Paratek Pharma: Misunderstood Biotech (Development and Commercialization of Antibiotics)

Jim Roumell presented his in-depth investment thesis on Paratek Pharma (Nasdaq: PRTK) at Best Ideas 2016.

Paratek Pharma is a misunderstood biotech (development and commercialization of antibiotics). There is a dearth of new antibiotic drugs resulting in the CDC describing the shortage as a world-wide crisis. In addition to a successful Phase 2 skin trial, Omadacycline has already successfully completed one-third of a Phase 3 skin trial before that trial was stopped as a result of the FDA deciding to change its end point guidelines for the industry. Omadacyline is the only Phase 3 skin trial going on right now providing tailwinds to signing up patients. Given likely post-Phase 3 valuation ranges, the market is current ascribing a probability ratio of between 9% and 35%. RAM consultant, Vince Vilker, PhD, former FDA Director of Office of Testing and Research has studied Omadacycline in-depth and assigns an 85% probability of success to PRTK’s Phase 3 omadacycline skin trial. Insiders own over 15% of the common and the company’s President & Chief Medical Officer made an open-market purchase two weeks ago. Combining net cash at the skin read out with a reasonable valuation for sarecycline (if successful in its Phase 3 trial being financed by Allergan) sums to roughly $15/share ($75 million plus 1.5x non-U.S. expected peak sales of $125 million; Allergan’s published midpoint estimate for U.S. sales is $275 million and we use typical one-third expectation for non-U.S. market revenue). However, if omadacyline is successful, we estimate its value alone to be $1 billion.

About the instructor:

Jim Roumell entered the securities industry in 1986. Before founding the firm in 1998, he was a Registered Principal at Raymond James Financial Services, Inc. Mr. Roumell is a frequent contributor to Manual of Ideas Global and has been featured in such publications as Barron’s, Kiplinger’s, Value Investor Insight, Financial Planning Magazine, and The Washington Post. He is listed and quoted in “The Art of Value Investing: How the World’s Best Investors Beat the Market.” Mr. Roumell was selected to participate in, and won, two consecutive Wall Street Journal stock picking contests in 2001 and 2002. He is a Board Member and Chairman of the Investment Committee of Wayne State University Foundation. He is also a Board Member and serves on the Investment Committee of Amalgamated Casualty Insurance Company. Mr. Roumell is a graduate of Wayne State University in Detroit, Michigan.

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