Analyst Conference Summary

Biotechnology

date: March 3, 2019 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2018 (fourth quarter 2018)

Forward-looking statements

Overview: Xerava antibiotic first quarter of revenue only $178 thousand.

Basic data (GAAP):

Revenue was $4.3 million, up sequentially from $1.2 million, and up 72% from $2.5 million year-earlier.

Net income was negative $21.5 million, down sequentially from negative $19.6 million, and up from negative $23.8 million year-earlier.

Diluted EPS was negative $0.40, down sequentially from negative $0.37, and up from negative $0.46 year-earlier.

Guidance:

Believes funds will be sufficient into Q3 2020. Government funding will decrease in 2019.

Conference Highlights:

Guy Macdonald, Tetraphase CEO, said "We capped off 2018 with a strong finish, with the regulatory approvals of Xerava (eravacycline) for the treatment of complicated intra-abdominal infections (cIAI) in both the U.S. and Europe, followed by the commercial launch of Xerava in the U.S. in mid-October. With the U.S. launch off to a solid start, Xerava is now available for use in U.S. hospitals and healthcare institutions for the treatment of a range of patients with empiric and confirmed cIAI. We are encouraged by the progress we have made during our first few months of launch, with more than 400 formulary reviews already completed or scheduled to occur by mid-year and a re-ordering rate for Xerava above 70%. Further, as we look to the balance of 2019, we have made the decision to delay launching Xerava in the EU5 independently and will instead continue to focus our resources on building momentum and supporting a successful launch in the U.S."

Xerava pricing is responsible and accessible. Revenue in the quarter were about as expected. Confident Xerava will see continued adoption. 100% of tier one hospitals had been contacted by the end of 2018. Many formulary reviews did not start until Q1 2019. Feedback has been very positive.

In Q4 2018 licensed Xerava in China to Everest Medicines and received a $2.5 million milestone payment. Everest Medicines will begin a Phase 3 clinical trial of eravacycline in cIAI in China in 2Q 2019.

Xerava has a broad label. Field force is highly experienced. Looking at 780 tier-1 accounts. Wholesale acquisition price is $175 per day. Priced to penetrate the growing intra-abdominal market.

Revenue consisted of $0.2 million Xerava commercial sales; $3.2 million license and collaboration; $0.9 million government. Sales of Xerava began in mid-October 2018.

Xerava was approved for use in the EU in September 2018. But delaying introduction in the EU.

Positive data for Xerava was presented to the IDSA and ACCP conferences.

But Xerava (eravacycline) did not work for cUTI (complicated urinary track infections), so that program was discontinued in Q1 2018.

Cash and equivalents ended at $108 million, up sequentially from $97 million. $28.3 million debt from the new $75 million loan agreement with Solar Capital.

TP-6076, a fully synthetic tetracycline, had data from a Phase 1 study presented at IDSA in Q4 2018. Will complete a bronco-pulmonary disposition study in Q2 2019.

Further down the pipeline, TP-271 completed its Phase 1 dosing study in Q4 2018.

Tetraphase will present preclinical data on TP-2846 at the AACR Annual Meeting in 2Q 2019. TP-2846 is a possible therapy for AML (acute myeloid leukemia).

Operating expense was $25.7 million, consisting of cost of goods sold $0.1 million; R&D $10.7 million and G&A $14.7 million. Loss from operations $21.4 million. Other expense net $0.1 million.

Q&A summary:

Cost of goods sold components? Direct Xerava manufacturing costs and third party logistics costs. No guidance, but gross margin should improve over time.

Where is Xerava being used? Split between replacing carbapenems and for confirmed infections.

EU delay decision? We had planned to start in 2H 2019 with a staggered launch in UK and Germany. We believe our resources make more sense to deploy in the U.S. We could look to partner in Europe.

Restrictions after formulary reviews? Typical of ID or critical care restrictions for antibiotics. Could be restricted to surgery, but some approved on formulary with no restriction.

R&D run rate? Q4 rate perhaps, then gradual decrease over time.

Solar Capital restrictions? $10 million minimum cash requirement.

Reorder rates, factors? 70% rate is from compensating reps for reorders; price; overutilization of carbapenems.

Q1 data? Will answer on next earnings call.

Focus on cancer? Main focus is on Xerava, just a bit on AML. We are excited about presenting our preclinical AML data. If it reaches some point, we could decide to license it out.

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