After markets closed on Tuesday, NexPoint Asset Management, the largest independent shareholder in Paratek Pharmaceuticals (US:PRTK), demanded an in-depth review of all records relating to the proposed acquisition by Gurnet Point Capital and Novo Holdings, which is owned by Novo Nordisk (US:NVO).

This latest demand followed last month's announcement by Gurnet Point Capital and Novo Holdings of their intention to acquire Boston-based Paratek at a total transaction value of up to $462 million.

Paratek, a commercial-stage biopharmaceutical company, is known for its groundbreaking work in developing novel therapies for life-threatening diseases and public health threats. 

The acquisition proposal includes the acquisition of all outstanding shares of Paratek at $2.15 per share in cash, a Contingent Value Right (CVR) of 85 cents per share, payable upon U.S. NUZYRA net sales reaching $320 million in any calendar year ending on or prior to Dec. 31, 2026, and the assumption of all outstanding Paratek debt, which was $261.6 million as of March 2023.

The offer price is around the stock’s current share price which is its lowest point in five years, trading down 80% in that time.

Weak Financial Performance

Fintel’s earnings analysis for PRTK illustrates management's track record against market expectations for each quarter over the last three years. The chart below helps visualize how many quarters were below expectations with some significant blow-out quarters.

NexPoint’s June 27 letter expressed serious concerns with Paratek's long-term underperformance, what the investor said was the board's perceived failure to hold management accountable, as well as the process approving a sale to Gurnet Point.

“The company’s revenue is far below many analysts’ expectations despite management having spent over approximately $440 (million) on sales, marketing and administrative expenses, which includes what we perceive as excessive amounts of compensation for senior management,” NexPoint wrote in its letter.

According to the company’s annual report, Paratek CEO Evan Loh, M.D., was paid $2.04 million last year, down from his $3.61 million compensation in 2021.

Withholding Votes 

Dallas-based NexPoint stated that while it would await further review of materials filed by Paratek before determining its vote on the proposed acquisition, it intended to withhold its votes against each of the directors up for election to express discontent with the Board's history of misaligned pay for performance and approval of an executive compensation structure deemed not in the best interest of stockholders.

Yesterday's demand letter amplified NexPoint's concerns, asking for all books and records surrounding the proposed acquisition. NexPoint's plan is to investigate whether any board members breached their fiduciary duties in connection with the proposed acquisition. 

The shareholder group led by NexPoint, which beneficially owns approximately 11.7% of Paratek's outstanding common stock, has been concerned over what it sees as management's inability to execute a sales plan and the board's failure to hold management accountable.

Paratek announced its acquisition agreement with Gurnet Point Capital and Novo Holdings on June 6. The biopharma’ board unanimously approved the transaction, which is expected to close in the third quarter of 2023, subject to approval by PRTK stock holders and receipt of regulatory approvals.

Analyst See Done Deal

HC Wainwright analyst Ed Arce continues to think the acquisition will be completed by the end of September as expected, regardless of NexPoint’s plan to vote against board members.

Fintel’s consensus target price of $3.16 suggested that analysts in the market valued the stock around the offer price, inclusive of the CVR.

The demand for transparency comes amidst a wave of shareholder activism aimed at ensuring corporate decisions align with shareholder interests. The ultimate outcome of NexPoint's demand for transparency could set a significant precedent for the future of shareholder rights in corporate transactions.