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$PRTK - Paratek Pharmaceuticals

PRTK – Paratek Pharmaceuticals

Overview:

Paratek Pharmaceuticals is a biotech company based out of Boston, who focuses on providing solutions enabling positive outcomes for patients…Which is literally every other biotech company.  A very generic mission statement, but that is besides the point because they want their story to be remembered, a good play to the social aspect that many companies are trying to be a part of in todays world.  Right now, this company is working on changing how bacterial infections are treated. With the most common treatment of bacterial infections being through intravenous methods, treatments are limited to hospitals and clinics where as they want to continue to develop a new class of antibiotics, aminomethylcyclines, which allows for different, more accessible venues for dosing. 

This company really wants to have a meaningful impact, which is a great sentiment to have.  To back their cause, they do have a successful pipeline so far and show promise.  Their staff and executive team display a long history of success with having worked on a combined 75 late stage developments (phase 3 and beyond), 47 NDA’s or MAA, and 51 product launches.

The CEO has worked with several different biotech industry at an executive or director role such as being a general partner at Abingworth LLP, and even currently serving on the board of directors at Adamas Pharmaceuticals and InMediata.  The COO and CFO both also have extensive history of success with major companies such as Pfizer, Wyeth Pharmaceuticals, and Biogen.  All in all, the company has a successful group in the leadership roles where its not their first trip around the block.  They bring experience and knowledge to their positions.

Pipeline:

As previously mentioned, Paratek develops a class of antibiotics known as aminomethylcyclines, which have broad-spectrum activity against Gram-positive, Gram-negative, and atypical bacteria.  They have two products in their pipeline with several different potential indications.  Both products are derivatives of Tetracycline. 

Omadacycline

Omadacycline is a derivative of tetracycline in the form of aminomethycycline.  Over the past 70 years since the inception of tetracycline, an increasing prevalence of antibiotic resistance to tetracyclines has made the products much less effective and limited in current use.  Formulated for both IV and oral dosing, Omadacycline is being developed for 5 different indications, with 3 awaiting approval in PDUFA. 

Sarecycline

Sarecycline is a Phase III candidate, oral tetracycline derivative being developed for the treatment of acne and rosacea in a community setting because of its narrow spectrum antibiotic characteristics in treating inflammation. The company has licensed all of the US rights to Allergan for the development and commercialization of the product, however retaining all rights outside of the States.  This large partnership shows confidence in the company from a powerhouse in the industry and will provide cashflow while reducing expenses.

Specific Drug:

We will be focusing on Sarecycline for this write up due to the upcoming PDUFA date which is expected to be mid October.  Paratek has partnered with Allergan to develop and commercialize SeysaraTM (Sarecycline) for the treatment of moderate to severe acne vulgaris in individuals 9 years and older.  Designed to treat acne in a community setting, meaning that it is focused on treating bacteria which is causing acne in communal settings spread through interaction. 

Acne is the most common skin condition in the US, with an affected market of roughly 50 million individuals.  While there are many factors leading to the cause of acne, this company focuses on the bacteria, p. acnes, which lives on human skin and can often clog the pores.  Inside the pore, the bacteria multiply at an astounding rate due to the perfect environment for replication and cause the pore to become inflamed, causing acne to appear.  

Last December, the company and Allergan filed their NDA based on positive data from two Phase III studies, SC1401 and SC1402, which was accepted by the FDA.  The Phase III results met primary endpoints at all levels and revealed patients treated with Seysara demonstrated a statistically significant improvement in acne severity compared to placebo at 12 weeks. 

Both SC1401 & SC1402 were designed to be replicative phase 3 randomized, multicenter, double-blind, placebo-controlled studies to evaluate the efficacy and safety of 1.5 mg/kg per day of Sarecycline compared to placebo in the treatment of moderate to severe acne.

The primary objective was to evaluate the efficacy and safety of oral Sarecycline 1.5 mg/kg per day compared to placebo in treating inflammatory acne lesions in subjects with moderate to severe acne based on Investigators Global Assessment (IGA) scale score and inflammatory lesion counts. Patients were randomized (1:1) into two treatment groups to receive either Sarecycline tablets (60 mg, 100 mg and 150 mg, providing a dose of 1.5 mg/kg/day) or placebo once a day for 12 weeks.

Sarecycline was statistically significantly (p < 0.004) superior to placebo with respect to primary efficacy endpoints. The most common adverse events (>2%) reported in the Sarecycline group were nausea (3.2%), nasopharyngitis (2.8%), and headache (2.8%). The rate of discontinuation due to adverse events among Sarecycline-treated patients in the two studies combined was 1.4%.  The drug has proven itself to be super tolerable, minimal adverse effects, and statistically significant in working effectively.

 

Current and Forecasted Market:

The Global Cystic Acne Market is expected to grow at a CAGR of 10% during the forecast period 2017-2023. Mainly owing to increase in patient population. According to American Academy of Dermatology, in 2015, 60 million Americans have active acne and around 20 million have acne badly enough to cause scars.  Additionally, approximately 85% of people between the ages of 12 and 24 experience at least minor acne.  Rising prevalence of this condition in both developed and developing countries is driving the cystic acne market growth.  With Allergan’s license on the US market, this leaves the growing developing world market and European markets open for Paratek to control.  It is estimated by the American Academy of Dermatology Association that in 2016 alone, the costs associated with the treatment of acne exceeded $3 billion. 

Paratek’s focus on community bacteria treatment is ideal for developing countries such as the Asian Pacific, Middle East, and Africa.  While Europe has a huge market for acne treatment, the aforementioned markets are booming at a higher rate.  Countries such as India and China are the fastest growing due to the massive influx of population and high healthcare spending.  While Paratek is making money off of the US market through their license to Allergan, they will also be able to leverage the developed product and work on global commercialization to treat the rapid growing markets that will exceed the US market in short time.

Competition:

There are a ton of tetracycline-based treatments for moderate to severe acne, however it is often revealed that the p. acne bacteria can be resistant to the treatments. The market for streatment of antibiotic-resistant p. acnes is a much smaller market.  A company, Foamix Pharmaceuticals Ltd. FOMX is developing FMX101 in late-stage studies for treating moderate to severe acne.  We shall see the results of their production and late stage study results in coming months.

Financials:

Looking over their financial statements, they have recently strengthened their balance sheet by raising $159 million in proceeds from issuing convertible senior subordinated notes in April set to mature in 6 years.  They also amended the financial terms of the Hercules Loan Agreement they have, increasing the principal taken out by $10 million with the potential for an additional $20 million to be borrowed. 

They recently reported a net loss of $29.7 million, or -$0.94 per share, compared to last years $18.2 million for the same quarter, a YOY increased loss of roughly 50%.  Not good at all, however things are looking to turn around in coming months with pending approval of two drugs with several designations.  Costs were increasing due to the preparation for commercialization and additional headcount, increased marketing, and other commercial costs that the company is taking to prepare for approval and launch. 

The company states that they have cash, cash equivalents, and marketable securities that value at a total of $321.1 million.  Their cash and cash equivalents make up $56 million of that value.  Not the best financial situation.

Review:

My thoughts, MAYBE a short term buy.  It is currently trending down and could be bought for a swing trade up towards approval. I do see both Sarecycline and Omadacycline being approved for their specified designations.  Between Sarecycline and also the coming potential approval of Omadacycline in early October, this stock can see a big swing up.  You can review the information on Omadacycline below, its well-articulated in their presentation and likely to be approved.

http://paratekpharma.com/media/1598/corporate-september-2018.pdf

However, I have my doubts about the company.  They have diluted shares several times around events and it seems like a common trend for the company.  Antibiotics is a tough market to launch in and be successful in.  Thankfully with their partnership with Allergan, they can see success in that drug.  Allergan is a massive company with a massive sales force that will literally go to physicians and shove the product down their throats.  However, with Omadacycline, they have no such partnership.  Likely to see a weak launch, the company will probably burn a ton of cash fast trying to market the product Omadacycline, but will likely see income generated from the licensing of Sarecycline.  Will it offset, unlikely.  The company will likely take a hit trying to market off a weak launch, dilute investors even further to raise capital shortly after approval.  That, or the company will move to take on more debt, drawing that additional $20 million from their loan agreement. 

My plan of action, buy a position now at $9.30 and increase size of position if I see $8.75-8.50.  Sell immediately after news if positive with a price target of $11.  This will likely be a short-term play.  However, I would also consider waiting until approval to even make a move.  With their financial position and history of dilutions, I see the stock taking a hit following the results from the FDA throughout October.  The company’s plan and pipeline will see no short-term success.  Their plan is to lay the tracks down for future revenues and market share, with success coming in 3+ years.  I can see a smart play waiting until early November to enter a position, after both drugs have received notice from the FDA and following the stocks likely drop and holding a long-term, 3+ year position.

Later Event: October 19
$IMDZ - Immune Design