Summary
- Paratek has developed 2 antibiotics treatments - Nuzyra and Seysara - to treat different types of skin conditions.
- The company out-licenses Seysara marketing & sales but has launched Nuzyra itself - initial sales have been impressive - >10% qoq increase to $8.1m in Q220.
- The peak sales opportunity could be >$400m which makes Paratek - currently trading at $5.9 - an attractive investment opportunity.
- The company has a 5-year partnership in place with BARDA worth ~$285m, which will help it cover costs in a challenging market. Currently, the company is heavily loss-making.
- Going all in on antibiotics is risky, but Paratek may well have the experience and backing to be successful. I am bullish.
- This idea was discussed in more depth with members of my private investing community, Haggerston BioHealth. Get started today ยป
Investment Thesis
Reviewing Paratek Pharmaceuticals (PRTK) - a commercial-stage biopharmaceutical company with 2 approved antibiotic products, Nuzyra and Seysara - I am inclined to believe that there is a reasonably strong case for investment.
The antibiotics market offers unfavourable market conditions at the present time, being overcrowded and not well-served by reimbursement opportunities. Developing and commercialising antibiotic treatments is generally considered to offer a poor return on investment owing to the end-products' short shelf life.
Paratek's current share price - $5.9 at the time of writing - reflects these conditions. But thanks to numerous factors - a lucrative collaboration deal with the Biomedical Advanced Research and Development Authority, an experienced management team and a well-thought-of drug in Nuzyra that can be administered both orally and intravenously - there are many reasons to believe that Paratek's share price can climb back towards its July 2017 peak of $28.
At that time, the company traded on promise alone, having no commercialised treatments. The path to approval has been extremely challenging for Paratek, but having secured approval and access to significant funding, the company and its investors may be about to reap the benefits of the development process, launching 2 drugs that analysts believe can achieve peak sales >$400m.
In this article I will discuss Paratek in more detail and map out a scenario, using DCF analysis, that values the company's shares at >$10-15, offering a chance for investors to make exceptional gains, whilst the current low price of Paratek stock offers downside protection.
Investing in a pure antibiotic play is investing against the grain, but in Paratek's case, the unique circumstances make the company a speculative buy, based on my analysis, that would suit a risk-on biotech investor.
Investment Overview and Antibiotics Background
Nuzyra is an oral and intravenous antibiotic approved for treatment of community-acquired bacterial pneumonia ("CABP"), and acute skin and skin structure infections ("ABSSSI"), and Seysara is an oral therapy for the treatment of moderate to severe acne vulgaris.
Both products were approved by the FDA in October 2018. Paratek is responsible for the marketing and sales of Nuzyra and the drug has got off to a good start, earning revenues of $8.1m in Q220 (up 378% year on year). The company out-licenses the rights to market and sell Seysara in the US and China (where a license to sell the drug was submitted in early 2020) to Spanish biotech Almirall - earning royalties I estimate to be in the low double-digits.
