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Based in Watertown, MA, Tetraphase Pharma (NASDAQ:TTPH) scheduled a $75 million IPO with a market capitalization of $179 million at a price range mid-point of $11 for Wednesday, March 20, 2013.

S-1 filed March 5, 2013

Manager, Joint Managers: Barclays; BMO Capital Markets
Co Managers: Stifel; JMP Securities; Needham & Company

SUMMARY

  • TTPH is a clinical stage biopharmaceutical company using a proprietary chemistry technology to create novel antibiotics for serious and life-threatening multi-drug resistant infections.
  • IPO funds expected Phase III clinical trial costs of eravacycline through 2015.
  • More capital required down the road.
Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

yr ended Dec 2012

Cap (MM)

Sales

Earnings

BookValue

TangibleBV

in IPO

Tetraphase Pharma

$176

23.2

-11.7

2.7

2.7

43%

Glossary of financial terms

RECOMMENDATION
Watch TTPH's progress and perhaps participate in a secondary in the future.

BUSINESS
TTPH is a clinical stage biopharmaceutical company using a proprietary chemistry technology to create novel antibiotics for serious and life-threatening multi-drug resistant infections.

The lead product candidate, eravacycline, is a fully synthetic tetracycline derivative that TTPH is developing as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug resistant Gram-negative infections.

TTPH recently completed a successful Phase 2 clinical trial of eravacycline with intravenous administration for the treatment of patients with complicated intra-abdominal infections, or cIAI, and currently is finalizing a pivotal Phase 3 program for eravacycline.

Consistent with recent draft guidance issued by the Food and Drug Administration, or FDA, with respect to the development of antibiotics for cIAI and discussions with the FDA at TTPH's end-of-Phase 2 meeting in January 2013, TTPH expects to conduct two global Phase 3 clinical trials of eravacycline, one for the treatment of cIAI and one for the treatment of complicated urinary tract infections, or cUTI.

EXPECTATIONS
TTPH expects to have top-line data from both of these clinical trials in the first quarter of 2015. If TTPH completes the Phase 3 clinical trials of eravacycline when anticipated and the trials are successful, TTOH expects to submit a new drug application, or NDA, to the FDA in the second half of 2015 and a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, in the first half of 2016.

TTPH believes that the ability of eravacycline to cover multi-drug resistant Gram-negative bacteria, as well as multi-drug resistant Gram-positive, anaerobic and atypical bacteria, and its potential for intravenous to oral step-down therapy, will enable eravacycline to become the drug of choice for first-line empiric treatment of a wide variety of serious and life-threatening infections.

MARKET POTENTIAL
As a result of the increasing prevalence of such multi-drug resistant bacteria, some antibiotics targeting these bacteria have been highly successful commercially. These include:

linezolid, an intravenously and orally administered antibiotic marketed by Pfizer as Zyvox, which had worldwide sales in 2011 of $1.3 billion;

levofloxacin, an intravenously and orally administered antibiotic marketed by Ortho-McNeil and Johnson & Johnson as Levaquin, which had worldwide sales in 2011 of $623 million down from worldwide sales of $1.4 billion in 2010 after losing U.S. market exclusivity in June 2011;

meropenem, an intravenously administered antibiotic marketed by AstraZeneca as Merrem, which had worldwide sales in 2011 of $583 million down from worldwide sales of $817 million in 2010 after losing U.S. market exclusivity in June 2010; and

daptomycin, an intravenously administered antibiotic marketed by Cubist Pharmaceuticals, Inc. as Cubicin, which had worldwide sales in 2011 of $736 million

PROPRIETARY ADVANTAGE
The tetracycline class of antibiotics has been used successfully for more than 50 years. Unlike TTPH's tetracycline compounds, all tetracyclines on the market and under development of which TTPH is aware are produced semi-synthetically, first in bacteria and then modified in a limited number of ways by available chemistry.

These conventional methods have only been able to produce tetracycline antibiotics with limited chemical diversity, making it difficult for conventional technology to create tetracycline antibiotics that address a wide variety of multi-drug resistant bacteria. In part, because of the challenges in creating novel tetracycline molecules, only one tetracycline antibiotic has been developed and approved by the FDA for sale in the United States in the past 30 years.

Licensed from Harvard University
TTPH believes that its proprietary chemistry technology, licensed from Harvard University on an exclusive worldwide basis and enhanced by TTPH, represents a significant innovation in the creation of tetracycline drugs that has the potential to reinvigorate the clinical and market potential of the class.

TTPH's proprietary chemistry technology makes it possible to create novel tetracycline antibiotics using a practical, fully synthetic process for what TTPH believes is the first time. This fully synthetic process avoids the limitations of bacterially derived tetracyclines and allows TTPH to chemically modify many positions in the tetracycline scaffold, including most of the positions that we believe could not practically be modified by any previous method.

Using TTPH's proprietary chemistry technology, TTPH can create a wider variety of tetracycline-based compounds than was previously possible, enabling TTPH to pursue novel tetracycline derivatives for the treatment of multi-drug resistant bacteria that are resistant to existing tetracyclines and other classes of antibiotic products. To date, TTPH has used its proprietary chemistry technology to create more than 2,800 new tetracycline derivatives that TTPH believes could not be practically created with conventional methods. TTPH owns exclusive worldwide rights to these compounds and the technology.

MORE CAPITAL REQUIRED
TTPH believes that available funds following the IPO will be sufficient to enable TTPH to obtain top-line data from both planned Phase 3 clinical trials of eravacycline.

TTPH expects that these funds will not be sufficient to enable TTPH to seek marketing approval for eravacycline or commercially launch eravacycline.

Accordingly, TTPH will be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources

CONTRACT & GRANT REVENUE
TTPH has derived all of its revenue to date from funding provided under three U.S. government awards for the development of compounds as potential counter measures for the treatment of disease caused by bacterial biothreat pathogens through the collaborator CUBRC Inc. CUBRC is an independent, not-for-profit, research corporation that specializes in U.S. government-based contracts:

Contract awards include the following:
In January 2012, BARDA awarded CUBRC a five-year contract that provides for up to a total of $67.0 million in funding for the development, manufacturing and clinical evaluation of eravacycline for the treatment of disease caused by bacterial biothreat pathogens. TTPH refers to this contract as the BARDA Contract.

A grant awarded to CUBRC in July 2011 provides up to a total of $2.8 million over five years. A contract awarded to CUBRC in September 2011 provides up to a total of $35.8 million in funding over five years.

In connection with the BARDA Contract, in February 2012, TTPH entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which TTPH may receive funding of up to $39.8 million, reflecting the portion of the BARDA Contract funding that may be paid to TTPH for its activities.

INTELLECTUAL PROPERTY
As of December 31, 2012, TTPH owned ten pending U.S. patent applications, one of which is a provisional application, and 50 pending foreign patent applications in Europe and 17 other jurisdictions, as well as two pending Patent Cooperation Treaty, or PCT, applications.

No U.S. patents or foreign patents have been issued to TTPH yet. In addition TTPH has exclusively licensed from Harvard University rights under four U.S. patents, seven foreign patents, four pending U.S. patent applications and 25 pending foreign patent applications in Europe and 11 other jurisdictions and one PCT application.

COMPETITION
TTPH is developing eravacycline as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug resistant Gram-negative infections.

If approved, eravacycline would compete with a number of currently marketed antibiotics, including meropenem, which is marketed by AstraZeneca as Merrem, imipenem/cilastatin, which is marketed by Merck as Primaxin, tigecycline, which is marketed by Pfizer as Tygacil, levofloxacin, which is marketed by Ortho-McNeil and Johnson & Johnson as Levaquin, and piperacillin/tazobactam, which is marketed by Pfizer as Zosyn, as well as antibiotics currently in Phase 3 development, including ceftazidime/avibactam and ceftaroline/avibactam, which are being developed by AstraZeneca, and cefalozine/tazobactam, which is being developed by Cubist.

TTOH also expects that eravacycline, if approved, would compete with future generic versions of currently marketed antibiotics.

5% STOCKHOLDERS PRE-IPO
Mediphase Venture Partners, 15%
Flagship Ventures, 17%
CMEA Ventures, 17%
Skyline Venture Partners Qualified Purchaser Fund IV, L.P., 16%
FMR LLC, 16%
Excel Medical Fund, L.P., 11%

USE OF PROCEEDS
TTPH expects to net $67mm from its IPO. Proceeds are allocated as follows:

TTPH plans to use the net proceeds from this offering, together with existing cash resources, as follows:

$50.0 million to fund a planned pivotal Phase 3 program for eravacycline for the treatment of complicated intra-abdominal infections and complicated urinary tract infections; and the remainder for working capital and other general corporate purposes.

TTPH believes that the net proceeds from this offering, together with existing cash and cash equivalents, will enable TTPH to fund operating expenses and capital expenditure requirements through the first quarter of 2015.

Disclaimer: This TTPH IPO report is based on a reading and analysis of TTPH's S-1 filing which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Tetraphase Pharmaceutical