Melinta Therapeutics, Inc. (NASDAQ:MLNT) Q1 2018 Results Conference Call May 8, 2018 4:30 PM ET
Lisa Defrancesco - SVP, IR
Dan Wechsler - President and CEO
Paul Estrem - CFO
Mike McGuire - SVP, Commercial
Sue Cammarata - Chief Medical Officer
Erin Duffy - Chief Scientific Officer
Kevin DeGeeter - Ladenburg Thalmann
Kevin Kedra - Gabelli
Brian Skorney - Robert W. Baird
Good day, ladies and gentlemen, thank you for standing by, and welcome to the Melinta Therapeutics Q1 2018 Earnings 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] As a reminder, this conference maybe recorded.
At this time, I’d like to turn the conference call over to, Lisa Defrancesco, our Senior Vice President of Investor Relations. You may begin.
Thank you, Levy, and good morning everyone. Welcome to the Melinta's first quarter 2018 earnings conference call. On site too earlier this morning, we issued a press release reporting Melinta's earnings for the quarter ended March 31, 2018. The press release and our slide deck which we are presenting this afternoon are available on the Investors portion of our website at www.melinta.com. We are conducting a live webcast of this call, a replay of which will be available on our website after its conclusion.
Turning to Slide 2, I'd also like to remind you that during the course of this call, management will make projections or other forward-looking remarks regarding future events or the future performance of the Company. It's important to note that such statements and events are forward-looking statements and reflect our current perspective of the business trends and information as of today's date. Actual results may differ materially from our current expectations and projections depending on a number of factors affecting the Melinta's business. These factors are detailed in our periodic public filings with the Securities and Exchange Commission.
Turning to the agenda on Slide 3, Dan Wechsler, our President and CEO, will provide an overview of our business including first quarter and recent highlights. Paul Estrem, our CFO, will then provide an overview of our financial results and outlook for 2018. Then Dan will conclude with closing comments. Also available during the Q&A will be Mike McGuire, Head of Commercial; Sue Cammarata, our Chief Medical Officer; and Erin Duffy, our Chief Scientific Officer.
With that, I'll turn the call over to Dan.
Thanks Lisa. Beginning on Slide 4, I'd like to start by discussing a number of recent business and product highlights that have occurred so far in 2018. Our focus is and will continue to be on driving revenue, building operational strength and furthering R&D progress that we've made important steps on all fronts which I will share with you today. First, I'd like to begin by thanking the entire team of Melinta for accomplishing a lot in a very short period of time. I remember this deal with the Medicines Company closed on January 5th. We've had the combined two companies while staying laser focused on two launches Vabomere and Baxdela.
So, let's talk about revenue growth. We had a strong sales performance across our entire portfolio for the first quarter, which is our first reported result as the combined company. I'm pleased to say that our commercial engines beginning to work well, demonstrated by strong year-over-year growth on a pro forma basis during a period of transition, resulting net product sales of approximately 12 million for the quarter.
As our launch products become more established, we will consider reporting revenue by product. But at this time, we plan to report total product sales on a combined basis. In total, net revenue was 14.8 million which includes contract revenue of 3 million from our partnership arrangements. Total net revenue does not include 2.7 million in BARDA funding, which is reported in our other income line.
We were always focused on our operational strength and improving our cost structure to ensure that it is right where so we are today and for where we are headed going forward. We began in January as a new company with two major product launches underway an enviable position for any commercial stage pharma company. Now at that time, we had two separate field forces launching our products.
Melinta had 50 sales representatives preparing to launch Baxdela and the Medicines Company had 85 representatives launching Vabomere and selling Orbactiv and Minocin. We made a conscious decision to not disrupt these launches. Each team also had its own unique and distinct incentive plan. Now during the quarter, we continue to evaluate the right structure and how to ultimately bring these skill forces together to maximize synergies, capitalize in expertise and relationships, and have inherent flexibility.
Now I'm happy to report that as of May, we have completed this crucial exercise. We now have one sales team with the 135 representatives with one common incentive plan, design to maximize our business across our entire portfolio, and I'm going to cover this in more detail and just a little bit. We also continue to evaluate our cost structure and are focused on bringing any cost synergy as we can into 2018. Paul is going to talk about that a little bit later on our call.
I also wanted to briefly discuss Melinta's cash position. We've been actively evaluating a number of options available to us and that was newly public company we are focused on being shareholder friendly and we want to be thoughtful about the steps we take moving forward.
Additionally, we have global rights for Vabomere, Orbactiv and Minocin and we have an active process underway for accretive business development. We've also spoken to our existing shareholders who had expressed strong support to providing a solid foundation to execute our strategic objectives, allowing us to continue to invest and grow this company for the long-term.
Now, third our R&D organization made good progress in the first quarter that I want to highlight. Our cap trial for Baxdela is rolling ahead of expectation and we now expect enrollment to complete before the end of the fall versus end of the year as we've previously stated. And also our application for Vabomere in EU remains on target for a decision toward the end of the year.
On the medical affairs front, we plant to have a strong presence at all of the major medical symposia which began with Acumed where we had 12 posters and presentations. Now coming up this week at Med ID, we'll be focusing on our commitment to antibiotics stewardship and we expect this week to be as jumping off point for a number of planned initiatives going forward.
Melinta is committed to being part of the solution when it comes to combating multidrug resistant and ensuring the appropriate use of anti-infective. Now our partners Menarini and Eurofarma have been submitting delafloxacin an important markets including Europe and two markets in Latin America, Argentina and Peru. These are the first of many planned ex-U.S. submissions this year.
And finally, we announced this week that we received CARB-X funding an important achievement to support our discovery organization, as we focus on novel molecules to combat the ESKAPE pathogen. Our team is focused on bringing an IND candidate forward potentially this year and our agreement with CARB-X will certainly help that effort.
Now beginning to Slide 5, I want to highlight some of the impressive product performances beginning with Vabomere. Now, we saw a strong progress in the launch in the quarter. As of today, we are nearing a 100 formulary approval and zero formulary denials. We have 50 additional reviews scheduled for this quarter alone, but half the accounts have reordered so we are beginning to see pull through.
And in addition, we have strong new account trends with about 30% new account ordering for the first time and an average the number of total accounts ordering has increased nearly 40% month over month since January. This is a very strong leading indicator for future growth. For the second quarter we continue to focus on providing access to Vabomere via acquiring additional formulary approval and sharing data dissemination around Vabomere becomes available, combined with a significant increase in share of voice from 85 representatives to 135.
Now on Slide 6, Baxdela is off to a terrific start. Now as we expected growth of oral Baxdela is outpacing the IV as we work through the formulary process primarily on the IV side. Baxdela is beginning to be an important tool for physicians treating serious skin infections, which is demonstrated by 11 different specialists that have prescribed it so far for skin in just a few weeks since launch.
Our team has made substantial early progress as evidenced by 90 formulary approvals to-date, 30 hospitals have purchased Baxdela, week over week, days of therapy has grown 10% per week on average over the last eight weeks. And week over week prescriber count is doubled on average over the same time period.
Our focus in Q2 will be on continuing to launch trajectory through data dissemination, expanding commercial access, obtaining additional formulary approvals, and importantly, nearly tripling our share of voice from 50 to 135 representatives that now sell Baxdela.
Moving to Orbactiv, I have been very pleased with our strong growth. We have 54 new accounts purchasing Orbactiv in March. It's the highest number of new accounts in one month in over 16 months. 70% of the business for Orbactiv continues to be in the outpatient settings to the hospital which support the value proposition of admission appointment.
We also believe there is additional opportunity in the peri-acute setting, starting now as our reps are selling Orbactiv in and around the hospital. Orbactiv experienced a greater than 50% increase in demand first quarter 2018 when compared to first quarter '17.
Now moving onto Slide 8, Minocin continues to perform well and we see steady growth supported by positive underlying trends. Particular over the last four weeks, we have seen the highest sustained box sales since the products launch, where we are starting to see as evidenced of revenue synergies as we focus on having Minocin right along with Vabomere in our representative hands and we expect this favorable trend to continue.
Now moving to Slide 9, I’ll talk a bit more about the evolution of our commercial organization. Now as of May, we went from two separate field forces to one and cross-trained all of our sales representatives to sell the portfolio of brands. And importantly, we now have one unified incentive plan, which has tied the portfolio brand performance.
So depending on the territory, source of business maybe different, what I mean by this is that the split between hospital and the peri-and post-acute care settings outside of the hospital is local and it's not necessarily uniform nationally. We have aligned our sales team to maximize these opportunities while mirroring the local business. We have incentivized our sales teams to work together.
This new structure does match the business locally and allows for flexibility as opportunities occur in both, inpatient or the outpatient setting. We expect to see the impact of these exciting changes as we move throughout the year and our new sales team was designed with four measure goals we focused on. First, maximize the launches of Vabomere and Baxdela, while maintaining the growth Orbactiv and Minocin. Second, limit business and customer disruptions while bolstering our talent. Third, creating flexibility for potential future after asset acquisitions. And fourth, capture and capitalize on existing long-term customer relationships, which is critically important in the hospital setting.
Now moving on to Slide 10, business development as a focus at Melinta and we have a number of different processes underway with four main priorities. Now remember, we have global rights to all of our products and we are in active process to partner them outside of the U.S. Second, we want to strive to be the partner of choice in the space. We work hard to bring the organization and is leverage both and that can sustain additional products.
Third, our assets which may not be record in the U.S. business today, there might be valuable as review other markets or other potential indications we're committed to maximizing this value. And lastly, we are focused on non-dilutive partnerships to support future development opportunities, which is a great segway into Slide 11.
Now here I'm pleased to report our partnership with CARB-X, under which Melinta will receive up to $6.2 million to advance the discovery efforts for a novel class of antibiotics called pyrrolocytosine. The ESKAPE pathogen program is based on Melinta's proprietary drug discovery platform focused on developing breakthrough antibiotics for Baxdela superbug by targeting the bacterial ribosome.
This new class of antibiotics could be transformational in the fight against these origin threats. To support and resources available to CARB-X, we will provide important assistance as we move to advance one or more of these compounds into the clinical development.
Now on slide 12, I want to highlight the progress we continue to make on our R&D efforts. Each product has a support of a strong team that is made significant this quarter towards furthering our objectives. These include beginning on furthering work on pediatric programs for Baxdela, Vabomere and Minocin, continuing the focus on the strong publication strategy for each of our products, acquiring non-dilutive funding sources staring with CARB-X, for our ESKAPE program which we just announced. And finally capitalizing on our successful meeting myself and our leadership team have with BARDA where we discussed fostering a new and productive relationship with Melinta.
Finally, we continue to work with our valuable ex-U.S. partners as they progress development efforts across the globe. And will continue to support our brands through ongoing development while continuing to focus on maximizing the value of each of these assets.
So with that I'll turn the call over to Paul to discuss our financials ad outlook.
Thanks Dan. So I'm on Slide 14, as Dan discussed we are reporting results for the first time as a combined entity as a reminder results from the period reflects more onto private standalone financials and therefore year-over-year comparisons are less meaningful.
During the quarter, we reported 11.8 million in net product sales from the combined portfolio of Vabomere, Baxdela, Orbactiv and Minocin for injection. We also recorded 3 million in contract revenue related to our agreement with licensing partner Menarini.
Funds received from BARDA of 2.7 million were recorded in other income rather than revenue under the new revenue recognition rules that went into effect on January 1st. Our cost of goods sold for the quarter were reported at 7.7 million, but that included approximately 4.7 million in primarily deal related amortization from our acquisition of the Medicines Company infectious disease business.
Total operating expenses for the quarter were 50.8 million or just over 46 million on a non-GAAP basis adjusting for deal related items and stock-based compensation expense. Notably the largest driver of growth in SG&A versus Q1 2017 was the investment in commercial infrastructure and bringing in the commercial organizations and Medicines Company.
We ended Q1 with 91.5 million in cash and cash equivalents. Cash and cash equivalents this quarter was negatively impacted by the timing of certain payments and receipts of reimbursement expenses totaling approximately 10 million. I also wanted to comment on what we've seen thus far in 2018.
As it relates to product sales as Dan mentioned, we are very pleased with the trajectory of our recent launches for both Vabomere and Baxdela. They are starting to gain traction and we are starting to learn about new areas of opportunity to the commercial experience with these products. We anticipate that both products will continue to demonstrate robust growth for the balance of the year.
For our Orbactiv and Minocin two established products we are seeing strong growth and expect net product sales for these products to be combined in the range of 36 million to 40 million for the full year 2018. When you add the recent product launches on top of this you start to see a strong growing revenue stream performing for the long term.
On the expense side last quarter, we provided guidance that we anticipate OpEx in the range of 175 million to 200 million, since then we have sharpened our pencils looking across the Company to find efficiencies including the work we have done from a commercial and R&D optimization standpoint. We've been able to identify some nice savings from this work, giving us more confidence towards lower end of this range.
As a reminder, 2018 is a year where the Company has a number of unusual items impacting its expense lines and cash balance, including inventory values for two major marches, which is significant in 2018, but quickly becomes the source of cash in outer years and contractual obligations and milestones related to the acquisition of the IDB Assets from the Medicines Company. While these new items are nonrecurring our cost would decline over time as we realize the benefits of the combined organization and lower development expenses as we conclude our cap trial for Baxdela.
As Dan mentioned we're actively evaluating many options to potentially enhance our cash position and we are pleased that many of our key existing shareholders have expressed support for the future of Melinta and to provide a foundation for us to grow our business.
And with that, I'll turn the call back over to Dan for closing remarks.
Thanks Paul. So turning to Slide 16, we hope you're becoming a bit more familiar with our long-term strategy and areas of focus. I’m so pleased that in just a few short weeks, the progress across our company is resounding, our products are performing well and we are furthering our pipeline. And is the only dedicated company with old on market products and development activities focused exclusively on an anti effective space.
We are working hard to seek out nondilutive ways to further important progress on our discovery efforts as evidenced by the announcement of CARB-X support. Finally, we are continuing to strengthen our operations and we are making important progress towards a solid financial foundation.
Our last slide, Slide 17 is about the future. We have many important catalysts across our entire business that we are focused on achieving. We are focused on product performance our R&D goals and milestones the strong publication strategy and finally, business development activity that strengthen us even further. We have an aggressive calendar of communications and investor activities planned in the coming weeks and months and we are very excited to continue to tell our story.
So in conclusion, this team in about 12 weeks has integrated three companies harmonized and created new policies, procedures, standards of working in a compliant way. We have realigned trained and hired an experienced field force while launching two products simultaneously. We furthered our development discovery initiatives as we transition services from the Medicines Company to Melinta. We built inventory and put lots of stability to prepare for the future.
Our regular team is advanced, our European application for Vabomere. And finally, and I think importantly ran a way of establishing a culture with a bias towards action, trusting our new and senior team who will lead and develop all of our colleagues, as we continue to establish Melinta as the leading pure play antibiotics company.
So, with that let's turn to Q&A.
[Operator Instructions] Our first question is coming from the line of Kevin DeGeeter with Ladenburg Thalmann. Your line is now open.
Can you comment on your thoughts for partnering Vabomere in Europe and given that the rates of CRE vary widely between EU countries. Do you think that a single regional partner is optimal or would a series of local partners be optimal?
So, let me start now to all this little bit over to us to Sue can comment a bit on the slightly different coverage, that's right slightly different resistance patterns in Europe. So, one, we are in very active process with actually quite a few companies actually pursuing these products today Minocin and Orbactiv are ex-U.S. Ideally, we'd like to have one partner I just think it's easier like from an operational perspective but we’re going to make the best decision for the brand and the best decision for each country to make sure this product has some hands of the doctors. We've also done extensive pricing work on Vabomere and we find that there is an opportunity there for a very, very successful product in Europe.
What I'll kind of leave you with that the end is we also had a good meeting with the reportorial and will see labeling in Europe as you know can be different than in the U.S. so as we learn more about that I think that will help us sort of form our opinion on whether this product goes and how valuable it actually is. Your second part to your question around coverage and coverage differences maybe help us with that a little bit because it is slightly different.
Then I think just to echo what Dan has put already, as you know there are differences in the resistant mechanisms across different regions, and I think each of our partners, potential partners that we are talking to are looking at those on a differences and thinking about that. But we see this is as an opportunity to look at partners in different regions and being able to take Vabomere forward. It's really getting the best match of the public pieces around the world who can be able to take and bring Vabomere out for the use of patients.
And then we have global rights too, so it's not just Europe. We actually have quite bit of interest in China and you see it comes from the other partnerships that have been signed. We see Chinese become a very important country for novel antibiotics and they seem where we started from a pricing perspective so we look forward to updating everyone further as we as this process moves along.
I have one more follow-up question. So very exciting update on the ESKAPE pathogen program with the data at Acumed and the CARB-X grants, what is your current thinking on most likely indication to taken in the clinical development, and if you could also provide a timeline?
So, I think maybe the first step would be to Sue. So, Sue, why don’t you start?
So, I think there is a variety of indications that you can look at for these -- the focus really was that we're looking at this primarily grand negative, so the variety of indications you look at and I think I have Erin talk about timeline to get a candidate. But once the candidates identified, it will be in particular into Phase 1 and fairly the shortly answer that. So, do you want to comment Erin?
Sure, so on timeline to get to an IND enabled compound is a little over a year. We anticipate nominating the first clinical candidate or IND-enabling candidate in a few short months.
So, more to come.
Our next question is coming from the line of Kevin Kedra with Gabelli. Your line is open.
First on Vabomere, can you tell us a bit about what you are seeing out there in the field? How doctors are using this in combination and kind of are they kind of slightly agnostic? And then secondly on TANGO-2 and the ability to get that data on the label, any takeaways from the recent plazomicin FDA [indiscernible].
I’ll start and then I'll turn it over to Mike, our Head of Commercial for [indiscernible] experience of Vabomere, how they are using it then maybe Sue to comment a bit on where we are with the TANGO-2 data. So look doctors are using Vabomere exactly what we would expect, right. So parent therapy was owner perspective CRE, couple of days get the testing back and then determine the activity correct and as they keep in mind it, if it's not which is what we want they take them off and put him on either cephalosporin or different power plan or something else in combination. The Vabomere used primarily. These recognized as a singly agent, yes, which is a little bit different than some of the other. So maybe Mike could you give a little more color?
Sure, I think what you're seeing right now is number of the institutions as Dan said, its being used as patients come in from or I’ll call a source that has a high prevalence of CRE, and physicians are using it there with highly suspected they wait for the culture to come back they continue to patient on Vabomere or take them off and put them on Vabomere depending self respond.
We are seeing some nice uptake in hospitals across the country where we see CRE is a major threat. And that’s where we are focusing our efforts right now. And it seems like the message and the idea of using Vabomere as a sole agent in treating these infections is being taken very well. The product is working well. We haven't heard of any issues resistance or safety. So we are very pleased so far with the response.
So your second question on TANGO-2 and how relates to sort of what we have learned from the agent plazomicin at board this last week. Look the data is softer than Vabomere and I think you know that as anybody else in this space, physicians use these products based on passage and coverage and data. While label is important to be completely honest this is a very, very scientific community that totally understands where these products should be used and where they shouldn’t be used. The TANGO-2 data is very strong data.
We are not going to comment on what we think the FDA will do with it not really fair or is it appropriate to speculate. But we will say that it is important to get the data out in the community. So we do as responsibility that since the data was generated to make sure that it gets in the hands of the people that do make the decisions and treating patients with or without Vabomere or other products.
So we are working towards that, more to come on that one. From a how does it relate to what we do regarding the ad board, obviously as you imagine we are in discussions with the FDA as well that’s a normal part of what any company thus where they have products and new data. And we will comment on that as soon as we have more information to comment on. Does that make sense?
And then just want to follow up on Minocin or Orbactiv. Can you breakout kind of the cells for those? If you don’t want to break those out can you at least give us a sense of where are the gross and nets on those products are meaningfully different and when they were under the Medicines Company?
So from the second part of your question, we actually don't breakout those in that than we haven’t commented on that. But what we can say is that from a performance perspective and we have said this before, third quarter of 2017 products combined and we don't break them out individually, but at least combined, they had a run rate of around -- at the end of the fourth quarter, they had a run rate of 34. We've now given guidance that we expect between 36 and 40ish this year. We feel confident in those numbers because again these are established products, they have been out a few years.
We know that they are actually growing faster now than they have we've almost released since launch and I think that's a combination of an invigorated field force, strong leadership for Mike, they're good products. And a lot of this is just how to products work along with other products in the bag, and I think we will see increased performance just as we said, we've just now started having all representatives as of May sell off our products.
So even until as recent as last week and the data you are seeing so far is representative of this, we only had 85 representatives talking about Vabomere, Minocin. And their incentive is basically only on those products and clearly if Vabomere would have been the highest rating product in the bag as it's a launch product.
Now going forward, all four products are in the bags of all 135 representatives. And if you are in-patient representatives, you've got a little bit higher waiting towards Vabomere and our Minocin. If you've more than outpatient, peri acute saying reprehensive while you have all four products, little bit higher waiting on Baxdela and Orbactiv because they travel nicely together in those settings, but all four products have to be hit for representing as you get paid, that's the need for [indiscernible] the team designed the incentive plan as fast as good team work.
Peer-to-peer pressure is actually pretty strong and we found that representatives in this space who have as much experience as ours have. They know how to work together and identify opportunities and do this as a team so we actually feel that growth is going to continue it's been high-single digits and low double-digit now for about two quarters in a row and we don’t have any reason to expect that trend to not continue. So I know about exact answer but it's just the answer we have.
[Operator Instructions] Our next question is coming from the line of Brian Skorney with Robert W. Baird.
I just wanted to get your kind of thoughts on the plazomicin, FDA panel, and your perspective on, if the FDA label for the drug one of the going away the channel, but just how we should think about kind of into any impact to Vabomere and reinforcement of Vabomere as a product?
One, we actually as a company that is dedicated anti-infective, we want every product that's a good product to get a label and get approved. So, Dr. Sue's word should be used, so that's one. Two, we don’t believe plazomicin is a competition like I said we've believe it's an add-on therapy and we think it will be a great addition to the armamentarium with infectious disease after treating CRE.
As to the label, it's an ad board, so it's a recommendation to the FDA and what the FDA does is that their discretion. So, I think we're all just wait and see what the label is, but we don’t have any intention as a company of selling head to head against plazomicin just how these drugs are used in real world. So, it's complimentary to any antibiotic in the gram-negative space.
And I guess just wondered how come you guys aren't breaking out individual product sales right now?
Well, I think so one we've only had the products for 12-weeks, so it's first quarter. Two, to this products you are in really, really launch about Vabomere is now getting to where it becomes a little bit more attraction, but it's still launched over the holidays. We talk before about it's a six months process even to get it available in the hospital, should it become available and it might be even be a little bit longer than that with some of the changes that are happening around the microbiologic testing and was required before it gets to executive committees and added into the protocols for the hospital.
So we are very comfortable in giving guidance around the two products have been out for a few years because we want to be predictive and accurate and what we've held the outside world from an expectation perspective. It’s very hard to be predictive on a product that's been on the market for 12-weeks. So as these products move on and as we get more attraction and as we get more predictability, we will give more guidance and probably more granular guidance because we know that’s what everybody wants. We just want to be fair, and how we set our expectations. Does that make sense?
My question was more on actual historical performance one when I can breakout whatever each products towards this quarter?
Paul will take a shot just react to that.
We were just saying -- hey by the way, look we just can't tell you the -- consciously made the decision to group all of our sales together here initially. And so, we really get some good hands on experience. We are selling a pool of antibiotics right now and as we get the experience, we will consider breaking them out in the future.
At this time, I’m showing no further questions. I’d like to turn the call back over to Lisa Defrancesco for closing remarks.
Okay, thanks everybody. Dan do you have any closing remarks?
No, I just want to thank everyone for listening to the call and obviously thanks to Melinta team for everything they have done so far. We are very proud of our first quarter performance. And we look forward to updating everyone as we hit additional milestones and have additional catalysts throughout the year. So thank you everyone.
Thank you, ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. And you may now disconnect. Everyone have a great day.