Shares of Paratek Pharmaceuticals (NASDAQ:PRTK) fell more than 16% today after the company announced the pricing of a $140 million senior debt offering, which was initially proposed yesterday. An additional $25 million in notes could be sold depending on interest from institutional buyers.
The notes will mature on May 1, 2024 -- sufficiently far in the future -- and are redeemable for approximately 63 shares of common stock for each $1,000 in notes, which works out to a conversion price of $15.90 per share. The financing will nearly double Paratek Pharmaceuticals' cash balance from the end of 2017, which stood at approximately $151 million.
As of 12:02 p.m. EDT, the stock had settled to a 16.2% loss.
Paratek Pharmaceuticals is loading up on funding in anticipation of an upcoming decision from the U.S. Food and Drug Administration on marketing approval for its next-generation antibiotic, omadacycline. The company has submitted New Drug Applications (NDAs) for the drug candidate in both oral and intravenous formulations, which have been accepted for priority review by the regulatory body.
The drug is proposed as a treatment for acute bacterial skin and skin structure infections (ABSSSI) and community-acquired bacterial pneumonia (CABP). Given the rise of antibiotic resistant bacterial and fungal infections across the globe, investors are hopeful that the drug will be approved. Having earned fast-track designation and priority review means that, if approved, there's potential to hit the ground running. The recent fundraising activity is the company's way of ensuring that will be the case if the binary event falls favorably for the clinical stage pharma.
Wall Street seems to be approaching the debt offering with caution. After all, with a market cap of just $350 million, taking on up to $165 million in debt will immediately result in relatively high leverage ratios. But Paratek Pharmaceuticals has noted multiple times that the total addressable market for omadacycline could be up to $9 billion per year. While those figures tend to be misused, the fact of the matter is that capturing even a fraction of the addressable market could result in big business for the small pharma -- and a much higher valuation over time. For now, investors are still left waiting for the final decision from the FDA.