Some government contracts can make or break companies that supply or offer services to the government. That is just the nature of contracting work, and anyone who doesn’t believe that should look over the history of the ups and downs for defense contractors. Paratek Pharmaceuticals Inc. (NASDAQ: PRTK) is a small company that many investors, and virtually all the public, likely have never even heard of. At least until now.

Paratek is seeing its shares surge after announcing that the U.S. Department of Health and Human Services (HHS) and a team with ASPR/BARDA awarded the company a pact to support development of Nuzyra (omadacycline) for the treatment of pulmonary anthrax. The pact is for a five-year period, with an option to be extended out to a 10-year pact, and will support FDA post-marketing requirements and the option to procure up to 10,000 treatment courses for the government’s Strategic National Stockpile for use against potential biothreats.

According to Paratek’s press release, Nuzyra is a broad spectrum and once-daily oral and intravenous modernized tetracycline that was approved back in October 2018 to treat community-acquired pneumonia and skin infections. BARDA is part of HHS’s Office of the Assistant Secretary for Preparedness and Response and its function is to prepare the nation for public health emergencies by directly supporting the development of new antibacterial products.

As far as why the news is creating so much buzz for Paratek, the headlines are calling it a $284 million award. That’s massive for a company that had a market capitalization of just under $95 million before the news was announced. The breakdown of that dollar amount is complex. BARDA’s initial funding of approximately $59 million is for the development of Nuzyra and the purchase of an initial 2,500 treatment courses of Nuzyra to add to the Strategic National Stockpile. Additional potential time-based funding notes included the following:

• approximately $77 million for existing FDA PMR commitments scheduled to begin in April 2020;
• approximately $20 million for manufacturing-related requirements scheduled to begin in June 2020;
• the remaining staged, milestone-based funding includes the potential for approximately $13 million to support the development of NUZYRA for the prophylaxis of anthrax;
• and a maximum of approximately $115 million to provide for three additional purchases of NUZYRA for the Strategic National Stockpile.

Each payment may be triggered upon development milestones related to the anthrax treatment development program.

Project BioShield seeks to protect the nation against chemical, biological, radiological or nuclear threats and agents. It also gives authority (and funding) to the government to develop, acquire, stockpile and distribute medical products to help protect the United States against biothreats.

Evan Loh, M.D., CEO of Paratek, said of the award:

We would like to thank BARDA, ASPR, and HHS for their commitment to this innovative and long-term private-public partnership recognizing Paratek’s commitment to studying NUZYRA in the treatment and prophylaxis of anthrax. Through Project BioShield, BARDA has identified and validated the important role that Paratek and NUZYRA will play in helping to enhance the biodefense preparedness of our country, saving lives and protecting Americans. Paratek has been studying the potential utility of antibiotics against bioterrorism threats for over a decade. Through these activities, we have generated promising in vitro and in vivo animal data with NUZYRA against select biothreat pathogens. For these reasons, we believe that NUZYRA is well-positioned to help address potential public health emergencies at a time when antibiotic resistance is a growing global threat.

Evaluating government contracts with many stages can be a daunting task. That said, the consensus revenue expectations from Refinitiv’s pool of analysts were just $13 million in 2019 and about $53 million in 2020. With initial funding of $59 million and with more payments (listed above) starting in 2020, this anthrax pact is not chump change for a company the size of Paratek.

Paratek’s operating expenses (including $42.2 million from R&D) came to $135.3 million in the trailing four-quarter period through the fourth quarter of 2019 and were $111.8 million in 2018. Since inception, Paratek has endured net operating losses of $683.9 million.

Paratek shares were last seen trading up 35% at $3.99 on Thursday after just 30 minutes of trading. Its trading volume of 7.7 million shares was also already well over 10 times the normal volume. Its shares have been quite volatile over time, and its 52-week trading range of $2.66 to $7.39 should reinforce that notion. The company now has just a $127 million market cap.

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