UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2020
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number: 001-36066
PARATEK PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
33-0960223
(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
Common Stock, par value $0.001 per share
Trading Symbol(s)
PRTK
Name of each exchange on which registered
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 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
Non-accelerated filer
Emerging growth company
☐
☒
☐
Accelerated filer
Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant on the last business day of the registrant’s second fiscal
quarter was: $231,028,791.
As of February 26, 2021, there were 46,892,728 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the registrant’s 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120
days of the registrant’s year ended December 31, 2020 are incorporated herein by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page No.
Item No.
PART I
1.
1A.
1B.
2.
3.
4.
PART II
5.
6.
7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A.
Quantitative and Qualitative Disclosures About Market Risk
8.
9.
9A.
9B.
PART III
10.
11.
12.
13.
14.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
15.
16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
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Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements that are based upon current expectations within the meaning of the Private
Securities Litigation Reform Act of 1995. Paratek Pharmaceuticals, Inc. intends that such statements be protected by the safe harbor created thereby. In
some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. Examples of such
forward-looking statements include, but are not limited to, statements about or relating to:
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our intention to market NUZYRA® as an empiric monotherapy that will be commercialized worldwide for the treatment of serious,
community-acquired bacterial infections;
our ability to successfully, commercialize and achieve market acceptance for NUZYRA, including in the community setting, and the expected
size of addressable markets;
the therapeutic and commercial potential of NUZYRA and SEYSARA®;
proposed new products or developments, including additional indications for NUZYRA;
the timing and amount of actual reimbursements and NUZYRA purchases under our 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;
our expectations regarding the potential benefits of the licensing, collaboration, partnership and other strategic arrangements and transactions
we have entered into and may enter into in the future;
our ability to establish and maintain potential new collaborative, partnering or other strategic arrangements for commercialization of our
products and the development of our product candidates;
our plans to pursue expansion of omadacycline to additional markets through collaboration or distribution arrangements;
the timing, scope and anticipated initiation, enrollment, and completion of our ongoing and planned clinical trials, including for non-
tuberculous mycobacteria abscessus, or NTM, and any other future clinical trials that we or our development partners may conduct;
the anticipated progress of our clinical programs, including whether our ongoing clinical trials will achieve clinically relevant results;
the timing of regulatory discussions and submissions involving us and our partners, and the anticipated timing, scope and outcome of related
regulatory actions or guidance;
our ability to obtain, maintain and expand United States, or U.S., Food and Drug Administration, or FDA, and non-U.S. regulatory approvals of
our products and product candidates;
our ability to timely secure supply and manufacture conforming products;
our expectations regarding the timing of our efforts to onshore the manufacturing of NUZYRA to the United States;
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
availability and timing of additional potential funding and/or the NUZYRA procurement under the BARDA contract;
the plans, strategies, and objectives of management for future operations;
future economic conditions or performance;
our expectations regarding the continued growth of our business operations due, in part, to the commercialization of NUZYRA, including our
plans related to hire hospital-based and community-based sales representatives;
the impact that a pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may have on our business, operations, and
financial performance;
our estimates regarding the sufficiency of our cash resources, expenses, capital requirements and needs for additional financing, and our ability
to obtain additional financing; and
our projected financial performance.
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Forward-looking statements are neither historical facts nor assurances of future performance. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance, time frames or achievements to be materially different from the
information set forth in these forward-looking statements. While we believe that we have a reasonable basis for each forward-looking statement, we caution
you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be
certain. We discuss many of these risks in the “Risk Factors” section and elsewhere in this Annual Report on Form 10-K. Given these risks, uncertainties and
other factors, you should not place undue reliance on these forward-looking statements. Any of the events anticipated by the forward-looking statements may
not occur or, if any of them do, the impact they will have on our business, results of operations and financial condition is uncertain. We hereby qualify all of our
forward-looking statements by these cautionary statements.
Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
PARATEK® and NUZYRA® are registered trademarks of Paratek Pharmaceuticals, Inc. SEYSARA® is a U.S. and China registered trademark of
Almirall, LLC and a trademark of Paratek in other foreign jurisdictions. Other trademarks referred to in this Annual Report on Form 10-K are the property
of their respective owners. Solely for convenience, we only use the ® or ™ symbol the first time any trademark is mentioned.
All references to “Paratek,” “we,” “us,” “our” or the “Company” in this Annual Report on Form 10-K mean Paratek Pharmaceuticals, Inc. and its
subsidiaries.
Our business is subject to numerous risks. The following summary highlights some of the risks you should consider with respect to our business,
financial condition and results of operations. This summary is not complete and the risks summarized below are not the only risks we face. You should
review and consider carefully the risks and uncertainties described in more detail in Part I, Item 1A. “Risk Factors” of this report, which includes a more
complete discussion of the risks summarized below as well as a discussion of other risks related to our business and an investment in our common stock.
Risks Related to Financial Condition
Summary of Risks
• We have incurred significant losses since inception and anticipate that we will incur losses for the foreseeable future.
• We may continue to require substantial additional funding, which may not be available to us on acceptable terms, or at all.
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Raising additional capital or entering into certain other arrangements may cause dilution to our stockholders, restrict our operations or require us
to relinquish rights.
Our level of indebtedness and debt service obligations could adversely affect our financial condition.
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Risks Related to Maintaining and Expanding Regulatory Approval and Other Legal Compliance Matters
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If clinical trials for omadacycline are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and commercialize
omadacycline for the treatment of additional indications on a timely basis.
The results of previous clinical trials may not be predictive of future results, and the results of any ongoing or future clinical trials may not satisfy
the requirements of the FDA or non-U.S. regulatory authorities.
The regulatory approval process is expensive, time consuming and uncertain.
Even though NUZYRA and SEYSARA have been approved by the FDA in the U.S., they face post-approval development and regulatory
requirements, which may limit how they are manufactured and marketed, and could materially impair our ability to generate revenue.
Our products may have undesirable side effects.
If we or our partners market products in a manner that violates fraud and abuse and other healthcare laws, or if we or our partners violate
government price reporting laws, we or our partners may be subject to administrative civil and/or criminal penalties.
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Risks Related to Our Business
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• We are highly dependent on the commercial success of NUZYRA in the U.S. and, to a lesser extent, SEYSARA.
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A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, has and may in the future adversely affect our business, results of
operations and financial condition.
If BARDA were to eliminate, reduce, or delay funding for our contract, including with respect to expected procurements under our contract, we
would experience a negative impact on our programs associated with such funding and perhaps on our ability to maintain the infrastructure
necessary to maximize our NUZYRA commercial opportunity.
The BARDA contract includes special requirements, which subject us to the risk of a reduction or loss of funding.
Sales of NUZYRA and SEYSARA may be slow or limited for a variety of reasons including competing therapies or safety issues.
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• We are continuing to build our sales and distribution infrastructure. If we are unable to develop our sales, marketing and distribution capability on
our own or through collaborations with marketing partners, we will not be successful in commercializing NUZYRA or any future product
candidates to their full potential.
• We face significant competition.
• We rely and will continue to rely on outsourcing arrangements for manufacturing of NUZYRA and any future product candidates.
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The success of our business may be dependent on the actions of our collaborative partners.
If we are unable to establish and maintain our agreements with third parties to distribute NUZYRA to patients, our results of operations and
business could be adversely affected.
• We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
Risks Related to Our Intellectual Property
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If we are unable to obtain and enforce patent protection for products, our product candidates and related technology, our business could be
materially harmed.
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
If we or our partners fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights
that are important to our business.
If we or our partners are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and
products could be adversely affected.
Risks Related to the Notes
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Servicing our debt, including the Notes, requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay
our substantial debt.
• We may not have the ability to raise the funds necessary to repurchase the Notes upon a fundamental change, and our existing or future debt may
contain limitations on our ability to repurchase the Notes.
Risks Related to Our Common Stock
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The trading price of our common stock is volatile.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult and may prevent
attempts by our stockholders to replace or remove our management.
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Item 1.
Business
Overview
PART I
We are 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. Our 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 we have exclusively licensed in the U.S. and the People’s Republic of China,
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 once-daily oral therapy for the treatment of moderate to severe acne vulgaris. With respect to our technology as it relates to sarecycline, we retain
development and commercialization rights in all countries other than the U.S. and the greater China region, and in February 2020, we 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.
NUZYRA
We believe that NUZYRA has the potential to become the primary choice of physicians for use as a broad-spectrum monotherapy antibiotic for
ABSSSI, CABP and other serious community-acquired bacterial infections where resistance is of concern. NUZYRA is used in the emergency room,
hospital, and community care settings. We have designed NUZYRA 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 dosing adjustments for patients on concomitant
medications and a generally safe and well-tolerated profile. NUZYRA also has the potential to be used as an oral and IV antibiotic for the treatment of
NTM and pulmonary anthrax, where it could be suitable for post-exposure prophylaxis use as a priority medical countermeasure.
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To date, we have conducted more than 30 Phase 1 studies of omadacycline to characterize the effects of the drug on humans, including how it is
absorbed, metabolized, and excreted. These Phase 1 studies also included evaluation in special populations such as hepatic and renal failure patients. We
have also conducted three successful Phase 3 clinical studies. Our first two Phase 3 clinical studies were for the treatment of ABSSSI (OASIS-1) and
CABP (OPTIC). Both studies utilized initiation of IV therapy with transitions to oral-based treatment on clinical response. Our third Phase 3 clinical
study (OASIS-2) was an oral-only administration of omadacycline in ABSSSI compared to oral-only linezolid. All three Phase 3 clinical studies resulted in
omadacycline demonstrating positive efficacy results and a generally safe and well tolerated profile. These data formed the basis of approval for NUZYRA
in the U.S.
In October 2018, we submitted a Market Authorization Application, or MAA, to the European Medicines Agency, or the EMA, for the treatment of
adults with ABSSSI and CABP caused by susceptible bacteria. Based on the review of the data and the application, the EMA recommended approval for
NUZYRA for the treatment of ABSSSI but not for CABP. The EMA stated that a second study is required for the CABP indication, which is consistent
with European Union, or EU, guidance that typically requires two Phase 3 studies per indication for approval. In the EU, the ten-year market exclusivity for
NUZYRA would begin with the first approval. As a result, in the fourth quarter of 2019, we withdrew our submission of the MMA to the EMA for
NUZYRA to preserve exclusivity until such time as both the ABSSI and CABP indications can be approved concurrently in an effort to maximize the value
of NUZYRA in the EU. The EU currently represents a modest market opportunity compared to the U.S. Our goal to partner in the EU once both
indications are approved remains unchanged.
In December 2019, we entered into a five-year contract with an option to extend to ten years with the Biomedical Advanced Research and
Development Authority, or BARDA, a division of the U.S. Department of Health and Human Services, or HHS, Office of the Assistant Secretary for
Preparedness and Response, or ASPR, herein referred to as the BARDA contract. The BARDA contract supports the development of NUZYRA for the
treatment of pulmonary anthrax, FDA post-marketing requirements, or PMRs, associated with the initial NUZYRA approval, and an option for BARDA to
procure up to 10,000 treatment courses of NUZYRA for the Strategic National Stockpile, or SNS, for use against potential biothreats. Under the terms of
the BARDA contract, we have been 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. BARDA has also exercised two options
that awarded additional funding including approximately $76.8 million for existing FDA PMRs that began in April 2020 and approximately $20.4 million
for manufacturing-related requirements that also began in April 2020. Remaining option funding includes the potential for approximately $12.7 million to
support the development of NUZYRA for the prophylaxis of anthrax and a maximum of approximately $115.3 million to provide for three additional
purchases of NUZYRA for the SNS, each of which will be triggered at BARDA’s discretion upon us demonstrating continued progress in the anthrax
development program.
We have made significant progress in the pulmonary anthrax development program under the BARDA contract. A pharmacokinetic, or PK, study
in rabbits was recently completed, which will lead into the pilot efficacy studies in this species. In addition, we have evaluated minimum inhibitory
concentrations, or MICs, of omadacycline against approximately 100 anthrax strains. Omadacycline continued to demonstrate potent MICs and is
considered effective against all bacteria tested. The collection of isolates had a strain resistant to doxycycline and a strain resistant to ciprofloxacin, the two
antibiotics currently in the SNS after approval for the treatment of anthrax many years ago. Omadacycline activity was not impacted in either of those
resistant strains.
Together with BARDA, we continue to make progress advancing our efforts to onshore the manufacturing of NUZYRA to the U.S. We have
completed the knowledge transfer of our manufacturing process for the active pharmaceutical ingredient, or API, of omadacycline to our U.S. onshoring
partners and are currently in the development stage of the initiative. The process flow, equipment selection and facility modifications have been planned
and process development and engineering are expected to be completed in 2021. The manufacturing process validation will begin in early 2022, with the
goal of commercial supply production in the U.S. by 2023.
On February 24, 2021, we announced that the initial NUZYRA procurement for the SNS under our contract with BARDA was expected to
occur in the first half of 2021 and another procurement in the second half of 2021. The initial procurement is contingent upon receipt of comments from
the FDA on the pre-emergency use authorization, or pre-EUA, submitted in February 2020. As part of the ongoing review, supplemental mouse
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pharmacokinetic data requested by the FDA was submitted in November 2020. On March 2, 2021, we received feedback from the FDA with a
recommendation to consider an additional in vitro model to further characterize the optimal pharmacokinetic parameters for pulmonary anthrax as part of
the development program. We are in discussions with BARDA to align on the best approach to integrating the FDA recommendation into the development
program. BARDA is working with FDA to satisfy BARDA’s requirement that the status of the current pre-EUA will enable them to initiate the first
procurement into the SNS. Once the initial procurement is completed, the timing of future procurements is not expected to be impacted.
We also continue to pursue a number of other opportunities for NUZYRA. The first of these is the filing with the FDA of a supplemental new drug
application, or sNDA, for the oral-only loading dose regimen for patients diagnosed with CABP. The sNDA includes the results of a study designed with
agreement from the FDA to show that an oral-only loading dose regimen will have a comparable pharmacokinetic profile to the approved IV loading dose
regimen in patients with CABP that was established in the Phase 3 registration study. Enrollment in this study was stopped early in 2020 due to COVID-19
restrictions at the clinical centers. Data obtained from the study was reviewed and determined to support the submission of the sNDA in July 2020. We
believe consideration for this oral-only loading dose regimen is expected during the second quarter of 2021.
We have initiated discussions with the FDA to explore potential regulatory registration paths to determine the efficacy and safety of omadacycline
in patients afflicted with NTM, which are environmental organisms that can be found in soil, dust, and water, including natural and municipal water
sources. Infection occurs when a person is exposed to NTM organisms. NTM can form difficult-to-eliminate biofilms, which are collections of
microorganisms that stick to each other, and adhere to surfaces in moist environments. Although severe infection can affect the lymph nodes, skin, soft
tissues, bones, and joints, the vast majority of NTM infection cases are pulmonary. The diagnosis of NTM infection is often delayed due to non-specific
symptoms and a lack of disease state awareness by clinicians. NTM is a rare and orphan disease with no FDA-approved therapies, which we estimate has a
potential $1.0 billion addressable market in the U.S.
Mycobacterium abscessus, or M. abscessus, complex comprises a group of rapidly growing, multidrug-resistant, nontuberculous mycobacteria that
are responsible for a wide spectrum of skin and soft tissue diseases, central nervous system infections, bacteremia, and ocular and other infections.
Infections caused by the M. abscessus complex are notoriously difficult to treat due to intrinsic resistance to many classes of antibiotics. Few oral
antibiotics demonstrate in vitro activity against the M. abscessus complex, making long-term treatment of this infection extremely complicated. The M.
abscessus complex is frequently resistant to antibiotics that are used in the treatment of other NTM species such as rifamycins, ethambutol, and
fluoroquinolones. There is currently only one FDA-approved antibiotic for the treatment of the more common NTM species, Mycobacterium avium
complex (MAC); Arikayce, an inhaled liposomal amikacin, has been approved for treatment of refractory pulmonary disease caused by Mycobacterium
avium complex. There are no FDA-approved treatments for pulmonary disease caused by M. abscessus complex.
One of the key components of M. abscessus complex treatment is the use of three or more antimicrobials in most treatment regimens to increase
drug efficacy and decrease the development of antibiotic resistance. Currently available treatment options for M. abscessus complex pulmonary infection
are lengthy and require complex, multi-antibiotic regimens and are generally not tolerated and have significant safety challenges. General treatment
principles that should be followed include:
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Prolonged therapy (treat for at least 12 months of culture negativity);
An induction phase of therapy with a three- to four-drug regimen including one to two different active intravenous agents;
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A suppressive phase, which should involve at least two oral or inhaled antibiotics considered active based on drug susceptibilities since most
patients cannot tolerate months of intravenous therapy; and
The inclusion of a macrolide in the treatment regimen improves treatment outcomes and regimen tolerability against isolates without a
functional erm gene, but high levels of macrolide resistance has been reported, thus, limiting effectiveness.
Omadacycline has several key characteristics that may prove beneficial to patients with M. abscessus complex pulmonary infection. These include:
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Favorable pharmacokinetics with both intravenous and oral formulations including high lung penetration concentrations and high intracellular
pulmonary macrophage levels;
Established safety profile in pre-clinical studies and Phase 3 clinical trials, including a class that is currently used for the treatment of NTM
and chronically in many difference disease states; and
Potent in vitro activity versus M. abscessus complex.
Omadacycline has demonstrated potent in vitro activity against M. abscessus complex species in three separate studies. In the most recent report
(Brown-Elliot 2020) the MIC50 and MIC90 values obtained against M. abscessus subspecies abscessus were 0.12 and 0.25 µg/mL. In two additional
reports (Kaushik 2019 and Shoen 2019), the MIC50 and MIC90 values obtained were 1 and 2 µg/mL, respectively. Differences in the results of these
studies are likely due to experimental methodology or isolate selection and is discussed further in Brown-Elliot 2020; nonetheless, in all cases
omadacycline and tigecycline had similar, if not identical, MIC values. Multiple discussions have occurred with the FDA to design a program to support
registration on NUZYRA for M. abscessus complex. General agreement has been reached on the key program and study design elements.
Start-up activities for a Phase 2b clinical study for treatment of NTM with omadacycline are underway, with the initiation of patient enrollment
planned for as early as the first half of 2021. This study is a placebo-controlled, randomized monotherapy study of NTM in patients who are not receiving
other treatments. Study size will be approximately 75 subjects randomized in a 1.5 to 1 ratio. Therapy will last for 12 weeks with an efficacy endpoint
assessment at that timepoint. Due to the small numbers of patients with this rare disease, we expect this study will complete enrollment within
approximately two years from commencement.
Our data generation and medical affairs activities have progressed with the initiation of ten non-clinical and clinical studies in investigator-initiated
research, or IIR, programs, and the publication of 19 omadacycline manuscripts that address the use of NUZYRA in special pathogens, populations or
disease states that will further define its unique therapeutic profile. In parallel, real-world evidence from two ongoing observational studies and independent
case series continue to be published in peer reviewed journals that describe the clinical features and outcomes of patients with challenging infections,
particularly in NTM and osteomyelitis, that receive omadacycline as a therapeutic agent.
Data generation will continue to expand throughout 2021 with additional evidence from our IIR programs in areas such as diabetic foot and C.
difficile infections. In addition, non-clinical research studying the activity of omadacycline alone and in combination in an osteomyelitis model in rats and
studies in M. abscessus and Mycobacterium avium complex, or MAC, will build on the growing library of scientific data for NUZYRA.
Sarecycline
Sarecycline, also known as SEYSARA in the U.S., is a novel, next generation, narrow spectrum tetracycline designed specifically for
dermatological use. In July 2007, we exclusively licensed the right to develop and commercialize sarecycline for the treatment of acne to Warner Chilcott
Company, Inc. (which was acquired by Actavis PLC in October 2013 and became Allergan in October 2015) and, September 2018, Allergan assigned such
rights to Almirall. In February 2020, we exclusively licensed to Almirall certain technology owned or in-licensed by us or our affiliates in order to research,
develop and commercialize sarecycline for the treatment of acne in the greater China region. Almirall is responsible for all costs associated with developing
and commercializing sarecycline for the treatment of acne in the U.S. and the greater China region. In exchange for such license rights, we have the right to
receive (i) milestone payments upon the achievement of certain development- and regulatory-based
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events in the U.S. and (ii) a royalty on U.S.-based and greater China region-based net sales. With respect to our technology as it relates to sarecycline, we
retain development and commercialization rights outside of the U.S. and the greater China region and, with respect to certain technology owned or in-
licensed by Almirall or its affiliates necessary or useful to develop or commercialize sarecycline outside of the U.S. and the greater China region, we
exclusively licensed such technology from Almirall in February 2020, all of which is available for licensing to other partners in key international markets,
such as the EU, Japan, the rest of Asia (excluding the greater China region), Canada and Latin America. In the event we directly commercialize or
sublicense a third party to commercialize sarecycline outside of the U.S. and the greater China region, we owe Almirall (i) a royalty on our or our affiliates’
net sales and (ii) a percentage of the consideration (e.g., milestones, royalties) we receive from our sublicensees in connection with their development and
commercialization of sarecycline.
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.
Corporate History
We are incorporated under the laws of the State of Delaware. On October 30, 2014, Transcept Pharmaceuticals, Inc., or 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 (we refer to these mergers together as the Merger). Immediately following the Merger, Transcept changed its name to “Paratek
Pharmaceuticals, Inc.”, and Merger LLC changed its name to “Paratek Pharma, LLC.” In connection with the closing of the Merger, our common stock
began trading on The Nasdaq Global Market under the ticker symbol “PRTK” on October 31, 2014.
The Antibiotics Market and Limitations of Current Therapies
Physicians commonly prescribe antibiotics to treat patients with acute and chronic infectious diseases that are either known, or presumed, to be
caused by bacteria. The World Health Organization has identified the development of worldwide resistance to currently available antibacterial agents as
being one of the three greatest threats to human health in this decade. In a press release announcing the release of a study titled “Hospital and Societal Costs
of Antimicrobial Resistant Infections in a Chicago Teaching Hospital: Implications for Antibiotic Stewardship,” it was estimated that antibiotic-resistant
infections cost the U.S. healthcare system in excess of $20 billion annually. In addition, these infections result in more than $35 billion in societal costs and
more than 8 million additional days spent in the hospital. Historically, the majority of life-threatening infections resulting from antibiotic-resistant bacteria
were acquired in the hospital setting. According to AMR data from 2015 projected to 2028, approximately 6.7 million antibiotic treated events occur
annually in the two combined indications of ABSSSI and CABP in U.S. hospitals. Furthermore, research conducted by Paratek suggests that in these same
indications of ABSSSI and CABP there are approximately 890 thousand patients treated in U.S hospitals who fail to respond or are intolerant to the
existing generic options. In the U.S. community setting, IMS NDTI data (2014-2015) projected to 2028 suggests there are approximately 23.7 million
prescriptions for ABSSSI and CABP. Additionally, research conducted by Paratek suggests that approximately 2.1 million patients fail to respond or are
intolerant to the existing oral generics in the U.S. community setting. The emergence of multi-drug resistant pathogens, coupled with limitations in terms of
intolerance to existing generic options, emphasizes the need for novel agents capable of overcoming antibiotic resistance.
Bacteria are often broadly classified as gram-positive bacteria, including antibiotic-resistant bacteria such as methicillin-resistant Staphylococcus
aureus, or MRSA, and multi-drug resistant Streptococcus pneumoniae, or MDR-SP; gram-negative bacteria, including antibiotic-resistant bacteria such as
extended-spectrum beta-lactamases, or ESBL, producing Enterobacteriaceae; atypical bacteria, including Chlamydophila pneumoniae and Legionella
pneumophila; and anaerobic bacteria, including Bacteroides and Clostridia. Antibiotics that are active against both gram-positive and gram-negative
bacteria are referred to as “broad-spectrum”, while antibiotics that are active only against a select subset of gram-positive or gram-negative bacteria are
referred to as “narrow spectrum”. Today, because many of the currently prescribed antibiotics that have activity against resistant organisms typically are
“narrow spectrum,” they cannot be used as an empiric monotherapy treatment of serious infections where gram-
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negative, atypical or anaerobic bacteria may also be involved. Empiric monotherapy refers to the use of a single, antibacterial agent to begin treatment of an
infection before the specific pathogen causing the infection has been identified. We believe omadacycline will be used in the emergency room, hospital and
community care settings. Based on studies published by the Cleveland Clinic Foundation, the National Institutes of Health, or NIH, and American
Academy of Family Physicians, rates of infections involving organisms other than gram-positive bacteria have been found to be as much as 15% in
ABSSSI and up to 40% in CABP.
When a patient goes to the emergency room or hospital for treatment of a serious infection, the physician’s selection of which IV antibiotic to use is
often based on the severity of infection, the pathogen(s) believed most likely to be involved and the probability of a resistant pathogen(s) being present.
After initial IV therapy and once the infection begins to respond to treatment, hospitals and physicians face strong pressures to discharge patients from the
hospital to reduce costs, limit hospital-acquired infections and improve the patient’s quality of life. In order to transition patients out of the hospital and
home to complete the course of therapy, physicians typically prefer to have the option to prescribe a bioequivalent oral formulation of the same antibiotic.
Antibiotics used to treat ABSSSI, CABP and other serious, community-acquired bacterial infections must satisfy a wide range of criteria on a cost-
effective basis. For example, we believe that existing treatment options for ABSSSI, including vancomycin, linezolid, daptomycin, piperacillin tazobactam,
oritavancin, dalbavancin, tigecycline and delafloxacin; and for CABP, including levofloxacin, moxifloxacin, azithromycin, ceftriaxone, clarithromycin,
ceftaroline, delfaloxacin, lefamulin and tigecycline; have one or more of the following significant limitations:
•
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Limited spectrum of antibacterial activity. Since it may take as long as 48 to 72 hours to identify the pathogen(s) causing an infection and
most of the currently available options that cover resistant pathogens are narrow-spectrum treatments, physicians frequently prescribe two or
more antibiotics to treat a broad-spectrum of potential pathogens. For example, vancomycin, linezolid and daptomycin, the most frequently
prescribed treatments for certain serious bacterial skin infections, are narrow-spectrum treatments active only against gram-positive bacteria.
The currently available treatment with a more appropriate spectrum for use as a monotherapy against serious and antibiotic-resistant bacterial
infections is tigecycline, but it has other significant limitations, most notably dose limiting tolerability of nausea and vomiting.
Lack of both oral and IV formulations. The most common treatments for serious bacterial infections, vancomycin, daptomycin, ceftriaxone,
piperacillin tazobactam, and tigecycline are only available as injectable or IV formulations. The lack of an effective bioequivalent oral
formulation of these and many other commonly prescribed antibiotics requires continued IV therapy, which is inconvenient for the patient
and may result in longer hospital stays and greater cost. Alternatively, because of the absence of the same antibiotic in an oral, well-tolerated
formulation, physicians may switch the patient to a different orally available antibiotic at the time of hospital discharge. This carries the risk
of new side effects and possible treatment failure if the oral antibiotic does not cover the same bacteria that were being effectively treated by
the IV antibiotic therapy. While linezolid is a twice-daily IV and oral therapy, it is a narrow-spectrum treatment that is associated with
increasing bacterial resistance, side effects from interactions with other therapies and other serious safety concerns.
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•
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Safety/tolerability concerns and side effects. Concerns about antibiotic safety and tolerability are among the leading reasons why patients stop
treatment and fail therapy. The most commonly used antibiotics, such as vancomycin, linezolid, daptomycin, levofloxacin, moxifloxacin,
azithromycin, piperacillin/tazobactam and tigecycline, are associated with safety and tolerability concerns. For example, vancomycin, which
requires frequent therapeutic monitoring of blood levels and corresponding dose adjustments, is associated with allergic reactions and can
cause kidney damage, loss of balance, loss of hearing, vomiting and nausea in certain patients. Linezolid is associated with bone marrow
suppression and loss of vision and should not be taken by patients who are also on many commonly prescribed anti-depressants, such as
monoamine oxidase inhibitors and serotonin reuptake inhibitors. Daptomycin has been associated with a reduction of efficacy in patients with
moderate renal insufficiency and has a side effect profile that includes muscle damage. Piperacillin/tazobactam is not used in patients with
beta-lactam (penicillin) allergy while tigecycline is associated with tolerability concerns because of nausea and vomiting. Levofloxacin and
moxifloxacin are associated with tendon rupture and peripheral neuropathy. In July 2016, the FDA approved changes to the labels of
fluoroquinolone antibacterial drugs for systemic use (i.e., taken by mouth or by injection), stating “These medicines are associated with
disabling and potentially permanent side effects of the tendons, muscles, joints, nerves, and central nervous system that can occur together in
the same patient.” As a result, the FDA revised the Boxed Warning, FDA’s strongest warning, to address these serious safety issues. They
also added a new warning and updated other parts of the drug label, including the patient Medication Guide. Additionally, a May 2012 article
in the New England Journal of Medicine indicated that a small number of patients treated with azithromycin and quinolones, such as
levofloxacin or moxifloxacin, may experience sudden death due to cardiac arrhythmia, which is often predicted by a prolongation of the
corrected QT interval, or QTc. The FDA issued a Drug Safety Communication on March 12, 2013 titled “Azithromycin (Zithromax or Zmax)
and the risk of potentially fatal heart rhythms,” and the azithromycin drug label warnings were strengthened to address this concern.
Increasing bacterial resistance. Bacterial resistance to the most frequently prescribed antibiotics (branded or generic) has limited their
potential to treat infections, which often prevents their use as an empiric monotherapy. We believe that MRSA and MDR-SP, in the
community have posed treatment challenges because of resistance to penicillins (resistance rate up to 100% for both), cephalosporins (100%
and 11%, respectively, for ceftriaxone), macrolides (83% and 86%, respectively, for erythromycin/azithromycin) and quinolones (73% and
2%, respectively, for levofloxacin), particularly in ABSSSI and CABP. There have also been recent reports of resistance developing during
treatment with daptomycin and concerns about an increasing frequency of strains of Staphylococcus aureus with reduced susceptibility to
vancomycin. Additionally, linezolid use has been associated with drug resistance, including reports of outbreaks of resistance among
Staphylococcus aureus and Enterococcus strains.
These limitations can ultimately lead to longer hospital stays, greater healthcare costs and increased morbidity and mortality due to lower cure rates
and additional side effects. While certain antibiotics address some of these outcomes, we do not believe there is one superior treatment option that satisfies
all outcomes. We believe that it is essential for the treatment of patients with serious, community-acquired bacterial infections that physicians prescribe the
right antibiotic the first time, as ineffective antibiotics can quickly lead to progressively more severe and invasive infections or even death.
Attributes of NUZYRA
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Equivalent Once-daily oral and IV formulations to support transition therapy. We have studied once-daily IV and oral formulations of
omadacycline in more than 30 studies and approximately 2,500 subjects to-date across multiple Phase 1, Phase 2 and Phase 3 clinical trials.
The equivalent exposures of the oral and IV formulations permit transition therapy, which could allow patients to start treatment on the IV
formulation in the hospital setting then “transition” to the oral formulation of the same bioequivalent antibacterial agent once the infection is
responding enabling the patient to be released from the hospital to complete the full course of therapy at home. We believe that transition
therapy has the potential to avoid the concerns that can accompany switching from an IV agent to a different class of oral antibiotic and to
facilitate the continuance of curative therapy at home.
Broad-spectrum of antibacterial activity. Omadacycline has demonstrated in vitro activity against all common pathogens found in ABSSSI,
such as Staphylococcus aureus, including MRSA, Streptococci (including Group A Streptococci), anaerobic pathogens and many gram-
negative organisms.
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•
•
•
Omadacycline is also active in vitro against the key pathogens found in CABP, such as Streptococcus pneumoniae, including MDR-SP,
Staphylococcus aureus, Haemophilus influenzae and atypical bacteria, including Legionella pneumophila. On the basis of the in vitro
spectrum of activity demonstrated by omadacycline against a range of pathogens in our pre-clinical testing, we believe omadacycline has the
in vitro spectrum of coverage needed to potentially become the primary antibiotic choice of physicians and serve as an empiric monotherapy
option for ABSSSI and CABP where resistance is of concern.
Generally safe and well tolerated profile. To date, we have observed omadacycline to be generally well tolerated in studies involving
approximately 2,500 subjects. We have conducted a thorough QTc study, as defined by FDA guidance to assess prolongation of QTc, an
indicator of cardiac arrhythmia. This study suggests no prolongation of QTc by omadacycline at three times the therapeutic exposure. In
addition, phase 3 clinical studies support that lack of cardiovascular effects associated with omadacycline. There have been no Adverse
Events, or AEs, of ventricular arrhythmia, QT prolongation, seizures, syncope, or sudden death in the completed studies. Further, in clinical
studies, omadacycline does not appear to adversely affect blood cell production, nor does it appear to metabolize in the liver or anywhere else
in the body, thus reducing the likelihood of causing drug-to-drug interactions. Additionally, omadacycline has resulted in low rates of
diarrhea, and we have not observed confirmed cases of Clostridium difficile infection, which can frequently occur from the use of other
classes of broad-spectrum antibiotics such as beta-lactams and quinolones.
Designed to overcome bacterial resistance. We designed omadacycline to overcome the two major mechanisms of tetracycline resistance,
known as pump efflux and ribosome protection. This approach was via structure-activity relationship chemistry-based modifications of the
seven and nine positions of minocycline. Our attempts to generate resistance to omadacycline in the laboratory suggest a low potential for
developing resistance. In addition, our testing of thousands of bacterial samples in the laboratory suggests that omadacycline has not been
affected to date by clinically relevant mechanisms of resistance to tetracyclines or to any other class of antibiotics.
Tissue penetration. Omadacycline appears to penetrate tissues broadly, including lung, muscle, and kidney, thereby achieving high
concentrations at the sites of infection. Because omadacycline is eliminated from the body (as unchanged parent compound) via the kidneys
and intestine in an expected manner, based on the results of our Phase 1 studies, we believe it may potentially be used in patients with
diminished kidney and liver function, without dose adjustment, and may potentially have benefit in patients receiving poly-pharmacy, where
drug-drug interactions are of concern. We have completed pre-clinical work evaluating omadacycline for the potential treatment of sinusitis,
also known as an acute sinus infection or rhinosinusitis.
Omadacycline Post-Approval Requirements in the U.S.
Under the Pediatric Research Equity Act (21 U.S.C. 355c), or PREA, all applications for new active ingredients are required to contain an
assessment of the safety and effectiveness of the product for the claimed indication in pediatric patients unless this requirement is waived, deferred, or
inapplicable. As part of the approval for NUZYRA, the FDA has waived the pediatric study requirement for ages 0 to < 8 years and deferred submission of
pediatric studies for ages 8 to < 18 years. Specifically, the FDA has requested that we complete three pediatric studies, including a pediatric PK study
followed by safety and efficacy studies in pediatric patients with both CABP and ABSSSI. In addition to pediatric requirements, as with all antibiotic
approvals, the FDA has also required a U.S. surveillance study for five years from the date of marketing to monitor for the development of resistance to
NUZYRA (omadacycline) in those organisms specific to the indications in the label. Lastly, FDA has required a second study be conducted in patients
with CABP. We plan to enroll our first patient in this second CABP study as early as the first quarter of 2021.
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NUZYRA Commercialization Strategy
We currently market NUZYRA in the U.S. as an empiric monotherapy and plan for NUZYRA to be commercialized worldwide for the treatment of
serious, community-acquired bacterial infections. We retain worldwide commercial rights to omadacycline, with the exception in the People’s Republic of
China, Hong Kong, Macau and Taiwan, where we have entered into a collaboration agreement with Zai Lab (Shanghai) Co., Ltd., or Zai. In the U.S. and
Europe, we continue to reserve the right to either commercialize omadacycline alone, through one or more pharmaceutical companies that have established
commercial capabilities, or some combination thereof.
NUZYRA was launched into the hospital and adjacent sites of care settings in February 2019 with 40 customer-facing representatives sourced
through a contract sales organization, or CSO. This number increased to approximately 60 customer-facing representatives by the end of 2020. Consistent
with our original commercial launch plan, we terminated the agreement with our CSO on December 31, 2020 and began hiring customer-facing
representatives as employees on January 1, 2021.
In February 2021, we announced plans to expand our launch of NUZRYA into the community setting based on NUZYRA's product attributes,
including its once-daily oral formulation, broad reimbursement coverage and infectious disease physician support. The Company's expansion of
commercial promotion into the community setting will focus initially on ABSSSI, with a plan to broaden promotion to include CABP after the anticipated
approval of the oral-only loading-dose regimen for CABP expected during the second quarter of 2021. Upon completion of the community-based
expansion, we anticipate having a sales force to address both the community and hospital settings of approximately 90 to 100 customer-facing
representatives. The expansion of the sales organization builds upon a focused and targeted community sales pilot program conducted in the second half of
2020. The data provided by the pilot suggest NUZYRA has an opportunity to address significant unmet needs in the community setting through building
awareness among primary care physicians, leading to meaningful trial and adoption with positive patient outcomes. We expect to accomplish this initial
phase of the community expansion within the first quarter of 2021.
We believe that there is a similar rapidly growing need in other markets throughout the world, including Europe, established Asian markets such as
Japan and Korea, and emerging markets, such as Russia, South America and India. We plan to pursue expansion of omadacycline to these markets through
collaboration or distribution arrangements.
Business Update Regarding COVID-19
The COVID-19 pandemic continues to present a substantial public health and economic challenge around the world and is continuing to affect our
employees, health care institutions, patients, communities and business operations, as well as the U.S. economy and financial markets. The COVID-19
related restrictions on in-person promotional access to health care institutions and the overall impact of COVID-19 restrictions on the health care and
hospital environments could restrict the full potential of NUZYRA’s growth. The length of time and full extent to which the COVID-19 pandemic will
directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and
cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the
economic impact on local, regional, national and international markets.
To date, we and our partners have been able to continue to supply our products to our patients worldwide and currently do not anticipate any
interruptions in supply for the foreseeable future. Regarding our clinical programs, enrollment in our study designed to show that an oral-only loading dose
regimen will have a comparable pharmacokinetic profile to the approved IV loading dose regimen in patients with CABP that was established in the Phase
3 registration study was stopped early in 2021 due to COVID-19 restrictions at the clinical centers. We continue to assess the potential impact of the
COVID-19 pandemic on our business and operations, including our sales, expenses, supply chain and other clinical studies.
Our office-based employees have been working from home since early March 2020. We suspended in-person interactions by our customer-facing
personnel in healthcare settings during the majority of the second quarter of 2020. During this period of suspended in-person interactions, we engaged with
our customers remotely in an effort to continue to support and educate healthcare professionals. In late June 2020, our customer-facing personnel began
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re-engaging with our customers in a manner consistent with guidance issued by the Centers for Disease Control and Prevention and other state and local
mandates. Our customer-facing personnel are now operating through a hybrid model of both virtual and in-person engagement.
Our third-party contract manufacturing partners continue to operate their manufacturing facilities at or near normal levels. While we currently do
not anticipate any interruptions in our supply chain, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on
our and/or our third-party suppliers’ and contract manufacturing partners' ability to manufacture our products or the products of our partners. The COVID-
19 pandemic has prevented technical service, quality assurance and supply operations personnel from traveling to our third-party contract manufacturing
partners in Europe.
For additional information on the various risks posed by the COVID-19 pandemic, refer to and Item 1A. Risk Factors and Item 3. Quantitative and
Qualitative Disclosures About Market Risk included in this report.
Human Capital Management
Employees
As of February 26, 2021, we had 197 total employees, 196 of whom are full-time employees and 31 of whom were primarily engaged in research
and development activities. A total of 14 employees have an M.D., Pharm.D, or Ph.D. degree. None of our employees are represented by a labor union, and
we consider our employee relations to be good.
Our Corporate Culture
We are driven by our mission to develop transformative medicines for patients with life-threatening diseases and solutions that lead to positive
patient stories. Our vision is to be a leading independent biopharmaceutical company providing novel life-saving products for life-threatening diseases or
other public health threats for civilian, government and military use. We were founded and continue to be built on our four core values: purposeful,
passionate, resourceful, and collaborative.
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The foundation of our company culture requires us to always maintain our commitment to these core values. We have a shared commitment to act
with integrity and take responsibly for our actions. All employees are responsible for upholding our reputation and conducting business to the highest legal
and ethical standards. Ethical decision making is the foundation for how we do business. Our Code of Business Conduct and Ethics, or the Code, describes
fundamental principles to guide our actions and is designed to help employees make the right decisions. Consistent with our commitment to conducting our
business ethically and compliantly, we have implemented a comprehensive compliance program governing our business operations which implements the
principles set forth in the Code. To facilitate compliance with the Code, we have implemented a program of code awareness, training and annual review.
Fostering and maintaining a strong, healthy culture is a key strategic focus. Our core values reflect who we are and the way our employees interact
with one another, our customers, partners and shareholders. Our Board of Directors, or Board, also provides oversight and guidance to support the
continued focus on and importance of culture to our Company. We are an equal opportunity employer. We do not tolerate discrimination against applicants
or employees based on race, color, religion, national origin, sex, pregnancy, age, marital status, sexual orientation, genetic information, citizenship status,
disability, veteran status or any other characteristic protected by law. We prohibit discrimination in decisions concerning recruitment, hiring, compensation,
benefits, training, termination, promotions or any other terms and conditions of employment or career development. We are committed to providing a work
environment that is free from discrimination and harassment of any type. Each person, at every level of the organization, must act with respect and civility
toward customers, coworkers, and outside firms.
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Corporate Sustainability
We understand that delivering on our mission over the long term requires a focus on corporate sustainability, including environmental, social, and
governance considerations. Specifically, we focus on the following:
•
•
•
•
Patient Support: We are committed to ensuring our innovations reach as many patients as possible, as quickly as possible. We provide patient
support and education programs.
Diversity and Inclusion: We strive to promote diversity, inclusion, equal opportunity and personal development. As of January 2021, women
make up more than half of our workforce and ethnic or racial minorities make up more than twenty-six percent of our total employee
population.
Dedication to Employees: We believe in the importance of investing in our employees’ health, safety, wellness, and ongoing professional
development.
Community Involvement: Supporting and giving back to the communities in which we live and work are at the core of our values. Through
both corporate initiatives and individual contributions of our employees, we seek to make a difference.
Our Board sets high standards for our employees, officers and directors. Implicit in this philosophy is the importance of sound corporate
governance. It is the duty of the Board to serve as a prudent fiduciary for shareholders and to oversee the management of our business. To fulfill its
responsibilities and to discharge its duty, our Board follows the procedures and standards that are set forth in our Code of Business Conduct and Ethics,
which are subject to modification from time to time as the Board deems appropriate in our best interests or as required by applicable laws and regulations.
Our industry is highly regulated, and is governed by many international, federal, state, and local laws. It is our policy to conduct activities in
compliance with all applicable laws, regulations, and industry standards as well as scientific research standards and guidelines.
Patient safety is our highest priority, and we are committed to providing safe and effective products to our patients. We work closely with
government entities, like the FDA, to ensure the safety and efficacy of products and follow all requirements regarding manufacturing, registration, and
promotion of prescription drugs.
Compensation and Benefits
Our compensation program is designed to align the compensation of our employees with performance and provides the proper incentives to attract,
retain and motivate employees to achieve superior results. To achieve our objectives, we evaluate our compensation program with the goal of setting total
compensation at levels that align with our mission, industry, company size, and life stage. While we do not have a formal policy for allocating between
long-term and short-term compensation, between cash and non-cash compensation or among different forms of non-cash compensation, we generally strive
to provide our employees with a balance of short-term and long-term incentives to encourage consistently strong performance. To incentivize strong
performance, two key elements of our employee compensation are variable—annual cash incentive compensation, which is earned based on our
Compensation Committee’s assessment of our Company’s annual performance, and performance-based restricted shares, restricted shares, and stock
options, which deliver value only to the extent the value of our stock increases.
We believe that the most effective compensation program will promote company performance, encourage progress toward achieving our mission,
and reward value creation for our stockholders. Our compensation program is designed to:
•
•
attract and retain superior employees with the skills and values to contribute to our long-term success;
provide incentives that motivate and reward the achievement of performance goals and that encourage retention; and
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•
align employees’ interests with those of stockholders by rewarding the achievement of short- and long-term strategic and financial goals,
including those tied to short- and long-term value creation for our stockholders.
We offer comprehensive benefit programs to our employees that provide flexibility of choice through a framework of pay and recognition, health
and wellness, financial well-being, work/life happiness, culture and community, and learning and development. We recognize and support the growth and
development of our employees and offer opportunities to participate in internal as well as external learning programs.
We continually monitor employee turnover rates, as our success depends upon retaining our highly trained personnel. We believe the combination
of competitive compensation and career growth and development opportunities have helped increase employee tenure and reduce voluntary turnover.
Our recruiting practices and decisions on whom to hire are among our most important activities. We utilize social media, local job fairs and
educational organizations across the U.S. to find diverse, motivated and responsible employees.
Paratek PROUD
The Paratek PROUD Program, or the Program, is an employee recognition program that acknowledges an employee’s behavior, contribution, and
impact in the workplace. The Program is multi-faceted with the goal to encourage employee engagement, build a supportive and active work environment
and culture, drive operational excellence to enhance business outcomes, and retain top talent and increase company loyalty. The Program recognizes
service anniversaries through a certificate of recognition, crystal plaque, and monetary gift.
Competition
NUZYRA 100 mg for injection and 150 mg tablets are distributed in the U.S. exclusively through a limited network of specialty pharmacy
providers and distributors. This distribution process is designed to provide the best possible provider and patient experience and improve patient adherence
to the indicated dosing.
We have contracted with the Lash Group, a third-party organization with extensive experience in delivering patient support services to help
healthcare providers and patients access our network of specialty pharmacies and navigate the insurance process.
Paratek also employees Market Access Account Managers who educate payors and hospital formulary committee members about NUZYRA and a
Trade Team that works with our network of specialty pharmacies and distributors to assist in the execution of our distribution plan.
Three of the nation’s largest Pharmacy Benefit Managers, CVS Caremark, Express Scripts and OptumRx, have listed NUZYRA 150 mg tablets on
their commercial formulary. Approximately 83% of insured commercial lives in the U.S. have coverage for NUZYRA 150 mg tablets. Among those
commercially insured covered lives, approximately 21% require a prior authorization.
On October 1, 2019, NUZYRA 100 mg for injection was issued a permanent J-code under the Healthcare Common Procedure Coding System,
which is a standardized code system necessary for medical providers to submit healthcare claims to Medicare and other health insurances in a consistent
and orderly manner. NUZYRA 100 mg for injection, has also received transitional pass-through status from the Centers for Medicare and Medicaid
Services, or the CMS, which is intended to encourage the use of newly FDA-approved medical devices, drugs, and biologics to increase Medicare patients’
access to these innovative therapies by paying hospital outpatient departments more than the established facility fees. Pass-through status is temporary
lasting at least two but not more than three years. NUZYRA 100 mg for injection was granted a New Technology Add-On Payment, or NTAP, by CMS, on
October 1, 2020. NTAP provides an additional payment to hospitals for the costs of new medical services and technologies under the Inpatient Prospective
Payment System, or IPPS, for Medicare patients treated in a hospital inpatient setting. NTAP status is temporary and lasts at least two but not more than
three years. The NTAP reimbursement
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policy has been in effect since 2001 and offers some financial support for hospitals that understand how to utilize the NTAP billing mechanism and choose
to use newer drugs rather than rely on older generics due to cost.
Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical companies and generic drug
companies. We believe that our product candidates offer key potential advantages over competitive products that could enable our product candidates to
capture meaningful market share from our competitors.
NUZYRA competes with other antibiotics in the serious bacterial skin infection market. These include, but are not limited to, vancomycin,
marketed as a generic by Abbott Laboratories and others; linezolid, marketed as Zyvox by Pfizer Inc. and available as a generic; daptomycin, marketed as
Cubicin by Merck Pharmaceuticals, Inc. and available as a generic; dalbavancin, marketed as Dalvance by Abbvie; tedizolid, marketed as Sivextro by
Nabriva Therapeutics.; oritavancin, marketed as Orbactiv and delafloxacin marketed as Baxdela by Melinta Therapeutics, Inc.; quinupristin/dalfopristin,
marketed as Synercid by Pfizer, Inc.; tigecycline, marketed as Tygacil by Pfizer Inc. and available as a generic; telavancin, marketed as Vibativ by
Cumberland Therapeutics Inc.; ceftaroline, marketed as Teflaro by Abbvie; and generic trimethoprim/sulfamethoxazole and clindamycin.
Further, we expect that product candidates currently in review with the FDA, in Phase 3 clinical development, or that could enter Phase 3 clinical
development in the near future, may represent significant competition if approved. These include, but are not limited to, CG-400549, under development by
Crystal Genomics; GSK2140944, under development by GSK; nemonoxacin, under development by TaiGen Biotechnology and brilacidin, under
development by Cellceutix.
NUZYRA also competes with other antibiotics in the community-acquired pneumonia market. These include azithromycin, marketed as Zithromax
and Z-PAK by Pfizer Inc. and available as a generic; clarithromycin, marketed as Biaxin by Abbott Laboratories and available as a generic; moxifloxacin,
marketed as Avelox by Bayer AG and available as a generic; levofloxacin, marketed as Levaquin by Johnson & Johnson and available as a generic;
tigecycline, marketed as Tygacil by Pfizer Inc. and available as a generic; linezolid, marketed as Zyvox by Pfizer Inc. and available as a generic;
ceftriaxone, marketed as Rocephin by F. Hoffman-La Roche Ltd and available as a generic; and ceftaroline, marketed as Teflaro by Abbvie, delafloxacin
marketed as Baxdela by Melinta Therapeutics Inc; lefamulin marketed as Xenleta by Nabriva Therapeutics. We are also aware of various drugs that are or
may eventually be under development for the treatment of CABP, including, but not limited to, GSK2140944, under development by GSK and
nemanoxacin, under development by TaiGen Biotechnology.
Many of our potential competitors have substantially greater financial, technical and human resources than we do, as well as greater experience in
marketing products, discovering and developing product candidates, obtaining FDA and other regulatory approvals of products and the commercialization
of those products. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than our products or any other product candidate
we may commercialize and may render our products or product candidates obsolete or non-competitive before we can recover the expenses of our
development and commercialization. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced
technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our products or product
candidates non-competitive or obsolete.
Manufacturing
We do not own or operate manufacturing facilities for the production of any of our products, nor do we have plans to develop our own
manufacturing facilities in the foreseeable future. Our products are manufactured in synthetic processes from starting materials that have to date been
generally available.
The manufacturing process of omadacycline tosylate has been validated at commercial scale. The active pharmaceutical ingredient manufacturing
process is a three-step synthesis followed by purification and salt formation. The starting material is minocycline, which is well characterized and readily
available. In 2018, we completed three process validation batches each for the IV and oral formulations of omadacycline, which have subsequently been
put on stability. We have entered into commercial supply agreements with commercial
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manufacturing organizations as described below, to manufacture and supply the drug substance, drug product and finished packaged product.
CIPAN
In November 2016, we entered into a manufacturing and services agreement with CIPAN – Companhia Industrial Produtora de Antibióticos, or
CIPAN. The agreement, as subsequently amended, provides the terms and conditions under which CIPAN will manufacture and supply to us increased
quantities of minocycline starting material and crude omadacycline, or the CIPAN Products, for purification into omadacycline and, subsequently, for use
in our products that contain omadacycline tosylate as the active pharmaceutical ingredient. Under this agreement, we are obligated to pay a CIPAN Product
price in the four-digit U.S. dollar range per kilogram for minocycline starting material and in the four-digit or five-digit U.S. dollar range per kilogram for
crude omadacycline, based on the annual volume of crude omadacycline that we order, subject to adjustments as set forth in the agreement. In April 2018,
we entered into an amended and restated manufacturing and services agreement with CIPAN, which included an investment us in a new facility area to
increase the manufacturing capacity for production of crude omadacycline. CIPAN will also perform certain services related to development, technology
transfer and manufacturing of the CIPAN Products as provided in one or more statements of work, which shall set forth the fees payable by us to CIPAN
for such services.
Our agreement with CIPAN will remain in effect for an initial term, as extended, after which the agreement will continue, with respect to each
CIPAN Product, for successive renewal terms unless either we or CIPAN have given written notice of termination within a certain period prior to the
expiration of either the initial or then-current renewal term. The agreement may also be terminated under certain other circumstances, including by either
party due to a material uncured breach by the other party or the other party’s insolvency.
Carbogen
In December 2016, we entered into a manufacturing and services agreement with CARBOGEN AMCIS AG, or Carbogen. The agreement, as
subsequently amended, provides for the terms and conditions under which Carbogen will manufacture and supply to us the active pharmaceutical
ingredient for our omadacycline drug products in bulk quantities, or the Carbogen Product. Under this agreement, we are responsible for the cost and
supply of crude omadacycline that Carbogen requires to manufacture the Carbogen Products and perform related services. We are obligated to pay
Carbogen an amount in the seven-digit U.S. dollar range per campaign of Carbogen Product that we order, depending on the number of batches in the
campaign, and the price may be adjusted in accordance with the terms of the agreement. We may also request that Carbogen perform certain services
related to the Carbogen Product, for which we will pay reasonable compensation to Carbogen.
Our agreement with Carbogen will remain in effect for a fixed initial term and subsequent renewal terms. Both parties, however, are required to
use diligent efforts to replace the existing agreement with a subsequent long-term agreement. We may terminate this agreement by delivering notice of
termination to Carbogen. The agreement may also be terminated under certain other circumstances, including by either party due to a material uncured
breach by the other party or the other party’s insolvency.
Almac
In December 2016, we entered into a manufacturing and services agreement with Almac Pharma Services Limited, or Almac. The manufacturing
agreement, as subsequently amended, provides for the terms and conditions under which Almac will manufacture, package and supply to us omadacycline
oral solid dosage tablets in bulk form, or the Almac Products. Under this manufacturing agreement, we are required to use commercially reasonable efforts
to timely provide Almac with the active pharmaceutical ingredient needed to manufacture the Almac Products and perform related services. We are
obligated to pay a supply price in the five-digit range in Great Britain Pounds, or GBP, per batch of the Almac Products, subject to adjustments as provided
in the manufacturing agreement. We are also subject to an annual minimum revenue commitment in the six-digit GBP range. We will also negotiate with
Almac, as part of each individual scope of work, the reasonable costs for the services to be performed for us by Almac.
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The agreement with Almac will remain in effect for a fixed initial term, after which the agreement will continue for successive renewal terms
unless either us or Almac have given written notice of termination within a certain period prior to the expiration of the initial or then-current renewal term.
The agreement may also be terminated under certain other circumstances, including by either party due to a material uncured breach of the other party or
the other party’s insolvency.
Patheon
In July 2017, we entered into a master manufacturing services agreement and corresponding product agreement with Patheon UK Limited, or
Patheon. The agreements, as subsequently amended, provide for the terms and conditions under which Patheon will manufacture, package and supply to
us, omadacycline in injectable form, or the Patheon Products. Under these agreements, we are required to deliver to Patheon the active pharmaceutical
ingredient needed to manufacture the Patheon Products. We are obligated to pay a supply price in the six-digit dollar range per batch of the Patheon
Products, subject to adjustments as provided in the agreements. Now that our omadacycline product has been approved, we are also subject to an annual
minimum purchase requirement in the six-digit U.S. dollar range. If we desire for Patheon to conduct additional services other than those expressly set
forth in the agreements, those would be subject to additional fees.
Our agreements with Patheon will remain in effect for a fixed initial term, after which they will continue for successive renewal terms unless either
we or Patheon have given written notice of termination within a certain period prior to the expiration of the applicable initial or then-current renewal term.
The agreements may also be terminated under certain other circumstances, including by either party due to a material uncured breach of the other party or
the other party’s insolvency.
Research and Development
We have and will continue to make substantial investments in research and development. Our research and development expenses totaled $23.9
million and $39.6 million in 2020 and 2019, respectively.
In the ordinary course of business, we enter into agreements with third parties, such as contract research organizations, medical institutions,
government agencies, clinical investigators and contract laboratories, to conduct our clinical studies and aspects of our research and preclinical testing.
These third parties provide project management and monitoring services and regulatory consulting and investigative services.
Intellectual Property
The proprietary nature of, and protection for, our proprietary drug development platform, our product candidates and our discovery programs,
processes and know-how are important to our business. We seek patent protection in the U.S. and internationally for areas such as composition of matter
and the chemistries that allow for the synthesis of novel, substituted tetracycline compounds that exhibit significant antibacterial and/or anti-inflammatory
activity, and any other technology to which we have rights, where available and when appropriate. Our policy is to pursue, maintain and defend patent
rights, whether developed internally or licensed from third parties, and to protect the technology, inventions and improvements that are commercially
important to the development of our business. We also rely on trade secrets that may be important to the development of our business.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our proprietary
technologies and compounds, our current product and future product candidates and the methods used to develop and manufacture them, as well as
successfully defending these patents against third-party challenges. Our ability to prevent third parties from making, using, selling, offering to sell or
importing our products and technology depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these
activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications
filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially
useful in protecting our technology.
As of December 31, 2020, our patent portfolio of owned or exclusively licensed patents and applications includes 63 issued U.S. patents, 18
pending U.S. patent applications and corresponding foreign national or regional
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counterpart patents or applications. We expect that the patents and patent applications in this portfolio, if issued, and if the appropriate maintenance,
renewal, annuity or other government fees are paid, would expire between 2020 and 2039, excluding any additional terms from patent term adjustments or
patent term extensions under the Hatch-Waxman Amendments.
NUZYRA (omadacycline)
The patent portfolio for omadacycline is directed to cover compositions of matter, formulations, salts and polymorphs, manufacturing methods,
methods of use, dosing regimens, and modes of administration. The patents and patent applications covering omadacycline include patents and patent
applications owned by us. In some corresponding foreign patents and patent applications, omadacycline is covered along with other compounds in patents
and patent applications that are owned jointly by us and Tufts University, or Tufts, that are subject to a license agreement we have with Tufts. The issued
composition of matter patent in the U.S. (U.S. Patent No. 7,553,828), if the appropriate maintenance, renewal, annuity, or other governmental fees are paid,
was expected to expire in 2023, however, we believe that additional term for certain omadacycline patents may result from the patent term extension
provision of the Hatch-Waxman Amendments of 1984, including the composition of matter patent which is anticipated to be extended until May 2028 and a
method of use patent (U.S. 9,265,740) is expected to be extended until October 2030. Filings for both patent term extensions have been made with the U.S.
Patent & Trademark Office. Omadacycline has received Qualified Infectious Disease Product, or QIDP, designation under the Generating Antibiotic
Incentives Now Act, or the GAIN Act. This may provide up to an additional five years of market exclusivity layered with protection provided by the
Hatch-Waxman Amendments, which GAIN also enables exclusivity to 2028. We expect that the other patents and patent applications in this portfolio, if
issued, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, would expire between 2021 and 2039, excluding any
additional terms from patent term adjustments or patent term extensions under the Hatch-Waxman Amendments.
SEYSARA (sarecycline)
The patent portfolio for our acne and rosacea program is directed to cover compositions of matter, methods of use, methods of manufacturing, as
well as salts and polymorphs of sarecycline. Amongst other patent filings and granted patents, our patent portfolio includes issued U.S. Patent
No. 8,318,706, or the ‘706 Patent, which covers composition of matter of sarecycline and issued U.S. Patent No. 8,513,223, or the ‘223 Patent, which
covers methods of use for sarecycline, and corresponding foreign national or regional counterpart applications. The ‘706 Patent is expected to expire in
2032 (this expiry taking into account the expected patent term extension as provided by the Hatch-Waxman Amendments) and the ‘223 Patent is expected
to expire in 2029, if the appropriate maintenance, renewal, annuity or other governmental fees are paid. Filing for the patent term extension has been made
with the U.S. Patent & Trademark Office. In February 2020, we finalized a license agreement with Almirall granting us exclusive rights to 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.,
including exclusive rights in joint intellectual property and certain Almirall solely-owned intellectual property.
Intermezzo
As of December 31, 2020, our patent portfolio of owned or exclusively licensed patents and applications includes four issued U.S. patents directed
to formulations and methods of use. The issued U.S. patents expire between 2025 and 2029.
Trade Secrets
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can
be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and invention assignment
agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These agreements are designed to protect our
proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a
relationship with a third-party. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical
security of our premises and physical and electronic security of our information technology systems.
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Trademarks
We have registered trademarks and service marks or pending trademark and services mark applications in a number of countries for PARATEK,
PARATEK & HEXAGON DESIGN, NUZYRA and its design logo, and other marks which we presently use or may use in connection with our
pharmaceutical research and development as well as with our product candidates. SEYSARA is a trademark for which Almirall has registered in the U.S.
and China and for which Paratek has applied for in a number of foreign countries. In connection with the ongoing development and advancement of our
products and services in the U.S. and in various international jurisdictions, we routinely seek to create protection for our marks and enhance their value by
pursuing trademarks and service marks where available and when appropriate.
Collaborations and License Agreements
Our commercial strategy is to partner with established pharmaceutical companies to develop and market products for the larger community
markets, while retaining certain rights to products aimed at concentrated markets, such as hospital-based products, where we may seek to participate in
development and commercialization.
Biomedical Advanced Research and Development Authority
On December 18, 2019, we entered into a contract with BARDA, a division of the U.S Department of Health and Human Services’ Office of the
Assistant Secretary for Preparedness and Response, to support the development of NUZYRA for the treatment of pulmonary anthrax, FDA 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 SNS for use
against potential biothreats.
The BARDA contract could result in payments to us 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, we 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
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. BARDA has exercised two options that respectively cover manufacturing-related requirements and post-licensure
commitments required by the FDA. The remaining contract options may be exercised to perform additional studies necessary for licensure for the
prophylaxis of anthrax 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 two exercised options
awarded approximately $76.8 million for existing FDA PMR commitments which began in April 2020 and approximately $20.4 million for manufacturing-
related requirements which also began in April 2020. The remaining option funding 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 at BARDA’s discretion 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.
Tetraphase Pharmaceuticals, Inc.
On March 18, 2019, Paratek and Tetraphase Pharmaceuticals, Inc., or Tetraphase, which is now a subsidiary of La Jolla Pharmaceutical Company,
entered into a License Agreement, or the Tetraphase License Agreement. Under the terms of the Tetraphase License Agreement, we 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 XERAVATM, 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 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
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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 XERAVATM (Eravacycline) 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.
Zai Lab (Shanghai) Co., Ltd.
On April 21, 2017, Paratek Bermuda Ltd., a former 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 People’s Republic of China, 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, we 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 People’s Republic of China in December 2019. We are eligible to receive $6.0 million upon
regulatory approval for a licensed product in the People’s Republic of China, which we anticipate occurring in 2021, and up to $40.5 million in potential
future commercial milestone payments. The terms of the Zai Collaboration Agreement also provide for Zai to pay us 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.
Almirall, LLC
In July 2007, we and Warner Chilcott Company, Inc. (which became a part of Allergan), entered into a collaborative research and license
agreement, under which we 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, we and Almirall are responsible for, and are obligated to use, commercially
reasonable efforts to conduct specified development activities for the treatment of acne and, if requested by Almirall, we may conduct certain additional
development activities to the extent we determine in good faith that we have the necessary resources available for such activities.
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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. We have 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.
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.
We 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 NDA 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. As the performance obligation to deliver the license was
satisfied in 2007 and research and development services 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. Therefore, the $5.0 million milestone payment was recognized in
December 2017 and subsequently collected in the first quarter of 2018.
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. Almirall is also obligated to pay us 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 us 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.
Either we or Almirall may terminate the Almirall Collaboration Agreement for certain specified reasons at any time after Almirall has commenced
development of any tetracycline compound, including if Almirall determines that it would not be commercially viable to continue to develop or
commercialize the tetracycline compound and/or that it is unlikely to obtain regulatory approval of the tetracycline compound, and, in any case, no backup
tetracycline compound is in development or ready to be developed and the parties are unable to agree on an extension of the development program or an
alternative course of action. Either we or Almirall may terminate the Almirall Collaboration Agreement for the other party’s uncured breach of a material
term of the agreement on 60 days’ notice (unless the breach relates to a payment term, which requires a 30-day notice) or upon the bankruptcy of the other
party that is not discharged within 60 days. Upon the termination of the Almirall Collaboration Agreement by Almirall for our breach, Almirall’s license
will continue following the effective date of termination, subject to the payment by Almirall of the applicable milestone and royalty payments specified in
the agreement unless our breach was with respect to certain specified obligations, in which event the obligation of Almirall to pay us any further royalty or
milestone payments will terminate. Upon the termination of the Almirall Collaboration Agreement by us
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for Almirall’s breach or the voluntary termination of the agreement by Almirall, Almirall’s license under the agreement will terminate.
In February 2020, we entered into (i) the Ex-U.S. License, under which Almirall, or the Ex-U.S. License, granted to us 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 in all
countries other than the U.S. and (ii) a license agreement with Almirall that is specific to the greater China region, or the China License, under which we
granted to Almirall an exclusive license in and to certain technology owned or in-licensed by us or our affiliates in order to research, develop and
commercialize sarecycline for the treatment of acne in the greater China region.
Under the terms of the Ex-U.S. License, at our request, and subject to certain limitations, Almirall will provide us, our affiliates and our
sublicensees with reasonable assistance in connection with our efforts to (i) source commercial supplies of sarecycline products, (ii) implement the then-
current process for manufacturing sarecycline products at our facilities or at the facilities of our contract manufacturers, including any updates to such
manufacturing process, and (iii) qualify commercial suppliers of sarecycline products.
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 and has certain time-based diligence requirements.
We and Almirall have each agreed during the term of the Ex-U.S. License and the term of the China License to use commercially reasonable efforts
to not, directly or indirectly, make sarecycline products commercialized by us, our respective affiliates or our respective sublicensees available for resale in
the other’s respective territory or territories.
No upfront fees or milestones are owed in connection with either the Ex-U.S. License or the China License.
In connection with the Ex-U.S. License, we pay Almirall, on a country-by-country and product-by-product basis, (i) 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 third-party
sublicensees in connection with developing and commercializing sarecycline outside of the U.S., which ranges from one-half of such consideration for
sarecycline products for the treatment of acne to one-fifth of such consideration for sarecycline products for the treatment of other indications, in each case
subject to a 50% reduction for any sarecycline product not in a solid oral tablet formulation for which Paratek or its affiliates have incurred significant
development costs and (ii) for eight years following the first commercial sale of a sarecycline product in a country, a royalty in the middle-single digits on
our or our affiliates’ net sales of sarecycline products outside of the U.S., 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 us 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.
Both the Ex-U.S. License and the China License terminate upon full satisfaction and expiration of a party’s payment obligations under the relevant
agreement. We may terminate the Ex-U.S. License for convenience upon sixty days’ notice. Almirall may terminate the China License for convenience
upon sixty days’ notice. Either we or Almirall may terminate the Ex-U.S. License or the China License for the other party’s uncured breach of a material
term of the agreement on sixty days’ notice (unless the breach relates to a payment term, which requires thirty days’ notice) or upon the bankruptcy of the
other party that is not discharged within sixty days. Upon the termination of the Ex-U.S. License by us for Almirall’s breach or insolvency, our license will
continue following the effective date of termination, subject to the payment by us of the applicable royalty payments specified in the Ex-U.S. License
(unless Almirall’s breach relates to a certain specific obligation, in which case, our license survives royalty-free). Upon the termination of the Ex-U.S.
License by Almirall for our breach or insolvency or upon our voluntary termination of the Ex-U.S. License, our license under the Ex-U.S. License will
terminate. Upon the termination of the China License by Almirall for our breach or insolvency, Almirall’s license will continue following the effective date
of termination, subject to the payment by Almirall of the applicable royalty payments specified in the China License (unless our breach relates to a certain
specific obligation, in which case, Almirall’s license survives royalty-free). Upon the termination of the China License by us for Almirall’s breach or
insolvency or upon Almirall’s voluntary termination of the China License, Almirall’s license under the China License will terminate.
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Tufts University
In February 1997, we and Tufts entered into a license agreement under which we 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. We subsequently entered into eleven amendments to that agreement, or
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 royalty rate and
percentage of sublicense income paid by us to Tufts under sublicense agreements with specified sublicensees. We are obligated under the Tufts License
Agreement to provide Tufts with annual diligence reports and a business plan and to meet certain other diligence milestones. We have 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. We are 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 our sole expense. We have the first right, but not the obligation, to
enforce the licensed intellectual property against infringement by third parties.
We issued Tufts 1,024 shares of our common stock on the date of execution of the original license agreement, and we may be required to make
certain payments of up to $0.3 million to Tufts upon the achievement by products developed under the agreement of specified development and regulatory
approval milestones. We have already 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 our first marketing application (NDA)
submitted in the U.S. We are also obligated to pay Tufts a minimum royalty payment in the amount of $25,000 per year. In addition, we are 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 we enter into a sublicense under the Tufts License Agreement, based on the applicable field of use for such product, we 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 us that are
reasonably attributable to the sublicense of the rights granted to us 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 us by the sublicensee or (b) the
amount of royalty payments that would have been paid by us to Tufts if we had sold the products.
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 us
under the agreement and after any such expiration we 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 we 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 we have started to commercialize a
product under the Tufts License Agreement, we cease to carry on its business for a period of 90 consecutive days. We have the right to terminate the Tufts
License Agreement at any time upon 180 days’ notice. Tufts has the right to convert our exclusive license to a non-exclusive license if we do not
commercialize a product licensed under the agreement within a specified time period.
U.S. Army Medical Research Institute of Infectious Diseases
In October 2016, we announced that we entered into a Cooperative Research and Development Agreement with the U.S. Army Medical Research
Institute of Infectious Diseases to study omadacycline against pathogenic agents causing infectious diseases of public health and biodefense importance.
The Cooperative Research and Development agreement expired on February 24, 2020. All future biothreat work will be completed under the BARDA
contract.
Past Collaborations
Novartis Pharma AG
In September 2009, we and Novartis International Pharmaceutical Ltd., or Novartis, which merged into Novartis Pharma AG, a wholly owned
subsidiary of Novartis AG, entered into a Collaborative Development,
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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. We and Novartis subsequently entered into 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, EMA, or any regulatory agency,
but only to the extent we had not previously granted such commercialization rights related to omadacycline to another third party as of any such approval.
We also agreed to pay Novartis a 0.25% royalty, to be paid from net sales received by us 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 amended Novartis Letter Agreement resulted in a long-term liability in the amount of $3.1 million as of
December 31, 2020 and $3.4 million as of December 31, 2019 included within “Other Long-Term Liabilities” on our consolidated balance sheet. In
addition, short-term liabilities included within “Other Current Liabilities” on our consolidated balance sheet as of December 31, 2020 and December 31,
2019 represent the portion of royalty payments due to Novartis within twelve months of each balance sheet date. There are no other payment obligations to
Novartis under the Novartis Agreement or the amended Novartis Letter Agreement.
Government Regulation
Government authorities in the U.S., at the federal, state and local level, as well as those of other countries extensively regulate, among other things,
the research, development, testing, manufacture, labeling, packaging, advertising, promotion, storage, distribution, and export and import of our
products. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and
regulation require the expenditure of substantial time and financial resources.
U.S. Government Regulation
NDA Approval Processes
In the U.S., the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or the FDCA, and implementing regulations. The process of
obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulation require the
expenditure of substantial time and financial resources. Failure to comply with the FDCA and other applicable U.S. requirements at any time during the
product development process, approval process or after approval may subject us to a variety of administrative or judicial sanctions, any of which could
have a material adverse effect on us. These sanctions could include:
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refusal to approve pending applications;
withdrawal of an approval;
imposition of a clinical hold;
warning letters, untitled letters and similar communications;
product seizures or recalls;
total or partial suspension of production or distribution; or
injunctions, fines, restitution, disgorgement of profits or civil or criminal investigations and penalties brought by the FDA and the Department
of Justice, or DOJ, or other governmental entities.
The process required by the FDA before a drug may be marketed in the U.S. generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices or other
applicable regulations;
submission to the FDA of an Investigational New Drug, or IND, application, which must become effective before human clinical trials may
begin;
approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;
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performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended
use, conducted in accordance with current Good Clinical Practices, or cGCP, which are ethical and scientific quality standards and FDA
requirements for conducting, recording and reporting clinical trials to assure that the rights, safety and well-being of trial participants are
protected;
preparation and submission to the FDA of an NDA;
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product is produced to assess
compliance with cGMP, requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s safety, identity,
strength, quality and purity; and
FDA review and approval of the NDA.
Once a pharmaceutical candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations
of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with
manufacturing information and analytical data, to the FDA as part of the IND. Some preclinical or nonclinical testing may continue even after the IND is
submitted. In addition to including the results of the preclinical studies, the IND will also include a protocol detailing, among other things, the objectives of
the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy
determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND
on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may
occur at any time during the life of an IND and may affect one or more specific studies or all studies conducted under the IND.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with cGCP. They must be
conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness
criteria to be evaluated. Each protocol and any amendments must be submitted to the FDA as part of the IND, and progress reports detailing the results of
the clinical trials must be submitted at least annually to the FDA and more frequently in other situations, including the occurrence of serious adverse
events. An IRB at each institution participating in the clinical trial must review and approve the protocol and any amendments before a clinical trial
commences or continues at that institution, approve the information regarding the clinical trial and the informed consent form that must be provided to each
trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations. Information about certain
clinical trials must be submitted within specific timeframes to the NIH for public dissemination on their ClinicalTrials.gov website.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase 1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism,
distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, especially when the product
may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients with the
target disease or condition.
Phase 2. Clinical trials are initiated in a limited patient population intended to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at
geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide
an adequate basis for regulatory approval and product labeling.
Phase 1, Phase 2 and Phase 3 testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend
or terminate a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an
unacceptable health risk. Similarly, an IRB can
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suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if
the drug has been associated with unexpected serious harm to patients.
During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points, including prior to submission of an
IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may also be requested. These meetings can provide an opportunity for
the sponsor to share information about the data gathered to date, for the FDA to provide advice and for the sponsor and the FDA to reach agreement on the
next phase of development. Sponsors typically use the End-of-Phase 2 meeting to discuss their Phase 2 clinical results and present their plans for the
pivotal Phase 3 clinical trial or trials that they believe will support approval of the new drug. If this type of discussion occurred, a sponsor may be able to
request a special protocol assessment, or SPA, agreement, a voluntary process the purpose of which is to reach agreement with the FDA on the design of a
Phase 3 clinical trial protocol and analysis that will form the primary basis of an efficacy claim.
According to FDA guidance for industry on the SPA agreement process, a sponsor that meets the prerequisites may make a specific request for a
SPA and must provide information necessary for discussion and agreement on the design and size of the proposed clinical trial. The FDA has a goal of
evaluating the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and/or
requests for additional information. A SPA agreement request must be made before the proposed clinical trial begins. If an agreement is reached, it will be
documented in writing and made part of the record. The agreement may not be changed by the sponsor or the FDA after the trial begins, except with the
written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of
the drug was identified after the testing began. Also, if the sponsor makes any unilateral changes to the approved protocol, the agreement will be
invalidated. A SPA agreement is intended to provide greater assurance that if the agreed upon clinical trial protocols are followed, the clinical trial
endpoints are achieved, and there is a favorable risk-benefit profile, the data may serve as the primary basis for an efficacy claim in support of NDA
approval. However, SPA agreements are not a guarantee of an approval of a product candidate or any permissible claims about the product candidate, and
final determinations of approvability will not be made until the FDA completes its review of the entire NDA.
The Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric studies for certain drugs and biologics. Specifically, PREA
requires original NDAs, biologic license applications, or BLAs, and supplements thereto for a new active ingredient, new indication, new dosage form, new
dosing regimen or new route of administration to contain a pediatric assessment unless the sponsor has received a deferral or waiver. The FDA has waived
the pediatric study requirement for ages 0 to < 8 years because there is nonclinical evidence strongly suggesting that omadacycline would be unsafe in this
pediatric group due to the risk of tetracycline-associated tooth discoloration and enamel hypoplasia, and the risk of tetracycline-associated inhibition of
bone growth. The FDA has deferred submission of pediatric studies for ages 8 to < 18 (ABSSSI until 2024 and CABP until 2026) years because the
product was ready for approval for use in adults.
Concurrent with clinical trials, companies usually complete additional animal safety studies and must also develop additional information about the
chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. The
manufacturing process must be capable of consistently producing quality batches of the drug candidate and the manufacturer must develop methods for
testing the quality, purity and potency of the final drugs. Additionally, appropriate packaging must be selected and tested, and stability studies must be
conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf-life.
The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests
conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of a NDA requesting approval
to market the product for one or more indications. The submission of an NDA is subject to the payment of user fees, but a waiver of such fees may be
obtained under specified circumstances. The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it
accepts them for filing. It may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the
additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug
representing a significant improvement in the safety or effectiveness of the treatment, prevention or diagnosis of a serious disease or condition may receive
priority review. The FDA has agreed to
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specified performance goals in the review process of NDAs. Under that agreement, 90% of applications seeking approval of New Molecular Entities, or
NMEs, are meant to be reviewed within ten months from the date on which FDA accepts the NDA for filing, and 90% of applications for NMEs that have
been designated for “priority review” are meant to be reviewed within six months of the filing date. For applications seeking approval of drugs that are not
NMEs, the ten-month and six-month review periods run from the date that FDA receives the application. The review process may be extended by the FDA
for three additional months to consider a major amendment to the application following the original submission.
The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its
manufacturing complies with cGMP requirements to assure and preserve the product’s safety, identity, strength, quality and purity. The FDA may refer the
NDA to an advisory committee for review and recommendation as to whether the application should be approved and under what conditions. The FDA is
not bound by the recommendation of an advisory committee, but it generally follows such recommendation.
Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured and tested. These pre-
approval inspections may cover all facilities associated with NDA submission, including drug component manufacturing (such as active pharmaceutical
ingredients), finished drug product manufacturing, and control testing laboratories. Additionally, before approving an NDA, the FDA will typically inspect
one or more clinical sites to assure compliance with cGCP. In addition, the FDA may require, as a condition of approval, Risk Evaluation and Mitigation
Strategies, or REMS, restricted distribution and use, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-
approval of promotional materials, restrictions on direct-to-consumer advertising or commitments to conduct additional research post-approval.
On the basis of the FDA’s evaluation of the NDA and accompanying information, the FDA may issue an approval letter or a complete response
letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. If the FDA
ultimately decides that the NDA does not satisfy the criteria for approval, the FDA will issue a complete response letter to indicate that the agency will not
approve the NDA in its present form. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. If a
complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the
application.
Expedited Review and Approval
The FDA has various programs, including Fast Track and priority review, which are intended to expedite or simplify the process for reviewing
drugs. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditions for qualification
or that the time period for FDA review or approval will not be shortened. Generally, drugs that may be eligible for these programs are those for serious or
life-threatening conditions, those with the potential to address unmet medical needs and those that offer meaningful benefits over existing treatments. For
example, Fast Track is a process designed to facilitate the development and expedite the review of drugs to treat serious diseases with the potential, based
on nonclinical or clinical data, to fill an unmet medical need. Priority review is designed to give drugs that offer a significant improvement in safety or
effectiveness of treatment for a serious condition an expedited review within eight months from the completed submission (six months from filing) as
compared to a standard review time of twelve months from the completed submission (10 months from filing) for a standard new molecular entity NDA.
Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a
sponsor of a Fast Track-designated drug and expedite review of the application for a drug designated for priority review.
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The GAIN Act is intended to provide incentives for the development of new QIDPs. A new drug that is designated as a QIDP after a request by the
sponsor that is made before an NDA is submitted will be eligible, if approved, for an additional five years of exclusivity beyond any period of exclusivity
to which it would have previously been eligible. In addition, a QIDP will receive priority review and qualify for a Fast Track designation. QIDPs are
defined as antibacterial or antifungal drugs intended to treat serious or life-threatening infections, including those caused by an antibacterial or antifungal
resistant pathogen or qualifying pathogens identified by the FDA. Examples of pathogens that may be designated as a qualifying pathogen include MRSA,
vancomycin-resistant Enterococcus and multi-drug resistant gram-negative bacteria. Omadacycline (both IV and oral formulations) has been designated as
a QIDP for complicated UTI, ABSSSI and CABP.
Beyond GAIN Act
In addition to the GAIN Act, the 21st Century Cures Act, signed into law in December 2016, established a new FDA limited population pathway
for antimicrobial drugs that treat serious or life-threatening infections for which there are unmet medical needs. The U.S. Congress has initiated a
significant number of other legislative proposals in recent years to provide further incentives in anti-infective development. For example, in December
2018, the Developing an Innovative Strategy for Antimicrobial Resistant Microorganisms Act of 2018, or DISARM Act, was introduced in the Senate to
incentivize the research and development of advanced antibiotics through certain reimbursement-related incentives. It is possible that these or other
proposals related to anti-infective development may be enacted into law in the future. We cannot predict whether or what legislative changes will be
enacted or how they may impact our business and our products.
Patent Term Restoration and Data Exclusivity
Depending upon the timing, duration and specifics of FDA approval of the use of our drugs, some of our U.S. patents may be eligible for limited
patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years for a
single patent for an approved product as compensation for patent term lost during product development and the FDA regulatory review process. However,
patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. We have applied for
restoration of patent term for NUZYRA and SEYSARA, as detailed in the Intellectual Property Section.
Data exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year
period of non-patent data exclusivity within the U.S. to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical
entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the
action of the drug substance. During the exclusivity period, the FDA may not accept for review an Abbreviated New Drug Application, or ANDA, or a
505(b)(2) NDA submitted by another company using the drug entitled to data exclusivity as the reference listed drug, or RLD. However, an application
may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of data
exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were
conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications,
dosages or strengths of an existing drug. This three-year exclusivity covers only the use or conditions of use associated with the new clinical investigations
and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent for other uses or conditions of use. Five-year and
three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct
or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and
effectiveness.
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In addition, as described above, under the GAIN Act a new drug that is designated as a QIDP is eligible for an additional five years of exclusivity
to be added to certain other exclusivity periods that the application may qualify for upon approval, specifically five-year exclusivity, three-year exclusivity,
and orphan exclusivity.
Pediatric Exclusivity
The Best Pharmaceuticals for Children Act provides for an additional six months of exclusivity, which is added on to patent and exclusivity periods
in effect at the time the pediatric exclusivity award is granted, if a sponsor conducts clinical trials in children in response to a written request from the FDA,
or a Written Request. The FDA may request studies on approved indications in separate Written Requests. The issuance of a Written Request does not
require the sponsor to undertake the described studies. To date, we have not received any Written Requests.
Post-approval Requirements
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if
problems occur after the product reaches the market. Later discovery of previously unknown problems, including safety issues, with a product may result in
restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product,
such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the
FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power
to prevent or limit further marketing of a product based on the results of these post-marketing programs. The FDA and other authorities also strictly
regulate the promotional claims that may be made about prescription products. Under the FDCA the sponsor of an approved drug in the U.S. may not
promote that drug for unapproved, or off-label, uses, although a physician may prescribe a drug for an off-label use in accordance with the practice of
medicine. If we are found to have promoted off-label uses, we may be subject to significant liability, including sanctions, civil and criminal fines, and
injunctions prohibiting us from engaging in specified promotional conduct.
Moreover, any drug products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including,
among other things:
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record-keeping requirements;
reporting of adverse experiences with the drug;
providing the FDA with updated safety and efficacy information;
drug sampling and distribution requirements;
notifying the FDA and gaining its approval of specified manufacturing or labeling changes;
complying with certain electronic records and signature requirements; and
complying with FDA promotion and advertising requirements.
Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments
with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with
cGMP requirements and other laws.
Failure to comply with the FDCA and other applicable U.S. requirements at any time during the product development process, approval process or
after approval may subject us to a variety of administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions
could include:
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refusal to approve pending applications;
withdrawal of an approval;
imposition of a clinical hold;
warning letters, untitled letters and similar communications;
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product seizures or recalls;
total or partial suspension of production or distribution; or
injunctions, fines, restitution, disgorgement of profits or civil or criminal investigations and penalties brought by the FDA and the Department
of Justice, or DOJ, or other governmental entities.
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the
approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance are often revised or reinterpreted by
the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or
FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.
Further, the global regulatory landscape is also subject to change as the COVID-19 pandemic continues to affect the U.S. and global economies.
The U.S. FDA and other health authorities have shifted resources and priorities to meet the many challenges presented by the COVID-19 pandemic. The
COVID-19 pandemic has also directly impacted the FDA and global regulatory agencies’ daily operations. For example, FDA temporarily suspended non-
critical foreign and domestic inspections in March 2020 and announced plans to resume prioritized domestic inspections in July 2020. Pandemic-related
disruptions could negatively impact the processing of regulatory submissions and slow agency review times necessary for the approval or clearance of new
drug products. The duration and severity of the COVID-19 pandemic is unpredictable and difficult to assess.
Other Healthcare Laws
We may be subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign
jurisdictions in which we conduct our business. Within the U.S., we are subject to various federal and state laws that seek to prevent “fraud and abuse” in
the healthcare industry, including anti-kickback laws and false claims laws. Although the specific provisions of these laws vary, their scope is generally
broad and there may not be regulations, guidance or court decisions that apply the laws to particular industry practices. There is therefore a possibility that
our practices might be challenged under such laws. Anti-kickback laws generally prohibit a prescription drug manufacturer from soliciting, offering,
receiving, or paying any remuneration to generate business, including the purchase or prescription of a particular drug. False claims laws generally prohibit
anyone from knowingly and willingly presenting, or causing to be presented, any claims for payment for reimbursed drugs or services to third-party payors
(including Medicare and Medicaid) that are false or fraudulent. Violations of “fraud and abuse” laws may be punishable by criminal or civil sanctions,
including fines and civil monetary penalties, and/or exclusion from federal health care programs (including Medicare and Medicaid).
Laws and regulations have also been enacted by the federal government and various states to regulate the sales and marketing practices of
pharmaceutical manufacturers. The laws and regulations generally limit financial interactions between manufacturers and health care providers; require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the U.S. federal government; and/or require disclosure to the government and/or public of financial interactions (so-called “sunshine
laws”). State laws may also require disclosure of pharmaceutical pricing information and marketing expenditures. Manufacturers must also submit
information to the FDA on the identity and quantity of drug samples requested and distributed by a manufacturer during each year. Many of these laws and
regulations contain ambiguous requirements or require administrative guidance for implementation. Given the lack of clarity in laws and their
implementation, our activities could be subject to the penalty provisions of the pertinent federal and state laws and regulations.
Federal and state laws also protect the privacy and security of health information specifically or other personally identifiable information
generally. The laws may apply to us or to healthcare providers and other third parties with which we interact.
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Foreign Regulation
In addition to regulations in the U.S., we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and
distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of
foreign countries or economic areas, such as the EU, before we may commence clinical trials or market products in those countries or areas. The approval
process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the
time may be longer or shorter than that required for FDA approval.
Under EU regulatory systems, a company may submit marketing authorization applications under the centralized, decentralized or mutual
recognition procedures, or under the purely national route of approval. The centralized procedure is compulsory for medicinal products produced by
biotechnology or those medicinal products containing new active substances for specific indications such as the treatment of AIDS, cancer,
neurodegenerative disorders, diabetes, viral diseases, and designated orphan medicines, and is optional for other medicines that are highly innovative.
Under the centralized procedure, a marketing application is submitted to the EMA, where it will be evaluated by the relevant scientific committee, in most
cases the Committee for Medicinal Products for Human Use, and a favorable opinion typically results in the grant by the European Commission of a single
marketing authorization that is valid for all EU member states and, by extension (after national implementing measures), in Norway, Iceland and
Liechtenstein. In general, an initial marketing authorization is valid for five years, but once renewed is usually valid for an unlimited period. The
decentralized procedure allows marketing authorization applications to be submitted simultaneously in two or more EU member states, whereas the mutual
recognition procedure must be used if the product has already been authorized in at least one other EU member state. Both the decentralized and mutual
recognition procedures provide for approval by one or more “concerned” member states based on an assessment of an application performed by one-
member state, known as the “reference” member state. Under the decentralized approval procedure, an applicant submits an application, or dossier, and
related materials to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the
related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each
concerned member state must approve the assessment report and related materials, unless they identify a serious risk to public health. Under the mutual
recognition procedure, the concerned member states have the same 90-day period to recognize the marketing authorization in the reference member
state. In either case, concerns about serious risks to public health escalate through the relevant EMA scientific committees, and the disputed points may
eventually result in a consensus opinion from the Committee for Medicinal Products for Human Use that is referred to the European Commission, whose
decision is binding on all member states. The purely national procedure results in a marketing authorization in a single EU member state.
In light of the United Kingdom’s vote in 2016 to leave the EU, the so-called Brexit vote, there may be changes forthcoming in the scope of the EU
marketing authorization approval procedure, as well as changes to the United Kingdom’s national medicines laws, as the terms of that exit are negotiated
between the United Kingdom and the EU. Since the regulatory framework for pharmaceutical products in the United Kingdom relating to quality, safety
and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived
from European Union directives and regulations, Brexit will materially impact the future regulatory regime which applies to products and the approval of
product candidates in the United Kingdom. In the first instance, a separate United Kingdom authorization from any centralized authorization for the EU
would need to be applied for in advance of a hard Brexit or before the end of any agreed transitional period. In the immediately foreseeable future, the
process is likely to remain very similar to that applicable in the EU, albeit that the processes for applications will be separate. Longer term, the United
Kingdom is likely to develop its own legislation that diverges from that in the EU.
Reimbursement
Significant uncertainty exists regarding the coverage and reimbursement status of products approved by the FDA and other government authorities.
Sales of our products will depend, in part, on the availability of coverage and the adequacy of reimbursement from third-party payors. Third-party payors
include government authorities or government healthcare programs, such as Medicare and Medicaid, and private entities, such as managed care
organizations, private health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product
may be separate from the process for setting the reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to
specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Some third-party
payors may manage utilization of a particular product by requiring pre-approval (known as “prior
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authorization”) for coverage of particular prescriptions (to allow the payor to assess medical necessity). If the prior authorization (medical necessity) is
denied by the payor, the patient may not be able to afford the full cost of the medication without the coverage from the third-party payor. A third-party
payor's decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party
reimbursement may not be available to enable us to maintain net price levels sufficient to realize an appropriate return on our investment in product
development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. One third-party payor’s decision to
cover a particular drug product or service does not ensure that other payors will also provide coverage for the medical product or service or will provide
coverage at an adequate reimbursement rate.
Third-party payors are increasingly challenging the price and examining the cost-effectiveness of new products and services in addition to their
safety and efficacy. To obtain or maintain coverage and reimbursement for any current or future product, we may need to conduct real world evidence and
pharmacoeconomic studies to demonstrate the medical necessity and cost-effectiveness of our product. These studies will be in addition to the studies
required to obtain or maintain regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available
therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a
company to sell its products at a profit. Thus, obtaining and maintaining reimbursement status is complex and costly.
Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus
in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs,
including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of new price controls and cost-
containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and
results. Decreases in third-party reimbursement for our or our partners’ products or a decision by a third-party payor to not cover our or our partners’
products could reduce physician usage of the product and have a material adverse effect on our sales, results of operations and financial condition. We
expect that the pharmaceutical industry will continue to experience pricing pressures due to the increasing influence of managed care (and related
implementation of managed care strategies to control utilization), additional federal and state legislative and regulatory proposals to regulate pricing of
drugs, limit coverage of drugs or reduce reimbursement for drugs, and public scrutiny. While we cannot predict what executive, legislative and regulatory
proposals will be adopted or other actions will occur, such events could have a material adverse effect on our business, financial condition and profitability.
Within the U.S., we may be required to provide discounts or rebates under government healthcare programs or to certain government and private
purchasers in order to obtain coverage under federal healthcare programs such as Medicaid. Participation in such programs may require us to track and
report certain drug prices. We may be subject to fines and other penalties if we fail to report such prices accurately.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal
products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A
member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the
company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for
pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the EU
do not follow price structures of the U.S. and generally tend to be significantly lower.
Health Care and Other Reform
In the U.S., there have been and continue to be a number of significant legislative initiatives to contain healthcare costs. Federal and state
governments continue to propose and pass legislation designed to reform delivery of, or payment for, health care, which include initiatives to reduce the
cost of healthcare. For example, in March 2010, the U.S. Congress enacted the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act, or the Healthcare Reform Act, which expanded health care coverage through Medicaid
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expansion and the implementation of the individual mandate for health insurance coverage and which included changes to the coverage and reimbursement
of drug products under government healthcare programs. Under the Trump administration, there were ongoing efforts to modify or repeal all or certain
provisions of the Healthcare Reform Act. For example, tax reform legislation was enacted at the end of 2017 that eliminated the tax penalty established
under Healthcare Reform Act for individuals who do not maintain mandated health insurance coverage beginning in 2019. The Healthcare Reform Act
has also been subject to judicial challenge. The case Texas v. Azar, which challenges the constitutionality of the Healthcare Reform Act, including
provisions that are unrelated to healthcare reform but were enacted as part of the Healthcare Reform Act, was argued before the Supreme Court in
November 2020. Pending resolution of the litigation, all of the Healthcare Reform Act but the individual mandate to buy health insurance remains in
effect.
Beyond the Healthcare Reform Act, there have been ongoing health care reform efforts, including a number of recent actions. Some recent
healthcare reform efforts have sought to address certain issues related to the COVID-19 pandemic, including an expansion of telehealth coverage under
Medicare and accelerated or advanced Medicare payments to healthcare providers. Other reform efforts affect pricing or payment for drug products. For
example, the Medicaid Drug Rebate Program has been subject to statutory and regulatory changes and the discount that manufacturers of Medicare Part D
brand name drugs must provide to Medicare Part D beneficiaries during the coverage gap increased from 50% to 70%. A number of regulations were
issued in late 2020 and early 2021. For example, revisions to regulations under the federal anti-kickback statute would remove protection for traditional
Medicare Part D discounts offered by pharmaceutical manufacturers to PBMs and health plans. Some of these changes have been and may continue to be
subject to legal challenge. For example, courts temporarily enjoined a new “most favored nation” payment model for select drugs covered under Medicare
Part B that was to take effect on January 1, 2021 and would limit payment based on international drug price.
The nature and scope of health care reform in the wake of the transition from the Trump administration to the Biden administration remains
uncertain. The Department of Justice under the Biden administration informed the Supreme Court that the government no longer takes the position that the
individual mandate is unconstitutional and cannot be severed from the rest of the Healthcare Reform Act. President Biden has temporarily halted
implementation of new rules issued immediately prior to the transition that had not yet taken effect (which include a number of health care reforms) to
allow for review by the new administration. The revisions to the federal anti-kickback statute regulations referenced above were initially scheduled to take
effect in 2022 but have now been delayed to 2023. More generally, President Biden supported reforms to lower drug prices during his campaign for the
presidency.
There have also been efforts by federal and state government officials or legislators to implement measures to regulate prices or payment for
pharmaceutical products, including legislation on drug importation. Recently, there has been considerable public and government scrutiny of
pharmaceutical pricing and proposals to address the perceived high cost of pharmaceuticals. There have also been recent state legislative efforts to address
drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices.
General legislative cost control measures may also affect reimbursement for our product candidates. The Budget Control Act, as amended, resulted
in the imposition of 2% reductions in Medicare (but not Medicaid) payments to providers in 2013 and will remain in effect through 2030 (except May 1,
2020 to March 31, 2021) unless additional Congressional action is taken. Any significant spending reductions affecting Medicare, Medicaid or other
publicly funded or subsidized health programs that may be implemented and/or any significant taxes or fees that may be imposed on us could have an
adverse impact on our results of operations.
Adoption of new legislation at the federal or state level could affect demand for, or pricing of, our current or future products if approved for sale.
We cannot, however, predict the ultimate content, timing or effect of any changes to the Healthcare Reform Act or other federal and state reform efforts.
There is no assurance that federal or state health care reform will not adversely affect our future business and financial results.
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Government Contracts and Regulation
We currently contract with the federal government. The BARDA contract could result in payments to us 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 for us to
complete the studies and manufacturing activities necessary for the FDA to consider emergency use authorization NUZYRA to treat people exposed to
anthrax. As a government contractor, we are subject to complex and wide-ranging federal and agency-specific regulations and contractual requirements that
not only govern how we perform under the contract but also impose other requirements that affect our operations, including socio-economic obligations
such as obligations related to affirmative action or maintaining a drug-free workplace. While many of our employees have been involved in government
contracts previously, many of these government contracting requirements are new to Paratek as a company. Failure to comply with government contracting
requirements could result in termination of our contract and the imposition of penalties.
Financial and Segment Information
We operate our business as a single segment, as defined by generally accepted accounting principles. Our financial information is included in the
consolidated financial statements and the related notes.
Available Information
We are a reporting company under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and file reports, proxy statements and
other information with the Securities and Exchange Commission, or the SEC. You may access this information at the SEC’s Internet site: www.sec.gov.
This site contains reports, proxies and information statements and other information regarding issuers that file electronically with the SEC.
Our internet web site address is www.paratekpharma.com. We make available, free of charge at the “Investors” portion of our web site, annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Reports of beneficial ownership filed pursuant to Section 16(a) of the Exchange Act are also available on our web site. Information in, or that can be
accessed through, this web site is not part of this Annual Report on Form 10-K.
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Item 1A.
Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all
information contained in this report before you decide to purchase our common stock. If any of the possible adverse events described below actually
occurs, we may be unable to conduct our business as currently planned and our financial condition and operating results could be harmed. In addition, the
trading price of our common stock could decline due to the occurrence of any of the events described below, and you may lose all or part of your
investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business.
Risk Related to Financial Condition
We have incurred significant losses since inception and anticipate that we will incur losses for the foreseeable future. To date we have not generated
sufficient revenue from product sales to cover corresponding expenses and we may never achieve or sustain profitability.
We received FDA approval for NUZYRA in October 2018 and launched NUZYRA in the U.S. in February 2019. Additionally, FDA approval was
granted in October 2018 for SEYSARA and Almirall launched SEYSARA in the U.S. in January 2019. We have exclusively licensed U.S. commercial
rights for SEYSARA to Almirall for which we are entitled to tiered royalties on net sales in the U.S. We have also licensed SEYSARA to Almirall in the
People’s Republic of China, Hong Kong and Macau, or the greater China region, and are entitled to a flat royalty on net sales in the greater China region.
Although NUZYRA and SEYSARA are now being sold by us and Almirall, respectively, it will take some time to attain profitability and we may never do
so. Our net loss for the year ended December 31, 2020 was $96.5 million. As of December 31, 2020, our accumulated deficit was $807.8 million. We
expect to continue to incur losses for the foreseeable future as we seek to maintain and expand regulatory approvals for our products, continue to
commercialize NUZYRA, including expansion into the community setting, expand our sales, marketing and distribution infrastructure, and add personnel
to support our product development and commercialization efforts and operations. The net losses and negative operating cash flows incurred to date,
together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders’ equity (deficit) and working capital.
The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate future revenue.
To become and remain profitable, we must succeed in developing, obtaining regulatory approval for and commercializing products with significant
market potential. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict
the timing or amount of increased expenses or when, or if, we will be able to generate any sufficient product revenues to achieve profitability. For example,
our expenses could increase if we are required by regulatory agencies outside of the U.S. to perform studies in addition to those that we have already
performed or currently expect to perform.
Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain
profitable would depress the market value of our common stock, could impair our ability to raise capital, expand our business, develop other product
candidates or continue our operations and could cause investors to lose all or part of their investments.
We may continue to require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may
require us to delay, scale back or cease our product development programs or commercialization efforts for NUZYRA.
As of December 31, 2020, our cash, cash equivalents and marketable securities were $125.2 million. We will require substantial additional funding
to meet FDA post-marketing approval requirements for NUZYRA, which we expect to be materially funded through the BARDA contract. Additional
funding may also be needed to support and accelerate the commercialization of NUZYRA, especially in the community setting, to fund the development of
omadacycline in other indications, including NTM, and to advance the development of, or license or acquisition of, potential other product candidates, and
such funding may not be available on favorable terms or at all. Although it is difficult to predict our liquidity requirements, based upon our current
operating plan, we anticipate that our cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure
requirements through at least the next 12 months from the filing date of this Annual Report on Form 10-K. Because
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the profitability of NUZYRA and SEYSARA, and the successful development of any other future product candidates, is uncertain, we are unable to
estimate the actual funds we will require to fund our continuing operations, including for our clinical development programs and commercialization efforts
for NUZYRA.
Our future funding requirements will depend on many factors, including but not limited to:
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the progress of clinical development of omadacycline in additional indications, including NTM;
the costs and timing of commercialization activities for NUZYRA, including expansion into the community setting;
product revenue received from commercial sales of NUZYRA;
timing and amount of actual reimbursements and NUZYRA purchases under the BARDA contract;
the ability of Zai to develop, manufacture and commercialize omadacycline in the Zai territory;
royalty revenue received from commercial sales of SEYSARA by Almirall;
the ability of Almirall to develop, manufacture and commercialize sarecycline in the greater China region;
the scope, progress, timing, cost and results of research, preclinical development and clinical trials, including for NTM;
the costs, timing and outcome of seeking, obtaining, maintaining and expanding FDA and non-U.S. regulatory approvals;
the costs associated with establishing and expanding our manufacturing, sales, marketing and distribution capabilities;
the cost, number and characteristics of other product candidates that we may pursue;
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments
we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property
rights;
our need and ability to hire additional management, scientific, commercial, operations and medical personnel;
the effect of competing products, including generic products, that may limit market penetration of our products;
our need to implement additional internal systems and infrastructure, including financial and reporting systems;
resources required to develop and implement policies and processes to promote ongoing compliance with applicable healthcare laws and
regulations;
costs required to ensure that our and our partners’ business arrangements with third parties comply with applicable healthcare laws and
regulations; and
the economic and other terms, timing and success of our existing and future collaboration and licensing arrangements, including the timing of
receipt of any milestone or royalty payments under such arrangements.
Until we generate a sufficient amount of product and royalty revenue to finance our cash requirements, which we may never do, we expect to
finance future cash needs primarily through a combination of public or private equity offerings, debt or other structured financings, strategic collaborations
and grant funding. There can be no assurance that we would be successful in securing additional funds on acceptable terms. If additional funds are not
available, we may be forced to cease operations, significantly reduce operating expenses or delay, curtail, or eliminate one or more of our development
programs or our business operations.
Raising additional capital or entering into certain debt financings or other arrangements may cause dilution to our stockholders, restrict our operations
or require us to relinquish rights.
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Until such time, if ever, as we can generate substantial product revenue, we may finance our cash needs through the sale of additional equity or
convertible debt securities, which would dilute shareholder ownership interest. The terms of these new securities may include liquidation or other
preferences that adversely affect shareholders’ rights as common stockholders. Future debt financing, if available at all, may involve agreements that
include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring
dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish
valuable rights to our technologies, NUZYRA, sarecycline, any future product candidates or future revenue streams, or grant licenses on terms that are not
favorable to us. We cannot assure you that we will be able to obtain additional funding if and when necessary. If we are unable to obtain adequate financing
on a timely basis, we could be required to grant rights to develop and market NUZYRA, sarecycline or any future product candidates that we may
otherwise prefer to develop and market ourselves.
Our level of indebtedness and debt service obligations could adversely affect our financial condition and may make it more difficult for us to fund our
operations.
On December 31, 2020, we terminated our Amended and Restated Loan and Security Agreement, or the A&R Hercules Loan Agreement,
with Hercules Technology III, L.P., certain other lenders, and Hercules Capital, as agent. Concurrently, on December 31, 2020, or the Closing Date, we,
through our wholly-owned subsidiary PRTK SPV2 LLC, a Delaware limited liability company, or the Subsidiary, entered into a royalty and revenue
interest-backed loan agreement with an affiliate of R-Bridge Healthcare Investment Advisory, Ltd., herein referred to as the R-Bridge Loan
Agreement. Pursuant to the terms of the R-Bridge Loan Agreement, the Subsidiary borrowed a $60.0 million term loan, secured by, and repaid with
proceeds from, (i) royalties from our license agreement with Zai Labs (Shanghai) Co., Ltd., or the Zai Collaboration Agreement, and such royalties, or the
Royalty Interest, and (ii) a revenue interest based on our U.S. sales of NUZYRA in an initial amount of two and a half percent (2.5%), which amount may
adjust under certain circumstances up to five percent (5%), of our net U.S. sales, subject to an annual cap of $10.0 million, which may adjust under certain
circumstances to $12.0 million, or the Revenue Interest.
Under the R-Bridge Loan Agreement, the outstanding principal balance will bear interest at an annual rate of 7.0%, increasing to an annual rate of
10% during the continuance of any event of default. Payments of the obligations outstanding under the R-Bridge Loan Agreement will be made quarterly,
beginning with the payment due in respect of the quarter ending March 31, 2021, out of the Royalty Interest payments and Revenue Interest payments
received by the Subsidiary during such quarter, or the Collection Amount. On each payment date, after payment of certain expenses, the Collection
Amount shall be applied first to accrued interest, with any excess up to $15.0 million per annum applied to repay principal until the balance is fully repaid,
and any shortfalls being capitalized and added to the principal balance of the loan. Amounts in excess of the $15.0 million annual cap shall be shared
between us and R-Bridge Healthcare Investment Advisory, Ltd., or the R-Bridge Lender, based on a formula set out in the R-Bridge Loan
Agreement. Following repayment in full of the loan, the first $15.0 million per annum in Collection Amount shall be paid to us and any amounts in excess
shall be shared between us and the R-Bridge Lender based on a formula set out in the R-Bridge Loan Agreement.
Prior to the eighth (8th) anniversary of the Closing Date, the R-Bridge Loan Agreement will automatically terminate once the Subsidiary has paid
to the R-Bridge Lender, in the form of regularly scheduled payments or as a voluntary prepayment, a capped amount of $114 million, less principal, interest
and certain fee payments through the date of such prepayment, or the Capped Amount. After the eighth (8th) anniversary of the Closing Date, the Revenue
Interest can be terminated but the Royalty Interest payments shall continue until maturity of the R-Bridge Loan Agreement on December 31, 2032, at
which time, the outstanding principal amount of the loan, if any, together with any accrued and unpaid interest, and all other obligations then outstanding,
shall be due and payable in cash by the Subsidiary.
Our subsidiary, PRTK SPV1 LLC, a Delaware limited liability company and owner of the Subsidiary’s capital stock, has entered into a Pledge and
Security Agreement in favor of the R-Bridge Lender, pursuant to which the Subsidiary’s obligations under the R-Bridge Loan Agreement are secured by
PRTK SPV1 LLC’s pledge of all of the Subsidiary’s capital stock.
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The R-Bridge Loan Agreement contains certain customary affirmative covenants, including those relating to: use of proceeds; maintenance of
books and records; financial reporting and notification; compliance with laws; and protection of Company intellectual property. The R-Bridge Loan
Agreement also contains certain customary negative covenants, barring the Subsidiary from: certain fundamental transactions; issuing dividends and
distributions; incurring additional indebtedness outside of the ordinary course of business; engaging in any business activity other than related to the Zai
Collaboration Agreement; and permitting any additional liens on the collateral provided to the R-Bridge Lender under the R-Bridge Loan Agreement. As of
December 31, 2020, we were in compliance with all covenants under the R-Bridge Loan Agreement.
An ancillary agreement executed by us and the Subsidiary in respect of the Revenue Interest, contains negative covenants applicable to us,
including restrictions on the sale or transfer of our assets related to NUZYRA and giving rise to the Revenue Interest, each subject to the exceptions set
forth therein.
The R-Bridge Loan Agreement contains customary defined events of default, upon which any outstanding principal, unpaid interest and other
obligations of the Subsidiary, shall be immediately due and payable by the Subsidiary. These include: failure to pay any principal or interest when due;
failure to the Capped Amount as and when due following a non-qualified change of control, any uncured breach of a representation, warranty or covenant;
any uncured failure to perform or observe covenants; any uncured breach of our representations, warranties or covenants under an ancillary agreement
executed by the us and the Subsidiary in respect of the Royalty Interest; any termination of the Zai Collaboration Agreement; and certain bankruptcy or
insolvency events. No events of default had occurred under the R-Bridge Loan Agreement through December 31, 2020.
The net proceeds of the term loan were used by the Subsidiary to purchase from the Company the Royalty Interest and Revenue Interest, pursuant
to the terms of the Revenue Interest Purchase Agreement and the Contribution and Servicing Agreement, respectively. We raised approximately $58.3
million in net proceeds in connection with the R-Bridge Loan Agreement, comprised of the $60.0 million term loan funded at execution, net of $1.1 million
in lender fees accounted for as debt discount and $0.6 million in direct and incremental third-party expenses accounted for as debt issuance costs. The net
proceeds of the term loan, together with cash on hand, was used to prepay in full all obligations outstanding under the loan arrangement with Hercules
Capital, Inc.
All obligations under the R-Bridge Loan Agreement are secured by certain of our intellectual property relating to the Zai Collaboration Agreement
in the greater China region. This indebtedness may create additional financing risk for us, particularly if our business or prevailing financial market
conditions are not conducive to paying off or refinancing our outstanding debt obligations at maturity. This indebtedness could also have important
negative consequences, including:
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we will need to repay our indebtedness by making payments of interest and principal, and certain other payments from contributing and
paying net revenue from our Zai Collaboration Agreement and certain amounts of our net revenue from NUZYRA in the U.S., which will
reduce the amount of money available to finance our operations, our research and development efforts and other general corporate activities;
and
our failure to comply with the affirmative, restrictive or financial covenants in the R-Bridge Loan Agreement could result in an event of
default that, if not cured or waived, could result in the acceleration of our obligation to repay this indebtedness, and the R-Bridge Lender
could seek to enforce its security interest in the assets securing such indebtedness.
In April 2018, we issued $165.0 million aggregate principal amount of 4.75% Convertible Senior Subordinated Notes due 2024, or the Notes. The
Notes bear cash interest at the annual rate of 4.75%, payable on November 1 and May 1 of each year, beginning on November 1, 2018, and mature on May
1, 2024 unless earlier repurchased, redeemed or converted.
In addition, in February 2019, we, through our wholly-owned subsidiary Paratek Royalty Corporation, or the Subsidiary, entered into a royalty-
backed loan agreement, or the Royalty-Backed Loan Agreement, with Healthcare Royalty Partners III, L.P., or HCRP. Pursuant to the terms of the Royalty-
Backed Loan Agreement, the Subsidiary borrowed a $32.5 million loan, which was secured by, and is being repaid based upon, royalties from the Almirall
Collaboration Agreement. The Royalty-Backed Loan Agreement matures on May 1, 2029, at which time, if not
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earlier repaid in full, the outstanding principal amount of the loan, together with any accrued and unpaid interest, and all other obligations then outstanding,
shall be due and payable in cash by the Subsidiary.
The Royalty-Backed Loan Agreement contains customary defined events of default, upon which any outstanding principal and unpaid interest shall
be immediately due and payable. These include: failure to pay any principal or interest when due; any uncured breach of a representation, warranty or
covenant; any uncured failure to perform or observe covenants; any uncured cross default under a material contract; any uncured breach of our
representations, warranties or covenants under its Contribution and Servicing Agreement with the Subsidiary; any termination of the Almirall Collaboration
Agreement; and certain bankruptcy or insolvency events.
To the extent additional debt is added to our current debt levels, the risks described above could increase.
We may not have cash available to us in an amount sufficient to enable us to make interest or principal payments on our indebtedness when due.
Failure to satisfy our current and future debt obligations under the R-Bridge Loan Agreement could result in an event of default and, as a result, the
R-Bridge Lender could accelerate all of the amounts due. In the event of an acceleration of amounts due under the R-Bridge Loan Agreement as a result of
an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness. In addition, the R-
Bridge Lender could seek to enforce its security interests in the assets securing such indebtedness.
We are subject to certain restrictive covenants which, if breached, could have a material adverse effect on our business and prospects.
The R-Bridge Loan Agreement imposes operating and other restrictions on us. Such restrictions will affect, and in many respects limit or in some
respects may prohibit, our ability to, among other things:
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dispose of substantially all of our assets or certain assets related to NUZYRA;
engage in mergers or consolidations;
incur additional indebtedness secured by certain assets related to NUZYRA; and
create liens on certain assets related to NUZYRA.
Risks Related to Maintaining and Expanding Regulatory Approval and Other Legal Compliance Matters
If clinical trials for omadacycline are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and commercialize omadacycline
for the treatment of additional indications on a timely basis.
In October 2018, the FDA approved NUZYRA in the U.S. for the treatment of adults with CABP and ABSSSI that are proven or strongly
suspected to be caused by susceptible bacteria. The completion of any future clinical trials, including for NTM and FDA PMRs, could be substantially
delayed or prevented by several factors, including:
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severe restrictions on the clinical and healthcare system resulting from global pandemics, including the COVID -19 pandemic;
delay or failure to obtain sufficient supplies of the product candidate or of the comparator product for our clinical trials;
the limited number of, and competition for, suitable sites to conduct our clinical trials, many of which may already be engaged in other
clinical trial programs, including some that may be for the same indication as our product candidates;
any delay or failure to obtain regulatory approval or agreement to commence a clinical trial in any of the countries where enrollment is
planned;
clinical holds on, or other regulatory objections to, a new or ongoing clinical trial;
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delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or clinical
research organizations, or CROs, or local regulatory authorities, the terms of which can be subject to extensive negotiation and may vary
significantly among different sites or CROs; and
delay or failure to obtain Institutional Review Board/ethics committee approval to conduct a clinical trial at a prospective site or within a
specific region or country.
The completion of our clinical trials could also be substantially delayed or prevented by several factors, including:
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slower than expected rates of patient recruitment and enrollment, especially in an environment impacted by COVID-19;
failure of patients to complete the clinical trial;
unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients;
lack of omadacycline efficacy, or efficacy of other product candidates, evidenced during clinical trials;
termination of our clinical trials by one or more clinical trial sites;
inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols;
inability to monitor patients adequately during or after treatment by us and/or our CROs;
delay or failure to obtain sufficient supplies of omadacycline or of the relevant comparator product; and
the need to repeat or terminate clinical trials as a result of inconclusive or negative results or unforeseen complications during clinical trial
testing.
In particular, our ability to enroll patients in our clinical trials in sufficient numbers and on a timely basis will be subject to a number of factors,
including the size of the patient population needed, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective
treatments for the relevant indication and the eligibility criteria for the clinical trial.
Changes in regulatory requirements and guidance may also occur, and we may need to amend clinical trial protocols to reflect these changes with
appropriate regulatory authorities, which could impact the costs, timing, or successful completion of a clinical trial. Our clinical trials may be suspended or
terminated at any time by the FDA, other regulatory authorities, or the overseeing Institutional Review Board due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks;
lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and
upon a breach or pursuant to the terms of any agreement with, or for any other reason by, current or future collaborators that have
responsibility for the clinical development of any of our product candidates.
In addition, clinical practices vary globally, and there is a lack of harmonization among the guidance provided by various regulatory bodies of
different regions and countries with respect to the data that is required to receive marketing approval, which makes designing global trials increasingly
complex. Differing regulatory approval requirements in different countries also make it more difficult for us to conduct unified global trials, which can lead
to increased development costs and marketing delays or non-viability of our clinical trials. The approval procedure and the time required to obtain approval
also varies among countries. Furthermore, regulatory agencies may have varying interpretations of the same data, and approval by one regulatory authority
does not ensure approval by regulatory authorities in other jurisdictions.
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The results of previous clinical trials may not be predictive of future results, and the results of any ongoing or future clinical trials may not satisfy the
requirements of the FDA or non-U.S. regulatory authorities.
Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or our partners
may decide, or regulators may require us, to conduct additional clinical or preclinical testing which could delay submission of a supplemental NDA and
regulatory approval. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe
and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale or additional indicated use. Success in early
stage clinical trials does not mean that future larger registration clinical trials will be successful, because product candidates in later-stage clinical trials may
fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having progressed through early
stage clinical trials. Product candidates that have shown promising results in early-stage (pre-Phase 3) clinical trials may still suffer significant setbacks in
subsequent registration clinical trials.
In addition, the design of a clinical trial can determine whether its results will support approval of a product and/or new indications, and flaws in
the design of a clinical trial may not become apparent until the clinical trial is underway, well advanced or completed. Further, if future product candidates
are found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for them and our business would be harmed. A number of
companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced
clinical trials, even after obtaining promising results in earlier stage clinical trials.
Positive results in our randomized Phase 2 and Phase 3 clinical studies of omadacycline in complicated skin and skin structure infections, ABSSSI
and CABP, may not be predictive of the results in any other indications, such as omadacycline for the treatment of NTM. In some instances, there can be
significant variability in safety and/or efficacy results between different clinical trials of the same product candidate due to numerous factors, including
changes in clinical trial protocols, differences in size, type and geographic distribution of the patient populations, adherence to the dosing regimen and
other clinical trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials
we or any of our collaborators may conduct, or have conducted in the past, will demonstrate consistent or adequate efficacy and safety to obtain regulatory
approval to market our future product candidates.
Further, our and our partners’ product candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or
registration trials. The FDA or other non-U.S. regulatory authorities may disagree with our clinical trial design and our interpretation of data from
preclinical studies and clinical trials even when we have Special Protocol Assessment agreements. In addition, any of these regulatory authorities may
change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3
clinical trial that has the potential to result in FDA or other agencies’ approval. In addition, any of these regulatory authorities may also approve a product
candidate for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical
trials. In addition, the FDA or other non-U.S. regulatory authorities may not approve the labeling claims that we believe would be supported by the clinical
data, or be necessary or desirable for the successful commercialization of our products. If an unforeseen safety issue arises, the FDA always has the option
to initiate a REMS or add additional warnings to a product label upon approval.
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The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our partners from obtaining approvals for the
commercialization of our product candidates.
The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by
the FDA and other U.S. and non-U.S. regulatory authorities. Regulations differ from country to country, which will require us to expend additional
resources in each market for which a separate regulatory approval is required. We are not permitted to market our product candidates outside of the U.S.
until we receive marketing approval from applicable regulatory authorities outside of the U.S. Although omadacycline and sarecycline received FDA
approval, approval of other indications, including treatment of NTM with omadacycline and an oral-only loading dose regimen for patients diagnosed with
CABP, is subject to the risks of failure inherent in drug development.
Failure to comply with FDA and non-U.S. regulatory requirements may, either before or after product approval, if any, subject us to administrative
or judicially imposed sanctions, including:
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restrictions on the products, manufacturers or manufacturing process;
warning letters or untitled letters;
civil and criminal penalties;
injunctions;
suspension or withdrawal of regulatory approvals;
suspension of any ongoing clinical trials;
product seizures, detentions or import bans;
voluntary or mandatory product recalls and publicity requirements;
total or partial suspension of production;
imposition of restrictions on operations, including costly new manufacturing requirements; and
refusal to approve pending NDAs or supplements to approved NDAs.
The FDA and foreign regulatory authorities also have substantial discretion in the drug approval process. The number of preclinical studies and
clinical trials that will be required for regulatory approval varies depending on the product candidate, the disease or condition that the product candidate is
designed to address, and the regulations applicable to any particular drug candidate. Regulatory agencies can delay, limit or deny approval of a product
candidate for many reasons, including:
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a product candidate may not be deemed safe or effective;
the results may not confirm the positive results from earlier preclinical studies or earlier stage clinical trials;
regulatory agencies may not find the data from preclinical studies and clinical trials sufficient;
regulatory agencies may not approve our third-party manufacturer’s processes or facilities;
regulatory agencies may require significant warning or restrictions on use to the product label; or
regulatory agencies may change their approval policies or adopt new regulations.
Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue from omadacycline
or any other particular product candidate, which likely would result in significant harm to our financial position. Furthermore, any regulatory approval to
market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations may limit the size of the
market opportunity for the product.
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Even though NUZYRA and SEYSARA have been approved by the FDA in the U.S., they face post-approval development and regulatory requirements,
which may limit how they are manufactured and marketed, and could materially impair our ability to generate revenue.
In October 2018, the FDA approved NUZYRA in the U.S. for the treatment of adults with CABP and ABSSSI that are proven or strongly
suspected to be caused by susceptible bacteria, as well as SEYSARA for the treatment of inflammatory lesions of non-nodular moderate to severe acne
vulgaris in patients nine years of age and older. NUZYRA and SEYSARA are subject to, among other things, ongoing FDA requirements governing the
manufacturing, labeling, packaging, storage, advertising, promotion, recordkeeping and submission of safety, efficacy, and other post-market information.
For example, as part of the FDA approval for NUZYRA, we are required to conduct post-marketing pediatric studies, including a single dose
pharmacokinetic and safety study in children ages eight to seventeen who are receiving antibacterial drug therapy for an infectious disease, an active-
controlled safety study in children ages eight to seventeen who have acute bacterial skin and skin structure infections, and an active-controlled safety study
in children ages eight to seventeen who have CABP. In addition, we are also required to conduct an active-controlled safety and efficacy study in adults
with CABP and a U.S. surveillance study for five years from the date of marketing to determine if resistance to NUZYRA has developed in those
organisms specific to the indications in the label. In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with
extensive FDA and other regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to current GMP
regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and
documentation and reporting requirements. As such, we and our partners and any of our and their respective contract manufacturers are subject to ongoing
review and periodic inspections to assess compliance with current GMPs. Additionally, to the extent we want to make certain changes to the approved
products, product labeling, or manufacturing processes or manufacturing sites, we will need to submit new applications or supplements to FDA and obtain
the agency’s approval.
Accordingly, we and others with whom we work will continue to expend time, money and effort in all areas of regulatory compliance, including
manufacturing, production and quality control. We and our partners are also required to report adverse reactions and production problems, if any, to the
FDA and to comply with requirements concerning, among other things, advertising and promotion for our products. Promotional communications with
respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s
approved label. Although the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s
independent medical judgment, they do restrict promotional communications from pharmaceutical companies or their sales force with respect to off-label
uses of products for which marketing clearance has not been issued. Accordingly, we and our partners will not be able to promote our products for
indications or uses for which they are not approved. A company that is found to have promoted off-label use of its product may be subject to significant
liability, including civil and criminal sanctions. We intend to comply with the requirements and restrictions of the FDA and other regulatory agencies with
respect to off-label promotion, but we cannot be sure that the FDA or other regulatory agencies will agree that we have not violated their restrictions. As a
result, we may be subject to criminal and civil liability. If the FDA or any other governmental agency initiates an enforcement action against us or if we are
the subject of a qui tam suit and it is determined that we violated prohibitions relating to the promotion of products for unapproved uses, we could be
subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to
which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Even if it is later
determined that we were not in violation of these laws, we may be faced with negative publicity, incur significant expenses defending our actions and have
to divert significant management resources from other matters.
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Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful,
non-misleading, and non-promotional scientific exchange concerning their products. We intend to engage in medical education activities and communicate
with healthcare providers in compliance with all applicable laws, regulatory guidance and industry best practices. Although we believe we have put in place
a compliance program, which is designed to ensure that all such activities are performed in a legal and compliant manner, we cannot be certain that our
program will address all areas of potential exposure and the risks in this area cannot be entirely eliminated.
Additionally, if a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may
impose restrictions on that product, us or our partners, including requiring withdrawal of the product from the market. If we or our partners fail to comply
with the regulatory requirements of the FDA and other U.S. and non-U.S. regulatory authorities, or if previously unknown problems with our products,
manufacturers or manufacturing processes are discovered, the FDA or other regulatory authorities could impose significant penalties, such as:
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issuance of warning letters or untitled letters;
imposition of injunctions or civil or criminal penalties, fines, restitution or disgorgement of profits or revenue;
suspension or withdrawal of regulatory approval;
restrictions on product labeling, marketing, distribution or use;
imposition of total or partial suspension of production;
suspension of any ongoing clinical trials;
requirements to conduct post-marketing clinical trials;
refusal to approve pending applications or supplements to applications;
imposition of restrictions on operations, including costly new manufacturing requirements; or
seizure or detainment of products or requirements for us or our partners to initiate a product recall.
If we and our partners are not able to maintain regulatory compliance, we may not achieve or sustain profitability. Further, the cost of compliance
with post-approval regulations may negatively effect our operating results and financial condition.
Our products may have undesirable side effects that may require them to be taken off the market or otherwise limit their sales.
Although NUZYRA and SEYSARA have undergone safety testing in humans and in laboratory animals, not all adverse effects of drugs can be
predicted or anticipated from these clinical studies and preclinical safety and toxicology studies. Unforeseen side effects from either NUZYRA or
SEYSARA could arise after the approved product has been marketed. Many of the most widely used antibiotics are associated with treatment-limiting
adverse events, including in some instances, kidney damage, allergic reactions or sudden cardiovascular death due to cardiac arrhythmia. The results of
future clinical trials or from marketing experience may show that NUZYRA or SEYSARA, or any other product candidate, cause undesirable or
unacceptable side effects. Furthermore, even though both NUZYRA and SEYSARA have received marketing approval, if we or others later identify
undesirable or unacceptable side effects caused by NUZYRA or SEYSARA:
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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and
pharmacies;
we or our partners may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of
the product;
we or our partners may be subject to limitations on how we may promote the product;
sales of the product may decrease significantly;
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regulatory authorities may withdraw approvals of an approved product, or otherwise require us or our partners to take our approved product
off the market, or impose restrictions on its distribution;
we or our partners may be subject to litigation or product liability claims and be held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us, our current partners or our potential future partners from achieving or maintaining market acceptance of the
affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant
revenue from the sale of our products. Furthermore, NUZYRA and SEYSARA are commercially available and each may be used in a wider population and
in a less rigorously controlled environment than in clinical studies. As a result, regulatory authorities, healthcare practitioners, third-party payors or patients
may perceive or conclude that the use of the product is associated with previously unknown serious adverse effects, undermining commercialization efforts.
Coverage and reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient
coverage and reimbursement for our products, it is less likely that our products will be widely used.
Market acceptance and sales of NUZYRA, SEYSARA and any of our or our partners’ other products will depend on coverage and reimbursement
policies. Government authorities and third-party payors, such as private health plans, decide which drugs they will cover and establish reimbursement
levels. Coverage and reimbursement may vary among third-party payors. Coverage may not be available, and reimbursement may not be adequate, for
NUZYRA, SEYSARA or any other products that we or our partners develop and commercialize. Also, coverage and reimbursement policies may reduce
the demand for, or the price paid for, our or our partners’ products. Patients who are prescribed medications for the treatment of their conditions, and their
prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are
unlikely to use our or our partners’ products unless coverage is provided, and reimbursement is adequate to cover a significant portion of the cost of such
products. Therefore, if coverage is not available or reimbursement is limited, we and our partners may not be able to successfully commercialize
NUZYRA, SEYSARA or future approved products, if any.
Third-party payors may limit coverage or impose conditions on coverage. For example, third-party payors may limit coverage to specific drug
products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. As another
example, third-party payors may require use of alternative therapies or a demonstration that a product is medically necessary for a particular patient before
use of a product will be covered. A decision by a third-party payor not to cover our products could reduce utilization of those products.
A third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will apply, or patient
copayment will be at an acceptable level for physicians to choose to prescribe our drug. In addition, pharmaceutical companies often need to offer third
party payors rebates and administration fees on the cost of drugs dispensed to the payors’ members in order to increase the possibility of favorable coverage
and adequate cost sharing thresholds for patients. We may be required to provide such rebates to some third-party payors in relation to our product(s).
Adequate third-party reimbursement, taking into account such rebates as applicable, may not be available and we may not be able to maintain price levels
sufficient to realize an appropriate profit, including a return on our investment in product development.
Outside of the U.S., in some countries, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations
with governmental authorities can take a significant amount of time after receipt of marketing approval for a product. In addition, there can be considerable
pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. In some countries, we
or our partners may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available
products in order to obtain or maintain reimbursement or pricing approval. If reimbursement of our products is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, there could be a material adverse effect on our business.
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Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
The U.S. and several foreign jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the
healthcare system in ways that could affect our or our partners’ ability to sell approved products profitably. Among policymakers and payors in the U.S.
and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving
quality and/or expanding access to healthcare. In the U.S., the pharmaceutical industry has been a particular focus of these efforts and has been
significantly affected by major legislative initiatives.
The U.S. government and individual states have aggressively pursued healthcare reform, as evidenced by the passage of the Healthcare Reform
Act. The Healthcare Reform Act substantially changed the way healthcare is financed by both governmental and private insurers and contains a number of
provisions that affect coverage and reimbursement of drug products and/or that might affect the demand for pharmaceutical products such as increasing
drug rebates under state Medicaid programs for brand name prescription drugs and extending those rebates to Medicaid managed care and assessing a fee
on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and Medicaid.
Modifications were implemented under the Trump Administration. For instance, tax reform legislation was enacted at the end of 2017 that eliminated the
individual health insurance mandate which is expected to increase the number of Americans without comprehensive health insurance. In addition, the
Healthcare Reform Act has been subject to judicial challenge. The case Texas v. Azar, which challenges the constitutionality of the Healthcare Reform Act,
including provisions that are unrelated to healthcare reform but were enacted as part of the Healthcare Reform Act, was argued before the Supreme Court
in November 2020. Pending resolution of the litigation, all of the Healthcare Reform Act but the individual mandate to buy health insurance remains in
effect. There have also been significant health care reform efforts beyond the Healthcare Reform Act. The nature and scope of health care reform in the
wake of the transition from the Trump administration to the Biden administration, including the future of health care reform implemented under the Trump
Administration, remains uncertain although President Biden has already taken a number of actions. See “Government Regulation - Health Care and Other
Reform”. We cannot predict the ultimate content, timing or effect of any changes to the Healthcare Reform Act or other federal and state reform efforts.
Additional legislative actions to control U.S. healthcare or other costs have passed. The Budget Control Act, as amended, resulted in the
imposition of 2% reductions in Medicare, but not Medicaid, payments to providers in 2013 and remains in effect through 2030 (except May 1, 2020 to
March 31, 2021) unless additional Congressional action is taken. Any significant spending reductions affecting Medicare, Medicaid or other publicly
funded or subsidized health programs that may be implemented and/or any significant taxes or fees that may be imposed on us could have an adverse
impact on our results of operations.
There is no assurance that federal or state healthcare reform or other legislative and regulatory initiatives will not adversely affect our business and
financial results, and we cannot predict how future federal or state legislative, judicial or administrative changes relating to healthcare reform will affect our
business.
In the U.S. there is increasing scrutiny of drug prices and federal or state reforms could impact our ability to establish what we believe is a fair price
for our products, and ultimately diminish our revenue prospects.
Recently, there has been considerable public and government scrutiny in the U.S. of pharmaceutical pricing and proposals to address the perceived
high cost of pharmaceuticals. There have also been several recent state legislative efforts to address drug costs, which generally have focused on increasing
transparency around drug costs or limiting drug prices or price increases. Adoption of new legislation at the federal or state level could affect demand for,
or pricing of, our product candidates, if approved for sale and could diminish our ability to establish what we believe is a fair price for our products,
ultimately diminishing our revenue for our products.
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If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in
the U.S., we could be subject to additional reimbursement requirements, penalties, sanctions and fines which could have a material adverse effect on
our business, financial condition, results of operations and growth prospects.
We participate in the Medicaid Drug Rebate Program and a number of other federal and state government pricing programs in the U.S. in order to
obtain coverage for NUZYRA by certain government healthcare programs. These programs generally require us to pay rebates or provide discounts to
certain private and government purchasers or government programs in connection with our products when dispensed to patients of the purchasers or
beneficiaries of the programs. In some cases, such as with the Medicaid Drug Rebate Program, the rebates are based on pricing and rebate calculations that
we report on a monthly and quarterly basis to the government agencies that administer the programs. The terms, scope and complexity of these government
pricing programs change frequently. We may also have reimbursement obligations or be subject to penalties if we fail to provide timely and accurate
information to the government, pay the correct rebates or offer the correct discounted pricing. Changes to the price reporting or rebate requirements of
these programs would affect our obligations to pay rebates or offer discounts. Responding to current and future changes may increase our costs and the
complexity of compliance, will be time-consuming, and could have a material adverse effect on our results of operations.
If we or our partners market products in a manner that violates fraud and abuse and other healthcare laws, or if we or our partners violate government
price reporting laws, we or our partners may be subject to administrative civil and/or criminal penalties.
Within the U.S., various state and federal healthcare laws restrict certain marketing practices in the pharmaceutical industry. When we or any of our
partners market approved products, such as NUZYRA or SEYSARA, some of our or our partners’ business activities could possibly be subject to challenge
under one or more of these laws. The laws and regulations that may affect our ability to operate include:
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federal false claims, false statements and civil monetary penalties laws prohibiting, among other things, any person from knowingly
presenting, or causing to be presented, a false claim for payment of government funds or knowingly making, or causing to be made, a false
statement to get a false claim paid;
federal healthcare program anti-kickback law, which prohibit, among other things, persons from soliciting, receiving or providing
remuneration, directly or indirectly, to induce either the referral of an individual for, or the purchasing or ordering of, a good or service for
which payment may be made under federal healthcare programs such as Medicare and Medicaid;
federal anti-kickback prohibition known as Eliminating Kickbacks in Recovery Act or EKRA, enacted in 2018, which prohibits certain
payments related to referrals of patients to certain providers (recovery homes, clinical treatment facilities and laboratories) and applies to
services reimbursed by private health plans as well as government health care programs;
federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and
Clinical Health Act and its implementing regulations, collectively, HIPAA, which, in addition to privacy protections applicable to healthcare
providers and other entities, prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to
healthcare matters;
the FDCA, which among other things, strictly regulates drug marketing, prohibits manufacturers from marketing such products for off-label
use and regulates the distribution of samples;
federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain
discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare
programs;
the so-called “federal sunshine” law, which requires pharmaceutical and medical device companies to monitor and report certain financial
interactions with physicians, certain non-physician practitioners and teaching hospitals to the federal government for re-disclosure to the
public; and
state law equivalents of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed
by any third-party payor, including commercial insurers, state laws regulating interactions between pharmaceutical manufactures and
healthcare providers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ
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from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.
Efforts to ensure that our and our partners’ business arrangements with third parties will comply with applicable healthcare laws and regulations
may involve substantial costs. With the approval of NUZYRA and SEYSARA, we have become subject to an expanded number of these laws and have,
and will need to continue, to expend resources to develop and implement policies and processes to promote ongoing compliance. Although we believe we
currently maintain an appropriate compliance program, we cannot be certain that the program will adequately detect or prevent violations.
Many of these laws and their implementing regulations contain ambiguous requirements or require administrative guidance for implementation.
Given the lack of clarity in laws and their implementation, our activities could be subject to challenge. It is possible that governmental authorities will
conclude that our or our partners’ business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws. If our or our partners’ operations are found to be in violation of any of these laws or any other governmental regulations that
may apply to us, we or our partners may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines,
imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our
operations, which could significantly harm our business.
Pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, such
as: providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated
average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best
price information to the Medicaid Drug Rebate Program to reduce liability for Medicaid rebates.
Outside of the U.S., foreign laws may also regulate our activities, or those of our collaboration partners.
Risks Related to Our Business
A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, has and may in the future adversely affect our business, results of
operations and financial condition.
If a pandemic, epidemic or outbreak of an infectious disease occurs, our business may be adversely affected. Such events may result in a period of
business and manufacturing disruption or in an inability to scale our production to meet demand in a cost-effective manner or at all, any of which could
materially affect our financial condition and results of operations. For example, U.S residents and businesses in major urban centers have been hit
especially hard by the global spread of COVID-19, which has resulted in disruptions to our business and in the future may result in additional
disruptions. Examples of both include the following:
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Health risks. The health and wellbeing of our employees, including our sales representatives and clinical educators who visit our hospital
customers, as well as employees of our suppliers, is at risk if a critical threshold of our personnel, or the personnel of our suppliers, were to be
diagnosed with COVID-19, placed in quarantine due to potential exposure to COVID-19, or need to care for family members diagnosed with
COVID-19, it may result in significant business disruption.
Limitations on suppliers. Some of our suppliers have been, and may in the future be, limited, and at times, precluded, from delivering to us
products, materials, and components in the quantities needed on a timely basis, for a variety of reasons, including an evolving understanding of
how international, federal, and/or state authorities define “essential business”, their inability to remain open due to lost business in other parts of
their portfolios, or because of international, federal, and/or state prioritization orders requiring our suppliers to produce for governmental
entities and/or other manufacturers before they produce for us. We presently maintain a supply chain structure that has allowed us to avoid
material disruptions by the current COVID-19 outbreak; however, the future impact of this outbreak on our supply chain is highly uncertain and
cannot be predicted. Our demand has increased at the same time as our supply chain has begun to face limitations, which has, and may in the
future, result in a shortage of supply, increased costs of products, materials, and components and delays in the timely delivery thereof. The
increased demand we are placing on our suppliers at the same time their sub-suppliers face limitations may in the future lead
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to our suppliers to seek to pass through expenses or otherwise increase pricing for products, materials, and components that we require to meet
our production needs. If COVID-19 affects the producers of certain materials required by us for the production of NUZYRA, or by Almirall for
the production of SEYSARA, our business and financial performance could be adversely affected.
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Requirements for alternative sourcing. We have had to develop alternate sources of supply for certain products, materials, and components as a
result of the limitations, or complete inability, of some of some of our suppliers to meet our production needs. Although we have successfully
been able to develop and validate these alternate sources of supply to date, doing so is time consuming, difficult, and costly, and if we need to
develop and validate additional alternate sources of supply in the future for any reason, we may not be able to do so in a timeframe acceptable
to meet customer demand.
Importation limitations. Federal authorities may restrict our ability to import products into the U.S., which could negatively impact our
business, operations, and relationships with our international distributors and customers in a significant and long-term way that we may not be
able to rebuild for an extended period of time, or at all.
Shipping delays. While we have priority shipping status with our carriers, we have experienced shipping delays throughout the U.S. and
internationally during the COVID-19 outbreak, and as a result, there have been and may continue to be delays in our ability to ship our product
to customers and distributors in a timely manner, potentially resulting in returned product, and we have and may continue to face extraordinary
freight fees, including air freight fees and expedition fees for all modes of transportation.
Travel and access restrictions. Travel restrictions and hospital limitations or denials of access for non-patients have impacted the ability of our
direct sales team and clinical educators in the U.S. to access physicians and clinicians in order to educate them about NUZYRA, impacting the
ramp and growth of the NUZYRA launch. Travel restrictions have also complicated and delayed our ability to qualify and retain new suppliers
or audit our existing suppliers, which might have a negative impact on our quality management system and our product quality in the future.
Work from home limitations. We have asked all office-based employees to work from home, which could impact our ability to effectively plan,
execute, communicate and maintain our corporate culture. The increase in working remotely could increase our cyber security risk, create data
accessibility concerns, and make us more susceptible to communication disruptions.
Clinical studies. Site activation and study conduct may be delayed due to resource limitations within the healthcare system as they are focused
on the COVID-19 pandemic. In addition, enrollment in clinical trials may be slower due to concerns over exposure and travel
limitations. Therefore, we may be required to delay future clinical studies as a direct or indirect result of the COVID-19 pandemic.
FDA review and BARDA procurement. As a result of the COVID-19 pandemic, there may be interruptions or delays in the operations of the
FDA or other health authorities, which could result in delays of reviews and approvals of our product candidates. For example, the timing of the
FDA’s review of, and comment on, the pre-emergency use authorization, or EUA, for NUZYRA that is required for BARDA to proceed with its
initial NUZYRA procurement for the SNS under our BARDA contract has taken longer than we had initially anticipated. We submitted our
EUA application to the FDA in February 2020 but did not receive any questions from the FDA as part of its initial review process until the end
of June 2020. We provided data in response to the FDA’s single initial question in November 2020. On March 2, 2021, we received feedback
from the FDA with a recommendation to consider an additional in vitro model to further characterize the optimal pharmacokinetic parameters
for pulmonary anthrax as part of the development program. We are in discussions with BARDA to align on the best approach to integrating the
FDA recommendation into the development program. BARDA is working with FDA to satisfy BARDA’s requirement that the status of the
current pre-EUA will enable them to initiate the first procurement into the SNS. Once the initial procurement is completed, the timing of
future procurements is not expected to be impacted. While we believe that we have satisfied our contractual obligations to initiate our first
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procurement with BARDA, it is difficult to predict how long the FDA will take to complete its further review. We believe the FDA understands
the importance of an efficient and timely review to enable BARDA to proceed with its initial NUZYRA procurement during the first half of
2021. However, the COVID-19 pandemic, additional questions from the FDA or other adverse events may directly or indirectly result in further
delays.
Competition. Our competitors may in the future secure significant purchase agreements from the federal government or various states before we
are able to do so, or may be selected instead of us, precluding us from those commercial opportunities.
Debt covenants. A significant disruption to our business resulting in an inability to build and ship product to customers for an extended period
of time may impair our ability to maintain compliance with our debt covenants.
Capital markets volatility. Equity and debt markets have experienced significant volatility since the spread of COVID-19 into the U.S. Should
significant volatility continue, or they experience declines due to the economic impact of COVID-19, we may not be able to raise capital at a
reasonable valuation or at all.
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Each of these factors could have a material adverse effect on our business and results of operations. The full extent to which COVID-19 impacts our
business and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information
about COVID-19 and the actions to treat or contain COVID-19 or to otherwise limit its impact, among others.
We are highly dependent on the commercial success of NUZYRA in the U.S. and, to a lesser extent, SEYSARA.
Our success is currently dependent on the successful commercialization of NUZYRA in the U.S., which is also being developed by Zai in the Zai
territory, and, to a lesser extent, SEYSARA, which Almirall has the rights to commercialize in the U.S. and the greater China region. We are not currently
developing, and have no such plans to develop, any other product candidates, other than omadacycline for the treatment of NTM, anthrax, and other
relevant preclinical or clinical investigations. We may need additional financing or grants to fund development of any current or future product candidates.
The majority of our time, resources and effort are focused on the commercialization of NUZYRA, the success of which depends on, among other
things, our ability to:
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secure sufficient starting materials and maintain commercial manufacturing arrangements with third-party manufacturers;
produce, through a validated process, sufficient quantities and inventory of NUZYRA to meet demand;
build and maintain internal sales, distribution and marketing capabilities sufficient to generate commercial sales of NUZYRA, including in
the community setting;
secure widespread acceptance of our product from physicians, healthcare payors, patients and the medical community;
properly price and obtain coverage and adequate reimbursement of NUZYRA by governmental authorities, private health insurers, managed
care organizations and other third-party payors;
maintain compliance with ongoing FDA labeling, packaging, storage, advertising, promotion, recordkeeping, safety and other PMRs;
manage our costs and expenses commensurate with NUZYRA’s projected growth; and
establish and maintain collaborations with third parties for the commercialization of NUZYRA in countries outside of the U.S., such as our
existing collaboration with Zai to develop, manufacture and commercialize omadacycline in the Zai territory, and such collaborators’ ability
to obtain regulatory and reimbursement approvals in such countries.
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There are no guarantees that we will be successful in completing these tasks. In addition, we will need to continue investing substantial financial
and management resources to build out our commercial infrastructure and to recruit and train sufficient additional qualified marketing, sales and other
personnel in support of our sales of NUZYRA.
If BARDA were to eliminate, reduce, or delay funding for our contract, we would experience a negative impact on our programs associated with such
funding and perhaps on our ability to maintain the infrastructure necessary to maximize our NUZYRA commercial opportunity.
On December 18, 2019, we entered into a contract with BARDA to support the development of NUZYRA for the treatment of pulmonary anthrax
and the fulfillment of FDA PMRs associated with NUZRYA’s initial approval. The BARDA contract also includes an option for BARDA to procure up to
10,000 treatment courses of NUZYRA for the SNS for use against potential biothreats. On March 2, 2021, we received feedback from the FDA with a
recommendation to consider an additional in vitro model to further characterize the optimal pharmacokinetic parameters for pulmonary anthrax as part of
the development program. We are in discussions with BARDA to align on the best approach to integrating the FDA recommendation into the development
program. BARDA is working with FDA to satisfy BARDA’s requirement that the status of the current pre-EUA will enable them to initiate the first
procurement into the SNS. Once the initial procurement is completed, the timing of future procurements is not expected to be impacted. If BARDA were
to eliminate, reduce, or materially delay funding for these programs, including with respect to the procurements under the BARDA contract, or prohibit
reimbursement of some of our incurred costs, we would have to seek additional funding to continue development of NUZYRA for the treatment of anthrax
or significantly decrease or cease the product’s development for that indication. Moreover, a loss of BARDA funding could jeopardize our ability to
maximize NUZYRA’s commercial potential, and to fulfill NUZYRA’s FDA PMRs in a timely manner.
The BARDA contract includes special requirements, which subject us to the risk of a reduction or loss of funding.
Our BARDA contract subjects us to various U.S. government contract requirements, including general clauses for a cost-reimbursement research
and development contract, which may limit our reimbursement. In addition, if we are found to be in violation of the BARDA contract, it could result in
termination. If BARDA terminates our contract with us for its convenience, or if we default by failing to perform in accordance with the contract schedule
and terms, a significant negative impact on our cash flows and operations could result.
U.S. government contracts, such as our BARDA contract, generally contain unfavorable termination provisions, which may subject us to additional
risks as compared to our competitors that have not entered into such contracts. These risks include the ability of the U.S. government to unilaterally:
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terminate or reduce the scope of our contract with or without cause;
interpret relevant regulations (federal acquisition regulation clauses);
require performance under circumstances which may not be favorable to us;
require an in-process review where the U.S. government will review the project and its options under the contract;
control the timing and amount of funding, which impacts the development progress of our programs; and
audit and object to our contract-related costs and fees, including allocated indirect costs.
Termination and audit provisions in our BARDA contract could create additional risks for our business.
The U.S. government may terminate our BARDA contract for its convenience or if we default by failing to perform in accordance with the contract
schedule and terms. Termination for convenience provisions generally enable us to recover only our incurred or committed costs, and settlement expenses
and profit on the work completed prior to termination. Termination does not permit these recoveries under default provisions. If our contract expires or is
terminated, the U.S. government could dispute wind-down and termination costs and may question prior expenses under the contract and deny payment of
those expenses. If we decide to challenge the U.S. government for denying certain payments under a contract, such a challenge could subject us to
substantial additional expenses which we may or may not recover. Further, should the U.S. government terminate our BARDA contract for its convenience,
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if we default by failing to perform in accordance with the contract schedule and terms, our cash flows and business operations could be negatively
impacted.
Sales of NUZYRA and SEYSARA may be slow or limited for a variety of reasons including competing therapies or safety issues. If NUZYRA and
SEYSARA are not successful in gaining broad commercial acceptance, our business would be harmed.
Sales of NUZYRA and SEYSARA are dependent on several factors including our and our partners’ ability to educate and increase physician
awareness of the benefits, safety and cost-effectiveness of NUZYRA and SEYSARA relative to competing therapies. The degree of market acceptance of
NUZYRA and SEYSARA among physicians, patients, healthcare payors and the medical community depends on a number of factors, including:
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acceptable evidence of safety and efficacy;
relative convenience and ease of administration;
prevalence and severity of any adverse side effects as a result of treatment with NUZYRA and SEYSARA;
availability of alternative treatments;
pricing, cost effectiveness and value propositions;
effectiveness of our sales and marketing capability and strategies, especially during the restrictions resulting from COVID-19 on our
commercial, medical and manufacturing teams;
complications or barriers that inhibit our commercial team from reaching the appropriate audience to promote our product(s) because of the
spread of COVID-19 or any outbreak of other contagious diseases;
ability to obtain sufficient third-party coverage and reimbursement;
the clinical indications for which NUZYRA and SEYSARA are approved, as well as changes in the standard of care for their targeted
indications;
the continuing effectiveness of our manufacturing and supply chain;
warnings and limitations contained in the approved labeling for NUZYRA and SEYSARA, including that efficacy of SEYSARA beyond 12
weeks and safety beyond 12 months have not been established;
safety concerns with similar products marketed by others;
our ability to comply with FDA PMRs associated with the FDA approval of NUZYRA, including conducting and completing post-marketing
studies; and
the actual market-size for NUZYRA and SEYSARA, which may be larger or smaller than expected.
In addition, since NUZYRA and SEYSARA are subject to continual review by the FDA, there can be no assurance that newly discovered or
developed safety issues will not arise. With the use of any newly marketed drug by a wider patient population, serious adverse events may occur from time
to time that initially do not appear to relate to the drug itself. For example, any safety issues could cause us to suspend or cease marketing NUZYRA, cause
us to modify how we market NUZYRA, and may subject us to substantial liabilities and adversely affect our revenues and financial condition. In the event
of a withdrawal of NUZYRA from the market, our revenues would decline significantly, and our business would be seriously harmed and could fail. We
and our partners additionally may experience significant fluctuations in sales of NUZYRA and SEYSARA from period to period and, ultimately, we may
never generate sufficient revenues from NUZYRA and SEYSARA to reach or maintain profitability or sustain our anticipated operations.
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We face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than our products,
our commercial opportunities will be negatively impacted.
The life sciences industry is highly competitive and subject to rapid and significant technological change, including but not limited to with respect
to innovations related to diagnostic devices. NUZYRA and SEYSARA do or will compete with other drugs and therapies that currently exist or are being
developed. Products that we may develop in the future are also likely to face competition from other drugs and therapies, some of which we may not
currently be aware. We have competitors both in the U.S. and internationally, including major multinational pharmaceutical companies, established
biotechnology companies, specialty pharmaceutical companies, generic manufacturing companies, universities and other research institutions. In addition,
universities and private and public research institutes may become active in our target indications, and smaller or early-stage companies may enter
collaborative arrangements with large, established companies. Many of our competitors have significantly greater financial, manufacturing, marketing,
drug development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing,
obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research,
development and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and
collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest
heavily to accelerate discovery and development of novel compounds or to in-license novel compounds to in-license novel compounds or develop
technologies that could make the product candidates that we develop obsolete or less competitive. As a result of all of these factors, our competitors may
succeed in obtaining patent protection and/or regulatory approvals or discovering, developing and commercializing competing technologies before we do
so for any of our product candidates.
The GAIN Act is intended to provide incentives for the development of new QIDPs. These incentives may result in more competition in the market
for new antibiotics and may cause pharmaceutical and biotechnology companies with more resources than we have to shift their efforts toward the
development of products that could be competitive with our product candidates. Furthermore, price competition may inhibit the acceptance of our products,
physicians may be reluctant to switch from existing products to our products, physicians may switch to other newly approved drug products, or physicians
may choose to reserve our products for use in limited circumstances.
NUZYRA competes with other antibiotics in the serious bacterial skin infection market. These include, but are not limited to, vancomycin,
marketed as a generic by Abbott Laboratories and others; linezolid, marketed as Zyvox by Pfizer Inc. and available as a generic; daptomycin, marketed as
Cubicin by Merck Pharmaceuticals, Inc. and available as a generic; dalbavancin, marketed as Dalvance by Abbvie; tedizolid, marketed as Sivextro by
Nabriva Therapeutics.; oritavancin, marketed as Orbactiv and delafloxacin marketed as Baxdela by Melinta Therapeutics, Inc.; quinupristin/dalfopristin,
marketed as Synercid by Pfizer, Inc.; tigecycline, marketed as Tygacil by Pfizer Inc. and available as a generic; telavancin, marketed as Vibativ by
Cumberland Therapeutics Inc.; ceftaroline, marketed as Teflaro by Abbvie; and generic trimethoprim/sulfamethoxazole and clindamycin.
NUZYRA also competes with other antibiotics in the community-acquired pneumonia market. These include azithromycin, marketed as Zithromax
and Z-PAK by Pfizer Inc. and available as a generic; clarithromycin, marketed as Biaxin by Abbott Laboratories and available as a generic; moxifloxacin,
marketed as Avelox by Bayer AG and available as a generic; levofloxacin, marketed as Levaquin by Johnson & Johnson and available as a generic;
tigecycline, marketed as Tygacil by Pfizer Inc. and available as a generic; linezolid, marketed as Zyvox by Pfizer Inc. and available as a generic;
ceftriaxone, marketed as Rocephin by F. Hoffman-La Roche Ltd and available as a generic; and ceftaroline, marketed as Teflaro by Abbvie, delafloxacin
marketed as Baxdela by Melinta Therapeutics Inc; lefamulin marketed as Xenleta by Nabriva Therapeutics. We are also aware of various drugs that are or
may eventually be under development for the treatment of CABP, including, but not limited to, GSK2140944, under development by GSK and
nemanoxacin, under development by TaiGen Biotechnology.
Finally, SEYSARA faces competition in the acne markets where generic tetracyclines such as doxycycline and minocycline are available in every
market around the world. Branded generic versions of tetracycline derivatives are sold by several companies.
Our competitors’ drugs may be more effective, or more effectively marketed and sold, than NUZYRA, SEYSARA or any future product candidate
we may commercialize and may render NUZYRA, SEYSARA or our other product candidates obsolete or non-competitive before we can recover the
expenses of our development and
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commercialization. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become
available.
If the FDA or other applicable regulatory authorities approve generic products that compete with NUZYRA, SEYSARA or any of our or our partners’
product candidates, or if existing generic antibiotics are viewed as being equally effective to NUZYRA, SEYSARA or any of our or our partners’
product candidates, the sales of NUZYRA, SEYSARA or, if approved, such product candidates would be adversely affected.
Once an NDA or marketing authorization application outside of the U.S. is approved, the product covered thereby becomes a “listed drug” that can,
in turn, be cited by potential competitors in support of approval of an ANDA in the U.S. Agency regulations and other applicable regulations and policies
provide incentives to manufacturers to create modified, non- infringing versions of a drug to facilitate the approval of an ANDA or other application for
generic substitutes in the U.S. and in nearly every pharmaceutical market around the world. These manufacturers might only be required to conduct a
relatively inexpensive study to show that their product has the same active ingredient(s), dosage form, strength, route of administration and conditions of
use, or labeling, as our product candidate and that the generic product is bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the
same extent as our product candidate. These generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be
significantly less costly than ours to bring to market, and companies that produce generic equivalents are generally able to offer their products at lower
prices. Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product is typically lost to the generic
product. Accordingly, competition from generic equivalents to ours or any of our partners’ future products, if any, would materially adversely impact our
future revenue, profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made in our or any of our
partners’ products, including NUZYRA and SEYSARA. For example, vancomycin has been available in generic form for many years, and Zyvox
(linezolid) is now available in generic form. We cannot yet ascertain what impact these generic products and any future approved generic products will
have on sales of NUZYRA, SEYSARA or, if approved, any of our or our partners’ product candidates.
We rely and will continue to rely on outsourcing arrangements for manufacturing of NUZYRA and any future product candidates, which could impair
the commercialization of NUZYRA or delay approval of any future product candidates.
We do not currently own or operate manufacturing facilities for the production of NUZYRA or any other product candidate, nor do we currently
intend to do so in the future. We currently depend on third-party contract manufacturers for the supply of the active pharmaceutical ingredients for
NUZYRA. We have entered into certain long-term manufacturing and supply agreements, including agreements for the (i) supply of starting materials for
crude omadacycline, (ii) supply of active pharmaceutical ingredient for our omadacycline products, (iii) manufacture and supply of omadacycline oral solid
dosage tablets and omadacycline in injectable form, (iv) primary packing, labelling, storage and related services for omadacycline oral solid dosage tablets
and injectable omadacycline in vials, and (v) distribution and logistics services. We are currently in discussions with several third-party manufacturers and
may enter into additional long-term supply agreements with them. We may not be able to reach agreement with some of these contract manufacturers, or to
identify and reach arrangement on satisfactory terms with other contract manufacturers, to manufacture NUZYRA or any future product candidates.
Additionally, we anticipate that the facilities used by any contract manufacturer to manufacture NUZYRA or any future product candidates will be the
subject of inspections by regulatory agencies before the FDA and other regulatory authorities that approve an NDA or marketing authorization for the
product candidate manufactured at that facility. We will depend on these third-party manufacturing partners for compliance with the FDA’s manufacturing
requirements for finished products. If our manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA and
other regulatory authorities’ cGMP requirements, any future product candidates may not be approved or, in the case of NUZYRA, may be subject to delays
in release and/or product recalls. While third-party manufacturers of NUZYRA have previously passed FDA and other regulatory agency inspections, we
cannot provide assurance that they will pass such inspections in the future.
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Furthermore, any interruption of the development or operation of the manufacturing facilities due to, among other reasons, the COVID-19
pandemic or events such as order delays for equipment or materials, equipment malfunction, quality control and quality assurance issues, regulatory delays,
or and possible negative effects of such delays on supply chains and expected timelines for product availability, production yield issues, shortages of
qualified personnel, discontinuation of a facility or business or failure or damage to a facility by natural disasters or pandemics, could result in the
cancellation of shipments, loss of product in the manufacturing process or a shortfall in available NUZYRA, other product candidates or materials. To date
we maintain a supply chain structure that has allowed us to avoid material disruptions by the COVID-19 pandemic. However, the future impact of this
outbreak is highly uncertain and cannot be predicted. If the COVID-19 pandemic affects the producers of certain materials or if the duration of the
disruption is longer than anticipated, our business and financial performance could be adversely affected.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products and product candidates
ourselves, including:
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the possibility of a breach of the manufacturing agreements by the third parties because of factors beyond our control;
the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement
third-party manufacturer;
the possibility that third parties are unable to manufacture NUZYRA consistently in commercial quantities, at acceptable costs on expected
timelines;
the possibility that we may not be able to maintain or secure manufacturers or manufacturing capacity in a timely manner and on satisfactory
terms in order to meet our manufacturing needs; and
the possibility that the third parties may not be able to respond adequately to unexpected changes in demand forecasts that may result in either
lost revenue or excessive inventory with decreasing shelf-life.
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Any of these factors could cause the delay of further commercialization of NUZYRA, delay the development and approval of any future product
candidates, or cause us to incur higher costs or prevent us from commercializing any future product candidates successfully. Furthermore, if contract
manufacturers fail to continuously meet FDA compliance standards or fail to deliver the required commercial quantities of finished product on a timely
basis and at commercially reasonable prices, and we are unable to find one or more replacement manufacturers capable of production at a substantially
equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and
could lose potential revenue. It may take one or more years to establish an alternative source of supply and to have any such new source approved by the
FDA or any other relevant regulatory authorities.
Our current and anticipated future dependence upon others for manufacturing may adversely affect our future profit margins and our ability to
commercialize on a timely and competitive basis NUZYRA or any future product candidates that receive marketing approval.
The success of our business may be dependent on the actions of our collaborative partners.
An element of our business and funding strategy is to enter into collaborative arrangements with established pharmaceutical and biotechnology
companies who will finance or otherwise assist in the development, manufacture and marketing of products incorporating our technology, and who also
provide us with funding in the form of milestone payments for progress in clinical development or regulatory approval. For example, we exclusively
license rights to sarecycline for the treatment of acne in the U.S. to Almirall, and Almirall is responsible for all clinical development, registration and
commercialization in the U.S. of sarecycline for the treatment of acne. In addition, Almirall has an exclusive license to develop and commercialize
sarecycline (i) for the treatment of acne in the greater China region and (ii) for the treatment of rosacea in the U.S., which converted to a non-exclusive
license in December 2014 after Allergan did not exercise its development option with respect to rosacea. Additionally, we are party to the Zai Collaboration
Agreement, pursuant to which we granted Zai an exclusive license to develop, manufacture and commercialize omadacycline in the Zai territory for all
human therapeutic and preventative uses other than biodefense. Zai is responsible for the development, manufacturing and commercialization of the
licensed product in the Zai territory, at its sole cost with certain assistance from Paratek.
Accordingly, our prospects will depend in part upon our ability to attract and retain collaborative partners and to develop technologies and products
that achieve the criteria for milestone payments. When we collaborate with a third party for development and commercialization of a product candidate, we
can expect to relinquish some or all of the control over the future success of that product candidate to the third party in the respective territory. In addition,
our collaborative partners may have the right to abandon research or development projects and terminate applicable agreements, including funding
obligations, prior to or upon the expiration of the agreed upon terms. We may not be successful in establishing or maintaining collaborative arrangements
on acceptable terms or at all, collaborative partners may terminate funding before completion of projects, our product candidates may not achieve the
criteria for milestone payments, our collaborative arrangements may not result in successful product commercialization, and we may not derive any
revenue from such arrangements. In the past, certain of our collaborators, including Novartis, have terminated their partnering relationships with us due to
delays and uncertainties in connection with the FDA regulatory pathway for approval of omadacycline for the ABSSSI and CABP indications. This past
history may affect our ability to attract and enter into collaboration arrangements with future partners or collaborators.
In addition, we face significant competition in seeking appropriate collaborators. Whether or not we reach a definitive agreement for a
collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed
collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the
likelihood of approval by the FDA or similar regulatory authorities outside of the U.S., the potential market for the product candidate, the costs and
complexities of manufacturing and delivering such product candidate to patients, the patent position protecting the product candidate, the potential of
competing products, the need to seek licenses or sub-licenses to third-party intellectual property and industry and market conditions generally
To the extent that we are not able to develop and maintain collaborative arrangements, we would need substantial additional capital to undertake
research, development and commercialization activities on our own, we may be forced to limit the number of our product candidates we can commercially
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we commercialize them, and we might fail to commercialize products or programs for which a suitable collaborator cannot be found.
Reliance on collaborative relationships poses a number of risks, including the following:
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our collaborators may not perform their obligations as expected or in compliance with applicable laws;
the prioritization, amount and timing of resources dedicated by our collaborators to their respective collaborations with us is not under our
control;
some product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product
candidates or products;
our collaborators may elect not to proceed with the development of product candidates that we believe to be promising;
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of
development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to
additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-
consuming and expensive;
some of our collaborators might develop independently, or with others, products that could compete with our products;
a delay in the development timeline for omadacycline in the Zai territory would result in a potential loss of milestone payments and future
royalties (if any) from the partnership under the Zai Collaboration Agreement; and
if the exclusive rights to sarecycline in the U.S. or the greater China region are returned to us by Almirall, or the rights to omadacycline in the
Zai territory returned to us by Zai, we will need to establish a new development and commercialization partnership to further sarecycline in
the U.S. and greater China region or omadacycline in the Zai territory. There can be no assurance that we would be able to find such a partner.
We are continuing to build our sales and distribution infrastructure. If we are unable to develop our sales, marketing and distribution capability on our
own or through collaborations with marketing partners, we will not be successful in commercializing NUZYRA or any future product candidates to
their full potential.
We are currently building sales force and distribution capabilities within our organization, including a community-based sales force, subsequent to
the termination of our arrangement with a third party to provide a contract field sales force. We are in the process of establishing a sales and marketing
organization with technical expertise and supporting distribution capabilities to successfully commercialize NUZYRA, which can be expensive and time
consuming. In addition, we may not be able to hire a sales force in the U.S. that is large enough or has adequate expertise in the medical markets that we
intend to target. Any failure or delay in the development of our sales, marketing and distribution capabilities would adversely impact the commercialization
of NUZYRA.
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With respect to our existing products and any future product candidates, we may choose to collaborate with third parties that have direct sales
forces and established distribution systems, either to augment our own sales force and distribution systems or as an alternative to our own sales force and
distribution systems. To the extent that we enter into co-promotion or other licensing arrangements, our product revenue and profitability may be lower
than if we directly marketed or sold any approved products. In addition, any revenue we receive will depend in whole or in part upon the efforts of these
third parties, which may not be successful and are generally not within our control. If we are unable to enter into these arrangements on acceptable terms or
at all, we may not be able to successfully commercialize any approved products. If we are not successful in commercializing any approved products, either
on our own or through collaborations with one or more third parties, our future product revenue will suffer, and we may incur significant additional losses.
We will need to commit significant time and financial and managerial resources to maintain and further develop our sales and marketing
organization to ensure they have the technical expertise required to address any challenges we may face with the commercialization of NUZYRA.
Factors that may inhibit our efforts to maintain and develop our commercialization capabilities include:
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an inability to retain an adequate number of effective commercial personnel in the medical markets we intend to target;
an inability to train sales personnel, who may have limited experience with our company or NUZYRA, to deliver a consistent message
regarding NUZYRA and be effective in convincing physicians to prescribe NUZYRA;
a lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies
with more extensive product lines;
an inability to equip sales personnel with effective materials, including medical and sales literature to help them educate physicians and our
healthcare providers regarding NUZYRA and its proper administration;
unforeseen costs and expenses associated with maintaining and further developing an independent sales and marketing organization; and
complications or barriers that inhibit our commercial team from reaching the appropriate audience to promote our product(s) because of the
spread of COVID-19 or any outbreak of other contagious diseases.
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If we are not successful in establishing and maintaining an effective sales and marketing infrastructure, we will have difficulty commercializing
NUZYRA and our future product revenue will suffer, which would adversely affect our business and financial condition.
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of
these product revenues to us are likely to be lower than if we were to market and sell any products that we develop ourselves. In addition, we likely will
have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products
effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be
successful in commercializing NUZYRA.
If we are unable to establish and maintain our agreements with third parties to distribute NUZYRA to patients, our results of operations and business
could be adversely affected.
We rely on third parties to commercially distribute NUZYRA to patients. We have contracted with a third-party logistics company to warehouse
NUZYRA and to process and ship customer orders and have negotiated contracts with specialty pharmacies and specialty distributors to sell and distribute
NUZYRA. The specialty pharmacies sell NUZYRA directly to patients and provide patient education and ongoing management. The specialty distributors
sell NUZYRA to hospitals and other large buying institutions. We have also contracted with a third-party patient services hub to help us with some or all of
the following: benefits investigation and reimbursement adjudication support, patient assistance programs and ongoing compliance support. This
distribution network requires significant coordination with our sales and marketing and finance organizations. In addition, failure to coordinate financial
systems could negatively impact our ability to accurately report product revenue from NUZYRA. If we are unable to effectively manage the distribution
process, sales of NUZYRA, as well as any future products we may commercialize, sales could be delayed or severely compromised and our results of
operations may be harmed.
In addition, the use of specialty pharmacies, specialty distributors and a third-party patient services hub involves certain risks, including, but not
limited to, risks that these organizations will:
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not provide us with accurate or timely information regarding their inventories, the number of patients who are using NUZYRA or serious
adverse reactions, events and/or product complaints regarding NUZYRA;
not effectively sell or support NUZYRA, or communicate publicly concerning NUZYRA in a manner that is contrary to FDA rules and
regulations;
reduce or discontinue their efforts to sell or support NUZYRA;
not devote the resources necessary to sell NUZYRA in the volumes and within the time frame we expect;
be unable to satisfy financial obligations to us or others; or
cease operations.
Any such events may result in decreased product sales and lower product revenue, which would harm our results of operations and business.
Additionally, the provision of patient support services, although fairly typical in the pharmaceutical industry, can be subject to challenge under fraud and
abuse or FDA laws if not structured appropriately.
Independent clinical investigators and CROs that we engage to conduct our clinical trials may not devote sufficient time or attention to our and our
partners’ clinical trials or be able to repeat their past success.
We expect to depend on independent clinical investigators and CROs to participate in and conduct our clinical trials, including our ongoing PK
studies for omadacycline in oral only CABP, omadacycline for the treatment of NTM, and any PMRs with the FDA. There is a limited number of third-
party service providers that specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance
of third-party service providers can be difficult, time consuming and cause delays in our or our partners’ development programs. These investigators and
CROs will not be our employees, and we will not be able to control, other than by contract, the amount of resources, including time, that they devote to our
product candidates and clinical trials. If independent investigators fail to devote sufficient resources to the development of our product candidates, or if
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performance is substandard, it may delay or compromise the prospects for approval and commercialization of any product candidates that we and our
partners develop. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could
increase the risk that this information will be misappropriated. Further, the FDA requires that we and our partners comply with standards, commonly
referred to as current Good Clinical Practices, for conducting, recording and reporting clinical trials to assure that data and reported results are credible and
accurate and that the rights, safety, integrity and confidentiality of clinical trial subjects are protected. Failure of clinical investigators or CROs to meet their
obligations to us or comply with current Good Clinical Practices could adversely affect the clinical development of our product candidates and harm our
business.
If NUZYRA or SEYSARA do not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, our
revenue generated from their sales will be limited.
The commercial success of NUZYRA and SEYSARA will depend upon their level of market acceptance among physicians, patients and the
medical community. The degree of market acceptance of NUZYRA and SEYSARA will depend on a number of factors, including:
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limitations or warnings contained in the product’s FDA or foreign regulatory approved labeling;
changes in the standard of care for the targeted indications for any of our products;
limitations in the approved clinical indications for our products;
demonstrated clinical safety and efficacy compared to other products;
lack of significant adverse side effects;
sales, marketing, reimbursement and distribution support;
availability of coverage and adequate reimbursement from governmental or private third-party payors, such as Medicare or managed care
plans;
the extent to which government or third-party payors implement utilization management techniques, such as unreasonably high copayment
formulary tiers, prior authorization or quantity limits for our product(s), or even refuse to provide coverage or adequate reimbursement for the
products;
timing of market introduction and perceived effectiveness of competitive products;
the degree of cost-effectiveness and value of our products;
availability of alternative therapies at similar or lower cost, including generics and over-the-counter products;
the extent to which the product is approved for inclusion on formularies of hospitals, and third-party payors, including managed care
organizations;
whether the product is designated under physician treatment guidelines as a therapy for particular infections;
whether the product is designated under national treatment or formulary guidelines;
adverse publicity about our products or favorable publicity about competitive products;
convenience and ease of administration of our products; and
potential product liability claims.
Although we believe our clinical studies demonstrate that NUZYRA and SEYSARA represent clinically meaningful and efficacious options for
patients and physicians, it is possible that as we receive data from additional clinical trials or in a post-market setting from physician and patient
experiences with the commercial products that do not continue to support such interpretations. It is also possible that the FDA, physicians and third-party
payors will not agree with our interpretation of our existing and future clinical trial data. If we are unable to demonstrate the value of NUZYRA and
SEYSARA based on our data, our opportunity for these products to maintain premium pricing and be commercialized successfully would be adversely
affected. If NUZYRA or SEYSARA do not achieve an adequate level of acceptance by physicians, patients and the medical community, we and our
partners may not
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generate sufficient revenue from these products, and we may not become or remain profitable. In addition, efforts to educate the medical community and
third-party payors on the benefits of NUZYRA, SEYSARA or any future product candidates may require significant resources and may never be
successful.
Even though NUZYRA and SEYSARA have been approved for marketing in the U.S., we or our partners may never obtain approval of or
commercialize NUZYRA or SEYSARA outside of the U.S., which would limit our ability to realize their full market potential.
In October 2018, the FDA approved NUZYRA in the U.S. for the treatment of adults with CABP and ABSSSI that are proven or strongly
suspected to be caused by susceptible bacteria. We have global commercial rights to omadacycline, except that we have entered into a collaboration with
Zai to develop, manufacture and commercialize omadacycline in the Zai territory. In October 2018, the FDA also approved SEYSARA for the treatment of
inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients nine years of age and older. In the U.S. and the greater China region,
Almirall has the exclusive rights to commercialize SEYSARA for the treatment of acne, whereas we retain all rights to sarecycline all other countries. In
the future, we, or our partners, may seek to commercialize omadacycline or sarecycline in countries outside of the U.S. and the greater China region.
In order to market products outside of the U.S., we and our partners must comply with numerous and varying regulatory requirements of other
jurisdictions regarding safety and efficacy. Approval procedures vary among jurisdictions and can involve product testing and administrative review
periods different from, and greater than, those in the U.S.
Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country
does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional
product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays,
difficulties and costs for us and may require additional preclinical studies or clinical trials. Satisfying these and other regulatory requirements is costly, time
consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative
effects on the process for regulatory approval in other countries.
Regulatory approval in one jurisdiction does not ensure regulatory approval in another, but failure or delay in obtaining regulatory approval in one
jurisdiction may have a negative effect on the regulatory process in others. Failure to obtain regulatory approvals in other jurisdictions or any delay or
setback in obtaining such approvals could adversely affect our business and financial condition.
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Bacteria might develop resistance to NUZYRA, which would decrease the efficacy and commercial viability of NUZYRA.
Antibiotic resistance is primarily caused by the genetic mutation of bacteria resulting from suboptimal exposure to antibiotics where the drug does
not eradicate all of the bacteria. While antibiotics have been developed to treat many of the most common infections, the extent and duration of their use
worldwide has resulted in new mutated strains of bacteria resistant to current treatments. NUZYRA has been developed to treat patients infected with drug-
resistant bacteria. If physicians, rightly or wrongly, associate the resistance issues of older generations of tetracyclines with NUZYRA, physicians might
not prescribe NUZYRA for treating a broad range of infections. In addition, bacteria might develop resistance to NUZYRA if such bacteria are improperly
dosed or treated repeatedly with NUZYRA over multiple years, causing the efficacy of NUZYRA to decline, which would negatively affect our potential to
generate revenue from NUZYRA.
If any product liability lawsuits are successfully brought against us or any of our collaborative partners, we may incur substantial liabilities and may be
required to limit commercialization of our products, including NUZYRA and SEYSARA.
We face an inherent risk of product liability lawsuits related to the testing of our products in seriously ill patients and will face an even greater risk
from sales of NUZYRA and SEYSARA. Product liability claims may be brought against us or our partners by participants enrolled in our clinical trials,
patients, healthcare providers or others using, administering or selling any of our products. If we cannot successfully defend ourselves against any such
claims, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for NUZYRA or SEYSARA;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
termination of clinical trial sites or entire clinical trial programs;
significant litigation costs;
substantial monetary awards to or costly settlements with patients or other claimants;
product recalls or a change in the indications for which they may be used;
loss of revenue;
diversion of management and scientific resources from our business operations; and
the inability of us or our partners to successfully commercialize our products.
With the approval of NUZYRA and SEYSARA for commercial sale, we are highly dependent upon consumer perceptions of us and the safety and
quality of our products. We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of our products or
any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Also, because of our dependence upon consumer
perceptions, any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similar
products distributed by other companies could have a material adverse impact on our results of operations.
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We currently hold $10.0 million in product liability insurance coverage in the aggregate annually, with a per incident limit of $10.0 million, which
may not be adequate to cover all liabilities that we may incur. Insurance coverage is becoming increasingly expensive. As a result, we may be unable to
maintain or obtain sufficient insurance at a reasonable cost to protect us against losses that could have a material adverse effect on its business. These
liabilities could prevent or interfere with our product development and commercialization efforts. A successful product liability claim or series of claims
brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash resources and adversely affect our business, financial
condition and results of operation.
If we fail to attract and retain key management and scientific personnel, we may be unable to successfully commercialize NUZYRA or any future
product candidates.
Our industry has experienced a high rate of turnover of management personnel in recent years. We are to a certain extent dependent on the
members of our senior management team for our business success. The employment agreements with our senior management team can be terminated by us
or them at any time, with notice. The departure of any of our executive officers could result in a significant loss in the knowledge and experience that we,
as an organization, possesses and could cause significant delays, or outright failure, in the execution of our strategies, the successful commercialization of
NUZYRA, and the development of any future product candidates.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, development and clinical
personnel. We may not be able to attract or retain such qualified personnel due to the intense competition for qualified personnel among biotechnology,
pharmaceutical and other businesses. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may
experience constraints that will impede significantly our development objectives and timelines, the success of our commercialization efforts, our ability to
raise additional capital and our ability to implement our business strategy.
We depend on various consultants and advisors for the success and continuation of our development efforts.
We work extensively with various consultants and advisors, who provide advice and/or services in various business and development functions,
including clinical development, operations and strategy, regulatory matters, legal and finance. The potential success of our drug development programs
depends, in part, on continued successful collaborations with certain of these consultants and advisors. Our consultants and advisors are not our employees
and may have commitments and obligations to other entities that may limit their availability to us. Typically, these advisors will not enter into non-compete
agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. We do not know if
we will be able to maintain such relationships or that such consultants and advisors will not enter into other arrangements with competitors, any of which
could have a detrimental impact on our development objectives and our business.
We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As of February 28, 2021, we had 196 full-time employees. We expect to expand our employee base for managerial, operational, sales, marketing,
financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify,
recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of their attention away
from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the
expansion of our operations that may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of
employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert
financial resources from other projects, such as the development of existing and additional product candidates. If our management is unable to effectively
manage our expected growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not
be able to implement our business strategy. Our future financial performance and our ability to successfully commercialize NUZYRA, develop any future
product candidates and compete effectively with others in our industry will depend, in part, on our ability to effectively manage any future growth.
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Our employees, contractors, partners, principal investigators, CROs, consultants and vendors may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, contractors, partners, principal investigators, CROs, consultants and vendors may engage in
fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of
unauthorized activities to us that violates: FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the
FDA, federal and state healthcare fraud and abuse laws and regulations, laws that require the reporting of financial information or data timely, completely
or accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to
prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing,
discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Third-party misconduct could
also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our
reputation. It is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may not be effective in
controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a
failure to comply with these laws or regulations. If any such actions are instituted against us resulting from this misconduct, and we are not successful in
defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil,
criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare
programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could significantly harm our business.
Risks Related to Our Intellectual Property
If we are unable to obtain and enforce patent protection for products, our product candidates and related technology, our business could be materially
harmed.
Issued patents may be challenged, invalidated or circumvented. In addition, court decisions may introduce uncertainty in the enforceability or scope
of patents owned by pharmaceutical companies. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of
foreign countries may not allow us to protect our inventions with patents to the same extent as do the laws of the U.S. Because patent applications in the
U.S. and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of
discoveries in scientific literature lag behind actual discoveries, or may not be the first to make the inventions claimed in issued patents or pending patent
applications, or may not be the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to
obtain or maintain protection for certain inventions. If such inventions or related inventions are successfully patented by others, we may be required to
obtain licenses under third-party patents to market our product candidates, as described in greater detail below. Therefore, enforceability and scope of our
patents in the U.S. and in foreign countries cannot be predicted with certainty, and, as a result, any patents that we own or license may not provide
sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those we
may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection
may be of insufficient scope to achieve our business objectives or may not survive legal or administrative challenges by competitors.
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Our strategy depends on our ability to identify and seek and obtain patent protection for our discoveries. This process is expensive and time
consuming, and we may not be able to file and prosecute successfully all necessary or desirable patent applications at a reasonable cost or in a timely
manner or in all jurisdictions where protection may be commercially advantageous. Despite our efforts to protect our proprietary rights, unauthorized
parties may be able to obtain and use information that we regard as proprietary. The issuance of a patent does not ensure that it is valid or enforceable, so
even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent does not give us the right to
practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our
own patented technology. Third parties may also seek to market generic versions of any approved products by submitting ANDAs to the FDA in which
they claim that patents owned or licensed by us are invalid, unenforceable and/or not infringed. Alternatively, third parties may seek approval to market
their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents,
including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our
patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing
products or processes sufficient to achieve our business objectives.
The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual
considerations. The standards that the U.S. Patent and Trademark Office, or USPTO, and its foreign counterparts use to grant patents are not always applied
predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable
in pharmaceutical or biotechnology patents. The laws of some foreign countries do not protect proprietary information to the same extent as do the laws of
the U.S., and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries.
Outside of the U.S., patent protection must be sought in individual jurisdictions, further adding to the cost and uncertainty of obtaining adequate patent
protection outside of the U.S. Accordingly, additional patents protecting our technology may not issue in the U.S. or in foreign jurisdictions, and any
patents that do issue may not have claims of adequate scope to provide competitive advantage. Moreover, third parties may be able to successfully obtain
claims and such claims may be broad. The allowance of broader claims may increase the incidence and cost of patent interference proceedings, opposition
proceedings and/or reexamination proceedings, the risk of infringement litigation and the vulnerability of the claims to challenge. On the other hand, the
allowance of narrower claims does not eliminate the potential for adversarial proceedings and may fail to provide a competitive advantage. Our issued
patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive
advantage. Moreover, even after they have issued, our patents and any patent for which we have licensed or may license rights may be challenged,
narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or expire prior to the commercialization of our product
candidates, other companies may be better able to develop products that compete with our products which could adversely affect our competitive business
position, business prospects and financial condition. The following are examples of litigation and other adversarial proceedings or disputes that we could
become a party to involving our patents or patents licensed to us:
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we or our partners may initiate litigation or other proceedings against third parties to enforce our patent rights;
third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory
judgment that their product or technology does not infringe our patents or patents licensed to us;
third parties may initiate opposition or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our
partners to participate in such proceedings to defend the validity and scope of our patents;
there may be a challenge or dispute regarding inventorship or ownership of patents currently identified as being owned by or licensed to us;
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the USPTO may initiate an interference between patents or patent applications owned by or licensed to us and those of our competitors,
requiring us or our collaborators to participate in an interference proceeding to determine the priority of invention, which could jeopardize
our patent rights; or
third parties may submit ANDAs to the FDA seeking approval to market generic versions of our approved or future approved products prior
to expiration of relevant patents owned by or licensed to us, requiring us to defend our patents, including by filing lawsuits alleging patent
infringement.
These lawsuits and proceedings would be costly and could adversely affect our results of operations and divert the attention of our managerial and
scientific personnel. A court or administrative body may decide that our patents are invalid or not infringed by a third party’s product or activity or that the
scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents could limit our ability to
assert our patents against these or other competitors and may curtail or preclude our ability to exclude third parties from making and selling similar or
competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. An
adverse outcome in a dispute involving inventorship or ownership of our patents could, for example, subject us to additional royalty obligations and expand
the number of product candidates that are subject to the royalty and other obligations of our license agreement with Tufts.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately
protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents;
others may be able to make compounds that are similar to our products or product candidates but that are not covered by the claims of our
patents;
we might not have been the first to make the inventions covered by our pending patent applications;
we might not have been the first to file patent applications for these inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies;
we may be unable to effectively protect our trade secrets;
any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable;
we may not develop additional proprietary technologies that are patentable; or
the patents of others may have an adverse effect on our business.
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Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Our and our partners’ success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities
may have or obtain patents or proprietary rights that could limit our ability to manufacture, use, sell, offer for sale or import our products or impair our
competitive position. Patent applications that we believe we do not infringe, but that we may ultimately be found to infringe, could be issued to third
parties. In addition, to the extent that a third party develops new technology that covers our products or product candidates, we and our partners may be
required to obtain licenses to that technology, which licenses may not be available or may not be available on commercially reasonable terms. Third parties
may have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our
failure to obtain a license to any technology that we require may materially harm our business, financial condition and results of operations. Moreover, our
or our partners’ failure to maintain a license to any technology that we require may also materially harm our business, financial condition and results of
operations. Furthermore, we would be exposed to a threat of litigation.
In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual
property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:
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we or our partners may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties
or to obtain a judgment that our products or processes do not infringe those third parties’ patents;
if our competitors file patent applications that claim technology also claimed by us, we or our collaborators may be required to participate in
interference or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide
a third party with a dominant patent position;
if third parties initiate litigation claiming that our processes, products or use of products infringe their patent or other intellectual property
rights, we and our collaborators will need to defend against such proceedings;
if third parties initiate litigation claiming that our brand names infringe their trademarks, we and our collaborators will need to defend against
such proceedings; and
if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or
misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we
and our collaborators would need to defend against such proceedings.
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These lawsuits would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. There
is a risk that a court would decide that we or our partners are infringing the third party’s patents and would order us or our collaborators to stop the
activities covered by the patents. In that event, we or our partners may not have a viable alternative to the technology protected by the patent and may need
to halt work on the affected product or product candidate. In addition, there is a risk that a court will order us or our partners to pay the other party
damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the
technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable
terms or at all. Any of these outcomes could have a material adverse effect on our business.
The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry
participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the
courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods
either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is
difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed
by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing
these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to
seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not
have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not develop or obtain non-infringing
technology, fail to defend an infringement action successfully or has infringed patents declared invalid, we may incur substantial monetary damages,
encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our products.
The cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to
sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting
from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the
marketplace. Patent litigation and other proceedings may also absorb significant management time and financial resources. There are inherent risks and
uncertainties associated with any litigation, including those involving intellectual property, which litigation and risks can be costly in of itself or create an
environment making it challenging to raise additional capital.
If we or our partners fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are
important to our business.
We are currently party to an intellectual property license agreement with Tufts. The license agreement imposes, and we expect that future license
agreements may impose, various diligence, milestone payment, royalty, insurance and other obligations on us. For example, we are required to use our best
efforts to effect introduction of licensed products under the agreement into the U.S. commercial market. If we fail to comply with our obligations under the
license, Tufts may have the right to terminate the license agreement, in which event we might not be able to market any product that is covered by the
agreement, such as NUZYRA. Termination of the license agreement or reduction or elimination of our licensed rights may result in us having to negotiate a
new or reinstated license with less favorable terms. If Tufts were to terminate its license agreement with us for any reason, our business could be materially
harmed. In the event that we are unable to maintain the Tufts license, we may lose the ability to exclude third parties from offering substantially identical
products for sale and may even risk the threat of a patent infringement lawsuit from our former licensor based on our continued use of its intellectual
property. Either of these events could adversely affect our competitive business position and harm our business.
Under our license agreement with Tufts, we are responsible for prosecution and maintenance of the licensed patents and patent applications,
including payment of necessary government fees. In the event that any of the licensed patents or patent applications unintentionally lapse or are otherwise
materially diminished in value, our relationship with Tufts could be harmed. This could result in termination of the license, loss of the rights to control
prosecution of the licensed patents and patent applications and/or liability to Tufts for any loss.
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If we or our partners are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products
could be adversely affected.
In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and
proprietary information. To maintain the confidentiality of trade secrets and proprietary information, our policy is to enter into confidentiality agreements
with our employees, consultants, collaborators and others upon the commencement of their relationships with us. These agreements require that all
confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be
kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived
by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all
circumstances, and individuals with whom we have these agreements may not comply with their terms. In the event of unauthorized use or disclosure of
our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or
other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their
work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated
to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that
intellectual property from that individual. Such assignment or license may not be available on commercially reasonable terms or at all.
Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets
would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could
adversely affect our competitive business position. In addition, others may independently discover trade secrets and proprietary information, and the
existence of our own trade secrets affords no protection against such independent discovery.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed at
research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to
claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former
employers or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product
candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are
successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
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Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements
imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO
and various foreign patent offices at various points over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these
fees, and we rely on our outside counsel to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a
number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and
other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with
rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or
patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material
adverse effect on our business. In addition, we are responsible for the payment of patent fees for patent rights that we have licensed from other parties. If
any licensor of these patents does not itself elect to make these payments, and we fail to do so, we may be liable to the licensor for any costs and
consequences of any resulting loss of patent rights.
If we do not obtain protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the term of patents covering each of
our product candidates, our business may be materially harmed.
Based on the FDA marketing approval of our products, one or more of our U.S. patents may be eligible for limited patent term extension under the
Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved
product as compensation for effective patent term lost during product development and the FDA regulatory review process, with the condition that this five
year extension does not extend the patent for more than fourteen years from the approval date. However, we may not receive an extension if we fail to
apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the
length of the extension could be less than our request. If we are unable to obtain patent term extension or the term of any such extension is less than we
request, the period during which we can enforce our patent rights for that product may not extend beyond the current patent expiration dates and our
competitors may obtain approval to market competing products sooner. As a result, our revenue could be reduced, possibly materially.
Our contract with BARDA may affect our intellectual property rights.
Our contract with BARDA includes provisions that implement the Bayh-Dole Act of 1980 and grant the U.S. government certain rights in
inventions that may be conceived or first actually reduced to practice under the contract. In particular, the U.S. government is granted a nonexclusive,
nontransferable, irrevocable, paid-up, worldwide license to practice such inventions or have such inventions practiced for or on the U.S. government's
behalf. The U.S. government also has "march-in" rights with respect to such inventions, which allow the U.S. government to directly or require us, our
assignee, or our exclusive licensee to license such inventions to a third party on an exclusive, partially exclusive, or non-exclusive basis if the U.S.
government determines that such an action is necessary (i) because adequate steps have not been taken to achieve practical application of such an invention,
(ii) to alleviate health or safety needs, (iii) to meet requirements for public use specified by federal regulations, or (iv) due to a violation of an agreement to
manufacture substantially in the U.S. a product embodying such an invention or produced through the use of such an invention. Unless waived by the U.S.
government, we are required to obtain such an agreement to manufacture substantially in the U.S. from another party to which we exclusively license such
an invention. The U.S. government also has the right to take title to such inventions if we fail to disclose, elect title to, or pursue or maintain patent
protection for such inventions within specified periods of time.
Risks Related to the Notes
Servicing our debt, including the Notes, requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our
substantial debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Notes, depends on our
future performance, which is subject to regulatory, economic, financial,
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competitive and other factors beyond our control. We are a biopharmaceutical company that has not yet generated profit from product sales. We expect to
continue to incur losses as we add infrastructure and personnel to support our commercialization and product development efforts and operations.
Accordingly, our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures.
If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining
additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and
our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could
result in a default on our debt obligations.
The Notes are subordinated to our senior indebtedness, effectively subordinated to our secured indebtedness and structurally junior to any liabilities of
our subsidiaries.
The Notes are our general, unsecured, senior subordinated obligations and rank equally in right of payment with all of our future unsecured, senior
subordinated indebtedness; senior to all of our future subordinated indebtedness; junior to all of our existing and future senior indebtedness, whether or not
secured; effectively subordinated to all of our secured indebtedness; and structurally junior to the liabilities, including trade payables, of our subsidiaries. In
the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure debt ranking senior in right of payment to the Notes will
be available to pay obligations on the Notes only after the secured debt has been repaid in full from these assets, and the assets of our subsidiaries will be
available to pay obligations on the Notes only after all claims senior to the Notes have been repaid in full. There may not be sufficient assets remaining to
pay amounts due on any or all of the Notes then outstanding. The indenture governing the Notes does not prohibit us from incurring additional senior debt
or secured debt, nor does it prohibit any of our subsidiaries from incurring additional liabilities.
Despite our current debt levels, we may still incur substantially more debt or take other actions which would intensify the risks discussed above.
Despite our current consolidated debt levels, we and our subsidiaries may be able to incur substantial additional debt in the future, subject to the
restrictions contained in our debt instruments, some of which may be secured debt. We are not restricted under the terms of the indenture governing the
Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the
terms of the indenture governing the Notes that could have the effect of diminishing our ability to make payments on the Notes when due.
We may not have the ability to raise the funds necessary to repurchase the Notes upon a fundamental change, and our existing or future debt may
contain limitations on our ability to repurchase the Notes.
Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a fundamental change
repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. However, we may not have
enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor. In addition, our ability
to repurchase the Notes may be limited by law, by regulatory authority or by agreements governing our indebtedness that exist at the time of the
repurchase. Our failure to repurchase Notes at a time when the repurchase is required by the indenture governing the Notes would constitute a default under
the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future
indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient
funds to repay the indebtedness and repurchase the Notes.
We may fail to pay any cash amount upon repurchase of the Notes.
Our failure to repurchase the Notes as required under the terms of the Notes would constitute a default under the indenture governing the Notes and
permit holders of the Notes to accelerate our obligations under the Notes. A default under the indenture or the fundamental change itself could also lead to
a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable
notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes.
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Future sales of our common stock or equity-linked securities in the public market could lower the market price for our common stock.
In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In addition, a substantial number of
shares of our common stock are reserved for issuance upon the exercise of stock options and upon conversion of the Notes. We cannot predict the size of
future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of
common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the market price of our
common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.
Risks Related to Our Common Stock
The trading price of our common stock is volatile.
The trading price of our common stock could be subject to significant fluctuations. Market prices for securities of pharmaceutical, biotechnology
and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the trading price of our common stock to
fluctuate include:
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the commercial performance of NUZYRA and SEYSARA;
our ability to maintain and expand regulatory approval for NUZYRA;
issues in manufacturing NUZYRA;
the results of our current and any future clinical trials of NUZYRA or any future product candidates;
the entry into, or termination of, key agreements, including key commercial partner agreements;
the initiation of, material developments in, or conclusion of litigation to enforce or defend any of our intellectual property rights or defend
against the intellectual property rights of others;
announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant
contracts, commercial relationships or capital commitments;
adverse publicity relating to the antibiotics market, including with respect to other products and potential products in such market;
the introduction of technological innovations or new therapies that compete with our products;
the loss of key employees;
changes in estimates or recommendations by securities analysts, if any, who cover our common stock;
general and industry-specific economic conditions that may affect our research and development expenditures;
changes in the structure of healthcare payment systems; and
period-to-period fluctuations in our financial results, including, in particular, our use of cash in operations.
Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of
individual companies. For example, the trading prices for our common stock and that of other biopharmaceutical companies have been highly volatile due
to the COVID-19 pandemic, especially as a result of investor concerns and uncertainty related to the impact of the outbreak on the economies of countries
worldwide. Such broad market fluctuations, as well as general economic, political and market conditions, may adversely affect the trading price of our
common stock.
In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources,
which could significantly harm our profitability and reputation.
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We do not anticipate that we will pay any cash dividends in the foreseeable future.
We expect that we will retain our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of
our common stock will be your sole source of gain, if any, for the foreseeable future.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts
by our stockholders to replace or remove our management.
Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include
a classified board of directors, a prohibition on actions by written consent of our stockholders and the ability of the board of directors to issue preferred
stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporate Law, or DGCL, which prohibits stockholders owning in excess of 15% of our voting stock from merging or combining with
us. Although we believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate
with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may
frustrate or prevent any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders to replace
members of the board of directors, which is responsible for appointing the members of management.
Our amended and restated by-laws designates specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders,
which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of
the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a
claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim
against us or any of our directors or officers or other employees arising pursuant to any provision of the DGCL, our amended and restated certificate of
incorporation or our amended and restated bylaws; or (iv) any action asserting a claim against us or any of our directors or officers or other employees
governed by the internal affairs doctrine. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds
favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and
employees. Alternatively, if a court were to find these provisions of our amended and restated bylaws inapplicable to, or unenforceable in respect of, one or
more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which
could adversely affect our business and financial condition. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital
stock shall be deemed to have notice of and consented to this provision of our amended and restated bylaws. However, Section 27 of the Exchange Act
creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations
thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any
other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal
and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, there
is uncertainty as to whether a court would enforce such a provision, and our stockholders will not be deemed to have waived our compliance with the
federal securities laws and the rules and regulations thereunder.
Future sales of shares by existing stockholders could cause the trading price of our common stock to decline.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of
our common stock could decline. As of December 31, 2020, approximately 1.5 million shares of common stock are held by our directors, executive officers
and other affiliates and are subject to volume limitations under Rule 144 under the Securities Act. In addition, approximately 1.7 million shares of common
stock that are subject to outstanding options and restricted stock units as of December 31, 2020 will become eligible for sale in the public market to the
extent permitted by the provisions of various vesting agreements and Rule 144 under the Securities Act. If these additional shares are sold, or if it is
perceived that they will be sold, in the public market, the trading price of our common stock could decline.
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Because our merger resulted in an ownership change under Section 382 of the Internal Revenue Code for Transcept, Transcept’s pre-merger net
operating loss carryforwards and certain other tax attributes are subject to limitations. The net operating loss carryforwards and other tax attributes of
the former Paratek entity and us may also be subject to limitations as a result of ownership changes.
If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, or
Section 382, the corporation’s net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to
limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership
by certain stockholders that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger
resulted in an ownership change for Transcept and, accordingly, Transcept’s net operating loss carryforwards and certain other tax attributes are subject to
limitations on their use after the Merger. Old Paratek’s net operating loss carryforwards may also be subject to limitation as a result of prior shifts in equity
ownership and/or the Merger. Additional ownership changes in the future could result in additional limitations on Transcept’s, Old Paratek’s and our net
operating loss carryforwards. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of Transcept’s, Old Paratek’s
or our net operating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations.
If securities or industry analysts do not publish research or reports or publish inaccurate or unfavorable research about us, the trading price and
trading volume of our common stock could decline.
The trading market for our common stock is influenced by the research and reports that securities or industry analysts publish about us, our
business and our common stock. As of December 31, 2020, we had research coverage by five securities analysts. If the analysts who cover us downgrade
our common stock or publish inaccurate or unfavorable research regarding us or our business model, technology or stock performance, the trading price of
our common stock would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose
visibility in the financial markets, which in turn could cause the trading price or trading volume of our common stock to decline. Moreover, the
unpredictability of our financial results likely reduces the certainty, and therefore reliability, of the forecasts by securities or industry analysts of our future
financial results, adding to the potential volatility of the trading price of our common stock.
Maintaining and improving our financial controls and the requirements of being a public company may strain our resources, divert management’s
attention and affect our ability to attract and retain qualified board members.
The trading market for our common stock is influenced by the research and reports that securities or industry analysts publish. As a public
company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and The Nasdaq
Global Market rules. The requirements of these rules and regulations have increased and will continue to significantly increase our legal and financial
compliance costs, including costs associated with the hiring of additional personnel, making some activities more difficult, time-consuming or costly, and
may also place undue strain on our personnel, systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and
current reports with respect to our business and financial condition.
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The Sarbanes-Oxley Act requires, among other things, that we maintain disclosure controls and procedures and internal control over financial
reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place, as well as maintaining these controls and
procedures, is a costly and time-consuming effort that needs to be re-evaluated frequently. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires
that we annually evaluate our internal control over financial reporting to enable management to report on the effectiveness of those controls. In connection
with the Section 404 requirements, we test our internal controls and could, as part of that documentation and testing, identify material weaknesses,
significant deficiencies or other areas for further attention or improvement.
Implementing any appropriate changes to our internal controls may require specific compliance training for our directors, officers and employees,
require the hiring of additional finance, accounting and other personnel, entail substantial costs to modify our existing accounting systems, and take a
significant period of time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure
to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could
materially impair our ability to operate our business. Moreover, adequate internal controls are necessary for us to produce reliable financial reports and are
important to help prevent fraud. As a result, our failure to satisfy the requirements of Section 404 on a timely basis could result in the loss of investor
confidence in the reliability of our financial statements, which in turn could cause the market value of our common stock to decline.
Various rules and regulations applicable to public companies make it more difficult and more expensive for us to maintain directors’ and officers’
liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable to
maintain adequate directors’ and officers’ liability insurance, our ability to recruit and retain qualified officers and directors, especially those directors who
may be deemed independent for purposes of The Nasdaq Global Market rules, will be significantly curtailed.
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General Risk Factors
We may be subject to significant fines if we fail to comply with data privacy and securities laws.
We may be subject to privacy and security laws in the various jurisdictions in which we operate, obtain or store personally identifiable information.
The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data
protection issues with the potential to affect our business.
Within the U.S., our operations may be affected by the Health Insurance Portability and Accountability Act of 1996 as amended by the Health
Information Technology for Economic and Clinical Health Act and its implementing regulations, collectively, HIPAA, which impose obligations on certain
“covered entities,” such as healthcare providers, health plans and healthcare clearinghouses, and certain of their “business associate” contractors with
respect to safeguarding the privacy, security and transmission of individually identifiable health information. Although we believe that we currently are
neither a “covered entity” nor a “business associate” under the legislation, a business associate relationship may be imputed from facts and circumstances
even in the absence of an actual business associate agreement. In addition, HIPAA may affect our interactions with customers who are covered entities or
their business associates because HIPAA affects the ability of these entities to disclose patient health information to us. Various states also have laws that
regulate the privacy and security of patient information and so may affect our business operations. For example, we are subject to the California Consumer
Privacy Act, or CCPA, that became effective on January 1, 2020. The CCPA gives California consumers, defined to include all California residents, certain
rights, including the right to ask companies to disclose the types of personal information collected, specific pieces of information collected by a company,
the categories of sources from which such information was collected, the business purpose for collecting or selling the consumer’s personal information,
and the categories of third parties with whom a company shares personal information. The CCPA also imposes several obligations on companies to provide
notice to California consumers regarding a company’s data processing activities. Additionally, the CCPA gives California consumers the right to ask
companies to delete a consumer’s personal information and it places limitations on a company’s ability to sell personal information, including providing
consumers a right to opt out of sales of their personal information.
Outside the U.S., other data privacy and security regulations may apply. For example, the processing of personal data in the European Economic
Area, or the EEA, is subject to the General Data Protection Regulation, or the GDPR, which took effect in May 2018. The GDPR increases obligations with
respect to clinical trials conducted in the EEA, such as in relation to the provision of fair processing notices, exercising data subject rights and reporting
certain data breaches to regulators and affected individuals, as well as how we document our relationships with third parties that process GDPR-covered
personal data on our behalf. The GDPR also increases the scrutiny applied to transfers of personal data from the EEA, including from clinical trial sites in
the EEA, to countries that are considered by the European Commission to lack an adequate level of data protection, such as the U.S. Compliance with data
privacy and security regulation can require allocation of resources as well as changes in operations and non-compliance can result in substantial fines. In
addition, the GDPR and the CCPA impose substantial fines and other regulatory penalties for breaches of data protection requirements and they confer a
private right of action on data subjects, in the case of the GDPR, and consumers, in the case of the CCPA, and their representatives for breaches of certain
data protection requirements.
Our business and operations would suffer in the event of computer system failures.
Despite the implementation of security measures, our internal computer systems, and those of our CROs, our partners and other third parties on
which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and
electrical failures. In addition, our systems safeguard important confidential personal data regarding our subjects. If a computer failure were to occur and
cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data
from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur liability and the further commercialization of NUZYRA and development of any future product
candidates could be delayed.
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Our and our partners’ business may become subject to economic, political, regulatory, and other risks associated with international operations.
Our business is subject to risks associated with conducting business internationally, in part due to a number of our suppliers and collaborative and
clinical trial relationships being located outside of the U.S. Accordingly, our future results could be harmed by a variety of factors, including:
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economic weakness, including inflation or political instability, in particular foreign economies and markets;
differing regulatory requirements for drug approvals, as well as product pricing and reimbursement, in foreign countries;
potentially reduced protection for intellectual property rights;
difficulties in compliance with non-U.S. laws and regulations;
changes in non-U.S. regulations and customs, tariffs and trade barriers;
changes in non-U.S. currency exchange rates and currency controls;
changes in a specific country’s or region’s political or economic environment;
trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;
negative consequences from changes in tax laws;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
workforce uncertainty in countries where labor unrest is more common than in the U.S;
difficulties associated with staffing and managing foreign operations, including differing labor relations;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, typhoons,
floods and fires and pandemics such as the COVID-19 pandemic.
These risks may materially adversely affect our ability to attain or sustain profitable operations.
If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.
Our research and development involves the use of potentially hazardous materials and chemicals. Our operations may have produced hazardous
waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by local,
state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. We are also subject to
numerous environmental, health and workplace safety laws and regulations and fire and building codes, including those governing laboratory procedures,
exposure to blood-borne pathogens, use and storage of flammable agents and the handling of biohazardous materials. Although we have always maintained
workers’ compensation insurance as prescribed by the Commonwealths of Massachusetts and Pennsylvania to cover us for costs and expenses, we may
incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. Additional federal, state, and local
laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or
penalties if we violate, any of these laws or regulations.
We enter into various contracts in the normal course of our business in which we indemnify the other party to the contract. In the event we have to
perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition, and results of operations.
In the normal course of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting and other
agreements that contain indemnification provisions. With respect to our academic
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and other research agreements, we typically indemnify the institution and related parties from losses arising from claims relating to the products, processes
or services made, used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our sub
licensees’ exercise of rights under the agreement. With respect to our commercial agreements, we indemnify our vendors from any third-party product
liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other
intellectual property right by a third party. With respect to consultants, we indemnify them from claims arising from the good faith performance of their
services.
Should our obligation under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our
business, financial condition, and results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the
collaborator is denied insurance coverage or does not have assets available to indemnify us, our business, financial condition, and results of operations
could be adversely affected.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of former
employers.
Certain of our former employees were previously employed at universities or other biotechnology or pharmaceutical companies, including
competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we
ourselves inadvertently or otherwise used or disclosed trade secrets or other proprietary information. Litigation may be necessary to defend against these
claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss
of key research personnel or their work product could hamper or prevent us or a collaboration partner’s ability to develop or commercialize certain
potential products, which could severely harm the business. Even if we are successful in defending against these claims, litigation could result in substantial
costs and be a distraction to management.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our headquarters are located in Boston, Massachusetts, where we occupy approximately 12,000 square feet of office space under a lease that
expires in August 2021. We also rent approximately 19,000 square feet of office space in King of Prussia, Pennsylvania on a monthly basis under a lease
that expires in 2024.
Item 3.
Legal Proceedings
From time to time the Company is involved in legal proceedings arising in the ordinary course of business. The Company believes there is no
litigation pending that could have, individually, or in the aggregate, a material adverse effect on its results of operations or financial condition.
Item 4.
Mine Safety Disclosures
None.
81
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on The Nasdaq Global Market under the symbol “PRTK.” As of February 26, 2021, there were 80 holders of record of
PART II
our common stock.
Recent Sales of Unregistered Securities
Set forth below is information regarding securities sold by us during 2020 that were not registered under the Securities Act. Also included is the
consideration, if any, received by us for the securities and information relating to the section of the Securities Act, or rule of the SEC under which
exemption from registration was claimed.
On August 5, 2020, we entered into the First Amendment to the A&R Hercules Loan Agreement (as defined below), or the First Amendment. In
connection with the First Amendment, we issued to Hercules Capital, Inc. a warrant to purchase our common stock, or the First Amendment Warrant. The
First Amendment Warrant is exercisable for a minimum of up to 407,239 shares of our common stock at an exercise price of $4.42 per share. The First
Amendment Warrant’s total relative fair value of $1.1 million was determined using a Black-Scholes option-pricing model, as described in Note 12,
Common Stock, in the accompanying notes to the consolidated financial statements, and was included as a discount to the Term Loan, as defined in Note
16, Long-Term Debt. The exercise price and the number of shares are subject to adjustment upon a merger event, reclassification of the shares of common
stock, subdivision or combination of the shares of common stock or certain dividends payments. The First Amendment Warrant is exercisable at any time
until the earlier of seven years from issuance and the consummation of a Public Acquisition, as defined in the First Amendment Warrant agreement and
will be exercised automatically on a net issuance basis if not exercised prior to the termination date and if the then-current fair market value of one share of
common stock is greater than the exercise price then in effect.
No underwriters were involved in the foregoing sale of securities. The First Amendment Warrant was issued to Hercules Capital, Inc. in reliance
upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(a)(2), relative to transactions by an issuer not
involving any public offering. Hercules Capital, Inc. represented to us in connection with its purchases that it was an “accredited investor” as defined in
Rule 501 of Regulation D promulgated under the Securities Act and was acquiring the securities for its own account for investment purposes only and not
with a view to, or for sale in connection with, any distribution thereof. Hercules Capital, Inc. received written disclosures that the securities had not been
registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from such registration.
Securities authorized for issuance under equity compensation plans
The following table provides certain information with respect to all of our equity compensation plans in effect as of December 31, 2020:
Plan Category
Equity compensation plans approved by stockholders (1)
Equity compensation plans not approved by
stockholders
Total
Number of
Securities to
be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
5,217,102 (2) $
3.71 (3)
Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans(1)
1,946,208 (4)
641,767 (5)
$
5,858,869
10.81 (6)
4.49
735,233 (7)
2,681,441
(1)
The number of authorized shares under the 2015 Equity Incentive Plan, or the 2015 Plan, will automatically increase on January 1 of each year, for
the period commencing on (and including) January 1, 2016 and ending
82
on (and including) January 1, 2025, in an amount equal to 5% of the total number of shares of common stock outstanding on December 31st of the
preceding calendar year. Notwithstanding the foregoing, the Board of Directors of the Company may act prior to January 1st of a given year to
provide that there will be no January 1st 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 occur.
Includes 1,482,275 shares relating to outstanding options, 3,255,825 shares relating to restricted stock units and 479,002 warrants outstanding.
Represents the weighted-average exercise price of outstanding options, warrants and rights.
Includes 606,816 shares available under the 2009 and 2018 Employee Stock Purchase Plans. All shares cancelled or forfeited during the years
ended December 31, 2020 and 2019 under the 2006 and 2014 Plans became available for grant under the 2015 Plan. The 2006 Plan terminated on
July 2, 2020.
Includes 504,167 shares relating to outstanding options and 137,600 shares relating to restricted stock units under the 2015 Inducement Plan and
the 2017 Inducement Plan.
Represents the weighted-average exercise price of outstanding options and rights.
Includes 306,500 shares that remain available for grant under the 2015 Inducement Plan that the Company does not currently anticipate issuing.
(2)
(3)
(4)
(5)
(6)
(7)
Issuer Purchases of Equity Securities
There were no repurchases of our common stock during 2020.
83
Item 6.
Selected Financial Data
The following selected financial data has been derived from our audited consolidated financial statements. The information below is not necessarily
indicative of the results of future operations and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” and Item 1A, “Risk Factors,” of this Annual Report on Form 10-K, and the consolidated financial statements and related notes
thereto included in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K, in order to fully understand factors that
may affect the comparability of the information presented below.
Consolidated Statements of Operations Data:
Revenue
Operating expenses:
Cost of product revenue
Research and development
General and administrative
Impairment of intangible assets
Change in fair value of contingent consideration
Total operating expenses
Loss from operations
Non-operating other expense, net
Net loss before provision for income taxes
Provision for income taxes
Net loss attributable to common stockholders
Net loss per share, basic and diluted
2020
2019
Year Ended December 31,
2018
2017
2016
(in thousands, except per share and data)
$
46,924 $
16,544 $
17,117 $
12,616 $
29
8,651
23,922
89,855
—
—
122,428
(75,504)
(21,037)
(96,541)
—
(96,541) $
3,484
39,554
89,135
—
—
132,173
(115,629)
(12,860)
(128,489)
301
(128,790) $
—
57,508
63,658
107
(71)
121,202
(104,085)
(7,769)
(111,854)
502
(112,356) $
—
60,072
36,965
743
(584)
97,196
(84,580)
(3,736)
(88,316)
753
(89,069) $
—
83,460
26,400
—
(345)
109,515
(109,486)
(2,150)
(111,636)
—
(111,636)
(2.19) $
(3.93) $
(3.57) $
(3.32) $
(5.51)
$
$
Weighted average common shares outstanding, basic and
diluted
44,174,765 32,791,934 31,513,454 26,827,253 20,253,082
Selected Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities
Total assets
Working capital
Current liabilities
Long-term debt
Common stock and additional paid-in capital
Accumulated deficit
Total stockholders’ deficit
84
$
As of December 31,
2020
2019
125,162 $
176,853
140,164
23,953
250,474
705,535
(807,799)
(102,260)
215,379
251,079
219,154
24,200
260,728
671,537
(711,258)
(39,647)
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain statements that are not
strictly historical and are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a high
degree of risk and uncertainty. Actual results may differ materially from those projected in the forward-looking statements due to other risks and
uncertainties. All forward-looking statements included in this section are based on information available to us as of the date hereof, and we assume no
obligation to update any such forward-looking statement, except as required by law.
Company Overview
We are 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. Our 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 we have exclusively licensed in the U.S. and the People’s Republic of China,
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 once-daily oral therapy for the treatment of moderate to severe acne vulgaris. With respect to our technology as it relates to sarecycline, we retain
development and commercialization rights in all countries other than the U.S. and the greater China region, and in February 2020, we 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.
In December 2019, we entered into a five-year contract with an option to extend to ten years with the Biomedical Advanced Research and
Development Authority, or BARDA, a division of the U.S. Department of Health and Human Services, or HHS, Office of the Assistant Secretary for
Preparedness and Response, or ASPR, herein referred to as the BARDA contract. The BARDA contract supports the development of NUZYRA for the
treatment of pulmonary anthrax, FDA post-marketing requirements, or PMRs, associated with the initial NUZYRA approval, and an option for BARDA to
procure up to 10,000 treatment courses of NUZYRA for the Strategic National Stockpile, or SNS, for use against potential biothreats. Under the terms of
the BARDA contract, we have been 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. BARDA has also exercised two options
that awarded additional funding including approximately $76.8 million for existing FDA PMRs that began in April 2020 and approximately $20.4 million
for manufacturing-related requirements that also began in April 2020. Remaining option funding includes the potential for approximately $12.7 million to
support the development of NUZYRA for the prophylaxis of anthrax and a maximum of approximately $115.3 million to provide for three additional
purchases of NUZYRA for the SNS, each of which will be triggered at BARDA’s discretion upon us demonstrating continued progress in the anthrax
development program.
We have made significant progress in the pulmonary anthrax development program under the BARDA contract. A pharmacokinetic, or PK, study
in rabbits was recently completed, which will lead into the pilot efficacy studies in this species. In addition, we have evaluated minimum inhibitory
concentrations, or MICs, of omadacycline against approximately 100 anthrax strains. Omadacycline continued to demonstrate potent MICs and is
considered effective against all bacteria tested. The collection of isolates had a strain resistant to doxycycline and a strain resistant to ciprofloxacin, the two
antibiotics currently in the SNS after approval for the treatment of anthrax many years ago. Omadacycline activity was not impacted in either of those
resistant strains.
Together with BARDA, we continue to make progress advancing our efforts to onshore the manufacturing of NUZYRA to the U.S. We have
completed the knowledge transfer of our manufacturing process for the active pharmaceutical ingredient, or API, of omadacycline to our U.S. onshoring
partners and are currently in the development stage of the initiative. The process flow, equipment selection and facility modifications have been planned
and process development and engineering are expected to be completed in 2021. The manufacturing process validation will begin in early 2022, with the
goal of commercial supply production in the U.S. by 2023.
85
On February 24, 2021, we announced that the initial NUZYRA procurement for the SNS under our contract with BARDA was expected to
occur in the first half of 2021 and another procurement in the second half of 2021. The initial procurement is contingent upon receipt of comments from
the FDA on the pre-emergency use authorization, or pre-EUA, submitted in February 2020. As part of the ongoing review, supplemental mouse
pharmacokinetic data requested by the FDA was submitted in November 2020. On March 2, 2021, we received feedback from the FDA with a
recommendation to consider an additional in vitro model to further characterize the optimal pharmacokinetic parameters for pulmonary anthrax as part of
the development program. We are in discussions with BARDA to align on the best approach to integrating the FDA recommendation into the development
program. BARDA is working with FDA to satisfy BARDA’s requirement that the status of the current pre-EUA will enable them to initiate the first
procurement into the SNS. Once the initial procurement is completed, the timing of future procurements is not expected to be impacted.
We also continue to pursue a number of other opportunities for NUZYRA. The first of these is the filing with the FDA of a supplemental new drug
application, or sNDA, for the oral-only loading dose regimen for patients diagnosed with CABP. The sNDA includes the results of a study designed with
agreement from the FDA to show that an oral-only loading dose regimen will have a comparable pharmacokinetic profile to the approved IV loading dose
regimen in patients with CABP that was established in the Phase 3 registration study. Enrollment in this study was stopped early in 2020 due to COVID-19
restrictions at the clinical centers. Data obtained from the study was reviewed and determined to support the submission of the sNDA in July 2020. We
believe consideration for this oral-only loading dose regimen is expected during the second quarter of 2021.
We have initiated discussions with the FDA to explore potential regulatory registration paths to determine the efficacy and safety of omadacycline
in patients afflicted with non-tuberculous mycobacteria abscessus, or NTM, which are environmental organisms that can be found in soil, dust, and water,
including natural and municipal water sources. Infection occurs when a person is exposed to NTM organisms. NTM can form difficult-to-eliminate
biofilms, which are collections of microorganisms that stick to each other, and adhere to surfaces in moist environments. Although severe infection can
affect the lymph nodes, skin, soft tissues, bones, and joints, the vast majority of NTM infection cases are pulmonary. The diagnosis of NTM infection is
often delayed due to non-specific symptoms and a lack of disease state awareness by clinicians. NTM is a rare and orphan disease with no FDA-approved
therapies, which we estimate has a potential $1.0 billion addressable market in the U.S.
Start-up activities for a Phase 2b clinical study for treatment of NTM with omadacycline are underway, with the initiation of patient enrollment
planned for as early as the first half of 2021. This study is a placebo-controlled, randomized monotherapy study of NTM in patients who are not receiving
other treatments. Study size will be approximately 75 subjects randomized in a 1.5 to 1 ratio. Therapy will last for 12 weeks with an efficacy endpoint
assessment at that timepoint. Due to the small numbers of patients with this rare disease, we expect this study will complete enrollment within
approximately two years from commencement.
Our data generation and medical affairs activities have progressed with the initiation of ten non-clinical and clinical studies in investigator-initiated
research, or IIR, programs, and the publication of 19 omadacycline manuscripts that address the use of NUZYRA in special pathogens, populations or
disease states that will further define its unique therapeutic profile. In parallel, real-world evidence from two ongoing observational studies and independent
case series continue to be published in peer reviewed journals that describe the clinical features and outcomes of patients with challenging infections,
particularly in NTM and osteomyelitis, that receive omadacycline as a therapeutic agent.
Data generation will continue to expand throughout 2021 with additional evidence from our IIR programs in areas such as diabetic foot and C.
difficile infections. In addition, non-clinical research studying the activity of omadacycline alone and in combination in an osteomyelitis model in rats and
studies in M. abscessus and Mycobacterium avium complex, or MAC, will build on the growing library of scientific data for NUZYRA.
To date, we have devoted a substantial amount of our resources to research and development efforts, including conducting clinical trials for
omadacycline, protecting our intellectual property and providing selling, general and administrative support for these operations. We have historically
financed our operations primarily through sales of our common stock, debt financings, strategic collaborations, and grant funding. We began generating
revenue from product sales in February 2019.
86
We have incurred significant losses since our inception in 1996. Our accumulated deficit at December 31, 2020 was $807.8 million and our net loss
for the year ended December 31, 2020 was $96.5 million. A substantial amount of our net losses resulted from costs incurred in connection with our
research and development programs and selling, general and administrative costs associated with our operations. The net losses and negative operating cash
flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders’ deficit and
working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate offsetting
revenue. We expect to continue to incur significant expenses and operating losses for the next several years.
While our BARDA contract is expected to significantly strengthen our cash position, unless we can generate a sufficient amount of revenue from
our commercial products, we may need to raise additional capital in order to support and accelerate the commercialization of omadacycline and to advance
the development of our other indications for omadacycline, such as NTM, or other product candidates. If we cannot generate a sufficient amount of product
or royalty revenue to finance our cash requirements, we expect to finance our future cash needs primarily through a combination of public or private equity
offerings, debt or other structured financings, strategic collaborations and grant funding. We may be unable to raise capital when needed or on attractive
terms, which would force us to delay, limit, reduce or terminate our development programs or commercialization efforts. We will need to generate
significant revenue to achieve and sustain profitability, and we may never be able to do so.
Business Update Regarding COVID-19
The COVID-19 pandemic continues to present a substantial public health and economic challenge around the world and is continuing to affect our
employees, health care institutions, patients, communities and business operations, as well as the U.S. economy and financial markets. The COVID-19
related restrictions on in-person promotional access to health care institutions and the overall impact of COVID-19 restrictions on the health care and
hospital environments could restrict the full potential of NUZYRA’s growth. The length of time and full extent to which the COVID-19 pandemic will
directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and
cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the
economic impact on local, regional, national and international markets.
To date, we and our partners have been able to continue to supply our products to our patients worldwide and currently do not anticipate any
interruptions in supply for the foreseeable future. Regarding our clinical programs, enrollment in our study designed to show that an oral-only loading dose
regimen will have a comparable pharmacokinetic profile to the approved IV loading dose regimen in patients with CABP that was established in the Phase
3 registration study was stopped early in 2021 due to COVID-19 restrictions at the clinical centers. We continue to assess the potential impact of the
COVID-19 pandemic on our business and operations, including our sales, expenses, supply chain and other clinical studies.
Our office-based employees have been working from home since early March 2020. We suspended in-person interactions by our customer-facing
personnel in healthcare settings during the majority of the second quarter of 2020. During this period of suspended in-person interactions, we engaged with
our customers remotely in an effort to continue to support and educate healthcare professionals. In late June 2020, our customer-facing personnel began re-
engaging with our customers in a manner consistent with guidance issued by the Centers for Disease Control and Prevention and other state and local
mandates. Our customer-facing personnel are now operating through a hybrid model of both virtual and in-person engagement.
Our third-party contract manufacturing partners continue to operate their manufacturing facilities at or near normal levels. While we currently do
not anticipate any interruptions in our supply chain, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on
our and/or our third-party suppliers’ and contract manufacturing partners' ability to manufacture our products or the products of our partners. The COVID-
19 pandemic has prevented technical service, quality assurance and supply operations personnel from traveling to our third-party contract manufacturing
partners in Europe.
For additional information on the various risks posed by the COVID-19 pandemic, refer to Item 1A. Risk Factors and Item 3. Quantitative and
Qualitative Disclosures About Market Risk included in this report.
87
Financial Operations Overview
Product Revenue, Net
Product revenue, net, is recognized when earned on sales of NUZYRA, which was approved by the FDA in October 2018 and launched in the U.S.
in February 2019. NUZYRA is sold principally to a limited number of specialty distributors and specialty pharmacy providers in the U.S. These customers
subsequently resell our product to health care providers or dispense the product to patients. In addition to distribution agreements with customers, we enter
into arrangements with health care providers and payers that provide for government mandated and/or privately negotiated rebates, chargebacks and
discounts with respect to the purchase of our product. Product revenue is recognized net of reserves for all variable consideration, including rebates,
chargebacks, discounts and product returns.
Government Contract Service Revenue
Government contract service revenue is recognized when earned under our BARDA contract and represents the reimbursement by BARDA of
costs incurred by us for work performed to develop NUZYRA for the treatment of pulmonary anthrax plus a small fixed administrative fee. Refer to Note
5, Government Contract Revenue in the accompanying notes to the consolidated financial statements included in this Annual Report on Form 10-K for
further discussion of the BARDA contract and related revenue recognition.
Government Contract Grant Revenue
The allocated consideration of government contract grant revenue is recognized when earned under our BARDA contract and represents the
reimbursement by BARDA of costs incurred by us for FDA post-marketing requirements, or PMRs, associated with the approval of NUZYRA, including
CABP and pediatric studies, as well as a five-year post-marketing bacterial surveillance study. Refer to Note 5, Government Contract Revenue in the
accompanying notes to the consolidated financial statements included in this Annual Report on Form 10-K for further discussion of the BARDA contract
and related revenue recognition.
Collaboration and Royalty Revenue
Collaboration and royalty revenue are recognized when revenue earned under our collaboration and license agreements. Refer to Note 6, License
and Collaboration Agreements in the accompanying notes to the consolidated financial statements included in this Annual Report on Form 10-K for further
discussion of the collaboration agreements and the related revenue recognition.
Cost of Product Revenue
Cost of product revenue represents the cost of the product itself, labor and overhead, and any reserve for excess or obsolete inventory, as well as
stability studies, inventory scrap and royalty expense. Cost of product revenue also represents royalties owed on net sales of NUZYRA.
88
Research and Development Expense
Research and development expenses consisted primarily of costs directly incurred by us for the development of our product candidates, which
include:
•
•
•
•
•
expenses incurred under agreements with clinical research organizations, or CROs, and investigative sites that conduct our clinical trials;
the cost of acquiring and manufacturing preclinical and clinical study materials and developing manufacturing processes;
direct employee-related expenses, including salaries, benefits, travel and stock-based compensation expense of our research and development
personnel;
allocated facilities, depreciation, and other expenses, which include rent and maintenance of facilities, insurance and other supplies; and
costs associated with preclinical activities and regulatory compliance.
Research and development expenses also include gross reimbursable costs incurred related to research and development services performed for the
treatment of pulmonary anthrax, services performed for U.S. manufacturing onshoring and security requirements, and services performed for FDA PMRs
under the BARDA contract.
Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the
progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.
We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when,
or to what extent we will generate revenues from the commercialization and sale of any of our products or product candidates for which we or any partner
obtain regulatory approval, such as NUZYRA and SEYSARA. Aside from the FDA approval of NUZYRA and SEYSARA in the U.S., we or our partners
may never succeed in achieving other regulatory approvals for NUZYRA, or any of our other product candidates. The duration, costs and timing of clinical
trials and development of our product candidates depend on a variety of factors, including:
•
•
•
•
the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other research and development
activities;
future clinical trial results;
potential changes in government regulation; and
the timing and receipt of any regulatory approvals.
89
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the
costs and timing associated with the development of that therapeutic candidate. For example, if the FDA, or another regulatory authority, were to require us
to conduct clinical trials beyond those that we currently anticipate will be required for the completion of the clinical development of product candidates, or
if we experience significant delays in the enrollment in any clinical trials, we could be required to expend significant additional financial resources and time
on the completion of clinical development.
We manage certain activities, such as clinical trial operations, manufacture of clinical trial material, and preclinical animal toxicology studies,
through third-party contract organizations. The only costs we track by each product candidate are external costs such as services provided to us by CROs,
manufacturing of preclinical and clinical drug product, and other outsourced research and development expenses. We do not assign or allocate to individual
development programs internal costs such as salaries and benefits, facilities costs, lab supplies and the costs of preclinical research and studies. Our
research and development expenses for omadacycline and other projects during the years ended December 31, 2020 and 2019 are as follows:
(in thousands)
Omadacycline
Other research and development costs
Total
Selling, General and Administrative Expense
Year Ended December 31,
2020
2019
$
$
13,992 $
9,930
23,922 $
24,397
15,157
39,554
Selling, general and administrative expenses consist principally of compensation costs associated with our contract sales force, commercial support
personnel, and medical affairs professionals, as well as personnel in executive and other administrative functions. Other selling, general and administrative
expenses include marketing, trade, and other commercial costs and distribution fees necessary to support the launch of NUZYRA and professional fees for
legal, consulting and accounting services.
Interest Income
Interest income represents interest earned on our money market funds and marketable securities.
Interest Expense
Interest expense represents interest incurred on the Notes (as defined below), the A&R Hercules Loan Agreement, and the Royalty-Backed Loan
Agreement (as defined below) as well as the adjustment of our marketable securities to amortized cost.
Loss on extinguishment of debt
Loss on extinguishment of debt represents the difference between the reacquisition price and the net carrying amount of the A&R Hercules Loan
Agreement, which included any unamortized debt discount and issuance costs, recognized upon termination.
90
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
Product revenue, net
Government contract service revenue
Government contract grant revenue
Collaboration and royalty revenue
Net revenue
Expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other income and expenses:
Interest income
Interest expense
Loss on extinguishment of debt
Other gains (losses), net
Net loss before provision for income taxes
Provision for income taxes
Net loss
Year Ended December 31,
2020
2019
$
38,753 $
3,299
3,407
1,465
46,924
8,651
23,922
89,855
122,428
(75,504)
1,515
(20,240)
(2,368)
56
(96,541)
—
$
(96,541) $
11,517
—
—
5,027
16,544
3,484
39,554
89,135
132,173
(115,629)
3,574
(16,403)
—
(31)
(128,489)
301
(128,790)
Product Revenue, Net
Net product revenue recognized on sales of NUZYRA in the U.S. was $38.8 million and $11.5 million for the years ended December 31, 2020 and
December 31, 2019, respectively. The increase in net product revenue is primarily the result of an increase in sales volume due to higher customer demand.
Government Contract Service Revenue
Government contract service revenue earned under our BARDA contract was $3.3 million during the year ended December 31, 2020. No such
government contract service revenue was earned during the year ended December 31, 2019 as the BARDA contract was executed in December 2019.
Government Contract Grant Revenue
Government contract grant revenue earned under our BARDA contract was $3.4 million during the year ended December 31, 2020. No such
government contract grant revenue was earned during the year ended December 31, 2019 as the BARDA contract was executed in December 2019.
Collaboration and Royalty Revenue
Collaboration and royalty revenue were $1.5 million and $5.0 million for the years ended December 31, 2020 and December 31, 2019,
respectively.
91
Collaboration and royalty revenue for the year ended December 31, 2020 was comprised of $1.3 million of royalty revenues earned on sales of
SEYSARA in the U.S. by Almirall under the Almirall Collaboration Agreement (as defined below), and $0.2 million of royalty revenues earned on sales of
XERAVA in the U.S. by Tetraphase Pharmaceuticals, Inc. under the Tetraphase License Agreement (as defined below). Fourth quarter 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 revenue will be adjusted in the period in which they become known, which is expected to be the following quarter.
Collaboration and royalty revenue for the year ended December 31, 2019 was comprised of a $3.0 million milestone payment earned under the Zai
Collaboration Agreement (as defined below), upon submission of the first regulatory approval application for a licensed product in the People’s Republic of
China in December 2019, $1.9 million of royalty revenues earned on sales of SEYSARA in the U.S. by Almirall under the Almirall Collaboration
Agreement (as defined below), and $0.1 million of royalty revenues earned on sales of XERAVA in the U.S. by Tetraphase under the Tetraphase License
Agreement. Fourth quarter 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 we then applied the applicable royalty percentage specified in the Almirall Collaboration
Agreement. Differences between actual and estimated royalty revenue will be adjusted for in the period in which they become known, which is expected to
be the following quarter.
Cost of Product Revenue
Cost of product revenue was $8.7 million for the year ended December 31, 2020, compared to $3.5 million for the year ended December 31, 2019.
The $5.2 million increase is primarily the result of an increase in NUZYRA product sales, NUZYRA sample program shipments, royalties owed on net
sales of NUZYRA, and certain period costs. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory
approval, certain of the costs of NUZYRA units recognized as revenue during years ended December 31, 2020 and December 31, 2019 were expensed
prior to FDA approval in October 2018, and therefore are not included in cost of product revenue during the periods. We expect cost of product revenue to
increase in absolute dollars as product revenue increases.
Research and Development Expense
Research and development expenses were $23.9 million for the year ended December 31, 2020, compared to $39.6 million for the year ended
December 31, 2019. The $15.7 million decrease is primarily the result of lower personnel-related costs and lower clinical study costs associated with
completion of our Phase 2 UTI program in 2019, partially offset by an increase in costs incurred under the BARDA contract and third-party manufacturing
scale-up costs.
We anticipate an increase in research and development expenses in future periods as we continue development of NUZYRA for the treatment of
pulmonary anthrax, continue the work on our FDA PMRs, and continue the onshoring of our manufacturing process, the majority of which is reimbursable
under the BARDA contract. We will also incur additional spend as we continue exploring pathways for NTM indications.
Selling, General and Administrative Expense
Selling, general and administrative expenses were $89.9 million for the year ended December 31, 2020, compared to $89.1 million for the year
ended December 31, 2019. The $0.8 million increase is primarily the result of an increase in costs to outsource our contract sales organization, higher
product distribution fees, and additional investigator-initiated research grants offset by lower marketing, market research and promotional program costs,
personnel-related costs, and travel, entertainment, and other operating expenses.
We anticipate an increase in selling, general and administrative expenses in support of our expansion into the community setting and other
commercial activities, as well as the continued costs of operating as a public company. These increases will likely include costs related to the NUZYRA
community expansion, travel, in-person
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training events and sales meetings, the hiring of additional personnel, executing marketing and promotional programs, and engaging consultants, legal and
other professional fees, and other operating expenses.
Other Income and Expenses
Interest expense for the year ended December 31, 2020 represents interest incurred on the Notes of $8.8 million, the A&R Hercules Loan
Agreement of $7.3 million, the Royalty-Backed Loan Agreement of $4.0 million and interest expense related to our money market funds and marketable
securities of $0.1 million. Interest income for the year ended December 31, 2020 represents interest earned on our money market funds and marketable
securities of $1.5 million.
Interest expense for the year ended December 31, 2019 represents interest incurred on the Notes of $8.7 million, the A&R Hercules Loan
Agreement of $6.8 million, and the Royalty-Backed Loan Agreement of $2.7 million, partially offset by the net accretion of our marketable securities of
$1.8 million. Interest income for the year ended December 31, 2019 represents interest earned on our money market funds and marketable securities of $3.6
million.
Loss on extinguishment of debt
On December 31, 2020, we used the proceeds from the sale of the Royalty Interest and Revenue Interest from the R-Bridge Loan Agreement (as
defined below), together with cash on hand, to prepay in full all obligations outstanding under the A&R Hercules Loan Agreement. Repayment of all
amounts outstanding under the A&R Hercules Loan Agreement qualified as an extinguishment of debt on the date the payment was made in satisfaction of
all amounts due and we were unconditionally relieved of our obligations therein. The loss on extinguishment of debt of $2.4 million was calculated as the
difference between the reacquisition price and the net carrying amount of the debt, which includes any unamortized debt discount and issuance costs.
Liquidity and Capital Resources
In July 2019, we 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 we were permitted to offer and sell our common stock having aggregate sales proceeds of up to $50.0 million from time to time
through Jefferies and BTIG as our sales agents. Sales of our common stock through Jefferies and BTIG were to 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, as applicable, were entitled to a
commission of 3% of the gross sales proceeds of any common stock sold through Jefferies and BTIG under the 2019 Sales Agreement. During the year
ended December 31, 2020, we sold 5,176,000 shares of our common stock pursuant to the 2019 Sales Agreement for $21.9 million in proceeds, after
deducting commissions of $0.7 million, which fully utilized the 2019 Sales Agreement. Upon completion of the final sale of our shares of common stock
available for sale under the 2019 Sales Agreement, that agreement was terminated.
On February 25, 2019, we, through our wholly-owned subsidiary Paratek Royalty Corporation, entered into the Royalty-Backed Loan Agreement
with Healthcare Royalty Partners III, L.P. Pursuant to the terms of the Royalty-Backed Loan Agreement, upon the satisfaction of the conditions precedent
set forth therein, we borrowed a $32.5 million loan, which was secured by, and will be repaid based upon, royalties from the Almirall Collaboration
Agreement. On May 1, 2019, we received $27.8 million, net of $0.5 million lender discount, $0.2 million in lender expenses incurred, and $4.0 million that
was deposited into an interest reserve account. We also paid $1.2 million in other lender fees related to the Royalty-Backed Loan Agreement.
On May 11, 2020, we filed a registration statement on Form S-3 with the SEC, as amended on June 19, 2020 and declared effective on July 9,
2020, to sell certain of our securities in an aggregate amount of up to $250.0 million. As of December 31, 2020, $250.0 million remains available on this
shelf registration statement.
We have used and we intend to continue to use the net proceeds from the above offerings of our common stock and the Notes, as well as other
current and retired long-term debt agreements, together with our existing capital resources and future NUZYRA product sales, government contract
revenue and royalty revenue, to fund our
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ongoing company operations, including clinical studies of omadacycline, NUZYRA commercial operations, and for working capital and other general
corporate purposes. Refer to Note 16, Long-Term Debt, for further details on our loan agreements, which include the Notes, the R-Bridge Loan Agreement
and the Royalty-Backed Loan Agreement.
As of December 31, 2020, we had cash, cash equivalents and marketable securities of $125.2 million.
The following table summarizes our cash provided by and (used in) operating, investing and financing activities (in thousands):
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
$
Year Ended December 31,
2020
2019
(103,424) $
92,499
11,340
(134,045)
134,554
57,622
Net cash used in operating activities was $103.4 million for the year ended December 31, 2020, compared to $134.0 million for the year ended
December 31, 2019. The change in net cash used in operating activities primarily consists of our net losses adjusted for non-cash items and changes in
components of operating assets and liabilities as follows:
•
•
For the year ended December 31, 2020, a net loss of $96.5 million was adjusted for non-cash items including stock-based compensation
expense of $10.2 million, non-cash interest expense of $1.5 million, and a loss on extinguishment of debt of $1.1 million, and a net decrease of
$20.3 million due to changes in operating assets and liabilities. The significant items in the change in operating assets and liabilities include an
increase in accounts receivable, other receivables, prepaid, and other current assets of $7.5 million and an increase in inventories of $11.8
million.
For the year ended December 31, 2019, a net loss of $128.8 million was adjusted for non-cash items including $14.3 million in stock-based
compensation expense and $3.5 million of non-cash interest expense, offset by $1.3 million in net depreciation, amortization and accretion, and
a net decrease of $21.7 million due to changes in operating assets and liability. The significant items in the change in operations assets and
liabilities include an increase in accounts receivable, other receivables, prepaid, and other current assets of $11.5 million and an increase in
inventories of $10.9 million.
Investing Activities
Net cash provided by investing activities during the year ended December 31, 2020 consists of $122.5 million in proceeds from maturities of
marketable securities, offset by $29.6 million of investments in marketable securities (U.S. treasury securities) and $0.4 million in purchases of fixed
assets.
Net cash provided by investing activities during the year ended December 31, 2019 consists of $237.0 million in proceeds from maturities of
marketable securities, offset by $102.2 million of investments in marketable securities (U.S. treasury securities).
Financing Activities
Net cash provided by financing activities for 2020 includes the following:
•
•
•
•
$0.6 million in net proceeds raised through the 2018 ESPP (as defined below);
$0.2 million in proceeds from the exercise of stock options;
$21.9 million in net proceeds raised through the sale of shares of our common stock through the 2019 Sales Agreement; and
$58.7 million in net proceeds received from the R-Bridge Loan Agreement; offset by
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•
$70.0 million in principal debt payments under the A&R Hercules Loan Agreement.
Net cash provided by financing activities for 2019 includes the following:
•
•
•
$0.5 million in net proceeds raised through the 2018 ESPP;
$30.6 million in net proceeds received from the Royalty-Backed Loan Agreement; and
$26.6 million in net proceeds raised through the sale of shares of our common stock through the 2019 Sales Agreement.
Future Funding Requirements
We began generating revenue from product sales when we launched NUZYRA in the U.S. in February 2019 and from royalties on net sales of
SEYSARA in the U.S. when Almirall launched the product in January 2019. Our future funding requirements will depend on our ability to generate
continued revenue from sales of NUZYRA, and our partner, Almirall’s, ability to generate continued revenue from sales of SEYSARA, with respect to
which we are entitled to tiered royalties in the U.S. and flat royalties in the greater China region. We do not expect to generate any other revenue unless and
until our omadacycline greater China region partner, Zai, and our SEYSARA greater China region partner, Almirall, obtains regulatory approval of and
commercializes its respective product in the greater China region. Zai submitted the first regulatory approval application for a licensed product in the
People’s Republic of China in December 2019, which was accepted by the China NMPA in February 2020 and, in April 2020, the NMPA granted priority
review status for its application. We will require substantial additional funding to meet FDA PMRs for NUZYRA, which we expect to continue to be
funded through the BARDA contract. Additional resources will also be needed to support and accelerate the commercialization of NUZYRA, fund the
development of omadacycline in other indications, including NTM and pulmonary anthrax, and to advance the development of potential other product
candidates, and such funding may not be available on favorable terms or at all. BARDA’s procurement of NUZYRA for the SNS will also be an important
component to satisfying future funding requirements. While it is difficult to predict with certainty, on February 24, 2021, we announced that the initial
NUZYRA procurement for the SNS under our contract with BARDA was expected to occur in the first half of 2021 and another procurement in the second
half of 2021. The initial procurement is contingent upon receipt of comments from the FDA on the pre-emergency use authorization, or pre-EUA,
submitted in February 2020. As part of the ongoing review, supplemental mouse pharmacokinetic data requested by the FDA was submitted in November
2020. On March 2, 2021, we received feedback from the FDA with a recommendation to consider an additional in vitro model to further characterize the
optimal pharmacokinetic parameters for pulmonary anthrax as part of the development program. We are in discussions with BARDA to align on the best
approach to integrating the FDA recommendation into the development program. BARDA is working with FDA to satisfy BARDA’s requirement that the
status of the current pre-EUA will enable them to initiate the first procurement into the SNS. Once the initial procurement is completed, the timing of
future procurements is not expected to be impacted.
We expect to continue to incur significant expenditures and operating losses for the next several years as we:
•
•
•
•
•
•
conduct additional clinical trials of omadacycline;
seek regulatory approvals for additional indications for omadacycline, such as omadacycline for the treatment of NTM and pulmonary
anthrax;
continue to augment our sales, marketing and distribution infrastructure to commercialize NUZYRA and increase our manufacturing capacity
and capabilities to satisfy demand;
add personnel to support the business as we expand our commercial footprint and commercial footprint;
build product inventory; and
service and pay down our debt.
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Based upon our current operating plan, we anticipate that our existing cash, cash equivalents and marketable securities of $125.2 million as of
December 31, 2020, will extend our cash runway through the end of 2023 with a pathway to cash flow break even.
We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently
expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our pharmaceutical products, especially
given the constraints on in-person promotion of NUZYRA and reduced access to prescribers due to restrictions in access to hospitals during the COVID-19
pandemic, and the unknown extent to which we will maintain existing or enter into new collaborations with third parties to participate in the development
and commercialization of our product and product candidates, we are unable to estimate with certainty the amounts of increased capital outlays and
operating expenditures that we will require to fund our continuing operations, including for our clinical development programs and commercialization
efforts for NUZYRA. Our future capital requirements will depend on many factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the progress of clinical development of omadacycline in additional indications, including NTM and pulmonary anthrax;
the costs and timing of commercialization activities for NUZYRA;
product revenue received from commercial sales of NUZYRA;
royalty revenue received from commercial sales of SEYSARA by Almirall;
timing and amount of actual reimbursements and NUZYRA purchases under the BARDA contract;
the ability of Zai to develop, manufacture and commercialize omadacycline in the Zai territory;
the number and characteristics of other product candidates that we may pursue;
the scope, progress, timing, cost and results of research, preclinical development and clinical trials;
the costs, timing and outcome of seeking, obtaining, maintaining and expanding FDA and non-U.S. regulatory approvals;
the costs associated with manufacturing and maintaining high quality sales, marketing and distribution capabilities;
the number and characteristics of other product candidates that we may pursue;
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments
we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property
rights;
our need and ability to hire additional management, scientific, commercial, operations and medical personnel;
the effect of competing products that may limit market penetration of our products;
our need to implement additional internal systems and infrastructure, including financial and reporting systems;
resources required to develop and implement policies and processes to promote ongoing compliance with applicable healthcare laws and
regulations;
costs required to ensure that our and our partners’ business arrangements with third parties comply with applicable healthcare laws and
regulations;
the economic and other terms, timing and success of our existing collaboration and licensing arrangements and any collaboration, licensing or
other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under such
arrangements; and
the effect of the COVID-19 pandemic on the economy generally and on our business and operations specifically, including our sales of
NUZYRA, sales by our collaboration partners with respect to which we are entitled to royalties, our third-party manufacturers and supply
chain, our research and development efforts, our clinical trials and our employees.
Until we can generate a sufficient amount of product and royalty revenue to finance our cash requirements, if ever, we expect to finance our future
cash needs primarily through a combination of public or private equity
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offerings, debt or other structured financings, strategic collaborations and grant funding. We do not have any committed external sources of funds other
than the rights under the BARDA contract and the rights to contingent milestone payments and/or royalties under the Almirall Collaboration Agreement,
the Almirall China License, the Tetraphase License Agreement and the Zai Collaboration Agreement, which are terminable by Almirall, Tetraphase and
Zai, respectively, upon prior written notice. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the
ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect
stockholders’ rights. Future debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additionally, future equity or debt financing may be difficult
to obtain on favorable terms, if at all, in light of increased volatility within the global financial markets as a result of the COVID-19 pandemic. If we raise
additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties,
we may have to relinquish valuable rights to our technologies, NUZYRA, sarecycline, future revenue streams, research programs, product candidates or
grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may
be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market NUZYRA,
sarecycline or our other product candidates that we may otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
As of December 31, 2020, we do not have any off-balance sheet arrangements.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have
been prepared in accordance with generally accepted accounting principles of the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent liabilities
in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to, among other items, accounts
receivable and related reserves, inventory and related reserves, accrued sales allowances, net product revenue, government contract service revenue,
government contract grant revenue, SEYSARA royalty revenue, leases, stock-based compensation arrangements, manufacturing and clinical accruals,
useful lives for depreciation and valuation allowances on deferred tax assets. We base our estimates on historical experience and on various other factors
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, to the consolidated
financial statements included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K, we believe that the
following accounting policies are the most critical to assist stockholders and investors reading the consolidated financial statements in fully understanding
and evaluating our financial condition and results of operations.
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Revenue Recognition
Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC 606, applies to all contracts with
customers, except for contracts that are within the scope of other standards, such as leases, insurance, and financial instruments. Under ASC 606, an entity
recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to
receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC
606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the
entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is
entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of
ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations and assesses whether each
promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance
obligation when (or as) the performance obligation is satisfied as services are rendered.
We enter into collaboration agreements for research, development, manufacturing and commercial services that are within the scope of ASC 606,
under which it licenses certain rights to its product candidates to third parties. The terms of these arrangements typically include payment to us of one or
more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and
commercial milestone payments; and royalties on net sales of licensed products. The amount of variable consideration is constrained until it is probable that
the revenue is not at a significant risk of reversal in a future period. The contracts into which we enter generally do not include significant financing
components.
As part of the accounting for these arrangements, we must use significant judgment to determine: (a) the transaction price under step (iii) above and
(b) the timing of revenue recognition, including the appropriate measure of progress, in step (v) above. We use judgment to determine whether milestones
or other variable consideration, except for royalties, should be included in the transaction price, as described further below. The transaction price is
allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance
obligations under the contract are satisfied. If a milestone or other variable consideration relates specifically to our efforts to satisfy a single performance
obligation or to a specific outcome from satisfying the performance obligation, we generally allocate the milestone amount entirely to that performance
obligation once it is probable that a significant revenue reversal would not occur.
Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the
12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts
not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
Licenses of intellectual property
In assessing whether a license is distinct from the other promises, we consider factors such as the research, development, manufacturing and
commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, we
consider whether the collaboration partner can benefit from a license for its intended purpose without the receipt of the remaining promise(s), whether the
value of the license is dependent on the unsatisfied promise(s), whether there are other vendors that could provide the remaining promise(s), and whether it
is separately identifiable from the remaining promise(s). For licenses that are combined with other promises, we utilize judgment to assess the nature of the
combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time,
the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if
necessary, adjusts the measure of performance and related revenue recognition.
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Customer options
If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services
underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option
exercise. We evaluate the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer
options are determined to represent or include a material right, the material right is recognized as a separate performance obligation at the outset of the
arrangement. We allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified
discount and the probability that the customer will exercise. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the
option is exercised.
Milestone payments
At the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered probable of being
achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant reversal of
cumulative revenue would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control
of us or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. We evaluate factors
such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment.
There is considerable judgment involved in determining whether it is probable that a significant reversal of cumulative revenue would not occur. At the end
of each subsequent reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its
estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in
the period of adjustment.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the
predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation
to which some or all the royalty has been allocated is satisfied (or partially satisfied).
Contract costs
We recognize as an asset the incremental costs of obtaining a contract with a customer if the costs are expected to be recovered. As a practical
expedient, we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise
would have recognized is one year or less. To date, we have not incurred any incremental costs of obtaining a contract with a customer.
The Company sells its product principally to a limited number of specialty distributors and specialty pharmacy providers in the U.S. These
customers subsequently resell the Company’s product to health care providers or dispense the product to patients. In addition to distribution agreements
with customers, the Company enters into arrangements with health care providers and payers that provide for government mandated and/or privately
negotiated rebates, chargebacks and discounts with respect to the purchase of our product.
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Revenues from product sales are recognized when the customer obtains control of the Company’s product, which typically occurs once the
Company has transferred physical possession of the good to the customer. The transaction price that the Company recognizes as revenue reflects the
amount it expects to be entitled to in connection with the sale and transfer of control of product to its customers. Variable consideration is only included in
the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is subsequently resolved. At the time that the Company’s customers take control of the product,
which is when the Company’s performance obligation under the sales contracts is complete, the Company records product revenues net of applicable
reserves for various types of variable consideration based on the Company’s estimates of channel mix. The types of variable consideration in our product
revenue are as follows:
•
•
•
•
•
•
Trade discounts and allowances
Product returns
Chargebacks and rebates
Government rebates
Commercial payer and other rebates
Voluntary patient assistance programs
In determining the amounts of certain allowances and accruals, the Company must make significant judgments and estimates. For example, in
determining these amounts, the Company estimates prescription demand from the specialty pharmacies, hospital demand, buying patterns by hospitals,
hospital systems and/or group purchasing organizations and the levels of inventory held by specialty distributors and customers. Making these
determinations involves analyzing third-party industry data to determine whether trends in historical channel distribution patterns will predict future
product sales. The Company receives data periodically from its specialty distributors and customers on inventory levels and historical channel sales mix,
and the Company considers this data when determining the amount of the allowances and accruals for variable consideration.
The amount of variable consideration is estimated by using either of the following methods, depending on which method better predicts the amount
of consideration to which the Company is entitled:
a)
b)
The “expected value” is the sum of probability-weighted amounts in a range of possible consideration amounts. Under ASC 606, an expected value
may be an appropriate estimate of the amount of variable consideration if the Company has many contracts with similar characteristics.
The “most likely amount” is the single most likely amount in a range of possible consideration amounts (i.e., the single most likely outcome of the
contract). Under ASC 606, the most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two
possible outcomes (i.e., either achieve or do not achieve a threshold specified in a contract).
The method selected is applied consistently throughout the contract when estimating the effect of an uncertainty on an amount of variable
consideration. In addition, the Company considers all the information (historical, current, and forecasted) that is reasonably available to the Company and
shall identify a reasonable number of possible consideration amounts. The relevant factors used in this determination include, but are not limited to, current
contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns.
In assessing whether a constraint is necessary, the Company considers both the likelihood and the magnitude of the revenue reversal. Actual
amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates,
the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known. The specific
considerations the Company uses in estimating these amounts related to variable consideration associated with the Company’s products are as follows:
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Trade Discounts and Allowances - The Company generally provides customers with discounts that are explicitly stated in the Company’s contracts
and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company receives sales order
management, data and distribution services from certain customers. To the extent the services received are distinct from the Company’s sale of products to
the customer, these payments are classified in selling, general and administrative expenses in the consolidated statements of operation and comprehensive
loss of the Company.
Product Returns – Generally, the Company’s customers have the right to return any unopened/unused product supply during the 18-month period
beginning six months prior to the labeled expiration date and ending 12 months after the labeled expiration date. Since the Company currently does not
have history of NUZYRA returns, the Company estimated returns based on industry data for comparable products in the market. As the Company
distributes its product and establishes historical sales over a longer period of time, the Company will be able to place more reliance on historical
purchasing, demand and return patterns of its customers when evaluating its reserves for product returns.
At the end of each reporting period for any of our products, the Company may decide to constrain revenue for product returns based on information
from various sources, including channel inventory levels and dating and sell-through data, the expiration dates of product currently being shipped, price
changes of competitive products and introductions of generic products.
Chargebacks – Although the Company primarily sells products to specialty distributors in the U.S., the Company also enters into agreements with
hospitals and outpatient infusion centers, either directly or through group purchasing organizations acting on behalf of their members, in connection with
the purchase of product. Based on these agreements, some of the Company’s customers have the right to receive a discounted price on product purchases.
In the case of discounted pricing, the Company typically provides a credit to its specialty distributors customer (i.e., chargeback), representing the
difference between the customer’s acquisition list price and the discounted price.
Government Rebates –The Company is subject to discount obligations under state Medicaid programs and Medicare. The Company estimates our
Medicaid and Medicare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payer mix. These reserves are
recorded in the same period the related product revenue is recognized, resulting in a reduction of product revenue and the establishment of a current
liability that is included in accrued expenses on the consolidated balance sheet. For Medicare, the Company also estimates the number of patients in the
prescription drug coverage gap for whom it will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates
consists of an estimate of claims for the current quarter and estimated future claims that will be made for product sales that have been recognized as
revenue but remain in distribution channel inventory at period end.
Commercial Payer and Other Rebates – The Company plans to continue to contract with certain private payer organizations, primarily insurance
companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of NUZYRA and contracted formulary status. The
Company estimates these rebates and records reserves for such estimates in the same period the related revenue is recognized. Currently, the reserve for
customer payer rebates considers future utilization based on third-party studies of payer prescription data; the utilization is applied to product that remains
in the distribution and retail pharmacy channel inventories at the end of each reporting period. As the Company distributes its product and establishes
historical sales over a longer period of time (i.e., two years), the Company will be able to place more reliance on historical data related to commercial payer
rebates (i.e., actual utilization units) while continuing to rely on third-party data related to payer prescriptions and utilization.
Patient Assistance – The Company offers certain voluntary patient assistance programs for prescriptions, such as co-pay assistance programs,
which are intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payers. The
calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with
product sale that has been recognized as revenue but remains in the distribution and pharmacy channel inventories at the end of each reporting period.
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At the end of each reporting period, the Company adjusts its allowances for cash discounts, product returns, chargebacks, and other rebates and
discounts when the Company believes actual experience may differ from current estimates.
Revenue Earned Under Government Contracts
If the Company concludes that some or all aspects of its government contracts represent a transaction with a customer to obtain services or goods
that are an output of its ordinary activities in exchange for consideration, it accounts for those aspects of the arrangement in accordance with ASC, Topic
606, Revenue from Contracts with Customers, or ASC 606. Arrangements that are entirely in the scope of other guidance are accounted for under that
guidance.
The Company recognizes sales of NUZYRA under its government contracts as product revenue when control of NUZYRA is transferred, in
accordance with ASC 606. It also recognizes government contract service revenue and government contract grant revenue as defined below.
Government Contract Service Revenue
Government contract service revenue is recognized as services are performed. Revenue and related reimbursable expenses are presented on a
gross basis in the Company’s consolidated statements of operations. The related reimbursable expenses are expensed as incurred as research and
development expense.
Government Contract Grant Revenue
The allocated consideration of government contract grant revenue is recognized as the related reimbursable expenses are incurred. The cost
reimbursements that are reported as revenue is presented gross of the related reimbursable expenses in the Company’s consolidated statements of
operations. The related reimbursable expenses are expensed as incurred as research and development expense.
Cost of Product Revenue
Cost of product revenue consists primarily of the manufacturing costs for NUZYRA and royalties owed on net sales of NUZYRA. All
manufacturing costs incurred prior to NUZYRA’s approval in the U.S. on October 2, 2018 were expensed in research and development and were not
included in cost of revenue.
Inventory
Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out basis. Prior to the regulatory approval of our
product candidates, we incurred expenses for the manufacture of drug product that could potentially be available to support the commercial launch of our
products. Until the first reporting period when regulatory approval has been received or is otherwise considered probable, we record all such costs as
research and development expense. Inventory used in clinical trials is also expensed as research and development expense when selected for such use. We
classify inventory costs as long-term when the we expect to utilize the inventory beyond its normal operating cycle. We perform an assessment of the
recoverability of capitalized inventory during each reporting period and writes down any excess and obsolete inventory to its net realizable value in the
period in which the impairment is first identified. Such impairment charges, should they occur, are recorded as a component of cost of product sales in the
consolidated statements of operations and comprehensive loss. The determination of whether inventory costs will be realizable requires the use of
estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be
required.
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Accrued Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involves
reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed for us and estimating the
level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.
Most of our service providers invoice us periodically in arrears for services performed or when contractual milestones are met. We make estimates of our
accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We
periodically confirm the accuracy of our estimates with the service providers and adjust if necessary. Examples of estimated expenses include fees paid to:
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CROs, in connection with clinical trials;
contract manufacturing organizations with respect to clinical material supply and commercial product;
vendors in connection with preclinical development and operational activities; and
legal and other professional service providers.
We base our expenses on our estimates of the services received and efforts expended pursuant to contractual arrangements with CROs, professional
service firms and other vendors. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven
payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of
expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period.
If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we
do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differs
from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period. To date, there have
been no material differences from our estimates to the amount actually incurred.
Research and Development Expenses
We charge costs of our research and development to expense as incurred. Research and development expenses consist of the costs incurred in
performing research and development activities, including personnel-related costs, stock-based compensation, facilities, research-related overhead, clinical
trial costs, contracted services, manufacturing, license fees and other external costs. Research and development expenses also include gross reimbursable
costs incurred through research and development services performed for the treatment of pulmonary anthrax, services performed for U.S. manufacturing
onshoring and security requirements, and services performed for FDA PMRs under the BARDA contract. We account for nonrefundable advance payments
for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods
have been received rather than when the payment is made.
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Recent Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by us as of the specified
effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact
on our financial position or results of operations upon adoption.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, or ASU 2017-04. The amendments in ASU
2017-04 eliminate the current two-step approach used to test goodwill for impairment and require an entity to apply a one-step quantitative test and record
the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill
allocated to the reporting unit. ASU 2017-04 is effective for fiscal years and interim periods beginning after December 15, 2019 (upon the first goodwill
impairment test performed during that fiscal year). Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates
after January 1, 2017. A reporting entity must apply the amendments in ASU 2017-04 using a prospective approach. We adopted this guidance
effective January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on our consolidated financial position or results of operations.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements on fair value measurements. We adopted this guidance
on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements.
In June 2016 the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, or ASU 2016-13. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of
January 1, 2023. These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that is currently
used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards now require
allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for
available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if
fair value increases. Based on the composition of our investment portfolio, accounts receivable and other financial assets, current market conditions and
historical credit loss activity, we do not expect the adoption of these standards to have a material effect on the Company’s consolidated balance sheet,
consolidated statements of operation and comprehensive loss and related disclosures.
Contractual Obligations and Commitments
Leases
We lease our Boston, Massachusetts and King of Prussia, Pennsylvania office spaces under non-cancelable operating leases expiring in August
2021 and 2024, respectively.
We entered into the original King of Prussia and Boston leases in January 2015 and April 2015, respectively. The lease terms under the original
agreements were for six and four years, respectively. Each agreement had one renewal option for an extended term. The King of Prussia and Boston lease
terms under the original agreements began in June 2015 and July 2015, respectively.
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We executed an amended lease agreement on our Boston office space in July 2016. The amended lease agreement added 4,153 rentable square feet
of office space and extended the original lease term by two years. In accordance with the amended lease agreement, we paid a security deposit of $0.1
million. Subsequent to the amended lease agreement, we record monthly lease expense of approximately $49,000 for the Boston office space.
We executed an amended lease agreement on our King of Prussia office space in October 2016. The amended lease agreement is for 19,708
rentable square feet of office space and we took control of such office space during the first quarter of 2017. The total lease commitment is over a seven-
year and seven-month lease term. The amended lease agreement contains rent escalation and a partial rent abatement period, which is accounted for as rent
expense under the straight-line method. We are required to make additional payments under the facility operating leases for taxes, insurance, and other
operating expenses incurred during the operating lease period.
Licenses
Under a license agreement with Tufts University, or Tufts, we were required to make aggregate regulatory milestone payments of up to $300,000
associated with the first Phase 3 clinical trials, filing of an NDA, and approval of its first product candidate, all of which have been paid. We are also
obligated to pay Tufts a minimum royalty payment in the amount of $25,000 per year. We also agreed 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. Also, if we enter into a
sublicense under the agreement, based on the applicable field of use for such product, we agreed to pay Tufts a percentage, ranging from 10% to 14 % 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 us that are reasonably attributable to the sublicense of the rights granted to us under the Tufts License Agreement and the
lesser of 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
us by the sublicensee or the amount of royalty payments that would have been paid by us to Tufts if we had sold the products.
In September 2009, we and Novartis International Pharmaceutical Ltd., or Novartis, which merged into Novartis Pharma AG, a wholly owned
subsidiary of Novartis AG, 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. We 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, EMA, or any regulatory agency, but only to the extent we had not previously granted such commercialization
rights related to omadacycline to another third party as of any such approval. We also agreed to pay Novartis a 0.25% royalty, to be paid from net sales
received in any country following the launch of omadacycline in that country and continuing until the later of the 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 $3.1 million and $3.4 million for
the years ended December 31, 2020 and December 31, 2019, respectively, included within “Other Long-Term Liabilities” on our consolidated balance
sheet. In addition, short-term liabilities included within “Other Current Liabilities” on our consolidated balance sheet as of December 31, 2020 and
December 31, 2019 represent the portion of royalty payments due to Novartis within twelve months of each balance sheet date. There are no other payment
obligations to Novartis under either the Novartis Agreement or the amended Novartis Letter Agreement.
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In February 2020, we entered into an ex-U.S. license agreement with Almirall, the Ex-U.S. License, under which Almirall granted to us 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 in all countries other than the U.S. In connection with the Ex-U.S. License, we pay Almirall, on a country-by-country and
product-by-product basis (i) for eight (8) years following the first commercial sale of a sarecycline product in a country, a royalty in the middle-single
digits on our or our affiliates’ nets sales of sarecycline products outside of the U.S. (other than China (including Hong Kong and Macau), the development
and commercialization rights to which for sarecycline in connection with the treatment of acne we exclusively licensed to Almirall), 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 third-party sublicensees in connection with developing and commercializing sarecycline outside of the U.S.,
which ranges from one-half of such consideration for sarecycline products for the treatment of acne to one-fifth of such consideration for sarecycline
products for the treatment of other indications, in each case subject to a 50% reduction for any sarecycline product not in a solid oral tablet formulation for
which Paratek or its affiliates have incurred significant development costs and (ii) for eight years following the first commercial sale of a sarecycline
product in a country, a royalty in the middle-single digits on our or our affiliates’ net sales of sarecycline products outside of the U.S., subject to certain
standard reductions.
Long-Term Debt
As of December 31, 2020, we had recorded long-term debt obligations of $250.5 million, net of debt discount and issuance costs of $7.0 million.
Debt issuance costs are presented on the consolidated balance sheet as a direct deduction from the related debt liability rather than capitalized as an asset in
accordance with ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
R-Bridge Loan Agreement
On December 31, 2020, or the Closing Date, we, through our wholly-owned subsidiary PRTK SPV2 LLC, a Delaware limited liability
company, or the Subsidiary, entered into a royalty and revenue interest-backed loan agreement with an affiliate of R-Bridge Healthcare Investment
Advisory, Ltd., herein referred to as the R-Bridge Loan Agreement. Pursuant to the terms of the R-Bridge Loan Agreement, the Subsidiary borrowed a
$60.0 million term loan, secured by, and repaid with proceeds from, (i) royalties from our license agreement with Zai Labs (Shanghai) Co., Ltd., or the Zai
Collaboration Agreement, and such royalties, or the Royalty Interest, and (ii) a revenue interest based on our U.S. sales of NUZYRA in an initial amount of
two and a half percent (2.5%), which amount may adjust under certain circumstances up to five percent (5%), of our net U.S. sales, subject to an annual cap
of $10.0 million, which may adjust under certain circumstances to $12.0 million, or the Revenue Interest.
Under the R-Bridge Loan Agreement, the outstanding principal balance will bear interest at an annual rate of 7.0%, increasing to an annual rate of
10% during the continuance of any event of default. Payments of the obligations outstanding under the R-Bridge Loan Agreement will be made quarterly,
beginning with the payment due in respect of the quarter ending March 31, 2021, out of the Royalty Interest payments and Revenue Interest payments
received by the Subsidiary during such quarter, or the Collection Amount. On each payment date, after payment of certain expenses, the Collection
Amount shall be applied first to accrued interest, with any excess up to $15.0 million per annum applied to repay principal until the balance is fully repaid,
and any shortfalls being capitalized and added to the principal balance of the loan. Amounts in excess of the $15.0 million annual cap shall be shared
between us and R-Bridge Healthcare Investment Advisory, Ltd., or the R-Bridge Lender, based on a formula set out in the R-Bridge Loan
Agreement. Following repayment in full of the loan, the first $15.0 million per annum in Collection Amount shall be paid to us and any amounts in excess
shall be shared between us and the R-Bridge Lender based on a formula set out in the R-Bridge Loan Agreement.
Prior to the eighth (8th) anniversary of the Closing Date, the R-Bridge Loan Agreement will automatically terminate once the Subsidiary has paid
to the R-Bridge Lender, in the form of regularly scheduled payments or as a voluntary prepayment, a capped amount of $114 million, less principal, interest
and certain fee payments through the date of such prepayment, or the Capped Amount. After the eighth (8th) anniversary of the Closing Date, the Revenue
Interest can be terminated but the Royalty Interest payments shall continue until maturity of the R-Bridge Loan Agreement on December 31, 2032, at
which time, the outstanding principal amount of the loan, if any, together
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with any accrued and unpaid interest, and all other obligations then outstanding, shall be due and payable in cash by the Subsidiary.
Our subsidiary, PRTK SPV1 LLC, a Delaware limited liability company and owner of the Subsidiary’s capital stock, has entered into a Pledge and
Security Agreement in favor of the R-Bridge Lender, pursuant to which the Subsidiary’s obligations under the R-Bridge Loan Agreement are secured by
PRTK SPV1 LLC’s pledge of all of the Subsidiary’s capital stock.
The R-Bridge Loan Agreement contains certain customary affirmative covenants, including those relating to: use of proceeds; maintenance of
books and records; financial reporting and notification; compliance with laws; and protection of Company intellectual property. The R-Bridge Loan
Agreement also contains certain customary negative covenants, barring the Subsidiary from: certain fundamental transactions; issuing dividends and
distributions; incurring additional indebtedness outside of the ordinary course of business; engaging in any business activity other than related to the Zai
Collaboration Agreement; and permitting any additional liens on the collateral provided to the R-Bridge Lender under the R-Bridge Loan Agreement. As of
December 31, 2020, we were in compliance with all covenants under the R-Bridge Loan Agreement.
An ancillary agreement executed by us and the Subsidiary in respect of the Revenue Interest, contains negative covenants applicable to us,
including restrictions on the sale or transfer of our assets related to NUZYRA and giving rise to the Revenue Interest, each subject to the exceptions set
forth therein.
The R-Bridge Loan Agreement contains customary defined events of default, upon which any outstanding principal, unpaid interest and other
obligations of the Subsidiary, shall be immediately due and payable by the Subsidiary. These include: failure to pay any principal or interest when due;
failure to the Capped Amount as and when due following a non-qualified change of control, any uncured breach of a representation, warranty or covenant;
any uncured failure to perform or observe covenants; any uncured breach of our representations, warranties or covenants under an ancillary agreement
executed by the us and the Subsidiary in respect of the Royalty Interest; any termination of the Zai Collaboration Agreement; and certain bankruptcy or
insolvency events. No events of default had occurred under the R-Bridge Loan Agreement through December 31, 2020.
The net proceeds of the term loan were used by the Subsidiary to purchase from the Company the Royalty Interest and Revenue Interest, pursuant
to the terms of the Revenue Interest Purchase Agreement and the Contribution and Servicing Agreement, respectively. We raised approximately $58.3
million in net proceeds in connection with the R-Bridge Loan Agreement, comprised of the $60.0 million term loan funded at execution, net of $1.1 million
in lender fees accounted for as debt discount and $0.6 million in direct and incremental third-party expenses accounted for as debt issuance costs. The net
proceeds of the term loan, together with cash on hand, was used to prepay in full all obligations outstanding under the loan arrangement with Hercules
Capital, Inc.
Convertible Senior Subordinated Notes
On April 18, 2018, we entered into the Purchase Agreement with the Initial Purchasers for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Leerink Partners LLC acted as representatives, relating to the sale of the Notes to the Initial Purchasers. We also granted the Initial
Purchasers an option to purchase up to an additional $25.0 million aggregate principal amount of Notes, which was exercised in full on April 20, 2018.
The Purchase Agreement includes customary representations, warranties and covenants. Under the terms of the Purchase Agreement, we agreed to
indemnify the Initial Purchasers against certain liabilities.
In addition, J. Wood Capital Advisors LLC, our financial advisor, purchased $5.0 million aggregate principal amount of Notes in a separate,
concurrent private placement on the same terms as other investors.
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The Notes were issued by us on April 23, 2018, pursuant to an Indenture, dated as of such date, or the Indenture, between us and U.S. Bank
National Association, as trustee, or the Trustee. The Notes bear cash interest at the annual rate of 4.75%, payable on November 1 and May 1 of each year,
beginning on November 1, 2018, and mature on May 1, 2024 unless earlier repurchased, redeemed or converted. We will settle conversions of the Notes
through delivery of shares of our common stock in accordance with the terms of the Indenture. The initial conversion rate for the Notes is 62.8931 shares of
common stock (subject to adjustment as provided for in the Indenture) per $1,000 principal amount of the Notes, which is equal to an initial conversion
price of approximately $15.90 per share, representing a conversion premium of approximately 20% above the closing price of the common stock of $13.25
per share on April 18, 2018.
Holders of the Notes may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at their option at any time prior to the
close of business on the second scheduled trading day immediately preceding the stated maturity date.
We may not redeem the Notes prior to May 6, 2021. We may redeem for cash all or part of the Notes, at its option, on or after May 6, 2021 if the
last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not
consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day
immediately preceding the date on which we provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be
redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
If we experience a fundamental change, as described in the Indenture, prior to the maturity date of the Notes, holders of the Notes will, subject to
specified conditions, have the right, at their option, to require us to repurchase for cash all or a portion of their Notes at a repurchase price equal to 100% of
the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase
date. In addition, following certain corporate events that occur prior to the maturity date of the Notes and following a notice of redemption of the Notes, we
will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or redemption.
The Indenture provides for customary events of default. In the case of an event of default with respect to the Notes arising from specified events of
bankruptcy or insolvency, all outstanding Notes will become due and payable immediately without further action or notice. If any other event of default
with respect to the Notes under the Indenture occurs or is continuing, the Trustee or holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare the principal amount of the Notes to be immediately due and payable.
In certain circumstances if, at any time during the six-month period beginning on, and including, the date that is six months after the last date of
original issuance of the Notes, we fail to timely file certain documents or reports required under the Securities Exchange Act of 1934, as amended, or the
Notes are not otherwise freely tradable by holders of the Notes other than our affiliates or holders that were our affiliates at any time during the three
months immediately preceding, additional interest will accrue on the Notes during the first 90-day period in which its failure to file has occurred and is
continuing or such Notes are not otherwise freely tradable by holders other than the our affiliates (or holders that were our affiliates at any time during the
three months immediately preceding).
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After deducting costs incurred of $6.0 million, we raised net proceeds from the issuance of long-term convertible debt of $159.0 million in April
2018. All costs were deferred and are being amortized over the life of the Notes at an effective interest rate of 5.47% and recorded as additional interest
expense.
Royalty-Backed Loan Agreement
On February 25, 2019, we, through our wholly-owned subsidiary Paratek Royalty Corporation, or the Subsidiary, entered into a royalty-backed
loan agreement, or the Royalty-Backed Loan Agreement, with Healthcare Royalty Partners III, L.P., or HCRP. Pursuant to the terms of the Royalty-Backed
Loan Agreement, upon the satisfaction of the conditions precedent set forth therein, the Subsidiary borrowed a $32.5 million loan, which was secured by,
and will be repaid based upon, royalties from the Almirall Collaboration Agreement. On May 1, 2019, we received $27.8 million, net of $0.5 million lender
discount, $0.2 million in lender expenses incurred, and $4.0 million that was deposited into an interest reserve account. We also paid $1.2 million in other
lender fees related to the Royalty-Backed Loan Agreement.
Under the Royalty-Backed Loan Agreement, the outstanding principal balance will bear interest at an annual rate of 12.0%. Payments of interest
under the Royalty-Backed Loan Agreement are made quarterly out of the Almirall Collaboration Agreement royalty payments received since the
immediately preceding payment date. On each interest payment date, any royalty payments in excess of accrued interest on the loan will be used to repay
the principal of the loan until the balance is fully repaid. In addition, the Subsidiary made up-front payments to HCRP of (i) a 1.5% fee and (ii) up to
$300,000 for HCRP’s expenses. The Royalty-Backed Loan Agreement matures on May 1, 2029, at which time, if not earlier repaid in full, the outstanding
principal amount of the loan, together with any accrued and unpaid interest, and all other obligations then outstanding, shall be due and payable in cash. We
entered into a Pledge and Security Agreement in favor of HCRP, pursuant to which the Subsidiary’s obligations under the Royalty-Backed Loan Agreement
are secured by a pledge of all of our holdings of the Subsidiary’s capital stock.
The Royalty-Backed Loan Agreement contains certain customary affirmative covenants, including those relating to: use of proceeds; maintenance
of books and records; financial reporting and notification; compliance with laws; and protection of our intellectual property. The Royalty-Backed Loan
Agreement also contains certain customary negative covenants, barring the Subsidiary from: certain fundamental transactions; issuing dividends and
distributions; incurring additional indebtedness outside of the ordinary course of business; engaging in any business activity other than related to the
Almirall Collaboration Agreement; and permitting any additional liens on the collateral provided to HCRP under the Royalty-Backed Loan Agreement.
The Royalty-Backed Loan Agreement contains customary defined events of default, upon which any outstanding principal and unpaid interest shall
be immediately due and payable. These include: failure to pay any principal or interest when due; any uncured breach of a representation, warranty or
covenant; any uncured failure to perform or observe covenants; any uncured cross default under a material contract; any uncured breach of our
representations, warranties or covenants under its Contribution and Servicing Agreement with the Subsidiary; any termination of the Almirall Collaboration
Agreement; and certain bankruptcy or insolvency events.
Contract Service Providers
In the course of normal business operations, we also have agreements with contract service providers to assist in the performance of research and
development, clinical trials, manufacturing and other activities for operating purposes which are cancelable at any time by us, generally upon 30 days’ prior
written notice. These payments are not included in this table of contractual obligations.
We could also enter into additional collaborative research, contract research, manufacturing, supplier and contractor agreements in the future,
which may require upfront payments and/or long-term commitments of cash.
Commercial Supply Agreements
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We have entered into multiple commercial supply agreements. Please refer to Item 1, Business, for further details on our agreements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We do not enter into financial instruments for trading or speculative purposes. Our cash, cash equivalents and investments balance as of
December 31, 2020 consisted of cash and cash equivalents and U.S. treasury securities. The goals of our investment policy are preservation of capital,
fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming
significant risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates,
particularly because our investments are in short-term marketable securities. Due to the short-term duration of our investment portfolio and the low-risk
profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.
We have the ability and intention to hold our investments until maturity and, therefore, we would not expect our operating results or cash flows to be
affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.
We engage CROs and contract manufacturers on a global scale. We may be subject to fluctuations in foreign currency rates in connection with
certain of these agreements. We currently do not hedge any such foreign currency exchange rate risk. Transactions denominated in currencies other than
U.S. dollars are recorded based on exchange rates at the time such transactions arise and were less than 3.0% of total liabilities as of December 31, 2020.
110
Item 8.
Financial Statements and Supplementary Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
111
Page
112
115
116
117
118
119
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Paratek Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Paratek Pharmaceuticals, Inc. (the Company) as of December 31, 2020 and 2019, the
related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for the years then ended, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years
then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgements. The communication of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
112
Description of the Matter
How We Addressed the Matter in Our
Audit
Description of the Matter
Reserves for Government Rebates
As described in Notes 2 and 3 to the consolidated financial statements, the Company recognizes revenues for
product sales net of applicable reserves for various types of variable consideration based on the Company’s
estimates of channel mix. Variable consideration for product sales includes trade discounts and allowances,
product returns, chargebacks and rebates, government rebates, commercial payer and other rebates, and patient
assistance. Reserves for government rebates totaled $2.2 million and were recorded within accrued expenses at
December 31, 2020.
Auditing the Company’s measurement of government rebates was complex and highly judgmental because the
estimates involve subjective management assumptions about buying and payment patterns, including the units of
product in the distribution channel as of the balance sheet date, and the estimated payer mix. The reductions to
gross product revenue are sensitive to these significant assumptions.
To test the adequacy of the Company's reserves for government rebates, our audit procedures included, among
others, assessing the methodologies used to determine the reserves and testing the significant assumptions
discussed above, including the underlying data used in developing the significant assumptions. We evaluated
management’s significant assumptions by (i) comparing the assumptions used to calculate the reserves to
external data, (ii) testing contracted rates, historical claims and payment data, (iii) evaluating the sensitivity of
the estimated reserve calculations based on changes in the significant assumptions, (iv) comparing the actual
results to previous estimates, and (v) assessing information subsequent to the balance sheet date to determine
whether there were any new information that would require adjustment. In addition, we involved our
professionals with an understanding of government reimbursement requirements to assist us in evaluating
management’s methodology and calculations used to measure these reserves.
Biomedical Advanced Research and Development Authority Contract Revenue
As described in Notes 2 and 5 to the consolidated financial statements, during the year ended December 31,
2020, the Company recognized $3.3 million in government contract service revenue and $3.4 million in
government contract grant revenue under its contract with the Biomedical Advanced Research and Development
Authority (BARDA). The Company determined that certain performance obligations provided for in the contract
with BARDA were within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts
with Customers and others were subject to other guidance.
Auditing the Company’s revenue recognition for the BARDA contract was especially challenging because of the
significant judgment required to apply the authoritative guidance at the outset of the arrangement. In addition,
there was complexity in auditing management’s determination of the estimated standalone selling prices for
contract services and goods. In developing estimated standalone selling prices, management considered both
internal and external information available including information from companies within the same industry and
other relevant factors including historical pricing to similar customers, the discount available to the customer and
the likelihood the customer will exercise the option. Changes to these assumptions can have a material effect on
the allocation of the transaction price to the performance obligations as well as the amount and timing of revenue
recognized.
113
How We Addressed the Matter in Our
Audit
To test the Company’s revenue recognition related to the BARDA contract, we performed audit procedures that
included, among others, evaluating management’s assessment of the authoritative guidance applicable to the
BARDA
contract and its determination of the estimated selling prices for the identified performance obligations. We
conducted meetings with various personnel at the Company responsible for negotiating the BARDA contract and
overseeing the delivery of the performance obligations in order to understand the nature of the promises and
negotiated contract prices. We also evaluated the Company’s key assumptions and judgments and tested the
completeness and accuracy of the underlying data used to determine the estimated standalone selling price of
each performance obligation. For example, we compared inputs used in the Company’s estimated standalone
selling price calculations to relevant internal and external data and performed a sensitivity analysis to evaluate
the impact that changes in the estimated standalone selling price of certain performance obligations resulting
from changes in the significant assumptions would have on the allocation of transaction price to each
performance obligation, as well as revenue recognized during the period. We recalculated the allocation of the
transaction price and amounts of revenue recognized.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Boston, Massachusetts
March 29, 2021
114
Paratek Pharmaceuticals, Inc.
Consolidated Balance Sheets
(in thousands, except for share and par value amounts)
Assets
Current assets
Cash and cash equivalents
Marketable securities
Restricted cash
Accounts receivable, net
Inventories, net
Other receivables
Prepaid and other current assets
Total current assets
Long-term restricted cash
Fixed assets, net
Goodwill
Right-of-use asset
Other long-term assets
Total assets
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable
Accrued expenses
Other current liabilities
Total current liabilities
Long-term debt
Long-term lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 18)
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, 46,516,567 and
39,827,749 issued and outstanding at December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ deficit
Total liabilities and stockholders’ deficit
December 31,
2020
2019
105,157 $
20,005
891
11,878
14,555
3,855
7,776
164,117
—
964
829
2,010
8,933
176,853 $
1,813 $
20,826
1,314
23,953
250,474
1,544
3,142
279,113
102,302
113,077
324
8,475
11,579
1,108
6,489
243,354
3,007
1,227
829
2,514
148
251,079
4,116
16,696
3,388
24,200
260,728
2,095
3,703
290,726
—
—
46
705,489
4
(807,799)
(102,260)
176,853 $
40
671,497
74
(711,258)
(39,647)
251,079
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
115
Paratek Pharmaceuticals, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Product revenue, net
Government contract service revenue
Government contract grant revenue
Collaboration and royalty revenue
Net revenue
Expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other income and expenses:
Interest income
Interest expense
Loss on extinguishment of debt
Other gains (losses), net
Net loss before provision for income taxes
Provision for income taxes
Net loss
Other comprehensive loss
Unrealized gain (loss) on available-for-sale securities, net of tax
Other comprehensive gain (loss)
Comprehensive loss
Net loss per share:
Basic and diluted net loss per common share
Weighted average common shares outstanding
Basic and diluted
$
$
$
$
Year Ended December 31,
2020
2019
38,753 $
3,299
3,407
1,465
46,924
8,651
23,922
89,855
122,428
(75,504)
1,515
(20,240)
(2,368)
56
(96,541)
—
(96,541) $
(70)
(70)
(96,611) $
11,517
—
—
5,027
16,544
3,484
39,554
89,135
132,173
(115,629)
3,574
(16,403)
—
(31)
(128,489)
301
(128,790)
202
202
(128,588)
(2.19) $
(3.93)
44,174,765
32,791,934
The accompanying notes are an integral part of these consolidated financial statements.
116
Paratek Pharmaceuticals, Inc.
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
(Deficit)
Additional
Paid-in
Capital
630,142 $
Balances at December 31, 2018
Issuance of common stock, net of expenses
Vesting of restricted stock unit awards
Issuance of stock under the employee stock purchase
plan
Employee stock purchase plan expense
Unrealized gain on available-for-sale securities, net
of tax
Stock-based compensation expense
Net loss
Balances at December 31, 2019
Issuance of common stock, net of expenses
Exercise of stock options
Vesting of restricted stock unit awards
Issuance of stock under the employee stock purchase
plan
Employee stock purchase plan expense
Unrealized loss on available-for-sale securities, net
of tax
Stock-based compensation expense
Issuance of warrants for common stock
Net loss
Balances at December 31, 2020
Common Stock
Shares
Amount
32,259,363 $
6,524,194
862,546
181,646
—
—
—
—
39,827,749 $
5,176,000
39,479
1,281,968
191,371
—
—
—
—
—
46,516,567 $
32 $
7
1
—
—
—
—
—
40 $
5
—
1
—
—
—
—
—
—
46 $
26,552
(1)
509
101
—
14,194
—
671,497 $
21,886
170
(1)
562
143
—
10,105
1,127
—
705,489 $
(128) $ (582,468) $
—
—
—
—
—
—
—
—
47,578
26,559
—
509
101
—
202
—
—
—
(128,790)
74 $ (711,258) $
202
14,194
(128,790)
(39,647)
—
—
—
—
—
—
—
—
—
—
21,891
170
—
562
143
(70)
—
—
—
—
—
—
(96,541)
(70)
10,105
1,127
(96,541)
4 $ (807,799) $ (102,260)
The accompanying notes are an integral part of these consolidated financial statements.
117
Paratek Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and accretion
Stock-based compensation expense
Non-cash interest expense
Loss on extinguishment of debt
Changes in operating assets and liabilities
Accounts receivable, other receivables, prepaid, and other current assets
Inventories
Operating lease right-of-use asset
Accounts payable and accrued expenses
Long-term operating lease liability
Other liabilities and other assets
Net cash used in operating activities
Investing activities
Purchase of fixed assets
Purchase of marketable securities
Proceeds from maturities of marketable securities
Net cash provided by investing activities
Financing activities
Proceeds from issuance of long-term royalty-backed loan agreement, net of costs
Proceeds from employee stock purchase plan
Proceeds from exercise of stock options
Principal payments on long-term debt
Proceeds from issuance of common stock, net
Net cash provided by financing activities
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of period
Cash, cash equivalents and restricted cash at end of period
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
Fair value of warrants issued
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest
Debt issuance costs in accrued expenses
Purchases of equipment included in accrued expenses
Year Ended December 31,
2020
2019
$
(96,541) $
(128,790)
578
10,248
1,518
1,059
(7,459 )
(11,760 )
504
1,618
(551 )
(2,638 )
(103,424 )
(376 )
(29,625 )
122,500
92,499
58,717
562
170
(70,000 )
21,891
11,340
415
105,633
106,048 $
(1,292)
14,295
3,480
—
(11,467)
(10,856)
721
374
(1,718)
1,208
(134,045)
(239)
(102,207)
237,000
134,554
30,554
509
—
—
26,559
57,622
58,131
47,502
105,633
1,127 $
—
22,703 $
397 $
152 $
15,960
—
339
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
118
Paratek Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
1.
Organization
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’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 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.
The Company has incurred significant losses since inception in 1996. The Company has generated an accumulated deficit of $807.8 million through
December 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
cash, cash equivalents, and available for sale marketable securities of $125.2 million as of December 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 Annual
Report on Form 10-K. 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, grant funding and government 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.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying 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 Update, or ASU, of the Financial Accounting Standards
Board, or FASB, and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, or the SEC.
Beginning on January 1, 2020, purchase of prepaid interest - marketable securities, which totaled $0.2 million and was included as a line item in the
December 31, 2019 consolidated statement of cash flows, has been reclassified into the accounts receivable, other receivables, prepaid, and other current
assets line item to conform to the fiscal 2020 presentation.
Principles of Consolidation
The accompanying audited 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 Ireland Limited, Paratek Royalty
Corporation, Paratek Royalty Corporation II, PRTK SPV1 LLC and PRTK SPV2 LLC. All significant intercompany accounts and transactions have been
eliminated in consolidation.
119
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make certain
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. These estimates are based on management’s best knowledge of current events and actions
the Company may undertake in the future. Management considers many factors in selecting appropriate financial accounting policies and controls, and in
developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in
this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with
the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often
may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of
reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial
statements. Estimates are used in accounting for, among other items, accounts receivable and related reserves, inventory and related reserves, goodwill, net
product revenue, government contract service revenue, government contract grant revenue, collaboration and royalty revenue, leases, stock-based
compensation arrangements, manufacturing and clinical accruals, useful lives for depreciation and valuation allowances on deferred tax assets. Actual
results could differ from those estimates. The Company evaluates its estimates on an ongoing basis. Changes in estimates are reflected in reported results in
the period in which they become known by the Company’s management.
Cash and Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents.
Cash and cash equivalents include cash held in banks and amounts held primarily in interest-bearing money market accounts. Cash equivalents are carried
at cost, which approximates their fair market value.
The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each
balance sheet date. The Company classified all of its marketable securities at December 31, 2020 as “available-for-sale” pursuant to ASC 320, Investments
– Debt and Equity Securities. Investments not classified as cash equivalents are presented as either short-term or long-term investments based on both their
maturities as well as the time period the Company intends to hold such securities. Available-for-sale securities are maintained by an investment manager
and consist of U.S. treasury securities. Available-for-sale securities are carried at fair value with the unrealized gains and losses included in other
comprehensive income (loss) as a component of stockholders’ equity (deficit) until realized. Any premium or discount arising at purchase is amortized or
accreted to interest expense or income over the life of the instrument. Realized gains and losses are determined using the specific identification method and
are included in other income or expense. There were no material realized gains or losses on marketable securities recognized for the years ended
December 31, 2020 and 2019.
The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security is less than the
amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than-
temporary impairments of investments are recognized in the consolidated statements of operations and comprehensive loss if the Company has experienced
a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company will be required to sell the marketable security
before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s
investment policy, the severity and duration of the impairment and changes in value subsequent to the end of the period. There were no other-than-
temporary impairments of investments recognized for the years ended December 31, 2020 and 2019.
Fair Value of Financial Instruments
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in
determining the reported fair values. FASB ASC 820, Fair Value Measurements and Disclosures, or ASC 820, establishes a hierarchy of inputs used in
measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be
used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from
sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that market participants would use in
pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the
valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the
fair value hierarchy are described below:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
at the measurement date.
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are
observable, either directly or indirectly.
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and
unobservable.
120
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value
requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in
Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement.
Restricted Cash
Cash accounts with any type of restriction are classified as restricted cash. If restrictions are expected to be lifted or to be used to pay a third party in
the next twelve months, the restricted cash account is classified as current.
Accounts Receivable, Net
Accounts receivable as of December 31, 2020 is primarily comprised of trade accounts receivable of $10.1 million due from customers for sales of
NUZYRA, net of prompt payment discounts, chargebacks, rebates and certain fees. The balance of accounts receivable as of December 31, 2020 incudes
$0.6 million of government contract service revenue earned under the BARDA contract, $0.6 million of government contract grant revenue earned under
the BARDA contract, and $0.5 million in estimated revenue from royalties earned on U.S. sales of SEYSARA under the Almirall Collaboration
Agreement and U.S. sales of XERAVA under the Tetraphase License Agreement. Refer to Note 5, Government Contract Revenue and Note 6, License and
Collaboration Agreements for further details.
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.
Fixed Assets
Fixed assets, including leasehold improvements, are recorded at cost and depreciated when placed into service using the straight-line method, based
on their estimated useful lives as follows:
Laboratory equipment
Office equipment
Machinery and equipment
Computer equipment
Computer software
Estimated
Useful Life
In Years
5
5
5
3
3
In addition, leasehold improvements are depreciated over the shorter of their estimated useful lives or the term of the respective lease on a straight-
line basis.
Costs for capital assets not yet placed into service have been capitalized as construction-in-progress and will be depreciated in accordance with the
above guidelines once placed into service. The Company reviews its long-lived assets for impairment whenever events or changes in business
circumstances indicate that the carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.
Each impairment test is based on a comparison of the undiscounted cash flow to the recorded value of the asset. If impairment is indicated, the asset will be
written down to its estimated fair value on a discounted cash flow basis. Upon sale or retirement, the asset cost and related accumulated depreciation are
removed from the respective accounts, and any related gain or loss is reflected in results of operations. Repair and maintenance costs are expensed as
incurred.
121
Inventory
Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out basis. Prior to the regulatory approval of its product
candidates, the Company incurs expenses for the manufacture of drug product that could potentially be available to support the commercial launch of its
products. Until the first reporting period when regulatory approval has been received or is otherwise considered probable, the Company records all such
costs as research and development expense. Inventory used in clinical trials is also expensed as research and development expense, when selected for such
use. The Company classifies inventory costs as long-term when the Company expects to utilize the inventory beyond its normal operating cycle. The
Company performs an assessment of the recoverability of capitalized inventory during each reporting period and writes down any excess and obsolete
inventory to its net realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded as a
component of cost of product sales in the consolidated statements of operations and comprehensive loss. The determination of whether inventory costs will
be realizable requires the use of estimates by management. If actual market conditions are less favorable than projected by management, additional write-
downs of inventory may be required.
Valuation of Goodwill
Goodwill is not amortized but is evaluated for impairment within the Company’s single reporting unit on an annual basis, during the fourth quarter,
or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the Company’s reporting unit below
its carrying amount. As discussed below, on January 1, 2020, the Company adopted ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, or
ASU 2017-04, which eliminates the second step of the goodwill impairment test. Under this ASU 2017-04, the Company will now perform a one-step
quantitative test and record the amount of goodwill impairment, if any, as the excess of a reporting unit's carrying amount over its fair value, not to exceed
the total amount of goodwill allocated to the reporting unit.
The Company did not record an impairment charge relating to goodwill for the years ended December 31, 2020 and 2019.
Accrued Expenses
The Company’s process of determining accrued expense for a financial period-end involves reviewing open contracts and purchase orders,
communicating with personnel to identify services that have been performed for the Company and estimating the level of service performed and the
associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the
Company’s service providers invoice periodically in arrears for services performed or when contractual milestones are met. The Company estimates
accrued expenses at a financial period-end based on facts and circumstances known at that time and may periodically confirm the accuracy of estimates
with its service providers and make adjustments if necessary.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and
circumstances present in the arrangement including the use of a distinct identified asset(s) and the Company’s control over the use of that identified asset.
Most leases are recognized on the balance sheet as right-of-use assets and lease liabilities, current and non-current, as applicable. The Company has elected
not to recognize on the balance sheet leases with terms of 12 months or less. These lease costs will be expensed as incurred. The Company typically only
includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there
is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis.
Right-of-use assets and lease liabilities are recorded based on the present value of lease payments over the expected remaining lease term. Certain
adjustments to the right-of-use asset may be required for items such as incentives received or initial direct costs. The interest rate implicit in lease contracts
is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company
could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. In
transition to ASU No. 2016-02, Leases, or ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental
borrowing rates.
In accordance with ASC 842, components of a lease should be split into three categories: lease components (e.g., land, building, etc.), non-lease
components (e.g., common area maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). The fixed and in-substance
fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the
lease components and non-lease components.
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Although separation of lease and non-lease components is otherwise required, certain expedients are available. Entities may elect to not separate
lease and non-lease components by class of underlying asset and account for each lease component and the related non-lease component together as a
single component. For new and amended leases beginning in 2019 and after, the Company has elected to account for each lease component and related
non-lease component as a single lease component and allocate all of the contract consideration to the lease component only. In contrast, the Company does
not apply the practical expedient for embedded leases in manufacturing and supply agreements with certain of its contract manufacturing organizations and
has instead allocated contract consideration between the lease and non-lease components based on their relative standalone price.
Revenue Recognition
Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC 606, applies to all contracts with
customers, except for contracts that are within the scope of other standards, such as leases, insurance, and financial instruments. Under ASC 606, an entity
recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to
receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC
606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the
entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the
consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be
within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance
obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price
that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied as services are rendered.
The Company enters into collaboration agreements for research, development, manufacturing and commercial services that are within the scope of
ASC 606, under which it licenses certain rights to its product candidates to third parties. The terms of these arrangements typically include payment to the
Company of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees;
development, regulatory and commercial milestone payments; and royalties on net sales of licensed products. The amount of variable consideration is
constrained until it is probable that the revenue is not at a significant risk of reversal in a future period. The contracts into which the Company enters
generally do not include significant financing components.
As part of the accounting for these arrangements, the Company must use significant judgment to determine: (a) the transaction price under step (iii)
above and (b) the timing of revenue recognition, including the appropriate measure of progress, in step (v) above. The Company uses judgment to
determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price, as described further below.
The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as
or when the performance obligations under the contract are satisfied. If a milestone or other variable consideration relates specifically to the Company’s
efforts to satisfy a single performance obligation or to a specific outcome from satisfying the performance obligation, the Company generally allocates the
milestone amount entirely to that performance obligation once it is probable that a significant revenue reversal would not occur.
Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the
12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts
not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
Licenses of intellectual property
In assessing whether a license is distinct from the other promises, the Company considers factors such as the research, development, manufacturing
and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the
Company considers whether the collaboration partner can benefit from a license for its intended purpose without the receipt of the remaining promise(s),
whether the value of the license is dependent on the unsatisfied promise(s), whether there are other vendors that could provide the remaining promise(s),
and whether it is separately identifiable from the remaining promise(s). For licenses that are combined with other promises, the Company utilizes judgment
to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point
in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of
progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
123
Customer options
If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services
underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option
exercise. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the
customer options are determined to represent or include a material right, the material right is recognized as a separate performance obligation at the outset
of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based
on the identified discount and the probability that the customer will exercise. Amounts allocated to a material right are not recognized as revenue until, at
the earliest, the option is exercised.
Milestone payments
At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of
being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant
reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within
the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.
The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular
milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant reversal of
cumulative revenue would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all
milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative
catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the
predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the
performance obligation to which some or all the royalty has been allocated is satisfied (or partially satisfied).
Contract costs
The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the costs are expected to be recovered. As a
practical expedient, the Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the
asset that the Company otherwise would have recognized is one year or less. To date, the Company has not incurred any incremental costs of obtaining a
contract with a customer.
The Company sells its product principally to a limited number of specialty distributors and specialty pharmacy providers in the U.S. These
customers subsequently resell the Company’s product to health care providers or dispense the product to patients. In addition to distribution agreements
with customers, the Company enters into arrangements with health care providers and payers that provide for government mandated and/or privately
negotiated rebates, chargebacks and discounts with respect to the purchase of our product.
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which typically occurs once the
Company has transferred physical possession of the good to the customer. The transaction price that the Company recognizes as revenue reflects the
amount it expects to be entitled to in connection with the sale and transfer of control of product to its customers. Variable consideration is only included in
the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is subsequently resolved. At the time that the Company’s customers take control of the product,
which is when the Company’s performance obligation under the sales contracts is complete, the Company records product revenues net of applicable
reserves for various types of variable consideration based on the Company’s estimates of channel mix. The types of variable consideration in our product
revenue are as follows:
•
•
•
•
Trade discounts and allowances
Product returns
Chargebacks and rebates
Government rebates
124
•
•
Commercial payer and other rebates
Voluntary patient assistance programs
In determining the amounts of certain allowances and accruals, the Company must make significant judgments and estimates. For example, in
determining these amounts, the Company estimates prescription demand from the specialty pharmacies, hospital demand, buying patterns by hospitals,
hospital systems and/or group purchasing organizations and the levels of inventory held by specialty distributors and customers. Making these
determinations involves analyzing third-party industry data to determine whether trends in historical channel distribution patterns will predict future
product sales. The Company receives data periodically from its specialty distributors and customers on inventory levels and historical channel sales mix,
and the Company considers this data when determining the amount of the allowances and accruals for variable consideration.
The amount of variable consideration is estimated by using either of the following methods, depending on which method better predicts the amount
of consideration to which the Company is entitled:
a)
The “expected value” is the sum of probability-weighted amounts in a range of possible consideration amounts. Under ASC 606, an expected value
may be an appropriate estimate of the amount of variable consideration if the Company has many contracts with similar characteristics.
b) The “most likely amount” is the single most likely amount in a range of possible consideration amounts (i.e., the single most likely outcome of the
contract). Under ASC 606, the most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two
possible outcomes (i.e., either achieve or do not achieve a threshold specified in a contract).
The method selected is applied consistently throughout the contract when estimating the effect of an uncertainty on an amount of variable
consideration. In addition, the Company considers all the information (historical, current, and forecasted) that is reasonably available to the Company and
shall identify a reasonable number of possible consideration amounts. The relevant factors used in this determination include, but are not limited to, current
contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns.
In assessing whether a constraint is necessary, the Company considers both the likelihood and the magnitude of the revenue reversal. Actual
amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates,
the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known. The specific
considerations the Company uses in estimating these amounts related to variable consideration associated with the Company’s products are as follows:
Trade Discounts and Allowances - The Company generally provides customers with discounts that are explicitly stated in the Company’s contracts
and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company receives sales order
management, data and distribution services from certain customers. To the extent the services received are distinct from the Company’s sale of products to
the customer, these payments are classified in selling, general and administrative expenses in the consolidated statements of operation and comprehensive
loss of the Company.
Product Returns – Generally, the Company’s customers have the right to return any unopened/unused product supply during the 18-month period
beginning six months prior to the labeled expiration date and ending 12 months after the labeled expiration date. Since the Company currently does not
have history of NUZYRA returns, the Company estimated returns based on industry data for comparable products in the market. As the Company
distributes its product and establishes historical sales over a longer period of time, the Company will be able to place more reliance on historical
purchasing, demand and return patterns of its customers when evaluating its reserves for product returns.
At the end of each reporting period for any of our products, the Company may decide to constrain revenue for product returns based on information
from various sources, including channel inventory levels and dating and sell-through data, the expiration dates of product currently being shipped, price
changes of competitive products and introductions of generic products.
Chargebacks – Although the Company primarily sells products to specialty distributors in the U.S., the Company also enters into agreements with
hospitals and outpatient infusion centers, either directly or through group purchasing organizations acting on behalf of their members, in connection with
the purchase of product. Based on these agreements, some of the Company’s customers have the right to receive a discounted price on product purchases.
In the case of discounted pricing, the Company typically provides a credit to its specialty distributors customer (i.e., chargeback), representing the
difference between the customer’s acquisition list price and the discounted price.
125
Government Rebates –The Company is subject to discount obligations under state Medicaid programs and Medicare. The Company estimates our
Medicaid and Medicare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payer mix. These reserves are
recorded in the same period the related product revenue is recognized, resulting in a reduction of product revenue and the establishment of a current
liability that is included in accrued expenses on the consolidated balance sheet. For Medicare, the Company also estimates the number of patients in the
prescription drug coverage gap for whom it will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates
consists of an estimate of claims for the current quarter and estimated future claims that will be made for product sales that have been recognized as
revenue but remain in distribution channel inventory at period end.
Commercial Payer and Other Rebates – The Company plans to continue to contract with certain private payer organizations, primarily insurance
companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of NUZYRA and contracted formulary status. The
Company estimates these rebates and records reserves for such estimates in the same period the related revenue is recognized. Currently, the reserve for
customer payer rebates considers future utilization based on third-party studies of payer prescription data; the utilization is applied to product that remains
in the distribution and retail pharmacy channel inventories at the end of each reporting period. As the Company distributes its product and establishes
historical sales over a longer period of time (i.e., two years), the Company will be able to place more reliance on historical data related to commercial payer
rebates (i.e., actual utilization units) while continuing to rely on third-party data related to payer prescriptions and utilization.
Patient Assistance – The Company offers certain voluntary patient assistance programs for prescriptions, such as co-pay assistance programs, which
are intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payers. The
calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with
product sale that has been recognized as revenue but remains in the distribution and pharmacy channel inventories at the end of each reporting period.
At the end of each reporting period, the Company adjusts its allowances for cash discounts, product returns, chargebacks, and other rebates and
discounts when the Company believes actual experience may differ from current estimates.
Revenue Earned Under Government Contracts
If the Company concludes that some or all aspects of its government contracts represent a transaction with a customer to obtain services or goods
that are an output of its ordinary activities in exchange for consideration, it accounts for those aspects of the arrangement in accordance with ASC
606. Arrangements that are entirely in the scope of other guidance are accounted for under that guidance.
The Company recognizes sales of NUZYRA under its government contracts as product revenue when control of NUZYRA is transferred, in
accordance with ASC 606. It also recognizes government contract service revenue and government contract grant revenue as defined below.
Government Contract Service Revenue
Government contract service revenue is recognized as services are performed. Revenue and related reimbursable expenses are presented on a gross
basis in the Company’s consolidated statements of operations. The related reimbursable expenses are expensed as incurred as research and development
expense.
Government Contract Grant Revenue
The allocated consideration of government contract grant revenue is recognized as the related reimbursable expenses are incurred. The cost
reimbursements that are reported as revenue is presented gross of the related reimbursable expenses in the Company’s consolidated statements of
operations. The related reimbursable expenses are expensed as incurred as research and development expense.
Cost of Product Revenue
Cost of product revenue consists primarily of the manufacturing costs for NUZYRA and royalties owed on net sales of NUZYRA. All
manufacturing costs incurred prior to NUZYRA’s approval in the U.S. on October 2, 2018 were expensed in research and development and were not
included in cost of revenue.
126
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses consist of the costs incurred in
performing research and development activities, including personnel-related costs, stock-based compensation, facilities, research-related overhead, clinical
trial costs, contracted services, manufacturing, license fees and other external costs. Research and development expenses also include gross reimbursable
costs incurred through research and development services performed for the treatment of pulmonary anthrax, services performed for U.S. manufacturing
onshoring and security requirements, and services performed for FDA PMRs under the BARDA contract. The Company accounts for nonrefundable
advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed
or when the goods have been received rather than when the payment is made.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred
tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In
making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary
differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that the Company would
be able to realize our deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax
asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, or ASC 740, on the basis of a two-step process in which
(1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and
(2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more
than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying
consolidated statement of operations. The Company has not recorded interest and penalties related to any unrecognized tax benefits in the years ended
December 31, 2020 and 2019.
Stock-Based Compensation
The Company accounts for its stock-based awards in accordance with ASC 718, Compensation—Stock Compensation, or ASC 718, which requires
all stock-based payments to employees, including grants of stock options, modifications to existing stock options, and restricted stock unit awards, to be
recognized as expense based on their fair values. The Company recognizes the compensation cost 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 expense over the requisite service period. A change in the requisite service period that does not change the estimate
of the total compensation cost (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. A change in the estimate of the quantity of the awards that are considered probable of vesting results in a cumulative
catch-up of stock-based compensation expense in the period of the change in estimate. The Company expenses restricted stock unit awards to employees
based on the fair value of the award on a straight-line basis over the associated service period of the award.
127
The measurement date for non-employee awards is the later of the adoption date of ASU No. 2018-07, “Compensation—Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment Accounting”, or ASU No. 2018-07, or the date of grant, without changes in the fair value of the
award. Stock-based compensation costs for non-employees are recognized as expense over the vesting period on a straight-line basis.
The Company estimates the fair value of its stock-based awards to employees and non-employees using the Black-Scholes option pricing model,
which requires the input of assumptions, including (1) the expected volatility of stock, (2) the expected term of the award, (3) the risk-free interest rate and
(4) expected dividends. The Company has estimated the expected volatility by comping its historical volatility data, using the daily closing price during the
equivalent period as the calculated expected life, of its stock-based awards. The Company has estimated the expected life of its employee stock options as
the average of the midpoints between vesting exercise date for each vesting-tranche and the contractual term of the options as the last available exercise
date of the option. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during
the period the options were granted.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in non-owner sources of equity of a business enterprise during a period from transactions,
other events and circumstances and currently consists of net loss and changes in unrealized gains and losses on available-for-sale securities.
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, and the Company operates in only one geographic segment.
Subsequent Events
The Company considers events or transactions that occur after the balance sheet date, but prior to the issuance of the financial statements to provide
additional evidence relative to certain estimates or to identify matters that require additional disclosure. Refer to the Notes below for further details on
subsequent events.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the
specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not
have a material impact on its financial position or results of operations upon adoption.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, or ASU 2017-04. The amendments in ASU
2017-04 eliminate the current two-step approach used to test goodwill for impairment and require an entity to apply a one-step quantitative test and record
the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill
allocated to the reporting unit. ASU 2017-04 is effective for fiscal years and interim periods beginning after December 15, 2019 (upon the first goodwill
impairment test performed during that fiscal year). Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates
after January 1, 2017. A reporting entity must apply the amendments in ASU 2017-04 using a prospective approach. The Company adopted this standard
on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial position or results of
operations.
In August 2018 the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements on fair value measurements. The Company adopted this
guidance on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.
128
In June 2016 the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023.
These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and
establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards now require
allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for
available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if
fair value increases. Based on the composition of our investment portfolio, accounts receivable and other financial assets, current market conditions and
historical credit loss activity, the adoption of this guidance is not expected to have a material effect on the Company’s consolidated balance sheet,
consolidated statements of operation and comprehensive loss and related disclosures.
3.
Product Revenue
To date, the Company’s only source of product revenue has been from NUZYRA product sales beginning in February 2019 when NUZYRA
launched in the United States. The following table summarizes balances and activity in each of the product revenue allowance and reserve categories (in
thousands):
Chargebacks,
discounts and
fees
Government
and other
rebates
Returns
assistance Total
Patient
Balance at December 31, 2018
$
— $
— $
Provision related to current period sales
Adjustment related to prior period sales
Credit or payments made during the period
Balance at December 31, 2019
Provision related to current period sales
Adjustment related to prior period sales
Credit or payments made during the period
Balance at December 31, 2020
926
—
(627)
299 $
3,160
(8)
(2,824)
627 $
1,424
—
(729)
695 $
6,091
19
(4,603)
2,202 $
$
$
— $
369
—
—
369 $
337
—
(320)
386 $
— $ —
174 2,893
— —
(45) (1,401)
129 $ 1,492
371 9,959
11
—
(286) (8,033)
214 $ 3,429
4.
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 for the years ended December 31, 2020 and 2019 as indicated below:
Excluded potentially dilutive securities (1):
Common stock issuable under outstanding convertible notes
Shares subject to outstanding options to purchase common stock
Unvested restricted stock units
Shares subject to warrants to purchase common stock
Shares issuable under employee stock purchase plan
Totals
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Year Ended December 31,
2019
2020
10,377,361
1,986,442
3,393,425
479,002
606,816
16,843,046
10,377,361
3,236,073
2,305,408
104,455
798,187
16,821,484
(1)
The number of shares is based on the maximum number of shares issuable on exercise or conversion of the related securities as of the year end. Such
amounts have not been adjusted for the treasury-stock method or weighted-average outstanding calculations as required if the securities were
dilutive.
5.
Government Contract Revenue
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. BARDA has exercised two options that respectively cover manufacturing-
related requirements and post-licensure commitments required by the FDA. The remaining contract options may be exercised to perform additional studies
necessary for licensure for the prophylaxis of anthrax 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 and approximately $20.4 million for
manufacturing-related requirements, both of which 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 option 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 treatment
courses, each of which may be exercised at BARDA’s discretion 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 evaluated the BARDA contract under ASC 606 and concluded that a portion of the arrangement represents a transaction with a
customer. The Company identified five material promises under the BARDA contract: (i) research and development services performed for the treatment of
pulmonary anthrax, (ii) the procurement of 2,500 treatment courses of NUZYRA, (iii) an option for services performed for the supplemental late-stage
development of NUZYRA for treatment and prophylaxis of pulmonary anthrax, (iv) an option for services related to U.S. manufacturing onshoring and
security requirements, which includes shelf-life stability extension work and regulatory activities that will benefit the manufacturing processes that support
NUZYRA for the treatment of pulmonary anthrax and (v) options to procure up to three 2,500 treatment courses of NUZYRA.
In December 2019, the Company determined material promises (i) and (ii) above were performance obligations since they were distinct within the
context of the contract as the services are separately identifiable from other promises within the arrangement. The Company also determined that for (i) and
(ii) the transaction price included within the BARDA contract was equivalent to the standalone selling price of the services and the cost of the procurement.
The Company evaluated the material promises that contained option rights ((iii), (iv), and (v) above). The Company determined that (iii) and (iv)
were not offered at a discount that is incremental to the range of discounts typically given for these goods and services, and therefore do not represent
material rights. As such, options for additional services in (iii) and (iv) were not considered performance obligations at the outset of the arrangement. The
Company also evaluated the future procurement option rights (v) and
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determined that those option rights represent a material right. As such, the optional additional NUZYRA procurements in (v) were considered performance
obligations at the outset of the arrangement. The Company concluded that three performance obligations existed at the outset of the BARDA contract.
As the BARDA contract is partially within the scope of ASC 606 and partially within the scope of other guidance, the Company applied the
guidance of ASC 606 to initially measure the parts of the contract within ASC 606. The total transaction price of the parts of the BARDA contract that
existed at the outset of the contract that fall under ASC 606 was determined to be $63.6 million, inclusive of $4.2 million in variable consideration and was
allocated to each of the three performance obligations based on the performance obligation’s estimated relative stand-alone selling prices. As of December
31, 2020, the Company reevaluated the variable consideration of $4.2 million that is included in the transaction price and determined that the variable
consideration should not be constrained as it is not probable that a significant reversal in the amount of the cumulative revenue recognized will occur in a
future period. The transaction price was allocated as follows: $21.5 million to research and development services performed for the treatment of pulmonary
anthrax in (i), which will be classified as government contract service revenue when recognized, $37.9 million to the procurement of 2,500 treatment
courses of NUZYRA in (ii), which will be classified as product revenue when recognized, and a total of $4.2 million to the options to procure up to three
2,500 treatment courses of NUZYRA in (v), which would be included within product revenue when recognized upon exercise and transfer of control of
related treatment courses. The Company estimated the stand-alone selling price of the research and development services performed for the treatment of
pulmonary anthrax based on the Company’s projected cost of providing the services plus an applicable profit margin commensurate with observable market
data for similar services. The Company estimated the stand-alone selling price of the procurement of 2,500 treatment courses of NUZYRA based on
historical pricing of the Company’s commercial products to similar customers. The Company estimated the stand-alone selling price of the future
procurement options based on the discount that the customer would obtain when exercising the option, adjusted for any discount that the customer could
receive without entering into the contract, and the likelihood that the option will be exercised.
The Company’s performance obligations are either satisfied over time as work progresses or at a point in time.
The Company concluded that research and development services performed for the treatment of pulmonary anthrax in (i) would be recognized as
government contract service revenue over time as the performance obligation is satisfied. Costs incurred represent work performed, which corresponds
with, and thereby best depicts, the transfer of control to the customer. Types of contract costs include labor, material, and third-party services.
The product procurement performance obligations ((ii) and, if any optional additional procurements are exercised from, (v) above), generate revenue
at a point in time, which will be upon transfer of control of the product. As such, the related revenue for these performance obligations will be recognized at
a point in time as product revenue within the Company’s consolidated statement of operations. As of December 31, 2020, no product procurement
performance obligations have been completed and therefore no product revenue has been recognized.
In April 2020, BARDA exercised its option to obtain manufacturing-related services under material promise (iv) and the Company is treating these
services as a separate $20.4 million contract for accounting purposes since manufacturing-related services were determined at the contract outset to be
optional services that did not represent a material right. The Company’s manufacturing-related services are satisfied over time as work progresses.
The Company recognized $3.3 million of government contract service revenue during the year ended December 31, 2020. No such government
contract service revenue was earned during the year ended December 31, 2019 as the BARDA contract was executed in December 2019.
As of December 31, 2020, the aggregate amount of transaction price allocated to remaining performance obligations, excluding unexercised contract
options, was $80.7 million. The Company expects to recognize this amount as revenue over the next three to six years.
The Company concluded that BARDA’s reimbursement for existing FDA PMRs associated with the initial NUZYRA approval was not within the
scope of ASC 606 as BARDA is not receiving services as the Company’s customer. The Company estimated the consideration to be allocated to
government contract grant revenue based on the consideration under the BARDA contract in excess of the estimated standalone selling prices for
components of the BARDA contract accounted for under ASC 606. The Company recognizes the allocated consideration for BARDA’s reimbursement of
existing FDA PMRs associated with the initial NUZYRA approval of $72.6 million as government contract grant revenue as the related reimbursable
expenses are incurred.
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The Company recognized $3.4 million of government contract grant revenue under the BARDA contract during the year ended December 31, 2020.
No such government contract grant revenue was earned during the year ended December 31, 2019 as the BARDA contract was executed in December 2019
Contract Balances
Contract assets (i.e. unbilled accounts receivable) and/or contract liabilities (i.e. customer advances and deposits) may exist at the end of each
reporting period under the BARDA contract. When amounts are received prior to performance obligations being satisfied, the amounts allocated to those
performance obligations are reflected as contract liabilities on the consolidated balance sheets, as deferred revenue, until the performance obligations are
satisfied.
As of December 31, 2020, $0.6 million of unbilled accounts receivable was recorded and is a component of accounts receivable, net on the
Company’s consolidated balance sheet.
As of December 31, 2020, $0.2 million of deferred revenue was recorded and is a component of other current liabilities on the Company’s
consolidated balance sheet.
6.
License and Collaboration Agreements
Tetraphase Pharmaceuticals, Inc.
On March 18, 2019, Paratek and Tetraphase Pharmaceuticals, Inc., or Tetraphase, which is now a subsidiary of La Jolla Pharmaceutical Company,
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 its 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.
The Company recognized $0.2 million of royalty revenue for the year ended December 31, 2020 under the Tetraphase License Agreement.
Zai Lab (Shanghai) Co., Ltd.
On April 21, 2017, Paratek Bermuda Ltd., a former wholly-owned subsidiary of Paratek Pharmaceuticals, Inc., and Zai Lab (Shanghai) Co., Ltd., or
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 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 People’s Republic of China, Hong Kong, Macau and Taiwan, or
the Zai territory, for all human therapeutic and preventative uses other than biodefense. Zai is responsible for the development, manufacturing and
commercialization of the licensed product in the Zai territory, at its sole cost with certain assistance from Paratek.
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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 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 People’s Republic of China in December 2019. Paratek is eligible to receive $6.0 million upon regulatory approval
for a licensed product in the People’s Republic of China and up to $40.5 million in potential future commercial milestone payments, the next being $6.0
million. 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 606. 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. At the outset of the Zai Collaboration
Agreements and in prior years, the Company has recognized $12.5 million in milestone revenue.
As submission of the first regulatory approval application for a licensed product in the People’s Republic of China, or 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 next milestone was not deemed probable and the
risk of significant reversal of revenue was not resolved as of December 31, 2020. As such, the next milestone payment was not recognized as revenue in
the year ended December 31, 2020.
There was no deferred revenue as of December 31, 2020 and 2019 under the Zai Collaboration Agreement.
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
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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 recognized all Almirall milestones in prior years. There are no milestones left to be recognized under the Almirall Collaboration Agreement.
Royalty payments will be recognized when the sales occur. The Company recognized $1.3 million of royalty revenue recognized for sales of
SEYSARA in the U.S. by Almirall for the year ended December 31, 2020 under the Almirall Collaboration Agreement. During the fourth 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. Refer to Note 16, Long-Term Debt, for further details.
In February 2020, we entered into (i) an ex-U.S. license agreement with Almirall, or the Ex-U.S. License, under which Almirall granted to us 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 we granted to Almirall an exclusive license in and to certain technology owned or in-licensed by us or our 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, we may terminate the China License.
We have 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 us, our affiliates or our sublicensees available for resale in 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, we have agreed during the term of the China License to use commercially
reasonable efforts to not, directly or indirectly, make sarecycline products commercialized by us, our affiliates or our 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, we pay 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 our or our 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)
134
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 us 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 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 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 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 it 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 agreement within a specified
time period.
The Company incurred $0.6 million of royalty expense for the year ended December 31, 2020 under the Tufts License Agreement.
Past Collaborations
Novartis Pharma AG
In September 2009, the Company and Novartis International Pharmaceutical Ltd., or Novartis, which merged into Novartis Pharma AG, a wholly
owned subsidiary of Novartis AG, entered into a Collaborative Development, Manufacture and Commercialization License Agreement, or the Novartis
Agreement, which provided Novartis with a global, exclusive patent and
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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 EMA, 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 $3.1 million and $3.4
million as of December 31, 2020 and December 31, 2019, respectively, included within “Other Long-Term Liabilities” on the Company’s consolidated
balance sheet. In addition, short-term liabilities included within “Other Current Liabilities” on our consolidated balance sheet as of December 31, 2020 and
December 31, 2019 represent the portion of royalty payments due to Novartis within twelve months of each balance sheet date. There are no other payment
obligations to Novartis under the Novartis Agreement or the amended Novartis Letter Agreement.
7.
Cash and Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated statement of cash flows
that sum to the total of the same such amounts shown in the consolidated statement of cash flows (in thousands):
Cash and cash equivalents
Short-term restricted cash
Long-term restricted cash
Total cash, cash equivalents and restricted cash shown
on the consolidated statement of cash flows
$
December 31,
2020
2019
105,157 $
891
—
102,302
324
3,007
$
106,048 $
105,633
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. 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 16, Long-Term Debt, for further details. As of December 31,
2020, restricted cash of $0.6 million represents 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.
The Company leases its Boston, Massachusetts office space under a non-cancelable operating lease. Refer to Note 18, Commitments and
Contingencies, 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 December 31, 2020 and 2019, naming the landlord as beneficiary. The cash-collateralized irrevocable standby letter of credit was
reclassified to short-term during the year ended December 31, 2020 as the operating lease expires in August 2021.
Long-term restricted cash
As of December 31, 2019, long term restricted cash of $2.7 million represents the remaining balance in the interest reserve account described above
as well as the $0.3 million cash-collateralized irrevocable standby letter of credit described above.
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8.
Marketable Securities
The following is a summary of available-for-sale securities as of December 31, 2020 and 2019 (in thousands):
December 31, 2020
U.S. treasury securities
Total
December 31, 2019
U.S. treasury securities
Total
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
$
$
$
$
20,001 $
20,001 $
113,003 $
113,003 $
4 $
4 $
89 $
89 $
— $
$
20,005
20,005
(15) $ 113,077
(15) $ 113,077
No available-for-sale securities held as of December 31, 2020 and 2019 had remaining maturities greater than twelve months.
9.
Fixed Assets, Net
Fixed assets consist of the following (in thousands):
Office equipment
Machinery and equipment
Computer equipment
Computer software
Leasehold improvements
Construction in progress
Gross fixed assets
Less: Accumulated depreciation and amortization
Net fixed assets
Estimated
In Years
5
5
3
3
December 31,
2020
2019
$
$
866 $
567
412
798
920
188
3,751
(2,787)
964 $
866
567
412
798
920
—
3,563
(2,336)
1,227
In addition, leasehold improvements are amortized over the shorter of the lease term or the estimated useful economic lives of the related assets.
Depreciation expense for the years ended December 31, 2020 and 2019 was approximately $0.5 million and $0.5 million, respectively, which is
included in selling, general and administrative and research and development expense on the accompanying consolidated statements of operations and
comprehensive loss.
10.
Inventories, Net
The following table presents inventories (in thousands):
Raw materials
Work in process
Finished goods
Total inventories
December 31,
2020
2019
$
$
720 $
12,925
9,638
23,283 $
—
9,330
2,249
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. No inventory reserves existed as of December 31, 2020 and 2019.
Long-term inventory, which consists of raw materials and work in process, is included in other long-term assets in the Company’s consolidated
balance sheets.
137
Balance Sheet Classification:
Inventories, net
Other long-term assets
Total inventories
11.
Accrued Expenses
Accrued expenses consist of the following (in thousands):
December 31,
2020
2019
$
$
14,555 $
8,728
23,283 $
11,579
—
11,579
Accrued compensation
Accrued sales allowances
Accrued commercial
Accrued inventory
Accrued interest
Accrued professional fees
Accrued manufacturing
Accrued contract research
Accrued legal costs
Accrued other
Total
December 31,
2020
2019
$
$
7,783 $
3,429
2,254
2,023
1,768
1,209
972
591
580
217
20,826 $
7,580
1,492
1,445
125
2,264
876
1,026
1,612
181
95
16,696
12.
Common Stock
The authorized capital stock of the Company consists of 100,000,000 shares of common stock, par value $0.001 per share, and the preferred stock
described in Note 13, Preferred Stock.
The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders and there are no cumulative
rights. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably any
dividends that may be declared from time to time by the board of directors out of funds legally available for that purpose. In the event of liquidation of the
Company, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of preferred stock then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. The outstanding shares of common stock are fully paid and non-assessable.
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 was permitted to offer and sell its common stock having aggregate sales proceeds of up to $50.0 million from time to
time through Jefferies and BTIG as its sales agents. Sales of the Company’s common stock through Jefferies and BTIG were to 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 or BTIG, as applicable,
were entitled to 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 sold 5,176,000 shares of common stock pursuant to the 2019 Sales Agreement for $21.9 million in proceeds, after deducting
commissions of $0.7 million during the year ended December 31, 2020, which fully utilized the 2019 Sales Agreement. Upon completion of the final sale
of our shares of common stock available for sale under the 2019 Sales Agreement, that agreement was terminated.
On May 11, 2020, the Company filed a registration statement on Form S-3 with the SEC, as amended on June 19, 2020 and declared effective on
July 9, 2020, to sell certain of its securities in an aggregate amount of up to $250.0 million. As of December 31, 2020, $250.0 million remains available on
this shelf registration statement.
138
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 Merger. 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 subsequently amended, or the Original 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. The Hercules Warrants expired on September 30, 2020.
In connection with the second amendment to the Original 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 Original 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 Original 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.
In connection with the First Amendment (as defined below), on August 5, 2020, the Company issued to Hercules Capital, Inc. a warrant to purchase
up to 407,239 shares of its common stock at an exercise price of $4.42 per share, or the First Amendment Warrant.
The Second Amendment Warrants, Additional Warrant, Fifth Amendment Warrant, and the First 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 and the First 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.
13.
Preferred Stock
The authorized capital stock of the Company consists of 5,000,000 shares of undesignated preferred stock, par value $0.001 per share, and the
common stock described in Note 12, Common Stock.
The Company’s Board of Directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock,
in one or more series, and to fix the rights, preferences, privileges and restrictions granted to or imposed upon the preferred stock. Any or all of these rights
may be greater than the rights of the common stock.
There are no shares of preferred stock issued or outstanding as of December 31, 2020 and 2019.
14.
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 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 16, Long-Term Debt), is $223.5 million as of December 31, 2020 and $191.3 million as of December 31, 2019. 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.
139
The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value as of December
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 (in thousands):
Description
Assets:
U.S. treasury securities
Total Assets
Description
Assets:
U.S. treasury securities
Total Assets
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2020
$
$
20,005 $
20,005 $
— $
— $
— $
— $
20,005
20,005
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2019
$
$
113,077 $
113,077 $
— $
— $
— $
— $
113,077
113,077
15.
Stock-Based and Incentive Compensation
Certain employees, officers, directors, and consultants have been granted options and other equity instruments to purchase common shares under
plans adopted in 2006, 2014 and 2015, or the 2006 Plan, the 2014 Plan, the 2015 Plan, respectively, the 2015 Inducement Plan and the 2017 Inducement
Plan. Upon effectiveness of the 2015 Plan no further awards will be granted under the 2006 Plan and 2014 Plan.
Incentive stock and non-statutory stock options must be granted with exercise prices of not less than the fair market value of the common stock on
the date of grant. Incentive stock options granted to a stockholder owning more than 10% of voting stock of the Company must have an exercise price of
not less than 110% of the fair market value of the common stock on the date of grant. The Company determined the fair market value of common stock
until the Company became publicly traded. Stock options are generally granted with terms of up to ten years and vest over a period of one to four years.
2006 Plan
The 2006 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock, performance share awards,
performance stock units, dividend equivalents, restricted stock units, stock payments, deferred stock, performance-based awards and stock appreciation
rights. The 2006 Plan terminated on June 2, 2020.
As of December 31, 2020 and 2019, no additional shares remained available for issuance under the 2006 Plan. All shares cancelled or forfeited
during the years ended December 31, 2020 and 2019 became available for grant under the 2015 Plan.
2014 Plan
The 2014 Plan provided for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock
unit awards and other stock awards to employees, officers, directors, and consultants of the Company.
During the year ended December 31, 2015, prior to the effectiveness of the 2015 Plan, the Company’s Board of Directors granted 24,000 stock
options to directors, officers, employees and consultants to the 2014 Plan with time vesting provisions ranging from one to four years. As of December 31,
2020 and 2019, no additional shares remained available for issuance the 2014 Plan. All shares cancelled or forfeited during the years ended December 31,
2020 and 2019 became available for grant under the 2015 Plan.
2015 Plans
The Company’s Board of Directors adopted a 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 new employees, and granting 353,500 stock
140
options under the plan to executives and employees of the Company under the 2015 Inducement Plan with time vesting provisions ranging from one to four
years.
The Company has not made any additional grants under the 2015 Inducement Plan since December 31, 2015. Although the Company does not
currently anticipate the issuance of additional stock options under the 2015 Inducement Plan, 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.
The Company’s Board of Directors also adopted the 2015 Plan, which was approved by Company stockholders at the Annual Meeting 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, restricted stock unit 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 2006 Plan and the 2014 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.
The number of shares available for issuance under the 2015 Plan was initially 1,200,000 shares, plus the number of shares that again become
available for grant as a result of forfeited or terminated awards or shares withheld in satisfaction of the exercise price of withholding obligations associated
with awards under the Prior Plans, not to exceed 2,000,000 shares. 2,325,828, 1,991,387, and 1,612,969 shares of common stock were automatically added
to the shares authorized for issuance under the 2015 Plan on January 1, 2021, January 1, 2020, and January 1, 2019, respectively, pursuant to a “Share
Reserve” provision contained in the 2015 Plan. The Share Reserve will automatically increase on January 1st 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 31st of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors of the Company may act prior to
January 1st of a given year to provide that there will be no January 1st 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 occur.
During the year ended December 31, 2018, the Company’s Board of Directors granted performance-based restricted stock units, or PRSU, awards to
certain executives and employees of the Company and have vested or will vest as follows: (a)10/55 shall be earned and time vest on achievement of 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,
which was later modified by the Board of Directors to be earned and time vest upon the determination that Omadacycline has met the applicable conditions
to be approvable by the EMA, which occurred in October 2019, and (c) 25/55 shall be earned on achievement of the launch of omadacycline in the U.S.,
which occurred in February 2019, and time vest on the date that is 15 months following such launch date. During the year ended December 31, 2020,
155,000 shares vested related to milestone (c) above, resulting in compensation cost of $0.1 million.
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. Milestone (a) was achieved in September 2020 and vested in November
2020 and the Company believes it is probable that milestone (b) above will be achieved. The Company recognized stock-based compensation expense for a
total of $1.4 million for milestones (a) and (b) during the year ended December 31, 2020 using the accelerated attribution method. During the year ended
December 31, 2020, the Company’s Board of Directors modified the vesting terms related to the PRSU awards that were expected to time vest on
attainment of certain other business achievements. The modification resulted in the recognition of $0.2 million of stock-based compensation expense
during the year ended December 31, 2020.
During the year ended December 31, 2020, the Company’s Board of Directors granted 103,900 stock options and 2,553,250 restricted stock units,
or RSU, awards to directors, executives, and employees of the Company under the 2015 Plan. The stock option awards are generally 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 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. The Company believes it is probable that milestone (b) above
141
will be achieved. The Company recognized compensation cost for a total of $0.4 million for milestone (b) during the year ended December 31, 2020 using
the accelerated attribution method.
200,565 RSUs and 1,123,643 stock options granted under the 2015 Plan were cancelled, forfeited or expired during the year ended December 31,
2020.
2017 Inducement Plan
In June 2017, the Company’s Board of Directors adopted 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 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 adopted an amendment in accordance with Nasdaq
Listing Rule 5635(c)(4) to increase the aggregate number of shares of common stock that may be issued pursuant to awards under the 2017 Inducement
Plan from 550,000 shares to 1,050,000 shares.
During the year ended December 31, 2020, the Company’s Board of Directors granted 44,050 stock options and 34,300 RSU awards to employees
of the Company under the 2017 Inducement Plan. The stock option awards are generally 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. 17,000 RSUs and 87,068 stock options granted under the 2017 Inducement Plan were forfeited during the year ended December 31, 2020.
Total shares available for future issuance under the 2015 Plan, 2015 Inducement Plan and 2017 Inducement Plan are 1,339,392, 306,500 and
428,733 shares, respectively, as of December 31, 2020.
A summary of stock option activity and related information through December 31, 2020 follows:
Outstanding
Balances at December 31, 2019
Granted
Exercised
Cancelled or forfeited
Expired
Balances at December 31, 2020
Exercisable
December 31, 2020
Weighted
Average
Exercise
Price
Weighted–
Average
Remaining
Contractual
Term
(in Years)
Aggregate
Intrinsic
Value
(in thousands)
15.54
4.37
4.30
19.83
20.85
11.92
6.30 $
90
5.63 $
1,748
Number
of Shares
3,236,073 $
147,950
(39,479)
(1,213,102)
(145,000)
1,986,442 $
1,717,030 $
12.61
5.19 $
1,356
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair market value of the
common stock for the options that were in the money at December 31, 2020 and 2019.
During the years ended December 31, 2020 and 2019, the Company granted stock options to purchase an aggregate of 147,950 shares and
196,560 shares of its common stock, under the equity plans described above, respectively, with weighted-average grant date fair values of options granted
of $2.46 and $2.69 and respectively.
The total intrinsic value of stock options exercised was insignificant for the year ended December 31, 2020. No stock options were exercised during
the year ended December 31, 2019.
142
Restricted Stock Units
The following is a summary of restricted stock unit activity for the year ended December 31, 2020:
Unvested balance at December 31, 2019
Granted
Released
Forfeited
Unvested balance at December 31, 2020
Number of
Shares
2,305,408 $
2,587,550
(1,281,968)
(217,565)
3,393,425 $
Weighted
Average Grant
Date Fair
Value
per Share
7.66
3.56
7.96
7.90
4.41
During the year ended December 31, 2020 the Company granted 2,587,550 restricted stock units with a weighted-average grant date fair value per
share of $3.56. During the year ended December 31, 2019 the Company granted 2,275,340 restricted stock units with a weighted-average grant date fair
value per share of $6.01. The aggregate fair value of restricted shares that vested during the years ended December 31, 2020 and 2019 was $10.2 million
and $12.1 million, respectively.
Stock-Based Compensation Expense
For stock options issued to employees and members of the Board of Directors, the Company estimates the grant date fair value of each option using
the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the
expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected
dividend yields of the common stock.
The relevant data used to determine the value of the stock option grants is as follows:
Volatility
Weighted average risk-free interest rate
Expected dividend yield
Expected life of options (in years)
Year Ended December 31,
2020
2019
63.1%
0.9%
0.0%
5.7
63.4%
2.0%
0.0%
5.9
The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations (in thousands):
Research and development expense
Selling, general and administrative expense
Total stock-based compensation expense
Year Ended December 31,
2020
2019
$
$
2,130
8,118
10,248
$
$
3,568
10,727
14,295
Total unrecognized stock-based compensation expense for all stock-based awards was $7.9 million at December 31, 2020. This amount will be
recognized over a weighted-average period of 1.61 years.
2009 Employee Stock Purchase Plan
In June 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 December 31,
2020 and 2019, 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.
143
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 ESPP Share Pool represented 3% of the total number of shares of our common stock
outstanding as of March 31, 2018. 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 was December 1, 2018. As of December 31, 2020, 570,277 shares remained available for issuance under the 2018 ESPP. During the year ended
December 31, 2020, the Company issued 191,371 shares of common stock with proceeds of $0.6 million.
Reserved Shares
At December 31, 2020, the Company has reserved shares of common stock for future issuance as follows:
Equity plans:
Shares subject to outstanding options and unvested
restricted stock units
Shares available for future grants
Shares subject to warrants to purchase common stock
Shares issuable under employee stock purchase plan
Common stock issuable under outstanding convertible
notes
Total
Number of
Shares
5,379,867
2,074,625
479,002
606,816
10,377,361
18,917,671
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. Awards under the plan will vest annually in each tranche of a participant’s award 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
144
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.
The Company will recognize the compensation cost over the requisite service period, to the extent achievement of the performance condition is
deemed probable relative to targeted performance. The performance condition is not yet deemed probable; as such, no amounts were accrued under the
Plan during the years ended December 31, 2020 and December 31, 2019.
16.
Long-Term Debt
R-Bridge Loan Agreement
On December 31, 2020, or the Closing Date, the Company, through its wholly-owned subsidiary PRTK SPV2 LLC, a Delaware limited liability
company, or the Subsidiary, entered into a royalty and revenue interest-backed loan agreement, or the R-Bridge Loan Agreement, with an affiliate of R-
Bridge Healthcare Investment Advisory, Ltd., or the R-Bridge Lender. Pursuant to the terms of the R-Bridge Loan Agreement, the Subsidiary borrowed a
$60.0 million term loan, secured by, and repaid with proceeds from, (i) royalties from the Zai Collaboration Agreement, and such royalties, or the Royalty
Interest, and (ii) a revenue interest based on the Company’s U.S. sales of NUZYRA in an initial amount of two and a half percent (2.5%), which amount
may adjust under certain circumstances up to five percent (5%), of the Company’s net U.S. sales, subject to an annual cap of $10.0 million, which may
adjust under certain circumstances to $12.0 million, or the Revenue Interest.
Under the R-Bridge Loan Agreement, the outstanding principal balance will bear interest at an annual rate of 7.0%, increasing to an annual rate of
10% during the continuance of any event of default. Payments of the obligations outstanding under the R-Bridge Loan Agreement will be made quarterly,
beginning with the payment due in respect of the quarter ending March 31, 2021, out of the Royalty Interest payments and Revenue Interest payments
received by the Subsidiary during such quarter, or the Collection Amount. On each payment date, after payment of certain expenses, the Collection
Amount shall be applied first to accrued interest, with any excess up to $15.0 million per annum applied to repay principal until the balance is fully repaid,
and any shortfalls being capitalized and added to the principal balance of the loan. Amounts in excess of the $15.0 million annual cap shall be shared
between the Company and the R-Bridge Lender based on a formula set out in the R-Bridge Loan Agreement. Following repayment in full of the loan, the
first $15.0 million per annum in Collection Amount shall be paid to the Company and any amounts in excess shall be shared between the Company and the
R-Bridge Lender based on a formula set out in the R-Bridge Loan Agreement.
Prior to the eighth (8th) anniversary of the Closing Date, the R-Bridge Loan Agreement will automatically terminate once the Subsidiary has paid to
the R-Bridge Lender, in the form of regularly scheduled payments or as a voluntary prepayment, a capped amount of $114.0 million, less principal, interest
and certain fee payments through the date of such prepayment, or the Capped Amount. From and after the eighth (8th) anniversary of the Closing Date, the
Revenue Interest can be terminated by payment of the Capped Amount, but the Royalty Interest payments shall continue until maturity of the R-Bridge
Loan Agreement on December 31, 2032, at which time, the outstanding principal amount of the loan, if any, together with any accrued and unpaid interest,
and all other obligations then outstanding, shall be due and payable in cash by the Subsidiary.
145
The Company’s subsidiary, PRTK SPV1 LLC, a Delaware limited liability company and owner of the Subsidiary’s capital stock, has entered into a
Pledge and Security Agreement in favor of the R-Bridge Lender, pursuant to which the Subsidiary’s obligations under the R-Bridge Loan Agreement are
secured by PRTK SPV1 LLC’s pledge of all of the Subsidiary’s capital stock.
The R-Bridge Loan Agreement contains certain customary affirmative covenants, including those relating to: use of proceeds; maintenance of books
and records; financial reporting and notification; compliance with laws; and protection of Company intellectual property. The R-Bridge Loan Agreement
also contains certain customary negative covenants, barring the Subsidiary from: certain fundamental transactions; issuing dividends and distributions;
incurring additional indebtedness outside of the ordinary course of business; engaging in any business activity other than related to the Zai Collaboration
Agreement; and permitting any additional liens on the collateral provided to the R-Bridge Lender under the R-Bridge Loan Agreement. As of December
31, 2020, the Company was in compliance with all covenants under the R-Bridge Loan Agreement.
An ancillary agreement executed by the Company and the Subsidiary in respect of the Revenue Interest, contains negative covenants applicable to
the Company, including restrictions on the sale or transfer of our assets related to NUZYRA and giving rise to the Revenue Interest, each subject to the
exceptions set forth therein.
The R-Bridge Loan Agreement contains customary defined events of default, upon which any outstanding principal, unpaid interest, and other
obligations of the Subsidiary, shall be immediately due and payable by the Subsidiary. These include: failure to pay any principal or interest when due;
failure to the Capped Amount as and when due following a non-qualified change of control of the Company, any uncured breach of a representation,
warranty or covenant; any uncured failure to perform or observe covenants; any uncured breach of our representations, warranties or covenants under an
ancillary agreement executed by the Company and the Subsidiary in respect of the Royalty Interest; any termination of the Zai Collaboration Agreement;
and certain bankruptcy or insolvency events. No events of default had occurred under the R-Bridge Loan Agreement through December 31, 2020.
The Company raised approximately $58.3 million in net proceeds in connection with the R-Bridge Loan Agreement, comprised of the $60.0 million
term loan funded at execution, net of $1.1 million in lender fees accounted for as debt discount and $0.6 million in direct and incremental third-party
expenses accounted for as debt issuance costs. The net proceeds of the term loan, together with cash on hand, was used to prepay in full all obligations
outstanding under the A&R Loan and Security Agreement with Hercules (further defined below).
The Company evaluated the R-Bridge Loan Agreement for embedded derivatives pursuant to ASC 815, Derivatives and Hedging (ASC 815). The
Company determined that the R-Bridge Loan Agreement represents a debt host due to its legal form. The Company concluded that the contingent put
options that could require mandatory repayment upon the occurrence of an event of default, change of control, and certain other events are required to be
bifurcated from the debt host instrument and accounted for separately as derivative instruments. Such features are not clearly and closely related to the debt
host contract and a separate instrument with the same terms would be considered a derivative instrument subject to the requirements of ASC 815. However,
the Company has determined that the fair value of these embedded derivatives is nominal at December 31, 2020 due to the estimated likelihood of the any
of the associated events occurring. All other embedded features are not required to be accounted for separately because they are either clearly and closely
related to the debt host instrument or qualify for a scope exception from ASC 815.
146
The accounting for the R-Bridge Loan Agreement requires the Company to make certain estimates and assumptions, particularly about future
royalties under the Zai Collaboration Agreement and sales of NUZYRA in the U.S. Such estimates and assumptions are utilized in determining the
expected repayment term, amortization period of the debt discount and issuance costs, accretion of interest expense and classification between current and
long-term portions of amounts outstanding. The Company amortizes the debt discount and issuance costs to interest expense over the expected term of the
arrangement using the interest method based on projected cash flows. Similarly, the Company classifies as current debt for the R-Bridge Loan Agreement,
amounts that are expected to be repaid during the succeeding twelve months after the reporting period end. However, the repayment of amounts due under
the R-Bridge Loan Agreement is variable because the cash flows to be utilized for periodic payments is a function of amounts received by the Company
with respect to the Royalty Interest and the Revenue Interest. Accordingly, the estimates of the magnitude and timing of amounts to be available for debt
service are subject to significant variability and thus, subject to significant uncertainty. Therefore, these estimates and assumptions are likely to change,
which may result in future adjustments to the portion of the debt that is classified as a current liability, the amortization of debt discount and issuance costs
and the accretion of interest expense.
The amount of principal to be repaid in each of the five succeeding years is not fixed and determinable.
Other amounts that may become due and payable under the R-Bridge Loan Agreement, including amounts shared between the parties with respect to
cash flows received in excess of pre-defined thresholds, are recognized as additional interest expense when they become probable and estimable.
The following table summarizes the impact of the R-Bridge Loan Agreement on the Company’s consolidated balance sheets at December 31, 2020
(in thousands):
Gross proceeds
Unamortized debt discount and issuance costs
Carrying Value
$
$
60,000
(1,680)
58,320
No interest expense was recognized during the year ended December 31, 2020 due to the timing of deal effectiveness.
Hercules Loan Agreement
On June 27, 2019, the Company entered into an Amended and Restated Loan and Security Agreement, or the A&R Hercules Loan Agreement, with
Hercules Technology III, L.P., certain other lenders, together, the Lenders, and Hercules Capital, Inc. (as agent), under which we could have borrowed up to
$100.0 million in multiple tranches, each, a Term Loan Tranche. The A&R Hercules Loan Agreement amended and restated in its entirety the Company’s
prior Loan and Security Agreement with the Lenders dated as of September 30, 2015. The modified terms under the A&R Hercules Loan Agreement were
not considered substantially different as compared to the terms of the Hercules Loan Agreement immediately prior to the A&R Hercules Loan Agreement,
pursuant to ASC 470-50, Modification and Extinguishment. As such, the A&R Hercules Loan Agreement was accounted for as a debt modification.
In connection with such loan agreements, 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 common stock (32,692 shares of common stock in total) at an exercise price of $24.47 per share and a warrant to purchase
18,574 shares of common stock (37,148 shares of common stock in total) at an exercise price of $13.46 per share. The Company also issued to Hercules
Capital, Inc. a warrant to purchase up to 5,374 shares of common stock at an exercise price of $23.26 per share, as well as a warrant to purchase up to
19,627 shares of common stock at an exercise price of $10.19 per share.
On August 5, 2020, the Company entered into the First Amendment to the A&R Hercules Loan Agreement, or the First Amendment. Concurrently
with the closing of the First Amendment, we repaid a Term Loan Tranche of $10.0 million and paid the Lenders the existing end of term charges equal to
$2.5 million. Following the closing of the First Amendment, $60.0 million of Term Loan Tranches remained outstanding and $30.0 million of additional
Term Loan Tranches remained available to the Company, subject to approval by Hercules, in its sole discretion, whether to provide such tranches. The
First Amendment provided for an additional end of term charge equal to 1.95% of the issued principal balance of the Term Loan Tranches on September 1,
2022 or upon prepayment in addition to the $0.7 million end of term charge from the A&R Hercules Loan agreement that is due on August 1, 2020 or upon
prepayment. The First Amendment increased the cash interest rate with respect to the Term Loan Tranches to a floating per annum rate equal to the greater
of (i) 8.85% or (ii) the prime rate as reported from time to time in The Wall Street Journal plus 5.35%, and provided for the payment of additional “paid-in-
kind” interest by the Company under the First Amendment at a fixed per annum rate equal to 1.55%, compounding monthly and payable at maturity or
upon prepayment.
147
The First Amendment extended the date on which the Company was required to begin making monthly principal installments on the outstanding
Term Loan Tranches from January 1, 2021 to January 1, 2022 (which could have been extended to July 1, 2022 or January 1, 2023, upon certain events set
forth in the First Amendment), and extended the scheduled maturity of the Term Loan Tranches from August 1, 2022 to September 1, 2022 (which could
have been extended to March 1, 2023 or September 1, 2023, upon certain events set forth in the First Amendment).
The First Amendment increased the cash interest rate with respect to the Term Loan Tranches to a floating per annum rate equal to the greater of
(i) 8.85% or (ii) the prime rate as reported from time to time in The Wall Street Journal plus 5.35%, and provided for the payment of additional “paid-in-
kind” interest by the Company under the First Amendment at a fixed per annum rate equal to 1.55%, compounding monthly and payable at maturity or
upon prepayment.
The modified terms under the First Amendment were not considered substantially different as compared to the terms of the A&R Hercules Loan
Agreement immediately prior to the First Amendment, pursuant to ASC 470-50, Modification and Extinguishment. As such, the A&R Hercules Loan
Agreement was accounted for as a debt modification.
In connection with the First Amendment, the Company issued an additional warrant to Hercules Capital, Inc. that is exercisable for a minimum of
up to 407,239 shares of common stock at an exercise price of $4.42 per share.
On December 31, 2020, the Company used the proceeds from the sale of the Royalty Interest and Revenue Interest from the R-Bridge Loan,
together with cash on hand, to prepay in full all obligations outstanding of $62.7 million under the A&R Hercules Loan Agreement. Repayment of all
amounts outstanding under the A&R Hercules Loan Agreement qualified as an extinguishment of debt, under ASC 470-50, Modification and
Extinguishment, on the date the payment was made in satisfaction of all amounts due and we were unconditionally relieved of our obligations therein.
Extinguishment loss is calculated as the difference between the reacquisition price of $62.7 million and the carrying value of the extinguished debt of $60.3
million, net of unamortized debt discount and unamortized debt issuance costs. Accordingly, we recorded a $2.4 million loss on extinguishment of debt as a
component of other income and expenses in our consolidated statements of operations and comprehensive loss during the year ended December 31, 2020.
The loss on extinguishment of debt of $2.4 million consisted of the following: (i) $1.3 million related to end of term fees, (ii) $1.0 million related to the
write-off of unamortized debt discount and (iii) an insignificant amount related to the write-off of unamortized debt issuance costs. Upon repayment, the
A&R Hercules Loan Agreement was terminated pursuant to which the Company was unconditionally released from all obligations thereunder. In
connection with the termination of the A&R Hercules Loan Agreement, the $30.0 million of additional Term Loan Tranches is no longer available to the
Company.
The following table summarizes the impact of the A&R Hercules Loan Agreement on the Company’s consolidated balance sheets at December 31,
2019 (in thousands):
Gross proceeds
Unamortized debt discount costs
Carrying Value
$
$
70,000
(361)
69,639
Debt issuance costs are presented on the consolidated balance sheet as a direct deduction from the related debt liability rather than capitalized as an
asset in accordance with ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
The Company recognized interest expense of $7.3 million and $6.8 million on the A&R Hercules Loan for the years ended December 31, 2020 and
2019, respectively.
148
Convertible Senior Subordinated Notes
On April 18, 2018, the Company entered into a Purchase Agreement, or the Purchase Agreement, with several initial purchasers, or the Initial
Purchasers, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Leerink Partners LLC acted as representatives, relating to the sale of $135.0
million aggregate principal amount of 4.75% Convertible Senior Subordinated Notes due 2024, or the Notes, to the Initial Purchasers. The Company also
granted the Initial Purchasers an option to purchase up to an additional $25.0 million aggregate principal amount of Notes, which was exercised in full on
April 20, 2018.
The Purchase Agreement includes customary representations, warranties and covenants. Under the terms of the Purchase Agreement, the Company
agreed to indemnify the Initial Purchasers against certain liabilities.
In addition, J. Wood Capital Advisors LLC, the Company’s financial advisor, purchased $5.0 million aggregate principal amount of Notes in a
separate, concurrent private placement on the same terms as other investors.
The Notes were issued by the Company on April 23, 2018, pursuant to an Indenture, dated as of such date, or the Indenture, between the Company
and U.S. Bank National Association, as trustee, or the Trustee. The Notes bear cash interest at the annual rate of 4.75%, payable on November 1 and May 1
of each year, beginning on November 1, 2018, and mature on May 1, 2024 unless earlier repurchased, redeemed or converted. The Company will settle
conversions of the Notes through delivery of shares of common stock of the Company, in accordance with the terms of the Indenture. The initial conversion
rate for the Notes is 62.8931 shares of common stock (subject to adjustment as provided for in the Indenture) per $1,000 principal amount of the Notes,
which is equal to an initial conversion price of approximately $15.90 per share, representing a conversion premium of approximately 20% above the
closing price of the common stock of $13.25 per share on April 18, 2018.
Holders of the Notes may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at their option at any time prior to the
close of business on the second scheduled trading day immediately preceding the stated maturity date.
The Company may not redeem the Notes prior to May 6, 2021. The Company may redeem for cash all or part of the Notes, at its option, on or after
May 6, 2021 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20
trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and
including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the
principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
If the Company experiences a fundamental change, as described in the Indenture, prior to the maturity date of the Notes, holders of the Notes will,
subject to specified conditions, have the right, at their option, to require the Company to repurchase for cash all or a portion of their Notes at a repurchase
price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but not including, the fundamental
change repurchase date. In addition, following certain corporate events that occur prior to the maturity date of the Notes and following a notice of
redemption of the notes, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event
or redemption.
The Indenture provides for customary events of default. In the case of an event of default with respect to the Notes arising from specified events of
bankruptcy or insolvency, all outstanding Notes will become due and payable immediately without further action or notice. If any other event of default
with respect to the Notes under the Indenture occurs or is continuing, the Trustee or holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare the principal amount of the Notes to be immediately due and payable.
In certain circumstances if, at any time during the six-month period beginning on, and including, the date that is six months after the last date of
original issuance of the Notes, the Company fails to timely file certain documents or reports required under the Securities Exchange Act of 1934, as
amended, or the Notes are not otherwise freely tradable by holders of the Notes other than the Company’s affiliates or holders that were the Company’s
affiliates at any time during the three months immediately preceding, additional interest will accrue on the Notes during the first 90-day period in which its
failure to file has occurred and is continuing or such Notes are not otherwise freely tradable by holders other than the Company’s affiliates (or holders that
were the Company’s affiliates at any time during the three months immediately preceding).
After deducting costs incurred of $6.0 million, the Company raised net proceeds from the issuance of long-term convertible debt of $159.0 million
in April 2018. All costs were deferred and are being amortized over the life of the Notes at an effective interest rate of 5.47% and recorded as additional
interest expense.
149
The Company has evaluated the Indenture for derivatives pursuant to ASC 815, Derivatives and Hedging, or ASC 815, and identified an embedded
derivative that requires bifurcation as the feature is not clearly and closely related to the host instrument. The embedded derivative is a default provision,
which could require additional interest payments. The Company has determined that the fair value of this embedded derivative was nominal during the year
ended December 31, 2020.
The Company evaluated the conversion feature and determined it was not within the scope of ASC 815 and therefore is not required to be accounted
for separately. The Company concluded that the embedded conversion option is not subject to separate accounting pursuant to either the cash conversion
guidance or the beneficial conversion feature guidance. Under the general conversion guidance in ASC 470, Debt, all of the proceeds received from the
Notes was recorded as a liability on the consolidated balance sheet.
The following table summarizes how the issuance of the Notes is reflected in the Company’s consolidated balance sheets at December 31, 2020 and
2019 (in thousands):
Year Ended December 31,
2019
2020
Gross proceeds
Unamortized debt discount costs
Carrying Value
$
$
165,000
$
(3,578)
$
161,422
165,000
(4,531)
160,469
Debt issuance costs are presented on the consolidated balance sheet as a direct deduction from the related debt liability rather than capitalized as an
asset in accordance with ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
The Company recognized coupon interest expense of $7.8 million and amortization expense on the debt issuance costs of $1.0 million on the Notes
for the year ended December 31, 2020. The Company recognized coupon interest expense of $7.8 million and amortization expense on the debt issuance
costs of $0.9 million on the Notes for the year ended December 31, 2019.
Royalty-Backed Loan Agreement
On February 25, 2019, the Company, through its wholly-owned subsidiary Paratek Royalty Corporation, or the Subsidiary, entered into a royalty-
backed loan agreement, or the Royalty-Backed Loan Agreement, with Healthcare Royalty Partners III, L.P., or the HCRP Lender. Pursuant to the terms of
the Royalty-Backed Loan Agreement, the Subsidiary borrowed a $32.5 million loan, which was secured by, and is being repaid based upon, royalties from
the Almirall Collaboration Agreement. On May 1, 2019, the Company received $27.8 million, net of $0.5 million lender discount, $0.2 million in lender
expenses incurred, and $4.0 million that was deposited into an interest reserve account. The Company also paid $1.2 million in other lender fees related to
the Royalty-Backed Loan Agreement.
Under the Royalty-Backed Loan Agreement, the outstanding principal balance will bear interest at an annual rate of 12.0%. Payments of interest
under the Royalty-Backed Loan Agreement will be made quarterly, beginning in August 2019, using the Almirall Collaboration Agreement royalty
payments received since the immediately preceding payment date. On each interest payment date, any royalty payments in excess of accrued interest on the
loan will be used to repay the principal of the loan until the balance is fully repaid. In addition, the Subsidiary will make up-front payments to the HCRP
Lender of (i) a 1.5% fee and (ii) up to $300,000 for the HCRP Lender’s expenses. The Royalty-Backed Loan Agreement matures on May 1, 2029, at which
time, if not earlier repaid in full, the outstanding principal amount of the loan, together with any accrued and unpaid interest, and all other obligations then
outstanding, shall be due and payable in cash. The Company has entered into a Pledge and Security Agreement in favor of the HCRP Lender, pursuant to
which the Subsidiary’s obligations under the Royalty-Backed Loan Agreement are secured by a pledge of all of the Company’s holdings of the Subsidiary’s
capital stock.
The Royalty-Backed Loan Agreement contains certain customary affirmative covenants, including those relating to: use of proceeds; maintenance of
books and records; financial reporting and notification; compliance with laws; and protection of Company intellectual property. The Royalty-Backed Loan
Agreement also contains certain customary negative covenants, barring the Subsidiary from: certain fundamental transactions; issuing dividends and
distributions; incurring additional indebtedness outside of the ordinary course of business; engaging in any business activity other than related to the
Almirall Collaboration Agreement; and permitting any additional liens on the collateral provided to HCRP Lender under the Royalty-Backed Loan
Agreement.
The Royalty-Backed Loan Agreement contains customary defined events of default, upon which any outstanding principal and unpaid interest shall
be immediately due and payable. These include: failure to pay any principal or interest when due; any uncured breach of a representation, warranty or
covenant; any uncured failure to perform or observe covenants; any uncured cross default
150
under a material contract; any uncured breach of the Company’s representations, warranties or covenants under its Contribution and Servicing Agreement
with the Subsidiary; any termination of the Almirall Collaboration Agreement; and certain bankruptcy or insolvency events.
The following table summarizes the impact of the Royalty-Backed Loan Agreement on the Company’s consolidated balance sheets for the years
ended December 31, 2020 and December 31, 2019 (in thousands):
Gross proceeds
Unamortized debt discount costs
Carrying Value
Year Ended December 31,
2020
2019
$
$
32,500
$
(1,768)
$
30,732
32,500
(1,880)
30,620
Debt issuance costs are presented on the consolidated balance sheet as a direct deduction from the related debt liability rather than capitalized as an
asset in accordance with ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
The Company recognized interest expense of $4.0 million and $2.7 million on the Royalty-Backed Loan for the years ended December 31, 2020 and
2019, respectively.
Long-term debt on the Company’s consolidated balance sheets at December 31, 2020 includes the carrying value of the R-Bridge Loan Agreement,
the Notes and the Royalty-Backed Loan Agreement. Long-term debt on the Company’s consolidated balance sheets at December 31, 2019 includes the
carrying value of the A&R Hercules Loan Agreement, the Notes and the Royalty-Backed Loan Agreement.
17.
Income Taxes
Loss before income taxes consists of the following:
(in thousands)
United States
Foreign
Total
The components of income tax expense consist of the following:
(in thousands)
Foreign
Total
Year Ended December 31,
2020
2019
(96,541) $
—
(96,541) $
(120,302)
(8,187)
(128,489)
Year Ended December 31,
2020
2019
— $
— $
301
301
$
$
$
$
There is no provision for income taxes in the U.S. because the Company has historically incurred net operating losses and maintains a full valuation
allowance against its net deferred tax assets. The provision for income taxes in foreign jurisdictions relate to withholding taxes incurred in connection with
the Zai Collaboration Agreement. The reported amount of income tax expense for the years differs from the amount that would result from applying
domestic federal statutory tax rates to pretax losses primarily because of changes in valuation allowance.
151
A reconciliation of the Company’s effective tax rate to the statutory federal income tax rate is as follows:
Federal statutory rate
Change in valuation allowance
Non-deductible interest
Stock compensation
Permanent differences
State taxes, net of federal benefits
Withholding tax
Foreign rate differential
Federal R&D credits
Other
Year Ended December 31,
2020
2019
21.00%
(14.95)
(1.91)
(2.72)
(1.20)
(0.86)
—
—
0.64
—
0.00%
21.00%
(20.43)
(1.43)
(3.00)
(0.03)
4.07
(0.23)
(1.34)
1.06
0.10
(0.23)%
Significant components of the Company’s net deferred tax assets at December 31, 2020 and 2019 are as follows:
(in thousands)
Non-current deferred tax assets
Net operating losses
Accrued expenses
Capitalized research and development
Tax credit carryforwards
Stock compensation and other
Total non-current deferred tax assets
Non-current deferred tax liabilities
Right of use assets
Total non-current deferred tax liabilities
Net non-current deferred tax asset
Less: valuation allowance
Net deferred tax asset
Year Ended December 31,
2020
2019
$
$
147,305 $
2,480
12,446
13,968
5,931
182,130
(486)
(486)
181,644
(181,644)
— $
125,341
2,869
17,195
13,413
9,043
167,861
(668)
(668)
167,193
(167,193)
—
As of December 31, 2020, the Company had federal and state net operating loss carryforwards of $574.7 million and $422.7 million, respectively,
which begin to expire in 2024 and 2034, respectively. The Company's federal and state net operating losses include $294.9 million and $65.4 million,
respectively, which can be carried forward indefinitely.
As of December 31, 2020, the Company had federal and state research and development tax credits carryforwards of $12.4 million and $2.0 million,
respectively, which begin to expire in 2020.
Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are
composed principally of net operating loss carryforwards and research and development credits. Under the applicable accounting standards, management
has considered the Company's history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and
state deferred tax assets. Accordingly, a full valuation allowance of $181.6 million and $167.2 million, respectively, was established as of December 31,
2020 and 2019. A change in the Company's valuation allowance was recorded in 2020, in the amount of $14.5 million due primarily to the generation of
net operating losses.
Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, due to ownership change limitations that have occurred previously or that could
occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be
utilized annually to offset future taxable income and tax, respectively.
The Company conducted an analysis under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, to determine if historical
changes in ownership through December 31, 2017 would limit or otherwise restrict its ability to utilize its net operating loss and research and development
credit carryforwards. As a result of that study, the Company has identified certain net operating losses that might expire unused. The Company has
established a full valuation allowance against these attributes.
152
The Company follows the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes—an interpretation of ASC 740, which requires it
to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of
litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in
the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with
the relevant taxing authority.
The Company completed a study of its research and development credits through December 31, 2017. As a result of this study the Company
adjusted its deferred tax asset related to research and development credit carryforwards. The Company has not identified or recorded any uncertain tax
positions related to this study. A full valuation allowance has been provided against the Company’s research and development credits, and if an adjustment
is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheets
or statements of operations if an adjustment were required.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company
is subject to examination by federal and state jurisdictions, where applicable. The earliest tax years that remain subject to examination by jurisdiction is
2017 for both federal and Massachusetts. However, to the extent the Company utilizes net operating losses from years prior to 2017, the statute remains
open to the extent of the net operating losses or other credits are utilized. The Company’s policy is to record interest and penalties related to income taxes
as part of the tax provision. There was no interest or penalties pertaining to uncertain tax positions in 2020 or 2019.
18.
Commitments and Contingencies
Leases
Boston, Massachusetts and King of Prussia, Pennsylvania
The Company leases its Boston, Massachusetts and King of Prussia, Pennsylvania office spaces under non-cancelable operating leases expiring in
August 2021 and 2024, respectively.
The Company entered into the original King of Prussia and Boston leases in January 2015 and April 2015, respectively. The lease terms under the
original agreements were for six and four years, respectively. Each agreement had one renewal option for an extended term. The King of Prussia and
Boston lease terms under the original agreements began in June 2015 and July 2015, respectively.
The Company executed an amended lease agreement on its Boston office space in July 2016. The amended lease agreement added 4,153 rentable
square feet of office space and extended the original lease term by two years. In accordance with the amended lease agreement, the Company paid a
security deposit of $0.1 million. Subsequent to the amended lease agreement, the Company records monthly lease expense of approximately $49,000 for
the Boston office space. In applying the ASC 842 transition guidance, the Company retained the classification of this lease to be operating and recorded a
lease liability and a right-of-use asset on the ASC 842 effective date.
The Company executed an amended lease agreement on its King of Prussia office space in October 2016. The amended lease agreement is for
19,708 rentable square feet of office space and the Company took control of this office space during the first quarter of 2017. The total lease commitment is
over a seven-year and seven-month lease term. The amended lease agreement contains rent escalation and a partial rent abatement period, which is
accounted for as rent expense under the straight-line method. In applying the ASC 842 transition guidance, the Company retained the classification of this
lease to be operating and recorded a lease liability and a right-of-use asset on the ASC 842 effective date.
CIPAN
In November 2016, the Company entered into a manufacturing and services agreement, or MSA, with CIPAN – Companhia Industrial Produtora de
Antibióticos, or CIPAN, which was later amended and restated in April of 2018, and further amended and restated in February 2019, December 2019, July
2020, and December 2020, collectively, the CIPAN Agreements. The CIPAN Agreements provide the terms and conditions under which CIPAN will
manufacture and supply to the Company increased quantities of minocycline starting material and crude omadacycline, or the CIPAN Products, for
purification into omadacycline and, subsequently, for use in the Company’s products that contain omadacycline tosylate as the active pharmaceutical
ingredient.
Additionally, the CIPAN Agreements included an investment by the Company in a new facility area to increase the manufacturing capacity for
production of crude omadacycline. The Company was required to make advance payments to CIPAN upon completion of certain milestones within the
CIPAN Agreements.
153
The term of the CIPAN Agreements will continue throughout the term that the Company receives benefit from the new facility area. The Company
may renew the CIPAN Agreements for additional periods and can terminate the CIPAN Agreements at any time by delivery, within a certain time period, of
prior written notice to CIPAN. Following the first renewal term, CIPAN may terminate the MSA in its entirety by delivery, within a certain time period, of
prior written notice to the Company.
Under the CIPAN Agreements, the Company will purchase product in batches from CIPAN in quantities to be set forth on purchase orders submitted
to CIPAN, within a certain time period, prior to the requested date of delivery. The Company will provide CIPAN with a rolling forecast with a best
estimate of the quantities that will be ordered each month. The quantities of product forecasted for each forecast are binding obligations to purchase from
CIPAN. Upon execution of the CIPAN Agreements, the Company determined that the CIPAN Agreements contain an embedded lease because the
Company has the right to direct the use of the facility and related equipment therein. Further, the Company determined that it did not control the facility or
related equipment during construction and, thus, the lease did not fall in the scope of “build-to-suit” accounting. The lease commenced during the fourth
quarter of 2020, the point at which the new facility area and the related equipment was available for use by the Company. Accordingly, during the year
ended December 31, 2020, the Company recorded a right-of-use asset of $0.4 million, adjusted for the advance payments, and a lease liability of
$0.3 million.
For the year ended December 31, 2020, the Company recorded insignificant operating lease costs related CIPAN embedded lease. The operating
lease costs of the embedded lease were included in inventories, net on the Company’s consolidated balance sheet.
The following table contains a summary of the lease costs recognized under Topic 842 and other information pertaining to the Company’s operating
leases for year ended December 31, 2020:
Lease cost (in thousands)
Operating lease cost
Variable lease cost
Total lease cost
Cash paid for amounts included in the measurement of lease liabilities:
Other information
Weighted average remaining lease term (in years)
Weighted average discount rate
$
$
$
1,120
131
1,251
1,178
3.0
8.75%
Amounts above include an insignificant amount of lease costs associated with our CIPAN embedded lease arrangement for the year ended
December 31, 2020, which have been capitalized into inventory as part of the cost of product being manufactured at the site.
Future minimum operating lease obligations under non-cancelable operating leases with initial terms of more than one-year as of December 31,
2020, are as follows:
Maturity of lease liabilities (in thousands)
2021
2022
2023
2024 and thereafter
Total lease payments
Less: imputed interest
Total operating lease liabilities
$
$
$
1,241
508
518
396
2,663
(292)
2,371
The total operating liability is presented on the Company’s consolidated balance sheet based on maturity dates. $0.8 million of the total operating
liabilities is classified under “Other Current Liabilities” for the portion due within twelve months, and $1.5 million is classified under “Long-Term Lease
Liability”.
Commercial Supply Agreements
CIPAN
154
In November 2016, the Company entered into a manufacturing and services agreement with CIPAN – Companhia Industrial Produtora de
Antibióticos, or CIPAN. The agreement, as subsequently amended, provides the terms and conditions under which CIPAN will manufacture and supply to
the Company increased quantities of minocycline starting material and crude omadacycline, or the CIPAN Products, for purification into omadacycline and,
subsequently, for use in the Company’s products that contain omadacycline tosylate as the active pharmaceutical ingredient. Under this agreement, the
Company is obligated to pay a CIPAN Product price in the four-digit U.S. dollar range per kilogram for minocycline starting material and in the four-digit
or five-digit U.S. dollar range per kilogram for crude omadacycline, based on the annual volume of crude omadacycline that the Company orders, subject
to adjustments as set forth in the agreement. In April 2018, the Company entered into an amended and restated manufacturing and services agreement with
CIPAN, which included an investment by the Company in a new facility area to increase the manufacturing capacity for production of crude omadacycline.
CIPAN will also perform certain services related to development, technology transfer and manufacturing of the CIPAN Products as provided in one or more
statements of work, which shall set forth the fees payable by the Company to CIPAN for such services.
The Company’s agreement with CIPAN will remain in effect for an initial term, as extended, after which the agreement will continue, with respect
to each CIPAN Product, for successive renewal terms unless either the Company or CIPAN have given written notice of termination within a certain period
prior to the expiration of either the initial or then-current renewal term. The agreement may also be terminated under certain other circumstances, including
by either party due to a material uncured breach by the other party or the other party’s insolvency.
Carbogen
In December 2016, the Company entered into a manufacturing and services agreement with CARBOGEN AMCIS AG, or Carbogen. The
agreement, as subsequently amended, provides for the terms and conditions under which Carbogen will manufacture and supply to the Company the active
pharmaceutical ingredient for our omadacycline drug products in bulk quantities, or the Carbogen Product. Under this agreement, the Company is
responsible for the cost and supply of crude omadacycline that Carbogen requires to manufacture the Carbogen Products and perform related services. The
Company is obligated to pay Carbogen an amount in the seven-digit U.S. dollar range per campaign of Carbogen Product that the Company orders,
depending on the number of batches in the campaign, and the price may be adjusted in accordance with the terms of the agreement. The Company may also
request that Carbogen perform certain services related to the Carbogen Product, for which the Company will pay reasonable compensation to Carbogen.
The Company’s agreement with Carbogen will remain in effect for a fixed initial term and subsequent renewal terms. Both parties, however, are
required to use diligent efforts to replace the existing agreement with a subsequent long-term agreement. The Company may terminate this agreement by
delivering notice of termination to Carbogen. The agreement may also be terminated under certain other circumstances, including by either party due to a
material uncured breach by the other party or the other party’s insolvency.
Almac
In December 2016, the Company entered into a manufacturing and services agreement with Almac Pharma Services Limited, or Almac. The
agreement, as subsequently amended, provides for the terms and conditions under which Almac will manufacture, package and supply to the Company
omadacycline oral solid dosage tablets in bulk form, or the Almac Products. Under this agreement, the Company is required to use commercially
reasonable efforts to timely provide Almac with the active pharmaceutical ingredient needed to manufacture the Almac Products and perform related
services. The Company is obligated to pay a supply price in the five-digit range in Great Britain Pounds per batch of the Almac Products, subject to
adjustments as provided in the agreement. The Company is also subject to an annual minimum revenue commitment in the six-digit GBP range. The
Company will also negotiate with Almac, as part of each individual scope of work, the reasonable costs for the services to be performed for the Company
by Almac.
Each of the Company’s agreements with Almac will remain in effect for a fixed initial term, after which each agreement will continue for
successive renewal terms unless either the Company or Almac have given written notice of termination within a certain period prior to the expiration of the
initial or then-current renewal term. The manufacturing agreement may also be terminated under certain other circumstances, including by either party due
to a material uncured breach of the other party or the other party’s insolvency.
Patheon
155
In July 2017, the Company entered into a master manufacturing services agreement and corresponding product agreement with Patheon UK
Limited, or Patheon. The agreements, as subsequently amended, provide for the terms and conditions under which Patheon will manufacture, package and
supply to the Company, omadacycline in injectable form, or the Patheon Products. Under these agreements, the Company is required to deliver to Patheon
the active pharmaceutical ingredient needed to manufacture the Patheon Products. The Company is obligated to pay a supply price in the six-digit dollar
range per batch of the Patheon Products, subject to adjustments as provided in the agreements. Now that the Company’s omadacycline product has been
approved, the Company is also subject to an annual minimum purchase requirement in the six-digit U.S. dollar range. If the Company desires for Patheon
to conduct additional services other than those expressly set forth in the agreements, those would be subject to additional fees.
The Company’s agreements with Patheon will remain in effect for a fixed initial term, after which they will continue for successive renewal terms
unless either the Company or Patheon have given written notice of termination within a certain period prior to the expiration of the applicable initial or
then-current renewal term. The agreements may also be terminated under certain other circumstances, including by either party due to a material uncured
breach of the other party or the other party’s insolvency.
Litigation
The following pending litigation was assumed through the Merger.
Patent Term Adjustment Suit
In January 2013, the Company filed suit in the Eastern District of Virginia against the U.S. Patent and Trademark Office, or the USPTO, seeking
recalculation of the patent term adjustment of the ’131 Patent. Purdue Pharma has agreed to bear the costs and expenses associated with this litigation. In
June 2013, the judge granted a joint motion to stay the proceedings pending a remand to the USPTO, in which the USPTO is expected to reconsider its
patent term adjustment award in light of decisions in a number of appeals to the Federal Circuit, including Novartis AG v. Lee 740 F.3d 593 (Fed. Cir.
2014), or the Novartis decision. Since having issued final rules implementing the Novartis decision, the USPTO has been working through the civil action
cases and issuing remand decisions. The Company’s case was on remand until the USPTO made its decision on the recalculation of the patent term
adjustment. On September 28, 2016, the USPTO issued a decision that the patent term adjustment is 1,038 days, from which the ‘131 Patent expiration
would be March 26, 2029.
Other Legal Proceedings
From time to time the Company is involved in legal proceedings arising in the ordinary course of business. The Company believes there is no other
litigation pending that could have, individually, or in the aggregate, a material adverse effect on its results of operations or financial condition. The
Company does not believe that any of the above matters will result in a liability that is probable or estimable at December 31, 2020.
19.
401(k) Savings Plan
The Company maintains a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code, or the 401(k) Plan. The 401(k)
Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation
on a pretax basis. The Plan provides for matching contributions on a portion of participant contributions pursuant to the 401(k) Savings Plan’s matching
formula. All matching contributions and participant contributions vest immediately. Contributions totaled $0.8 million and $0.9 million for the years ended
December 31, 2020 and 2019, respectively and have been recorded in the consolidated statements of operations.
156
20. Quarterly Results (Unaudited)
Revenue
Operating expenses
Loss from operations
Other expense, net
Provision for income tax
Net loss
Net loss per share - basic and diluted
Revenue
Operating expenses
Loss from operations
Other expense, net
Provision for income tax
Net loss
Net loss per share - basic and diluted
March 31,
2020
June 30,
2020
September 30,
2020
December 31,
2020
Three Months Ended
(in thousands, except per share data)
(unaudited)
7,920 $
31,498
(23,578)
(4,039)
—
(27,617) $
(0.66) $
9,326 $
27,772
(18,446)
(4,613)
—
(23,059)
(0.53)
$
$
13,659 $
29,606
(15,947)
(4,908)
—
(20,855) $
(0.46) $
16,019
33,552
(17,533)
(7,477)
—
(25,010)
(0.54)
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
Three Months Ended
(in thousands, except per share data)
(unaudited)
1,598 $
34,914
(33,316)
(2,294)
—
(35,610) $
(1.10) $
2,045 $
32,166
(30,121)
(3,080)
—
(33,201)
(1.02)
$
$
3,934 $
32,944
(29,010)
(3,604)
—
(32,614) $
(1.00) $
8,967
32,149
(23,182)
(3,882)
301
(27,365)
(0.81)
$
$
$
$
$
$
157
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation as of the end of the period covered by this Annual Report on Form 10-K, under the supervision and with the
participation of our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and
procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to
our management, including the Chief Executive Officer and the Principal Financial and Accounting Officer, to allow timely decisions regarding required
disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objective. Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that, as of December 31,
2020, the design and operation of our disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Principal Financial and Accounting Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policy or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and
Principal Financial and Accounting Officer, management has conducted an evaluation of the effectiveness of our internal control over financial reporting as
of December 31, 2020 based upon the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework). Based on this evaluation, management, including our Chief Executive Officer and Principal Financial and Accounting
Officer, has concluded that our internal control over financial reporting was effective as of December 31, 2020.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal
quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
None.
158
The information required by Part III is omitted from this report because we will file a definitive proxy statement within 120 days after the end of our
2020 fiscal year pursuant to Regulation 14A for our 2021 Annual Meeting of Stockholders, or the 2021 Proxy Statement, and the information to be
included in the 2021 Proxy Statement is incorporated herein by reference.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item will be contained in the 2021 Proxy Statement and is hereby incorporated by reference.
Code of Business Conduct and Ethics
Our Board of Directors has adopted a code of business conduct and ethics. The code of business conduct and ethics applies to all of our employees,
officers and directors. The full texts of our code of business conduct and ethics are posted on our website at http://www.paratekpharma.com under the
Investor Relations section. We intend to disclose future amendments to our code of business conduct and ethics, or certain waivers of such provisions, at
the same location on our website identified above and also in public filings. The inclusion of our website address in this report does not include or
incorporate by reference the information on our website into this report.
Item 11.
Executive Compensation
The information required by this item will be contained in the 2021 Proxy Statement and is hereby incorporated by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be contained in the 2021 Proxy Statement and is hereby incorporated by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be contained in the 2021 Proxy Statement and is hereby incorporated by reference.
Item 14.
Principal Accountant Fees and Services
The information required by this item will be contained in the 2021 Proxy Statement and is hereby incorporated by reference.
159
Item 15.
Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
PART IV
See Index to Financial Statements under Item 8 of Part II of this Annual Report on Form 10-K, which listing is incorporated herein by reference.
(a)(2) Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or are not required or the information required to be set forth therein is
included in the Financial Statements or notes thereto.
(a)(3) Exhibits
160
Exhibit
No.
2.1
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
10.1A+
10.1B+
Exhibit Description
Agreement and Plan of Merger and
Reorganization by and among Transcept
Pharmaceuticals, Inc., Tigris Merger Sub,
Inc., Tigris Acquisition Sub, LLC and
Paratek Pharmaceuticals, Inc. dated as of
June 30, 2014.
Amended and Restated Certificate of
Incorporation.
Certificate of Amendment to the Amended
and Restated Certificate of Incorporation.
Certificate of Elimination of Series A Junior
Participating Preferred Stock.
Amended and Restated Bylaws.
Specimen Common Stock Certificate.
Form of Warrant Agreement issued to
Hercules Technology II, L.P. and Hercules
Technology III, L.P.
Form of Warrant Agreement issued to
Hercules Capital, Inc.
Warrant Agreement issued to Hercules
Capital, Inc.
Warrant, dated as of April 7, 2014, issued to
HBM Healthcare Investments (Cayman) Ltd.
Warrant, dated as of April 18, 2014 issued to
K/S Danish BioVenture.
Warrant, dated as of April 7, 2014 issued to
Omega Fund III, L.P.
Indenture, dated as of April 23, 2018, by and
between the Company and U. S. Bank
National Association (including the form of
the 4.75% Convertible Senior Subordinated
Note due 2024).
Form of 4.75% Convertible Senior
Subordinated Note due 2024 (included in
Exhibit 4.9)
Description of Securities
Warrant Agreement, dated as of August 5,
2020 issued to Hercules Capital, Inc.
2006 Incentive Award Plan, as amended and
restated.
Form of Stock Option Grant Notice and
Stock Option Agreement under 2006
Incentive Award Plan.
EXHIBIT INDEX
Incorporated by Reference
Schedule/
Form
Form 8-K
File Number
Exhibit
Filing Date
001-36066
2.1
July 1, 2014
Form 8-K
001-36066
Form 8-K
001-36066
Form 8-K
001-36066
Form 8-K
Form S-3
Form 8-K
001-36066
333-201458
001-36066
Form 8-K
001-36066
Form 10-Q
001-36066
3.1
3.2
3.1
3.1
4.2
4.1
4.1
4.5
October 31, 2014
October 31, 2014
July 24, 2015
April 16, 2015
January 12, 2015
December 13, 2016
June 29, 2017
August 2, 2018
Form 10-K
001-36066
10.22
April 2, 2015
Form 10-K
001-36066
10.23
April 2, 2015
Form 10-K
001-36066
10.24
April 2, 2015
Form 8-K
001-36066
4.1
April 23, 2018
Form 8-K
001-36066
4.1
April 23, 2018
Form 10-K
Form 10-Q
001-36066
4.11
March 10, 2020
001-36066
4.9
August 10, 2020
Form 10-K
001-36066
10.1A
March 9, 2016
Form S-8
333-172041
99.2
February 3, 2011
161
Exhibit
No.
10.1C+
10.2+
10.3+
10.4A+
10.4B+
10.5A+
10.5B+
10.6A+
10.6B+
10.6C+
10.7A+
10.7B+
10.7C+
10.7D+
10.7E+
10.7F+
10.8+
10.9*+
Exhibit Description
Form of Restricted Stock Unit Award Grant
Notice and Restricted Stock Unit Award
Agreement under the 2006 Incentive Award
Plan, as amended.
2009 Employee Stock Purchase Plan.
2018 Employee Stock Purchase Plan, as
amended.
2014 Equity Incentive Plan, as amended.
Form of Option Agreement under the 2014
Equity Incentive Plan, as amended.
2015 Inducement Plan.
Form of Stock Option Grant Notice and
Option Agreement under the 2015
Inducement Plan.
Paratek Pharmaceuticals, Inc. 2017
Inducement Plan, as amended
Form of Stock Option Grant Notice and
Option Agreement under the 2017
Inducement Plan.
Form of Restricted Stock Unit Grant Notice
and Restricted Stock Unit Award Agreement
under the 2017 Inducement Plan.
2015 Equity Incentive Plan
Form of Stock Option Grant Notice and
Option Agreement under the 2015 Equity
Incentive Plan
Form of Restricted Stock Unit Grant Notice
and Restricted Stock Unit Award Agreement
under the 2015 Equity Incentive Plan.
Form of Leadership Team Restricted Stock
Unit Grant Notice and Restricted Stock Unit
Award Agreement under the 2015 Equity
Incentive Plan.
Form of Director Restricted Stock Unit Grant
Notice and Restricted Stock Unit Award
Agreement under the 2015 Equity Incentive
Plan.
Form of Director Stock Option Grant Notice
and Option Agreement under the 2015
Equity Incentive Plan.
Paratek Pharmaceuticals, Inc. Annual
Incentive Plan.
Non-Employee Director Compensation
Policy.
Schedule/
Form
Form 8-K
Form 8-K
Form 10-Q
Form S-8
Form S-8
Form 8-K
Form 8-K
Incorporated by Reference
File Number
Exhibit
Filing Date
001-36066
10.1
February 10, 2015
000-51967
10.1
June 9, 2009
001-36066
10.4
November 6, 2018
333-201204
333-201204
4.1
4.2
December 22, 2014
December 22, 2014
001-36066
10.2
February 10, 2015
001-36066
10.3
February 10, 2015
Form 8-K
001-36066
10.1
October 18, 2018
Form 8-K
001-36066
10.2
June 16, 2017
Form 8-K
001-36066
10.3
June 16, 2017
Form S-8
Form S-8
333-205482
99.5
July 2, 2015
333-205482
99.6
July 2, 2015
Form S-8
333-205482
99.7
July 2, 2015
Form 8-K
001-36066
10.1
August 4, 2017
Form 10-K
001-36066
10.6E
March 6, 2018
Form 10-K
001-36066
10.6F
March 6, 2018
Form 8-K
001-36066
10.4
June 16, 2017
162
Exhibit
No.
10.10A+
10.10B+
10.11+
10.12†
10.13†
10.14*^
10.15
10.16†
10.19+
10.20+
10.21+
10.22
10.23
10.24
Exhibit Description
Revenue Performance Incentive Plan
Form of Award Agreement under the
Revenue Performance Incentive Plan
Form of Indemnification Agreement between
the Company, its executive officers and
directors.
Collaborative Research and License
Agreement by and between the Company and
Warner Chilcott, dated as of July 2, 2007.
License and Collaboration Agreement by and
between Paratek Bermuda Ltd. and Zai Lab
(Shanghai) Co., Ltd., dated April 21, 2017.
License Agreement by and between the
Company and Tufts University dated as of
February 1, 1997, as amended.
Amendment No. 10, dated as of March 21,
2017, to the License Agreement by and
between the Company and Tufts University
Amendment No. 11, dated as of November
15, 2017, to the License Agreement by and
between the Company and Tufts University
Amended and Restated Employment
Agreement, by and between the Company
and Michael F. Bigham, dated as of June 25,
2019.
Amended and Restated Employment
Agreement, by and between the Company
and Evan Loh, M.D., dated as of June 25,
2019.
Amended and Restated Employment
Agreement, by and between the Company
and Adam Woodrow, dated as of June 25,
2019.
Amended and Restated Employment
Agreement, by and between the Company
and William M. Haskel, dated as of August
4, 2017.
Stock Purchase Agreement dated October 1,
2015, by and between Paratek
Pharmaceuticals, Inc. and Hercules
Technology Growth Capital, Inc.
Boston Lease Agreement between Paratek
Pharma LLC and TDC Heritage LLC, dated
as of April 24, 2015, as amended.
Incorporated by Reference
Schedule/
Form
Form 8-K
Form 8-K
File Number
Exhibit
Filing Date
001-36066
001-36066
10.1
10.2
October 4, 2018
October 4, 2018
Form 10-K
001-36066
10.8
March 9, 2016
Form 10-K
001-36066
10.16
April 2, 2015
Form 10-Q
001-36066
10.11
August 2, 2017
Form 10-Q
001-36066
10.1
May 4, 2017
Form 10-K
001-36066
10.19
March 6, 2018
Form 10-Q
001-36066
10.2
August 6, 2019
Form 10-Q
001-36066
10.3
August 6, 2019
Form 10-Q
001-36066
10.4
August 6, 2019
Form 10-Q
001-36066
10.2
November 8, 2017
Form 8-K
001-36066
10.1
October 5, 2015
Form 10-Q
001-36066
10.3
May 4, 2017
163
Exhibit
No.
10.25
10.26†
10.27†
10.28†
10.29†
10.30†
10.31†
10.32^
10.33
10.34
Exhibit Description
Schedule/
Form
File Number
Exhibit
Filing Date
Incorporated by Reference
King of Prussia Lease Agreement between
Paratek Pharma LLC and Atlantic American
Properties Trust, dated as of January 23,
2015, as amended.
Manufacturing and Services Agreement by
and between the Company and Almac
Pharma Services Limited, dated as of
December 30, 2016.
Amended and Restated Manufacturing and
Services Agreement, by and between the
Company and CIPAN - Companhia Industrial
Produtora de Antibióticos, S.A., dated as of
April 18, 2018.
First Amendment of Amended and Restated
Manufacturing and Services Agreement, by
and between the Company and CIPAN –
Companhia Industrial Produtora de
Antibióticos, S.A., dated as of February 18,
2019.
Outsourcing Agreement by and between the
Company and CARBOGEN AMCIS AG,
dated as of December 30, 2016.
First Amendment of Outsourcing Agreement,
by and between the Company and
CARBOGEN AMCIS AG, dated as of
December 18, 2018.
Master Manufacturing Service Agreement by
and between the Company and Patheon UK
Limited dated as of July 28, 2017 and
Product Agreement by and between the
Company and Patheon UK Limited dated as
of July 28, 2017.
Amendment Agreement - Amendment No. 1
to Patheon Product Agreement by and
between the Company and Patheon UK
Limited dated as of January 1, 2019.
Loan Agreement by and between the
Company and Healthcare Royalty Partners
III, L.P. dated as of February 25, 2019.
Amended and Restated Loan and Security
Agreement, dated June 27, 2019, by and
among Paratek Pharmaceuticals, Inc., Paratek
Pharma, LLC, Hercules Technology III and
certain other lenders, and Hercules Capital
Inc. as agent.
Form 10-Q
001-36066
10.2
May 4, 2017
Form 10-K/A
001-36066
10.27
May 5, 2017
Form 10-Q
001-36066
10.2
August 2, 2018
Form 10-K
001-36066
10.33
March 6, 2019
Form 10-K/A
001-36066
10.29
May 5, 2017
Form 10-K
001-36066
10.35
March 6, 2019
Form 10-Q/A
001-36066
10.12
November 6, 2017
Form 10-Q
001-36066
10.1
May 8, 2019
Form 10-Q
001-36066
10.2
May 8, 2019
Form 8-K
001-36066
10.1
July 2, 2019
164
Exhibit
No.
10.35^
10.36^
10.37
10.38
10.39
10.40
10.41^
10.42^
10.43^
Exhibit Description
Schedule/
Form
File Number
Exhibit
Filing Date
Incorporated by Reference
Contract, dated as of December 18, 2019,
between Paratek Pharmaceuticals, Inc. and
the Biomedical Advanced Research and
Development Authority of the United States
Department of Health and Human Services.
Notice of Assignment to Affiliate for License
and Collaboration Agreement by and
between Paratek Bermuda Ltd. and Zai Lab
(Shanghai) Co., Ltd., dated as of December
19, 2019.
First Amendment to the 2019 Amended and
Restated Loan and Security Agreement,
dated August 5, 2020, by and among Paratek
Pharmaceuticals, Inc., Paratek Pharma, LLC,
certain qualified subsidiaries, certain other
lenders and Hercules Capital, Inc..
Loan Agreement, dated as of December 31,
2020, by and between R-Bridge Healthcare
Cayman AIV, L.P., as Lender, and PRTK
SPV2 LLC, as Borrower.
Revenue Interest Purchase Agreement, dated
as of December 31, 2020, by and between
Paratek Pharmaceuticals, Inc., as Seller, and
PRTK SPV2 LLC, as Company.
Contribution and Servicing Agreement, dated
as of December 31, 2020, by and between
Paratek Pharmaceuticals, Inc., as Contributor,
and PRTK SPV2 LLC, as Company.
First Amendment to the Manufacturing and
Services Agreement, by and between the
Company and Almac Pharma Services
Limited, dated as of September 4, 2020.
Second Amendment to the Manufacturing
and Services Agreement, by and between the
Company and Almac Pharma Services
Limited, dated as of January 1, 2021.
Second Amendment to the Amended and
Restated Manufacturing and Services
Agreement, by and between the Company
and CIPAN - Companhia Industrial
Produtora de Antibióticos, S.A., dated as of
December 20, 2019.
Form 10-K
001-36066
10.35
March 10, 2020
Form 10-K
001-36066
10.36
March 10, 2020
Form 10-Q
001-36066
10.1
August 10, 2020
Form 8-K
001-36066
10.1
January 4, 2021
Form 8-K
001-36066
10.2
January 4, 2021
Form 8-K
001-36066
10.3
January 4, 2021
Form 8-K
001-36066
10.4
January 4, 2021
Form 8-K
001-36066
10.5
January 4, 2021
Form 8-K
001-36066
10.6
January 4, 2021
165
Exhibit
No.
10.44^
10.45^
10.46^
10.47^
10.48
10.49^
10.50*^
21.1*
23.1*
24.1
31.1*
Exhibit Description
Third Amendment to the Amended and
Restated Manufacturing and Services
Agreement, by and between the Company and
CIPAN - Companhia Industrial Produtora de
Antibióticos, S.A., dated as of July 28, 2020.
Fourth Amendment to the Amended and
Restated Manufacturing and Services
Agreement, by and between the Company and
CIPAN - Companhia Industrial Produtora de
Antibióticos, S.A., dated as of December 16,
2020.
First Amendment of Manufacturing and
Services Agreement, by and between the
Company and Patheon UK Limited, dated as
of June 1, 2019.
Second Amendment of Manufacturing and
Services Agreement, by and between the
Company and Patheon UK Limited, dated as
of December 18, 2020.
Amendment No. 2 to the Product Agreement,
by and between the Company and Patheon
UK Limited, dated as of June 1, 2019.
Amendment No. 3 to the Product Agreement,
by and between the Company and Patheon
UK Limited, dated as of July 1, 2020.
Modification of Contract, dated as of March
27, 2020, between Paratek Pharmaceuticals,
Inc. and the Biomedical Advanced Research
and Development Authority of the United
States Department of Health and Human
Services.
Subsidiaries of the Company.
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm.
Power of Attorney (included on signature
page)
Certification of the Company’s Chief
Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities and
Exchange Act of 1934, as amended, pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002.
Incorporated by Reference
Schedule/
Form
Form 8-K
File Number
Exhibit
Filing Date
001-36066
10.7
January 4, 2021
Form 8-K
001-36066
10.8
January 4, 2021
Form 8-K
001-36066
10.9
January 4, 2021
Form 8-K
001-36066
10.10
January 4, 2021
Form 8-K
001-36066
10.11
January 4, 2021
Form 8-K
001-36066
10.2
January 4, 2021
166
Exhibit
No.
31.2*
32.1*
32.2*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
Exhibit Description
Schedule/
Form
File Number
Exhibit
Filing Date
Incorporated by Reference
Certification of the Company’s Chief
Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities and
Exchange Act of 1934, as amended, pursuant
to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of the Company’s Chief
Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of the Company’s Chief
Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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*
†
^
+
Filed herewith.
Confidential treatment has been granted as to certain portions, which portions have been omitted and submitted separately to the Securities and
Exchange Commission.
Certain confidential information contained in this exhibit has been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
Management contract or compensatory plan, contract or arrangement.
(b) Exhibits
See Exhibits listed under Item 15(a)(3) above.
(c) Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or are not required or the information required to be set forth therein is
included in the Financial Statements or notes thereto.
167
Item 16.
Form 10-K Summary
Not applicable.
168
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, State of Massachusetts, on the 29th day of March, 2021.
SIGNATURES
Paratek Pharmaceuticals, Inc.
By:
By:
/s/ Evan Loh, M.D.
Evan Loh, M.D.
Chief Executive Officer
(Principal Executive Officer)
/s/ Sarah Higgins
Sarah Higgins
Vice President, Finance and Controller
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of William M.
Haskel and Sarah Higgins his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his name.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature
/s/ Evan Loh, M.D.
Evan Loh, M.D.
/s/ Sarah Higgins
Sarah Higgins
/s/ Michael F. Bigham
Michael F. Bigham
/s/ Thomas J. Dietz, Ph.D.
Thomas J. Dietz, Ph.D.
/s/ Timothy R. Franson, M.D.
Timothy R. Franson, M.D.
/s/ Rolf K. Hoffmann
Rolf K. Hoffmann
/s/ Kristine Peterson
Kristine Peterson
/s/ Robert S. Radie
Robert S. Radie
/s/ Jeffrey Stein, Ph.D.
Jeffrey Stein, Ph.D.
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Vice President, Finance and Controller
(Principal Financial and Accounting Officer)
Date
March 29, 2021
March 29, 2021
Executive Chairman of the Board of Directors
March 29, 2021
Director
Director
Director
Director
Director
Director
169
March 29, 2021
March 29, 2021
March 29, 2021
March 29, 2021
March 29, 2021
March 29, 2021
PARATEK PHARMACEUTICALS, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
Exhibit 10.9
Each member of the Board of Directors (the "Board") who is not also serving as an employee of Paratek Pharmaceuticals,
Inc. (the "Company") or any of its subsidiaries (each such member, an "Eligible Director") will receive the compensation described in
this Non-Employee Director Compensation Policy for his or her Board service. This Non-Employee Director Compensation Policy is
effective on January 1, 2021 (the "Effective Date"). An Eligible Director may decline all or any portion of his or her compensation by
giving notice to the Company prior to the date for which service begins for a cash payment, or the date of grant for an equity award, as
the case may be (e.g., an election to decline the cash payment to be made for a quarter must be made prior to the date the quarter
begins). This policy may be amended at any time in the sole discretion of the Board or the Compensation Committee of the Board, and
supersedes any prior policies related to compensation of Eligible Directors.
Annual Cash Compensation
The annual cash compensation amount set forth below is payable in equal quarterly installments, payable in arrears on the
last day of each fiscal quarter in which the service occurred. If an Eligible Director joins the Board or a committee of the Board at a
time other than effective as of the first day of a fiscal quarter, each annual retainer set forth below will be pro-rated based on days
served in the applicable fiscal year, with a pro-rated amount paid for the first fiscal quarter in which the Eligible Director provides the
service, and regular full quarterly payments thereafter. All annual cash fees are vested upon payment.
1.
2.
3.
Annual Board Service Retainer:
a.
All Eligible Directors: $45,000
Annual Committee Chair Service Retainer:
a.
b.
c.
Chairman of the Audit Committee: $20,000
Chairman of the Compensation Committee: $15,000
Chairman of the Nominating and Corporate Governance Committee: $10,000
Annual Committee Member Service Retainer (other than Chairman):
a.
b.
c.
Member of the Audit Committee: $10,000
Member of the Compensation Committee: $7,500
Member of the Nominating and Corporate Governance Committee: $5,000
Equity Compensation
The stock options and restricted stock units set forth below will be granted under the Company's 2015 Equity Incentive Plan
(the "Plan”). All stock options granted under this policy will be non-statutory stock options, with an exercise price per share equal to
100% of the Fair Market Value (as defined in the Plan) of the underlying Common Stock on the date of grant, and a term of ten years
from the date of grant (subject to earlier termination in connection with a termination of service as provided in the Plan). In addition to
the vesting schedules described below, in the event of a Change in Control or a Corporate Transaction (each, as defined in the Plan),
any unvested portion of the stock options and restricted stock units described below will fully vest and become exercisable as of
immediately prior to the effective time of such Change in Control or Corporate Transaction, subject to the Eligible Director's
Continuous Service (as defined in the Plan) on the effective date of such transaction.
FINAL approved by CC (December 9, 2020)
1.
Initial Grant: On the last trading day of the month in which an Eligible Director is initially elected or appointed to the Board (or if
there is no trading day in that month on or after the date of election or appointment of the Eligible Director, then on the last
trading day of the month following the month in which an Eligible Director is initially elected or appointed to the Board), the
Eligible Director will be granted automatically, without further action by the Board or Compensation Committee of the Board, (i)
stock options to purchase 12,800 shares of the Company's Common Stock and (ii) Restricted Stock Units (RSUs) representing
19,200 shares of the Company’s Common Stock. The shares subject to each such (i) stock option will vest as to 1/36 of the shares
on the last day of the month following the month of the date of grant, and on the last day of each successive month thereafter until
fully vested, and (ii) 1/3 of the RSUs will vest on each successive one-year anniversary following the grant date over a three-year
period, in either case, subject to the Eligible Director's Continuous Service (as defined in the Plan) through such vesting dates. No
Initial Grant will be granted to an Eligible Director who is already serving as a director on the Effective Date.
2. Annual Grant: At the Compensation Committee meeting held in January or February of each year for the purpose of granting
executives annual equity incentive awards following the Effective Date or, if a Compensation Committee meeting is not held by
the end of February of any year, on the last trading date in February of such year following the Effective Date, each Eligible
Director who continues to serve as a non-employee member of the Board on such date will be granted automatically, without
further action by the Board or Compensation Committee of the Board, a stock option to purchase 7,000 shares of the Company's
Common Stock and Restricted Stock Units (RSUs) representing 9,000 shares of the Company’s Common Stock. The shares
subject to each such (i) stock option will vest as to 1/12 of the shares on the one-month anniversary following the vesting
commencement date, and on the same calendar date of each successive month thereafter until fully vested, and (ii) RSUs on the
one-year anniversary following the grant date, subject, in either case, to the Eligible Director's Continuous Service (as defined in
the Plan) through such vesting date.
Expenses
The Company will reimburse Eligible Directors for ordinary, necessary and reasonable out-of-pocket travel expenses to
cover in-person attendance at and participation in Board and/or Committee meetings.
2
FINAL approved by CC (December 9, 2020)
Exhibit 10.14
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED WITH [***], HAS
BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT
TREATS AS PRIVATE OR CONFIDENTIAL.
[Execution Copy]
TUFTS UNIVERSITY LICENSE AGREEMENT
This Agreement is made and entered into as of February 1, 1997 ("the Effective Date"), by and between Paratek
Pharmaceuticals, Inc., a Delaware corporation having an address of P.O. Box 1525, Boston, Massachusetts 02117-1525
("Licensee") and Tufts University, a/k/a Trustees of Tufts College, a corporation duly organized and existing under the laws of
the Commonwealth of Massachusetts and having a principal office at Medford, Massachusetts 02155 ("Tufts").
WHEREAS, Tufts possesses certain know-how, inventions and intellectual property in the field of drug resistance;
WHEREAS, Tufts, acting through Dr. Stuart Levy, (the "Principal Investigator") wishes to and is prepared to conduct
additional research in this field under a Sponsored Research Agreement of even date herewith;
WHEREAS, Licensee is prepared to provide support to Tufts for such research by the Principal Investigator, providing it
receives certain license rights under inventions, biological materials, and/or know-how developed in the research under the terms
of this License Agreement; and
WHEREAS, Tufts wishes to have such inventions, biological materials, and/or know- how perfected and marketed in
order that products resulting therefrom might be available for public use and benefit.
NOW THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, and
intending to be legally bound, the parties hereto mutually agree as follows:
ARTICLE I - DEFINITIONS.
1.1.
"Patent Rights" shall mean rights owned or controlled by Tufts which arise under United States or foreign
patents or patent applications as described in Exhibit A or any patents issuing from said applications that cover inventions which
were discovered or developed at Tufts by Dr. Stuart Levy, alone or in conjunction with others, or which are discovered or
developed in the Field of Use pursuant to the Sponsored Research Agreement of even date herewith (the "Research Agreement"),
including any divisions, continuations, continuations-in-part, re-examinations, extensions, renewals, or reissues thereof.
1.2.
"Technology" shall mean the trade secret, know-how, and other proprietary, non-public information relating
to the "Field of Use" and necessary or useful for practicing the Patent Rights that was discovered or developed at Tufts by Dr.
Stuart Levy, alone or in conjunction with others, or is discovered or developed pursuant to the Research Agreement and that has
been revealed to Licensee pursuant to the Research Agreement or that may hereafter be revealed to Licensee pursuant to the
requirements of this Agreement or the Research Agreement. The Technology shall not include the Patent Rights but shall include
any non-public information included in patent applications if and when it is subsequently deleted therefrom before the patent is
issued.
"Confidential Technology" shall mean all Technology, and all information in or concerning patent
applications included in the Patents, provided, however, that Licensee need not keep confidential any information that:
1.3.
files and is revealed to Tufts within thirty (30) days after Tufts' disclosure to Licensee; or
(a)
at the date of its disclosure by Tufts to Licensee was known to Licensee as documented in Licensee's
(b)
at the date of disclosure by Tufts to Licensee was, or thereafter becomes, through no fault of
Licensee, publicly known through publication or so widely known and used that it can be said to be generally available to the
public.
1.4.
"Field of Use" shall mean the prophylaxis, treatment or prevention of bacterial or microbial diseases or
medical conditions in humans or animals or agriculture using (i) tetracycline derivatives or other compounds which affect
tetracycline resistance or (ii) compounds based on knowledge of the MAR operon or (iii) compounds involving novel genes
which affect antibiotic resistance or microbial infectivity and which are derived from studies of the MAR operon or (iv)
compounds that affect any such genes.
1.5.
"License Period" shall mean collectively the respective periods commencing on the Effective Date and
ending (unless sooner terminated) upon the later of the expiration of the last to expire of the Patent Rights (treating pending
applications as issued patents for so long as they are pending) and fifteen (15) years from the Effective Date.
1.6.
"Licensed Products" shall mean all products that are within or made by a process within the Field of Use and
that embody or are made in accordance with or using or are based upon or derived from any aspect of the Patent Rights or the
Technology.
1.7
"Gross Sales" shall mean the gross sales of Licensed Products subject to royalty under this Agreement billed
to customers by Licensee and its Subsidiaries, less the following:
(a)
(b)
(c)
[***];
[***]; and
[***].
Gross Sales shall also include and be deemed to have been made with respect to any Licensed Products used by Licensee or any
Subsidiary, for its own commercial purposes, or transferred to any third-party for less than the transferee is then charging in
normal arms-length sales transactions; and Gross Sales in all such cases shall be deemed to have been made at the prices therefor
at which such Licensed Products are then being sold to the customers of such user or transferor (or of Licensee, if a Subsidiary is
a user but not a seller) in arms-length sales transactions.
In the event that a Licensed Product under this Agreement is sold in combination with another active ingredient or
component having independent therapeutic effect or diagnostic utility, then "Gross Sales," for purposes of determining royalty
payments on the combination, shall be calculated using one of the following methods:
(e)
By multiplying the Gross Sales of the combination by the fraction A/A+B, where A is the gross selling price,
during the royalty paying period in question, of the Licensed Product sold separately, and B is the gross selling
price, during the royalty period in question, of the other active ingredients or components sold separately; or
2
(f)
In the event that no such separate sales are made of the Licensed Product or any of the active ingredients or
components in such combination package during the royalty paying period in question, Gross Sales, for the
purposes of determining royalty payments, shall be calculated using the above formula where A is the
reasonably estimated commercial value of the Licensed Product sold separately and B is the reasonably
estimated commercial value of the other active ingredients or components sold separately. Any such estimates
shall be made in good faith by Licensee and reported to Tufts with the reports to be provided to Tufts pursuant
to Section 3.7 hereof.
1.8.
"Subsidiary" shall mean any corporation, partnership, or other business organization that directly or indirectly
controls, is controlled by, or is under common control with Licensee. For the purpose of this Agreement, "control" shall mean the
holding directly or indirectly of fifty percent (50%) or more of the voting stock or other ownership interest of the corporation or
other business organization invoiced.
1.9.
"Territory" shall mean the world.
ARTICLE II - GRANT; SUBLICENSES.
2.1.
Grant. Subject to the terms and conditions hereinafter set forth, Tufts hereby grants to Licensee, to the extent
that it lawfully may, a royalty-bearing, exclusive license to practice the Patent Rights and use the Technology in the Territory,
only for the purpose of developing, making, using, and selling Licensed Products (the "License"). The License shall exist as such
an exclusive, royalty-bearing license during and will terminate as such at the end of the License Period, unless sooner terminated
as hereinafter provided. If the License does not terminate before the end of the License Period, then the License to use the
Technology shall continue in effect thereafter without limitation of time as an exclusive, fully-paid-up license subject to
termination only as provided in Article IX.
2.2.
Reserved Rights. During the License Period, Tufts shall have no right to use the Patent Rights or Technology
to make, use, or sell Licensed Products for commercial purposes, but Tufts reserves to itself (a) the right at all times to practice
the Patent Rights and to use the Technology, and to make and use Licensed Products for research purposes within Tufts, and (b)
all other rights not granted to Licensee, including the rights to use and permit the use of Patent Rights and Technology for any
purpose not in conflict with the provisions of the License.
2.3.
Sublicenses. Licensee shall also have the right to grant to its Subsidiaries or other sublicensees, exclusive or
non-exclusive sublicenses under the License during the License Period; provided, however, and Licensee agrees that:
(a)
the terms and conditions of each sublicense shall be consistent with the terms and conditions of this
Agreement and shall contain, among other things (by way of example but not limitation), provisions substantially similar to and
consistent with: the "Gross Sales" definition; Article III (providing, among other things, that royalties shall be paid to Licensee in
amounts at least equal to those of Article III hereof, so that Licensee may in turn pay those royalties to Tufts); Article V; Section
7.1 (so that no representations or warranties inconsistent with that Article shall be extended to or by any sublicensee); Article IX,
but the sublicense must terminate not later than the end of the License Period, or earlier if the License terminates earlier for any
reason; Article XI; and Article XII.
(b)
each sublicense shall provide that the obligations to Tufts of Sections 3.8, 3.9, 3.10, 7.1, 8.1, 8.5, and
9.2, and Articles V, XI, and XII of this Agreement shall be binding on the sublicensee and be enforceable both by Tufts and the
Licensee.
3
(c)
if a proposed sublicensee is either (i) a Subsidiary or (ii) a company engaged in the development,
manufacture or distribution of health care products with a net worth or market capitalization of at least $50 million, no approval
of Tufts shall be required for the proposed sublicense: in all other cases, the sublicense may not be granted without Tufts' prior
written approval (which may not be unreasonably withheld or delayed);
amendment thereto, promptly after the sublicense or amendment has been agreed upon;
(d)
Licensee shall furnish to Tufts a true and complete copy of each sublicense agreement and each
rights without the prior approval of Licensee; and
(e)
no Subsidiary or other sublicensee shall have the right to further license, sublicense, or assign its
(f)
no sublicense shall relieve Licensee of any of its obligations hereunder, and Licensee shall be
responsible for the acts or omissions of its Subsidiaries and sublicensees and for compliance by them with their obligations, and
Licensee shall take all steps necessary to enforce that compliance to the extent required to allow Licensee to fully comply with all
of its obligations under this agreement.
2.4
During the term of this Agreement and so long as neither Licensee nor any Subsidiary or sublicensee is in
default with respect to any payment due to Tufts hereunder, Tufts will not assert its rights under any Patent Rights to prevent any
party from using or selling any quantity of Licensed Product on which a royalty has been paid hereunder.
ARTICLE III - PAYMENTS; RECORDS.
3.1.
License Fee. As partial consideration for the licenses granted hereunder, Licensee agrees to issue to Tufts and
its designees, within thirty (30) days of the Effective Date, 500,000 shares of Licensee's Common Stock, par value $0.001 per
share, pursuant to the terms of a Stock Subscription and Right of First Refusal Agreement.
3.2.
Milestone Payments. Licensee agrees to pay to Tufts the following non- refundable milestone payments:
Milestone
Payment Amount
Commencement of First Phase III
Clinical Trials in The United States
First marketing application (NDA) submitted
in the United States
First marketing approval in the United States
50,000
100,000
100,000
3.3
Minimum Royalties. Licensee agrees to pay to Tufts a minimum royalty payment of Twenty-Five Thousand
Dollars ($25,000) in each twelve-month period commencing on each anniversary of the Effective Date if during such period
Licensee is not sponsoring at least One Hundred Thousand Dollars ($100,000) in research at Tufts. Minimum royalty payments
shall be creditable against royalties due under Section 3.4 during the same twelve-month period.
3.4.
Running Royalties. Licensee agrees to pay to Tufts royalties of:
4
[***] percent ([***]%) of the Gross Sales of Licensed Products, the making, using, or selling of
which infringes (were it not for the License) at least one claim in an issued, unexpired and non-lapsed patent included in the
Patent Rights; or
(a)
(b)
[***] percent ([***]%) of the Gross Sales of Licensed Products that do not fall within the clause (a),
above, but the manufacture, use or sale of which would infringe (were it not for the License) at least one claim in a pending
application included in the Patent Rights, if such claim were to issue.
3.5
Sublicense Royalties. For each sublicense granted by Licensee, Licensee shall pay to Tufts (a) fourteen
percent (14%) of that portion of any sublicense issue fees or license maintenance fees received by Licensee which are reasonably
attributable to sublicenses of rights granted to Licensee hereunder, and (b) the lesser of (i) [***] percent ([***]%) of any royalty
payments received under such sublicense with respect to the Gross Sales by the sublicensee of Licensed Products covered by a
claim contained in an issued Patent Right or a claim included in a pending application covering a Patent Right on a country-by-
country basis or (ii) the royalty which would be due if Licensee, rather than the sublicensee, had sold the Licensed Product.
Funds received by Licensee from a sublicensee for research conducted by Licensee, achievement of product development-related
performance milestones, or for equity investments in Licensee will not be subject to any royalties hereunder.
3.6
Royalty Reductions. In the event Licensee or a sublicensee of Licensee incurs expenses in judicial or
administrative proceedings based upon allegations of infringement by Licensee or sublicensee of third-party patents or know-how
solely or primarily as a result of the sale of Licensed Products, Licensee may withhold up to [***] percent ([***]%) of the
royalties due hereunder for the calendar year in which the expenses are incurred, and apply the same toward reimbursement of its
expenses in connection therewith.
3.7.
Statements; Payments. After the first commercial sale of a Licensed Product, Licensee shall, within sixty (60)
days after the last days of March, June, September, and December in each year or portion thereof during the License Period, and
within sixty (60) days after the end of the License Period, provide Tufts with a statement accounting for the Gross Sales of
Licensed Products by Licensee, its Subsidiaries, and its sublicensees and all amounts described in Section 3.5, all for the
immediately preceding three (3) month period or portion thereof, accompanied by payment for the full amount of royalties due
under this Article III for that period or portion thereof. Each such statement shall be certified by the Chief Financial Officer of
Licensee as being true, correct, and complete.
3.8.
Currencies. All payments to be paid to Tufts shall be computed and made in United States Dollars, and
Licensee shall use best efforts to convert royalty payments payable on Gross Sales in any country to United States Dollars;
provided, however, that if conversion to and transfer of such Dollars cannot be made by Licensee, its Subsidiaries, or its
sublicensees in any country for any reason, Licensee may pay such sums in the currency of the country in which such Gross Sales
are made, deposited in Tufts' name in a bank designated by Tufts in any such country. The rate of exchange of local currencies to
U.S. Dollars shall be at the rate of exchange prevailing at the Bank of Boston (or such other bank in Boston, Massachusetts or
New York, New York as Tufts may designate in writing from time to time), for currencies of the amounts involved, as such rate is
stated for the first business day after the end of the period with respect to which the royalties are due.
3.9.
Records; Audits. Licensee shall keep (and cause to be kept) and maintain complete and accurate records of
Gross Sales of the Licensed Products by Licensee, its Subsidiaries, and its sublicensees, in accordance with generally accepted
accounting procedures. Such records shall be accessible to independent certified public accountants selected by Tufts and
reasonably acceptable to Licensee, by audits conducted not more than once a year during the License Period and for one year
after the termination thereof, at any reasonable times during business hours, for the purpose of verifying Gross Sales and any
royalties due thereon. Such accountants shall disclose to Tufts only information relating to the accuracy of the records kept and
the
5
payments made, and shall be under a duty to keep confidential any other information obtained from such records. Licensee, its
Subsidiaries, and its sublicensees shall not be required to retain such records for more than three (3) years after the close of any
calendar quarter-year. No period shall be subject to audit under this Section more than once as to any entity being audited.
3.10.
Substantial Underpayment. If any such audit reveals that the aggregate of royalties paid during any four
consecutive calendar quarters was more than five percent (5%) less than the amount that should have been paid, then the
reasonable expenses of the audit shall be borne by Licensee, which shall pay those expenses within thirty (30) days after demand
therefore by Tufts accompanied by the accountants' statement therefor.
ARTICLE IV - TECHNOLOGY DISCLOSURE; PATENT PROSECUTION.
4.1.
Demonstration. Within ninety (90) days of the Effective Date, Tufts representative(s) having knowledge of
the Technology and Patent Rights will disclose them to Licensee personnel generally competent in the Field of Use, at the
premises of Tufts, or, if mutually agreed, at the premises of Licensee. Such disclosure shall be scheduled at the mutual
convenience of Tufts and Licensee and shall be made in such ways as the parties mutually agree seems most likely to enable
those Licensee personnel to learn the Technology and Patent Rights.
4.2.
Written Disclosure. Tufts may elect to prepare and furnish to Licensee one or more written descriptions of the
Technology and Patent Rights or portions thereof. Licensee agrees to review the written descriptions promptly after receiving
them and indicate in writing to Tufts whether there are any details or aspects with which Licensee does not concur. Absent a
sufficiently detailed objection by Licensee, those written descriptions will be deemed binding on the parties for all purposes
under this Agreement as to the description of the Technology and Patent Rights so described.
4.3.
Availability. Tufts shall perform its obligations under Sections 4.1 and 4.2 for no additional consideration.
Tufts shall not be obligated to devote any particular amount of time to the performance of those obligations as long as Tufts
makes its knowledgeable personnel available to competent Licensee personnel as stated above, and devotes the amount of time
reasonably required to teach the necessary Technology to those Licensee personnel. Licensee agrees to make those personnel
available for instruction within the time period and otherwise as stated in Section 4.1.
4.4.
Patent Prosecution. Commencing on the Effective Date, Licensee shall have the responsibility to apply for,
seek prompt issuance of, and maintain while the License is in effect, the Patent Rights in the United States, in the foreign
countries listed on Exhibit B hereto and in the foreign countries selected by Licensee and Licensee will keep Tufts informed of
the foregoing on a current basis. Upon Tufts' request, Licensee will file and prosecute patent applications corresponding to the
Patent Rights in any one or more other countries, to the extent commercially reasonable. Tufts shall cooperate fully with Licensee
and provide all such information and data and execute any documents reasonably required in order to allow Licensee to conduct
such prosecution and Tufts shall have the opportunity to provide substantive review and comment on any such filing or
prosecution. The choice of patent counsel shall be reasonably acceptable to Tufts.
4.5.
Patent Expenses. Licensee shall pay all costs associated with the preparation, filing, prosecution, and
maintenance of all patent applications filed and patents obtained, which are included in the Patent Rights.
4.6
Abandonment. In the event that Licensee desires to abandon any patent or patent application within the Patent
Rights in any country, Licensee shall provide Tufts with reasonable prior written notice of such intended abandonment or decline
of responsibility, and Tufts shall have the right, at its expense, to prepare, file, prosecute, and maintain the relevant Patent Rights.
If Licensee decides to abandon an issued patent
6
(and all filed applications therefor) throughout the world, or if Licensee determines not to file and prosecute in at least one
country a patent application that Tufts has requested Licensee to file, then in any such event such patent and patent applications
shall not thereafter be included in "Patent Rights", and the non-public information included in (or that would be included in) such
patent and applications shall not thereafter be included in "Technology". If Licensee decides to abandon an issued patent (or a
filed application therefor) in any country, or if Licensee declines to file and prosecute a patent application in a country as
requested by Tufts herein, then in any such event each such country shall no longer be included in the "Territory" for purposes of
the claims covered by the relevant patent or patent application or for purposes of the non-public information included in (or that
would be included in) such patent or application.
ARTICLE V - CONFIDENTIALITY.
5.1.
Limitations on Use, Disclosure. Licensee agrees to treat as confidential, and to use and disclose only in
furtherance of this Agreement, all Confidential Technology disclosed to it by Tufts. Licensee agrees that it will exercise every
reasonable precaution to prevent the unauthorized disclosure of Confidential Technology by any of its directors, officers,
employees, or agents to other parties, other than to Subsidiaries and to Licensee sublicensees. Any Confidential Technology
disclosed to Subsidiaries or sublicensees shall be disclosed on the basis of and subject to the confidentiality provisions of this
Agreement.
5.2.
Cessation. Any information which is Confidential Technology at the date of disclosure thereof to Licensee
shall cease to be Technology, and Licensee, its Subsidiaries, and its sublicensees shall be released from the provisions of Section
5.1 as to such information on the date when, through no act or omission on the part of Licensee, its Subsidiaries, or its
sublicensees, such information becomes (a) publicly known by way of a single publication in which such Confidential
Technology is disclosed in reasonable detail, (b) so widely known and used in combination that it can be said to be generally
available to the public or (c) is subsequently rightfully obtained without restriction on use or disclosure from sources other than
Tufts having no confidential obligation in favor of Tufts.
5.3.
Time Limit. The provisions of this Article V shall continue to apply to any information which is Confidential
Technology for so long as it shall remain such, notwithstanding any termination of this Agreement or the License or expiration of
the License Period, provided, however, that the obligations of confidentiality under this Article shall in any event expire and
cease to exist ten years from the Effective Date.
ARTICLE VI - DILIGENCE.
Licensee agrees to use its best efforts to effect introduction of Licensed Products into the United States commercial
market as soon as practical, consistent with sound and reasonable business practices and judgments. Prior to the first commercial
sale of a Licensed Product, Licensee shall provide annual reports of such efforts to Tufts within sixty (60) days of each
anniversary of the Effective Date. Tufts shall have the right, at any time after eighteen (18) months from the Effective Date, to
terminate the License and Tufts' obligations under this Agreement if Licensee, within ninety (90) days after written notice from
Tufts of such intended termination, fails to provide written evidence that Licensee has commercialized or is actively attempting to
commercialize Licensed Products. Evidence that Licensee has, within eighteen months after the Effective Date, (i) delivered to
Tufts a business plan, (ii) taken all reasonable steps to prosecute and maintain the Patent Rights in accordance with the provisions
of Section 4.4 hereof, (iii) made payment of all research support under the Sponsored Research Agreement between the parties of
even date herewith and (iv) raised a total of $2 million through venture capital investors or strategic partners shall be deemed, in
and of itself, a sufficient showing of such active attempts to commercialize Licensed Products during such period. Thereafter,
evidence that Licensee has achieved the following milestones as scheduled below shall be deemed, in and of itself, a sufficient
showing of such active attempts to commercialize Licensed Products through such date:
7
(i)
raised a total of $5 million through venture capital investors or strategic partners within three (3) years of the
Effective Date; and
(ii)
filed an IND for a Licensed Product in the United States within five (5) years of the Effective Date.
Tufts shall not unreasonably withhold its assent to any revision of such milestones whenever requested in writing by
Licensee and supported by evidence of technical difficulties or delays that the parties could not have reasonably avoided.
Notwithstanding the foregoing, Tufts shall have the right at any time after ten (10) years from the Effective Date to
convert the License hereunder to non-exclusive if Licensee, its Subsidiaries, or its sublicensees have not by the time of such
conversion sold Licensed Products into the United States market.
If at any time Licensee decides to discontinue all programs relating to the MAR operon or all programs relating to
tetracycline derivatives, Licensee shall give notice of such intent to Tufts and Tufts shall have the option to terminate the License
granted hereunder solely with respect to such discontinued programs on thirty days notice to Licensee. Upon any such
termination, responsibility for the prosecution and maintenance of any Patent Rights on the discontinued programs shall revert to
Tufts.
ARTICLE VII - REPRESENTATIONS, WARRANTIES, AND LIMITATIONS.
7.1
Tufts Disclaimer. TUFTS MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED (INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR PURPOSE), AND ASSUMES NO RESPONSIBILITIES WHATSOEVER, WITH
RESPECT TO THE PATENTS OR TECHNOLOGY OR THE USE THEREOF, OR THE MANUFACTURE, POSSESSION,
USE, MARKETING, SALE, OR OTHER DISPOSITION BY TUFTS, LICENSEE, OR ANYONE ELSE, OF LICENSED
PRODUCT(S) OR ANY OTHER PRODUCTS OF SERVICES (INCLUDING, WITHOUT LIMITATION, PRODUCTS MADE
BY TUFTS, AND TUFTS SERVICES, THAT ARE OR WERE FURNISHED TO LICENSEE AT ANY TIME BEFORE, ON,
OR AFTER THE Effective Date), EXCEPT ONLY AS EXPRESSLY STATED BELOW IN THIS ARTICLE VII. Without
limitation of the foregoing generality, nothing contained herein or in any disclosure of the Patents or Technology made by or on
behalf of Tufts shall be construed as extending any representation or warranty with respect to the Patents or Technology or
Licensed Products or the results to be obtained by the use of the Patents or Technology or any Licensed Products, or that anything
made, used, or sold by use of the Patents or Technology or any part thereof, alone or in combination, will be free from
infringement of patents of third parties. TUFTS SHALL NOT BE LIABLE TO LICENSEE, ITS SUBSIDIARIES, ITS
SUBLICENSEES, OR ANY OTHER PARTY, REGARDLESS OF THE FORM OR THEORY OF ACTION (WHETHER
CONTRACT, TORT, INCLUDING NEGLIGENCE, STRICT LIABILITY, OR OTHERWISE), FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR OTHER EXTRAORDINARY DAMAGES ARISING OUT OF OR
RELATED TO THIS AGREEMENT, PATENTS, THE TECHNOLOGY, THE LICENSED PRODUCTS, OR ANY PRODUCTS
OR SERVICES FURNISHED OR NOT FURNISHED BY TUFTS, EVEN IF TUFTS HAS BEEN ADVISED OF THE
POSSIBILITY THEREOF.
Licensee agrees that all warranties, if any, in connection with the sale or other disposition of any Licensed Products (or
any products made by Tufts and furnished at any time to Licensee) by Licensee, its Subsidiaries, or its sublicensees will be made
by them and will not directly or impliedly obligate Tufts.
7.2
Tufts Representations. Notwithstanding the first sentence of Section 7.1, Tufts:
8
Massachusetts and has the power and authority to enter into this Agreement.
(a)
Represents that Tufts is a corporation organized and existing under the laws of the Commonwealth of
Represents that Tufts has taken all necessary action to authorize its execution and delivery of this
Agreement by the representatives of Tufts who carried out such execution and delivery, and to authorize the performance by
Tufts of its obligations hereunder.
(b)
(c)
Represents that execution and delivery of this Agreement and its performance by Tufts will not result
in any breach or violation of, or constitute a default under, any agreement, instrument, judgment, or order to which Tufts is a
party or by which it is bound.
7.3.
Licensee Representations. Licensee represents and warrants to Tufts that:
(a)
authority to enter into this Agreement.
Licensee is a corporation organized and existing under the laws of Delaware and has the power and
Licensee has taken all necessary action to authorize its execution and delivery of this Agreement by
the representatives of Licensee who carried out such execution and delivery, and to authorize the performance by Licensee of its
obligations hereunder.
(b)
(c)
Execution and delivery of this Agreement and its Agreement and its performance by Licensee will not
result in any breach or violation of, or constitute a default under, any agreement, instrument, judgment, or order to which
Licensee is a party or by which it is bound.
9
ARTICLE VIII - INDEMNITY; INSURANCE; INFRINGERS.
8.1.
Indemnity. Licensee agrees to exonerate, indemnify, and hold harmless Tufts, its trustees, officers,
employees, and agents, from all costs, expenses (including attorneys' fees), interest, losses, obligations, liabilities, and damages
paid or liability for which is incurred by any of said parties ("Losses"), and which arise out of or are in connection with or are for
the purpose of avoiding any and all claims, demands, actions, causes of action, suits, appeals, and proceedings ("Claims"), all
whether groundless or not, or the settlement thereof, based on any actual or alleged injuries, damages, or liability of any kind
whatsoever (including, without limitation, personal injury, death, property damage, breach of warranty, or breach of contract)
arising, directly or indirectly, out of any one or more of: any breach of Licensee of its representations, warranties, or agreements
hereunder; or out of any manufacture, marketing, possession, use, sale, or other disposition of Licensed Products or products
furnished by Tufts to Licensee in connection herewith or in connection with the Research Agreement (whether same occurs
during or after the License or during or after the License Period) by Licensee, its Subsidiaries, its sublicensees, or anyone
claiming by, through, or under any of them; or any acquisition, possession, disclosure, or use of the Patents or Technology, or any
thereof, by Licensee, its Subsidiaries, its sublicensees, or anyone claiming by, through, or under any of them or the presence of
Licensee's or its Subsidiaries' or sublicensee's officers, agents, employees, invitees or property on Tufts' premises.
8.2.
Defense; Settlement. Licensee shall defend and control negotiation of settlement of any Claim, with counsel
of Licensee's choosing approved in advance by Tufts, which approval shall not be unreasonably withheld. Tufts agrees to
cooperate fully in the defense of any Claim and may participate in the defense with counsel of Tufts' choosing, such separate
counsel to be at Tufts' expense unless a conflict of interest exists between Licensee and Tufts with respect to the defense, in
which case Tufts' separate counsel shall be at Licensee's expense. Any settlement by which Tufts would incur any obligation or
liability, whether for the payment of money, the taking of any action, the refraining from any action, or otherwise, shall require
the advance written consent of Tufts, which may be withheld in the sole discretion of Tufts without relieving Licensee of any of
its indemnification or other obligations hereunder.
8.3.
Insurance. Not later than thirty (30) days before the time when Licensee, any Subsidiary, or any Licensee
sublicensee shall, on a commercial basis, make, use, or sell any Licensed Products or any products furnished to Licensee by Tufts
at any time (before, on or after the Effective Date) in connection herewith or in connection with the Research Agreement, and at
all times thereafter until the expiration of all applicable statutes of limitation pertaining to any such manufacture, marketing,
possession, use, sale or other disposition of any Licensed Products or the aforesaid products furnished by Tufts (whether same
occurs or exists during or after the existence of the License or during or after the License Period), Licensee will at Licensee's
expense, obtain and maintain in full force and effect, comprehensive general liability insurance, including product liability
insurance, protecting Tufts against all claims, suits, obligations, liabilities, and damages, based upon or arising out of actual or
alleged bodily injury, personal injury, death, or any other damage to or loss of persons or property, caused by any such
manufacture, marketing, possession, use, sale, or other disposition. Such insurance policy or policies shall be issued by
companies rated by A. M. Best as A VIII or better (or other companies acceptable to Tufts), shall name Tufts as an additional
named insured, shall have limits of at least one million dollars ($1,000,000) per occurrence with an aggregate of three million
dollars ($3,000,000), shall be non-cancelable except upon thirty (30) days prior written notice to Tufts, and shall provide that as
to any loss covered thereby and also by any policies obtained by Tufts itself, Licensee's policies shall provide primary coverage
for Tufts and Tufts' policies shall be considered excess coverage for Tufts.
8.4.
Certificates: Policies. Licensee will forthwith after the obtaining of such insurance required by Section 8.3,
obtain and deliver to Tufts certificates of and copies of, and at all times thereafter deliver without further demand replacement
certificates and copies of, all such insurance policies that are in force and effect. As requested by Tufts but in no event more than
once per calendar year, Licensee will furnish to Tufts a complete
10
list, statement, and description of all insurance called for in this Article, together with certificates and copies of policies for each
insurance company issuing any thereof, that such insurance in is full force and effect, that all premiums have been paid, and that
such insurance will not be canceled except upon thirty (30) days prior written notice to Tufts.
8.5.
Infringers. Each party shall inform the other promptly in writing of any alleged infringement of the Patent
Rights in the Field of Use by a third party, including all details then available. Licensee shall have the right, but shall not be
obligated, to prosecute at its own expense any such infringements, and Tufts agrees that Licensee may join Tufts as a plaintiff at
the expense of Licensee. In any infringement action commenced solely by Licensee, all expenses of Licensee shall first be
reimbursed and all recovery for infringement shall be shared [***]% to Tufts and [***]% to Licensee. Licensee shall indemnify
Tufts against any order for costs or other payments that may be made against Tufts in such proceedings.
If Licensee has not taken legal action or been successful in obtaining cessation of the infringement, within one-hundred
eighty (180) days of written notification from Tufts of such infringement, or if Licensee elects not to continue prosecuting any
legal action against an infringer, Tufts shall have the right, but shall not be obligated, to prosecute at its own expense any such
infringement. Tufts may join Licensee as a plaintiff in any such infringement suit at Tufts' expense. In any such action by Tufts,
all expenses of Tufts shall first be reimbursed and all recovery for infringement shall be shared [***]% to Tufts and [***]% to
Licensee.
No settlement, consent judgment or other voluntary final disposition of any suit may be entered into without the consents
of Tufts and Licensee, which consents shall not be unreasonably withheld or delayed.
In any infringement suit that either party brings to enforce the Patent Rights, the other party shall at the request and
expense of the party bringing the suit, cooperate in all reasonable respects, including, to the extent possible, obtaining the
testimony of its employees and making available physical evidence in the possession of that party.
Licensee shall have the exclusive right in accordance with the provisions of Section 2.2, to sublicense any alleged
infringer in the Territory for the Field of Use, for future use of the Patent Rights.
8.6
Declaratory Judgment. If any declaratory judgment action alleging invalidity or non-infringement of any of
the Patent Rights shall be brought against Licensee, Tufts shall have the right at its election made within sixty (60) days after
commencement of that action, to intervene and take over the sole defense of the action at its expense.
ARTICLE IX - LICENSE TERMINATION.
9.1.
following subsections:
Events. The License granted hereunder may be terminated by Tufts pursuant to Article VI or one of the
(a)
Material Default. If Licensee shall fail after thirty (30) days written notice from Tufts to pay to Tufts
any royalties or other payments and payable hereunder, or shall fail in any material way to perform any other agreement required
to be performed by Licensee under this Agreement, or if any Subsidiary or sublicensee shall be in material breach of any
conditions or obligations affecting Tufts and compliance with which Licensee is responsible for hereunder, or if any
representation or warranty of Licensee contained in this Agreement shall prove to have been inaccurate or misleading in any
material way when made (referred to collectively and individually as a "material default"), then, without limitation of and in
addition to any and all other rights and remedies available to Tufts with respect to such material default, Tufts may terminate the
License and Tufts' obligations hereunder by written notice to Licensee at any time after the expiration of such
11
thirty (30) day notice period if Licensee has not cured the material default and the effects thereof before Tufts gives such notice
of termination to Licensee, unless Licensee commences arbitration proceedings hereunder to contest such material default, in
which event Tufts' right to terminate the License shall be stayed until such arbitration proceedings shall have been completed.
(b)
Cessation of Business. If Licensee shall have commenced to carry on the business of selling any
Licensed Products (either directly or through any Subsidiary or sublicensee) and shall at any time thereafter cease for a
consecutive period of ninety (90) days to carry on such business actively (either directly or through any Subsidiary or
sublicensee), other than as a result of fire or other casualty or governmental action taken in the absence of Licensee's fault, Tufts
may at any time thereafter while that state of affairs continues, terminate the License by written notice to Licensee.
9.2
written notice to Tufts.
Licensee shall have the option at any time to terminate this License upon one- hundred and eighty (180) days'
9.3.
Effects. Upon termination of the License for any reason, nothing herein shall be construed to release Licensee
from any obligations hereunder except those of Article VI, but all rights of Licensee and its Subsidiaries and its sublicensees to
make, use, or sell Licensed Products, or to practice the Patents and use the Technology, shall cease immediately, except that
Licensee, its Subsidiaries, and its sublicensees may after the effective date of such termination sell all Licensed Products that they
may have on hand at the date of termination, and may complete manufacture of Licensed Products then in the process of
manufacture, and sell them, provided that they pay all royalties due thereon with respect to Gross Sales, as provided in this
Agreement.
Any notice or communication required to be given hereunder in writing shall be given by registered or certified mail,
return receipt requested, or delivered by courier, return receipt requested, charges and postage prepaid, addressed to the parties,
respectively, at the following addresses:
ARTICLE X - NOTICE.
In the case of Tufts to:
Joseph J. Byrne, Ph.D.
Associate Provost for Research
Tufts University
136 Harrison Avenue
Boston, MA 02111with a copy to:
Mason (Skip) Irving, III
Vice President, Commercial Development
Massachusetts Biotechnology Research Institute
One Innovation Drive
Worcester, MA 01605
with a second copy to:
Mary Lee Jacobs, Esq.
General Counsel
Tufts University
Ballou Hall
Medford, MA 02155
12
or in the case of Licensee to:
Walter Gilbert
Acting Chief Executive Officer
Paratek Pharmaceuticals, Inc.
P.O. Box 1525
Boston, MA 02117-1525
with a copy to:
Jeffrey M. Wiesen, Esq.
Mintz, Levin, Cohn, Ferris,
Glovsky & Popeo P.C.
One Financial Center
Boston, MA 02111
or at such other respective substitute addresses as the addressee may designate in writing to the other party.
ARTICLE XI - NON-USE OF NAMES.
Licensee, its subsidiaries and its sublicensees agree that it will not use the name "Tufts University," or any variant
thereof, or identify Tufts or any portion of Tufts, or any inventor of any of the Patents or Technology, as a party to this
Agreement, or as a participant in inventing the inventions of the Patents or creating the Technology, including, without limitation,
in any advertising or promotional sales literature, without the prior express written consent of Tufts, which consent may be
withheld or withdrawn by Tufts in its complete and uncontrolled discretion for any reason whatsoever and at any time or times.
However, notwithstanding the foregoing, Tufts will make no objection to any proper reference by Licensee to published technical
publications by such inventors or creators; and, subject to the confidentiality requirements hereof, Tufts will make no objection to
Licensee's making such disclosures as in the reasonable opinion of legal counsel are required as a matter of law and such general
disclosures of this Agreement as may be desired by Licensee for purposes of grant solicitations from governmental authorities or
as reasonably necessary (as reasonably determined by Licensee) for the purposes of obtaining financing for Licensee or as
reasonably necessary (as reasonably determined by Licensee) for the conduct of its business, other than advertising or sales
promotion. Licensee shall impose and enforce the requirements of this Article on its Subsidiaries and sublicensees.
ARTICLE XII - COMPLIANCE WITH LAWS.
12.1.
Export Controls. The Export Control Regulations of the U. S. Department of Commerce prohibit, except
under special validated license, the exportation from the United States of technical data relating to certain commodities (listed in
the Regulations), unless the exporter has received certain written assurance from the foreign importer. In order to facilitate the
exchange of technical information under this Agreement, Licensee therefore hereby agrees and gives its assurance to Tufts that
Licensee will not, unless any required prior authorization is obtained from the U. S. Office of Export Control, re-export directly
or indirectly any technical data received from Tufts under this Agreement and will not export directly the Licensed Products or
such technical data to any country listed on either the Commodity Control List or Militarily-Critical Technologies List. Tufts
makes no representation as to whether any such license is required or, if one is required, as to whether it will be issued by the U.
S. Department of Commerce.
12.2.
Other Laws. In addition to the foregoing export control requirements, Licensee agrees that it, its
Subsidiaries, and its sublicensees will comply with all applicable mandatory or permissive patent marking laws, rules, and
regulations and comply with all other laws, rules, and regulations of all governmental authorities applicable to any of their
activities contemplated by this Agreement, and will comply with all necessary and desirable practices in connection and
compliance with safety recommendations of trade associations or governmental authorities.
13
ARTICLE XIII - MISCELLANEOUS PROVISIONS.
13.1.
Assignment. Licensee shall not assign the License or this Agreement without the prior written consent of
Tufts, which consent shall not be unreasonably withheld; provided, however, that Licensee, without such consent, may assign all
of its rights hereunder to a wholly-owned Subsidiary or to the acquiring party in connection with the transfer of all or
substantially all of its business and assets to an acquiring party or in the event of its merger or consolidation with that acquiring
party, if and only if the assignee shall assume all obligations of Licensee under this Agreement. However, no assignment or other
transfer by Licensee shall relieve Licensee of any obligations hereunder and Licensee shall continue to be primarily and jointly
and severally liable (along with such assignee or other transferee) for the performance of all obligations of Licensee and such
assignee or other transferee hereunder.
13.2.
Independent Contractors. The parties hereto shall be independent contractors with respect to each other, and
nothing contained herein shall be construed as constituting either of them as the agent, principal, employee, servant, joint
venturer, or partner of the other for any purpose whatsoever.
13.3
Governing Law. This Agreement shall be governed by and construed in accordance with Massachusetts law,
without regard to its conflict of laws principles.
13.4.
Sole Agreement. This Agreement and any Exhibits annexed hereto (each of which is hereby made part
hereof by this reference), and any other documents which may be expressly incorporated by reference herein, constitute the entire
and only agreement between the parties concerning the subject matter hereof; and all prior negotiations, representations,
warranties, agreements, and understandings related thereto are superseded hereby.
13.5.
Severability. If any provision of this Agreement shall to any extent be found to be invalid or unenforceable,
the remainder of this Agreement shall-not be affected thereby, and any such invalid or unenforceable provision shall be reformed
so as to be valid and enforceable to the fullest extent permitted by law.
13.6.
Headings. Headings of Articles, Sections, and subsections included herein are for convenience of reference
only and shall not be used to construe this Agreement.
13.7.
Financial Confidentiality. Both parties agree to keep the financial terms of this Agreement confidential.
ARTICLE XIV - ARBITRATION.
14.1.
Arbitration. Subject to Section 14.2 below, all disputes, controversies, or differences which may arise
between the parties out of or in relation to or in connection with this Agreement, or for the breach thereof, which cannot be
resolved by mutual agreement, shall be finally settled by arbitration to be held in accordance with the Commercial Arbitration
Rules (the "Rules") of the American Arbitration Association (the "Association") as the Rules then exist, in Boston,
Massachusetts, with the following deviations from the Rules. The arbitrators shall consist of one Tufts nominee, one Licensee
nominee, and a third person jointly selected by those two nominees. The party requesting arbitration shall designate its nominee
in the request, which shall be addressed to the Association with a simultaneous copy to the other party. If the other party shall fail
within thirty (30) days of the request for arbitration to nominate the second arbitrator or if the two arbitrators are unable to agree
upon the third arbitrator within thirty (30) days after selection of the second arbitrator, then in either case the arbitration panel
will be completed according to the Rules. Both legal and equitable remedies shall be available to the arbitrators. The award of a
majority of the arbitration panel shall be final and binding on the parties hereto and shall be enforceable in any court having
jurisdiction. Tufts and Licensee each irrevocably consent and submit to the jurisdiction of the courts of the Commonwealth of
Massachusetts and the United States District Court for the District of Massachusetts.
14
14.2.
Judicial Relief. Claims, disputes, or controversies concerning the validity, infringement, construction, or
effect of any patent including, without limitation, any patent licensed hereunder, shall be resolved in any court having jurisdiction
thereof, and the parties submit to the jurisdiction of the United States District Court for the District of Massachusetts. In the event
that, in any arbitration proceeding, any issue shall arise concerning the validity, infringement, construction, or effect of any patent
licensed hereunder, the arbitrators shall assume the validity of all claims as set forth in such patent. In any case, the arbitrators
shall not delay the arbitration proceeding for the purpose of obtaining or permitting either party to obtain judicial resolution of
such an issue, unless an order staying such arbitration proceeding shall be entered by a court of competent jurisdiction. Neither
party shall raise any issue concerning the validity, infringement, construction, or effect of any patent licensed hereunder in any
proceeding to enforce any arbitration award hereunder in any proceeding otherwise arising out of any such arbitration award.
Nothing in Section 14.1 shall be construed to waive any rights or timely performance of any obligations existing under this
Agreement. Moreover, each party acknowledges that appropriate cases (as determined by the courts of competent jurisdiction) of
a violation by either party of any of the provisions of this Agreement may entitle the other party to equitable judicial relief, and
this relief shall be available in addition to, and shall not be unavailable by reason of, the arbitration provisions of Section 14.1,
above. Such equitable judicial relief may be by temporary restraining orders, preliminary and permanent injunctions, and such
other equitable relief as any court of competent jurisdiction may deem just and proper.
15
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this License Agreement to be effective as
of the Effective Date.
TUFTS UNIVERSITY
By:
/s/ Steven S. Manos
Signature
Steven S. Manos
Typed Name
Executive Vice President
Title
3/19/97
Date
PARATEK PHARMACEUTICALS, INC.
By:
/s/ Walter Gilbert
Typed Name
Title
4/23/97
Date
16
EXHIBIT A
TO
LICENSE AGREEMENT
BETWEEN
TUFTS UNIVERSITY AND PARATEK PHARMACEUTICALS, INC.
Existing Patent Rights (Including Existing Applications)
I.
Issued Patents:(See attached Patent Summary)
"Patent Rights" shall also include the patents to be applied for pursuant to the terms of the License Agreement after the
Effective Date, after such applications are made.
17
[***]
[***]
[***]
[***]
[***]
[***]
[***]
Patent Summary
Stuart B. Levy, Ph.D.
January 1997
[***]
[***]
[***]
[***]
[***]
[***]
[***]
18
EXHIBIT B
List of Foreign Countries in which Patents are to be Filed.
United States
Canada
Japan
Europe (Germany, Belgium, France, Italy, Spain and United Kingdom)
19
TUFTS UNIVERSITY -- PARATEK PHARMACEUTICALS, INC.
AMENDMENT NO. 1
TO LICENSE AGREEMENT DATED FEBRUARY 1, 1997
Exhibit A is hereby amended to include:
•
•
Provisional patent application "[***]", Filed [***]
Patent application "[***]", Filed [***]
Section 1.4. "Field of Use" is hereby replaced by the following:
1.4.
"Medical Field of Use" shall mean the prophylaxis, treatment or prevention of bacterial or microbial diseases
or medical conditions in humans or animals or agriculture through the direct administration of (i) tetracycline derivatives or other
compounds which affect tetracycline resistance or (ii) compounds based on knowledge of the MAR operon or (iii) compounds
involving novel genes which affect antibiotic resistance or microbial infectivity and which are derived from studies of the MAR
operon or (iv) compounds that affect any such genes.
"Disinfectant Field of Use" shall mean the use of compositions, including but not limited to disinfectants and
soaps, in any manner other than the direct administration to humans or animals or agriculture, to kill or reduce the growth rate of
microorganisms, where such compositions include (i) tetracycline derivatives or other compounds which affect tetracycline
resistance or (ii) compounds based on knowledge of the MAR operon or (iii) compounds involving novel genes which affect
antibiotic resistance or microbial infectivity and which are derived from studies of the MAR operon or (iv) compounds that affect
any such genes.
"Field of Use" shall mean the Medical Field of Use and Disinfectant Field of Use, collectively.
Section 1.7. Third paragraph is hereby amended to read: "In the event that a Licensed Product in the Medical Field of Use under
this Agreement is sold..."
Section 3.4 Running Royalties is hereby replaced by the following:
3.4.
Running Royalties.
For the Medical Field of Use, Licensee agrees to pay to Tufts royalties of:
(a)
[***] percent ([***]%) of the Gross Sales of Licensed Products, the making, using, or selling of which
infringes (were it not for the License) at least one claim in an issued, unexpired and non-lapsed patent included in the Patent
Rights; or
(b)
[***] percent ([***]%) of the Gross Sales of Licensed Products that do not fall within the clause (a), above,
but the manufacture, use or sale of which would infringe (were it not for the License) at least one claim in a pending application
included in the Patent Rights, if such claim were to issue.
For the Disinfectant Field of Use, Licensee agrees to pay to Tufts royalties of:
[***] percent ([***]%) of the Gross Sales of Licensed Products, the making, using, or selling of which infringes (were it
not for the License) at least one claim in an issued, unexpired and non-lapsed patent included in the Patent Rights or would
infringe (were it not for the License) at least one claim in a pending application included in the Patent Rights, if such claim were
to issue.
1
Section 3.5. Sublicense Royalties is hereby replaced by the following:
3.5.
Sublicense Fees and Royalties. For each sublicense granted by Licensee, Licensee shall pay to Tufts fourteen
percent (14%) of that portion of any sublicense issue fees or license maintenance fees received by Licensee which are reasonably
attributable to sublicenses of rights granted to Licensee hereunder. Funds received by Licensee from a sublicensee for research
conducted by Licensee, achievement of product development-related performance milestones, or for equity investments in
Licensee will not be subject to any fees hereunder.
For the Medical Field of Use, for each sublicense granted by Licensee, Licensee shall pay to Tufts the lesser of
(i) [***] percent ([***]%) of any royalty payments received under such sublicense with respect to the Gross Sales by the
sublicensee of Licensed Products covered by a claim contained in an issued Patent Right or a claim included in a pending
application covering a Patent Right on a country-by-country basis or (ii) the royalty which would be due, pursuant to Section 3.4,
if Licensee, rather than the sublicensee, had sold the Licensed Product.
For the Disinfectant Field of Use, for each sublicense granted by Licensee, Licensee shall pay to Tufts the lesser
of (i) [***] percent ([***]%) of any royalty payments received under such sublicense with respect to the Gross Sales by the
sublicensee of Licensed Products covered by a claim contained in an issued Patent Right or a claim included in a pending
application covering a Patent Right on a country-by-country basis or (ii) the royalty which would be due, pursuant to Section 3.4,
if Licensee, rather than the sublicensee, had sold the Licensed Product.
All other provisions of the Agreement remain unchanged and in full force and effect.
TUFTS UNIVERSITY
PARATEK PHARMACEUTICALS, INC.
By:
/s/ Philip G. Salem
(signature)
Philip G. Salem
Name
By:
/s/ George C. Hillman
(signature)
George C. Hillman
Name
Senior Director, University Development
Executive Vice President
Title
12/23/97
Date
Title
12/29/97
Date
2
TUFTS UNIVERSITY -- PARATEK PHARMACEUTICALS, INC.
AMENDMENT NO. 2
TO LICENSE AGREEMENT DATED FEBRUARY 1, 1997
Exhibit A is hereby amended to include:
•
•
•
•
•
•
Patent application entitled: "[***]" Continuation in Part of U.S. patent No.: [***], Filed [***], Notice of Allowance [***].
Provisional patent application entitled: "[***]", Serial No.: [***], Filed [***]
Patent application jointly owned with [***], entitled: "[***]", Serial No.: [***], Filed [***]
Provisional patent application entitled: "[***]", Serial No.: [***], Filed [***]
Patent application entitled: "[***]", Serial No.: [***], Filed [***]
Patent application entitled: "[***]", U.S. patent No. [***], Issued [***], Divisional Application of U.S. patent No. [***]
All other provisions of the Agreement remain unchanged and in full force and effect.
TUFTS UNIVERSITY
PARATEK PHARMACEUTICALS, INC.
By:
/s/ Margaret Newell
(signature)
Margaret Newell
Name
Executive Vice President and Associate Provost for
Research
Title
7/31/98
Date
By:
/s/ George C. Hillman
(signature)
George C. Hillman
Name
Chief Operating Officer
Title
7/31/98
Date
TUFTS UNIVERSITY - PARATEK PHARMACEUTICALS, INC
AMENDMENT NO. 3
TO LICENSE AGREEMENT DATED FEBRUARY 1, 1997
Exhibit A and all amendments and modifications are deleted and replaced in their entirety by the attached Exhibit A. Tufts’
ownership interests in all patents, patent applications and disclosures listed in the attached Exhibit A are hereby incorporated into
the License Agreement dated February 1, 1997.
All other provisions of the Agreement as amended remain in full force and effect.
IIN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to be effective as of the last
date of signature below.
TUFTS UNIVERSITY
PARATEK PHARMACEUTICALS, INC.
By:
/s/ Margaret Newell
Margaret Newell, Associate Provost for Research
By:
/s/ George C. Hillman
George Hillman, Executive Vice President
Date: 6/3/99
Date: 6/3/99
Amendment #3 - Exhibit A
PATENT SUMMARY AS OF MAY 27, 1999
Stuart B. Levy, M.D.
Compositions and Methods Related to Antibiotic Resistance
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
Amendment #3 - Exhibit A
PATENT SUMMARY AS OF MAY 27, 1999
Stuart B. Levy, M.D.
TETRACYLINE
[***]
[***]
[***]
[***]
[***]
[***]
Amendment #3 - Exhibit A
PATENT SUMMARY AS OF MAY 27, 1999
Stuart B. Levy, M.D.
COMPOSITIONS AND METHODS RELATED TO ANTIBIOTIC RESISTANCE DISCLOSURES
[***]
[***]
[***]
Amendment #3 - Exhibit A
PATENT SUMMARY AS OF MAY 27, 1999
Stuart B. Levy, M.D.
[***]
TETRACYCLINE DISCLOSURES
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
TUFTS UNIVERSITY - PARATEK PHARMACEUTICALS, INC
AMENDMENT NO. 4
TO LICENSE AGREEMENT DATED FEBRUARY 1, 1997
Exhibit A and all amendments and modifications are deleted and replaced in their entirety by the attached Exhibit A. Tufts’
ownership interests in all patents, patent applications and disclosures listed in the attached Exhibit A are hereby incorporated into
the License Agreement dated February 1, 1997. Exhibit A shall hereafter be updated on an annual basis. Each new Exhibit A
shall be dated and appended hereto and by such action replace all prior versions of Exhibit A.
All other provisions of the Agreement as amended remain in full force and effect.
IIN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to be effective as of the last
date of signature below.
TUFTS UNIVERSITY
PARATEK PHARMACEUTICALS, INC.
By:
/s/ Margaret Newell
Margaret Newell, Associate Provost for Research
By:
/s/ George C. Hillman
George Hillman, Executive Vice President
Date: 8/9/00
Date: 8/14/00
Updated August 8, 2000
Exhibit A
CONFIDENTIAL
ATTORNEY-CLIENT PRIVILEGED
PARATEK PHARMACEUTICALS, INC.
PATENT STATUS SHEET
Docket No.
(Firm of Record)
Serial No./
Patent No.
Title and Description
Inventors and/or
Contributors
(Owners)
[***]
[***]
[***]
[***]
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[***]
[***]
[***]
Status
Filing
date/
Issue
date
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
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[***] [***]
[***] [***]
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[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
CONFIDENTIAL
ATTORNEY-CLIENT PRIVILEGED
PARATEK PHARMACEUTICALS, INC.
PATENT STATUS SHEET
[***][***][***]
[***][***][***]
[***]
[***][***]
[***]
[***][***][***][***][***][***]
[***]
[***]
[***][***][***][***][***][***]
[***][***][***][***]
[***]
[***][***][***]
[***]
[***][***][***]
[***]
[***][***][***][***]
[***]
[***][***][***]
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[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***][***][***][***]
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[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***]
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[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***][***][***][***][***][***]
[***]
[***]
[***]
CONFIDENTIAL
ATTORNEY-CLIENT PRIVILEGED
PARA TEK PHARMACEUTICALS, INC.
PATENT STATUS SHEET (FOREIGN)
Docket No.
(Firm of Record)
Region/
Country
Appln. No./
Patent No.
Title and Description
[***]
[***]
[***]
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Appln.
Date/ Grant
date
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Status
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CONFIDENTIAL
ATTORNEY-CLIENT PRIVILEGED
PARA TEK PHARMACEUTICALS, INC.
PATENT STATUS SHEET (FOREIGN)
[***]
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[***]
TUFTS UNIVERSITY - PARATEK PHARMACEUTICALS, INC
AMENDMENT NO. 5
TO LICENSE AGREEMENT DATED FEBRUARY 1, 1997
Exhibit A and all amendments and modifications are deleted and replaced in their entirety by the attached Exhibit A. Tufts’
ownership interests in all patents, patent applications and disclosures listed in the attached Exhibit A are hereby incorporated into
the License Agreement dated February 1, 1997. Exhibit A shall hereafter be updated on an annual basis. Each new Exhibit A
shall be dated and appended hereto and by such action replace all prior versions of Exhibit A.
All other provisions of the Agreement as amended remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to be effective as of the last date
of signature below.
TUFTS UNIVERSITY INC.
PARATEK PHARMACEUTICALS,
By:
/s/ Margaret Newell
Margaret Newell, Associate Provost for Research
By:
/s/ George C. Hillman
George Hillman, Executive Vice President
Date: 9/10/01
Date: 9/10/01
L&C Docket
No.
Title
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EXHIBIT A
CONFIDENTIAL
PATENT SUMMARY
Patent No. Filing date Issue Date
Status
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Application
No.
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1
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TUFTS UNIVERSITY - PARATEK PHARMACEUTICALS, INC
AMENDMENT NO. 6
TO LICENSE AGREEMENT DATED FEBRUARY 1, 1997
Exhibit A and all amendments and modifications are deleted and replaced in their entirety by the attached Exhibit A. Tufts’
ownership interests in all patents, patent applications and disclosures listed in the attached Exhibit A are hereby incorporated into
the License Agreement dated February 1, 1997. Exhibit A shall hereafter be updated on an annual basis. Each new Exhibit A
shall be dated and appended hereto and by such action replace all prior versions of Exhibit A.
All other provisions of the Agreement as amended remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to be effective as of the last date
of signature below.
TUFTS UNIVERSITY
PARATEK PHARMACEUTICALS, INC.
By:
/s/ Margaret Newell
By:
/s/ George C. Hillman
George Hillman, Executive Vice President
Date: 12/11/02
Date: 12/11/02
EXHIBIT A
CONFIDENTIAL
PATENT SUMMARY (TET)
L&C Docket No. Title
Application No.
Patent No.
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EXHIBIT A
CONFIDENTIAL
Patent Summary (MAR)
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CONFIDENTIAL
Patent Summary (MAR)
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EXHIBIT A
CONFIDENTIAL
PATENT SUMMARY (TET)
L&C Docket
No.
Title
Application
No.
Patent No. Filing Date Issue Date
Status
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EXHIBIT A
CONFIDENTIAL
Patent Summary (MAR)
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TUFTS UNIVERSITY — PARATEK PHARMACEUTICALS, INC.
AMENDMENT NO. 7
TO LICENSE AGREEMENT DATED FEBRUARY 1, 1997
Section 3.4 Running Royalties is hereby replaced by the following:
3.4
Running Royalties.
For the Medical Field of Use, Licensee agrees to pay to Tufts royalties of:
(a)
[***] percent ([***]%) of the Gross Sales of Licensed Products, the making using, or selling of which
infringes (were it not for the License) at least one claim in an issued, unexpired and non-lapsed patent included in the Patent
Rights; or
[***] percent ([***]%) of the Gross Sales of Licensed Products that do not fall within clause (a),
above, but the manufacture, use, or sale of which would infringe (were it not for the License) at least one claim in a pending
patent application included in the Patent Rights, if such claim were to issue.
(b)
For the Disinfectant Field of Use, Licensee agrees to pay to Tufts royalties of:
[***] percent ([***]%) of the Gross Sales of Licensed Products, the making using, or selling of which infringes
(were it not for the License) at least one claim in an issued, unexpired and non-lapsed patent included in the Patent Rights or
would infringe (were it not for the License) at least one claim in a pending patent application included in the Patent Rights, if
such claim were to issue.
Section 3.5 Sublicense Royalties is hereby replaced by the following:
3.5
Sublicense Fees and Royalties.
For the Medical Field of Use, Licensee agrees to make the following payments to Tufts:
(a)
Sublicense Fees. For the Medical Field of Use, for each sublicense granted by Licensee, Licensee
shall pay to Tufts ten percent (10%) of that portion of any sublicense issue fees or license maintenance fees received by Licensee
that are reasonably attributable to sublicenses of rights granted to Licensee hereunder. Funds received by Licensee from a
sublicensee for research conducted by Licensee, achievement of product development-related performance milestones, or for
equity investments in Licensee will not be subject to any fees hereunder.
(b)
Sublicense Royalties. For the Medical Field of Use, for each sublicense granted by Licensee,
Licensee shall pay to Tufts the lesser of (i) [***] percent ([***]%) of any royalty payments received under such sublicense with
respect to sales by the sublicensee of Licensed Products covered by a claim contained in an issued Patent Right or a claim
included in a pending application covering a Patent Right on a country-by-country basis or (ii) the royalty which would be due,
pursuant to Section 3.4, if Licensee, rather than the sublicensee, had sold the Licensed Product.
For the Disinfectant Field of Use, Licensee agrees to make the following payments to Tufts:
(c)
Sublicense Fees. For the Disinfectant Field of Use, for each sublicense granted by Licensee, Licensee
shall pay to Tufts fourteen percent (14%) of that portion of any sublicense issue fees or license maintenance fees received by
Licensee that are reasonably attributable to sublicenses of rights granted to Licensee hereunder. Funds received by Licensee from
a sublicensee for research conducted by Licensee,
achievement of product development- related performance milestones, or for equity investments in Licensee will not be subject to
any fees hereunder.
(d)
Sublicense Royalties. For the Disinfectant Field of Use, for each sublicense granted by Licensee,
Licensee shall pay to Tufts the lesser of (i) [***] percent ([***]%) of any royalty payments received under such sublicense with
respect to sales by the sublicensee of Licensed Products covered by a claim contained in an issued Patent Right or a claim
included in a pending application covering a Patent Right on a country-by-country basis or (ii) the royalty which would be due,
pursuant to Section 3.4, if Licensee, rather than the sublicensee, had sold the Licensed Product.
ARTICLE VI — DILIGENCE clause (ii) of the fifth sentence is hereby amended to read:
(ii) filed an IND for a Licensed Product in the United States within seven (7) years of the Effective Date.
ARTICLE VI — DILIGENCE Third paragraph is hereby amended to read: “Notwithstanding the forgoing, Tufts shall have the
right at any time after twelve (12) years from the Effective Date to convert the License...”
Exhibit A and all amendments and modifications are deleted and replaced in their entirety by the attached Exhibit A. Tufts’
ownership interests in all patents, patent applications and disclosures listed in the attached Exhibit A are hereby incorporated into
the License Agreement dated February 1, 1997. Exhibit A shall hereafter be updated on an annual basis. Each new Exhibit A
shall be dated and appended hereto and by such action replace all prior versions of Exhibit A.
All other provisions of the Agreement as amended remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to be effective as of the last date
of signature below.
TUFTS UNIVERSITY
PARATEK PHARMACEUTICALS
By:
/s/ Margaret Newell
Margaret Newell,
Associate Provost for Research
By:
/s/ Thomas J. Bigger
Thomas J. Bigger
President and Chief Executive Officer
Date: 7/1/03
Date: 6/17/03
EXHIBIT A
CONFIDENTIAL
Patent Summary (TET)
L&C Docket No.
Title
Application No.
Patent No.
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EXHIBIT A
CONFIDENTIAL
Patent Summary (MAR)
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EXHIBIT A
CONFIDENTIAL
Patent Summary (MAR)
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CONFIDENTIAL
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EXHIBIT A
CONFIDENTIAL
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EXHIBIT A
CONFIDENTIAL
Patent Summary (MAR)
L&C Docket
No.
Title
Application No. Patent No. Billing Date Filing Date
Status
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AMENDMENT NO. 8 TO THE
TUFTS UNIVERSITY LICENSE AGREEMENT
This Amendment No. 8 to the Tufts University License Agreement (this “Amendment”), dated as of November 20,
2012 (the “Amendment Effective Date”) is by and between Paratek Pharmaceuticals, Inc. (“Licensee”), and Tufts University,
a/k/a Trustees of Tufts College (“Tufts”). Each of Licensee and Tufts is sometimes referred to individually herein as a “Party”
and collectively as the “Parties”.
WHEREAS, the Parties entered into the Tufts University License Agreement, effective as of February 1, 1997 and
entered into amendments thereto: Amendment No. 1 dated as of December 29, 1997, Amendment No. 2 dated July 31, 1998,
Amendment No. 3 dated June 3, 1999, Amendment No. 4 dated August 14, 2000, Amendment No. 5 dated September 10, 2001,
Amendment No. 6 dated December 11, 2002, Amendment No. 7 dated July 1, 2003 and the letter agreement dated September 17,
2009 (the “Novartis Amendment”), as so amended, the “License Agreement”; and
WHEREAS, the Parties now wish to further amend the License Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto, intending to be legally bound,
hereby agree as follows:
1.
Amendments to Agreement.
and the following is hereby inserted in lieu thereof:
(a)
The definition of Field of Use in Section 1.4 of the License Agreement is hereby deleted in its entirety
“Medical Field of Use” shall mean the prophylaxis, treatment or prevention of all diseases or medical conditions in
humans, animals and/or agriculture, including bacterial or microbial diseases, through the direct administration of (a)
tetracycline derivatives or (b) compounds which affect tetracycline resistance or (c) compounds based on knowledge of
the MAR operon or (d) compounds involving novel genes which affect antibiotic resistance or microbial infectivity and
which are derived from studies of the MAR operon or (e) compounds that affect any such genes.
“Disinfectant Field of Use” shall mean the use of compositions, including but not limited to disinfectants and soaps, in
any manner other than the direct administration to humans or animals or agriculture, to kill or reduce the growth rate of
microorganisms, where such compositions include (a) tetracycline derivatives or (b) compounds which affect
tetracycline resistance or (c) compounds based on knowledge of the MAR operon or (d) compounds involving novel
genes which affect antibiotic resistance or microbial infectivity and which are derived from studies of the MAR operon
or (e) compounds that affect any such genes.
“Field of Use” shall mean the Medical Field of Use and Disinfectant Field of Use, collectively.
adding the following at the end of the definition:
(b)
The definition of Licensed Products in Section 1.6 of the License Agreement is hereby amended by
“For purposes of clarity, the Parties hereby agree that [***] shall be treated as Licensed Products.”
following is hereby inserted in lieu thereof:
(c)
The first sentence of Section 3.3 of the License Agreement is hereby deleted in its entirety and the
“Licensee agrees to pay to Tufts a minimum royalty payment of Twenty Five Thousand Dollars ($25,000) at the end of
each twelve-month period commencing on each anniversary of the Effective Date.”
(d)
Section 3.4 of the License Agreement is hereby deleted in its entirety and the following is hereby
inserted in lieu thereof:
“3.4
Running Royalties.
For the Medical Field of Use, Licensee agrees to pay to Tufts royalties of:
[***] percent ([***]%) of the Gross Sales of Licensed Products, (a) that are comprised of or contain Licensed
Compounds or (b) the making, using, or selling of which infringes (were it not for the License) at least one claim in an
issued, unexpired and non-lapsed patent included in the Patent Rights or would infringe (were it not for the License) at
least one claim in a pending patent application included in the Patent Rights, if such claim were to issue.
For the Disinfectant Field of Use, Licensee agrees to pay to Tufts royalties of:
[***] percent ([***]%) of the Gross Sales of Licensed Products, (a) that are comprised of or contain Licensed
Compounds or (b) the making, using, or selling of which infringes (were it not for the License) at least one claim in an
issued, unexpired and non-lapsed patent included in the Patent Rights or would infringe (were it not for the License) at
least one claim in a pending patent application included in the Patent Rights, if such claim were to issue.”
(e)
The following new Section 3.6A of the License Agreement is hereby inserted immediately before
Section 3.6:
“3.6A Licensee Challenge. In the event Licensee, its affiliates or subsidiaries, directly or indirectly through a
third party, initiates a Challenge or assists any party in doing so then, commencing on the date that such Challenge is initiated and
continuing until such Challenge is irrevocably withdrawn: (a) the [***] shall be [***] and (b) Licensee’s right to withhold any
royalty identified in Section 3.6 shall not be applicable, in the case of each of (a), (b) and (c) of Section 3.6 until such Challenge
has been withdrawn irrevocably.
As used herein, the term “Challenge” shall mean any challenge to the validity or enforceability of any patents or
patent applications owned in whole or in part by Tufts by: (a) filing a declaratory judgment action in which any
such patents or patent applications is alleged to be invalid or unenforceable; (b) filing a request for re-
examination of any of such patents or patent applications pursuant to 35 U.S.C. §302 and/or §311, or provoking
or becoming party to an interference with an application for any such patents or patent applications pursuant to
35 U.S.C. §135; or (c) filing or commencing any post grant review, inter partes review, third party observation,
derivation, opposition, cancellation, nullity or similar proceedings against any of such patents or patent
applications.”
following is hereby inserted in lieu thereof:
(f)
The fourth paragraph of Article VI of the License Agreement is hereby deleted in its entirety and the
“Notwithstanding the foregoing, Tufts shall have the right at any time after [***] to convert the License
hereunder to non-exclusive if Licensee, its Subsidiaries or its sublicensees have not by the time of such
conversion met each of the following milestones by the applicable date:
[***]
[***]
Milestone
Due By
[***]
[***]
(g)
The Novartis Amendment is hereby terminated and of no further force and effect.
2.
Payment of Minimum Royalty Fee. The $25,000 Minimum Royalty Fee for the license period through the
Amendment Effective Date shall be paid by Licensee to Tufts within [***] days of the date that Licensee receives an invoice
from Tufts on and after the Amendment Effective Date.
3.
Further Clarification of Terms. Tufts hereby agrees to cooperate with Licensee, including by taking such
actions reasonably requested by Licensee, to enforce, commercialize products under, protect and/or maintain foreign patents or
patent applications included as Patent Rights under the License Agreement, as amended by the Amendment, in each case including
any divisions, continuations, continuations-in-part, re-examinations, extensions, renewals, or reissues of such patents or patent
applications. Licensee hereby agrees to cooperate with Tufts to properly reflect the rights of Tufts in any patents or patent
applications covering any products that include or contain any compound identified as a lead by Paratek, in each case including
any divisions, continuations, continuations-in-part, re-examinations, extensions, renewals, or reissues of such patents or patent
applications. Licensee will file and prosecute patent applications or claims to pending patent applications corresponding to the
Patent Rights as reasonably requested by Tufts. Licensee shall reimburse Tufts for its reasonable attorneys’ fees and out-of-
pocket costs incurred on and after the Amendment Effective Date in so doing, up to a maximum amount equal to $[***] for the
period commencing on the Amendment Effective Date and ending on January 31, 2014 and $[***] each twelve (12) month
period thereafter, which shall be payable in arrears within [***] days upon submission by Tufts to Licensee of an invoice
evidencing such fees and costs.
4.
Covenant. The Parties hereby covenant and agree to use commercially reasonable efforts to reach a mutually
satisfactory agreement on an amendment to Exhibit A to the License Agreement as soon as practicable after the Amendment
Effective Date and before [***].
5.
Confirmation. Tufts hereby confirms to Licensee that Licensee, as of the date of the Amendment: (a) has
provided to Tufts all annual and any other reports required pursuant to Article VI of the License Agreement; and (b) has made the
payments required by Sections 3.1, and 3.3 (including but not limited to Sponsored Research Agreement payments) under the
License Agreement.
6.
Miscellaneous. The Parties hereby confirm and agree that the License Agreement, as amended hereby and as
further provided in this Amendment, together shall constitute the entire amended License Agreement among the parties, remains
in full force and effect and is a binding obligation of the Parties hereto. This Amendment may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the Amendment Effective Date.
PARATEK PHARMACEUTICALS, INC.
By:
Name:
Title:
/s/ Dennis Molnar
Dennis Molnar
President and Chief Executive Officer
TUFTS UNIVERSITY A/K/A TRUSTEES OF TUFTS
COLLEGE
By:
Name:
Title:
/s/ David R. Harris
David R. Harris
Provost & Senior Vice President
AMENDMENT NO.9 TO THE
TUFTS UNIVERSITY LICENSE AGREEMENT
This Amendment No. 9 to the Tufts University License Agreement (this “Amendment”), dated as of June 24th, 2014
(the “Amendment Effective Date”) is by and between Paratek Pharmaceuticals, Inc. (“Licensee”), and Tufts University, a/k/a
Trustees of Tufts College (“Tufts”). Each of Licensee and Tufts is sometimes referred to individually herein as a “Party” and
collectively as the “Parties”.
WHEREAS, the Parties entered into the Tufts University License Agreement, effective as of February 1, 1997 and
entered into amendments thereto: Amendment No. 1 dated as of December 29, 1997, Amendment No. 2 dated July 31, 1998,
Amendment No. 3 dated June 3, 1999, Amendment No. 4 dated August 14, 2000, Amendment No. 5 dated September 10, 2001,
Amendment No. 6 dated December 11, 2002, Amendment No. 7 dated July 1, 2003 and Amendment No. 8 dated November 20,
2012, as so amended, the “License Agreement”; and
WHEREAS, the Parties now wish to further amend the License Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto, intending to be legally bound,
hereby agree as follows:
1.
Amendments to Agreement.
following is hereby inserted in lieu thereof:
(a)
The fourth paragraph of Article VI of the License Agreement is hereby deleted in its entirety and the
“Notwithstanding the foregoing, Tufts shall have the right at any time after [***] to convert the License
hereunder to non-exclusive if Licensee, its Subsidiaries or its sublicensees have not by the time of such conversion met
each of the following milestones by the applicable date:
Milestone
[***]
[***]
Due By
[***]
[***]
hereby inserted in lieu thereof:
(b)
The Covenant in Section 4 of Amendment No. 8 is hereby deleted in its entirety and the following is
“4. Covenant. The Parties hereby covenant and agree to use commercially reasonable efforts to reach a mutually
satisfactory agreement on an amendment to Exhibit A to the License Agreement as soon as practicable after the
Amendment Effective Date and before [***].”
2.
Payment of outstanding Minimum Royalty Fees due under Section 2 of Amendment No. 8. The $25,000
Minimum Royalty Fee described in the invoice dated [***] and attached as Appendix A to this Amendment No. 9 shall be paid
by Licensee to Tufts by [***]. The $25,000 Minimum Royalty Fee described in the invoice dated [***] and attached as
Appendix B to this Amendment No. 9 shall be paid by Licensee to Tufts within by [***].
3.
Miscellaneous. The Parties hereby confirm and agree that the License Agreement, as amended hereby and as
further provided in this Amendment, together shall constitute the entire amended License Agreement among the parties, remains
in full force and effect and is a binding obligation of the Parties hereto. This Amendment may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the Amendment Effective Date.
PARATEK PHARMACEUTICALS, INC.
/s/ Dennis Molnar
By:
Name: Dennis Molnar
Title:
President and Chief Executive Officer
TUFTS UNIVERSITY A/K/A TRUSTEES OF TUFTS
COLLEGE
/s/ Diane L. Souvaine
By:
Name: Diane L. Souvaine
Title:
Vice-Provost for Research
TUFTS UNIVERSITY
Office for Technology Licensing and Industry Collaboration
136 Harrison Avenue, Suite 75K-950
Boston, MA 02111
FEIN 04 210 3634
Appendix A
[***]
Tufts invoice 13/OTLIC/083 (revised)
By email to dmolnar@Paratekpharm.com
Dennis Molnar
President, Chief Executive Officer
Paratek Pharmaceuticals, Inc.
75 Kneeland Street
Boston, MA 02111
Re:
Tufts University—Paratek Pharmaceuticals License Agreement
effective February 1, 1997
Amendment 8 of November 20, 2012
Amendment to section 3.3
Minimum royalty payment of twenty five thousand dollars at the end of each twelve month period commencing on each
anniversary of effective date
INVOICE
Fee due for license period through the amendment 8 effective date
February 1, 2012, through January 31, 2013
Please make your check payable to Tufts University and send it to
Thomas McVarish
Tufts University
Office of the Vice Provost
Suite 75K-950
136 Harrison Avenue
Boston, MA 02111
Phone ● [***] E-mail ● [***]
TUFTS UNIVERSITY
Office for Technology Licensing and Industry Collaboration
136 Harrison Avenue, Suite 75K-950
Boston, MA 02111
FEIN 04 210 3634
[***]
Tufts invoice 14/OTLIC/062
By email to dmolnar@Paratekpharm.com
$25,000.00
Appendix B
Dennis Molnar
President, Chief Executive Officer
Paratek Pharmaceuticals, Inc.
75 Kneeland Street
Boston, MA 02111
Re:
Tufts University—Paratek Pharmaceuticals License Agreement
effective February 1, 1997
Amendment 8 of November 20, 2012
Amendment to section 3.3
Minimum royalty payment of twenty five thousand dollars at the end of each twelve month period commencing on each
anniversary of effective date
INVOICE
Fee due for license period
February 1, 2013, through January 31, 2014
Please make your check payable to Tufts University and send it to
Thomas McVarish
Tufts University
Office of the Vice Provost
Suite 75K-950
136 Harrison Avenue
Boston, MA 02111
Phone ● [***] E-mail ● [***]
$25,000.00
Exhibit 10.50
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED WITH [***], HAS BEEN
OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) IS THE TYPE THAT THE REGISTRANT TREATS AS
PRIVATE OR CONFIDENTIAL.
AMENDMENT OF SOLICITATION OF CONTRACT
1. CONTRACT ID CODE
2. AMENDMENT/MODIFICATION NO.
P0001
6. ISSUED BY
3. EFFECTIVE DATE
See Block 16C
ASPR-BARDA
4. REQUISITION/PURCHASE REQ.NO.
See Schedule
7. ADMINISTERED BY(If other than Item 6)
CODE
PAGE OF PAGES
1
4
PROJECT NO. (if applicable)
CODE
ASPR-BARDA
ASPR-BARDA
200 Independence Ave., S.W.
Room 640-G
Washington DC 20201
ASPR-BARDA
US DEPT OF HEALTH & HUMAN SERVICES
BIOMEDICAL ADVANCED RESEARCH & DEVELOPMENT AUT
200 INDEPENDNCE AVE, S.W.
Washington DC 20201
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
(X)
9A AMENDMENT OF SOLICITATION NO.
PARATEK PHARMACEUTICALS INC 1549007
Attn: [***]
PARATEK PHARMACEUTICALS, INC.
75 PARK PLZ FL 4
BOSTON MA 021163934
9B DATED (SEE ITEM 11)
CODE1549007
FACILITY CODE
(X)
10A MODIFICATION OF CONTRACT/ORDER NO.
75A50120C00001
10B DATED (SEE ITEM 13)
12/18/2019
The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
is extended
is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing Items 8 and 15,
and returning _________ copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted or (c) By separate letter or electronic communication
which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE
RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer
already submitted, such change may be made by letter or electronic communication, provided each letter or electronic communication makes reference to the solicitation and this amendment,
and is received prior to the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATE (If required)
2020.1991073.25106
$97,210,132.00
Net Increase:
CHECK ONE
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER
13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
NO. IN ITEM 10A
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office,
appropriation data, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).
X
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
FAR 52.217-7, 52.217-9, and FAR 43.103(a) Bilateral: Mutual Agreement of the Parties
D. OTHER (Specify type of modification and authority)
is not ☒ is required to sign this document and return _______1_ copies to the issuing office
E. IMPORTANT: Contractor
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)
Tax ID Number: 33-0960223
DUNS Number: 076333934
The purpose of this modification is to exercise Option CLINs 0004 and 0005, and change the period of performance of CLIN 0004 as follows:
1. ARTICLE B.3. OPTION PRICES, is modified to change the period of performance of CLIN 0004 and exercise and fund CLINs 0004 and 0005.
2. C.1. STATEMENT OF WORK, is updated to reflect revised delivery dates.
3. ARTICLE G.1. CONTRACTING OFFICER (CO) is changed to [***].
4. ARTICLE G.2. CONTRACTING OFFICER?S REPRESENTATIVE (COR), is modified to add [***], as an Alternate COR.
5. The period of performance is changed to 12/18/2019 through 5/31/2026.
Continued . . .
Except as provided herein, all terms and conditions of the document referenced in Item 9 A or 10A, as heretofore changed, remains unchanged and in full force and effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
[***]
[***]
15b. CONTRACTOR/OFFEROR
15C. DATE SIGNED
16B. UNITED STATES OF AMERICA
[***]
(Signature of person authorized to sign)
March 27, 2020
[***]
(Signature of Contracting Officer)
16C. DATE SIGNED
March 27, 2020
Previous edition unusable
STANDARD FORM 30 (REV. 11/2016)
Prescribed by GSA FAR (48 CFR) 53.243
CONTINUATION SHEET
REFERENCE NO. OF DOCUMENT BEING CONTINUED
75A50120C00001/P00001
NAME OF OFFEROR OR CONTRACTOR
PARATEK PHARMACEUTICALS INC 1549007
PAGE OF
2
4
ITEM NO.
(A)
SUPPLIES/SERVICES
(B)
QUANTITY
(C)
UNIT
(D)
UNIT PRICE
(E)
AMOUNT
(F)
6. SECTION J, Attachment 1, SOW, is replaced.
7. The total contract value is increased by $97,210,132 from $59,380,559 to $156,590,691.
See supplemental pages for remainder of modification. All other terms and conditions of this
contract remain in full force and effect.
Appr. Yr.: 2020 CAN: [***] Object Class: [***]
Period of Performance: 12/18/2019 to 05/31/2026
Change Item 4 to read as follows(amount shown is the obligated amount):
BARDA Security Requirements
Requisition No: OS256339
Change Item 5 to read as follows (amount shown is the obligated amount):
Post-Marketing Study Commitments/Requirements for
Authorized Commercial Indication including
Relabeling of Approved Drug in the ASPR/SNS or VMI
Requisition No: OS256331
4
5
20,435,260.00
76,774,872.00
OPTIONAL FORM 336 (4-86)
Sponsored by GSA
FAR (48 CFR) 53.110
Contract No. 75A50120C00001
Modification No. 0001
Total Obligated Funding
Prior to this mod (CLIN 0001)
This Mod 1 (CLIN 0004)
This Mod 1 (CLIN 0005)
Subtotal
Prior to this mod (CLIN 0002)
Total Funded
Continuation Sheet
Block 14
Page 3 of 4
Obligated Funding – CPFF Line Items
Cost
[***]
[***]
[***]
[***]
Fee
[***]
[***]
[***]
[***]
CPFF
[***]
$20,435,260
$76,774,872
[***]
Obligated Funding – FFP Line Items
FFP
[***]
$156,590,691
ARTICLE B.3. OPTION, is modified to change the period of performance of CLIN 0004 as follows:
Optional Cost Reimbursement CLINs
CLIN
Period of
Performance
Supplies/ Services
Total Est. Cost
Fixed Fee
Total Cost Plus Fixed
Fee ($)
0004 (Option) 04/01/2020 – [***] BARDA Security Requirements
[***]
[***]
$20,435,260 (Funded)
0005 (Option) 04/01/2020 – [***]
Post-Marketing Study Commitments/
Requirements for the authorized commercial
indication including relabeling of approved
drug in the ASPR/SNS or VMI (this is an
option that may or may not be exercised as
required by the FDA)
ARTICLE C.1. STATEMENT OF WORK
[***]
[***]
$76,774,872
(Funded)
Independently and not as an agent of the Government, the Contractor shall furnish all the necessary services, qualified personnel, material,
equipment, and facilities not otherwise provided by the Government as needed to perform the Statement of Work dated March 23, 2020 set
forth in SECTION J - List of Attachments, attached hereto and made a part of the contract.
Contract No. 75A50120C00001
Modification No. 0001
Continuation Sheet
Block 14
Page 4 of 4
ARTICLE G.1. CONTRACTING OFFICER (CO), is modified to change the CO to the following:
[***]
DHHS/OS/ASPR/BARDA
200 C St.
O’Neill House Office Building
Washington DC 20515
[***]
ARTICLE G.2. CONTRACTING OFFICER’S REPRESENTATIVE (COR), is modified to add an Alternate COR as follows:
The following Contracting Officer's Representative (COR) will represent the Government as an Alternate COR for the purpose of this
contract:
[***]
Contracting Officer's Representative
Chief Antibacterials Branch
Biomedical Advanced Research and Development Authority (BARDA)
Office of the Assistant Secretary for Preparedness and Response
Department of Health and Human Services
[***]
Mailing Address:
200 C St.
O’Neill House Office Building (BARDA)
Washington, D.C. 20515
The alternate COR is responsible for carrying out the duties of the COR in the event that the COR can no longer perform his/her duties as
assigned.
SECTION J – LIST OF ATTACHMENTS, Attachment 1, Statement of Work, is replaced as follows:
1.
Statement of Work, dated March 23, 2020, 11 pages
Request for Proposal (RFP)
(19-100-SOL-00011)
Project BioShield Acquisition of Biological Medical Countermeasures
Contractual Statement of Work 3/26/2020
PREAMBLE
Independently and not as an agency of the Government, the Contractor shall be required to furnish all the necessary services, qualified
personnel, material, equipment, and facilities, not otherwise provided by the Government, as needed to perform the Statement of Work
submitted in response to the BARDA Request for Proposal (RFP) BARDA CBRN 19-100-SOL-00011.
The Government reserves the right to modify the milestones, progress, schedule, budget, or deliverables to add or delete deliverables,
process, or schedules if the need arises. Because of the nature of this research and development (R&D) contract and the complexities inherent
in this and prior programs, at designated milestones the Government will evaluate whether work should be redirected, removed, or whether
schedule or budget adjustments should be made. The Government reserves the right to change the product, process, schedule, or events to
add or delete part or all of these elements as the need arises.
Overall Objectives and Scope
The overall objective of this contract is to procure an antibiotic that can be used under Emergency Use Authorization (EUA) pre-approval or
marketing authorization for the treatment and/or post- exposure prophylaxis treatment of pulmonary anthrax. The Contractor will develop
NUZYRA® for Animal Rule licensure, with the objective of making it suitable for stockpiling and use to treat infections with B. anthracis.
Once suitable regulatory authorization has been achieved or under an applicable stockpiling authority, NUZYRA® will be purchased and
delivered to the SNS stockpile or these supplies will become part of a VMI program managed by Paratek. Optional objectives cover activities
to help secure the NUZYRA® supply chain, activities to support the commercial sustainability of NUZYRA® with the objective to ensuring
continued supply, activities intended to expand the Animal Rule licenses of NUZYRA®, and further purchases for VMI managed by Paratek.
The scope of work for this contract includes preclinical, clinical, manufacturing and procurement activities that fall into the following areas:
nonclinical activities; clinical activities; manufacturing activities; procurement activities and all associated regulatory, quality assurance,
management, and administrative activities. The Research and Development (R&D) efforts and procurement of NUZYRA® will progress in
specific stages that cover the base performance (CLINs 1 and 2) segment and six (6) option segments (CLINs 3 to 8) as specified in this
contract. The Contractor must complete specific tasks required in each of the discrete work segments. The scope of work has been broken
into the following phases which are discrete work segments:
1.
2.
3.
4.
5.
6.
7.
8.
CLIN 1: LATE STAGE DEVELOPMENT TO SUPPORT LICENSURE OF ANTIBIOTIC (ANTHRAX)
CLIN 2: INITIAL PURCHASE, STORAGE AND DELIVERY OF ANTIBIOTIC AS FINAL DRUG PRODUCT (FDP)
CLIN 3: SUPPLEMENTAL LATE STAGE DEVELOPMENT FOR ANTHRAX
CLIN 4: BARDA SECURITY REQUIREMENTS, [***]
CLIN 5: POST-MARKETING STUDY COMMITMENTS/ REQUIREMENTS FOR COMMERCIAL CABP AND
ABSSSI INDICATIONS
CLIN 6: ADDITIONAL PROCUREMENT OF ANTIBIOTIC(S) AS FINAL DRUG PRODUCT (FDP)
CLIN 7: ADDITIONAL PROCUREMENT OF ANTIBIOTIC(S) AS FINAL DRUG PRODUCT (FDP)
CLIN 8: ADDITIONAL PROCUREMENT OF ANTIBIOTIC(S) AS FINAL DRUG PRODUCT (FDP)
CLIN 1: LATE STAGE DEVELOPMENT TO SUPPORT LICENSURE OF ANTIBIOTIC (ANTHRAX)
1.
The Contractor will continue to develop of NUZYRA® for the treatment of pulmonary Anthrax with the objective of obtaining approval
through the FDA Animal Rule.
[***]
2.
The Contractor will supply 2,500 drug product treatment courses of NUZYRA®
CLIN 2: INITIAL PURCHASE, STORAGE AND DELIVERY OF ANTIBIOTIC AS FINAL DRUG PRODUCT (FDP)
[***]
3.
[***]
CLIN 3: SUPPLEMENTAL LATE STAGE DEVELOPMENT FOR ANTHRAX
4.
CLIN 4: BARDA SECURITY REQUIREMENTS, [***]
[***]
5.
[***]
CLIN 5: POST-MARKETING STUDY COMMITMENTS/ REQUIREMENTS FOR COMMERCIAL CABP AND ABSSSI
INDICATIONS
CLIN 6: ADDITIONAL PROCUREMENT OF ANTIBIOTIC(S) AS FINAL DRUG PRODUCT (FDP)
6.
The Contractor shall store and maintain under the recommended storage conditions purchased NUZYRA® drug product inventory for the US
Government in a VMI or deliver such inventory to the ASPR/SNS in the manner described in CLIN 2.
CLIN 7: ADDITIONAL PROCUREMENT OF ANTIBIOTIC(S) AS FINAL DRUG PRODUCT (FDP)
7.
The Contractor shall store and maintain under the recommended storage conditions purchased NUZYRA® drug product inventory for the US
Government in a VMI or deliver such inventory to the ASPR/SNS in the manner described in CLIN 2.
CLIN 8: ADDITIONAL PROCUREMENT OF ANTIBIOTIC(S) AS FINAL DRUG PRODUCT (FDP)
8.
The Contractor shall store and maintain under the recommended storage conditions purchased NUZYRA® drug product inventory for the US
Government in a VMI or deliver such inventory to the ASPR/SNS in the manner described in CLIN 2.
Revised Timeline view of all CLINs provided in the SOW (3/26/2020)
[***]
WBS Milestone
[***]
[***]
[***]
[***]
[***]
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[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
Deliverable
Success
Criteria
Go/No-Go Year/Qtr
Achieved
[***]
[***]
[***]
[***]
[***]
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[***]
[***]
WBS
[***]
[***]
Milestone
[***]
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Deliverable
Success Criteria
Go/No-Go
Year/Qtr
Achieved
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Milestone
Deliverable
WBS
[***]
[***]
[***]
[***]
[***]
[***]
[***]
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Success Criteria
Go/No-Go
Year/Qtr
Achieved
[***]
[***]
[***]
[***]
[***]
[***]
Exhibit 21.1
Paratek Pharmaceuticals, Inc.
Subsidiaries
Paratek Ireland Limited
Paratek Pharma, LLC
Paratek Royalty Corporation
Paratek Royalty Corporation II
Paratek Securities Corporation
Paratek UK Limited
PRTK SPV1 LLC
PRTK SPV2 LLC
Transcept Pharma, Inc.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Registration Statement (Form S-3 No. 333-238150) of Paratek Pharmaceuticals, Inc.,
Registration Statement (Form S-8 No. 333-135506) pertaining to the Novacea, Inc. 2006 Incentive Award
Plan,
Registration Statement (Form S-8 No. 333-150869) pertaining to the Novacea, Inc. 2006 Incentive Award
Plan,
Registration Statements (Form S-8 Nos. 333-157927, 333-164468, 333-172041, 333-180517, 333-187254
and 333-194624) pertaining to the 2006 Incentive Award Plan of Transcept Pharmaceuticals, Inc.,
Registration Statement (Form S-8 No. 333-160222) pertaining to the 2009 Employee Stock Purchase Plan of
Transcept Pharmaceuticals, Inc.,
Registration Statement (Form S-8 No. 333-201204) pertaining to the Paratek Pharmaceuticals, Inc. 2014
Equity Incentive Plan, as amended,
Registration Statement (Form S-8 No. 333-205482) pertaining to the Paratek Pharmaceuticals, Inc. 2006
Incentive Award Plan, as amended and restated, the Paratek Pharmaceuticals, Inc. 2015 Equity Incentive Plan,
and the Paratek Pharmaceuticals, Inc. 2015 Inducement Plan,
Registration Statements (Form S-8 Nos. 333-210053, 333-217660, 333-224781, 333-230097, and 333-
237084) pertaining to the Paratek Pharmaceuticals, Inc. 2015 Equity Incentive Plan,
Registration Statements (Form S-8 Nos. 333-218847 and 333-228218) pertaining to the Paratek
Pharmaceuticals, Inc. 2017 Inducement Plan, as amended, and
Registration Statement (Form S-8 No. 333-226507) pertaining to the Paratek Pharmaceuticals, Inc. 2018
Employee Stock Purchase Plan;
of our report dated March 29, 2021, with respect to the consolidated financial statements of Paratek Pharmaceuticals, Inc.
included in this Annual Report (Form 10-K) of Paratek Pharmaceuticals, Inc. for the year ended December 31, 2020.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 29, 2021
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Evan Loh, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Paratek Pharmaceuticals, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision; to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
/s/ EVAN LOH, M.D.
Evan Loh, M.D.
Chief Executive Officer
March 29, 2021
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Sarah Higgins, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Paratek Pharmaceuticals, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision; to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
/s/ SARAH HIGGINS
Sarah Higgins
Principal Financial Officer
March 29, 2021
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Evan Loh, M.D., Chief Executive Officer of Paratek Pharmaceuticals,
Inc. (the “Company”), hereby certifies that, to the best of his knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), to which this Certification is attached
as Exhibit 32.1 fully complies with the requirements of Section 13(a) or Section 15(d), of the Exchange Act; and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations the
Company.
In Witness Whereof, the undersigned has set his hand hereto as of the 29th day of March, 2021.
/s/ EVAN LOH, M.D.
Evan Loh, M.D.
Chief Executive Officer
This certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and
is not to be incorporated by reference into any filing of Paratek Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (whether made before or after the date of this Annual Report on Form 10-K), irrespective of any general incorporation
language contained in such filing.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Sarah Higgins, Principal Financial Officer of Paratek Pharmaceuticals,
Inc. (the “Company”), hereby certifies that, to the best of her knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), to which this Certification is attached
as Exhibit 32.2 fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
In Witness Whereof, the undersigned has set her hand hereto as of the 29th day of March, 2021.
/s/ SARAH HIGGINS
Sarah Higgins
Principal Financial Officer
This certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and
is not to be incorporated by reference into any filing of Paratek Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (whether made before or after the date of this Annual Report on Form 10-K), irrespective of any general incorporation
language contained in such filing.