1.   Description of the business

Paratek Pharmaceuticals, Inc. (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 clinical stage biopharmaceutical company focused on the development and commercialization of innovative therapeutics based upon tetracycline chemistry. 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 two lead product candidates are the antibacterials omadacycline and sarecycline.

 

Omadacycline is the first in a new class of aminomethylcycline antibiotics. Omadacycline is a broad-spectrum, well-tolerated once-daily intravenous, or IV, and oral antibiotic. The Company believes that omadacycline has the potential to become the primary antibiotic choice of physicians for use as a broad-spectrum monotherapy antibiotic for acute bacterial skin and skin structure infections, or ABSSSI, community-acquired bacterial pneumonia, or CABP, or urinary tract infection, or UTI, and other serious community-acquired bacterial infections, where resistance is of concern. The Company believes omadacycline, if approved, will be used in the emergency room, hospital and community care settings. The Company has designed omadacycline to provide potential advantages over existing antibiotics, including activity against resistant bacteria, broad spectrum antibacterial activity, oral and IV formulations with once-daily dosing, no known drug interactions, and a favorable safety and tolerability profile.

 

In the fall of 2013, the U.S. Food and Drug Administration, or the FDA, agreed to the design of the Company’s omadacycline Phase 3 studies for ABSSSI and CABP through the Special Protocol Assessment, or SPA, process. In addition, the FDA confirmed that positive data from the individual studies for ABSSSI and CABP would be sufficient to support approval of omadacycline for each indication and for both oral and IV formulations in the United States.  In addition to Qualified Infectious Disease Product designation, on November 4, 2015, the FDA granted omadacycline Fast Track designation for the development of omadacycline in ABSSSI, CABP, and complicated Urinary Tract Infections, or cUTI. Fast Track designation facilitates the development, and expedites the review of drugs that treat serious or life-threatening conditions and fill an unmet medical need. In February 2016, the Company reached agreement with the FDA on the terms of the pediatric program associated with the Pediatric Research and Equity Act. The FDA has granted Paratek a waiver for conducting studies with omadacycline in children less than eight years old and a deferral in conducting studies in children eight years and older until safety and efficacy is established in adults.  In May 2016, the FDA agreed to the design of the Phase 3 oral-only ABSSSI study and that it is consistent with the current ABSSSI guidance.

 

Scientific advice received through the centralized procedure in Europe confirmed general agreement on the design and choice of comparators of the Phase 3 trials for ABSSSI and CABP and noted that approval based on a single study in each indication could be possible but would be subject to more stringent statistical standards than Market Authorization Applications, or MAA, programs that conduct two pivotal Phase 3 studies per indication. The Company believes that the inclusion of the Phase 3 oral-only study in ABSSSI, if positive, strengthens the data package for a successful MAA filing and approval in EU. 

Omadacycline entered Phase 3 clinical development for the treatment of ABSSSI in June 2015. In June 2016, the Company announced positive top-line efficacy and safety data for this study. The Company announced that the first patient was dosed in a Phase 3 clinical study of omadacycline for the treatment of CABP in November 2015. The Company also completed the third prospectively planned data safety monitoring board review. Following its review, the committee recommended that the protocol continue in its original design without modification. The Company continues to progress its Phase 3 study consistent with its plan and anticipate top-line results for CABP as early as the third quarter of 2017.  The Company also dosed the first patient in an oral-only Phase 3 study of omadacycline for the treatment of ABSSSI in August 2016. The Company anticipates top-line results for this study as early as the second quarter of 2017.  The Company’s Phase 1b sinusitis study was deprioritized to focus internal efforts on the oral-only ABSSSI Phase 3 study and strategic planning efforts for UTI.

The Company recently completed several clinical Phase 1 studies with omadacycline.  In these Phase 1 studies, omadacycline was generally safe and well tolerated, consistent with prior Phase 1 studies. In May 2016, the Company initiated its first oral-only and IV-to-oral study of omadacycline dosed for five days in a Phase 1b clinical study in patients with a UTI. This Phase 1b UTI study was recently completed.  Data from this study demonstrated that omadacycline achieved proof of principle, by showing high concentration levels of omadacycline in urine, across IV-to-oral and oral-only dosing regimens. The Company anticipates presenting results for the Phase 1b UTI study at an upcoming R&D Day and at future scientific meetings.

The Company also recently completed clinical Phase 1 studies with omadacycline that are needed for inclusion in the planned New Drug Application, or NDA, regulatory filing with the FDA.  These studies include pharmacokinetic, or PK, studies in special populations (end-stage renal disease subjects, or ESRD subjects) and PK-lung penetration studies in healthy volunteers. A recently completed Phase 1 study of ESRD subjects was designed to evaluate the absorption and elimination of omadacycline compared to matched healthy control subjects. Results from this study showed that the absorption and elimination of omadacycline in ESRD subjects appears to be similar to healthy control subjects, suggesting that dose adjustments should not be required in subjects who have severe renal disease. In another recently completed Phase 1 study in healthy volunteers, which was designed to evaluate the PK relationship between human plasma concentrations and lung concentrations, omadacycline demonstrated higher concentration levels in broncho-alveloar lavage, or BAL, lung fluid when compared with plasma concentrations. This result supports the potential utility of omadacycline in the treatment of lower respiratory tract bacterial infections caused by susceptible pathogens.  A third Phase 1 study in healthy volunteers has been completed that evaluated the PK exposure profile of three oral-only dosing regimens of omadacycline administered for five days in healthy volunteers. In this Phase 1 study, across three oral dosing regimens of omadacycline, PK plasma levels increased with higher doses of omadacycline, demonstrating dose proportionality. The Company anticipates presenting results for these Phase 1 studies at an upcoming R&D Day and at future scientific meetings.  Assuming positive Phase 3 study results, the Company plans to include and submit these data in an NDA for the treatment of ABSSSI and CABP in the first half of 2018.

In October 2016, the Company announced that it entered into a Cooperative Research and Development Agreement, or CRADA, with the U.S. Army Medical Research Institute of Infectious Diseases, or USAMRIID, to study omadacycline against pathogenic agents causing infectious diseases of public health and biodefense importance. These studies are designed to confirm humanized dosing regimens of omadacycline in order to study the efficacy of omadacycline against biodefense pathogens, including Yersinia pestis, or plague, and Bacillus anthracis, or anthrax. Funding support for the trial has been made available through the Defense Threat Reduction Agency, or DTRA/ Joint Science and Technology Office and Joint Program Executive Office for Chemical and Biological Defense / Joint Project Manager Medical Countermeasure Systems / BioDefense Therapeutics.

The Company’s second Phase 3 antibacterial product candidate, sarecycline, previously known as WC3035, is a new, once-daily, tetracycline-derived compound designed for use in the treatment of acne and rosacea. The Company believes that, based upon the data generated to-date, sarecycline possesses favorable anti-inflammatory activity, plus narrow-spectrum antibacterial activity relative to other tetracycline-derived molecules, oral bioavailability, does not cross the blood-brain barrier, and favorable PK properties that the Company believes make it particularly well-suited for the treatment of inflammatory acne in the community setting. The Company has exclusively licensed U.S. development and commercialization rights to sarecycline for the treatment of acne to Allergan plc, or Allergan, while retaining development and commercialization rights in the rest of the world. Allergan has informed the Company that sarecycline entered Phase 3 clinical trials in December 2014 for acne vulgaris. Allergan provided guidance that top-line data from the Phase 3 trial of sarecycline will be available in the first half of 2017. The Company also granted Allergan an exclusive license to develop and commercialize sarecycline for the treatment of rosacea in the United States, which converted to a non-exclusive license in December 2014 after Allergan did not exercise its development option with respect to rosacea. There are currently no clinical trials with sarecycline in rosacea underway.

Prior to October 30, 2014, the name of the Company was Transcept Pharmaceuticals, Inc., or Transcept. On October 30, 2014, Transcept completed a business combination with privately held Paratek Pharmaceuticals, Inc., or Old Paratek, in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2014, by and among Transcept, Tigris Merger Sub, Inc., or Merger Sub, Tigris Acquisition Sub, LLC, or Merger LLC, and Old Paratek, or the Merger Agreement, pursuant to which Merger Sub merged with and into Old Paratek, with Old Paratek surviving as a wholly-owned subsidiary of Transcept, followed by the merger of Old Paratek with and into Merger LLC, with Merger LLC surviving as a wholly-owned subsidiary of Transcept (the Company refers to these mergers together as the Merger). Also on October 30, 2014, in connection with, and prior to the completion of the Merger, Transcept effected a 1-for-12 reverse stock split of its common stock, or the Reverse Stock Split, and immediately following the Merger, Transcept changed its name to “Paratek Pharmaceuticals, Inc.”, and Merger LLC changed its name to “Paratek Pharma, LLC.” Following the completion of the Merger, the business conducted by Paratek Pharmaceuticals Inc. became primarily the business conducted by Paratek.

Immediately prior to the Merger, Old Paratek sold 8,068,766 shares of its common stock for an aggregate purchase price of $93.0 million to certain existing Paratek stockholders and certain new investors in Paratek, or the Financing. Immediately prior to the closing of the Financing, the $6.0 million in aggregate principal amount outstanding under, and all accrued interest on, the nonconvertible senior secured promissory notes issued in March 2014, the 2014 Notes, converted into 1,335,632 shares of Old Paratek’s common stock based on a conversion price of $0.778 per share. Further, and also immediately prior to the closing of the Financing, each share of Old Paratek’s preferred stock outstanding at that time was converted into shares of Old Paratek’s common stock at a ratio determined in accordance with Paratek’s certificate of incorporation then in effect. The parties to the Financing and to the conversion of the 2014 Notes include officers, employees and directors of Paratek, making these transactions related party in nature.

Under the terms of the Merger Agreement, Transcept issued shares of its common stock to Old Paratek’s stockholders, at an exchange rate of 0.0675 shares of common stock, after taking into account the Reverse Stock Split, in exchange for each share of Old Paratek common stock outstanding immediately prior to the Merger. Transcept also assumed all of the stock options outstanding under the Old Paratek 2014 Equity Incentive Plan, as amended, or the Paratek Plan, and stock warrants of Old Paratek outstanding immediately prior to the Merger, with such stock options and warrants henceforth representing the right to purchase a number of shares of Transcept common stock equal to 0.0675 multiplied by the number of shares of Old Paratek common stock previously represented by such options and warrants. Transcept also assumed the Paratek Plan.

After consummation of the Merger, the Old Paratek stockholders, warrant holders and option holders owned approximately 89.6% of the fully-diluted common stock of Paratek, with Transcept’s stockholders and optionholders immediately prior to the Merger, whose shares of Paratek common stock (including shares received upon the cancellation of existing options) remain outstanding after the Merger, owning approximately 10.4% of the fully-diluted common stock of Paratek. Under generally accepted accounting principles in the United States of America, or U.S. GAAP, the Merger was treated as a “reverse merger” under the purchase method of accounting. For accounting purposes, Old Paratek is considered to have acquired Transcept.

Since its inception, the Company has generated an accumulated deficit of $353.9 million through September 30, 2016 and will require substantial additional funding in connection with the Company’s continuing operations to support commercial activities associated with its lead product candidate, omadacycline. Based upon the Company’s current operating plan, it anticipates that cash, cash equivalents and available for sale marketable securities of $120.8 million, as well as $20.0 million available under a loan agreement described in Note 12, Long-term Debt, will enable the Company to fund operating expenses and capital expenditure requirements through the submission of an NDA for omadacycline for the treatment of ABSSSI and CABP, which is currently expected to occur in the first half of 2018. 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.