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Cempra, Inc. (NASDAQ:CEMP)

Q1 2017 Earnings Conference Call

April 28, 2017 8:45 AM ET

Executives

John Bluth – EVP of IR and Corporate Communication

David Zaccardelli – Acting CEO

David Moore – President and CCO

Mark Hahn – CFO

David Oldach – CMO

Analysts

Laura Chico – Raymond James

Kevin Kedra – Gabelli

David Solomon – Roth Capital Partners.

Operator

Good day, ladies and gentlemen. And welcome to the Cempra Incorporated First Quarter 2017 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded.

I would now like to introduce your host for today’s conference, John Bluth, you may begin.

John Bluth

Thank you, Kevin. And thank you all for joining us this morning. Also on the call from Cempra are Dr. David Zaccardelli, Acting Chief Executive Officer; David Moore, President and Chief Commercial Officer; Mark Hahn, Chief Financial Officer and Dr. David Oldach, Chief Medical Officer.

Before we begin, I would like to remind you that today’s call will include forward-looking statements based on current expectations. Such statements represent management’s judgment as of today and may involve risks and uncertainties that could cause actual results to differ materially from expected results. Please refer to Cempra’s filings with the SEC, which are available from the SEC or on the Cempra website for information concerning the risk factors that could affect the company.

I’ll now turn the call over Dr. Zaccardelli.

David Zaccardelli

Thank you, John, and good morning, everyone. We believe the progress we’ve achieved in the first quarter with substantial expense reductions, a successful Phase 3 study with fusidic acid, advancing the regulatory progress with Solithromycin and a comprehensive process underway with Morgan Stanley to evaluate strategic business option, all position Cempra for a successful 2017 that build value for patients and shareholders.

Let me start with an update on Solithromycin. We had a face-to-face meeting with the FDA in late February to discuss the complete response letter and how we can move forward. At that meeting, we made it clear to the FDA that submitting data from an additional 9,000 patients treated with Solithromycin on a pre-approval basis was not practical for Cempra. And based on our productive discussion during the meeting the FDA encouraged us to submit a protocol that we would find acceptable so that they could evaluate it. We’ve recently submitted that protocol to the FDA. It proposes including few than 9,000 patients at the time we respond to the CRL. Our next step is to discuss the protocol with the FDA to determine if they could support an initial approval while the company continues to accumulate a larger post approval safety database. We’ve requested comment on the protocol from the FDA in the second quarter.

As we have noted, if we are able to reach agreement with the FDA on an acceptable protocol, we plan to seek non-dilutive financing if available to support any additional Solithromycin clinical study. BARDA and the NIAID are examples of partners who are currently providing non-dilutive funding for our pediatric CABP and gonorrhea Solithromycin study respectively. Our partnership with BARDA and NIAID has been extremely collaborative and productive to ensure Solithromycin is developed to the benefit of patient in need of new antibiotic therapy.

With regard to Solithromycin manufacturing, we continue to make good progress that you keep up with the registration that is needed to provide data for our response to the CRL. And we are in active discussions with Asprilla and alternate IV manufacturers to address the concern the FDA has noted at Hospira facility in mixed person candidate.

We certainly believe clinical data not manufacturing data will be the rate limiting step for responding to items noted in the CRL. If we are able to bring on a protocol with the FDA and secure non-dilutive funding for additional clinical work to support potential approval, we believe over the course of more than 10 years post approval exclusivity period afforded by its QIDP status, Solithromycin has the potential to be a very significant therapy for patient.

With the focus on conserving our cash resources and with the view towards aligning our FDA strategy with our European strategy, I also wanted to note that we announced in March that we had withdrawn our MAA for Solithromycin in Europe. Our plan is to resubmit the MAA with additional data we plan to accumulate for our CRL response in the US to further strengthen the benefit risk case for the approval of Solithromycin in both the US and EU.

Turning now to fusidic acid, following the successful Phase 3 study we reported in January, we have requested the meeting with the FDA to discuss the best next step to gain approval. This meeting has been scheduled for later this quarter. For ABSSSI, we continue to expect two Phase 3 studies would be required for approval. We should have further clarity in the third quarter after our meeting with the FDA and be able to explain our next step with fusidic acid.

Additionally, we have an ongoing study with fusidic acid in patients with refractory bone and joint infection and expect to have top line data available by the end of this year. When we see the data from the study, we should be able to determine the best next step for fusidic acid in bone and joint infection. As with Solithromycin, fusidic acid also has QIDP status and would have more than 10 years of exclusivity post approval.

An important component to our strategy for 2017 involves conserving our cash resources as we work with Morgan Stanley to evaluate and assess external clinical and commercial asset and other potential strategic business opportunities to determine the best use of our resources to deliver value to shareholders.

Now let me turn to our financial update. As reported in our press release today, we ended the second quarter with a notable $202.8 million of cash and cash equivalent. Our first quarter financial details are in the press release but on the expense side even before we start seeing the impact of our cost reduction action in the second half of the year, already in the first quarter you can see that R&D expense decreased by 34.5% compared to the first quarter of 2016. The reduced R&D expense was primarily due to decrease regulatory expenses in the first quarter of 2017 compared to the higher new drug application related expenses including payment of our PDUFA fees in the first quarter of 2016 and decreases in commercial preparedness activities partially offset by increased — repeat increases in BARDA related expenses.

Our general and administrative expense in the first quarter of 2017 increased 5.3% compared to the first quarter of 2016. Employee cost increased by $1.1 million as the result of increased headcount in the first quarter of 2017 before the reduction in workforce and this was partially offset by a decrease in professional services of $0.7 million related to the delay of our planned commercial launch of Solithromycin. We also called out for you in a press release a one time restructuring charge of $2.6 million for severance and other expenses related to the cost and personnel reduction activities we initiated in February. As you may recall, we expect to reduce second half 2017 expenses by more than 78% compared to the second half of 2016 expenses.

Now before we turn to Q&A, I’d also like to take a moment to thank David Moore for his many contributions to Cempra over the years. As you may have seen in our 8-K this morning, David has accepted a senior management position with the global pharmaceutical company and we wish him a continued success. As you continue to track our goals for the year with us, we believe we are off to a strong start in 2017. Our first quarter actions to preserve cash and initiate a strategic business review process with Morgan Stanley in parallel with positive Phase 3 fusidic acid study results, and advances with the FDA on fusidic acid and Solithromycin position the company for a successful year. We still have much work to do and we remain focused on execution to deliver value we seek for patients and shareholders.

David Moore, David Oldach, Mark Hahn are here with me and the operator and we are now happy to open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question comes from Laura Chico with Raymond James.

Laura Chico

Hey, good morning, guys. Thanks for taking the question and best wishes to David Moore. Just one question on the funding for the Solithromycin future development. Just curious what level of interest you’ve received from I guess current collaboration partners such as BARDA towards funding or contributing towards a study like the safety study? And I guess I ask that just you might have potential government budget cut and if that is impacted the environment at all. So I guess further second part of the question would be are there sources that you would pursue to seek financing for that.

David Zaccardelli

Hello. And thank you for the question. Yes, we have been in continued contact with BARDA as they are our current partners with Solithromycin development. They are aware of our approach with the FDA and actually have seen the protocol we submitted. We have discussed with them our general approach to obtaining additional funding and they’ve been receptive to that dialogue. It would include us to providing an application to them which we would upon having a final protocol agreed with the FDA. So we feel that we are in reasonable position and in a good position of collaboration with BARDA. As you know, they have been our collaborators for a number of years. In addition, other entities like the Department of Defense could also be another venue and we’ll be looking at that as well. So we remain confident that we can approach that and will see how that process develops after we have a final protocol.

Operator

Our next question comes from Kevin Kedra with Gabelli.

Kevin Kedra

Thanks for taking the questions. Maybe just to follow up on last question. In terms of the non-dilutive funding opportunity, what level of non-dilutive funding would you need to see in order to progress with the Solithromycin study? Just trying to get a sense of maybe order of magnitude how big you think that study would if the FDA accepts your proposal or what level of kind of funding would you need non-dilutively would that cover 25%-50% of it, 100%, how are you thinking about that?

David Zaccardelli

Yes. Thank you very much for the question. It’s going to depend a lot about on how the study is structured, the magnitude of that and I think once we have that agreed we’ll be in discussion with BARDA for example on their funding requirement or what they can contribute to that. So I think it’s an open issue at the moment. I think it’s something that we’ll address once we have a final protocol.

Kevin Kedra

Okay. And on the strategic review, any sort of timeline there on when we could expect to hear more about what direction you look to go with that, and possibly some activity there?

David Zaccardelli

Yes. We are in very active process with Morgan Stanley .And it is progressing under the timeline that we’ve set out with Morgan Stanley and we are very attentive to making sure that we progress it in a timely manner but also in a thorough manner. And we are happy with where we are at the moment. I’d say that we would have a reasonable update for you over the coming quarter. But as we’ve discussed whether that turns into something that is actionable we’ll see but I’d say that over this next quarter we’ll be substantially progressing the process.

Kevin Kedra

Okay. And is the feedback from the FDA on the Solithromycin trial design; is that a rate-limiting step in the strategic review process? I mean would you need more clarity on what the FDA wants to do and what those cost could look like before you are able to make other decisions as far as you want to do with your cash?

David Zaccardelli

Not particularly but processors are running in parallel and I think it depends on the nature of each individual opportunity and as we review and discuss the importance of the status of Solithromycin fairly during the review process. We will be discussing with the different entities for opportunities where we are at but we don’t think it’s a leading issue to that progress.

Operator

Our next question comes from the line David Solomon of Roth Capital Partners. David your line is open. You can ask your question.

David Solomon

This is David Solomon asking a question for Michael Higgins. In the ongoing trial, have you cross the 30 patients mark yet? If not, when do you expect to? Thank you.

David Zaccardelli

I am going to have Dr. Oldach response to that question.

David Oldach

Yes, good morning. We have completed enrollment in the bone and joint study. And now we are watching patients over time. So that was accomplished last week.

Operator

And I am not showing any further questions at this time.

David Zaccardelli

Okay. Thank you all for joining the call this morning. And we look forward to keeping you posted on our progress. So thank you very much.

Operator

Ladies and gentlemen, that concludes today’s presentation. You may now disconnect. And have a wonderful day.

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