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MRSA (Methicillin-resistant Staphylococcus aureus) infects through an open wound and results in lesions and boils. It is resistant to conventional antibiotics, and if it gets into your system past skin, it can kill. In the United States 2.5 million (0.84% of population) carry MRSA, whereas worldwide up to 53 million are affected. A defining characteristic of MRSA is its ability to thrive in the presence of penicillin-like antibiotics, which normally prevent bacterial growth by inhibiting synthesis of cell wall material.

The leading medication against MRSA is linezolid by Pfizer (PFE). The cheapest price for Linezolid is $79.82 per pill that has to be taken twice a day orally for 14 days. That's over $2,200 a patient just for the medication. Linezolid's nearest competitor closest to clearing the clinical pipeline is tedizolid from the same family of antibiotics. Tedizolid is developed by Trius Therapeutics (TSRX), which has been working on it since 2004 at a total cost of $135M. Trius ranked number 42 on Deloitte's Technology Fast 500, a ranking of the five hundred fastest growing companies in North America. Trius' revenues grew 3,420 percent during the five year period ending 2011. Last year, Trius was ranked number 226 on the Fast 500 list (thus it was on this list two years in a row).

Tedizolid has already successfully completed one phase III trial for oral dosage, and is in the middle of its final phase III for intravenous treatment. The biggest advantage tedizolid has over Linezolid is that tedizolid is administered only once a day for 7 days. That's a fourth of the number of pills and half the time needed for treatment compared to Linezolid. Thus, Trius can price tedizolid at $320 a pill (four times Linezolid at its cheapest) and still undercut Pfizer in outpatient costs.

Trius is currently developing tedizolid also for the treatment of gram-positive infections including acute bacterial skin and skin structure infections (ABSSSI) and several other infectious syndromes such as, community-acquired bacterial pneumonia (CABP), hospital-acquired pneumonia (HAP), ventilator-acquired pneumonia (VAP) and bacteremia.

Tedizolid was tested extensively in vitro and in vivo in non-clinical primary and safety pharmacology, toxicology and efficacy studies. Overall results from multiple studies against a variety of Gram-positive aerobic and anaerobic bacteria demonstrate that tedizolid is 4-16 times more potent than linezolid against linezolid-susceptible strains and up to 16 times more potent against linezolid-resistant strains. In non-clinical studies, tedizolid phosphate has consistently shown activity and superiority to linezolid, whether dosed orally or intravenously. In addition, tedizolid can differentiate from linezolid on the basis of improved hematologic effects, potential lack of drug-drug interaction and improved resistance profile.

To finance research Trius entered in several contracts with US and EU institutes and companies. In September 2008, Trius entered into a five-year contract with the National Institute of Allergy and Infectious Diseases (NIAID), under which the firm may receive up to $27.7 million to develop therapeutics for the treatment of Gram-negative biodefense pathogens. Trius already received $19 million in revenues from research performed under this contract and can obtain ownership of each patentable invention. In this framework Trius develops a preclinical dual DNA Gyrase B (GyrB) and Topoisomerase IV E (ParE) program that represents an entirely new class of drugs with broad gram-positive and gram-negative activity. This program is fully funded through Phase I and has high potential. It already generated new partnering interest and can raise share price even higher.

In April 2010, Trius entered into a 4.5-year contract with the Defense Threat Reduction Agency (DTRA), a division of the U.S. Department of Defense, under which the firm may receive up to $29.5 million to optimize promising antibacterial compounds against Gram-negative bacteria. Trius also can obtain ownership of inventions. Up till now Trius received $6 million in revenues.

In April 2011, Trius entered into a three-year $3 million research contract with Lawrence Livermore National Laboratory (LLNL), part of the U.S. Department of Energy's National Nuclear Security Administration, to develop antibiotics directed against Gram-negative multi-drug-resistant bacterial pathogens. As of now, Trius has received just under $1 million in contract research revenues. To get funding for their clinical trials Prius also teamed up with Bayer (OTCPK:BAYZF) in July 2011.

TSRX share price will be affected by (1) Phase III ABSSSI data in the first half of 2013; (2) signing of an EU partnership for tedizolid in the first half of 2013; (3) U.S. and EU regulatory filings in the second half of 2013.

There are several possible developments in near future. Trius is a potential acquisition candidate Pfizer (PFE) to defend its linezolid franchise. In this case the share price can increase from current $4.5 to $13.

As of now, Trius had cash, cash equivalents and investments totaling $70.9 million. If tedizolid in U.S. will be launched in 2014 and in EU in 2015, then revenue projections are $21.1 million in 2014, $65.8 million in 2015, and $105.2 million in 2016 (based on current market share of linezolid). Royalty payment from Bayer to Trius will reach $2.5 million in 2015, $7.9 million in 2016, and $12.6 million in 2017. R&D expenses will be $70.1 million in 2012, $75.3 million in 2013, and $76.8 million in 2014, whereas launch of tedizolid will increase selling, general and administrative expenses from $16.3 million in 2012 to $53.6 million in 2013 and $77 million in 2014. This scenario produced $10 per share valuation (in comparison with current $4.50) with 5% premium pricing to branded linezolid (assuming that tedizolid will take market share away from linezolid).

The biggest risk to Trius is that tedizolid does not successfully differentiate itself enough from linezolid in order to maintain premium pricing when linezolid's patent expires in 2015 and generics enter the market. In this worst case scenario, Trius would still be worth $4.50/share that about the same value it is trading now. In addition, there can be increase of share price in the case of successful launch of tedizolid against ABSSSI.

Source: Trius: The Winner In The War Against MRSA