On March 23, 2011, Trius Therapeutics (TSRX) reported financial results for the fourth quarter and full year 2010. Revenues in the fourth quarter were $2.5 million, and consisted of recognition of federal research contracts awarded to the company. We remind investors that Trius currently has two federal grants, a four and a half-year contract from DTRA for up to $29.5 million awarded in 2010 and a five-year contract from the National Institutes for Allergy and Infectious Disease for up to $27.7 million awarded in 2008. Total revenues in 2010 were $8.8 million.
Net loss for the fourth quarter 2010 totaled $8.8 million, or $0.37 per share. This was in-line with expectations. For the full year 2010, net loss totaled $23.9 million, or $2.36 per share. At December 31, 2010, there were approximately 23.7 million shares outstanding. The cash balance at December 31, 2010 stood at $45.3 million. We find this to be sufficient to fund operations through the third quarter 2012. We expect the company to report results from the first Phase 3 program with Torezolid in early 2012.
Phase 3 Torezolid Update
As of late March 2011, enrollment in the company’s first Phase 3 trial with Torezolid (TR-701-p3-A) is about 50% complete. Enrollment thus far has included only patients from around 30 sites in North America. Over the next few months management plans to open another 60+ sites in Europe and Latin America. We are expecting that this will accelerate enrollment through the second quarter and enrollment should complete in the third quarter 2011. Management guidance is for data in early 2012, although we believe there is a chance it may come sooner. We remind investors that this program is testing Torezolid vs. Pfizer’s (PFE) Zyvox (linezolid) in 650+ patients under a U.S. FDA special protocol assessment (SPA). The trial tests 200mg once-daily (QD) Torezolid head-to-head in a non-inferiority study to 600mg twice-daily Zyvox (linezolid).
In January 2011, management met with the U.S. FDA to discuss plans for the company’s second Phase 3 trial. This trial will employ an IV-to-oral step-down protocol, using time to oral therapy as a proxy for hospital discharge. We are expecting that the ongoing SPA discussions around the second trial will wrap up this summer, with a finalized SPA in hand during the third quarter 2011. We expect that management will look to initiate this program during the fourth quarter 2011.
… Ex-U.S. Deal Likely …
We believe that management’s strategy is to sign an ex-U.S. commercialization partnership for Torezolid at some point over the next year. If the deal comes before the results of the first Phase 3 program, management should be able to avoid a dilutive cash raise in 2012. The company should be able to use the modest upfront cash payment to fund the second Phase 3 trial. However, Trius may still need to raise cash in 2013 or 2014 to fund the U.S. launch. If the deal comes after the data from the first Phase 3 program, assuming the data is positive, we expect that the upfront payment will be significantly larger, and enough to fund the completion of the second Phase 3 trial and potentially even the initial aspects of the U.S. launch. However, Trius may need to raise cash prior to the deal in order to get the second Phase 3 trial underway.
… Torezolid Poised To Be Best-In-Class …
Trius lead pipeline candidate is Torezolid, a second generation oxazolidinone being developed for the treatment of serious gram-positive infections, including MRSA. Based on clinical data from Phase 1 and Phase 2 studies, Torezolid offers several key advantages over the market leading product in Pfizer’s Zyvox (linezolid), a first-generation oxazolidinone with worldwide sales over $1.17 billion in 2010. These advantages include far more rapid bacteriocidal onset, far more convenient once-daily dosing, a shorter course of therapy at only 6 days vs. the 10 to 14 days recommended wit h Zyvox, and superior cure rates in difficult-to-treat MRSA infections. Additionally, Trius plans to make Torezolid available in both an oral and IV formulation, providing an advantage to Pfizer’s Tygacil and Cubist’s Cubicin. These three products generated sales of $1.4 billion in the U.S. in 2010, gaining sizable market share as the therapeutic window on generic vancomycin is rapidly closes. We believe physicians will quickly convert the next leap forward in the treatment of acute bacterial skin and skin structure infections (ABSSSI) and methicillin-resistant Staphylococcus aureus (MRSA) in Torezolid.
Based on current timelines, we are expecting a new drug application in 2013, with FDA approval in 2014. We expect that Trius will look to commercialize Torezolid in the U.S. on its own and partner for the opportunity outside the U.S. We see worldwide sales of $750 million in 2020.
We remind investors that in February 2011, Trius reported positive data from a Phase 1study evaluating the ability of Torezolid to penetrate into the lungs for potential use to treat lung infections. The results show that 200mg Torezolid (QD) for three days (in healthy volunteers) achieved the trials primary goal of establishing a steady-state plasma pk and distribution of active drug into epithelial lining fluid. This data demonstrated exposure in ELF at 48-fold higher concentration than that achieved in plasma, and was significantly above the MIC90 for both S. aureus (0.50 ug/mL) and S. pneumoniae (0.25 ug/mL) for the treatment of lung infections. We expect to see full data from this Phase 1 study at the Interscience Conference on Antimicrobial Agents and Chemotherapy meeting in September 2011. The data represents yet another marketing advantage for Torezolid vs. Cubist’s Cubicin (daptomycin), a drug that posted worldwide sales of $636 million ($600 million in the U.S.) in 2010.
Maintaining 'Outperform' Rating/$10 Target
In January 2011, we initiated coverage of Trius Inc. with an Outperform rating and $10 price target. By any measure of valuation we’ve selected, the stock looks sizably undervalued at today’s price:
- We have performed a discounted cash flow analysis based on forecasting $750 million in worldwide sales of Torezolid in 2020,
- We have looked at comparative deals for late-stage antibiotics, including deals done by J&J (JNJ), Pfizer, Novartis (NVS), Forest Labs (FRX), and Astellas (OTCPK:ALPMF).
- We and looked at Trius compared to its two closest competitors, Cubist Pharma (CBST) and Optimer Pharma (OPTR).
Under all three metrics we see the stock as having significant upside. Detailed analysis can be found in our full research report. We like the fact that the company has a small float, new committed shareholders (IPO in late 2010), and very strong Phase 1 and Phase 2 data to support our optimism on the currently ongoing Phase 3 trial. We also take comfort in the fact that the current $45.3 million cash balance is enough to fund operations to the third quarter 2012. We are expecting Phase 3 data from the first trial in early 2012. This will allow management over 2 quarters to raise cash/strike a deal.