Achaogen's (AKAO) CEO Blake Wise on Q2 2018 Results - Earnings Call Transcript

About: Achaogen (AKAO)
by: SA Transcripts

Achaogen (NASDAQ:AKAO) Q2 2018 Earnings Conference Call August 6, 2018 4:30 PM ET


Gary Loeb - General Counsel

Blake Wise - Chief Executive Officer

Kenneth Hillan - President, R&D

Janet Dorling - Chief Commercial Officer

Zeryn Sarpangal - Chief of Staff


Stephen Willey - Stifels

Ami Fadia - Leerink

Alan Carr - Needham and Company

Kevin Kedra - Gabelli

Ed Arce - H.C. Wainwright and Company

Adnan Butt - Guggenheim Securities


Good day, everyone. And welcome to the Achaogen Incorporated Second Quarter 2018 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Gary Loeb, General Counsel. Please go ahead, sir.

Gary Loeb

Thanks Christi. Good afternoon, everyone, and thank for joining. This conference is being recorded and will be available on our website,, for 30 days.

Before we get started, just a reminder that this call contain forward-looking statements. Other than historical facts, all statements in this presentation, including future results of operations and financial position, business strategy, commercial opportunities and trends, availability of funding, product approvals, clinical or regulatory pathways, timing of activities and likelihood of success for our activities, including the commercial potential approval of ZEMDRI and future results of current and anticipated products, are forward-looking statements reflecting the current beliefs and expectations of management made pursuant to the Safe Harbor provision of the United States Securities Law.

Because forward-looking statements are subject to risks and uncertainties, some of which cannot be predicted or are beyond our control, you should not rely on these forward-looking statements as predictions of future events. Our actual results and the events identified in our forward-looking statements may not occur, and actual results could differ materially from those projected.

For a further description of these risks and uncertainties, as well as risks relating to our general business, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and other periodic filings with Securities and Exchange Commission.

Except as required by law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

This conference discusses products other than ZEMDRI that are under clinical investigation, and have yet been approved for commercial use. For example, C-Scape is currently limited by Federal Law to investigational use. No representation is made as to its safety or effectiveness for the purpose for which they are being investigated.

I'll now turn the call over to Blake Wise, Achaogen's CEO.

Blake Wise

Thank you, Gary, and good afternoon to everyone. I am excited to be talking to you today as a commercial stage company. It's been a busy time for Achaogen this past quarter as we transition from a clinical stage company to that of an integrated company with commercial operation. This is an important and rare milestone in our industry. For Achaogen, the recent quarter was characterized by a tremendous amount of work, excitement and pride surrounding the FDA approval of ZEMDRI, and most recently the official launch of ZEMDRI the infection disease community and some very encouraging indicators in our first two weeks of commercialization.

This transition to becoming a commercial company was followed by our decision to improve our cost structure and to narrow our focus to three core priority. I am confident that this decision while difficult will position Achaogen for long-term success. In my remarks today, I'll share my perspective on the progress we've made in the launch of ZEMDRI and then address the recent changes we announced on July 26. Kenneth will also share his perspective on the ZEMDRI journey and the impact of the restructuring on our pipeline and research priority. Janet will provide an update on ZEMDRI launch activities and the momentum that is building on the launch.

Zeryn Sarpangal, who is transitioning into her role as CFO effective October 1st, will walk us through the financial for the quarter providing highlights on the financial impact of the restructure.

To begin with ZEMDRI. I am very pleased to report that the launch is off to a fast and successful start. We achieved our goal of launching ZEMDRI in July with the fully deployed field force including 54 hospital account managers that we hired from a pool over 3,000 applicant plus our 12 medical scientists who have been in the field for the past year. They are rapidly engaging with priority accounts in the hospital and outpatient setting. Initial feedback indicates that our key clinical messages are resonating, and in fact, we experienced our first formulary acceptant within days of our launch.

In my own discussions with several infectious disease doctors, all have emphasized how grateful they are to have ZEMDRI available for patients who desperately need new options. They cite ZEMDRI's once daily 30 minute dosing regimen particularly important for outpatient treatment, its potential address difficult to treat infection and the comfort with the safety profile as important attributes that will impact treatment decision.

To underscore just how prepared we were to launch ZEMDRI, I'd like to share one precedent setting accomplishment by the launch team that successfully led to two antibiotic susceptibility testing diagnostic being cleared by FDA in record time. This allows physicians to determine whether a patient's infecting pathogen is susceptible to ZEMDRI. Our team achieved FDA clearance of one device in 15 days from the approval of ZEMDRI, which is the fastest such approval that we are aware of. And we also got clearance of the second device by FDA last week.

The availability of AST option is important to the uptick of a new antibiotic; we are now seeing the benefit of preparedness and ensuring this availability at launch. I am also extremely pleased that the ZEMDRI was granted new technology add-on payment for NTAP by CMS as part of the annual application and review process. NTAP provides additional reimbursement of up to 50% of the cost of ZEMDRI for Medicare patients in the inpatient hospital setting.

This reimbursement is in addition to the diagnosis related group or DRG based reimbursement that hospitals received. This is an important and meaningful designation particularly at launch that will help facilitate hospital and patient access to ZEMDRI. In summary, our launch activities are progressing exceptionally well and we are extremely confident about ZEMDRI's market potential. Janet will expand on our launch progress in a moment. I do want to emphasize that the restructuring will not affect the commercial and medical affairs groups since executing a successful launch of ZEMDRI in the US is our top priority.

Now turning briefly to the changes we announced on July 26. We have made strategic choices to improve the company's cost structure, and reduce some activities. While this is a very hard decision for us to make, we feel this puts us on a viable path to long-term success in to fulfilling our mission to help patients who critically need new antibiotic therapy. Our three core priorities going forward are: one, successfully commercializing ZEMDRI in the United States. Second, advancing the potential commercialization of ZEMDRI in the EU with the submission of the marketing authorization application or MAA in 2018. And third, progressing our pipeline by developing C-Scape and advancing our novel aminoglycoside program both of which have non- diluted funding support.

On a more personal note, with our sharpened focus and the elimination of approximately 80 physicians, many valued colleagues will be leaving the company, including three executive team members. Kenneth, Toby and Lee. I want to thank each of them for their leadership, service and countless contributions to building this company. I also want to thank all Achaogen employees for everything they have done to make an Achaogen what it is today.

Kenneth joined the Achaogen shortly after the plazomicin Phase 2 program was initiated and he has seen every milestone since then. As such I'd like him to provide his perspective on the success of ZEMDRI so far and our focus going forward. Kenneth?

Kenneth Hillan

Thank you, Blake. I've had the opportunity to spend seven incredibly rewarding years at Achaogen It has been an honor to be part of such an amazingly dedicated and inspiring team of people. To contribute to building our leadership position in the antibiotics field and to have seen Achaogen emerge as an established and trusted partner in the global effort to address the public health threat of antimicrobial resistance. I'm especially proud of our success in bringing ZEMDRI to patients and of the data that supports its very unique an important position in the gram-negative antibiotics marketplace.

I have enormous admiration for Blake and Janet's leadership, and I'm confident through the work and dedication of our commercial and medical teams that ZEMDRI is well positioned for a successful launch as a new medicine that impacts the life of patients with bacterial infections with limited or no alternative treatment options. As other biopharma companies have stepped away from antibiotics, we remain committed to the space because the growth and resistance to antibiotics is driving a very real urgent medical need. I remain optimistic that Pharma interest will return as companies like Achaogen demonstrate that newly launched antibiotics that address real unmet need can generate attractive commercial returns.

Nevertheless, to ensure that existing companies remain and new companies continued to enter the space much more needs to be accomplished on the policy front in particular to progress the introduction of economic pool incentives. While we've cut back on our earlier stage investments, we remain committed to fighting antibiotic resistance at Achaogen albeit with a scaled-back effort. We remain excited about the potential of both C-Scape and the new aminoglycoside program and are fortunate to have Dr. Ryan sir is leading our ongoing discovery and translational research efforts. While I'm saddened that many of us including myself will be moving on from occasion, I will have the opportunity to remain strategically involved with the company through my continuing board role.

We believe that the antibody discovery platform and some of the early stage antibody programs have potential to create significant future value, as we will no longer continue these efforts at Achaogen; we're in the process of assessing alternative options to progress the capabilities and programs that have been created. Before I turn the call over to Janet, I'd like to update you on one last item regarding our next steps for the complete response later which we receive for the plazomicin BSI indication.

I can share that we intend to meet with the FDA later this quarter and we'll be positioned to update investors on the status at the next quarterly. To wrap up, I believe that the recent changes position us to remain highly focused on and to be optimistic about ZEMDRI's launch. And here to provide you with much more detail on life progress is Janet.

Janet Dorling

Thanks Kenneth. It's been an exciting couple of weeks. We announced that ZEMDRI was available for purchase on July 20th through our specialty distributors AFB Healthcare, Cardinal Health, McKesson and FFF. We then deployed our commercial field force on July 23rd which includes our Hospital Account Managers, Hospital System Account Directors, Regional Sales Directors and Market Access Professionals. Our field teams are well trained on and well armed with the ZEMDRI story. This team is already reaching, prescribing physicians and formulary decision makers at our target independent hospitals, larger hospital systems and in the outpatient setting.

During the last few weeks, we have been focused on our previously communicated launch priorities. One, reaching our target account; two ensuring the product is distributed and stocked in appropriate hospitals; three, educating healthcare professionals on the ZEMDRI data, and four building infrastructure for ZEMDRI I'm happy to share with you some insights on the launch and our progress to date. On our first priority of reaching our target account. We have seen over 368 accounts in our first 10 days in the field hitting 75% of our high priority target accounts in that time frame. Including traditionally hard to access accounts and physicians. 15% our calls have taken place in the outpatient setting, primarily in physicians owned infusion centers and many of our calls have included the potential for transition of care to the outpatient setting.

In our first two weeks, calling on customers and educating them about the ZEMDRI data, our team is already delivering great results. We've had orders placed in the first seven days of launch in both the inpatient and outpatient settings, and we have had our first hospital formulary review with a positive outcome. And several other hospitals have scheduled upcoming formulary review.

On priority two of ensuring the product is distributed and stocked in appropriate hospitals, all of our specialty distributors have placed and received their initial orders. We have confirmed customer orders and both the inpatient and outpatient settings, and we have over a 130 physician owned infusion centers, which we will refer to as POICS, which includes individual POICS and infusion center management companies already interested in outpatient use of ZEMDRI for their CDI patients.

On priority three of educating healthcare professionals on the ZEMDRI data. Based on our label, we have a very strong story to tell. The totality of the data is compelling and our key messages are resonating with our customers. These include clinical messages covering ZEMDRI's microbiological activities against pathogens that include CRE and ESBL producing enterobacteriaceae, our message around the strength of the EPIC data and ZEMDRI's demonstrated reduction in the risk of clinical relapse or disease recurrence at the late follow-up or LFU which for physicians means the potential to impact long-term readmission rate.

This message is especially compelling as the EPIC trial compared ZEMDRI to a gold standard in meropenem in a patient population which was susceptible to both drugs. And also our clinical message communicating our safety data in EPIC has been critical as we showed a rate of 3.6% versus one 1.3% for decreased renal function in ZEMDRI versus meropenem treated patients. Our MLA and dosing messages have also resonated including that as an aminoglycoside ZEMDRI allows physicians a chance to break away from repeated beta-lactam therapy and turn to a different class of antibiotics for recurrent complicated urinary tract infection.

And finally our dosing message covering our short once daily dosing schedule that is absolutely seen as convenient in both inpatient and outpatient sites of care. Physicians and hospitals are motivated to move patients out of the hospital for both costs and cross- colonization reasons, and many believe that ZEMDRI may help make that transition of care possible. On our fourth priority of building infrastructure, our partnership with microbiology department is being established out of the gate with an Achaogen providing the ability to do susceptibility testing at launch.

Specifically, we have had two AST devices cleared by FDA since the PDUFA, first the plazomicin hardy disk approved July 10th with estimated commercial availability Q3, 2018 and second the [Liofilchem MPS] which is an MIC tester for plazomicin approved July 31. Also with estimated commercial availability Q3, 2018. We have had we very strong uptake and response for ordering of research use only or RUO testing materials with over 20 unique hospitals already having ordered and received AST material.

Additionally, we were finding accounts are very comfortable with therapeutic drug management of aminoglycoside. I am also pleased to reiterate that our NTAP application for ZEMDRI was approved just last Thursday. The NTAP program is only available to new technologies that meet the definition of newness; they exceed cross criterion threshold and demonstrate substantial clinical improvement over existing therapies. The NTAP payment will provide hospitals with a payment in addition to the standard of care, diagnostic related group or DRG reimbursement of up to 50% of the cost of ZEMDRI for a period of two to three years, effective October 1st, 2018.

This will be a new and important component of our value proposition for hospital to use ZEMDRI in the inpatient setting. We applied for NTAP to ensure we were doing everything we could to support hospitals as they on-board ZEMDRI knowing that the DRG system isn't optimized for new higher price antibiotics. With this approval, we will be able to partner with hospitals more effectively to reach our goal of ensuring all appropriate patients can be treated with ZEMDRI.

In closing, based on customer reactions to ZEMDRI product profile, we are confident that our sales team will continue to be successful in communicating the compelling value of ZEMDRI to infectious disease specialists, critical care physician, infectious disease pharmacists and other ACPs involved in treating the UTI patients. We hired a team that has been through dozens of successful antibiotics launches. And due to the combination of excellent pre-launch planning and their experience, our launch is going very well. I'm extremely pleased with our progress and optimistic that there is much more to come.

Looking forward on our third quarter conference call, we will provide ZEMDRI sales and we'll plan to discuss additional launch metrics such as the number one --target account, formulary progress and a high-level account ordering and reordering metrics.

I'll now turn the call over to Zeryn.

Zeryn Sarpangal

Thank you, Jane. It's a pleasure to be on the call today. I'm taking on your responsibilities as CFO at an exciting time at the company. I want to thank Toby for his many contributions to Achaogen and for continuing to work closely with me and the team as we transition through September. This is a new opportunity for me at a company that I know very well. I've been at Achaogen for over eight years in various roles having led the finance group early in my tenure and most recently having led our HR and corporate affairs team. Before that I spend my earlier career in management consulting and Investment Banking. I look forward to meeting many of you in person over the coming month.

Today, I will focus my remarks on key aspects of our financial and the financial impact of the restructuring we announced on July 26. We have been clear that the goal of the restructuring is conservation of capital and based on our current operating assumption; Achaogen is funded through Q1, 2019.

Turning to near-term expense run rate, we expect near-term quarterly operating expenses to be flat and consistent with what we have reported over the last three quarters excluding one-time items and non-cash expenditures like stock based compensation. We'll be getting to these run rates beginning in Q4, 2018 as our quarterly expenses get normalized. Regarding one-time item, there are two key things. One in the second quarter we recognized an expense of $7.5 million as a one-time milestone expense to Ionis based on the FDA approval of ZEMDRI.

This is part of our 2006 agreement with Ionis and we do not anticipate any other payments to Iona in 2018. And two, in the second half of this year, we estimate a charge related to the restructuring of approximately $6 million, the bulk of which will occur in the third quarter. In addition, I'll point out a customary change in our financial reporting that comes with becoming a commercial company. Prior to ZEMDRI being approved, pre-launch product supply was considered an R&D expense. But with the ZEMDRI approval per GAAP, those expenditures are now being capitalized and will ultimately be expensed as cost of goods sold.

As a result, we expect the COGS on our income statement to fluctuate somewhat. On a non-GAAP basis, we expect COGS as a percentage of net revenue to be in the teens in 2019 evolving a high single digits by 2020, as additional manufacturing capacity comes online. Operationally, the restructuring will enable us to reduce our overall capital needs without impacting the ZEMDRI launch. Looking to 2019, we anticipate that most of the net operating expenses will be attributed to ZEMDRI. Our investments in C-Scape and the new aminoglycoside program are partially funded by the BARDA and CARB-X. As a result, our pipeline investments are highly capital efficient and until we initiate a potential phase 3 C-Scape trial, a small component of our overall cash burn.

Let me end by saying that we are focused on building a company that is driven by our passion and dedication to patients. And with the operational changes we have made, we believe that we are positioned to achieve our near-term goal of successfully launching ZEMDRI in the US, in the MAA in the EU in 2018 and advancing our pipeline with C-Scape and the novel aminoglycoside program.

I'll now turn the call over to Blake for closing remarks.

Blake Wise

Thanks very much Zeryn. In closing, we're impressed and quite pleased with the momentum that is building in the launch of ZEMDRI excited about ZEMDRI's potential impact on patients. We have seen great enthusiasm for the medical community and believe we are positioned for success. We will now gladly take your questions and of note Toby Schilke will join us for the Q&A as well. Operator?

Question-and-Answer Session


[Operator Instructions]

And we'll go to Stephen Willey from Stifel first. Your line is open.

Stephen Willey

Yes, thanks for taking the questions, and Toby and Kenneth, it has been a pleasure. Just real quickly on end NTAP. I know that there really hasn't been a lot of prior art in this space from a therapeutic perspective. I guess specifically within the antibiotic space. I guess the one case study that we have there didn't really show much of an inflection point and that may be kind of a product specific issue as opposed to NTAP specific issue. But just kind of curious on how you envision this serving as a tailwind once effective October 1st and just the logistics about it and whether or not you actually think that this will be kind of a genuine tailwind for reimbursement purposes.

Blake Wise

Thanks Steve. It's Blake. So I think that maybe first to talk about the precedent in the space. So I think you're referring to deficit which received an NTAP approval maybe three years or so into their launch, and I think maybe first and foremost timing matters. So we've talked a lot about the launch of new products in the acute care space in the hospital, and the infrastructure that needs to get built around those launches. And the time it takes for uptake for some of those products, and I think the same thing happens when you have a product that's been established and practice patterns are well established, formulary reviews have already taken place.

And so I think the fact that it was somewhat fortuitous timing that we had our PDUFA date so proximal to the NTAP timeline and then ultimately our launch now happens near the time that we get this NTAP approval. I think that's important for the purposes of upcoming formulary reviews that are going to take place in the first six months of a launch, and even sooner we will be in a position that we'll be able to communicate the NTAP as a component that could influence that discussion within hospitals. And so that timing piece I think is one important component.

And maybe overall I think the NTAP is important because we know that the DRG system is challenged by more expensive antibiotic therapies that often stood outside the DRG reimbursement. And when you have the opportunity to get some additional reimbursement back to hospitals in the inpatient setting. And I do believe that's meaningful, and I think we are excited about the fact that we get to go out and do something for patient access, hospital access under NTAP and do believe that will make a difference for patient access to ZEMDRI.

Stephen Willey

And then you may mention this before at some point but just maybe a general characterization of the break out between the Medicare and the Medicaid business you'd expect to see within the hospital.

Janet Dorling

Yes. So this is Janet. We in our hospital setting about 2/3rd of our patients are Medicare and then less than a third will be Medicaid.

Stephen Willey

Great and then just lastly for me, just wondering if you can maybe comment around where you're potential ex-US partnering discussions may be at this point and any color you can provide around the process and I guess where you might be engaged it would be helpful. Thanks.

Blake Wise

Sure. So our priority as we've said related to Europe is the submission of the MAA in the second half of this year. And so that's first and foremost our priority, and I think that in general gives us strategic flexibility on when we bring on a partner for Europe. And I'd say that in general at this point we don't plan on giving more specific guidance but think we're in strong positions around partnering in Europe as we focus on the submission of the MAA this year.


And next we'll go to Chris Shibutani from Cowen. Your line is open.

Unidentified Analyst

Hi, this is Tam Barrett on for Chris. Thanks for the update and best to you Toby and Kenneth. It's been a pleasure for us as well. So looking at the ZEMDRI, the wholesale acquisition cost. Can you just take us through the factors that led to your decision on price and how you think that affect the competitive landscape?

Blake Wise

So I'll get started then Janet may add. So as you know, we priced at $315 per vial and the reference price that we've been sort of talking about or others in the space that priced at about $1,000 per day. So our expectation is that the average patient will get three vials, so effectively for a patient who is getting three vials per day on the price per day is $945. And so I think our thinking going into that was informed significantly by a lot of market research with hospitals, with pharmacists that really understand their thinking in the space. And we ultimately priced at a level that I think is near where the competition lies.

Obviously, it's a slight discount and I think the feedback that we've gotten early on from customers is that we feel like we really did price ZEMDRI optimally. But the decision to go there was really informed by market research and a lot of discussions with the hospital community.

Unidentified Analyst

Thanks, it's very helpful. And if I could just one follow up. If you could talk in general about the pros and cons of working with your competitors for the policy issues that you just outlined on the call that would be really helpful.

Blake Wise

So let me just make sure I -- so when you say policy issues you mean the potential for pool incentives or other thing to encourage additional development in the space?

Unidentified Analyst


Blake Wise

Yes. So we are part of a group in DC called the antimicrobial [Technical Difficulty] and many other both small biotech and large pharmaceutical companies with interest in the space, and work very closely with all of our colleagues across the antibiotic space to try to further policy and legislation potential. And I think as everyone is aware we saw a pretty meaningful and exciting legislation --piece of legislation get dropped around revamp a couple months ago, which was bipartisan and allowed for the potential for transferable exclusivity upon the approval of a qualifying antibiotic. As we understand it now that legislation had the potential to become a part of proper reauthorization which about two weeks ago had a markup that did not include the revamp legislation.

However, the fact that it's now been introduced and has bipartisan support. I think is a very important signal towards the interest across both sides of the aisle around doing something to incent development in the space. And we will continue to work really closely with everyone in the industry on this. I don't know Kenneth if you have anything to add.

Kenneth Hillan


Blake Wise

So I think it's an important area where we want to see companies both large and small committed to developing new antibiotics. So we like that there's a lot of attention being paid to it, and now we want to see some posted on it.


And next we'll go to Ami Fadia with Leerink Partners. Your line is open.

Ami Fadia

Thanks for the question. A couple I have. So firstly just with respect to the NTAP bridging that you've received. How compelling is that just from the point of view of the current economics of the DRG reimbursement and how much hospitals are netting out with respect to treating these patients? And with the NTAP does it really make it meaningfully compelling for them to be able to use ZEMDRI? If you can give us a little bit more color on that.

Secondly, if you could confirm just based on your comments whether the OpEx spend per quarter will be somewhere in the range of $46 million a quarter? And then timing on C-Scape Phase 3 start that would be helpful. Thank you.

Blake Wise

Okay. So I'll start with NTAP maybe two just give some context. So our maximum payment under the NTAP approval is about $2,700. And just to give it some frame that's $2,700 that the hospital could be reimbursed if they're exceeding the DRG which they otherwise wouldn't. So I think if the question is whether this is financially meaningful to a hospital to be able to offset some of the cost, I think the answer is certainly yes because it's reimbursement they otherwise wouldn't be receiving. That said, I think the clinical profile of ZEMDRI and the patients that we can help with the product are first and foremost what is driving interest in the product upon launch that we're hearing in the field today.

I think that's going to drive physicians' interest in the potential to help patients. The NTAP is going to be important I think for formulary decision making and to give an additional reason why access to therapy could be improved through that process. But the clinical profile really is the most important thing that's going to be on physicians mind as they make treatment decisions. For the second question I'll turn to Zeryn on the quarterly numbers.

Zeryn Sarpangal

Yes. Hi, Ami. So the way to think about our OpEx is it will be based on the last three quarters excluding one-time charges and non-cash expenditures like stock based expenses. So this quarter that translated into about a $46.5 million OpEx. And the prior two quarters was around $40 million to $42 million.

Kenneth Hillan

And then, Ami, it's Kenneth. Just -- you asked about C-Scape. We provided guidance that we intend to initiate in complete clinical pharmacology study, a Phase 1 study in 2019. At this time, we're not giving any further guidance around the start of the Phase 3.


And we'll go next to Alan Carr from Needham and Company. Your line is open.

Alan Carr

Hi. Thanks for taking my questions. You mentioned that you've reached around 75% of your target accounts. Wondering if you could talk a bit more about those discussions and sense of -- and digging a little bit more about how they plan to use the drug based on these discussions. And then also hoping you can talk a little bit more about C-Scape. Some of the issues involved in this which you'll be looking at and did I guess could you confirm those timelines for that PK trial that you're planning. Thanks.

Janet Dorling

Hi, Alan. This is Janet. I just wanted to first address your question about what's happening in those conversations. I think we're spending a lot of time on some of the topics I mentioned in my remarks during the call. Definitely communicating our key messages around the data. The data is really resonating with those physicians so we're talking about the safety and efficacy data. The optimal dosing regimen and also a lot about the MOA of being aminoglycoside versus the beta lactam. I think we're talking a lot about these complicated urinary tract infection patients that are reoccurring and coming back to the hospital over and over again.

Sometimes they've been on multiple carbapenems or failed a carbapenems, and it is definitely a situation where that patient type is resonating with our target physicians. They see those patients, they hate to see them back again and again; they hate to see them hospitalized. And so they're very encouraged about by having an option like ZEMDRI not only that has the data that it has but also that has the opportunity to transition those patients when appropriate to the outpatient setting.

Kenneth Hillan

And Alan its Kenneth. Just you asked about C-Scape, just we haven't provided any additional guidance beyond the fact that we'll start that Phase 1 clinical pharmacology study in 2019 really with the outcome of that study we will be able to give a greater update on when we would plan to initiate the Phase 3 study. I think as we've said we do believe through the work that we're doing there's potential opportunities for our own patent protection based on novel approaches to dosing formulation and treatment. And so certainly those are some of the key things that we're working on.

Alan Carr

So start and finish your clinical pharmacology work next year, is that right

Kenneth Hillan

Correct, exactly, confirmed,


And we'll go next to Kevin Kedra from Gabelli. Your line is open.

Kevin Kedra

Hi, thanks for taking the questions, and also want to extend my thanks for Kenneth and Toby for all your help over the years. First want to ask about publication timelines for the Phase 3 studies. Any sense of when we could be seeing those published in medical journal? Secondly want to just ask about the comment about the cost of goods sold for 2019. The higher than expected wondering if that's a function of just purchase commitments? I would think a lot of that inventory had already been expensed as R&D.

And then finally wanted to ask your thoughts on -- in terms recent deal in the space for a plazomicin product that could be coming to market in UTI. Just how you see that as a competitively positioned against ZEMDRI and if you see that as kind of bearing any reflection of evaluations that we're seeing for antibiotic assets.

Kenneth Hillan

Thanks Kevin. I can take that, it's Kenneth. I'll take the first question and I'll pass to Zeryn. So on the on the manuscript we continue to make very good progress there. We're not in a position to give any further update at this time, but we certainly look forward to seeing the Phase 3 manuscripts published for both EPIC and for CARE. What I can tell you is that we've already had five manuscripts published in Q2 with some really important data in plazomicin including data on the microbiology profile, as well as what we call a Wi-Fi compatibility publication which really helps hospitals when they're administering multiple drugs together.

So we'll certainly update you when we have further news on the Phase 3 manuscripts, but as I said continue to make good progress there.

Zeryn Sarpangal

And Kevin regarding your question on the cause, to clarify the guidance that we gave was on a non-GAAP basis. So the cause of the percentage of net revenue in 2019 in the teens is really on non-GAAP. From a GAAP standpoint, as you noted, we have expensed a majority of our inventory already. And so we'll start capitalizing that going forward and you will start seeing that explicitly on our income statement as we start to work through that.

Blake Wise

And then Kevin I'll take your third question on the recent deal that you referenced. And IV fosfomycin as a competitor and UTI. So, yes, I mean obviously we've seen some activity recently and as a leader in the antibiotic space, we remain close to the evolution that's happening in this space. And obviously pay close attention to that evolution. I think as it relates to complicated UTI and ZEMDRI versus IV fosfomycin I would say the EPIC data versus meropenem now that we're out and talking to customers and it reiterates what Janet has talked about has really been quite exciting to see because this notion of meropenem being a gold standard, and where people have a history of these UTIs and have prior antibiotic exposure maybe prior health care system exposure. Yes, they are on the rise.

A lot of these things that played out that we saw in terms of strength of data in the EPIC study are really resonating in the community. I think that's where we're focused is where ZEMDRI can help these patients and so there will always be other products that are out there that are currently approved or in the future could be approved in the same indication. I think where we're focused really is on understanding which patient type most resonates around ZEMDRI and making sure that those patients have the potential to access, and we've been really pleased what we've been hearing so far. So I'll be interested to see how things continue to evolve in the space, but I'd say we're not paying a tremendous amount of attention to that today because we're focused on our launch.


And we'll go next to Ed Arce from H.C. Wainwright and Company. Your line is open.

Ed Arce

Great, thanks for taking my questions. And congrats on the launch so far. And to Kenneth and Toby, thanks again for all your assistance and wish you the best. So I have a few questions. First is you mentioned a formulary approval has already taken place. I was just wondering if you could characterize that is -- is that more of an outlier or do you expect any further near-term approvals? Secondly, your meeting, you mentioned later this quarter with the FDA around the CRL. What kind of scenarios do you anticipate and would you be in a position to discuss if need be an additional trial for that?

Thirdly, when do you expect to see RX data on ZEMDRI? And then lastly, I think you mentioned that the pipeline going forward which is predominantly funded externally C-Scape and your aminoglycoside. Does that necessarily mean the other earlier programs are slated for out licensing? Thank you so much.

Janet Dorling

Hi, Ed. This is Janet. I'll start with your question around formulary approval. So I'll say two things. First of all, as far as being an outlier in general and antibiotic launches, yes, I think it is an outlier. It's unusual to have a product reviewed and approved so soon. And I think it's a testimony to the strength of the data of ZEMDRI as well as our excellent Hospital account managers out in the field to have achieved a milestone like that so quickly.

I'll also add to say we've been very pleasantly surprised at the number of hospitals that are scheduling formulary reviews over the next quarter. And so I don't think having initial positive formulary approvals will be an outlier for ZEMDRI. I expect to be reporting additional information on formulary at our next earnings call.

Blake Wise

And maybe Janet the RX data you want to hit that now as well.

Janet Dorling

Oh, yes. And we expect that IQV data should be coming online as soon as this week, if not definitely by next week. So should be coming soon.

Kenneth Hillan

Yes. Thanks Ed. It's Kenneth. Thanks for kind words. Just in terms of the CRL, we'll be talking as I said to the FDA or meeting with the FDA this current quarter. And really one of the primary things from our perspective in terms of our objectives is to determine if there's a feasible path to an approved indication for BSI. You mentioned about additional studies. Certainly, I think it's unlikely we would undertake another study that was similar to CARE. But we're very open to discussing with the FDA what would it take to get that BSI indication. So that will be the purpose of primary purpose of the meeting with them. And as I said we will plan to update on the next quarterly call.

And then maybe just to reiterate what I said earlier in terms of the early stage pipeline. We do believe both with the people as well as a discovery platform and some of the early stage programs that there is really the potential to create significant future value. We're looking at the various different opportunities. We've also had end volumes in terms of interest about what we're planning to do with that platform. And also the pipeline and so we'll continue to assess that, and then we will also plan to update one.

Ed Arce

Okay. Thanks for all that and then just one last one if I could squeeze it in. I just wanted to confirm you mentioned the cash runway is through the first quarter of 2019.

Unidentified Company Representative

Yes, that's correct. Through Q1, 2019.


And next we'll go to Difei Yang from Mizuho Securities. Your line is open.

Unidentified Analyst

Hey, good afternoon, guys. This is Alex on for Difei. Thank you very much for taking the question. I just had a quick one. I guess when you look at the some of the other assets in the antibacterial product space what are some of this products you'd say could essentially be synergistic or complimentary to ZEMDRI? Thank you.

Blake Wise

So, Alex thanks for the question. I think I maybe just answer it generally and say since we're a leader in this space. We're close to and familiar with all the assets. And I don't want to comment on anyone else's particular products with just to say that it's an interesting time for the space because there are a number of companies who have upcoming regulatory actions potential for commercialization. We're out there commercializing in our first few weeks. So it's a very exciting time for antibiotic development. And the ability to make that difference in patients lives across a lot of different infection types. And so that's been exciting time, but I'm not going to comment specifically on other products or companies.


We'll go next to Adnan Butt from Guggenheim Securities. Your line is open.

Adnan Butt

Hi, thanks for the question. Once on the NTAP, could you tell us if NTAP is rewarded on a specific basis? Was it something different in the data that led to it? And is it for the hospital setting or is it specifically for the hospital inpatient setting?

Blake Wise

Yes. Thanks. And so it is specific to hospital inpatient. So outpatient therapy happens through a different mechanism. It doesn't not fall under the hospital DRG. So specific to inpatient and for Medicare patients. And the criteria to be approved for NTAP, you have to prove newness in terms of your technology. You have to meet a specific cost threshold, and you have to show clinical-- substantial clinical improvement over current standard of care. So it's a quite rigorous process though for a general application but then the review that CMS goes through and you go through a public comment period. And so I would say it is indicative of an important new technology that's introduced into the hospital. When you see things that proof are NTAP and if you look at the overall general rate less than 50% of therapies or even technologies including devices that have applied for NTAP ultimately get approved.

So I think it is a high bar in a meaningful designation for hospitals once you get an NTAP approved.

Adnan Butt

Blake, I'm wondering if CARE would have played a role in it.

Blake Wise

The CARE, so you can --yes, I mean the whole review is public and what CMS said is that when FDA made the decision on the approval within complicated UTI that they no longer considered data supporting the BSI indication as a part of the support for the clinical improvement component. So the approval was based on the EPIC study and complicated urinary tract infections. That said, an important note is that we have an icd-10 code for fiscal year 2019 and the mechanism by which the NTAP reimbursement happens is through that icd-10 designation when hospitals complete their coding and their paperwork.

And that icd-10 code is for ZEMDRI generally. So it's given on a product basis rather than an indication basis. And so as hospitals use ZEMDRI and use our icd-10 code that will then define their additional reimbursement under NTAP.

Adnan Butt

Would you know if [Avicas] was awarded the same or it wasn't?

Blake Wise

It was not.


All right. We have no further questions at this time. I'd like to turn the call back to Blake Wise, President and Chief Operating Officer for any closing remarks.

Blake Wise

Thanks Christy. So as always, we appreciate your continued support. And we look forward to updating you in the coming quarters on the impact ZEMDRI is making in the infectious disease community. So thank you for joining our call.


And that concludes our call for today. Thank you for your participation. You may now disconnect.