Healthcare Business

Why One Analyst Still Sees Almost 200% Upside in Paratek Pharma, Even After Its Huge Gain

Jon C. Ogg

When stocks rally almost 40% in a single trading session, it tends to draw some new attention. When the volume is more than 30 times normal, it also tends to draw interest. News that Paratek Pharmaceuticals Inc. (NASDAQ: PRTK) has scored a major deal with the U.S. government for up to a $284 million award for an anthrax treatment for the Strategic National Stockpile was the cause.

While that $284 million is more than double the entirety of the company’s equity value, even after the near-40% gain, this stock has traded much higher in the past. Now one analyst sees close to 200% in potential upside above and beyond the massive one-day gain on Thursday.

Robert Driscoll, an analyst for Wedbush Securities, has reiterated his Outperform rating. Most importantly, he raised his already aggressive $9 price target to $11, based on the news. The report, titled “Afraid of the White Powder No More” talks up the company’s prospects after the company’s BARDA anthrax contract news.

The higher target price was based on it winning this government contract to develop and stockpile Nuzyra (omadacycline) for the treatment of pulmonary anthrax. Driscoll’s report said:

We note that the Department of Health and Human Services (HHS), Office of the Assistant Secretary for Preparedness and Response (ASPR), and Biomedical Advanced Research and Development Authority (BARDA) has awarded the company a 5 year contract which could be worth up to $285 million, with an option to extend to 10 years. Overall, we see this as a significant win for the company, given the strengthened balance sheet and cash runway, which may also allow Paratek to drive additional marketing efforts for Nuzyra.

As Wedbush has followed this stock for some time, there are some points that investors should take into consideration. After all, even those most confident analysts on Wall Street would likely be smart enough to advise clients to take other considerations into mind before buying or selling just on their own report. The Wedbush report noted:

We note the release of the base award will be contingent upon the FDA accepting an Emergency Use Authorization (EAU) application for Nuzyra for the treatment of pulmonary anthrax which management anticipates will be filed during 1H:2020. We note the $21M to be used for the “development of Nuzyra” will be used for preclinical studies in anthrax mouse models which will be the basis to officially add pulmonary anthrax to Nuzyra’s label via the “animal rule” development pathway – these preclinical studies are estimated to take 3-5 years to complete.

Despite some caution, the additional time-based awards are broken down into specifics. On that front, Driscoll said:

Beyond the $59M base award, there are additional time-based award options that could total $97M including a $77M award (starting April 2020) which can be used for existing Nuzyra FDA approval post-marketing requirements for CABP and pediatric studies as well as a $20M award (starting June 2020) for certain manufacturing security related requirements. Lastly, there are (undisclosed) milestone based award options including $115M to stockpile 7,500 additional Nuzyra treatment courses over three years (2021-2023) as well as another $13M to support the development of Nuzyra for prophylaxis of pulmonary anthrax. Combined, the payments for the base award, time-based options, and milestone options could add up to $285M over the next five years though we note the government holds option to extend the agreement to ten years which could imply substantially more upside.

Wedbush’s model further updated its own revenue trajectory to $50.6 million in 2019 (up from $12.6 million) and to $58.9 million in 2020 (from $31.7 million).

There is also the potential that other uses will come from Nuzyra. Management had reiterated that nontuberculosis mycobacteria is the next potential lifecycle opportunity for Nuzyra. The company is said to be planning further announced details on a potential program in the coming months.

Paratek shares were last seen trading up over 37% at $4.05 on Thursday, with about 20 million shares having traded as of 1:20 pm Eastern time. The 52-week range is $2.66 to $7.39.

Most analyst calls in established companies that are members of the S&P 500 offer upside targets of 8% to 10% at this stage in the decade-plus long bull market. That $11 target would represent almost 275% from the prior day’s $2.95 closing price. It represents about 172% upside from the most recent $4.05 share price.