Skip to main content

Bret Jensen: Paratek Deal Shows Promise

While antibiotics are usually less profitable and slower to develop market share than other drugs, Paratek has a key factor in its favor.
  • Author:
  • Publish date:

Investing in biopharmaceutical stocks can be risky since FDA approval can take several years, patents eventually expire and investors have a myriad of stocks to choose from nowadays.

More specifically, allocating money into antibiotics has its challenges because their “compounds have much lower price points” compared to pharmaceuticals in the oncology and rare diseases sectors, wrote Bret Jensen in a recent Real Money Column. The returns can be lower on average - “I have found antibiotic companies have not been kind to my portfolio over the decades and I largely avoid the space.”

Antibiotic companies are forced to rely on two factors -- mass adoption and distribution. It can take several years before they obtain enough market share to break even and generate positive cash flow.

Even so, one antibiotic company that Jensen says shows more promise than usual is Paratek Pharmaceuticals  (PRTK) - Get Free Report. Its primary asset is NUZYRA, which is used to treat people with community-acquired bacterial pneumonia (CABP) and acute skin and skin structure infections (ABSSSI). It was launched in the first half of 2019. The drug generated over $13 million worth of revenue in the second quarter, an increase of over 80% from a year ago. The company also has a good amount of cash on its balance sheet.

The factor that stands out is Paratek’s five-year contract with the Biomedical Advanced Research and Development Authority (BARDA), which is part of the Department of Health and Human Services. The deal to supply its antibiotic is valued at $38 million. This contract is meaningful for the company’s balance sheet, Jensen wrote.

“This should insure Paratek can achieve cash flow break-even status without having to raise additional capital or dilute shareholders,” he wrote. “This is the key reason the stock is the only antibiotic name in my portfolio for the time being as the economics of this space is not nearly as favorable as the outcomes these drugs achieve in medical settings.”

Get more trading strategies and investing insights from the contributors on Real Money.