By Travis Knight
Antibiotics are a hot topic. Last year's buyouts of Trius Therapeutics (TSRX) and Optimer Pharmaceuticals (NASDAQ:OPTR) are indicative of that very notion. The antibiotic sector in biotech continues to be a keen favorite for one major reason. Antibiotics either work or they don't.
The success of antibiotics is much easier to predict than other types of therapies because its potential success is limited to fewer factors. If the efficacy of an antibiotic is already proven to be as good, if not better than its competitor(s), the safety profile is most likely the last determining factor in whether the FDA approves or rejects the drug. Companies that have antibiotics with proven efficacy profiles allow for easier determination of success and make for strong speculative investments once the following questions are considered:
- Is the therapy safe, or even better, is it very safe?
- Does the antibiotic work and does it work very well?
- Is there a large demand and market for this product upon approval?
Identifying companies with therapies that meet this criteria is obviously not an easy task. What differentiates antibiotics from other therapies is the ease in which success can be determined.
As an example, let's compare antibiotics to oncology therapies. Predicting the outcome of oncology drugs is difficult because clinical success is determined by a PFS (progression-free survival) or OS (overall survival) advantage in patients. Statistical differences in PFS or OS are sometimes so slim between treatment and control arms that it is near impossible to predict clinical trial results.
As a result of this disparity, making investment decisions based on other types of therapies can be extremely risky. The advantage with antibiotics, is that one can typically make a fairly strong determination on whether an antibiotic is effective and safe. After establishing good safety and efficacy profiles, making accurate, educated guesses on trial results based on late stage clinical data tends to be a fairly easy task. With the FDA continuing to hold a very lax stance on antibiotics, candidates that work and are safe have an excellent chance of getting approved.
For example, Trius' tedizolid did not show an efficacy profile that was overwhelming against Pfizer's (NYSE:PFE) linezolid. It was actually just a bit inferior if not just barely equivalent. What was most important was that the drug had a better safety profile and that doctors are in need of new and effective antibiotics. Based on these factors and new lax FDA guidelines for advancing new antibiotics, Tedizolid was an easy bet on Phase III data.
Buyout of Trius later confirmed the idea that new antibiotics are hot and are in very high demand. A much easier environment for the development and approval of new antibiotics bodes well for antibiotic companies.
Cempra Holdings (NASDAQ:CEMP), Durata Therapeutics (NASDAQ:DRTX), and Tetraphase Pharmaceuticals (NASDAQ:TTPH) are three antibiotic companies that will be offering traders and investors opportunities to make some good money in 2014 and 2015.
Cempra Pharmaceuticals provides the most exciting profile of any small-cap antibiotic play in biotech. This clinical-stage pharmaceutical company focuses on the development of antibacterials needed to update current antibiotic arsenals. Cempra's most advanced product in clinical development is Solithromycin. Solithromycin is the company's flagship antibiotic and is being studied in two Phase III clinical trials. Extreme versatility and safety of this next-generation macrolide antibiotic will most likely allow for deep market penetration into several different indications if approved, and will most likely be a massive revenue generator.
Macrolides are typically effective against infections caused by gram-positive bacteria. This class of antibiotic is typically used to treat respiratory and soft-tissue infections. Macrolides are typically used in hospitals and communities as first-line options against these types of infections. No new macrolide has been presented to physicians since the approval of azithromycin (an improved, safer version of erythromycin and clarithromycin) in 1996, which ultimately achieved peak sales of $2B. With the need to address increasing drug-resistance, Solithromycin has a chance to place itself ahead of azithromycin as number one macrolide if approved.
What's also exciting is that a trial studying a pediatric formulation is being conducted under a BARDA contract. As one of the most recent pediatric antibiotics in over two and a half decades, this form could add massive value to the company. Antibiotic resistance is creating a large need for new pediatric antibiotic, as well.
Large Demand For New and Effective Macrolide
Ever-growing resistance to clarithromycin and azithromycin has resulted in increased use of quinolones for respiratory and sinus infections. Quinolones are effective against bacteria that cause these types of infections, but have a much wider range of activity. This broader range against all types of bacteria allows for unintended activity against beneficial bacteria in the gut and digestive system. Macrolides are bacteriostatic, meaning that they inhibit the reproduction of bacteria, where as quinolones are bacteriocidal and actually kill bacteria, giving them this broad spectrum ability. This mode of action gives macrolides the better edge in treating more common respiratory and gonococcal infections.
Quinolones are more suitable as a second-line treatment for more serious infections, even though they are being used more often as a first-line option. They work great against tough to treat infections, but they weren't intended to be used against milder, easier to treat infections. Approximately half of all quinolones have been taken off the market including Tequin, Omniflox, Trovan and Zagam due to resulting side effects, many of which were extremely severe.
Safety Is the Differentiating Factor
The most impressive trait of solithromycin is the extremely low toxicity exhibited in the human body. Not only does trial data point to a much better safety profile than the flouroquinolones it's being tested against, but it is also better than other commonly used macrolides on the market.
Cempra conducted a study of solithromycin in 24 patients with mild to severe chronic liver disease. Not only was the antibiotic well-tolerated by all patients, analysis showed that no dosage adjustments were required to compensate for decreased liver function. This study not only reflects superior safety to the liver, it provides Cempra with a basis to differentiate the compound from telithromycin (brand name Ketek), which was pulled from the market due to extreme liver toxicity.
Cempra also claims that doses as high as 1600 mg in oral doses and 1000 mg in IV doses have been studied with absolutely no QT signal. QT tests evaluate if a drug exhibits any adverse cardiovascular effects. Although safety is obviously not the only factor in which the FDA evaluates new drugs, it is becoming the most pertinent.
Catalyst: Phase III CAPB Results
The most anticipated clinical data is expected to be released in mid-2014 evaluating patients with CAPB (community-acquired bacterial pneumonia). In this "Solitaire-Oral" study, patients are randomized to either oral moxifloxacin or solithromycin. Non-inferiority in early clinical response rate is the primary objective of the study. In Phase II trials, early response rates were very much in line with its comparator levofloxacin.
Due to the 10% non-inferiority rule now applied to antibiotics, the odds are very much in favor of solithromycin. As with tedizolid, this efficacy margin and an improved safety profile allowed for Cubist (NASDAQ:CBST) to be granted an NDA. In a Phase II trial, solithromycin boasted a much better safety than levofloxacin and early response rates were very much in line to one another.
Solithromycin's IV-to-oral step-down capabilities are also an extremely important advantage to other therapies. This step-down capability allows for much better patient compliance. It allows patients to change over from intravenous delivery to oral formulation as soon as possible. This also reduces costs for lengthy hospital stays. Data from this IV-to-oral study will be presented sometime in mid to late 2015.
Solithromycin Looks to Be Effective Against Gonorrhea
Solithromycin also shows promise against gonorrhea. In a small Phase II trial, solithromycin cleared all evaluable patients in a single dose. Since the Centers for Disease Control and Prevention has taken cephalosporin (Suprax) off the table as one of just two drugs left that are effective in treating gonorrhea, solithromycin has the opportunity to capture market share in the future. Ceftriaxone (Rocephin) is the only option left to treat these infections and doctors are worried gonococcal infections could double or quadruple from just under a million infections per year to more than four million. This consequently adds additional value to solithromycin. We expect to hear news of plans for a Phase III advancement sometime this year. Super-bug status could also allow Cempra to get government funding for this indication.
Market Opportunity and Key Highlights
Cempra seems to be an attractive speculative investment based on the positive solithromycin data thus far. If the company produces positive Phase III data this year, the company becomes even more derisked going forward. We believe Cempra has great upside potential for the following reasons:
- CAPB presents about a $1B market worldwide and gonorrhea represents more added value. Taksta (which was left out of this article) represents even more potential value.
- Solithromycin has rendered a much better safety profile than Levofloxacin and showed extreme safety in patients with liver disease, which led to the downfall of Ketek.
- Current macrolides and Azithromycin are showing more robust drug-resistance all over the world, creating an extreme need for a new macrolide.
- Data shows equivalent efficacy to quinolones and a much better safety profile.
With an urgent demand for a newer next-generation macrolide antibiotic by communities and hospitals all over the world, market value is most compelling for solithromycin. The antibiotic has the potential to be a blockbuster if ultimately approved by the FDA. The versatility and safety of solothromycin creates large potential value in Cempra. Effectiveness against bacteria involved in a wide range of indications also adds to this potential value. With a current market cap under $500M, we see Cempra as a great risk-to-reward play. In addition, we believe a larger pharmaceutical company would find Cempra's assets to be very attractive if Phase III data is positive.
Durata Therapeutics is a pharmaceutical company that focuses on developing antibiotics against acute infections. Durata has developed an intravenous semi-synthetic antibiotic that looks to be very effective against acute skin and skin structure infections. This new lipoglycopeptide class of antibiotics is a chemically modified version of naturally created glycopeptides and is very effective against Gram-positive bacteria, including MRSA (methicillin-resistant Staphylococcus aureus). Eli Lilly's (NYSE:LLY) vancomycin is within this glycopeptide class of antibiotics and has been extremely useful over the decades. Recently, there has been an emergence of vancomycin-resistant strains of bacteria and scientists have been hard at work trying to find effective alternatives. As a result, a new class of antibiotics has emerged.
Resistance to Vancomycin Creates Opportunity
Increasing drug-resistance to vancomycin over the past several decades has led to the study of newer synthetic and semisynthetic antibiotics that could effectively replace and/or supplement this naturally produced compound. Vancomycin was the first in the glycopeptide class of antibiotics to be approved and used against Gram-positive infections. As with every antibiotic, bacteria eventually adapt and become resistant to the most commonly used options. Due to this rampant resistance and the lack of incentive to study new antibiotics, the FDA has changed its policies to accommodate the development of newer drugs.
Due to these changes in policy, we believe that Durata's antibiotic Dalbavancin will have a good shot at getting approval in June. It boasts an extremely long half-life in the human body, which allows for a once-a-week IV dosing schedule. This is an advantage over vancomycin's daily administration. Dalbavancin has achieved non-inferiority in all its Phase III clinical trials and is definitely safe enough for approval.
Catalyst: Dalbavancin FDA Approval
Durata has successfully progressed its antibiotic through three clinical trials for abSSSI (acute bacterial skin and skin structure infection). The FDA has set the PDUFA date for Dalbavancin on May 26, 2014. On Dec. 23, 2013, the EMA accepted the MAA for a review, creating a time frame of possible approval in Europe by early 2015. We believe there is a strong chance of approval in both territories, but are not expecting long-term success for Dalbavancin for this indication due to the stiff competition from newer antibiotics that are very effective against abSSSI.
Competitive Market for abSSSI
Long-term penetration into drug markets for dalbavancin may not be an easy task. Dalbavancin will face stiff drug competition from newer classes of antibiotics such as linezolid and tedizolid (which will most likely see approval in June). This new, fully synthetic class of antibiotics known as oxazolidones are extremely effective against these types of gram-positive bacteria. Both linezolid and tedizolid have oral formulations, which are revolutionizing the treatment for these types of infections. Oral alternatives keep patients out of hospitals where they are exposed to these bacteria, limiting exposure and spread of them. In addition to these current options, Medicines Co. (NASDAQ:MDCO) has advanced Oritavancin through three clinical trials for abSSSI and expects an NDA this quarter.
Lack of composition patents and the entrance of generics also present an issue for potential market exposure. Generic daptomycin will not be available until at least 2018, but generic linezolid should be available as soon as early 2016. A composition of matter patent was not available for the chemical components of dalvabancin, which may present a problem long-term. These factors may very well erode future value, as dalbavancin is not exactly a very cheap alternative to competitors.
Dalbavancin will most likely see off label use if approved, as most antibiotics are very commonly used to treat indications not listed on a drug's label. Having approval for a wider range of indications does help an antibiotic immensely for sales. Durata is in the process of advancing dalbavancin into other indications, including pediatric abSSSI, pediatric osteomyelitis, hospitalized community-acquired pneumonia, and diabetic foot infection. A Phase I trial evaluating pneumonia patients is scheduled to start this quarter. So even if penetration into the abSSSI market is not so impressive, these other indications do open the door for larger potential revenues down the road if successful.
Other Future Possibilities For Dalvabancin
It seems that the extremely long half-life of dalbavancin does differentiate this particular antibiotic from any other on the market. This property may allow for the effective treatment of other hard-to-treat infections not yet studied. Osteomyelitis and abSSSI comprise a fairly small market value, and abSSSI will be a tough market to effectively penetrate. Dalbavancin could be useful in other indications such as bacteremia, where once weekly dosing may be effective.
Durata is not a company we would consider holding long-term, but do believe that it makes for a solid PDUFA catalyst play for June. There should not be a worry for dilution because the company has plenty of cash on the books for the year of 2014. In the event of a major sell-off in the months leading to this binary event, our plan is to add shares to play the PDUFA run. What we do like is the limited risk associated with Durata. Being that there is only one other ongoing trial in early stages, the risk of a bad data release is minimal. Finding a great entry for a run to PDUFA could very well be extremely profitable.
The final company in focus may be the most interesting due to its unique technology and platform. The vast majority of its value may actually lie in the company's proprietary drug technology, which has been exclusively licensed from Harvard. This technology allows for the full synthetic creation of tetracycline antibiotics. No new tetracycline antibiotics have been created in over 30 years due to the limitations of standard chemistry. Not only does the ability to create these antibiotics in a fully synthetic manner allow for wide diversity in chemical nature, it may also allow them to address the issue of multi-drug resistance.
Full Synthesis Capability Crushes Limitations
Tetracycline antibiotics have an extremely wide scope of use against a wide range of bacterial infections. They've been used since the late 1940's and are effective against a broad spectrum of multidrug-resistant Gram-positive, Gram-negative, atypical, and anaerobic bacteria. This particular class of antibiotics is commonly used to treat acne, chlamydia, Lyme disease and certain exotic infections including anthrax, bubonic plague, and brucellosis.
Until a groundbreaking discovery by chemists at Harvard, tetracyclines were not able to be created in a fully synthetic fashion. For this reason, a very limited number of these types of antibiotics were created, which allowed drug-resistance to develop over time. Due to the chemical complexity of tetracyclines and the sensitivity of the core structure of them, their full synthesis has not been achievable. Before 2005, these compounds had to be derived naturally from fermentation products, directly from living bacteria. Not having fully synthetic capabilities for modification, chemical diversity was severely limited by available chemistry methods. New Harvard technology, however, allowed these types of delicate compounds to be fully synthesized, in turn increasing the chemical diversity needed to make new and effective tetracycline molecules.
Eravacycline is Tetraphase's broad-spectrum tetracycline antibiotic specifically designed for the treatment of serious and life-threatening, multi-drug resistant infections. This fully synthetic antibiotic is effective against bacteria that are increasingly resistant to carbapenem antibiotics. In vitro studies of eravacycline demonstrated extreme potency against a wide range of different types of bacteria. Two Phase III trials are underway treating the following indications:
- Complicated Intra-Abdominal Infections (cIAI)
- Complicated Urinary Tract Infections (cUTI)
The first set of data investors will be anticipating is from a lead-in portion of patients with cUTIs. 120 patients will be dosed in two cohorts. One receiving IV-to-oral eravacyline and the other receiving IV-to-oral levofloxacin, which will determine safety and efficacy. In the last quarterly report, Tetraphase made this statement about timing of developments:
The Company expects to have top-line data from the Phase III cIAI clinical trial in the first quarter of 2015, data from the lead-in portion of the Phase III cUTI clinical trial in mid-2014 and top-line data from the Phase III cUTI clinical trial in the first half of 2015.
This data will be significant for the advancement of eravacycline, and may present an opportunity for investors. We believe holding through this preliminary data release could be profitable, but also risky. A safer strategy would be to wait until next year for top-line Phase III data.
We like the story here with Tetraphase, however, we must state a word of caution. This technology could be a potential gold mine, but nothing is guaranteed until compounds are proven in clinical studies. Tetraphase will require a large amount of capital to fund its large drug trials, in turn warranting the threat of dilution. Eravacycline is far from approval, and good data is surely not a guarantee.
Investors may want to hold off on Tetraphase until Phase III data confirms the safety and efficacy of eravacycline in both indications, to determine a better validation of its potential. The company raised cash in November, so immediate threat of dilution is minimal.
Antibiotics have been a very safe and predictable space to invest in. We see lots of opportunity in all three of these catalysts if timing is accurate with investments. Macrolide antibiotics represent the largest long-term value because it caters to the largest drug markets and to a wide range of indications. Cempra will most likely deliver the largest returns and represents the safest investment, as the company has plenty of cash. The success of solithromycin is not a guarantee, but shows the most promise over any other antibiotic in Phase III trials.
The best investment strategies can entail buying good companies during market pullbacks or after a company financing deal. 2014 will be just as heated as the previous years in regard to antibiotics. We expect Cempra, Durata, and Tetraphase to present excellent and safe investment opportunities for both 2014 and 2015.