Taksta Phase 2 PJI study and enrolment criteria to allow patients to enroll, who chose not to undergo the two-stage revision, with the goal of accelerating enrolment.

These patients have previously been excluded based on the preferred current orthopedic practice, which is the two-stage revision and intravenous therapy. There is currently no FDA guidance on the design of a PJI clinical trial, so we have taken a very conservative approach to enrolment.

The revisions to the trial will allow patients that follow diversion treatment schedules to enroll. In the future we expect to discuss criteria with the FDA that they will eventually accept for regulatory approval. We will communicate available results, as well as on the status of all patients who have been enrolled in the study by the end of the year.

Finally, today we have learnt from the FDA that our request in designate Taksta as an orphan drug for the treatment of Prosthetic Joint Infections has been granted. Orphan Drug status grants an additional two years of statutory exclusivity to the five years of hatchbacks man exclusivity at the time on NDA approval.

In addition, based on the drugs most activity, we expect to get an additional five years of exclusivity through the gain at making it 12 years of statutory exclusivity. In addition, Cempra has a U.S. patent on our dosing regiment, which extends to 2029 plus patent term extension.

Finally, we will be presenting at two upcoming investor conferences. The first is the Jefferies Global Healthcare Conference, which is on November 20 in London. We will also be presenting at the Oppenheimer Annual Healthcare Conference on December 11 in New York. That is the current status of our programs.

Now I would like to turn the call over to Mark Hahn, our CFO, to review the financials. Mark.

Mark Hahn

Thank you, Prabha. Cempra reported a net loss of $13.6 million or $0.41 per share for the third quarter of 2013. This compares to a net loss of $5 million or $0.24 per share in the third quarter of 2012.

Revenue was $1.2 million for the quarter, all related to our BARDA contract.

Research and development expense was $11.9 million, a 272% increase over the $3.2 million of R&D spend in the second quarter of 2012. The increase resulted primarily from expenses related to the SOLITAIRE oral clinical trial, the production of clinical trial drug product and acquisition of comparative products using our ongoing and upcoming clinical trials.

General and Administrative expense was $2.2 million, a 47% increase over 3Q ’12, driven primarily by increased stock compensation expense and professional fees.

For the first nine months of 2013, Cempar reported a net loss of $28.2 million or $1 per share. This compares to a new loss of $18 million or $0.97 per share for the first nine months of 2012.

Research and development expense was $25.6 million, a 105% increase over the $12.5 million of R&D spent in the first nine months of 2012. The increase was due to our ongoing SOLITAIRE Oral Phase 3 trial, production of clinical trial drug product and acquisition of comparative drugs used in both the ongoing and upcoming clinical trials.

General and administrative expense was $6.9 million, a 64% increase over the $4.2 million during the first nine months of 2012.

Our cash and equivalents balance at September 30 was $110 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 Company and a $5 million draw under our venture debt arrangement, both also occurring during the second quarter, plus operational expenses that were incurred in the first nine months of the year.

We expect cash and equivalence to provide capital for our current programs through 2015 including the Phase 3 SOLITAIRE IV trial, our second pivotal trial required for the NDA, 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 financing. Prabha.

Prabha Fernandes

Thank you, Mark. Operator, we are now ready for questions.

Questions-and-Answer Session

Operator

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

Alan Carr - Needham & Company

Hi, good afternoon. Thanks for taking my questions.

Prabha Fernandes

Hi Alan.

Alan Carr - Needham & Company

Hi Prabha. Could you go over a bit more about some of the changes to be Prosthetic Join Trial, what changes you made in order to boost enrolment there. And then Mark, can you talk a bit about your expectations in recoding revenue from the BARDA contract. Is that going to vary much quarter-to-quarter? Thanks.

Prabha Fernandes

So, it’s a good question. So we started our trial following the current orthopedic practice. Meaning the patient gets debraded and then they take the joint out. You put a prosthesis in and then you culture, of course when you take it out and then when you put the prosthesis in again, and then you wait for that to clear and then you put a real joint in. So you literally had four surgeries at the end of this whole thing with intravenous drug all the time. This is the standard of practice and this is what orthopedic surgeons wanted us to do.

And then as enrolment was going on, we found out that patients were there who could actually – did not want to go through this horrendous four surgical procedures, and would prefer just to take the oral drug. So with that we thought we could increase enrolment and that is why we said, okay, let us go with the standard of care, the way it is in Europe, not just here and this way we would get prosthetic joint infections not just for this two state revision.

So we’ve opened up the trial with this amendment and we were leaving all of that information to whoever is enrolled by the end of this year. We realized that we could increase enrolment, because some of these people who wanted to get on just could not get on our trial, because its specified that you need to go through this two stage revision.

Mark Hahn

Okay. And with respect to your question on revenue for the BARDA contract, I just want to remind everyone that the BARDA contract has broken the different trenches, they call them CLINs and right now we are working on CLIN 1. There is some overlap between the different CLINs. So as we are in this current CLIN, I think that the revenue will probably be fairly consistent from quarter-to-quarter. As we get into an overlap here, you could expect to see it increase.

Alan Carr - Needham & Company

All right, thanks very much and congratulations on your progress.

Prabha Fernandes

Thank you very much.

Operator

Thank you. The next question is from Eun Yang of Jefferies. Your line is open.

Eun Yang - Jefferies

Well, thanks very much. Prabha, I might have missed in the beginning, over your introduction remark. So the Taksta data in PJI, the interim data, are we still expecting the data by the end of this year.

Prabha Fernandes

Yes, so you will get data on whatever patients have enrolled at the end of this year. So we are sticking with that and we are certainly seeing enrolment and we’re seeing finishing enrolment, so you will see whatever is coming.

In the past it was a very homogeneous set of patients, meaning those who had two stage revisions. In the data you will see at the end of the year, you may see that amendment was just made as I just mentioned. So you may see some additional patients who do not want to have the two sate revision, which would be a big advantage to both patients, payers and everybody else.

Eun Yang - Jefferies

Do you know approximately how many patients data we may see?

Prabha Fernandes

I don’t think I can say that, because enrolment is happening kind of daily and we have not made that release.

Eun Yang - Jefferies

Now in the SOLITAIRE oral study, the patient population consists of about 50% PORT-III and PORT-IV, a little more than 50% and there is less than 50% of PORT score II patients. So in SOLITAIRE IV study, is the patient population similar in terms of a composition?

Prabha Fernandes

No, they are not. So it’s a very good question. So lets first clarify who is in the oral trial. Firstly, PORT scores is not just severity. In a PORT where it’s designed based on death and the higher probability of death if you are male and older. So women who are very sick, who may even have septicemic pneumococcal pneumonia, will might actually get a PORT II just because they are a woman and you get fewer points because you are a woman. So it’s not really totally fair to say all PORT II may not deserve IV. There are plenty of PORT II who will get IV drug.

Now as you rightly said, in the oral trial the FDA has allowed 50% of patients who have 50% of PORT II, the rest would be PORT III and IV. In the IV trial the FDA has allowed 25% based on their guidance, 25% to be PORT II. Now we will try very hard to minimize as many of the PORT II as possible with the intravenous and kind of send them to our oral trials since both will be running at one time., but at those centers, if they truly sick and they deserve IV drug, we will give them, but the FDA allows 25% PORT II in the IV trial.

It will be a different size, because the oral trial is in a lot of outpatient settings with urgent care and emergency rooms, whereas the IV will be pretty much those who will get admitted.

Eun Yang - Jefferies

Okay. And then also you are planning to start a QTC study by end of this year. Does the QTC study included only IV formulation.

Prabha Fernandes

Yes, so that’s also a very good question, yes. We will definitely be starting the QTC study this year and let me give you the rational. The QT response is related to the Tmax of the drug, the peak plasma concentration of the drug. How do you get high – the highest Tmax is achieved with intravenous. So if you did both intravenous and oral, you will just be blowing a couple of extra million dollars, but on the other hand you will not – in the oral study you will be achieving much lower Tmax system with the IV. So it makes sense to only IV, because obviously you’ve covered the Tmax with the IV. That was the protocol we submitted to the FDA and had the FDA given us their blessing for our trial design.

Eun Yang - Jefferies

And the last question I have, how many patients are going to be enrolled in the QTC study?

Prabha Fernandes

I don’t think I’m allowed to say that. We have not made a release on that. It’s a sufficient number to statistically drive the different stuff in or whether it does or doesn’t get the QT signal.

Eun Yang - Jefferies

Okay, thank you.

Prabha Fernandes

You’re welcome.

Operator

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

Stephen Brozak - WBB Securities

Great. Well congratulations on this great Taksta news. I will ask one Taksta question and then one Soli question and jump back in the queue.

Prabha Fernandes

Hello Steve.

Stephen Brozak - WBB Securities

Hey. On the Taksta, obviously this is really exciting news in terms of the orphan drug status, but can you tell us what the implications are in terms of – what you just described earlier was the possibility in terms of change of therapy type of outcome. What are we looking in terms of how much does it cost and how prevalent this problem is in these unfortunately debilitating infections?

Prabha Fernandes

So it is a very good question, because The New York Times actually had quoted that they had done a research on reporter activity, of trying to find out how much an artificial hip or a knee costs after it got infected. It ranged anywhere from $20,000 to $120,000 to unknown amounts. We know a colleague who says it was well over $200,000 and so on.

So obviously what insurance covers you don’t really know to the individual, so it’s a huge cost. Whatever it is, with four surgeries and with IV for six weeks, you can imagine it’s a huge cost.

So the change in trial design does a whole lot for us. If a patient does not have to have three or four surgeries and does not have to have IV therapy for six weeks, even if they only have one week of IV therapy, you can just imagine the cost saving to the individual and the payer.

Now the orphan drug actually does a whole lot for us. The orphan drug designation did not say it had to have the specific indication of these joint replacements. It just said prosthetic joint infection, the treatment of designation, which means that new patients, they will be enrolling with this new study who do not want to have another surgery, I don’t blame them, who don’t want to have another surgery, will then be together for this orphan indication.

Did I answer your question? I hope I did.

Stephen Brozak - WBB Securities

No, no, no, actually when you started to hit those six figure numbers, it really did answer my question quite well. Could you go back on Soli and I know that you’ve mentioned this out, but you also got – on Soli you also go qualified infectious disease product designation from FDI. Can you tell us a little bit about that and then I’ll jump back into the queue?

Prabha Fernandes

Sure. So initially when the GAIN Act came out, none of the organisms in CABP or community-acquired bacterial pneumonia was on the GAIN list. So the Cempra presented at the FDA, the rational where pneumococcus should be included in the list, namely that the current treatment is fluoroquinolones or ceftriaxone and is a broad spectrum of drugs you call C. difficile colitis. There is increase in resistance through PBP’s as well as QNR resistance in fluoroquinolones and so we have presented that.

So pneumococcus was more recently shown on June to be on the QIDP list, so that was very good for us. So since that time we applied for QIDP status and for QIDP designation you have to either ask for the exact indication you want it for and the formulation you want. So we ask for the first one for oral for CABP, because that was our study and we were very happy to receive QIDP status for the oral capsule.

Then we filed a request for QIDP for the intravenous product and we were granted the second QIDP for the intravenous. We intend to continue this for pediatrics, for gonorrhea, etcetera, which are all QIDP, that we can apply for more QIDP, which is very good, because you get priority review and of course back in term extension.

Stephen Brozak - WBB Securities

So in a nutshell obviously this was nothing but already add to the interest and the speed at which your starting to get feedback from the agency and obviously in helping your case and showing how strong Soli is.

Prabha Fernandes

That is correct and we’re very pleased with that.

Stephen Brozak - WBB Securities

Great. Thank you and congrats again.

Prabha Fernandes

Thank you.

Operator

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

Stephen Willey - Stifel Nicolaus

Hi, good afternoon. Thanks for taking my question. I guess just with respect to the QIDP discussion, can you maybe just talk about where you are in the tax process with respect to QIDP?

Prabha Fernandes

So we had applied for orphan drug status and so we said, let us see what happens on that. QIDP for Fusidic Acid or Taksta is a given, because by congressional law, the law which was passed for the GAIN Act, MRSA is on the list, that’s a given. If you apply you should get that. It was not that clear for CABP. That was a huge victory for us. So that we know is a given.

Orphan drug is not a given. That was hard work on the centers part to get that. We were very persuasive in getting it now, so we get orphan drug seven years. When we get QIDP it will be another five years. By law it can’t be turned down, because MRSA is on the list.

Stephen Willey - Stifel Nicolaus

Okay, and then with respect to the change in the tax, the fees to protocol, were there any expectations that this trial was going to have any kind of registrational capacity at FDA and I guess does the protocol change alter that at all and I guess maybe if any color you can provide around what you think FDA might be giving you just in terms of feedback. I know its obviously going to be data dependant, but just in terms of feedback regarding potential child size patient numbers for something that would be deemed registrational quality.

Prabha Fernandes

So before we got the orphan drug status, which we were granted today, I would say there’s a crystal ball and I don’t know which way its going to go, but now that we have orphan drug designation, we will go to the orphan drug group first and then the FDA group.

The FDA does not make anything lenient. For instance your drug has to be clean, it has to be made under GMP. We have to have all the analytical data, have to have all the validations. None of that is relaxed, because the patients cannot be subject to inappropriate drug, but the trial site will be different for an orphan.

Just by the name orphan that means there aren’t many patients floating around. So we have to now – with the orphan designation we’re going to go back to the FDA, sit down with them and say I’m with orphan drug group and say this is our trial design. It is now up on us to propose a reasonable study design.

As part of the orphan drug designation, we had to show how many patients worldwide have already been exposed to the drug. So it’s not like having an NCE when you need a safety database. The safety database is 40 years old, there is lots of safety.

So we have to show it works and works well. And as I mentioned, this actually works in the UK and works in Switzerland and France. There is no reason why it shouldn’t work here. It’s a matter of us making the case now to the FDA saying this is enough for drug approval.

Stephen Willey - Stifel Nicolaus

Okay. And you need to have all the Phase II data in hand prior to going to FDA and stating your case or is that something that you feel like you can do in the interim?

Prabha Fernandes

In the interim, because we need to do the planning. It takes about nine months to make this product for a Phase 3 trial, so we will go in between and ask them. We don’t know the exact data since this is like hot off the press, we just got the information today.

So as we get more clarity from our regulatory people here as to what we can do, we don’t want to go to the FDA with something which is not 100% clean and clear in our minds. We use some of our CABP members, our consultants who help us with these trial designs and what will clear, but these conversations once we are sure we will go.

And in the meantime, our Phase 2 study is enrolling. It’s already showing – you know it will show data to show that it’s working or not working. So we will have that data in hand as we go and say, look, we saved this person $100,000 and that he can go home without an IV picc line in him.

Stephen Willey - Stifel Nicolaus

Understood. With respect to solithromycin, has there been any progress at all with respect to gonorrhea, just in terms of discussions on the regulatory front in any maybe internal change in thoughts there.

Prabha Fernandes

Yes, so when the government shut down for two weeks it didn’t help us any, because NIH was kind of on hold, so we’re still in discussion over our grant funding for Phase 3 and it will be looking at that trial design and so on.

In the meantime we have had some interest from other governments of the world, where gonorrhea is become a big problem for doing some studies over there. They are trying to combine what is needed for Europe, as well as in the U.S. It looks like for instance the dose of ceftriaxone is different in Europe versus here. So which dose do you use to get drug approval?

So we are trying to do the best study where we can get both Europe and U.S. approval, as well as Australian approval when we do such a study. The U.S. NIH will only pay for studies conducted in the United States based on the United States guidelines and if you talk to the guys in the UK or in Sweden, they want to double all the doses of each drug. So it’s very difficult to come to a good study design.

That is what we are currently in discussion. We are not rushing into this, because as you know we want to fight CABP and GC at the same time. CABP will take – we’re just starting the intravenous through oral study, so that will take some time. The moment we decide what we want to do, we already have an okay to get going on the Gonorrhea study. We can enroll and get it all done at the same time as CABP, so that’s the plan.

Stephen Willey - Stifel Nicolaus

Okay, and maybe just one last question for Mark. I think you mentioned in the prepared remarks that a portion of the R&D spend this quarter was related to these three product manufacturing. Is that kind of a one-time 3Q specific item or should we kind of think about the 3Q run rate or 3Q R&D as kind of being inappropriate parameter for how we should about spend just going forward over the next six to nine months.

Mark Hahn

Right. So the drug product spend is probably mostly over at this point, but we are going to have an increase in clinical costs as we kick off that study and that’s a pretty big and pretty expensive study. So I think you can actually expect the R&D spend to go up a little bit in the fourth quarter and beyond.

Prabha Fernandes

So I have one comment about that thing, Steve, so that you realize, you are developing a vile for the Phase 3 intravenous oral study and at this moment we will be starting the work on an IV bag, because to make a commercially viable product, not viable, successful product – vile so back but the you want to have a successful product. You want a ER doc who is a big (inaudible) because we reach in the refrigerator, take out a bag and hook it up and infuse it in the pneumococcal pneumonia patient. In order to do that we will be doing additional work on the CMC to make bags, to make the right bags.

Stephen Willey - Stifel Nicolaus

Okay, that’s helpful. Thank you guys and congratulations.

Prabha Fernandes

Thank you.

Operator

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

Juan Sanchez - Ladenburg

Actually all of my questions have been answered and congratulations on the orphan designation.

Prabha Fernandes

Thank you, Juan.

Operator

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

Prabha Fernandes

Thank you all for listening to our call and I know you have busy schedules, so that’s good. We look forward to updating you on an upcoming event.

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!