Earnings Call Transcript - ITRM Q1 2021

Operator, Operator

Ladies and gentlemen, welcome to the Iterum Therapeutics First Quarter 2021 Financial Results Conference Call. My name is Katie and I'll be coordinating your call today. I will now hand you over to your host, Louise Barrett, Senior Vice President of Legal Affairs to begin. Louise, please go ahead.

Louise Barrett, Senior Vice President of Legal Affairs

Good morning and welcome to Iterum Therapeutics first quarter 2021 financial results conference call. A press release with the company's first quarter results was issued earlier this morning and can be found on our website. We are joined this morning by Corey Fishman, CEO, and Judy Matthews, CFO. Corey will provide some opening remarks. Judy will provide details on our financial results, and then we'll open the lines for Q&A. Before we begin, I would just like to remind you that this call will contain forward-looking statements concerning our plans, strategies, and prospects for our business including, with respect to the timing of review by the FDA of our NDA for oral sulopenem and related PDUFA date, the holding of an FDA Advisory Committee meeting to discuss the NDA or expectations for potential approval on the PDUFA date, the market potential for sulopenem, commercialization activities including the ability to enter into a definitive agreement with respect to commercialization services and to successfully launch oral sulopenem if approved, the ability to expand any approved label for sulopenem by adding additional indications, and the sufficiency of our cash resources to execute our strategy. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including our business, financial condition and operations, the timing or likelihood of regulatory filings and approvals, commercialization plans and timelines, if oral sulopenem is approved, the actions of third-party clinical research organizations, suppliers and manufacturers, the accuracy of our expectations regarding how far into the future our cash on hand will fund our ongoing operations, the impact of COVID-19 and related response measures, and other risk factors set out in our filings with the SEC, including in the most recently filed quarterly report on Form 10-Q. In addition, any forward-looking statements represent our views only as of the date of this call and should not be relied on as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statements. With that, I’ll now turn the call over to Corey for his opening remarks.

Corey Fishman, CEO

Thank you, Louise. Welcome and thanks for joining us today. Q1 was a busy quarter for Iterum, and I'll share some of the highlights with you now. First, our New Drug Application for oral sulopenem for uncomplicated urinary tract infections in patients with a quinolone non-susceptible organism was accepted in late January, with a PDUFA date of July 25 of 2021. Additionally, we successfully raised over $74 million of cash in the first quarter. And we partnered with EVERSANA, a world-class end-to-end commercialization enterprise, to work with us on a variety of pre-launch activities. As it relates to the FDA review of our new drug application, as we had communicated, the FDA had planned to hold an Advisory Committee on June 2, but informed us that they needed more time to review the data in our package and therefore were postponing this meeting. We continue to prepare for this meeting and await clarity from the FDA on timing. Importantly, however, the FDA review of our new drug application continues and our interactions to date progressed well and are typical as to where we'd expect to be a few months from a potential approval. Over the last few months, the FDA has sent us a number of information requests regarding clinical and manufacturing data, and all of these inquiries have been addressed. The FDA has performed routine audits on a number of our sites, and I'm happy to report that no observations have been noted in any of those audits to date. Additionally, the FDA has reviewed detailed manufacturing data, and to date, no issues have been identified. As we prepare for a potential launch of oral sulopenem in the fourth quarter, I'd like to highlight a few items. The pre-launch work we have done in collaboration with EVERSANA thus far has been incredibly valuable in helping us build a solid platform on which we can launch oral sulopenem in the US, if approved. We've recently conducted payer research to better understand the access and reimbursement landscape. The research was very useful in helping us understand the potential market access for oral sulopenem. Based on these discussions with payers that represent about 250 million lives in the US, we believe oral sulopenem could achieve unrestricted third-tier coverage in about 70% of commercial plans within one year of launch. We have also commenced physician research to understand the current market dynamics in the uncomplicated urinary tract infection space. We are developing an unbranded awareness campaign that will be rolled out shortly, with the sole purpose of highlighting the challenges of antibiotic resistance in general, and providing physicians in the US with the level of resistance to various classes of drugs currently used in the uncomplicated urinary tract infection market in the particular zip codes where these physicians are practicing. Lastly, we continue to refine our targeting and segmentation work in the US, using real-world data to optimize our commercialization strategy, which will be based on resistance rates in a particular territory, the availability of high-value physician targets in that territory, and payer coverage in that territory as well. We are currently working on expanding the relationship with EVERSANA to include full launch and commercialization activities and negotiations on a definitive agreement with EVERSANA for these services are ongoing, and we expect to finalize the agreement in the coming weeks. On the clinical development front, Iterum will be requesting a type B meeting with the FDA in the next few weeks to discuss the potential path to regulatory approval for sulopenem in the treatment of complicated urinary tract infections. As you may recall, we have already completed a large phase three trial in complicated urinary tract infections, where sulopenem performed very well across a variety of time points and measures, including clinical outcomes, but missed the endpoint due to the microbiologic impact of asymptomatic bacteriuria. We plan to focus our discussion with the FDA around endpoints, as well as what additional work, if any, could provide the basis for a filing in complicated urinary tract infections. Regarding some key catalysts that are upcoming, there are a number of important events that we expect to see over the next few quarters. We will have a potential advisory committee meeting over the next quarter or so. We have a planned discussion with the FDA on complicated urinary tract infections that we expect to have in the third quarter of this year. In the third quarter, we also have our PDUFA date, and we have the potential launch of oral sulopenem in the fourth quarter of this year. In closing, we believe that we’re in a very solid position with our NDA under review and having about $100 million of cash on the balance sheet. We expect this will allow us to execute on our strategy of launching oral sulopenem later this year, assuming approval, and begin the further development of sulopenem in additional indications where new oral agents are desperately needed. We anticipate being able to operate the business into 2023 without additional funding.

Judy Matthews, CFO

Thanks Corey. Total operating expenses were $5.8 million in the first quarter of 2021, compared to $12.9 million in the first quarter of 2020. Operating expenses include research and development expenses and general and administrative expenses. R&D costs were $2.5 million for the first quarter of 2021 compared to $9.7 million for the same period in 2020. The R&D category includes expenses for our clinical and development programs, our CMC costs, and our regulatory expenses. The primary driver of the $7.2 million decrease in R&D costs was the completion of our Phase 3 program in 2020. G&A costs were $3.4 million for the first quarter of 2021, which is $200,000 higher than G&A costs of $3.2 million in the first quarter of 2020 due to higher spending on pre-commercialization activities and higher consulting costs to support administrative functions, partially offset by lower G&A headcount. Moving on to non-operating items, interest expense was $3 million for the first quarter of 2021, compared to $2.6 million in the first quarter of 2020. The primary reason for the $400,000 increase in interest expense was non-cash interest expense associated with the write-off of previously capitalized financing fees associated with our royalty linked notes which are now being recorded at fair value following derivative accounting, which I will discuss in a moment. On a strictly cash basis, we paid interest related to our term loan with SBB of approximately $150,000 in the first quarter of 2021 compared to $300,000 in the first quarter of 2020. The reduction in cash interest is largely due to a lower principal balance on our term loan, as monthly amortization began in the fourth quarter of 2019 and will continue until our final payment in March 2022. Our net loss on a US GAAP basis of $99 million is an explanation, as it was driven by a $90 million non-cash adjustment to recorded derivatives surrounding our exchangeable note and royalty linked note. The accounting for derivatives is complex, and the result of this application on financial statements is often misunderstood. The primary reason for the large adjustment to record the derivatives at their fair value was the increase in our stock price and market capitalization during the first quarter of 2021. In the future, changes in our share price and market capitalization, and changes in management's assumptions, may result in significant changes in the value of these derivatives, resulting in non-operating, non-cash gains or losses. To reiterate, there was absolutely no impact of this adjustment on cash or cash runway, which I will turn to now. At the end of March, we had cash and short-term investments of $100.5 million following two equity financings in February 2021 that raised just over $74 million on a net basis. Based on our current plan, we have cash into the first half of 2023. As such, we believe we have the ability to continue our pre-launch activities with EVERSANA, complete the FDA review, launch oral sulopenem in the U.S. if approved, potentially initiate a registration trial for complicated urinary tract infections, and operate in 2023 without incremental funding. As of March 31st 2021, we had approximately 179 million ordinary shares outstanding. Also, as of the end of March, we had 8.2 million warrants outstanding at an average price of $1.53 per share, and $14.3 million of exchangeable notes still outstanding, which can be exchanged for approximately 19.8 million shares, inclusive of accrued interest at the option of the note holder.

Corey Fishman, CEO

Thank you, Judy. We would like to open up for some questions now.

Operator, Operator

Our first question comes from Gregory Renza from RBC Capital Markets. Gregory, please go ahead.

Gregory Renza, Analyst

Thank you, and good morning, Corey and Judy. I appreciate all the color today and thanks for taking my questions. Corey, just with respect of course with the regulatory actions in focus, I know we've kind of characterized this as a standard review. Just in light of the AdCom status changing, I'm just curious if you could maybe expand a little bit on how you think the PDUFA date will play out. It sounds like it's currently scheduled, but do you have the sense of any reschedule or pushback in timing and when would you expect to sort of get clarity there?

Corey Fishman, CEO

Thank you, Greg, for the question, I appreciate it. I understand that everyone is curious about this, and so are we. I wish I had more concrete information to provide, but I will share what I can. We have asked the FDA multiple times if our PDUFA date is changing, and currently, the answer is that it is not changing, although it may. So, it’s not very clear. However, I believe the FDA is attempting to adhere to their original timeline reasonably well regarding other types of meetings. As you know, during the review process, they establish a schedule for several planned meetings. They are still intending to hold some of these internal meetings as well as meet with us. So, we remain uncertain about any changes to the PDUFA date. There has been no correspondence yet regarding the timing of the AdCom or confirming the timing of the PDUFA. That said, we have experienced some technical difficulties.

Gregory Renza, Analyst

That's great, thanks Cory. And maybe just for my last question, I'll just zoom out a little bit and I'm just curious about your latest thoughts on sector interest in anti-infectives. There have been some strategic deals that have been occurring across the space. How do you see that evolving? You're certainly in a unique position with Iterum, but I'm just thinking of gathering your latest perspective on the anti-infective sector in general. Thanks again.

Corey Fishman, CEO

Sure, yeah. When we talk about the sector, I think there's been a little bit of activity on the antibiotic side, there has certainly been a little bit of activity on the antifungal side. I think there's an opportunity for some of the larger pharma companies to reengage. The question becomes, are they interested in doing development or are they only interested in doing commercial? I think for companies like Iterum at this stage, you have a little bit of the best of both worlds because you can offer people potential partnership with someone who's commercial or near commercial. It allows a company to have more flexibility, not having to do development work. Having said that, the last couple of deals that happened, Pfizer did both of them. They acquired Arixa and they acquired the antifungal company, whose name is Amplyx now, but both of those need development. So clearly Pfizer is not adverse to doing development on anti-infectives. I think there's a little bit of a shift in terms of coming back to the space, and I think part of it is driven by recognizing that there are still a lot of severe medical needs that have not been met, and I think COVID has also highlighted that in a secondary way, with regard to some of these follow on infections, particularly on the pneumonia side and some of the other infections that folks have been getting. The therapies as we know that are out there today are not ideal. And that's where I think new applications of drugs like sulopenem and others can really be helpful for the community, but also for the larger companies to provide a suite of products to basically serve the needs of the marketplace.

Operator, Operator

Thank you. Our next question comes from Ed Arce from H.C. Wainwright. Ed, your line is now open.

Ed Arce, Analyst

Great. Thanks to Corey and Judy for answering my questions. First, Corey, I believe the company you mentioned that Pfizer recently acquired is Amplyx, the antifungal company.

Corey Fishman, CEO

That is correct. Thanks, Ed.

Ed Arce, Analyst

Yes. So on the timing of the AdCom and PDUFA that's obviously top of mind, and I don't think there's really much more we can say at this point beyond what you've just mentioned. But beyond that, I'm wondering about the FDA meeting that you intend to request, I believe in the next few weeks to discuss complicated urinary tract infections. I'm curious about that, because I know that in the past you have stated that you wanted to be careful not to sort of overlap one discussion while there was an active NDA pending and to sort of not confuse one application with another potential future application. I just wanted to get your thoughts on that. And I have a couple follow-ups.

Corey Fishman, CEO

Sure. The idea that we have is that I think if we asked for a meeting on uncomplicated UTI while the uncomplicated UTI review was ongoing, it would be more challenging for the agency. We've said that a meeting on uncomplicated should not get in the way of their review of the uncomplicated. Now, of course, there are crossovers and there are certain elements that are intertwined. But our expectation is that because it's not the same exact indication, we won't be having the very same conversation. I think by the time we get this meeting request in the next few weeks and then, presumably they'll grant that, that's a 60-day time frame. We should be reasonably close to the end of their review. Again, just to clarify, as we sit here today, there hasn't been anything where the FDA said, gosh, that doesn't work for us, hold on pencils down, nothing like that. Our belief is that this is, you know, going to come to fruition at some point reasonably soon. That's certainly our hope, and it doesn't right now send any signal other than that. When we have the complicated UTI meeting, we should be in a pretty good spot to not have an over complication of the review, because as you know, the FDA needs to finish their review quite a ways in advance of the PDUFA to get everyone to agree and sign off. All of that hopefully is happening over the coming months. By the time we have our complicated UTI meeting, we don't believe there'll really be a challenge for the FDA to entertain that without impacting the uncomplicated review. So, we're pretty comfortable that will be the case.

Ed Arce, Analyst

Okay. Thanks. Thanks for the clarity there. The next question is around the recent payer research that you completed with a number of payers, as you said, covering approximately 250 million lives. If you could expand a bit on the third-tier coverage that you discussed and the goal of having the commercial lives covered in that tier by the first year. I think I missed some of the detail there. Any sort of expansion on what you're seeing from that survey would be helpful?

Corey Fishman, CEO

We conducted standard research where we engaged with major payers to understand how they view our drug within their coverage plans based on its profile. Our goal is to determine the tier placement and any potential restrictions. We anticipate around 70% unrestricted third-tier coverage, which means no prior authorization or step edits, resulting in a co-pay of approximately $40 to $75 for the patient. This research is crucial for our commercialization strategy, which relies on three key components: resistance rates, the number of high-value targets, and payer coverage in specific territories. Understanding these aspects is vital to ensure that patients can receive their prescriptions without issues at the pharmacy. Our recent findings align well with trends observed in other branded oral antibiotics and specialty pharma products launched in the past five years. This data positions us favorably for access and reimbursement, allowing us to effectively allocate our commercial resources to maximize the likelihood of prescriptions being filled.

Ed Arce, Analyst

Great. That's very helpful. Final question for me, Corey, is around your ongoing negotiations with EVERSANA on a definitive agreement with them to move forward. If and when approved for commercialization with this end-to-end enterprise. Just wondering what steps remain if there are any barriers that need to be resolved to get into that; I think you said that the expectations are for some agreement in the coming weeks. So just wondering, what's left?

Corey Fishman, CEO

Yeah. No, it's a good question and you can imagine that we've literally been working on this since we signed our original agreement for pre-launch services, knowing that we wanted to partner with EVERSANA and work with them on the full commercialization. This has been in process for a few months and there are really no barriers. This is just kind of typical negotiating with a partner getting down to the last handful of details, and we believe there's nothing standing in the way of getting this agreement signed in the next few weeks. All that pre-work is leading up to this anyway. We will be prepared to get that agreement signed as efficiently as we can. Importantly, we'll be prepared for a launch in the fourth quarter as we've said, assuming we stick to our PDUFA. If the PDUFA does change, we will still be prepared for launch. What we don't want to do is be caught flat-footed. We don't want to have a positive outcome from the FDA and then realize we are not ready to launch so we need another six months of preparation. We're going to prepare for launch. The good news is much of that cost will be put on the books, essentially after we get approved. So we're not going to hire sales reps until we have the approval. It will be contingent offers like most products are launched in the market nowadays, so we're not looking to add a ton of expenses prior to the approval, but we're going to continue preparing and being ready to launch. As soon as we get that approval, we will turn the switch and allow us to put reps on and get everyone trained up and ready to go.

Ed Arce, Analyst

Fantastic. Thanks for the extra detail, Corey.

Corey Fishman, CEO

Thanks for the questions, Ed.

Operator, Operator

Our final question comes from Kevin Kedra from G Research. Kevin, your line is now open.

Kevin Kedra, Analyst

Thank you for taking the questions. Corey, I would like to revisit the survey you conducted: do you have any insights on third-tier coverage regarding restrictions, step edits, or PPAs? I'm interested in understanding the payers' perspective on the indication you are pursuing, particularly concerning quinolone resistance. Will they be assured that if a doctor prescribes sulopenem, it aligns with the appropriate indication where there is a high likelihood of quinolone resistance? Are there additional factors they will consider to assess the appropriateness of a prescription, or will they differentiate between what is appropriate and what might not seem appropriate?

Corey Fishman, CEO

Yes. There really won't be any differentiation, and the reason primarily is that much of the uncomplicated UTI market is written empirically. So you won't know that answer of what kind of bug you had unless you went and got a culture. There's no real way for the payer to know the kind of plan in terms of, you know, gosh, that that's a quinolone resistant pathogen or it wasn't. That part of the conversation we've had with the payers, as well as everyone else, is that's why we're putting commercial resources in places where resistance rates are high. We're looking at those specific patient profiles to be sure that when we're giving sulopenem or recommending physicians use sulopenem, it's for patients in those highly resistant areas, and the patients who have a higher risk of failure causing a bad outcome; elderly folks, diabetic folks, immune-compromised folks, and folks who've had a history of recurrent infections. Those are the use cases for sulopenem patients. I think the payers understand that story and I think they're comfortable with it. Remember this is a category unlike many others that there hasn't been much activity on the brand side in a long time. So it's not a high priority for them, and they want to be sure we're doing the right thing. I think helping them understand our commercial strategy has made them very comfortable that we'll be doing that. There has been no talk about trying to segregate was this inappropriate patient turnout.

Kevin Kedra, Analyst

Good, I appreciate the information. Regarding the discussion with the FDA, it seems like things are progressing as anticipated, apart from the uncertainty surrounding the AdCom date. While the AdCom appears to be a promising aspect, should we anticipate that the FDA might reach a decision on the drug without convening an AdCom, or should we still consider that an AdCom could be a determining factor in the timing of approval?

Corey Fishman, CEO

Yeah. It's the $100,000 question, and I will give you my opinion. Just to be super clear, it's my opinion, not coming from the FDA. They certainly have the ability to say we don't need an AdCom to give you a decision. Obviously, there are lots of drugs that go through this and don't have an AdCom. This is one that they could decide to stay on the original timeline, hit the PDUFA and say, yep, we're good. That is a possibility. Having said that, I don't have any reason, any concrete reason to say that from the FDA. They haven't said, oh my gosh, we're going to do X, Y, or Z. We've been really upfront about everything that the FDA has told us. I think it's a good sign that they're trying to stick to a number of their planned meetings that they had planned three or four months ago. Now whether they say, okay that's great, now we'll schedule an AdCom for whenever the end of June, don't know. But they certainly have the ability to say we don't need an AdCom; we're going to stick to the original schedule, and that's the end of that. That's a possibility.

Kevin Kedra, Analyst

Okay. As far as the Type B meeting for complicated infections, you mentioned that you don't see really any overlap there with the NDA. Should we interpret that in case of an AdCom, you wouldn't expect issues that might tie into the other indications, specifically complicated UTI where you had some issues with bacteria that caused the endpoints to be missed? Should we not expect that to be part of the NDA discussion for uncomplicated?

Corey Fishman, CEO

I believe there will always be opportunities for the FDA to discuss this. If there’s an advisory committee meeting, I would expect this topic to come up. However, we need to keep in mind that we are submitting a new drug application for uncomplicated urinary tract infections in a quinolone-resistant population. Some may argue that we faced symptomatic bacteria in complicated infections, but this actually strengthens our case. Although it’s somewhat atypical and we encountered a micro endpoint that caused some issues, our clinical outcomes are in the 88% to 89% range. Even the FDA seems to be considering this carefully. I do think this might be part of the conversation, but I don’t view it as a significant obstacle to discussing complicated UTIs. Given the timeline, we expect to submit this request in the next few weeks. If we submit at the end of May, it would be reviewed by August, allowing sufficient time for the FDA to complete their review well before the PDUFA date. They will not be making last-minute decisions. I don't foresee any complications in submitting the request for complicated UTIs concerning the NDA. There may be related discussions since we conducted a study on complicated infections and faced similar issues as in uncomplicated cases, but I don’t see this as a major hurdle affecting the review of the uncomplicated application.

Kevin Kedra, Analyst

Great. Maybe, last question. You mentioned that even if there's a delay, say three months, you would still be preparing for a launch in Q4. So if that comes to pass, should we understand that Q4 launch, whether the approval comes in on time or three months later, Q4 is still kind of in the cards? Or should we think about a bit of a pushback of three months to the launch timing if there were to be a three-month delay from the FDA?

Corey Fishman, CEO

Yes. We don't know what the potential delay, if any, could be. I don't know about three months, but the FDA has done that to a number of people. The short answer is we will try to be as practical as possible. If there is a delay that puts this with an approval at the end of the third quarter or early fourth quarter, we're probably going to have to push the launch to the first of the year. The only reason is you've got the holidays; you don't want to really be launching in the middle of the holiday season if that's when the approval comes. That's why, as I said, we'll be prepared to launch, and certainly hope to launch in the fourth quarter, given what we know about the PDUFA today, and even a slight delay could put us into the fourth quarter still. But if it's something on the order of three months, then I think the reality is that would have to be pushed into the first of 2022.

Kevin Kedra, Analyst

Great. Thank you.

Operator, Operator

And we have no further questions. So, Corey, I will hand it back to you.

Corey Fishman, CEO

Great. Thank you. In closing, I just want to thank everyone for your time today. I appreciate it, and I appreciate the questions. We really do feel good about our progress and believe that this is a transformational year for Iterum. We're working towards getting that first product approved in the first indication. Importantly, we have solved, for the time being, our cash concerns and have cash on hand to execute on our launch strategy for oral sulopenem, further develop sulopenem, and other indications, and really get into 2023 with no need for additional capital. We feel very good about our progress and where we are. We look forward to sharing more updates with you as soon as we have them. So, thanks again for your time, everyone.

Operator, Operator

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.