Bacterial Resistance To Drugs Creates Window Of Opportunity For Biopharma Firms

by: Investorita

Bacterial resistance to currently marketed drugs is increasing significantly, making some serious and life-threatening infections difficult, or even impossible to treat. Concurrently, big pharma has trended away from aggressively developing new antibiotics for a number of reasons. Together these two phenomena have imposed a new urgency on finding viable treatment options for a slew of antibiotic-resistant bacterial infections - a task that might be well suited for smaller biopharmaceutical firms.

Big pharma's reluctance to pursue the antibiotic market can be attributed to factors such as a shrinking patent window, a trend towards shorter patent exclusivity (i.e., generic drugs becoming available quicker), and an obligation to shareholders. Antibiotics only work for a set period of time and as a result only generate revenue for a limited amount of time. Big pharma has an obligation to shareholders to deliver the maximum amount of revenue from the investment they make. So from a strategic standpoint, investing in potential blockbuster drugs that draw big revenues over long periods of time with little competition are preferred to investments in antibiotics.

This creates a window of opportunity for small biopharmaceutical firms to develop novel antibiotics targeted at resistant bacteria such as methicillin-resistant Staphylococcus aureus (MRSA) and other similar organisms. MRSA strains of bacteria are resistant to a number of antibiotics that are normally used to treat other staphylococcus aureus infections (staph infections). There are two types of MRSA infections that occur - the more common healthcare-associated MRSA (HA-MRSA) and the less common community-associated MRSA (CA-MRSA). HA-MRSA typically results from invasive hospital procedures or devices, such as surgeries, intravenous tubing or artificial joints. CA-MRSA often begins as a painful skin boil and spreads through tactile contact, putting those who live in crowded conditions at higher risk. The MRSA organism is Gram-positive, labeled as such due to its reaction to something called the Gram stain test, a method used to classify bacterial species.

Gram-negative organisms, due to their inherent cell structure, are even harder to treat than their Gram-positive counterparts. The acinetobacter baumannii strain of bacteria belongs to the gram-negative class and can cause severe pneumonia and urinary tract infections. While less known than MRSA, Acinetobacter is predicted to be a larger threat than MRSA, with some strains of the bacteria being resistant to virtually all available antibiotics. Another Gram-negative germ is the klebsiella pneumonia. According to research conducted at SUNY Downstate Medical Center, over 20% of klebsiella infections in Brooklyn hospitals do not respond to any currently marketed antibiotic (reported here).

According to a 2005 Centers for Disease Control and Prevention, the number of deaths caused by MRSA infection in U.S. hospitals is nearly 19,000 per year (reported here). That exceeds the number of deaths due to HIV. Acinetobacter is estimated to cause tens of thousands of hospital deaths each year. There are no definitive estimates of the total number of deaths related to gram-negative bacteria in the U.S., but according to a 2010 New York Times article, per European estimates, over 16,000 annual deaths in Europe can be attributed to gram-negative infections.

Reducing antibiotic use and making sure that patients complete their whole course of prescribed antibiotics can help deter the evolution of drug-resistant bacteria. But medical professionals have expressed the need for new drugs. Dr. Brad Spellberg, an infectious-disease specialist at Harbor-U.C.L.A. Medical Center in Torrance, California, succinctly summarizes the work cut out for the pharmaceutical industry in this space as follows: "For Gram-positives we need better drugs; for Gram-negatives we need any drugs."

MRSA infections respond to just a small number antibiotics like vancomycin (Vancocin) marketed by Viropharma (VPHM) and teicoplanin (Targocid) marketed by Sanofi-Aventis (NYSE:SNY). Gram-negative infections are primarily treated using colistin (Coly-Mycin M) marketed by JHP Pharmaceuticals and polymyxin B ((PMB)) marketed by Hycult biotech. Both antibiotics were developed in the 1940s and have potential side effects including kidney and nerve damage. The lack of options often forces doctors to make the painful choice between treating a life-threatening infection and potentially causing kidney failure in a patient.

Both the need for innovative antibiotics as well as a freer competitive landscape created by big pharma stepping aside point to a window of opportunity for biopharmaceutical firms. Durata Therapeutics is involved in their second Phase 3 study for dalbavancin, an antibiotic that could help treat Gram-positive bacterial infections, such as those caused by MRSA. One company that has gained significant momentum and media attention in this area is Trius Therapeutics (TSRX), a biopharmaceutical company based in San Diego that develops and commercializes novel antibiotics for serious infections, such as MRSA. In July 2011 Trius entered into an exclusive agreement with Bayer Pharma AG (OTCPK:BAYRY) to develop and commercialize Tedizolid Phosphate (TR-701), an intravenous and orally administered second generation oxazolidinone for the treatment of Gram-positive infections including MRSA. Trius has completed their first Phase III clinical trial for TR-701 and has already received $69 million of payments from Bayer through successfully meeting milestones related to the development of Tedizolid.

Trius also has two pre-clinical programs to develop antibiotics targeted at antibiotic-resistant bacteria. Trius's GyrB/ParE program is focused on developing drugs targeted at the Gram-negative spectrum is funded through a $28 million, 5-year contract with the National Institute of Allergy and Infectious Diseases. The company is working with Lawrence Livermore National Laboratories in their MurB program, the outcomes of which could have serious implications for the treatment of Gram-negative infections. The Defense Threat Reduction Agency, a sub-agency of the U.S. Department of Defense, funds the MurB program.

Trius is currently trading at $5.33 per share with a 52wk Range of 4.71 - 9.00, and a market cap of $206.11M.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.