Cempra, Inc. (NASDAQ:CEMP) Q2 2017 Earnings Conference Call August 9, 2017 8:45 AM ET
John Bluth - EVP of IR and Corporate Communication
David Zaccardelli - Acting Chief Executive Officer
Mark Hahn - Chief Financial Officer
David Oldach - Chief Medical Officer
John Temperato - President and Chief Operating Officer of Melinta
Kevin DeGeeter - Ladenburg Thalmann & Co.
Stephen Willey - Stifel Nicolaus
Brian Skorney - Robert W. Baird & Co.
Kevin Kendra - Gabelli & Company
Michael Higgins - ROTH Capital Partners
Good day, ladies and gentlemen, and welcome to the Cempra Incorporated Update Conference Call. At this time, all participants are in a listen-only mode. And later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.
Now I’ll turn the conference over to your host John Bluth of Cempra. Please begin.
Thank you, Tyrone, and thank you all for joining us this morning. Also on the call from Cempra are Dr. David Zaccardelli, Acting Chief Executive Officer; Mark Hahn, Chief Financial Officer and Dr. David Oldach, Chief Medical Officer; and from Melinta, John Temperato, President and Chief Operating Officer.
Before we begin, I would like to remind you that today's call will include forward-looking statements based on current expectations. Such statements represent management's judgment as of today and may involve risks and uncertainties that could cause actual results to differ materially from expected results. Please refer to Cempra's filings with the SEC, which are available from the SEC or on the Cempra website for information concerning the risk factors that could affect the Company.
I’ll now turn the call over to Dr. Zaccardelli.
Thank you, John, and good morning, everyone. As you may have seen from our two press releases this morning, we have a number of significant updates to discuss with you regarding our progress with solithromycin and fusidic acid, and of course, the merger we are entering into with Melinta Therapeutics to create a leading commercial stage anti-infective company with multiple products across several indications.
Before we discuss our rational for the merger in our shared vision for the combined company, I want to update you on the very productive meetings and discussions we have had over the past several months with the FDA about the path forward for solithromycin and fusidic acid.
We have reached important agreements with the FDA on both programs. Starting with solithromycin. As you may recall from the advisory committee meeting in November 2016 and the complete response letter we received in December 2016, the FDA has noted that our clinical data supports the efficiency of solithromycin in patients with CABP. However, Phase III has been their primary area of focus.
As noted in the briefing documents prior to advisory committee meeting and again in our CRL, the FDA described their expectation of having additional pre-approval clinical safety data based on the liver enzyme profile in our approximately 900 patient CABP database in the NDA. The FDA advisory committee briefing document describing pre-approval safety data from possible 12,000 additional solithromycin patients and the CRL recommended pre-approval data from additional 9,000 solithromycin patients.
The FDA also communicated to us their perspective that approximately 75% of the solithromycin patients and the additional safety study should be on IV solithromycin. We met with the FDA this past February to discuss the complete response letter and how we can progress with solithromycin. We requested the FDA to reconsider the patients numbers required in the safety study pre-approval in order to adequately characterize the risk of liver safety to respond to the CRL.
This was a very productive discussion and the FDA stated that it was open to further consideration about the number of patients encouraged us to submit a protocol with a revised proposal about the number of patients in the safety study, so they could evaluated.
Based on our FDA communication and the proposal we submitted to the FDA, we are pleased to share with you today that the study that was agreed will evaluate an additional data from 6,000 solithromycin patients on a pre-approval basis, which would be included at the time we respond to the CRL. With data from an additional 3,000 solithromycin patients to be submitted after the CRL including on a post-approval basis.
I controlled arm with the five to one randomization of patients on standard care will also be included. The FDA also agreed with our proposal that the study we conducted with oral solithromycin. Focusing the safety study with oral formulation only was importance to us for several reasons. First the study will be simpler, faster and less expensive to conduct as an oral-only study. And as you may recall from our Phase III data, the liver enzyme profile appeared favorable in an oral solithromycin patients treated for five days relative to intravenous patients treated for up to seven days.
In addition to this, inclusion/exclusion criteria will confirm patients have CABP and will exclude patients taking certain concomitant medications which were associated with higher liver enzyme levels in our Phase III studies. An approval based on the 6,000 patients of new safety data would be for the oral formulation of solithromycin and we will consider a future safety study to generate data of the IV formulation to support potential approval of the IV.
From a commercial perspective, we had expected less than 20% of total solithromycin revenues would come from the IV formulation. Our approach to seek initial approval for the oral formulation also simplifies our response to the CMC items raised in the CRL, which included both oral and IV manufacturing.
As we have discussed, we have been accelerating our manufacturing activity that you keep that in Mexico and have initiated stability testing on several of API. Based on the study protocol, we estimate that we can complete enrollment of the first cohort of 6,000 patients in 24 months to 36 months following the initiation of the study at the cost of approximately $75 million through the CRL response.
As we have been working with the FDA to reach agreement on the protocol, which we have now accomplished, we have been parallel in working to identify non-dilutive funding sources for the study. At this time, we were not planned to commence the safety study without securing significant non-dilutive funding.
We have been working closely with our partners at BARDA and we have developed a protocol with them and we have submitted a funding request to BARDA to support the study. We also have a number of ongoing business development activities with solithromycin and fusidic acid which could provide sources of non-dilutive funding in the future.
Now turning to fusidic acid. Following the successful Phase III study we report in January, we met with the FDA in second quarter to discuss the best next steps to gain approval. The FDA has noted that second Phase III study with a similar design to the successfully completed Phase III could support potential approval of fusidic acid in patients with ABSSSI.
Additional clinical studies required for the NDA submission include a thorough QT and drug interaction study. Our ongoing exploratory study with fusidic acid and patients with refractory bone and joint infections had completed its enrollment of 30 patients during the second quarter. The primary endpoint of the study is clinical success six months after the start of treatment and we expect to provide the results by the end of 2017.
In addition, our ophthalmic program with solithromycin also continues to progress as we assess the potential of solithromycin to treat dry eye conjunctivitis and blepharitis. We prevented some pre-clinical work in the second quarter at the ARVO meeting in Baltimore, and we're preparing for a possible IND submission in 2018.
I won’t spend much time on our financial as you can find the details in our press release and we are of course happy to answer any question. But I would note that our operating expenses continue to decline significantly in the second quarter and as we had expected – as we expected and of course we ended the second quarter with $187 million of cash and cash equivalent.
With this significant cash position and progress we have made with solithromycin and fusidic acid, we are incredibly excited today to combine our resources with Melinta to create what will be from day one, a unique company with an exciting commercial clinical and pre-clinical, anti-infective pipeline, including multiple products across several indication.
We believe the range of opportunities for success provides an exceptional platform to deliver potential long-term growth and value for our shareholders. And we believe that today’s announcement is only the beginning. We have provided a slide deck on the Investor section of the cempra.com and melinta.com, which summarizes many aspect of the proposed merger.
In addition to the deep pipeline of the combined company, we anticipate we will add additional assets over time to continue building and growing a leading company in the anti-infective space. We will publish the complete details of our process with Morgan Stanley in our proxy statement, but as we interacted with approximately 100 companies looking at a wide range of opportunities, it was clear that Melinta offered us an outstanding opportunity to maximize value for our shareholders by adding commercial, clinical, pre-clinical assets to our existing portfolio, including an FDA approved antibiotic Baxdela or delafloxacin with an excellent label for ABSSSI and also in Phase III study for CABP as well as plans for further study in complicated UTI.
In addition, we have a very valuable discovery platform to develop treatments for the ESKAPE pathogen. As we engaged with the board and management team in Melinta there is clearly a shared vision and commitment to creating a growing unique vertically integrated company in the anti-infective space and we are very excited about this future. And we are delighted to have Melinta's President and Chief Operating Officer, John Temperato here with us to share his thoughts about Melinta, Baxdela and the merger.
Thank you, Dave. We are credibly excited about this merger. We see tremendous synergies in the missions of our two companies, which will fuel a smooth integration and created a powerful new company in the anti-infective space. That brings multiple products across several indications over the coming years and will deliver significant value for patients and shareholders.
From our perspective, we are interested in merging with Cempra because together become one of the world’s leading anti-infective companies. Together, we will have four active classes of drugs being pursued clinically and a platform behind it that we believe can bring exciting and necessary new drugs for market. With this transaction, we believe we have created a premier anti-infectives company and a combination of capital and pipeline, creates a very attractive value proposition.
Our first product a fluoroquinolone antibiotic called Baxdela; it was approved by the FDA in June after eight-month priority review. Baxdela is indicated for the treatment of serious skin infections known as acute bacterial skin and skin structure infections or ABSSSI and the label most pathogen coverage including MRSA and gram-negative infections comparable efficacy to the combination of Vanco and Aztreonam and interchangeable IV to oral dosing to allow for a possible reduction or [indiscernible] from hospitalizations.
The excellent safety profile, we saw in a clinical trials has also translated in the label. We have been preparing for over a year to want Baxdela with the addition of the resources and expertise from Cempra; we are now ideally positioned to launch the drug successfully for ABSSSI.
Outside the United States, we announced in March, a development and commercialization agreement with Menarini for 68 countries across Europe, Russia and Asia, with the exception of Japan, and together with our existing partnership elsewhere in the world, we believe the strong partnership will have significant value to franchise and then we intend to summit an MAA for delafloxacin in 2018.
As Dave noted, we also have an ongoing Phase III study with Baxdela for community-acquired bacterial pneumonia. This 860 patient trial that is expected to complete enrollment by the end of 2018. We also plan to initiate clinical trials for complicated UTI. Beyond Baxdela [indiscernible] it a novel second-generation oxazolidinone, antibiotic for topical treatment of the acne vulgaris is in Phase I development with our partner.
We also have an innovative and proprietary discovery platform designed to engineer improvements to existing classes of drugs and create novel classes of antibiotics to overcome multi-drug resistant bacteria. The [reprogram] has been built using our platform is our CABP program and we look forward to describing it in more detail to you in the future.
The team at Melinta shares the excitement Dave described about combining for [discrete] the foundation of the company that we believe will be a magnet for talent and additional assets in the anti-ineffective space and we will deliver many important new therapies to patients in years ahead.
Thanks very much John. As the company’s come together, we will also select a new CEO with the combined company. In conjunction with the planning of the definitive merger agreement, the Board of Directors of Cempra and Melinta will name a special committee with equal representation for both Cempra and Melinta to conduct a search and appoint a new CEO for the combined company who can build on the strong experience and shared vision that John and I describe for you today.
With Baxdela as the first commercial product, Cempra’s progress with the FDA on solithromycin, fusidic acid in a broad pipeline of additional clinical and pre-clinical opportunities, we believe our combined company will have an exceptional foundation of assets and the ability to continue adding additional therapies to deliver growth and long-term value to our shareholders.
We are now happy to take any questions. And so operator could you please open the line.
[Operator Instructions] First question is from Kevin DeGeeter of Ladenburg. Your line is open.
Hey, congrats on transaction guys. Thank you for taking my questions. Really interesting day. So from a portfolio perspective, the merged company will have late stage assets, really two assets both for CABP and for Skin. Can you just talk about how you envision market segmentation positioning in both CABP and Skin for portfolio?
Thank you, Kevin for that. Excellent question. I think that we are going to be working on some of these items over the coming months. I think we can all agree that multiple choices for patients and physicians in the space for CABP and CRL are good things. And so we don't plan – issue, we will continue to work on our approach for the market for the different product. As you noted, they're all in different stages of development. So their progress we will be continued and we look forward to working in these important spaces with our whole portfolio and additional products we’ll add over the coming years.
And then just following up on your last point there, you did call out future business development as being part of the vision of management and the board. Can you just walk us through on a high level; the profile and the type of assets that will remain of interest to the merged Cempra and Melinta franchise?
So as we mentioned, we are looking and creating a vertically integrated anti-infective company. As noted today, it already has a fairly deep pipeline. We’ll continue to look at asset in the anti-infective space broadly. And of course with unmet medical need and opportunities not only externally, but keep in mind from the ongoing development platform with the ESKAPE pathogen.
That's very helpful. Thank you for taking my questions.
Our next question is from Steve Willey of Stifel. Your line is open.
Hey, good morning. Thanks for taking my questions and congrats on the transaction. I guess, maybe just a philosophical question here, but I guess one of the key components of the solithromycin value proposition that was communicated in CABP was some of the safety concerns associated with the fluoroquinolone class and also some of the decline that we've seen in physician utilization. So I guess just wondering if – what you can tell us about delafloxacin, which might differentiate this compound relative to some of the [oxazolidinone] or generation fluoroquinolones, especially in the context of the ongoing Phase III CABP study?
Yes. And I can have John comment as well, delafloxacin as a fluoroquinolones is differentiated by having MRSA coverage and based on its overall safety profile that was in the NDA and it was a subject of approval. We thought it was an excellent product to bring forward as Melinta does and we look forward to having it to play a significant role in ABSSSI as well as CABP clearly – as we move forward there will be treatments that are more applicable for some patients versus others and as always physicians will make choices what I think helpful is for us to bring it forward products that physicians can choose from, so that they can provide that best therapy to their patients.
So to add to that, we are targeting ABSSSI patients with co-morbidities were challenging and more expensive to treat. This population has higher rates of mixed infections, drug administration burdens, readmissions and longer length of stays. So when you look at our solution, we have a monotherapy agent covers gram-positive MRSA, atypicals and anaerobes, ability to initiate and maintain therapy on IV and oral regimen, which can potentially prevent or reduce hospital stays, plus as a favorable in class drug interaction and warning or precaution versus the other growth clinical. So those bunch of features, we believe allies very well both with clinical and financial stewardship and we're not for all patients, but we are more than appropriate for the medically challenging patients.
Okay. Thanks for that. And then I guess assuming you guys can address some of the issues in the CRL with the oral study plans that you have laid out. Was the target prescriber base for the oral formulations will be primarily concentrated within the community setting?
And I guess I asked a question just given that you've made development for the purposes of addressing the CRL a bit easier by focusing on the oral formulation, but it seems that longer-term success of this is still going to be kind of primary care detail would still hinge upon a fairly complex commercial undertaking?
Well I think that we still view solithromycin as an appropriate product for CABP in the community based on the data to-date. The safety study will be available or reinforce our approach. I think over the coming couple three years, we will respond to the data that's generated and make some additional decisions on the best positioning.
But at this moment we think solithromycin has a strong role in community-acquired pneumonia and so we will – our plans have not significantly changed. As you noted, we are focusing on the oral solithromycin for logistical practical reasons as well as really the dosage from we thought will be used primarily out in the field. So we will continue to assess it and currently it’s not substantially changed from our original approach.
Okay. Thanks for taking my questions.
Our next question is from Brian Skorney of Robert Baird. Your line is open.
Hi. Good morning, guys. Thanks for taking the questions. I guess [solithromycin] in the prepared remarks, can you guys just review what the current cash position for Melinta, so you have a framework for – total cash position will be post-merger? And also curious as to what the [indiscernible] duration is for Baxdela? Thanks.
Yes. So let me provide some overarching comments on it. As mentioned in the remarks, we currently have a cash position of around $187 million. We expect this transaction to close sometime in the fourth quarter that we anticipate nominally having a cash position probably in the $150 million range plus or minus.
And we'll continue to update that on a quarterly basis. Clearly that cash will be utilized in addition to the resources that Melinta has in order to support the launch of Baxdela. And that would probably be as much as we're going detail on the overarching cash position at this time as we move forward – as with regard to the patent, I’ll let’s John respond to that.
Thanks. Our IP extents to the last 2020s and we are also pursing additional Patent Term Extension for one of our key patents. And also a remainder and as you know Baxdela has a QIDP indications, the Qualified Infectious Disease Product, which means we get additional five years in marketing exclusivity.
Okay, great. Thanks guys.
Thank you. [Operator Instructions] Our next question is from Kevin Kendra of Gabelli. Your line is open.
Hi, thanks for taking the questions and congratulations on the deal. I guess based on a last question, I know if you'll answer this. But wondering if you can give a sense of how far you see the runway for current cash? How far that can take you as a combined company? And then secondly, has Melinta given any sense of peak sales expectations for Baxdela either for the entire program or for the skin indication in particular?
So thank you for both of those excellent questions. I think with regard to cash one way, we will be better off to update later on that. Clearly as noted, it's a significant amount of cash that will carry us through a notable period, but at same time we are launching a product and continuing the development in our pipeline. But we will provide additional guidance on that in the coming quarters. And so with regard to the forecast, again we are assessing that jointly as a team and so we will advised on that as well in the coming quarters.
Okay and then maybe a question for John. I know its early days, Baxdela, but can you give us a sense of kind of what you're hearing of that about – for the use of the drug and skins are pretty crowded landscape right now. So what is it about your product that is really getting the attention of physicians?
Yes, as you can imagine we spent the summer sent approval extremely focused on getting this right and done a lot of work to do that. In terms of feedback we've met with a lot of providers and payers across the summer and the feedback is absolutely positive and the overwhelming feedback we've got here is based on the profile of the patient type that were going after and we're not positioning for all comers both payers and providers are receipted to our attracted profile.
Thank you. Our final question is from Michael Higgins of ROTH Capital Partners. Your line is open.
Congratulations guys on the transaction. Just a follow-up from earlier questions, we're just trying to get a sense for how the performance become it may look at the balance sheet is that fair, if you can just provide any feedback for us on the current OpEx of Melinta as well would be helpful? Thanks.
I appreciate the question. I think we are moving in a better place to provide guidance on these items in the coming months. And also keep in mind that much of the data from this process is included in our proxy which will be filed soon and so I think that offer that as another place for solithromycin. Today we're not going to get into financial guidance on a combined company and we will though guide you in coming quarters.
Okay, thanks guys.
End of Q&A
Thank you. This is the Q&A portion of today's conference. I would turn the conference over to Dr. Zaccardelli for any closing remarks.
Well, thank you everybody for joining us today and we look forward to seeing all of you in the coming months, and appreciate all your support. So thank you very much.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.