Cempra's CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Cempra, Inc. (CEMP)
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Cempra Holdings (NASDAQ:CEMP) Q1 2013 Earnings Call April 25, 2013 4:30 PM ET


Robert Flamm - IR, Russo Partners

Prabhavathi Fernandes - President and Chief Executive Officer

Mark Hahn - Executive Vice President and Chief Financial Officer


Alan Carr - Needham & Company

Stephen Willey - Stifel

Juan Sanchez - Ladenburg

Brian Lian - SunTrust


Good day, ladies and gentlemen, and welcome to the Cempra first quarter 2013 financial and operating results conference call. (Operator Instructions) I would now like to introduce your host for today's conference call, Mr. Robert Flamm, with the Russo Partners, you may begin sir.

Robert Flamm

Good afternoon, and welcome to Cempra's first 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 that management will be making 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, 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 belief, expectations and assumptions based on currently available information and speak only as of the time they are made. Risk 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 the results of our studies and 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 our 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?

Prabhavathi Fernandes

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

The first quarter of 2013 was one of ramping up for Cempra. First, let us update you on solithromycin, a highly differentiated fourth-generation macrolide or fluoroketolide, which is in development for community-acquired bacterial pneumonia or CABP and gonorrhea.

This antibiotic candidate is differentiated from the currently recommended community-acquired bacterial pneumonia or pneumococcal pneumonia or CABP treatments, which is primarily intravenous ceftriaxone plus oral azithromycin. Solithromycin is differentiated from this primary recommendation, because it has the potential as monotherapy, which is not the case for azithromycin, the gold standard macrolide in CABP. Also, solithromycin could have the flexibility of both oral and IV dosing, which is not the case for ceftriaxone, the primary recommendation for CABP.

The solithromycin may reduce hospital space by switching from IV-to-oral therapy during the treatment period or keep patients out of the hospital altogether by starting an oral dosing in the first place. Note that the IV-to-oral switch is the same antibiotic is an advantage to doctors, as doctors do not like to change an antibiotic midstream, if the patient is improving.

Solithromycin is also differentiated from the second recommended treatment for CABP, which is intravenous or oral fluoroquinolone, primarily Levaquin and Avelox. Solithromycin is better targeted to the pneumonia pathogens, tearing the normal intestinal flora, which is known to be essential to our very well being, and is therefore expected to have a favorable safety profile over these fluoroquinolones.

In our second indication, gonorrhea, solithromycin is the only antibiotic in development for this second most common reportable infectious disease and has a potential to be a single oral treatment for gonorrhea. Currently, the only oral drug Suprax that had been available has been dropped by the CDC from the recommended list due to increased resistance.

Now, back to our Phase 3 trial in CABP for solithromycin. We have been opening clinical sites and including patients for our oral solithromycin Phase 3 clinical trial program in moderate-to-moderately severe community-acquired bacterial pneumonia or CABP. Sites have been open in the U.S., Canada, Russia and Eastern Europe, and soon in Latin America, and many of the sites are now enrolling.

In the coming months, we expect to initiate enrollment in additional European and Latin American countries. All-in-all, we expect to have about 120 centers in these continents and the rollout is proceeding nicely according to our schedule. We expect the topline results will be available during the first half of 2014.

We are continuing our preparation for the future initiation of the intravenous-to-oral solithromycin Phase 3 trial in CABP patients. We have our end of Phase 2 meeting with the FDA, scheduled for the second quarter of this year. That meeting should provide us a bit clarity on the regulatory path towards approval for solithromycin in the United States. This clarity should enable us to initiate the Phase 3 trial during the second half of 2013. This is the intravenous-to-oral trial, subject to available resources.

Let me move to our second product, Taksta. The second product Taksta is our oral loading dose formulation of fusidic acid, an anti- staphylococcal drug, including MRSA, with a long history of safety and efficacy outside the United States. We are developing it to treat prosthetic joint infections or PJI, for which current antibiotic therapy is limited to intravenous infusion for over six weeks. This is an increasing need, because of the aging population, which actually require prosthetic joints offer. There are no other agent in this class, so it could be a unique well-tolerated and oral option for these patients. This is compared to the current intravenous infusion.

We understand that other companies have started to work in this area. However, well they must determine safety and efficacy of their compounds. Fusidic acid is already used successfully today outside the U.S. in the United Kingdom and other European countries for treating PJI. Since infections in the U.S. are not very different than in the European Union and it is successfully used there, we believe that this should reduce the risk of our program.

The Taksta Phase 2 trial in patients with prosthetic joint infections or PJI has been opened at five sites in the United States and enrollment has as started. This study compares oral Taksta plus rifampin against the current standard of care in the United States, which is intravenous administration of one of a number of antibiotics including vancomycin.

The primary endpoint is eradication of joint infection in 12 weeks, in which clinical success is defined as the absence of persistent infection by second-stage surgery cultures. We expect to release topline results on patients, who have reached the primary endpoint in this open-label study by the fourth quarter of 2013. Finally, we filed a shelf registration in early March to provide us with financial flexibility to advance our programs.

The second quarter and 2013 will continue to be busy for Cempra. Next week, Professor Edward Hook, a leading investigator in the field will be presenting updated results of the current Phase 2 solithromycin gonorrhea study at ECCMID in Berlin.

In October 2012, we had reported topline results for the first 22 evaluable patients. Additional microbiology study involving other key urethral and community-acquired bacterial pneumonia, multi-drug resistant pathogens, will also be presented at this conference.

Immediately upon our return from Berlin, we will be presenting at the 12th Annual Needham Healthcare Conference on May 1, in New York. We will also be presenting at the Jefferies Global Healthcare Conference on June 3 to 6, in New York.

During the second quarter, our end of Phase 2 meeting with FDA is scheduled to discuss the Phase 3 program for solithromycin and CABP and the requirements to the NDA. As I said earlier in the call, this meeting will provide us clarity on the regulatory path to approval for solithromycin.

This should position us to initiate the oral-to-IV Phase 3 clinical trial in CABP, subject to available resources. Finally, we expect to release some topline results of the Taksta Phase 2 trial in patients with PJI during the fourth quarter of this year. 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 $10.3 million or $0.42 per share for the first quarter of 2013. This compares to a net loss of $3.5 million or $0.26 per share in the first quarter of 2012. Research and development expense were $7.4 million, a 293% increase over the $1.9 million of R&D spent in the first quarter of 2012. The increase resulted primarily from the initiation of the oral solithromycin Phase 3 clinical trial in patients with community-acquired bacterial pneumonia, and the initiation of the Taksta Phase 2 clinical trail in patients with prosthetic joint infections.

General and administrative expense was $2.7 million, a 172% increase over 1Q '12, driven primarily by increased stock compensation expense and professional fees. Cash and equivalents were $60 million as of March 31. The decrease from December 31 was driven by operational expenses that were incurred in the first quarter of the year.

We expect cash and equivalents to provide capital for our current programs into 2015. This projection does not include the initiation of the Phase 3 IV-to-oral clinical trial or funds from any possible future partnerships or financings. Prabha?

Prabhavathi Fernandes

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

Question-and-Answer Session


(Operator Instructions) Our first question comes from Alan Carr with Needham & Company.

Alan Carr - Needham & Company

First one around solithromycin, you've mentioned on this call and the previous call that the start of the second Phase 3 is dependent on additional funding. Can you talk a bit about where things stand in terms of potential partnership for solithromycin, the type of partner you might be looking forward type of deal that you also consider?

Prabhavathi Fernandes

Indeed as a small biotech company, we have looked for non-valuing partnerships of various kinds. And we have thought that from the company point of view, it would be best to get an Asian partnership, where Cempra would never have any potential of developing the compound on its very own, and we would need an Asian partnership. So we are in discussion. As you know, no deal is done until it is done. So we will let you know when it is done, but we are certainly in discussions.

Alan Carr - Needham & Company

In terms of European or the U.S. collaboration there, thoughts on strategy there, were you open to there?

Prabhavathi Fernandes

So in Europe and in the U.S., of course one could have a partnership here, which could certainly take away some of that risk, especially if Europe could be done and leave you the United States. But if in the U.S. the molecule is tied, then the whole molecule will have to be taken, because then Cempra would not have any advantage of being an independent company since this is our biggest product in the United States. We do believe that the biggest value for solithromycin will be at its NDA.

As you know, the market potential for a macrolide is relatively large. And there are very few molecules that have the market potential of a macrolide, they believe. And therefore, a lot of value will be divided by going to the NDA for such a molecule. And a lot of companies as you know have not been working in the anti-infective space, and it does take a special skill set to develop a macrolide.

Alan Carr - Needham & Company

And then, with regard to your arthritis, you've talked about possibility doing a registration trial there and I know you're sort of dependent on external funding. Can you give us a sense of where that stands? And then, how much would a trial like that cost and would there be any advantage, any advantage to starting that sooner or later? I mean, I'm wondering if you could get something done before CABP trials would begin?

Prabhavathi Fernandes

Yes. So indeed, gonorrhea is the second most common infectious disease, which is reportable in the world. Solithromycin is the only drug in clinical development for gonorrhea. And to meet the public health need, one could fund it yourself or we could go to government financing. And so we have decided, because it is a major public health need, that we should approach to try to get public financing.

We have spoken to KOLs and we have talked with NIH, and we've planned to submit a protocol. We're in discussion with the FDA. Remember, we talked about the end of Phase 2 meeting with the FDA, we will discuss both CABP and gonorrhea at that time with them. And then we will decide, which way we need to go, as to how large this study is going to be, what is the comparer and specific study design, before we ask anyone for money, because at this point we do not know how much money we need for the trail. There is no new guidance for gonorrhea. The gonorrhea guidance, which currently exist is from the 1990s, and science is being done differently now and so we need to get that guidance first.

Alan Carr - Needham & Company

You don't have a ballpark estimate and cost yet for this, is that much unknown on the protocol?

Prabhavathi Fernandes

Yes. So those have been on the protocol. The old studies they are very nice. I mean it would be nice to turn the clock back to be in the 1990s. The study was, do a 100 patient and show 95% efficacy, and you are done. You got an NDA. You can't do stuff like that anymore. So if you do a compare to this trial of ceftriaxone intramuscular, it would be only one which could be a comparer.

Solithromycin is oral, so it would be an unblinded study to start with, because you can't have one IM and one oral being compared. You could not give a saline intramuscular and call it ethical. So there are many things to be considered and that's what we are doing right now.


Our next question comes from Stephen Willey with Stifel.

Stephen Willey - Stifel

I was just kind of wondering, I guess, as you look at the seasonal impact we had from the most recent kind of flu/pneumonia season. I was wondering what kind of tailing that may have provided in terms of just initial enrollment? And would you suspect that, that kind of flows through the southern hemisphere during the next few months?

Prabhavathi Fernandes

You must remember that even those people with influenza die. Even though people with influenza die from pneumococcal pneumonia, all people who get influenza do not get pneumonia. Okay. Secondly, because this year's influenza was a very serious kind of influenza as you've seen in the newspapers. People were needed to be admitted if they got pneumococcal pneumonia. So these were not part of our trial because this is an oral drug. If you had the intravenous open, there would have been possibly more patients on our trial.

Having said that we must say that we have open a number of sites and centers, both in the U.S. and Canada and overseas, enrollment is going on. I cannot tell you and should not tell because this is a blinded-study as to help in their going and I personally don't know how well each antibiotic would be doing. All I can say is that it's a well-run study and we are managing this very well seeing that enrollment criteria, the inclusion and exclusion criteria are going very well according to the FDA guidance.

Stephen Willey - Stifel

As we kind of think about the Phase 2 prosthetic joint infection study, what are the expectations around the 12 week eradication in point of the control arm? And I guess along those same lines, I think it's a physicians' choice control arm. Would you expect the physicians choice to be kind of a off-on between kind of vanc and daptomycin. I guess any color you can provide on that?

Prabhavathi Fernandes

It's a good question. Now, I understand that over 80% or maybe 85% of patients will get vancomycin intravenous and that is the standard of care. Daptomycin is used to a lesser extent. So vancomycin will be used in almost all of the controls, plus some other antibiotic. It will not use just antibiotic many time.

In our case it would be of course rifampin plus fusidic acid. Let's say both achieve 90%, here I'm just picking a number of my head, okay. That's good. We expect vancomycin plus something else to be very good for treatment of prosthetic joints. But then the choice is which is better, oral or intravenous. Would you like to be on intravenous 12 weeks or 15 weeks or intravenous vancomycin.

Vancomycin is painful. You have to have a PICC line. You have to go to various types of injections. You have to pay these nurses. You don't even know, I mean you may have seen at Wall Street Journal article, we talked about the cost of treating prosthetic joint infections. No one even knows where the money goes to. It goes up to a $120,000 for these patients.

And forget about the money, if you have excellent insurance just the time and the pain, many of these people are older with prosthetics which are hurting and to have to drag themselves to an infusion center or get homecare, an expensive homecare to come and give you an infusion. Then what about the risk of leaving an infection as you infuse something else intravenously. A PICC line does have a percentage of infection rates. So there is so many hazards of intravenous. Anyone I think would pick an oral, effective, proven safety, fusidic acid or TAKSTA over an intravenous vancomycin.

Stephen Willey - Stifel

But I guess in terms of what the expectation around a key rate might be there in the control arms, is there any?

Prabhavathi Fernandes

I believe it's the reported number for vancomycin is 85% and greater.

Stephen Willey - Stifel

And consumer believe there is a better variability around that number, and do you guys are pretty comfortable with your ability to kind of control for that variability in the study?

Prabhavathi Fernandes

Yes. And this is remember, is not a Phase 3 study, but we do expect both arms to be very effective. We want both arms to be effective. And to say hey, listen, we have good effective therapy out there, but here is the oral advantage, which is safe. Now, remember vancomycin depending on the weight of the patient, you have to increase the dose. Once you increase the dose it's not safe for your kidneys, so that's when you change to daptomycin.

Stephen Willey - Stifel

And then is there any concerns around long-term rifampin use? I know that there has been some I think discussion over the induction of resistance with that compound?

Prabhavathi Fernandes

So rifampin cannot be used. It would be unethical to be used as single drug, because you get resistance at the frequency of ten to the minus six, which is one bug in a million. So rifampin will always induce resistance and you cannot rifampin in any situation as monotherapy except in the case of prophylactic for meningococcal disease, when you got prophylactic treatment. But in the case of staphylococcal infection, we use rifampin plus fusidic acid.

The resistance rate is now less then ten to the minus thirteen, which is very unusual integrating a resistance. You have brought the bacterial load to far less than, even a million organism in the prosthesis, but the treatment with loading dose of fusidic acid plus rifampin for the resistant if the rate is ten to the minus thirteen and the number of bugs below to ten, it's but probability you will not get resistance.


Our next question comes from Juan Sanchez with Ladenburg.

Juan Sanchez - Ladenburg

The first question is when do you expect to run the QTc study for solithromycin? And the second question will be, what's your expectation for the FDA meeting for solithromycin? Should we expect any surprises or what are the variables that will upgrade in this meetings or do you think you're understanding the feel is good enough, but no surprises are expected?

Prabhavathi Fernandes

So let's interest QT first. As you know azithromycin, which have been known as one of the world safest antibiotics ever has now most recently after it became generic shown to be a positive in the QT area, which was not surprising to us people who have been in the macrolide field. So now that's QT-positive, the question is solithromycin a QT-positive. So to date, we have seen with the intravenous, where we give very high doses, so the Cmax exposure to the heart is important, we've not seen QT-signal.

We've not seen a QT-signal when we do ketoconazole drug-drug interaction, where we have high solithromycin levels. We have exposed about 500 patient's subjects to date to solithromycin, we've never seen a QT-signal, having said that we have to do a QT-study, as you just asked.

So at this end of Phase 2 meeting, we have a brief summary of what we will do for the QT. In the second half of this year we will be running up QT study. We'll raise the money for that last year during the pipe financing. And we're moving forward with that. And so far the data has been very good. Our expectation is that this molecule is very safe.

Now, on the second one, for the surprises at the FDA meeting, we have a very good team at Cempra. We have very good clinical, very good regulatory, very good chemistry. The molecule, we know it's very well. We have prepared very well. We have an experienced team, who know the FDA very well. They have asked the questions correctly, we will have responses from the FDA. We have followed the guidance exactly to what has been described on the website. So personally I do not expect surprises.

However, we do want answers to our questions, because we have asked only for instance, what would be the safety database or is this safety database sufficient for the NDA. So we will have answers to that. So when need to plan our IV-to-oral study at the end of this year, we will know the exact study size for which we need to meet.

So I don't expect any surprises. We will have answers to any small questions of the study size or any further drug-drug interaction. And the CMC will be address to the different meeting. And we don't expect much on the CMC side either as we know there has been many CMC questions, which has been changed at the FDA with new CFR guidance's and we should be able to meet all of those.


Our next question comes from Brian Lian with SunTrust.

Brian Lian - SunTrust

Can you just remind me how much of the data from the oral end of Phase 2 will be used in the upcoming end of Phase 2 meeting? And are there substantial additional data or is there lot of overlap between those two steps information

Prabhavathi Fernandes

So the oral study currently will not be discussed at all at the end of Phase 2 meeting because that's a Phase 3 blinded-study running, so we cannot show that data. It's a blinded-study. Certainly, if there was a serious adverse event, we will show it to the FDA, but otherwise the study just runs. The FDA had commented last year to the protocol before we started this study.

We had gotten acceptance to doing diagnostics for CABP, which has never been done before, we are using in that test and other things. We're allowed to use mycoplasma pneumonia, which we are doing in the current trial. And they had accepted all this and any questions they had we had answered, so that will not be discussed.

Cohort will be discussed in what the total number amount of data and patients and subjects, who will have been exposed before the NDA, so this will define what is the Phase 3 study going to be like. Do they like the protocol? Are there any questions about our protocol. And is this sufficient for an NDA? We will also be discussing the gonorrhea study as I just mentioned to Alan earlier we will be discussing, we've had described a new study design for the gonorrhea trial, is this sufficient. So we should come out with a clear understanding on solithromycin and what does NDA will look like.

Brian Lian - SunTrust

And then just to confirm, do you have to do QTc on both formulations IV and oral?

Prabhavathi Fernandes

We may have to do oral and IV. We don't believe so and why not. So the Cmax exposure to the heart, the hERG channel in the heart is what is critical to give a QT effect that is well known from cardiologists. So if you give the oral drug, even at 800 milligrams a dose for the oral therapy or we could go 1,600. We max our Cmax at about, let's say, maximum of 2 micrograms per mil, okay.

If you give intravenous, we can go as high as 6 or 7 micrograms per mil as I have shown before to you, when we give intravenous. So the best thing is to take a intravenous dose and expose your heart to the supratherapeutic dose using an intravenous formulation. So we will be doing our TQT with intravenous, certainly the FDA could come back and say that the oral, well, we could, but it would not be a supratherapeutic dose.


And I'm not showing any further questions at this time. I'd like to turn the conference back over to our host.

Prabhavathi Fernandes

So thank you very much for listening to us. Thank you for the questions and for your time and we look forward to updating you on upcoming events. Thank you very much and good evening.


So ladies and gentleman, this concludes today's presentation. You may now disconnect and have a wonderful day.

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