Summary
- Cempra Pharmaceuticals expects top-line data release for community acquired bacterial pneumonia by the end of Q1'15.
- Cempra's Solithromycin is also designed to potentially treat a wide array of bacterial infections, perhaps placing its potential value at the top of the developmental antibacterial company list.
- With Trius Pharma acquired by Cubist in late 2013, along with the very recent Tetraphase acquisition rumor buzz, Cempra is certain to join the fray if its data release proves positive.
Cempra Pharmaceuticals (NASDAQ:CEMP) continues to be one of our favorite long term prospects due to its assets in the antibiotic space and signs of excellent management. We originally covered the company in June of 2013 when the stock was trading in the $7/share range. Since that time, the stock has gained significant investor attention, and should continue to appreciate over time as the company has numerous studies with data due in 2015.
In this article, we will cover the company's upcoming coming Phase III top-line data release for CEM -101 (Solithhromycin), due by the first quarter of 2015, and discuss the drug's other indications it's being developed for.
Near Term Catalyst: Top-line data from the Solitaire-Oral Phase 3 Study
Solithromycin is being studied in Cempra's largest trial, the Solitaire-IV trial. In this trial, it's being compared to moxifloxacin in over 800 patients with community acquired bacterial pneumonia (CABP).
Solithromycin is likely the most valuable asset being developed by Cempra. The Drug is a ketolide antibiotic, which is in the macrolide class of antibiotics. In our opinion, results are likely to be positive because of solid Phase II data versus its comparator levoflaxacin. The FDA also is being more lenient with efficacy results because it is looking to expand the types of antibiotics that are on the market.
What may set Solithromycin aside from conventional pneumonia therapies are its possible intravenous-to-oral step-down capabilities. Studies show that 40%-50% of hospitalized pneumonia patients would be successfully treated by switching from IV to oral after 2-3 days of IV.
Step-down therapy requires the continuation of the same antibiotic, but a change in delivery method. By switching from IV to oral, a patient is not required to stay in the hospital. Step-down and switchover therapies are being used more and more by doctors to limit costs and burdens associated with hospital stays. If approved, Solithromycin would be the first macrolide approved in twenty years that has oral and intravenous administrational capabilities.
Due to the mechanism of action of macrolides, adverse effects seem to be dramatically decreased. If this scope of low toxicity can be demonstrated in Phase III trials, Solithromycin has a great shot at approval. The drug received the Qualified Infectious Disease Product Designation from the FDA in September of 2013 for the CABP indication.
In the phase II clinical trial for CABP, Solithromycin was compared to oral Levofloxacin in 132 patients. Not only was non-inferiority reached over levofloxacin, the safety profile of Solithromycin was superior by a vast amount:
- Solithromycin-treated patients experienced fewer treatment-emergent adverse events (29.7%) than levofloxacin-treated patients (45.6%).
- No patients on solithromycin discontinued treatment due to an adverse event whereas six patients on levofloxacin discontinued treatment due to an adverse event.
- Solithromycin demonstrated efficacy comparable to levofloxacin with a favorable safety and tolerability profile that showed fewer treatment- emergent adverse events than levofloxacin.
Additional indications for Solithromycin
According to IMS health, the most comparative macrolide with the same mode of action as Solithromycin is Azithromycin (Zithromax), which sold 52 million prescriptions in 2010, reaching sales of $1.1 billion.
However, it's worth noting that other indications in which Solithromycin is being evaluated may end up being worth more than its CABP indication. Although early, Solitryomycin has also shown some effectiveness in treating Gonorrhea. Gonorrhea is another $1B market, so success with indication could be very profitable. We believe many investors are disregarding the value of Solithromycin for Gonnorrhea in the Cempra stock.
Gonorrhea
In October of 2012, Cempra released data from a small trial testing Solithromycin on patients with uncomplicated urogenital Gonorrhea. Although the trial was small, all twenty-two evaluable patients with positive baseline cultures were fully cleared of their gonococcal infections. This is compelling data and shows that Solithromycin is extremely potent against gonorrhea.
A large market opportunity exists for a compound that is effective against gonorrhea. In Japan doctors have even found a strain that is totally drug resistant to all recommended forms of antibiotics. Even in America there are almost no effective treatments left of the market, with Suprax being the most recent to be deemed non-effective against gonorrhea.
With more than 700,000 new cases being reported every year, and over 100 million cases per year worldwide, a very large market opportunity for Solithromycin exists as a first or second option.
According to the Center for Disease Control, Roche's Ceftriaxone (Rocephin) is the only effective, approved treatment left on the market for goncoccal infections. Solithromycin is an oral treatment, which Rochepin is administered via IV. That advantage could easily place Solithromycin as a first-line choice for patients and doctors if approved. With superbug status, Cempra is hoping its trial studying Solithromycin for gonorrhea to get funded by government grants.
Gonorrhea represents roughly a $1B market worldwide. As possibly the only other effective treatment available, Solithromycin represents a considerably large potential revenue generator if approved. With 100% of patients experiencing a cure for their infection in previous trials, success for this indication looks promising.
Positive Data Backing Safety for Patients with Liver Disease
Although somewhat unnoticed to the investment community, the company has completed a set of data from a study evaluating patients with chronic liver disease. The data from this "hepatic impairment" study provides more insight into how safe the antibiotic really is. We believe that Cempra was smart to study these volunteers with liver issues for a number of reasons.
This study shows the FDA the drug's safety and lack of toxicity to the liver. Although in the same family as Solithromycin, Ketek is different structurally, and was pulled from the market in 2007. Ketek (Telithromycin) was the first ketolide antibiotic in the macrolide class.
A scientist at Sanofi (SNY) withheld data showing its toxicity to the liver. Solithromycin does not inhibit the alpha-7 acetycholine nicotine receptor like Ketek did, and such inhibition is believed to be responsible for those adverse effects observed with the drug.
We can assume that this study was done to limit any chance of the FDA asking for more safety data to prevent another event like that from happening. This study of twenty-four patients with different stages of liver disease showed absolutely no toxicity or safety issues to patients, and provides even further proof to the FDA that Solithromycin is very safe, unlike Ketek. Even though Solithromycin is a fluoroketolide, and is of a different chemical makeup than Ketek, this study with surely take away any of those doubts upon a possible approval. This shows that management is forward-looking and proactive, instead of reactive.
CONCLUSION
Cempra's QIDP designation for CABP is very important because it's a life-threatening infection. The special designation means the company gets five additional years of marketing exclusivity before a generic drug can hit the market and undercut the profits from Solithromycin for the CABP indication.
The recent United States Ebola scare for the most part was more about attention grabbing headlines than a real threat. However, Methicillin-resistant Staphylococcus aureus (MRSA), other Streptococcus species, and Enterococcus pose a greater and more realistic health threat to Americans. The U.S. Centers for Disease Control and Prevention estimates that more than two million Americans are infected with bacteria that are resistant to antibiotics every year. MRSA is on the rise, with infections doubling in just the last five years. New antibiotics need to be constantly developed to keep up with new infections and mutations of current infections.
Antibiotics are extremely popular with biotech investors and traders because there is a continual need for new antibiotics to come on the market - it is no doubt a hot sector that has recently become even hotter.
Acquisition rumors have recently been making the rounds on Tetraphase Pharmaceuticals (NASDAQ:TTPH). According to a Bloomberg report:
The biotechnology company [Tetraphase] is working with advisers to explore its options, the people said, asking not to be identified because the deliberations are private. Tetraphase may attract interest from bidders including Actelion Ltd (OTC:ALIOF)) and Roche Holding AG (OTC:RHHBY), the people said."
The acquisition rumor here is centered around Tetraphase's Eravacycline, a broad-spectrum intravenous and oral antibiotic for the treatment of multi-drug-resistant (MDR) infections, including those caused by MDR Gram-negative bacteria.
Eravacycline is currently being evaluated for the treatment of intra-abdominal infections and urinary tract infections.
Acquisition interest in companies with promising antibacterial drugs and treatments certainly isn’t something new or unusual. Antibiotic trial results are easier to predict than other drug indications. As long as safety can be proven, antibiotics are easier approvals with the FDA because the increasing resistance to current drug. Therefore, there is substantially less risk for larger pharmaceutical companies in these types of acquisitions.
In 2013, we covered Trius Therapeutics and its developmental antibiotic, Tedizolid. At that time, we speculated that Trius was likely to be acquired by a larger company even before Tedizolid was approved by the FDA.
Subsequently, Trius was in fact acquired by Cubist Pharmaceuticals (NASDAQ:CBST) in July of 2013 for an estimated value up to $818M. After acquiring Trius for the Tedizolid asset, Cubist renamed the drug to Sivextro.
In June of this year, the FDA approved Sivextro to treat patients with acute bacterial skin and skin structure infections caused by certain susceptible bacteria, including Staphylococcus aureus (including MRSA and methicillin-susceptible strains), various Streptococcus species, and Enterococcus faecalis.
Cempra's Solithromycin is far more valuable than Sivextro in our estimation, as it's being developed to treat a wide array of infections. We think if the data upcoming proves positive as we believe, Cempra should at least be worth double the $800M + that Trius was sold for. Our valuation does not even consider TAKSTA (CEM-102), which is currently at Phase II clinical trial status for prosthetic joint infections.
We think Cempra is also in play here, and might have the most promising platform currently out there. Cempra's current market cap of around $500M is simply far too low and very attractive to potential suitors to ignore. For the reasons we mention in this article, we are confident that Solithromycin Phase III CABP data will show to be positive.
While the risk in taking a position in the stock is greater now because there is no guarantee the data will be good, if the data is good Cempra should see a large increase in market cap, perhaps as high if not higher than Tetraphase's current $760M cap. When compared to what Trius sold for, $700M might be a low ball number.