Circling Back On Paratek Pharmaceuticals

Summary

• Today, we are circling back on antibiotic concern Paratek Pharmaceuticals after the company provided an encouraging business update.
• The company has done a good job of rolling out NUZYRA despite the impacts of the pandemic in 2020.
• We update our investment thesis on Paratek Pharmaceuticals in the paragraphs below.
• Looking for a helping hand in the market? Members of The Biotech Forum get exclusive ideas and guidance to navigate any climate. Learn More »

As government expands, liberty contracts.”― Ronald Reagan

We are revisiting Paratek Pharmaceuticals (NASDAQ:PRTK) today for the first time since May of last year. The stock of this promising antibiotic concern has risen some 70% since we gave it a thumbs up at that time. Recently, the company management provided an encouraging 2021 outlook. Given this it is time to update our investment thesis on Paratek. That analysis follows below.

Company Overview

Paratek Pharmaceuticals is a Boston based antibiotic company. The company's primary asset is NUZYRA (omadacycline) which was launched in the first half of 2019. NUZYRA is a once-daily IV and oral modernized tetracycline that has demonstrated activity against a wide spectrum of bacteria, including Gram-positive, Gram-negative, and drug-resistant strains. This antibiotic has been approved for the treatment of adults with community-acquired bacterial pneumonia (CABP) and acute skin and skin structure infections (ABSSSI). The company signed a five year contract with BARDA late in 2019 which has a potential contract value of $285 million.

Source: February Company Presentation

With the rally in the stock since our last article on it, the stock trades just over $7.50 a share and sports an approximate market capitalization of $325 million.

Recent Results

Paratek reported fourth quarter results on February 24th. Both top and bottom line numbers came in short of expectations. However, revenue from NUZYRA came in at $12.4 million for the quarter. This is a 14% sequential improvement from the third quarter of this year, and a 130% increase from the same period a year ago. Government contract service and grant revenue ticked up from the third quarter to $2.8 million.

Source: February Company Presentation

NUZYRA sales should get a nice boost starting this quarter as the company completed the hiring of approximately 40 U.S. sales representatives in February. This will drive the expansion of the NUZYRA launch into the primary care setting. Overall, the company did more than a solid job ramping up NUZYRA in FY2020 given the impacts from the pandemic. As can be seen below, the rollout measures up very well to other antibiotic launches over the past half decade.

Source: February Company Presentation

The company also gave some encouraging guidance for FY2021. Here is synopsis from the press release that accompanied fourth quarter results.

Source: February Company Presentation

Paratek management estimates 2021 total revenue in the range of $166 to $177 million. This range includes the following components:

• 2021 NUZYRA net U.S. product sales are expected to be approximately $138 to $144 million, which includes:
  • U.S. net product sales between $62 to $68 million from the core commercial business
  • Two SNS procurements by BARDA valued at approximately $76 million
• Royalty and collaboration revenue of approximately $8 million
• BARDA government contract service and grant revenue between $20 to $25 million
• Core business R&D and SG&A expense of $130 million, an increase of 20% over 2020 but consistent with 2019 pre-pandemic levels

The company also recently listed some key potential milestones ahead of it in FY2021.

Source: February Company Presentation

The Phase 2b study evaluating NUZYRA as treatment for non-tuberculous mycobacteria (NTM) infections due to Mycobacterium abscessus (M. abscessus) is worth keeping an eye on. This is a rare condition with currently no approved therapies and an addressable $1 billion market in the United States according to management.

Source: February Company Presentation

Analyst Commentary & Balance Sheet

Analyst activity has stirred since the company posted fourth quarter numbers and provided its business update. After being dormant for over six months, we have had some new rating reissuances since then. Leerink Partners ($14 price target) and H.C. Wainwright have reiterated Buy ratings since then and last week Jefferies initiated the shares as a new Buy with a $15 price target along with the following commentary from its analyst.

PRTK's Nuzyra launched in 2019 for serious skin infection & community-acquired pneumonia in hospital pts that fail generic tx. We expect expansion into the community setting in 2021 to fuel sales growth to ~$300M in '28 ($39M in '20). Nuzyra is also being tested in M. abscessus infection (no approved tx, ~$1B US mkt), providing further upside if successful. With anticipated sales growth & potential label expansion, we view current share price offers good value."

The company ended FY2020 with approximately $125 million of cash and marketable securities on the balance sheet. Management has stated that should be sufficient to get the company to free cash flow breakeven status in 2023.

Source: February Company Presentation

The company also has just over $160 million in convertible debt and another just under $90 million in non-recourse obligations, of which $60 million is from the arrangement described below.

Source: February Company Presentation

Verdict

I am not a big fan of the antibiotic space, even these drugs are much needed in the era of superbugs and other infections. The economics of the space tend to be terrible. In fact, Paratek is the only name I own in this sub-sector of the market. The huge BARDA contract is a huge positive and the company is managing the rollout of NUZYRA quite well, even with the challenges of Covid-19.

I continue to like the long-term risk/reward profile of PRTK as do analysts. The company has a large potential market to target. That said, there are likely to be bumps in the road. That is why I have a core holding in PRTK that I add to via covered call orders whenever the overall market has a decent sell-off.

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum

Analyst’s Disclosure: I am/we are long PRTK. 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.

Comments

[CR144 Research]

Breakeven On The Horizon For Paratek Pharmaceuticals, Inc.

www.nasdaq.com/...

Paratek Pharmaceuticals, Inc. (NASDAQ:PRTK) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Paratek Pharmaceuticals, Inc., a commercial-stage biopharmaceutical company, focuses on the development and commercialization of life-saving therapies for life-threatening diseases or other public health threats for civilian, government, and military use. The US$340m market-cap company’s loss lessened since it announced a US$97m loss in the full financial year, compared to the latest trailing-twelve-month loss of US$87m, as it approaches breakeven. The most pressing concern for investors is Paratek Pharmaceuticals' path to profitability – when will it breakeven? In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

Paratek Pharmaceuticals is bordering on breakeven, according to the 5 American Pharmaceuticals analysts. They expect the company to post a final loss in 2021, before turning a profit of US$4.3m in 2022. So, the company is predicted to breakeven just over a year from now. In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 61% is expected, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.

[CR144 Research]

Look at the forecast for the current quarter: Q2 2021 :
money.cnn.com/...
EPS = $0.23 (profit)
Revenue: $58M
--

[Bret Jensen]

Paratek Pharmaceuticals (NASDAQ:PRTK) announces that the U.S. FDA has approved the company’s supplemental New Drug Application ((sNDA)) for the oral-only dosing regimen of NUZYRA for the treatment of adults with community-acquired bacterial pneumonia (CABP).
Shares up nearly 12% premarket.

[Ultimate Bag Holder]

@Bret Jensen Mr. Jensen, I follow your articles and saw that when you recommend a company it performs very well. I think you are one of the most respected names in this industry.

[Bret Jensen]

@Turkish Dude Thanks for the kind words. Much appreciated. Best.

[CR144 Research]

@Bret Jensen Do you think Q2 will be profitable, taking into account they will include BARDA revenue $38M ?

[mdmcd]

Thanks for your articles on this name. Any thoughts on the Amendment in the Proxy Statement for the June 9th mtg regarding the increase in authorized shares from 100M to 200M? I am wondering if this could signal a potential acquisition in their sights, or on the flip side, if it is an attempt to head one off (i.e., the equivalent of a poison pill so-to-speak). Also wondering about your thoughts on the potential stock price reaction (dilution perception effect).

[Grant Beaty]

Is there a good public dataset of spending on abx targeting multi-drug resistant bacteria? Even if total abx spending is languishing, growth in drug-resistant spending could be increasing. Composition fallacies sometimes hide growth opportunities.

[montauk77]

Anybody have opinion on RGNX. Valuation!!!!!!

[TomThinc]

Bret-any thoughts re the May 2 request for additional information. What is that about? How does it impact, realistic scenarios for this? Thanks/

[wallstlobo]

@TomThinc MAY 2 nd? Its April 2021

[TomThinc]

@wallstlobo March 2. thx.

[TELL IT LIKE IT IS]

This company is worth a billion ,based on future sales,time will get the pps there.

[rtblew]

As stupidity expands liberty contracts

[Bret Jensen]

@rtblew Given how big the indoctrinated 'woke' crowd has become in this country, that is a scary thought.

[Ultimate Bag Holder]

@rtblew I can not understand, what do you mean??

[rtblew]

@Turkish Dude I mean the people who engaged in insurrection at the capitol and the majority of republicans who believe that election was stolen from Trump despite 60 lawsuits to the contrary, despitethe opinion of the most partisan (Republican) attorney general in history, the head of the FBI appointed by Trump, the opinion of mitch McConnell and lindsey graham in the brief moment they grew a spine, lack of any objective evidence period. I mean the people who follow the indisputably narcissistic and sociopathic leader in the modern western world. I mean the only major political party in the civilized world that denies man-made climate change. As Republican Bobby jindal said, the Party of Stupid.

[TomThinc]

Thanks for the article and your thoughts. Always appreciated. (Though a little light on the number of quotes you usually drop in. But won't hold that against you! :)

So, my hunch with PRTK, based on all things due diligence wise and admittedly a fair amount of market intuition pinging me about PRTK, is that this is a home run in the making. The world is just right for this drug at this time. And the BARDA thing, well, there you have the foundation it needs to take advantage of it.

We are in a PRTK world! Drug resistant pathogens everywhere. This is the real story of PRTK's hidden value and that story is rising to the surface in the public mind, and the political mind and will. Even congress can't screw this up—there's too much public scrutiny and wider disseminated and organized scientific acknowledgement about these pathogens and their potential for dire real-world consequences for congress to screw this one up. And when do you ever see that?

We'll do ok without it, but we are one headline--and it will come--from this being a biopharm darling--rightfully so. You are right about antibiotic space. It's where companies tilt at windmills and then go to die. But not with PRTK.

This is the one that not only doesn't die, it goes on to make up for all the worthy antibiotics that have come and gone these past years. It is poised to soar from these levels.

Frankly, I think these new analyst refreshes are very, very conservative. Unless their time frame is mid or 3rd quarter this year, PRTK will blow by these $15ish targets. Give it a year or two, give me that resistant bacterial pathogen headlines, and PRTK is special. The perfect storm.

Calls may be the play short term. I'm not a covered call guy so can't speak to that. But this is a home run if you stay long. And you still might get it in the $6's just because it still slides back down that way. And to those that do, they'd be lucky and should say thank you:)

Thanks again. Good article. Always appreciate it. Great company. Great story to come. GLTA!!

[Bret Jensen]

@TomThinc Thanks for adding your thoughts and the kind words. Best

[xXgodFatherXx]

Running bigger circles around you in Biocryst

[Nodelusionist1]

@xXgodFatherXx Bret-- Is it not possuble to.mute this broken record guy?xxgodfatherxx