Trius Therapeutics: Takeover Candidate In 2013

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Trius Therapeutics (TSRX) is a biopharmaceutical company focused on the discovery, development and commercialization of innovative antibiotics for serious, life-threatening infections.

Tedizolid phosphate (TR-701) is an IV and orally administered second generation oxazolidinone for the treatment of serious gram-positive infections, including methicillin-resistance Staphylococcus aureus (MRSA).

Acute bacterial skin and skin structure infections (ABSSSI), a new FDA classification for complicated skin and skin structure infections (cSSSI), are a significant and growing problem throughout the world.

ABSSSI are infections that involve deeper tissue or require surgical intervention (e.g. cellulitis, major cutaneous abscesses, and infected wounds) or are associated with a significant underlying disease (e.g., diabetes or systemic immunosuppression) that complicates response to therapy. A variety of pathogens may be identified in ABSSSI but the two most common Gram-positive pathogens are Staphylococcus aureus and Streptococcus pyogenes. The significant increase in the incidence of MRSA in community as well as hospital acquired infections has resulted in a need for therapy of ABSSSI that is effective against MRSA.

Tedizolid phosphate is a novel prodrug that is cleaved in the blood stream to the active compound from Tedizolid phosphate to Tedizolid. As a second generation oxazolidinone, Tedizolid is chemically different from, and designed for improved potency, resistance and spectrum of activity over, the first generation oxasolidinones such as Pfizer's (NYSE:PFE) lizenolid (Zyvox). There is only one approved first generation oxazolidinone, linezolid, which is currently the leading branded antibiotic for serious gram-positive infections, with reported worldwide sales of $1.3 billion in 2011.

Trius' Tedizolid phosphate offers a number of important potential advantages over linezolid, including greater potency, once daily dosing, predictable drug exposure, a shorter course of therapy, in vivo bactericidal (i.e., bacterial killing) activity, lower frequency of resistance, activity against linezolid-resistant bacterial strains and an improved safety profile. TSRX is planning to develop this drug to treat multiple clinical indications, such as infections of the lung and blood, such as, hospital acquired pneumonia ((NYSEARCA:HAP)), ventilator acquired pneumonia (VAP) and bacteremia.

The company reported excellent results in its ESTABLISH-1 Phase 3 trial. Now we await the results of the second Phase 3 clinical trial ESTABLISH-2. ESTABLISH-2 is an oral step-down study in which patients begin on intravenous medication and step-down to oral tablets at physician discretion. The results are expected around mid March.

The results of the second study are expected to be successful. Many biotech experts state that they will be shocked if the study did not reach all its endpoints again and show its efficacy to exceed Pfizer's linezolid.

On January 7th, Trius' Tedizolid received Qualified Infectious Disease Product (QIDP) designation from the FDA. The QIDP designation will enable Trius to benefit from certain incentives for the development of new antibiotics, including priority review and eligibility for fast-track status. The QIDP designation was created by the Generating Antibiotic Incentives Now ((NASDAQ:GAIN)) Act, which was part of the FDA Safety and Innovation Act (FDASIA).

As of September 30, 2012, Trius reported approximately $70.9 million in cash and investments. Trius burned approximately $46.7 million in cash from operating and investing activities during the first 9 month of the year. Nevertheless, TSRX has offset this by raising proceeds totaling $48.9 million through financing activities. The company announced a public offering of 6.3M shares of its common stock $4.75 per share on January 17th. The company will generate approximately 30 million dollars from the offering. Overall, the company has close to 100 million dollars in cash which is more than sufficient to bring it through a potential PDUFA next year.

Takeover Target

"In December 2006, Forest Laboratories (NYSE:FRX) paid $594 million (including $494 million upfront) to acquire Cerexa Inc. The company was just about to enter Phase III trials for ceftaroline, an intravenous cephalosporin antibiotic for use against MRSA and certain gram-negative bacteria. Ceftaroline operates in a somewhat different setting than tedizolid; I consider tedizolid to have more commercial potential. A takeover value of $594 million for Trius translates into $15 per share." That little tidbit is from SmithOnStocks (His articles are a must read, by the way.)

Trius Therapeutics is a big takeover target. There are talks of this by many biotech analysts including this one at Motley Fool. Here he is talking about Cubist Pharmaceuticals (CBST) as a potential buyer. (Here, go to the 3 minute mark)

Trius is an undervalued stock with a market capitalization of around 230 million, with a price per share of 5.21. Potential sales in the United States alone is $400-$450 million. Trius has a commercialization deal with Bayer in the Asia which will provide the company with 100 million dollars in milestones. It will eventually move into Europe.

Based on the above information. I have a price per share target of $13.00 for 2013 and a price per share target of $24.00 for 2014. Although, due to the scarcity of new antibiotics, combined with the superior efficacy results of Tedisolid Phosphate (compared to possibly new antibiotics coming to market), I believe Trius Pharmaceuticals will be a big takeover target by big pharma and will be bought out by the end of 2013.

Disclosure: I am long TSRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.