It is unusual for us to comment on a particular company event during a quarter. However, Paratek’s announcement yesterday after the close that it completed a second successful Phase 3 study for omadacycline (OMD) is worth making an exception for given the profile and weighting RAM has assigned to this company over the past two years. In short, OMD’s CABP (community acquired bacterial pneumonia) study reported results that exceeded our expectations in terms of its safety and efficacy profile. Yesterday’s announcement completes the SPA (Special Protocol Assessment) with the FDA allowing PRTK to submit a New Drug Application (NDA) for skin and pneumonia antibiotic indications since the company produced successful trial data for each indication.
What differentiated OMD from the beginning was that it had already produced data from an aborted Phase 3 study, which was at the time one-third completed. The study was stopped not because of anything to do with OMD per se, but because of a change in FDA guidelines. We hired Vince Vilker, PhD (former Director of the FDA’s Office of Testing and Research) to review OMD’s data and all related scientific journals regarding OMD. Essentially, we were able to put a very high probability on OMD being, at a minimum, a skin-only antibiotic with options on pneumonia and urinary tract infection (UTi). Given available data on M&A activity in skin-only antibiotics, we believed we had low-risk optionality on both OMD’s pneumonia and UTi indications as the company’s market capitalization was in-line or below a skin-only antibiotic valuation.
During our now almost three-year holding period, we encountered a number of events that resulted in exceptional volatility in PRTK’s shares:
Policy and regulatory concerns regarding drug pricing.
The overall decline in biotech indices.
Two antibiotic peers – Cempra, CEMP and Tetraphase, TTPH – that ultimately failed to produce two clean Phase 3 studies.
The need for PRTK to raise additional capital thereby diluting existing shareholders.
RAM’s response to significant periodic sell-offs in PRTK shares was to add to our position while reducing our cost basis.
We remain believers that PRTK’s OMD is a highly-differentiated, new novel antibiotic, and that PRTK has an exceptionally talented management team. If approved (a near certainty in our view and the view of our consultant, Vince Vilker, PhD), OMD will be the first broad-spectrum, multiple indication, oral and IV, once-daily dosing antibiotic to enter the market in twenty years.
Disclosure: The specific securities identified and described do not represent all of the securities purchased, sold, or recommended and the reader should not assume that investments in the securities identified and discussed were or will be profitable.