Paratek: Will Nuzyra Succeed?

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About: Paratek Pharmaceuticals, Inc. (PRTK), Includes: LBTSF, MLNT, NBRV, TTPH
by: Tien Duy Vo
Summary

NUZYRA and SEYSARA, two main products of Paratek's, were launched in the US market in early 2019.

The company is expected to start generating sales revenues, however, it will also have to face intense competition.

The market for antibiotics is too crowded to be profitable.

Paratek's enterprise value is much higher compared to peers. Thus, it is not attractive for a buyout.

In October 2018, Paratek Pharmaceuticals (PRTK) received FDA approvals for its two main products - SEYSARA and NUZYRA. The company also entered into an exclusive licensing agreement with Almirall (OTC:LBTSF) for the development and commercialization rights of SEYSARA, which was launched in the United States in January 2019. The other drug, NUZYRA, was launched by Paratek in February 2019. Thus, the company is expected to start recording sales revenues from this quarter onward. However, it is noteworthy that the market for antibiotics is very competitive while having low sales growth. Hence, investors should not raise their hopes too high.

Paratek on numbers

As of December 31, 2018, Paratek reported approx. $17.1 million in revenue, which was derived from the milestone payment under the Almirall Collaboration Agreement and the Zai Collaboration Agreement upon the FDA approvals of NUZYRA and SEYSARA. Total operating expenses amounted to $121.2 million, representing a 25% increase from last year period. This was mainly due to an increased spend related to the U.S. launch of NUZYRA. As this product was just introduced in the US, we anticipate that Paratek’s general and administrative expenses will continue to increase in future periods.

(Source: Annual Report)

The company’s cash, cash equivalents, and marketable securities were $292.8 million, which would be sufficient to fund its operation until 2020 at the current burn rate. Besides, Paratek has a relatively low amount of current liabilities. Most of its debts are due in 1-3 years, implying that the company still has some time to commercialize its product and to generate more revenues to meet its debt obligation. The question now is how much revenue can Paratek generate from the sales of NUZYRA in order to cover its expenses and debt obligation. We will come to this question in the next part.

(Source: Annual Report)

The market for antibiotics: highly competitive but low sales growth

NUZYRA is a once-daily oral and intravenous, or IV, broad-spectrum antibiotic. It is indicated for the treatment of adults with community-acquired bacterial pneumonia (CABP), and acute bacterial skin and skin structure infections (ABSSSI) caused by susceptible bacteria.

The analysis of past sales figures shows that for antibiotic drugs, sales growths had been relatively low. Let’s look at two examples, Avycaz and Teflaro, which have similar indications to NUZYRA. Even though the sales of both these products are higher than that of other antibiotics, they are still very low compared to other brands. In particular, Teflaro had sales of approx. $50 million in two years post-launch, while other blockbuster drug classes had sales between $500 million - $1 billion, which is equivalent to 10 - 20 times higher! Also keep in mind that new antibiotics have to compete with generic antibiotics, which may cause even more pressure on sales figures.

(Source: Sales of drug classes)

Analysts have predicted peak sales of $500 million for NUZYRA; however, according to past sales figures of similar products, we believe this prediction is too optimistic. In 2016, or 6 years post-launch, Teflaro sales were recorded at $134 million, which is much lower compared to other classes of drug. As NUZYRA has very similar indications to Teflaro, we expect that its sales will also be around $30 - $80 million in the first two years after launch. Therefore, Paratek is unlikely to reach break-even in two years’ time.

Furthermore, new antibiotics are coming soon. In the table below, you can see that several drug candidates are either approved, under review or in Phase 3. Moreover, in February 2019, Merck announced that the FDA has accepted the review regulatory filings for two antibacterial agents: Investigational Combination of Imipenem/Cilastatin and Relebactam, and Supplemental NDA (SNDA) for ZERBAXA. If these products are approved, they will come to the market soon. This implies that the antibiotic space is too crowded to be profitable.

(Source: Antibiotic candidates)

Downside Risks

As Paratek has no other approved products, the company’s success heavily depends on NUZYRA and, to a lesser extent, SEYSARA. If the commercialization of NUZYRA in the US does not succeed, the company’s financial situation would be threatened. Besides, if NUZYRA or SEYSARA do not achieve broad market acceptance among physicians and patients, the company’s sales revenue will be limited.

Moreover, Paratek also anticipates that it will need additional funding to conduct the commercialization of NUZYRA and other development programs. If it is unable to raise sufficient capital for these purposes, it would be forced to delay, scale back or cease its product development programs or commercialization efforts for NUZYRA.

Comparison with peers

We would like to compare Paratek to Tetraphase (TTPH) and Nabriva (NBRV) from our biotech database since all three companies have drug candidates in the anti-bacterial field. Of these, Nabriva is the direct competitor to Paratek, as its product Lefamulin has the same indication as NUZYRA.

(Source: Author's proprietary biotech database)

Company

Paratek (Q42018)

Nabriva (Q32018)

Tetraphase (Q32018)

Market cap

$189.31M

$156.07M

$64.89M

Total Cash And Short Term Investments

$250.35M

$100.66M

$96.96M

Total Debt

$228.96M

$0.71 M

$0

Enterprise value

$167.92M

$56.12M

-$32.07M

Drug

NUZYRA (CABP, ABSSSI)

SEYSARA (ACNE)

Both approved

Lefamulin (CABP)

CONTEPO (cUTI)

Expected approval in 2019

Xerava (cIAI)

Looking at the table, it is clearly shown that Paratek has significantly higher enterprise value compared to peers. In fact, Tetraphase is so cheap, its enterprise value is even below its market cap. For more information, please visit our article on Tetraphase.

Nabriva’s product Lefamulin also targets both indication CABP and ABSSSI like NUZYRA, which is the reason why investors should focus on this company. The market cap of Paratek and Nabriva are relatively comparable, but Paratek’s enterprise value is roughly tripled its peer. This indicates that Paratek is now quite expensive.

Another good example is Melinta Therapeutics (MLNT), a company with three approved antibiotics. Its revenues were around $34M and $60.94M in 2017 and in the first nine months of 2018, respectively. The company’s market cap is around $51.02M and its enterprise value is $76M, which is much lower than that of Paratek. It implies that there is room to go down for Paratek.

Conclusion

Paratek Therapeutic’s stock price has already suffered from a recent drop, but we see that the company will still have to face further challenges moving forward. Its drug has to compete against both generic antibiotics and new antibiotics, which have recently entered or will enter the market in the near future. Moreover, a comparison with peers reveals that the company is not cheap, so a buyout is not likely. Thus, value investors should pick another “cheaper” candidate.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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