10-Q 1 prtk-10q_20200331.htm 10-Q prtk-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: March 31, 2020 or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission file number: 001-36066

 

PARATEK PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

33-0960223

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

75 Park Plaza

Boston, MA 02116

(617) 807-6600

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

PRTK

The Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

As of April 30, 2020, there were 43,132,044 shares of the registrant's common stock, par value $0.001 per share, outstanding.

 

 

 

 


TABLE OF CONTENTS

 

 

 

 

Page

PART I FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

2

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

2

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

 

3

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

 

4

 

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2020 and 2019

 

5

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

27

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

36

 

 

 

 

Item 4.

Controls and Procedures

 

36

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

37

 

 

 

 

Item 1A.

Risk Factors

 

37

 

 

 

 

Item 6.

Exhibits

 

39

 

 

 

 

 

SIGNATURES

 

40

 

 

 

1


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Paratek Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share and par value amounts)

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

124,624

 

 

$

102,302

 

Marketable securities

 

 

70,166

 

 

 

113,077

 

Restricted cash

 

 

630

 

 

 

324

 

Accounts receivable, net

 

 

10,887

 

 

 

8,475

 

Inventories, net

 

 

13,472

 

 

 

11,579

 

Other receivables

 

 

1,383

 

 

 

1,108

 

Prepaid and other current assets

 

 

5,844

 

 

 

6,489

 

Total current assets

 

 

227,006

 

 

 

243,354

 

Long-term restricted cash

 

 

2,261

 

 

 

3,007

 

Fixed assets, net

 

 

1,094

 

 

 

1,227

 

Goodwill

 

 

829

 

 

 

829

 

Right-of-use assets

 

 

2,322

 

 

 

2,514

 

Other long-term assets

 

 

148

 

 

 

148

 

Total assets

 

$

233,660

 

 

$

251,079

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

663

 

 

$

4,116

 

Accrued expenses

 

 

18,100

 

 

 

16,696

 

Current portion of long-term debt

 

 

20,751

 

 

 

 

Other current liabilities

 

 

3,595

 

 

 

3,388

 

Total current liabilities

 

 

43,109

 

 

 

24,200

 

Long-term debt

 

 

240,299

 

 

 

260,728

 

Long-term lease liabilities

 

 

1,838

 

 

 

2,095

 

Other liabilities

 

 

3,652

 

 

 

3,703

 

Total liabilities

 

 

288,898

 

 

 

290,726

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

 

 

Stockholders’ deficit

 

 

 

 

 

 

 

 

Preferred stock:

 

 

 

 

 

 

 

 

Undesignated preferred stock: $0.001 par value; 5,000,000 authorized; no shares

   issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 42,374,026 and

39,827,749 issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

42

 

 

 

40

 

Additional paid-in capital

 

 

683,124

 

 

 

671,497

 

Accumulated other comprehensive income

 

 

471

 

 

 

74

 

Accumulated deficit

 

 

(738,875

)

 

 

(711,258

)

Total stockholders’ deficit

 

 

(55,238

)

 

 

(39,647

)

Total liabilities and stockholders’ deficit

 

$

233,660

 

 

$

251,079

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

2


 

Paratek Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Product revenue, net

 

$

7,303

 

 

$

1,347

 

Government contract service revenue

 

 

337

 

 

 

 

Collaboration and royalty revenue

 

 

280

 

 

 

251

 

Net revenue

 

$

7,920

 

 

$

1,598

 

Expenses:

 

 

 

 

 

 

 

 

Cost of product revenue

 

 

1,471

 

 

 

206

 

Research and development

 

 

6,389

 

 

 

11,392

 

Selling, general and administrative

 

 

23,638

 

 

 

23,316

 

Total operating expenses

 

 

31,498

 

 

 

34,914

 

Loss from operations

 

 

(23,578

)

 

 

(33,316

)

Other income and expenses:

 

 

 

 

 

 

 

 

Interest income

 

 

705

 

 

 

946

 

Interest expense

 

 

(4,826

)

 

 

(3,226

)

Other gains (losses), net

 

 

82

 

 

 

(14

)

Net loss

 

$

(27,617

)

 

$

(35,610

)

Other comprehensive loss

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities, net of tax

 

 

397

 

 

 

200

 

Comprehensive loss

 

$

(27,220

)

 

$

(35,410

)

Basic and diluted net loss per common share

 

$

(0.66

)

 

$

(1.10

)

Weighted average common stock outstanding

 

 

 

 

 

 

 

 

Basic and diluted

 

 

41,641,203

 

 

 

32,334,563

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

Paratek Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

For the Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(27,617

)

 

$

(35,610

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

70

 

 

 

(485

)

Stock-based compensation expense

 

 

2,535

 

 

 

3,863

 

Noncash interest expense

 

 

4,542

 

 

 

2,748

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable and other current assets

 

 

(2,079

)

 

 

(2,348

)

Purchase of prepaid interest - marketable securities

 

 

21

 

 

 

 

Inventories

 

 

(137

)

 

 

(1,379

)

Operating lease right-of-use asset

 

 

192

 

 

 

173

 

Accounts payable and accrued expenses

 

 

(7,758

)

 

 

(1,776

)

Operating lease liability

 

 

(256

)

 

 

(990

)

Other liabilities and other assets

 

 

161

 

 

 

48

 

Net cash used in operating activities

 

 

(30,326

)

 

 

(35,756

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(253

)

 

 

(11

)

Purchase of marketable securities

 

 

(19,631

)

 

 

 

Proceeds from maturities of marketable securities

 

 

63,000

 

 

 

70,000

 

Net cash provided by investing activities

 

 

43,116

 

 

 

69,989

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from sale of common stock, net of costs

 

 

9,092

 

 

 

 

Net cash provided by financing activities

 

 

9,092

 

 

 

 

Net increase in cash, cash equivalents and restricted cash

 

 

21,882

 

 

 

34,233

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

105,633

 

 

 

47,502

 

Cash, cash equivalents and restricted cash at end of period

 

$

127,515

 

 

$

81,735

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,463

 

 

$

1,471

 

Purchases of equipment included in accrued expenses

 

$

87

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

Paratek Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity (Deficit)

 

Balances at December 31, 2019

 

 

39,827,749

 

 

$

40

 

 

$

671,497

 

 

$

74

 

 

$

(711,258

)

 

$

(39,647

)

Issuance of common stock, net of expenses

 

 

2,334,107

 

 

 

2

 

 

$

9,092

 

 

 

 

 

 

 

 

 

9,094

 

Vesting of restricted stock unit awards

 

 

212,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan expense

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

35

 

Unrealized gain on available-for-sale securities, net

   of tax

 

 

 

 

 

 

 

 

 

 

 

397

 

 

 

 

 

 

397

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,500

 

 

 

 

 

 

 

 

 

2,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,617

)

 

 

(27,617

)

Balances at March 31, 2020

 

 

42,374,026

 

 

$

42

 

 

$

683,124

 

 

$

471

 

 

$

(738,875

)

 

$

(55,238

)

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity (Deficit)

 

Balances at December 31, 2018

 

 

32,259,363

 

 

$

32

 

 

$

630,142

 

 

$

(128

)

 

$

(582,468

)

 

$

47,578

 

Vesting of restricted stock unit awards

 

 

156,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan expense

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

24

 

Unrealized gain on available-for-sale securities, net

   of tax

 

 

 

 

 

 

 

 

 

 

 

200

 

 

 

 

 

 

200

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,839

 

 

 

 

 

 

 

 

 

3,839

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,610

)

 

 

(35,610

)

Balances at March 31, 2019

 

 

32,415,977

 

 

$

32

 

 

$

634,005

 

 

$

72

 

 

$

(618,078

)

 

$

16,031

 

 

5


 

Paratek Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(unaudited)

 

 

1.   Description of the business  

Paratek Pharmaceuticals, Inc., or the Company or Paratek, is a Delaware corporation with its corporate office in Boston, Massachusetts and an office in King of Prussia, Pennsylvania.  

The Company is a commercial-stage biopharmaceutical company focused on the development and commercialization of novel life-saving therapies for life-threatening diseases or other public health threats for civilian, government and military use. The Company has used its expertise in biology and tetracycline chemistry to create chemically diverse and biologically distinct small molecules derived from the minocycline core structure. The Company’s United States, or U.S., Food and Drug Administration, or FDA, approved commercial product, NUZYRA® (omadacycline) is a once-daily oral and intravenous antibiotic for the treatment of adult patients with community-acquired bacterial pneumonia, or CABP, and acute skin and skin structure infections, or ABSSSI, caused by susceptible pathogens. SEYSARA® (sarecycline) is an FDA-approved product with respect to which the Company has exclusively licensed in the U.S. and the People’s Republic of China, or the PRC, Hong Kong and Macau, or the greater China region, certain rights to Almirall, LLC, or Almirall. SEYSARA is currently being marketed by Almirall in the U.S. as a new once-daily oral therapy for the treatment of moderate to severe acne vulgaris. With respect to the Company’s technology as it relates to sarecycline, the Company retains development and commercialization rights in all countries other than the U.S. and the greater China region, and in February 2020, the Company exclusively licensed from Almirall certain technology owned or in-licensed by Almirall or its affiliates that is necessary or useful to develop or commercialize sarecycline outside of the U.S. Almirall plans to develop sarecycline for acne in China, with a submission to the China National Medical Products Administration, or NMPA, expected in 2023.

The Company has incurred significant losses since inception in 1996. The Company has generated an accumulated deficit of $738.9 million through March 31, 2020 and may require substantial additional funding in connection with the Company’s continuing operations to support clinical development and commercialization activities associated with NUZYRA. Based upon the Company’s current operating plan, it anticipates that its cash, cash equivalents and available for sale marketable securities of $194.8 million as of March 31, 2020 will enable the Company to fund operating expenses and capital expenditure requirements through at least the next twelve months from the issuance of the financial statements included in this Quarterly Report on Form 10-Q. The Company expects to finance future cash needs primarily through a combination of product sales, royalties, public or private equity offerings, debt or other structured financings, strategic collaborations and grant funding.  The Company is subject to risks common to companies in the biopharmaceutical industry, including, but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain additional financing to fund the future development of the Company’s product candidates, the need to obtain compliant product from third party manufacturers, the need to obtain marketing approval for the Company’s product candidates, the need to successfully commercialize and gain market acceptance of product candidates, the risks of manufacturing product with an external supply chain, dependence on key personnel, and compliance with government regulations as well as the risks discussed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission, or the SEC, on March 10, 2020, or the 2019 Form 10-K, and in the Company’s other filings with the SEC and in the “Risk Factors” section of this Quarterly Report on Form 10-Q.

 

2.   Summary of Significant Accounting Policies and Basis of Presentation

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASU, of the Financial Accounting Standards Board, or FASB, and pursuant to the rules and regulations of the SEC.

 

The accompanying condensed consolidated financial statements are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2019, and, in the opinion of management, reflect all normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of March 31, 2020 and December 31, 2019, results of operations for the three month periods ended March 31, 2020 and March 31, 2019, cash flows for the three month periods ended March 31, 2020 and March 31, 2019 and changes in stockholders’ deficit for the three month periods ended March 31, 2020 and March 31, 2019.

6


 

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2020. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019, and notes thereto, which are included in the Company’s 2019 Form 10-K.

Summary of Significant Accounting Policies

As of Mach 31, 2020, the Company’s significant accounting policies and estimates, which are detailed in the Company’s 2019 Form 10-K, have not changed.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the results of operations of Paratek Pharmaceuticals, Inc. and its wholly-owned subsidiaries, Paratek Pharma, LLC, Paratek Securities Corporation, Transcept Pharma, Inc., Paratek UK Limited, Paratek Royalty Corporation, and Paratek Ireland Limited. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the accompanying unaudited condensed consolidated financial statements, in conformity with U.S. GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent liabilities in the Company’s financial statements. On an ongoing basis, the Company evaluates its estimates and judgments, including those related to, among other items, accounts receivable and related reserves, inventory and related reserves, goodwill, net product revenue, government contract service revenue, collaboration and royalty revenue, leases, stock-based compensation arrangements, manufacturing and clinical accruals, useful lives for depreciation and amortization of long-lived assets and valuation allowances on deferred tax assets. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known by the Company’s management.

Segment and Geographic Information

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment.

Concentration of Credit Risk

Financial instruments that subject the Company to credit risk consist primarily of cash, restricted cash, and accounts receivable. The Company places its cash in an accredited financial institution and this balance is above federally insured amounts. The Company has no off-balance sheet concentrations of credit risk such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Accounts receivable as of March 31, 2020 represents $7.2 million due from customers on sales of NUZYRA, net of prompt payment discounts, chargebacks, rebates and certain fees, as well as a $3.0 million milestone earned during the year ended December 31, 2019, but not yet received, under the Zai Collaboration Agreement (as defined below). The balance of accounts receivable as of March 31, 2020, includes revenue earned, but not yet received, of $0.4 million of royalties on SEYSARA sales under the Almirall Collaboration Agreement (as defined below) and XERAVA TM (Eravacycline) sales under the Tetraphase License Agreement (as defined below), and $0.3 million of government contract service revenue earned, but not yet received, under the BARDA contract (as defined below). Refer to Note 8, Government, License and Collaboration Agreements, for further information on these agreements.

 

 

7


 

3.   Cash and Cash Equivalents and Marketable Securities 

 

The following is a summary of available-for-sale securities as of March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

69,695

 

 

$

471

 

 

$

 

 

$

70,166

 

Total

 

$

69,695

 

 

$

471

 

 

$

 

 

 

$

70,166

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

113,003

 

 

$

89

 

 

$

(15

)

 

$

113,077

 

Total

 

$

113,003

 

 

$

89

 

 

$

(15

)

 

$

113,077

 

 

No available-for-sale securities held as of March 31, 2020 and December 31, 2019 had remaining maturities greater than twelve months.

 

 

4.   Restricted Cash

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated statement of cash flows that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows (in thousands):

 

 

 

March 31,

2020

 

 

March 31,

2019

 

Cash and cash equivalents

 

$

124,624

 

 

$

81,219

 

Short-term restricted cash

 

 

630

 

 

 

266

 

Long-term restricted cash

 

 

2,261

 

 

 

250

 

Total cash, cash equivalents and restricted cash shown

   on the condensed consolidated statement of cash flows

 

$

127,515

 

 

$

81,735

 

 

Short-term restricted cash

On May 1, 2019, the Company deposited $4.0 million into an interest reserve account in conjunction with the funding of a royalty-backed loan agreement, or the Royalty-Backed Loan Agreement, executed with Healthcare Royalty Partners III, L.P. Payments of interest under the Royalty-Backed Loan Agreement are made quarterly using royalty payments received since the immediately preceding payment date under the Almirall Collaboration Agreement, as defined in Note 8, Government, License and Collaboration Agreements. On each interest payment date, if the royalty payments received do not equal the total interest due for the respective quarter, the Company will cover the balance of the interest payment due from the interest reserve account.  Refer to Note 13, Long-Term Debt, for further details. As of March 31, 2020 and December 31, 2019, restricted cash of $0.6 million and $0.3 million, respectively, represented the estimated amount that is expected to be paid to Healthcare Royalty Partners III, L.P. out of the interest reserve account within the next twelve months.

Long-term restricted cash

The Company leases its Boston, Massachusetts office space under a non-cancelable operating lease. Refer to Note 14, Leases, for further details. In accordance with the lease, the Company has a cash-collateralized irrevocable standby letter of credit in the amount of $0.3 million as of both March 31, 2020 and December 31, 2019, naming the landlord as beneficiary.

As of March 31, 2020 and December 31, 2019, long term restricted cash of $2.0 million and $2.7 million, respectively, represented the remaining balance in the interest reserve account that is expected to be paid to Healthcare Royalty Partners III, L.P. after March 31, 2021.

 

8


 

5. Inventories, Net

The following table presents inventories, net (in thousands):

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Work in process

 

$

9,598

 

 

$

9,330

 

Finished goods

 

 

3,874

 

 

 

2,249

 

Total inventories, net

 

$

13,472

 

 

$

11,579

 

 

When recorded, inventory reserves reduce the carrying value of inventories to their net realizable value. The Company reviews inventories on hand at least quarterly and records provisions for estimated excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value.

 

 

6.   Fixed Assets, Net

 

Fixed assets, net, consists of the following (in thousands):

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Office equipment

 

$

866

 

 

$

866

 

Machinery and equipment

 

 

567

 

 

 

567

 

Computer equipment

 

 

412

 

 

 

412

 

Computer software

 

 

798

 

 

 

798

 

Leasehold improvements

 

 

920

 

 

 

920

 

Gross fixed assets

 

 

3,563

 

 

 

3,563

 

Less: Accumulated depreciation and amortization

 

 

(2,469

)

 

 

(2,336

)

Total fixed assets, net

 

$

1,094

 

 

$

1,227

 

 

7.   Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method or the if-converted method, as applicable. For purposes of this calculation, shares of common stock issuable upon conversion of convertible debt, stock options, restricted stock units, warrants to purchase common stock, and shares issuable under the employee stock purchase plan are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

 

The following outstanding shares subject to stock options and restricted stock units, warrants to purchase shares of common stock, common stock issuable upon conversion of convertible debt and shares issuable under the employee stock purchase plan were antidilutive due to a net loss in the periods presented and, therefore, were excluded from the dilutive securities computation as of the three months ended March 31, 2020 and 2019 as indicated below:

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Excluded potentially dilutive securities (1):

 

 

 

 

 

 

 

 

Common stock issuable under outstanding convertible

   notes

 

 

10,377,361

 

 

 

10,377,361

 

Shares subject to outstanding options to purchase

   common stock

 

 

3,309,900

 

 

 

3,815,951

 

Unvested restricted stock units

 

 

4,444,454

 

 

 

2,837,588

 

Shares subject to warrants to purchase common stock

 

 

104,455

 

 

 

104,455

 

Shares issuable under employee stock purchase plan

 

 

798,187

 

 

 

979,833

 

Totals

 

 

19,034,357

 

 

 

18,115,188

 

 

(1)

The number of shares is based on the maximum number of shares issuable on exercise or conversion of the related securities as of March 31, 2020. Such amounts have not been adjusted for the treasury-stock method or weighted-average outstanding calculations as required if the securities were dilutive.

9


 

 

8.    Government, License and Collaboration Agreements

 

Biomedical Advanced Research and Development Authority

On December 18, 2019, the Company entered into a five-year contract with the Biomedical Advanced Research and Development Authority, or BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response, herein referred to as the BARDA contract, with an option to extend up to ten years, to support the development of NUZYRA for the treatment of pulmonary anthrax, FDA post-marketing requirements, or PMRs, associated with the initial NUZYRA approval, and with an option for BARDA to procure up to 10,000 treatment courses of NUZYRA for the Strategic National Stockpile, or SNS.

The BARDA contract could result in payments to the Company of up to approximately $284.7 million and consists of a five-year base period-of-performance and a total contract period-of-performance (base period plus option exercises) of up to ten years. Under the base period-of-performance, the Company will conduct activities necessary to (i) allow the product to be used under an Emergency Use Authorization (ii) obtain licensure of NUZYRA through a supplemental New Drug Application, or NDA, submission for anthrax, and (iii) provide up to 2,500 treatment courses of the drug product to be stored as vendor managed inventory and subsequently delivered to the SNS. The contract options may be exercised to perform additional studies necessary for licensure, support post-licensure commitments as required by the FDA, additional security requirements, and procure additional treatment regimens.  

Under the terms of the agreement, BARDA awarded initial funding of approximately $59.4 million for the development of NUZYRA for the treatment of pulmonary anthrax and the purchase of an initial 2,500 treatment courses of NUZYRA to add to the current SNS. The contract provides for additional staged funding, including approximately $76.8 million for existing FDA PMR commitments that began in April 2020 and approximately $20.4 million for manufacturing-related requirements, which also began in April 2020. BARDA exercised the options to award the initial funding in December 2019 and the additional staged funding in April 2020.  The additional staged funding will support all FDA PMRs associated with the approval of NUZYRA, including CABP and pediatric studies as well as a five-year post-marketing bacterial surveillance study, and support the U.S. onshoring and security requirements of Paratek manufacturing activities for NUZYRA.

The remaining funding under the BARDA contract includes the potential for approximately $12.7 million to support the development of NUZYRA for the prophylaxis of anthrax and a maximum of approximately $115.4 million to provide for three additional purchases of NUZYRA, each of which will be triggered upon development milestones related to the anthrax treatment development program.

The BARDA contract contains a number of terms and conditions that are customary for government contracts of this nature, including provisions giving the government the right to terminate the contract at any time for its convenience.

The Company recognized $0.3 million of government contract service revenue under the BARDA contract during the three months ended March 31, 2020.

 

Tetraphase Pharmaceuticals, Inc.

On March 18, 2019, Paratek and Tetraphase Pharmaceuticals, Inc., or Tetraphase, entered into a License Agreement, or the Tetraphase License Agreement. Under the terms of the Tetraphase License Agreement, Paratek granted to Tetraphase a non-exclusive, worldwide, royalty-bearing license, with the right to grant sublicenses, under certain Paratek patents, to develop, make, have, use, import, offer for sale and sell the licensed product, or XERAVA, which is a drug for the treatment of complicated, intra-abdominal infections caused by bacteria, which was approved by the FDA in August 2018.

The terms of the Tetraphase License Agreement provide for Tetraphase to pay Paratek royalties at a low single digit percent on net product revenues of the licensed product sold in the U.S. Tetraphase’s obligation to pay royalties with respect to the licensed product shall be retroactive to the date of the first commercial sale of the licensed product in the U.S., which occurred in February 2019. Tetraphase is currently selling XERAVA in the U.S.

The Tetraphase License Agreement will continue until the expiration of and payment by Tetraphase of all Tetraphase’s payment obligations, which is when there are no longer any valid claims of the licensed Paratek patents that would be infringed, in the absence of a license, by a manufacture, use, or sales of the licensed product.  The principal licensed patent under the Tetraphase License Agreement is expected to expire in October 2023.

10


 

The Company recognized an insignificant amount of royalty revenue for the three months ended March 31, 2020 and 2019 under the Tetraphase License Agreement.

 

Zai Lab (Shanghai) Co., Ltd.

On April 21, 2017, Paratek Bermuda Ltd., a wholly-owned subsidiary of Paratek Pharmaceuticals, Inc., and Zai entered into a License and Collaboration Agreement, or the Zai Collaboration Agreement. On December 18, 2019 Paratek Bermuda Ltd. assigned its rights under the Zai Collaboration Agreement to Paratek Pharmaceuticals, Inc. Under the terms of the Zai Collaboration Agreement, Paratek granted Zai an exclusive license to develop, manufacture and commercialize omadacycline, or the licensed product, in the PRC, Hong Kong, Macau and Taiwan, or the Zai territory, for all human therapeutic and preventative uses other than biodefense. Zai will be responsible for the development, manufacturing and commercialization of the licensed product in the Zai territory, at its sole cost with certain assistance from Paratek.

Under the terms of the Zai Collaboration Agreement, Paratek earned an upfront cash payment of $7.5 million in April 2017, $5.0 million upon approval by the FDA of a New Drug Application, or NDA, submission in the CABP indication, in October 2018, and $3.0 million upon submission of the first regulatory approval application for a licensed product in the PRC in December 2019.  The Center for Drug Evaluation of China’s NMPA granted priority review status to the NDA submitted by Zai for the treatment of CABP and ABSSI in May 2020.  Paratek is eligible to receive up to $6.0 million in potential future regulatory milestone payments and $40.5 million in potential future commercial milestone payments, the next being $6.0 million upon regulatory approval for a licensed product in the PRC. The terms of the Zai Collaboration Agreement also provide for Zai to pay Paratek tiered royalties at a low double digit to mid-teen percent on net sales of the licensed product in the Zai territory.

The Zai Collaboration Agreement will continue, on a region-by-region basis, until the expiration of and payment by Zai of all Zai’s payment obligations, which is until the later of: (i) the abandonment, expiry or final determination of invalidity of the last valid claim within the Paratek patents that covers the licensed product in the region in the Zai territory in the manner that Zai or its affiliates or sublicensees exploit the licensed product or intend for the licensed product to be exploited; or (ii) the eleventh anniversary of the first commercial sale of such licensed product in such region.

The Company evaluated the Zai Collaboration Agreement under ASC Topic 606, Revenue from Contracts with Customers. The Company determined that there were six material promises under the Zai Collaboration Agreement: (i) an exclusive license to develop, manufacture and commercialize omadacycline in the Zai territory, (ii) the initial technology transfer, (iii) a transfer of certain materials and materials know-how, (iv) optional manufacturing services, (v) optional regulatory support and (vi) optional commercialization support. The Company determined that the exclusive license and initial technology transfer were not distinct from one another, as the license has limited value without the transfer of the Company’s technology; which will allow Zai to develop the manufacturing process and commercialize omadacycline in the Zai territory in the timeline anticipated under the agreement. Without the technology transfer, Zai would incur additional costs to recreate the Company’s know-how. Therefore, the license and initial technology transfer are combined as a single performance obligation.  The transfer of materials is a single distinct performance obligation.  The Company evaluated the option rights for manufacturing services, regulatory support and commercialization support to determine whether they represent or include material rights to Zai and concluded that the options were not issued at a discount, and therefore do not represent material rights. As such, they are not considered performance obligations at the outset of the arrangement.

Based on these assessments, the Company determined that two performance obligations existed at the outset of the Zai Collaboration Agreement: (i) the exclusive license combined with the initial technology transfer and (ii) the transfer of certain materials.  

 

The Company satisfied both performance obligations and recognized the upfront payment of $7.5 million as revenue in the year ended December 31, 2017. Future potential milestone payments were excluded from the transaction price as they are fully constrained as the risk of significant reversal has not yet been resolved. The achievement of the future potential milestones is not within the Company’s control and is subject to certain research and development success or regulatory approvals and therefore carry significant uncertainty. The Company will reevaluate the likelihood of achieving future milestones at the end of each reporting period. As all performance obligations have been satisfied, if the risk of significant reversal is resolved, any future milestone revenue from the arrangement will be recognized as revenue in the period the risk is relieved.

 

As FDA approval was not within the control of the Company and was not obtained until October 2018, the achievement of the milestone was not deemed probable and the risk of significant reversal of revenue was not resolved until that time. Upon the FDA approval, the uncertainty related to this milestone was resolved and a significant reversal of revenue would not occur in future periods. As such, the $5.0 million milestone payment was recognized as revenue at the time of FDA approval in the fourth quarter of 2018.

11


 

As submission of the first regulatory approval application for a licensed product in the PRC is not within the control of the Company and was not obtained until December 2019, the achievement of the milestone was not was not deemed probable and the risk of significant reversal of revenue was not resolved until that time. Upon submission, the uncertainty related to this milestone was resolved and a significant reversal of revenue would not occur in future periods. As such, the $3.0 million milestone payment was recognized as revenue at the time of the regulatory approval application submission in the fourth quarter of 2019.

 

As regulatory approval in the PRC is not within the control of the Company, the achievement of the milestone was not deemed probable and the risk of significant reversal of revenue was not resolved as of March 31, 2020. As such, the next milestone payment was not recognized as revenue in the year ended December 31, 2019 or the three months ended March 31, 2020.

Almirall, LLC

In July 2007, the Company and Warner Chilcott Company, Inc. (which became a part of Allergan plc, or Allergan), entered into a collaborative research and license agreement under which the Company granted Allergan an exclusive license to research, develop, manufacture and commercialize tetracycline products for use in the U.S. for the treatment of acne and rosacea. In September 2018, Allergan assigned to Almirall its rights under the collaboration agreement, or the Almirall Collaboration Agreement. Since Allergan did not exercise its development option with respect to the treatment of rosacea prior to initiation of a Phase 3 trial for the product, the license grant to Allergan, which was assigned to Almirall, converted to a non-exclusive license for the treatment of rosacea as of December 2014.

Under the terms of the Almirall Collaboration Agreement, Almirall is responsible for and is obligated to use commercially reasonable efforts to develop and commercialize tetracycline compounds that are specified in the agreement for the treatment of acne. The Company has agreed during the term of the Almirall Collaboration Agreement not to directly or indirectly develop or commercialize any tetracycline compounds in the U.S. for the treatment of acne, and Almirall has agreed during the term of the Almirall Collaboration Agreement not to directly or indirectly develop or commercialize any tetracycline compound included as part of the agreement for any use other than as provided in the Almirall Collaboration Agreement.

In February 2020, the Company finalized a license agreement with Almirall granting the Company exclusive rights to develop, manufacture and commercialize sarecycline outside of the U.S., including rights of reference to Almirall’s clinical data thus formalizing the Company’s rights to develop, manufacture and commercialize sarecycline in the rest of the world.  In connection with that license, the Company then exclusively licensed Almirall pursuant to the Almirall China License Agreement, the rights to develop, manufacture and commercialize sarecycline in the greater China region. Almirall currently holds a nonexclusive license to develop and commercialize sarecycline for the treatment of rosacea in the U.S., and in the U.S., Paratek cannot grant rights on back-up compounds, lead candidate(s), or products licensed to Almirall for rosacea.

The Almirall Collaboration Agreement contains two performance obligations: (i) an exclusive license to research, develop and commercialize tetracycline products for use in the U.S. for the treatment of acne and rosacea and (ii) research and development services. The performance obligation to deliver the license was satisfied upon execution of the Almirall Collaboration Agreement in July 2007.  All research and development services were completed by December 2010.  The options provided to Almirall for additional development services do not provide Almirall with a material right as these services will not be provided at a significant or incremental discount.  As such, the option services are not performance obligations. As the performance obligation to deliver the license was satisfied in 2007 and research and development services were completed by December 2010, all subsequent milestone payments are recognized as revenue when the risk of significant reversal is resolved, generally when the milestone event occurs.

The Company received an upfront fee in the amount of $4.0 million upon the execution of the Almirall Collaboration Agreement, $1.0 million upon filing of an Investigational New Drug Application in 2010, $2.5 million upon initiation of Phase 2 trials in 2012 and $4.0 million upon initiation of Phase 3 trials associated with the Almirall Collaboration Agreement in December 2014.

In December 2017, the FDA’s acceptance of the NDA for sarecycline was received, triggering a milestone payment of $5.0 million earned upon acceptance of an NDA for a product licensed under the Almirall Collaboration Agreement.

 

In October 2018, the FDA’s regulatory approval of sarecycline, under the tradename SEYSARA, triggered the last milestone payment under the Almirall Collaboration Agreement of $12.0 million. Since FDA approval of SEYSARA was outside of the Company’s control and not obtained until October 2, 2018, the achievement of the milestone was not deemed probable and the risk of significant reversal of revenue was not resolved until such time. Upon the FDA approval, the uncertainty related to this milestone was resolved and a significant reversal of revenue would not occur in future periods. As such, the $12.0 million milestone payment was recognized as revenue at the time of FDA approval in the fourth quarter of 2018.

12


 

Almirall is also obligated to pay the Company tiered royalties, ranging from the mid-single digits to the low double digits, based on net sales of tetracycline compounds developed under the Almirall Collaboration Agreement, with a standard royalty reduction post patent expiration for such product for the remainder of the royalty term. Almirall’s obligation to pay the Company royalties for each tetracycline compound it commercializes under the Almirall Collaboration Agreement expires on the later of the expiration of the last to expire patent that covers the tetracycline compound in the U.S. and the date on which generic drugs that compete with the tetracycline compound reach a certain threshold market share in the U.S.

Royalty payments are recognized when the sales occur. The Company recognized $0.2 million of royalty revenue recognized for sales of SEYSARA in the U.S. by Almirall for the three months ended March 31, 2020 under the Almirall Collaboration Agreement. During the first quarter of 2020, royalty revenue recognized for sales of SEYSARA in the U.S. was estimated using third party data and an approximation of discounts and allowances to calculate net product sales, to which the Company then applied the applicable royalty percentage specified in the Almirall Collaboration Agreement. Differences between actual and estimated royalty revenues will be adjusted for in the period in which they become known, which is expected to be the following quarter. During the three months ended March 31, 2020, the Company recorded an adjustment of $0.1 million to decrease the estimated royalty revenue to the actual royalty revenue payment received for sales that occurred during the three months ended December 31, 2019.

In February 2020, the Company entered into (i) an ex-U.S. license agreement with Almirall, or the Ex-U.S. License, under which Almirall granted the Company an exclusive license in and to certain technology owned or in-licensed by Almirall or its affiliates in order to research, develop, manufacture and commercialize sarecycline for the treatment of acne in all countries other than the U.S. and (ii) a license agreement with Almirall that is specific to China, or the China License, under which the Company granted to Almirall an exclusive license in and to certain technology owned or in-licensed by the Company or its affiliates in order to research, develop and commercialize sarecycline for the treatment of acne in the greater China region.

Under the terms of the China License, Almirall is responsible for and is obligated to use commercially reasonable efforts to develop and commercialize sarecycline for the treatment of acne, including requirements to (i) file an Investigational New Drug Application (or analogous foreign submission) for sarecycline for the treatment of acne in the greater China region in calendar year 2020, (ii) receive regulatory approval for sarecycline for the treatment of acne in the greater China region within seven years following such submission and (iii) commercialize sarecycline for the treatment of acne in the greater China region within eighteen  months after obtaining regulatory approval. If Almirall does not satisfy the diligence requirements set forth in subclauses (ii) or (iii) above, the Company may terminate the China License.

The Company has agreed during the term of the Ex-U.S. License to use commercially reasonable efforts to not, directly or indirectly, make sarecycline products commercialized by the Company, its affiliates or its sublicensees available for resale in the U.S., and Almirall has agreed during the term of the Ex-U.S. License to use commercially reasonable efforts to not, directly or indirectly, make sarecycline products commercialized by Almirall, their affiliates or their sublicensees available for resale outside of the greater China region. Similarly, the Company has agreed during the term of the China License to use commercially reasonable efforts to not, directly or indirectly, make sarecycline products commercialized by the Company, its affiliates or its sublicensees available for resale in the greater China region, and Almirall has agreed during the term of the China License to use commercially reasonable efforts to not, directly or indirectly, make sarecycline products commercialized by Almirall, their affiliates or their sublicensees available for resale outside of the greater China region, other than as provided in the Almirall Collaboration Agreement.

In connection with the Ex-U.S. License, the Company pays Almirall, on a country-by-country and product-by-product basis, (i) for eight  years following the first commercial sale of a sarecycline product in a country, a royalty in the middle-single digits on its or its affiliates’ nets sales of sarecycline products outside of the U.S., subject to certain standard reductions, and (ii) for fifteen years following the first commercial sale of a sarecycline product in a country, a percentage of the consideration (e.g., milestones, royalties) we receive from sublicensees in connection with developing and commercializing sarecycline outside of the U.S., which ranges from one-fifth to one-half of such consideration, subject to certain standard reductions. In connection with the China License, for fifteen years following the first commercial sale of a sarecycline product in China, Almirall pays the Company a royalty in the high-single digits on their, their affiliates’ or their sublicensees’ net sales of sarecycline products in the greater China region, subject to certain standard reductions.

 

Tufts University

In February 1997, the Company and Tufts University, or Tufts, entered into a license agreement under which the Company acquired an exclusive license to certain patent applications and other intellectual property of Tufts related to the drug resistance field to develop and commercialize products for the treatment or prevention of bacterial or microbial diseases or medical conditions in humans or animals or for agriculture. The Company subsequently entered into eleven amendments to that agreement, collectively the Tufts License Agreement, to include patent applications filed after the effective date of the original license agreement, to exclusively license additional technology from Tufts, to expand the field of the agreement to include disinfectant applications, and to change the

13


 

royalty rate and percentage of sublicense income paid by the Company to Tufts under sublicense agreements with specified sublicensees. The Company is obligated under the Tufts License Agreement to provide Tufts with annual diligence reports and a business plan and to meet certain other diligence milestones. The Company has the right to grant sublicenses of the licensed rights to third parties, which will be subject to the prior approval of Tufts unless the proposed sublicensee meets a certain net worth or market capitalization threshold. The Company is primarily responsible for the preparation, filing, prosecution and maintenance of all patent applications and patents covering the intellectual property licensed under the Tufts License Agreement at its sole expense. The Company has the first right, but not the obligation, to enforce the licensed intellectual property against infringement by third parties.

The Company issued Tufts 1,024 shares of the Company’s common stock on the date of execution of the original license agreement, and the Company was required to make certain payments of up to $0.3 million to Tufts upon the achievement by products developed under the Tufts License Agreement of specified development and regulatory approval milestones. The Company made a payment of $50,000 to Tufts for achieving the first milestone following commencement of the Phase 3 clinical trial for omadacycline and a payment of $100,000 to Tufts for achieving the second milestone following its first marketing application submitted in the U.S. The third, and final, payment of $150,000 became due upon FDA approval of omadacycline in October 2018. The Company is also obligated to pay Tufts a minimum royalty payment in the amount of $25,000 per year. In addition, the Company is obligated to pay Tufts royalties based on gross sales of products, as defined in the agreement, ranging in the low single digits depending on the applicable field of use for such product sale. If the Company enters into a sublicense under the Tufts License Agreement, based on the applicable field of use for such product, the Company will be obligated to pay Tufts (i) a percentage, ranging from 10% to 14% (ten percent to fourteen percent) for compounds other than omadacycline, and a percentage in the single digits for the compound omadacycline, of that portion of any sublicense issue fees or maintenance fees received by the Company that are reasonably attributable to the sublicense of the rights granted to the Company under the Tufts License Agreement and (ii) the lesser of (a) a percentage, ranging from the low tens to the high twenties based on the applicable field of use for such product, of the royalty payments made to the Company by the sublicensee or (b) the amount of royalty payments that would have been paid by the Company to Tufts if the Company had sold the product.

Unless terminated earlier, the Tufts License Agreement will expire at the same time as the last-to-expire patent in the patent rights licensed to the Company under the agreement and after any such expiration the Company will continue to have an exclusive, fully-paid-up license to such intellectual property licensed from Tufts. Tufts has the right to terminate the agreement upon 30 days’ notice should the Company fail to make a material payment under the Tufts License Agreement or commit a material breach of the agreement and not cure such failure or breach within such 30-day period, or if, after the Company has started to commercialize a product under the Tufts License Agreement, the Company ceases to carry on its business for a period of 90 consecutive days. The Company has the right to terminate the Tufts License Agreement at any time upon 180 days’ notice. Tufts has the right to convert the Company’s exclusive license to a non-exclusive license if the Company does not commercialize a product licensed under the Tufts License Agreement within a specified time period.  

The Company incurred $0.1 million and an insignificant amount of royalty expense for the three months ended March 31, 2020 and March 31, 2019, respectively.

Past Collaborations

Novartis International Pharmaceutical Ltd.

In September 2009, the Company and Novartis International Pharmaceutical Ltd., or Novartis, entered into a Collaborative Development, Manufacture and Commercialization License Agreement, or the Novartis Agreement, which provided Novartis with a global, exclusive patent and technology license for the development, manufacturing and marketing of omadacycline. The Novartis Agreement was terminated by Novartis without cause in June 2011 and the termination was effective 60 days later. The Company and Novartis subsequently entered in a letter agreement in January 2012, or the Novartis Letter Agreement, as amended, pursuant to which we reconciled shared development costs and expenses and granted Novartis a right of first negotiation with respect to commercialization rights of omadacycline following approval of omadacycline from the FDA, European Medicines Agency, or any regulatory agency, but only to the extent the Company had not previously granted such commercialization rights related to omadacycline to another third party as of any such approval. The Company also agreed to pay Novartis a 0.25% royalty, to be paid from net sales received by the Company in any country following the launch of omadacycline in that country and continuing until the later of expiration of the last active valid patent claim covering such product in the country of sale and 10 years from the date of first commercial sale in such country.  The first royalty payment became payable as of March 31, 2019. The amended Novartis Letter Agreement resulted in a long-term liability in the amount of $3.4 million and $3.4 million as of March 31, 2020 and December 31, 2019, respectively, included within “Other liabilities” on the Company’s consolidated balance sheet. In addition, a short-term liability of $0.1 million, included within “Other current liabilities” on the Company’s consolidated balance sheet, exists as of March 31, 2020 that represents the portion of royalty payments due to Novartis within twelve months. There are no other payment obligations to Novartis under the Novartis Agreement or the amended Novartis Letter Agreement.

14


 

9.   Capital Stock

 

In July 2019, the Company entered into an At the Market Sales Agreement, or the 2019 Sales Agreement, with Jefferies LLC, or Jefferies, and BTIG, LLC, or BTIG, under which it may offer and sell its common stock having aggregate sales proceeds of up to  $50.0 million from time to time through Jefferies or BTIG as its sales agents. Sales of the Company’s common stock through Jefferies or BTIG, if any, will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including without limitation sales made directly on the Nasdaq Global Market or any other existing trading market for its common stock. Jefferies and BTIG will use commercially reasonable efforts to sell the Company’s common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions we may impose). The Company will pay Jefferies or BTIG, as applicable, a commission of 3% of the gross sales proceeds of any common stock sold through Jefferies and BTIG under the 2019 Sales Agreement. The Company has also provided Jefferies and BTIG with customary indemnification rights.

The Company is not obligated to make any sales of common stock under the 2019 Sales Agreement. The Company sold 2,334,107 shares of common stock pursuant to the 2019 Sales Agreement for $9.1 million in proceeds, after deducting commissions of $0.3 million, during the three months ended March 31, 2020. As of May 6, 2020, $9.3 million remains available for sale under the 2019 Sales Agreement.

The offering of shares of the Company’s common stock pursuant to the 2019 Sales Agreement will terminate upon the earlier of (i) the sale of all common stock subject to the 2019 Sales Agreement, or (ii) termination of the 2019 Sales Agreement in accordance with its terms.

Warrants to Purchase Common Stock

Warrants to purchase preferred stock with intrinsic value issued to HBM Healthcare Investments (Cayman) Ltd., Omega Fund III, L.P., and K/S Danish BioVenture, all beneficial owners of more than 5% of the Company’s common stock, were exchanged for 9,614 warrants to purchase common stock in connection with the with the business combination between privately-held Paratek Pharmaceuticals, Inc. and Transcept Pharmaceuticals, Inc. in October 2014, or the Merger. These 9,614 warrants to purchase common stock have an exercise price of $0.15 per share and will, if not exercised, expire in 2021.

In connection with the Loan and Security Agreement, dated September 30, 2015, as amended from time to time, or the Hercules Loan Agreement, into which the Company entered with Hercules Technology II, L.P. and Hercules Technology III, L.P., together, Hercules, and certain other lenders and Hercules Technology Growth Capital, Inc. (as agent), the Company issued to each of Hercules Technology II, L.P. and Hercules Technology III, L.P. a warrant to purchase 16,346 shares of its common stock (32,692 shares of common stock in total) at an exercise price of $24.47 per share, or the Hercules Warrants, on September 30, 2015, which expire five years from issuance or at the consummation of a Public Acquisition, as defined in each of the Hercules Warrant agreements.

In connection with the second amendment to the Hercules Loan Agreement on December 12, 2016, the Company issued to each of Hercules Technology II, L.P. and Hercules Technology III, L.P. a warrant to purchase 18,574 shares of its common stock (37,148 shares of common stock in total) at an exercise price of $13.46 per share, or the Second Amendment Warrants.

In connection with the borrowing under the Hercules Loan Agreement on June 27, 2017, the Company issued an additional warrant to Hercules Capital, Inc. to purchase 5,374 shares of its common stock at an exercise price of $23.26 per share, or the Additional Warrant.

In connection with the fifth amendment to the Hercules Loan Agreement, on August 1, 2018, the Company issued to Hercules Capital, Inc. a warrant to purchase up to 19,627 shares of its common stock at an exercise price of $10.19 per share, or the Fifth Amendment Warrant.

The Hercules Warrants, Second Amendment Warrants, Additional Warrant and the Fifth Amendment Warrant, collectively referred to as the Warrants, may be exercised on a cashless basis. The Warrants are exercisable for a term beginning on the date of issuance and ending on the earlier to occur of five years (or seven years, in the case of the Fifth Amendment Warrant) from the date of issuance or the consummation of certain acquisitions of the Company as set forth in the various agreements for the Warrants.

 

15


 

10.   Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued interest

 

$

4,221

 

 

$

2,264

 

Accrued compensation

 

 

3,632

 

 

 

7,580

 

Accrued sales allowances

 

 

2,188

 

 

 

1,492

 

Accrued commercial

 

 

1,874

 

 

 

1,445

 

Accrued inventory

 

 

1,756

 

 

 

125

 

Accrued manufacturing

 

 

1,713

 

 

 

1,026

 

Accrued contract research

 

 

1,226

 

 

 

1,612

 

Accrued professional fees

 

 

968

 

 

 

876

 

Accrued legal costs

 

 

394

 

 

 

181

 

Accrued other

 

 

128

 

 

 

95

 

Total

 

$

18,100

 

 

$

16,696

 

 

 

11.   Fair Value Measurements

 

Financial instruments, including cash, cash equivalents, restricted cash, money market funds, U.S. treasury securities, accounts receivable, accounts payable, and accrued expenses are carried on the condensed consolidated financial statements at amounts that approximate fair value. The fair value of the Company’s long-term debt is determined using current applicable rates for similar instruments as of the balance sheet date.  The fair value of the Company’s debt (including the Notes as defined in Note 13, Long-Term Debt), is $175.7 million as of March 31, 2020. The fair value of the Company’s debt was determined using Level 3 inputs.  Fair values are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

 

The following table presents information about the Company’s financial assets and liabilities that have been measured at fair value as of March 31, 2020 and December 31, 2019 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or other inputs that are observable market data. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability (in thousands):  

 

Description

 

Quoted

Prices in

Active

Markets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

70,166

 

 

$

 

 

$

 

 

$

70,166

 

Total Assets

 

$

70,166

 

 

$

 

 

$

 

 

$

70,166

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

113,077

 

 

$

 

 

$

 

 

$

113,077

 

Total Assets

 

$

113,077

 

 

$

 

 

$

 

 

$

113,077

 

 

Marketable Securities

 

U.S. treasury securities fair values can be obtained through quoted market prices in active exchange markets and are therefore classified as Level 1.

 

16


 

12.   Stock-Based and Incentive Compensation

 

 

Stock-based Compensation

 

The following table presents stock-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Research and development expense

 

$

587

 

 

$

1,435

 

Selling, general and administrative expense

 

 

1,948

 

 

 

2,428

 

Total stock-based compensation expense

 

$

2,535

 

 

$

3,863

 

 

Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period. The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model. The weighted-average assumptions used to determine the fair value of the stock option grants is as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Volatility

 

 

61.9

%

 

 

64.8

%

Risk-free interest rate

 

 

1.3

%

 

 

2.5

%

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

Expected life of options (in years)

 

 

5.6

 

 

 

5.6

 

 

Stock Option Plan Activity

The Company’s Board of Directors adopted the Paratek Pharmaceuticals, Inc. 2015 Equity Incentive Plan, or the 2015 Plan, which was approved by Company stockholders at the annual meeting of shareholders held on June 9, 2015, reserving 1,200,000 shares of common stock for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSU awards, performance stock awards, performance cash awards and other stock awards to directors, officers, employees and consultants. The 2015 Plan is intended to be the successor to and continuation of the Paratek Pharmaceuticals, Inc., 2006 Incentive Award Plan and the Paratek Pharmaceuticals, Inc. 2014 Equity Incentive Plan, or collectively, the Prior Plans.  When the 2015 Plan became effective, no additional stock awards were granted under the Prior Plans, although all outstanding stock awards granted under the Prior Plans will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the Prior Plans. On January 1, 2020, 1,991,387 shares of common stock were automatically added to the shares authorized for issuance under the 2015 Plan pursuant to a “Share Reserve” provision contained in the 2015 Plan.  The Share Reserve automatically increases on January 1 of each year, for the period commencing on (and including) January 1, 2016 and ending on (and including) January 1, 2025, in an amount equal to 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors of the Company may act prior to January 1 of a given year to provide that there will be no January 1 increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of shares of common stock than would otherwise automatically occur.  Total shares available for future issuance under the 2015 Plan are 82,749 shares as of March 31, 2020.

The Company recognizes the stock-based compensation expense of awards subject to performance-based vesting conditions over the requisite service period, to the extent achievement of the performance condition is deemed probable relative to targeted performance using the accelerated attribution method. If achievement of the performance condition is not probable, but the award will vest based on the service condition, the Company recognizes the stock-based compensation expense over the requisite service period. A change in the requisite service period that does not change the estimate of the total stock-based compensation expense (i.e., it does not affect the grant-date fair value or quantity of awards to be recognized) is recognized prospectively over the remaining requisite service period.

 

17


 

During the three months ended March 31, 2020, the Company’s Board of Directors granted 61,300 stock options and 2,495,950 RSUs to directors, executives and employees of the Company under the 2015 Plan. The stock option awards are subject to time-based vesting over a period of one to four years. The RSU awards granted to executives in February 2020 are subject to time-based vesting, with 1/3 of the shares vesting on December 10, 2020, or the Initial Vest Date, and an additional 1/3 of the shares vesting on the succeeding two anniversaries of the Initial Vesting Date. The RSU awards granted to non-executive employees of the Company in February 2020 are subject to time-based vesting and vest in three equal installments commencing on each of the one-year anniversaries of the grant date. The grants also included performance-based RSU, or PRSU, awards to certain executives and employees of the Company. The PRSU awards granted in February 2020 will vest as follows: (a) 25/55 on certain net product revenue achievements, (b) 15/55 on achievement of certain clinical milestones related to NUZYRA and (c) 15/55 on achievement of certain regulatory milestones related to NUZYRA. No stock-based compensation expense has been recognized related to the milestones above as the Company does not deem the achievement of the events to be probable as of March 31, 2020.

During the year ended December 31, 2019, the Company’s Board of Directors granted PRSU awards to certain executives and employees of the Company in February 2019 and July 2019 under the 2015 Plan that will vest as follows: (a) 25/60 and (b) 25/60, each, on certain net product revenue achievements and (c) the remaining 10/60 on certain other business achievements. Since the Company believes it is probable that milestones (a) and (b) above will be achieved, the Company recognized stock-based compensation expense for a total of $0.4 million for the performance conditions during the three months ended March 31, 2020 using the accelerated attribution method. During the three months ended March 31, 2020, the Company’s Board of Directors modified the vesting terms related to the PRSUs that were expected to time vest on attainment of certain other business achievements. The modification resulted in the recognition of an insignificant amount of stock-based compensation expense during the three months ended March 31, 2020.   

During the year ended December 31, 2018, the Company’s Board of Directors granted PRSU awards to certain executives and employees of the Company and those awards have vested or will vest as follows: (a) 10/55 shall be earned and time vest on achievement of European Medicines Agency, or EMA, filing preliminary validation, which occurred in October 2018, (b) 20/55 shall be earned and time vest on achievement of EMA approval of omadacycline, and (c) 25/55 shall be earned on achievement of the launch of omadacycline in the U.S. and time vest on the date that is 15 months following such launch date.  During the year ended December 31, 2019, the Company’s Board of Directors modified the vesting terms related to the PRSUs in (b) above which were expected to time vest on achievement of EMA approval of omadacycline. The Company determined the awards were probable of vesting under the modified conditions. The modification resulted in 136,000 shares vesting during the year ended December 31, 2019 and the recognition of stock-based compensation expense of $0.5 million during the year ended December 31, 2019.

The Company’s Board of Directors adopted the Paratek Pharmaceuticals, Inc. 2015 Inducement Plan, or the 2015 Inducement Plan, in accordance with Nasdaq Rule 5635(c)(4), reserving 360,000 shares of common stock solely for the grant of inducement stock options to employees entering into employment or returning to employment after a bona fide period of non-employment with the Company. The Company has not made any grants under the 2015 Inducement Plan since December 31, 2015. Although the Company does not currently anticipate the issuance of additional grants under the 2015 Inducement Plan, as of March 31, 2020, 306,500 shares remain available for grant under that plan, as well as any shares underlying outstanding stock options that may become available for grant pursuant to the plan’s terms. It is therefore possible that the Company may, based on the business and recruiting needs of the Company, issue additional stock options under the 2015 Inducement Plan. 

 

In June 2017, the Company’s Board of Directors adopted the Paratek Pharmaceuticals, Inc. 2017 Inducement Plan, or the 2017 Inducement Plan, in accordance with Nasdaq Rule 5635(c)(4), reserving 550,000 shares of common stock solely for the grant of inducement stock options and RSU awards to employees entering into employment or returning to employment after a bona fide period of non-employment with the Company. In October 2018, the Company’s Board of Directors approved the reserve of an additional 500,000 shares for the 2017 Inducement Plan, for a total of 1,050,000 shares reserved for issuance under it. During the three months ended March 31, 2020, the Company’s Board of Directors granted 21,100 stock options and 17,600 RSUs to employees of the Company under the 2017 Inducement Plan. The stock option awards are subject to time-based vesting over a period of one to four years. The RSU awards are generally subject to time-based vesting, with 100% of the shares of common stock subject to the RSU award vesting three years from the grant date. As of March 31, 2020, 379,666 shares remain available for grant under the 2017 Inducement Plan, as well as any shares underlying awards that may become available for grant pursuant to the plan’s terms.

18


 

Stock Options

 

A summary of stock option activity for the three months ended March 31, 2020 is as follows:

 

 

 

Number

of Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding at December 31, 2019

 

 

3,236,073

 

 

$

15.54

 

 

 

6.30

 

 

$

90

 

Granted

 

 

82,400

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled or forfeited

 

 

(8,573

)

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2020

 

 

3,309,900

 

 

$

15.25

 

 

 

5.87

 

 

$

1

 

Exercisable at March 31, 2020

 

 

2,877,454

 

 

$

16.05

 

 

 

5.45

 

 

$

 

 

In April 2020, certain executives voluntarily forfeited 1,073,891 outstanding stock options with exercise prices significantly above the current trading price of the Company’s common stock in order to make additional shares available for future grants to Company employees subsequent to the quarter ended March 31, 2020 under the Company’s 2014 Equity Incentive Plan, 2015 Equity Incentive Plan, and the 2017 Inducement Plan. The Company recognizes the effect of forfeitures as stock-based compensation expense as they occur.

Restricted Stock Units

A summary of RSU activity for the three months ended March 31, 2020 is as follows: 

 

 

 

Number

of Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

Unvested balance at December 31, 2019

 

 

2,305,408

 

 

$

7.66

 

Granted

 

 

2,513,550

 

 

 

3.52

 

Released

 

 

(252,670

)

 

 

8.42

 

Forfeited

 

 

(121,834

)

 

 

9.50

 

Unvested balance at March 31, 2020

 

 

4,444,454

 

 

$

5.22

 

 

Total unrecognized stock-based compensation expense for all stock-based awards was $14.0 million as of March 31, 2020. This amount will be recognized over a weighted-average period of 1.78 years.

2009 Employee Stock Purchase Plan

On June 3, 2009, at the annual meeting of stockholders, the stockholders of the Company approved the 2009 Employee Stock Purchase Plan, or the 2009 ESPP. The Company’s 2009 ESPP is designed to allow eligible employees of the Company to purchase shares of common stock through periodic payroll deductions and during specified offering periods under the plan. The price of common stock purchased under the 2009 ESPP is equal to 85% of the lower of the fair market value of the common stock on the commencement date of each offering period or the specified purchase date. As of March 31, 2020, 36,539 shares were available for issuance under the 2009 ESPP. Since the Merger, the Company has not made the 2009 ESPP available to employees.

2018 Employee Stock Purchase Plan 

The Company’s Board of Directors adopted, and in June 2018 Company’s stockholders approved, the Paratek Pharmaceuticals, Inc. 2018 Employee Stock Purchase Plan, or the 2018 ESPP. The 2018 ESPP was amended in October 2018 to change the commencement dates of the offering periods. The maximum aggregate number of shares of the Company’s common stock that may be purchased under the 2018 ESPP is 943,294 shares, or the ESPP Share Pool, subject to adjustment as provided for in the 2018 ESPP.  The 2018 ESPP allows eligible employees to purchase shares during certain offering periods, which will be six -month periods commencing June 1 and ending November 30 and commencing December 1 and ending May 31 of each year. The first offering under the 2018 ESPP occurred on December 1, 2018. As of March 31, 2020, 761,648 shares remain available for issuance. During the three months ended March 31, 2020, the Company recognized an insignificant amount in related stock-based compensation expense. 

 

19


 

Revenue Performance Incentive Plan

 

On October 4, 2018, the Company adopted the Revenue Performance Incentive Plan, or the Plan, to grant performance-based cash incentive awards to key employees and consultants of the Company.  The Plan provides for an incentive pool of up to $50.0 million, plus accrued interest during the period between the awards’ vesting date and payment dates.  Each participant will be allocated a percentage of the incentive pool.

 

The incentive pool will be divided into two equal tranches with the first tranche vesting upon the Company’s achievement of cumulative net product revenues over $300.0 million by December 31, 2025, or Tranche 1, and the second tranche vesting upon the Company’s achievement of cumulative product revenues over $600.0 million by December 31, 2026, or Tranche 2.  Participants will vest annually in each tranche of their awards in four equal installments on December 31, 2019, December 31, 2020, December 31, 2021, and December 31, 2022, subject to their continued employment with the Company through the applicable vesting date.  If a participant’s employment terminates prior to December 31, 2022 due to death or disability, the participant will automatically vest in an additional 25% of each tranche of his or her award.  Upon the achievement of a Tranche 1 or Tranche 2 milestone (but not a deemed achievement in connection with a change of control), each participant who has remained in continuous employment with the Company through December 31, 2022 will be 100% vested in the applicable tranche. In the event of a change of control of the Company prior to December 31, 2026, participants whose employment has terminated prior to such date will be eligible for payouts under the Plan based on the then-vested portion of their awards, and participants who have remained employed through the change of control will be deemed to have time vested in full in each tranche of their awards.

 

Upon the achievement of a Tranche 1 or Tranche 2 milestone (but not a deemed achievement in connection with a change of control), each participant’s payout in respect of the applicable tranche of his or her award will equal (a) the participant’s then-vested percentage, multiplied by (b) $25 million, multiplied by (c) the participant’s individual percentage allocation of the incentive pool.

 

If a change of control occurs prior to December 31, 2026, and the Tranche 1 milestone was not achieved prior to the change of control, the Tranche 1 milestone will be deemed to be achieved at a percentage equal to the greater of (1) 50% and (2) the cumulative product revenues as of the change of control, divided by $300.0 million.  If a change of control occurs prior to December 31, 2026, and the Tranche 2 milestone was not achieved prior to the change of control, the Tranche 2 milestone will be deemed to be achieved at a percentage equal to the greater of (1) 30% and (2) the cumulative product revenues as of the change of control, divided by $600.0 million.  A participant’s payout in respect of each tranche of his or her award in a change of control will equal (1) the participant’s then-vested percentage of such tranche, multiplied by (2) the percentage of that tranche’s milestone that has been achieved or is deemed to have been achieved, multiplied by (3) $25.0 million, multiplied by (4) the participant’s individual percentage allocation of the incentive pool.

 

Amounts that become payable upon achievement of the Tranche 1 milestone will be paid in a lump-sum in the first quarter of 2026 and amounts that become payable upon achievement of the Tranche 2 milestone will be paid in a lump-sum in the first quarter of 2027.  In the event of a change of control, any portion of the incentive pool that is earned, but unpaid, or deemed earned in connection with the change of control will be paid at the time of the change of control.

 

If a change of control occurs prior to the achievement of either or both of the Tranche 1 and Tranche 2 milestones, the awards will remain outstanding and the remaining unpaid portion of the incentive pool applicable to the Tranche 1 or Tranche 2 milestone, as applicable, will be paid following the achievement of either such milestone at the time or times the bonuses would otherwise be paid out.  Any successor in interest to the Company upon or following a change of control will be required to assume all obligations under the Plan.

 

Awards may be paid out in cash or in a combination of cash and registered securities of equal value (based on the Company’s 20-day trailing average closing common stock price), with the portion paid in registered securities not to exceed 50% of the aggregate payment amount with respect to each tranche; provided, however, that any amounts payable with respect to an award in connection with a change in control will be paid in cash.