Melinta Therapeutics, Inc. (NASDAQ:MLNT) Q4 2018 Earnings Conference Call March 13, 2019 4:30 PM ET
Susan Blum - Vice President, Finance
John Johnson - Chief Executive Officer and Director
Peter Milligan - Chief Financial Officer
Conference Call Participants
Louise Chen - Cantor Fitzgerald & Co
David Hoang - Jefferies
Ed Arce - H.C. Wainwright & Co
Kevin Kedra - G Research
Good day, ladies and gentlemen, and welcome to the Melinta Therapeutics Fourth Quarter and Full Year 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.
I would now like to introduce your host for today’s conference, Ms. Susan Blum, Vice President of Finance. You may begin.
Thank you, Skyler. Earlier this morning, we issued a press release reporting Melinta earnings for the quarter and full year ended December 31st, 2018. The earnings release and slide deck, we are presenting during this call are available on our corporate website at www.melinta.com. In addition, we anticipate filing our 2018 Form 10-K in the near future. We’re conducting a live webcast of this call, and a replay of the call will be available on our website after its conclusion.
Turning to Slide 2, we would 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 reflects our current perspective of the business trends and information as of today’s date. Actual results may differ materially from current expectations and projections depending on a number of factors affecting the Melinta business. These factors are detailed in our periodic public filings with the Securities and Exchange Commission. Melinta disclaims any intent or obligation to update these forward looking statements except as expressed required by law.
During the call, we will refer to non-GAAP figures. Our GAAP financial metrics and reconciliation from GAAP to non-GAAP metrics can be found in our earnings release issued this afternoon and also posted on our website.
Now turning to Slide 3 and our agenda this afternoon. Joining me from Melinta are John Johnson, Chief Executive Officer, and Peter Milligan, Chief Financial Officer.
So with that, I’ll turn the call over to John Johnson.
Thank you, Susan. Good afternoon, everyone, and thanks for joining us. Antibiotic resistance in US is becoming a public health crisis. And with that our mission at Melinta is critical. In recent article published by Doctors [Indiscernible] in the Society for Healthcare Epidemiology of America project that more than 150,000 Americans die each year due to antibiotic resistance. And if proven would make it the third leading cause of death.
The CDC also reports the resistance problem is growing and has projected has projected that their numbers on this crisis will increase sharply. Despite this growing crisis, market acceptance of new antibiotics has been slower than expected and in the case of Melinta has not met our internal or external expectations. The roadblocks to acceptance are primarily related to reimbursement and the complexity of the hospital environment. I along with members of the Melinta team, other antibiotic company executives, the Infectious Disease Society of America, Members of Academia and members of key government agencies including the FDA have begun to educate and ask for reimbursement change to address this growing crisis.
This is an important step for patients and we will continue to update you on our progress. Despite the challenges with initial market acceptance, given the growing threat of antibiotic resistance, we believe that Melinta is well positioned for long-term growth and success. There are three primary topics I'd like to address in our call today. First, I'd like to provide some highlights of Melinta's accomplishments in 2018. Second, I will highlight some of the important attributes of each of our drugs and how they fit into the core of our strategy moving into 2019.
And lastly, I'll provide some details about our financial results for the period specifically product sales. As reflected on Slide 5, looking back at 2018, it was a very busy year for Melinta. Shortly after closing the merger with Cempra in November 2017, we acquired the infectious-disease business of The Medicines Company in early January 2018 which included three commercial products. Vabomere, Orbactiv and Minocin for injection. As a result of these transactions, Melinta was transformed into a publicly traded commercial enterprise with four marketed antibiotics and in connection with the IBB acquisition, we gain and then supplemented an experienced anti-infectious field-based commercial team which we cross trained over the course of the year on all four products.
That team's headcount currently stands at approximately 150. Key priorities for us last year included expanding our medical affairs organization and enhancing our commercial resources by leveraged our experience marketing, market access and analytics team to ensure our products are well understood, appropriately positioned and accessible in the market. We also expanded our global commercial footprint by licensing the marketing rights to Vabomere, Orbactiv and Minocin in Europe and Asia PAC to Menarini, our partner.
In addition to scaling our business operations, we made significant clinical and regulatory progress in 2018. In the fourth quarter and ahead of schedule we announced positive top-line results from our Phase 3 trial of Baxdela for the treatment of adult patients with Community Acquired Bacterial Pneumonia or CABP. CABP is a common and potentially life-threatening illness particularly among the elderly and immune compromised patients. In the study, Baxdela was compared to moxifloxacin, and that all key primary and secondary endpoints would set the stage for our sNDA filing later this year.
Also in the fourth quarter Baxdela received its first marketing approval outside of the United States and Argentina through Eurofarma, our Latin America partner.
Moving on to Vabomere. In November, the European Commission approved a product for five indications in adult patients complicated intra-abdominal infections, complicated urinary tract infections, hospital-acquired pneumonia including HAP/VAP bacteremia that occurs in association with any of these infections and infections due to aerobic gram-negative organisms or treatment options are limited.
Results from our phase 3 Tango II study of Vabomere were published in October. Tango II is the largest pathogen to record study that targeted CRE which is recognized by the CDC as an urgent threat and a critical priority by the World Health Organization.
And finally in August, we announced that the Centers for Medicare and Medicaid Services rented a new technology add-on payment or NTAP designation for Vabomere when administered in a hospital inpatient setting to treat adults with complicated urinary tract infections. The NTAP designation is rarely granted and few antibiotics have ever received it. We believe that having it in place, Vabomere will help them expand Medicare patients access to this important treatment option.
From a financial perspective in connection with streamlining costs and prioritizing resources, we developed plans to reduce operating expenses with the goal of achieving $50 million to $70 million in operating expense savings for 2019. In connection with these cost reductions which were in part due to the alignment and integration of the three businesses, we reduce the size of our workforce and made the decision to wind down our early stage research and discovery programs.
I'd like to thank Dr. Erin Duffy and her team for their tireless work in our discovery program and wish them the best of luck in their mission to discover new antibiotics against these growing threats. In late 2018, we continue to take action to strengthen our financial position as we secured $135 million of funding from Vatera in the form of convertible loans. We drew the first $75 million under this facility last month and we plan to draw the remaining $60 million in the next four months in accordance with the terms of the agreement.
We are also in the process of securing a working capital revolver for up to $20 million which we expect to complete in the second quarter. Moving to slide 6, as the largest pure-play antibiotics company, we have a leading commercial portfolio that offers providers and patients with the range of therapeutic options. We believe that each drug has the ability to effectively compete along clinical and operational dimensions. Let me provide some additional color on the value proposition of each drug in our portfolio.
With Baxdela, you have the only fluoroquinolone that is available to treat ABSSSI in adults that reliably covers MRSA. This drug has broad-based gram-positive and gram-negative coverage and has evidence minimal drug interactions and allows a straightforward dosing for patients with comorbidities. Orbactiv IV treatment for ABSSSI in adults with MRSA coverage that allows the treatment in both in and out of the hospital setting.
In addition the one-time dosing regimen helps to ensure patient adherence. Vabomere is a combination of meropenem and the beta-lactamase inhibitor vaborbactam. It was specifically developed to address the growing issue of KPC mediated resistance. Minocin for injection is one of the few options that are available for Acinetobacter infections. This product formulation has been on the market since 2014 and we have recently seen an uptick in sales.
We believe our competitive portfolio combined with our ongoing strategic initiatives positions Melinta to continue to meet the evolving global threat of bacterial infections and antibiotic resistance. Moving to Slide 7. We were pleased to report product sales of $14.6 million and $46.6 million respectively for the fourth quarter and full year 2018. In addition, despite the challenging operating environment, net product sales increased 32% compared to the third quarter of 2018. For additional color on our sales performance, we have provided the net sales for each of the products on slide 7 as you have requested.
In their first years of launch Baxdela and Vabomere together achieved approximately $14 million in product sales. While we are pleased to see these products grew throughout the year we know that the overall revenue was less than we originally expected. We are taking specific measures to accelerate this growth as we move into 2019. Orbactiv and Minocin sales were $32.7 million for the year, down slightly from the product sales that The Medicines Company reported for 2017. However, based on the trends experienced in the second half of 2018, we expect both of these products to grow during 2019.
Also, as you may remember, a required change in the distribution channel relating to the integration of Melinta and The Medicines Company's asset did have a few million dollar negative impact on full-year revenues, primarily related to Orbactiv. That said, we are pleased with the significant strides we have made in the past year to realign the business and strengthen our financial position. The work that we have done in 2018 sets the stage for Melinta's future success as a largest branded, antibiotics focused company.
Our diverse portfolio of four antibiotics, established and leverageable operating infrastructure and experienced infectious disease leadership team provides the foundation for growth and flexibility.
And with that I'll turn our call over to Peter to review the financials in greater detail, and to share our views for 2019.
Thank you, John. Beginning on Slide 9, I'd like to provide some highlights for the fourth quarter. Total revenue was $35.5 million including $14.6 million in total product sales compared to $11 million in 3Q. During the quarter, we received a $17.7 million milestone payment from Menarini as a result of the Vabomere approval in Europe which we announced in November. This milestone payment is reflected in license revenue during the quarter.
We also recorded $2.8 million in contract revenue which is primarily related to our reimbursements of shared R&D expenses from our agreement with our international partners. Cost of goods sold for the quarter was $9 million of which $3.9 million was comprised of non-cash amortization of intangible assets. Total operating expenses were $66.9 million or $50.5 million when you adjust for impairment charges, stock based comp and gain associated with re-measurement of the IDB-related contingent consideration.
SG&A was $31 million in the fourth quarter compared to $34 million in a third quarter, this decline in expenses was driven by the $9 million gain from remeasurement, I'm sorry the change in the quarter was essentially offset $9 million gain from the IDB-remeasurement is offset by $9 million of severance. These items is essentially net out so you can see that SG&A expenses decreased slightly as we begin to see the result of implementing our cost savings initiatives.
On Slide 10, you can see the summary for the full year. Total revenue was $96.4 million including $46.6 million in total product sales and $49.8 million in contract and license revenue. Our cost of goods sold for the year was $41 million of which $16 million was comprised of non-cash amortization of intangibles. Total operating expenses for the year was $214 million or $190 million adjusting for impairment charges, stock based comp and the gain on the remeasurement of the IDB-related contingent consideration.
Turning to Slide 11. In 2019, we expect to achieve full year product sales of approximately $65 million which is the result of double-digit revenue growth in each of our products. However, it is important to note that in our business especially as we move into the CABP market, seasonality and beginning of the year reimbursement changes can impact sequential growth. So going forward, we will be focused on comparisons to the prior year.
We expect gross margins to be in the 55% range and remind you that $16 million of non-cash intangibles is in that estimate. From an operating expense point, we expect to spend approximately a $140 million. As we previously stated, this is a significant reduction from the prior year as we benefited from the items you see listed on the slide.
Turning to Slide 12. We ended the year with $81.8 million in cash and cash equivalents compared to $83.3 million in the previous quarter. In addition to our operational burn, the quarter included the receipt of $37.7 million, upfront milestone payments for Menarini as we discussed. When considering our future cash commitments, please note that we have not yet made the $30 million payment to the Rempex shareholders related to the receipt of the European Commission marketing authorization for Vabomere nor have we paid the first of the $225 million payments to The Medicines Company both are related to the acquisition of the ID business.
As you may know we have filed a complaint against The Medicines Company and this process is ongoing. Our team continues to move with purpose and focus during this transformative time to reposition Melinta and set a new trajectory towards growth and value creation. We are executing against the number of our strategic operational and financial initiatives designed to grow our products, conserve cash and identify new business opportunities that will drive Melinta towards becoming a strong cash flow positive company.
And with that I'll turn that things back to John to review the catalyst for 2019 and for closing remarks.
Thanks Peter. Turning to Slide 14. In summary, we are focused on accelerating product sales, practicing disciplined financial stewardship, strengthening our balance sheet and on key strategic levers, especially around reimbursement. Each of our approved products has its own unique place in the market and we have a plan to continue to derive growth in each of them. For Baxdela, we are anticipating a label expansion with the approval of Baxdela for CABP in late 2019 after filing the sNDA in the second quarter this year.
We are expecting our partner to receive approval in Europe and we are focusing our sales effort in the US on a specialty pharmacy channel as appropriate to ensure the timely access of our products to a wide customer base. For Vabomere, we are exploring additional international license agreements and are looking to increase our customers' utilization of the NTAP designation.
For Orbactiv, we are continuing to promote the value proposition of this drug. Acute bacterial skin and skin structure infections are often associated with high economic burdens on institutions due to the nature of the prolonged hospital stays and high rates of infection recurrence. We have shown that the overall cost of hospitals can be reduced significantly when patients are kept out of the hospital with this single dose infusion.
We're also committed to developing a shorter infusion time for this drug which will further enhance the overall experience for healthcare providers and patients.
With Minocin, we anticipate publishing results from our registry that will provide additional insights into real-world use of the product. Lastly, as a company and a team, we are committed and more focused than ever on fulfilling our commitment to delivering anti-infective solutions to patients.
With this focus, we believe that we're positioned to achieve sustainable growth and increase long-term shareholder value. We hope you share our sense of optimism and enthusiasm for the year ahead.
With that, we will now open the call up for Q&A. Thank you for joining today's call and thank you for your continued support.
Our first question comes from Louise Chen with Cantor. Your line is now open.
Hi. Thanks for taking my questions. I had a few here. So first question I had is there any update on unbundling reimbursement for antibiotic drugs in the hospital? The second question is if you will consider pursuing adjacent categories in the hospital to diversify revenue streams? Third question I had was how much could you expect from ex-US license agreements this year or how can we think about it if you don't want to give a number.
And the last question here on Baxdela for CABP. What is the opportunity here? And how do you differentiate from other CABP drugs in the hospital? Thank you.
Thank you. I'll address parts one, two and four and then Peter can speak to the x-US licensing agreement question. And we appreciate the questions. So as it relates to reimbursement and unbundling that there has been a wide-scale effort that has taken place. And it's certainly not Melinta and we've seen other companies really step up and support these efforts. What's really been nice to see from my perspective and it just not-- has not been the companies but we've had Infectious Disease Society of America with us.
We've had members of academia join us. We've had support from folks that are engaged with CARB-X as well. And if you also look at statements that have come out of the FDA, they realized that there's a need to address these reimbursement issues. We've had meetings with different members of Congress. We've had meetings with CMS; we will be a meeting with the White House. And I think everyone's getting to the point that we understand that there needs to be some change, and how these products are reimbursed to make sure patients have access to the most effective and in certain cases safe therapies.
And I think we'll know more as this year unfolds and it's hard to predict what that might exactly be. But I've been pleased with the broad scale support not only from our industry but from all stakeholders. So stay tuned for that and we will provide an update on the next call. As it relates to adjacent revenue streams, we are considering that. We're looking at select opportunities where other products could fit. Our portfolio both in and out of the hospital. We're not going to provide any timelines for that, but we think it makes sense to leverage the commercial team has been built.
I mean we have a very strong team in the hospital. We know all the formulated committee members. We're tied closely to pharmacy and for us to bring on another product would be a natural thing for us to do If we found the right value proposition for that. I'll have Peter now talk a little bit about the ex-US licensing agreements and what you might want to consider in that area. Peter?
Sure, thanks. So if you think about 2018 we had $50 million from license and other revenue. We're certainly not going to have $50 million in 2019, but we will -- we definitely will have some measurable revenue there. Hardest to predict specifically but we also have some reinvent --continued reimbursement on finishing up one of our trials from one of our partners. So that shows up, I don't call it license revenue but it shows up instead of reimbursement, and it is revenue outside of the revenue guidance in addition to clearly.
We also have some opportunities to license our products in other regions. We're looking at --talking to a couple companies about doing that right now. So that should be -- that's a nice opportunity for us and in our existing license agreements are certain milestones on certain approvals in different countries. What I can say also is just thinking about the Menarini transaction, there will be royalty streams from that. Of course those are out in the future.
We are being very conservative or at least I am from modeling purposes where we put that. So I don't have any royalties really coming in for the next year or so or more really. And I think that could represent some upside because we know that they believe as we do that the opportunity in Europe is significant especially for a product like Vabomere where it's approved for five indications versus the one in the United States. So definitely some revenue coming in from those items in 2019 which obviously helps on the cash side in addition to the 65 net product sales.
And finally, Louise, to your last question around CABP and how do we see the opportunity and how do we think about differentiating there. I'd say a couple of things. While the data is never perfectly clear, if you looked at the uses of all antibiotics for CABP and you dollarize that including the generic uses in the Baxdela dollar, you're looking at something that's in the neighborhood of let's call it $80 million to $100 million per market share point in that trade sales in Baxdela dollars.
So the opportunity is large from a differentiation standpoint the product performs very well in the clinical trials. We know the side effect profile of drug looks very good. The drug interactions side looks good; The QT performance that we've seen so far looks good. We, of course are waiting for final labeling to determine our exact positioning, but the drugs delivered though certainly the way we thought it would in the Phase 3 trial and we would expect that it will be able to gain market share in the years ahead.
Our next question comes from David Hoang with Jefferies. Your line is now open.
Hi, yes. Thanks guys for taking my question. So maybe first one Vabomere. Can you talk a little bit about a little more color around the launch? And where you think it's at? Is there more work to do from the salesforce in terms of reaching target accounts? Is it mostly formulary reviews ongoing or is it on formulary but maybe the docs need to become aware of it?
Thanks David and we're really excited about Vabomere as you know we have seen it strengthened throughout the year. And frankly here into the first quarter. The hospital market today is certainly so much more complex than it even was three years ago. And I think in that case of NTAP effect is even more so. You have today hospital pharmacies under significant pressure. You not only have antibiotic subcommittees but in some cases stewardship committees as well. And you can't forget the CPOE systems the computerized order entry systems that have to be navigated along with the therapeutic guidelines to be in there.
And then also to match that up to the micro testing. And so when you add all those things together, it takes time and so what I would say is we're still getting on formularies. We're still seeing growth there. We have work to do on these. We're not through all of these operational issues that you have to get up and going in order for a hospital to use it as efficiently as possible. We still have work to go there. There's a lot going on in micro testing today, break points are changing for the penems and all hospitals have adopted that yet.
And as they are adopted what you will see is an increase in the number of isolates being appropriately reported resistant. And that will increase certainly the share for both Vabomere and other products. So we're still getting on hospitals. We still have operational work to do and they'll take certainly well through the first after year to get through that. But we've been pleased with the strengthening of the drug through the fourth quarter and here into the first quarter.
Our feedback on the product has been really positive when it's been used by physicians and hospitals. And so from our standpoint really the best is yet to come for Vabomere.
Great. Thanks a lot. That's very helpful. And I think one more on Baxdela. I think you mentioned previously you saw good usage in an outpatient setting. And this was among podiatrists particularly. So I guess are you still seeing that trend you think you can push it any further? And I know there was some redeployment of the salesforce towards the outpatient setting. Do you think that can drive further Baxdela scripts?
Yes. Good question, David. So for many physicians the feedback we've gotten is one of the real value of propositions for Baxdela is keeping patients out of hospital or getting them out of hospital sooner. So we see the outpatient arena is really valuable over the long run. And while we have seen podiatrists use it in mixed infection. Our number one prescriber actually is infectious disease specialists. And prescribing on an outpatient setting. They get these patients with these skin infections that have had one or two courses of other antibiotics. And get referred to them and then they go ahead and prescribe back selling to try to keep the patient on the hospital. And we've heard nothing really but good things back on the product is performed really as expected in some cases certainly the physicians mind better than they would have expected.
So we see that continuing to grow. There's still a lot of growth there. We really haven't touched primary care and we're looking at what's the most efficient way for us to do that. Obviously, in our situation we're running very lean and we're going to be looking for a capital efficient profitable growth. But as I look over the long term, certainly, I think not myself but we as a company believe that there's substantial growth in the outpatient arena. And really helping patients tackle these resistant infections and keep them out of hospital and save the healthcare system the money.
Our next question comes from Ed Arce with H.C. Wainwright. Your line is now open.
Hi, John and Peter. Thanks for taking my questions. So I have a few. First is around the payments that you mentioned towards the end of your prepared remarks the $30 million due to Rempex and $225 million payments to The Medicines Company. I know you filed a complaint but in total that's $80 million presumably that would go out the door sometime this year. How are you planning the contingency for that even if not all of that is ultimately required?
Second question is around the $75 million target that was required originally by Deerfield, has that been reworked for 2019? Third is how do you -- I know you've discussed this a bit already, but how do you drive? What do you think are the most important drivers to continue to move forward with sales growth in your two lead products that are still relatively early in launch Baxdela and Vabomere? And then finally, do you plan, do you expect to break out sales for each of the four drugs each quarter going forward? Thanks so much.
Sure. Let me try to answer as many of those as I can and then I can hand it off to John. So call Rempex, so that the agreement with Rempex came as part of the MedCo agreement and because we have a complaint against MedCo we really can't comment on any of that now any specifics on it. So as a result, I can't give you sort of expectations of when or how much that gets settled that clearly. But I can tell you that when we put together the financing with Vatera and knowing that we had already drawn the $75 million and we have access to $60 million more and we have as John mentioned started to pursue an ABL that we could cover all that.
And so think about if you look at our ending cash balance plus the cash that we assume that we can raise, you're probably into $230 million range. And then if you look at our cash usages, we are forgetting about anything that happens on the MedCo -Rempex side and forgetting about non sort of product revenue. So if you just leave those two out, just use the two guidance points that we reference which is sales at $65 million and OpEx at $140 million. We talked about a gross margin at $55 million that's true but it's probably almost 70%, 69% or 70% when you take out the non-cash amortization.
So you just do the back of the envelope math on that and you're probably spending $120 million. So if you have $230 million - $240 and you're at $120 million, you certainly have a fair amount of cash left at the end of the year. So sort of more enough to get into 2020 as we talked about. That's the first thing. On the Deerfield target, when we made the changes, when we did arrange the Vatera financing, we did have to make a change to our existing secured lending agreement. And part of that change was to reduce the sale covenants by 15% each year.
And there are two, the $45 million didn't change but we met that obviously that was for 2018. For 2019, it was $75 million, 15% less and for 2020 for the term of the loan it would have been a $100 million and that's now moved to $85 million. So those are the new cost sales covenant.
And then as we look at certainly driving Baxdela sales and Vabomere sales, we're only in about 40% of our target hospitals at this point, but remember we're still working through the process on formulary and the operational pieces with the micro lab and CPOE systems at the others. So there's a lot of growth there. We're focused on that. And like I said, we are seeing a nice strengthening of that business here in the first quarter. In for Baxdela, what we're really doing is focusing our efforts on those high prescribers in ABSSSI who are quinolone favorable and also have good reimbursement in their area in order for us to be most effective.
And Tim Simon, our Chief Commercial Officer has put a hyper focus on those folks. And we will be looking at other ways to continue to drive them into the outpatient arena in advance of the CABP indication this fall.
I think the last question was on the breakout of sales. And, of course, we'll be honest on every question and that is we don't know yet. We hadn't broken them out before and so now we gave the full year break out and it'll be something that John and I and others on the team will discuss as to whether or not we do that. That is something that we'll get more thoughtful more thought in.
All right, great. Thank you for all that and congrats on corralling with this, a lot of moving parts and moving forward into this year.
Our next question comes from Kevin Kedra with G Research. Your line is now open.
Thanks for taking my questions. First, I just want clarification on the OpEx guidance of $140 million. Was that -- I'm sure that was a GAAP or non-GAAP number and wondering if you can maybe talk about how that breaks down between SG&A and R&D we're trying to get a sense of how we should be thinking about guys kind of exiting the year? What kind of run rate to think about as you taper that down through the year?
And then secondly on Baxdela, we've seen a couple rounds of class warnings against the fluoroquinolone class., wondering if you're seeing any impact there with prescribers or the perception of the product of the class in the market or we at the point now where prescribers who use quinolone are going to use them and those who have seen the warnings and decided not going to use them. There's really no change given that there's new things coming out.
And then finally, in the press release you guys talked about increasing your territory, your marketing territory. I assume that's just something expansion with your partners to some of these international markets or were you looking at some international markets to take the product directly as well like say Canada or other places where you have products that aren't necessarily partnered in those markets?
Okay. I mean I can start on the OpEx question. So, yes, that's a GAAP. That's a bit of a GAAP number for 2019. When you look at the components, R&D last year 2018 was $55 million. I don't want to give this specific number because obviously we still --we have a budget but we're --the numbers will move around as we see opportunities throughout the year to either take some expenses out or if we need to add them, but directionally you can look at that number sort of being cut almost in half, maybe a little bit more and what drives that really is the wrapping up of the CABP trial, that's the biggest driver there.
On the sales side, we probably spent the high 80s in terms of sales. We'll spend a little less not that much. That'll be the area that we want to aggressively protect the most. So we will spend some less on sales. There was a bunch of recruiting costs and other things that happened in the first year. There are upfront marketing costs that don't repeat, but clearly we know that that's an area of the budget that we want to do everything we possibly can to protect.
And then the biggest drop really is going to be in G&A. And G&A has $12 million of severance in it last year. We don't expect that to repeat. The reductions that we had to take in force were taken in the fourth quarter. And we will pay some of that severance this year, some of it was paid last year, but from a GAAP perspective you can expect to see G&A drop significantly. If you follow some of the things we've talked about there's been certain assets that we are no longer investing in or I'm sorry no longer carrying. There's a lot of integration cost that took place in 2018 that were behind.
There have been significant changes to the leadership team. And as a result of all that the one thing that and we spent John and I and others spent a lot of time at the end of 2018 as we prepared for this year to make sure that we were focused as much as we possibly could on only the items that helped drive these four products. And so everything in G&A to the extent it's not an absolute requirement is going to be pulled down to make sure it's only done to support those products.
And then lastly, I said R&D, there's really two things driving R&D and it's the CABP reduction and also as John mentioned earlier that we're no longer investing in discovery. So those are the two drivers there collectively all of that gets you to that $140 million.
And then as it relates to the question of Baxdela and the quinolone class warnings, we've been monitoring total quinolone prescriptions since those warnings have issued. And we have not seen a change in the marketplace feedback from customers whether they've use these products a long time. And then they appreciate being informed around that. But we haven't seen any impact at all on the class at least to date. Like I said, we monitor that weekly. And then Peter you want to talk about the marketing rights?
Yes. And we're talking about expansion. We are talking about license rights whether you look at other opportunities to bring our drugs with our own sales force internationally. I think right now that the market in the US so it got so much more room in it, but we certainly want to make sure we saturate that market first and we have a long way to go before we do that. So when we look that comment really is designed to talk about having experts in other countries that we can license it.
End of Q&A
Ladies and gentlemen, thank you for your participation in today's conference. It does conclude the program. And you may now disconnect. Everyone have a great day.