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Melinta Therapeutics: New And Improved--Just In Time!

|About: Melinta Therapeutics (MLNT), Includes: MDCO

Summary

Antimicrobial Resistance causes 700,000 fatalities per year.

Melinta's expanded pipeline and FDA-approved products offer promising treatments.

The global anti-infective agents market is expected to reach $111.4 billion by 2024.

Melinta's stock is on-sale at$14.55 per share with a median price target of $25.

A Global Apocalypse in the Making

Recently, it was reported that the Doomsday Clock clicked 30 seconds closer to midnight.  I assumed the escalation was related to politics and the prospects of a nuclear war. Now, I’m not so sure. Another apocalyptic disaster is already unfolding in our midst. One year ago, at the World Economic Forum in Davos, the Chairman of the Review on Antimicrobial Resistances, Jim O’Neill, described antimicrobial resistance as a slow-motion car crash that has already begun. Resistant pathogens cause about 700,000 deaths every year. He warned that failure to take the necessary precautions will cause the deaths of some ten million people each year by 2050.

The World Health Organization (WHO) and the Centers for Disease Control concur regarding the urgency of developing new antibiotics. The WHO priority pathogens list for R&D of new antibiotics is as follows:

Priority 1: CRITICAL

  • Acinetobacter baumannii, carbapenem-resistant
  • Pseudomonas aeruginosa, carbapenem-resistant
  • Enterobacteriaceae, carbapenem-resistant, ESBL-producing

Priority 2: HIGH

  • Enterococcus faecium, vancomycin-resistant
  • Staphylococcus aureus, methicillin-resistant, vancomycin-intermediate and resistant
  • Helicobacter pylori, clarithromycin-resistant
  • Campylobacter spp., fluoroquinolone-resistant
  • Salmonellae, fluoroquinolone-resistant
  • Neisseria gonorrhoeae, cephalosporin-resistant, fluoroquinolone-resistant

Priority 3: MEDIUM

  • Streptococcus pneumoniae, penicillin-non-susceptible
  • Haemophilus influenzae, ampicillin-resistant
  • Shigella spp., fluoroquinolone-resistant

Melinta Therapeutics: An “Acquire and Conquer” Strategy to solve an Apocalyptic Problem

The “old” MLNT Melinta was the brainchild of Vatera Holdings. Vatera took an idea generated by Thomas Steitz, a Yale University science professor and the recipient of the 2009 Nobel Prize in Chemistry, and invested in the creation of the “old” Melinta. Their mission was:

“To meet the continually evolving threat of bacterial infections by discovering, developing, and commercializing a continual stream of novel antibiotics.”

Their mission has not changed; but through the acquisition of Cempra and the infectious disease product portfolio of MDCO, MLNT has positioned itself to achieve their mission by becoming a pure-play, antibiotic powerhouse. While rescuing humanity from the increasing scourge of drug-resistant bacteria, MLNT is also positioned to profit from the global anti-infective agents market that is expected to reach $111.4 billion by 2024, with the antibacterial market accounting for 54% of the expected total.

The new CEO of Melinta, Dan Wechsler, brings over twenty-five years of healthcare experience across multiple companies to ignite the “new” Melinta’s promise. He is no stranger to commercializing blockbuster drugs such as Zyvox. Of The Medicines Company acquisition he asserts: “The combined Melinta and The Medicines Company infectious disease product portfolio significantly enhances Melinta’s multi-channel strategy of delivering antibiotic solutions for ABSSSI and gram-negative infections within the hospital, emergency department, and community settings. Each product in the portfolio has distinct value in the marketplace. With Melinta’s commercial team now built out and preparing for Baxdela’s launch, coupled with the professionals that will join from The Medicines Company, Melinta will have an experienced team of focused antibiotic experts as well as the therapeutic scale necessary to maximize the value of the portfolio.” Melinta estimates the peak sales potential of the  acquired drug portfolio, post-closure, exceeds $1 billion.

Melinta's Chief Commercialization officer, John Temperato, added that the acquisition will bring 85 sales people into Melinta and raise the total company sales force to 135. The additional representatives can aid with the launch of Baxdela, as well as, the launch of the $MDCO acquired drugs. The related value added with the acquisition is a larger, more experienced sales force that offers notable cost efficiencies due to institutional product knowledge and established relationships developed with their targeted healthcare professionals. Also coming on board will be a number of scientists who will provide long-term support in anti-infective product development.

Wechsler and Temperato paint a picture of a post-acquisition company that will optimize operations through greater efficiency and effectiveness.  This, in turn, lowers operating costs, improves margins and generates greater profitability.

A Summary of the “new” Melinta Products and Pipeline:

Baxdela

Baxdela (delafloxacin), a fluoroquinolone antibiotic, is a treatment for adults with acute bacterial skin and skin structure infections ((ABSSSI)). Baxdela was given a Qualified Infectious Disease Product (QIDP) status which provides for an additional five-year period of market exclusivity. In a market report published by Credence Research, Inc.  “Global Growth, Share, Opportunities, Competitive Analysis, and Forecast, 2017 - 2025,” the acute bacterial skin and skin structure infections (ABSSSI) market is expected to grow at a CAGR of 9.8% from 2017 to 2025. In the United States, 2016 research revealed that the average inpatient costs per ABSSSI patient ranges between $6,000 to $13,000. This expense is caused by multi-day room and board expenses comprising 50% of total costs. The market experts suggested that most of the ABSSSI patients are frequently admitted to the hospital only for the administration of intravenous antibiotics. Therefore, a treatment like Baxdela could mitigate these costs extensively.

Melinta plans to launch Baxdela in the first quarter of 2018. Sales representatives will be targeting the highest prescribing physicians with the greatest access across various sites of care. Based upon adoption, the company will expand the sales force. In terms of other markets, in March 2017, Melinta licensed rights to delafloxacin, which is known as Baxdela in the U.S., to the Menarini Group in 68 countries in Europe, Asia-Pacific, and the Commonwealth of Independent States (NYSE:CIS). On September 26, 2017, Melinta announced a commercialization and distribution agreement with Eurofarma Laboratórios for delafloxacin (marketed as Baxdela in the U.S.). The agreement includes nineteen countries in South and Central America, as well as the Caribbean. This agreement expands Eurofarma Laboratórios 2015 agreement with Melinta to market, sell and distribute delafloxacin in Brazil. These markets are significant because in Brazil, alone, over 265,000 patients are hospitalized with an ABSSSI each year. The terms of the agreements state that Melinta will receive an undisclosed upfront payment as well as milestones and royalties on future sales. Eurofarma will be responsible for obtaining regulatory approval in Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela.

Vabomere

Vabomere is used in the treatment of complicated urinary tract infections. It is a combination of the antibacterial meropenem and vaborbactam, a component to combat bacterial resistance. The drug works by addressing bacteria that produce the KPC enzyme, which make up the majority of carbapenem-resistant Enterobacteriaceae that the CDC has called an “urgent antimicrobial resistance threat.” Vabomere has the status of a Qualified Infectious Disease Product. This designation guarantees an additional 5 years of exclusivity. Exclusivity on the antibacterial is expected to stretch into 2031. According to analyst Joseph Schwartz of Leerink Partners, sales of the product could reach $400 million by 2028. Near term, sales are predicted to be $8 million. Cowen analyst Chris Shibutani projects Vabomere revenues of $50 million in 2018 (versus consensus of $30 million), $180 million in 2021 (versus consensus of $174 million) and peak sales of $350 million by 2027.

Orbactiv and Minocin

Recently acquired from The Medicines Company, Orbactiv and Minocin are designed to treat adult patients with acute bacterial skin and skin structure infections or ABSSSI by certain Gram-positive microorganisms and infections due to susceptible isolates of designated microorganisms, including Acinetobacter species bacteria respectively.  According to SEC filings for The Medicines Company, in 2016, net revenue from sales of Minocin IV and Orbactiv were $3.3 million and $7.1 million, respectively.  In September 2017 they reported net revenues from sales of Minocin IV, Orbactiv and Ionsys of approximately $9.0 million and $24.0 million, respectively. (Three drugs were indicated but only two figures were connected, respectively. Therefore, the revenues from sales for Orbactiv and Minocin in 9/2017 filing are unclear).

Radezolid

Radezolid is a second-generation oxazolidinone antibiotic discovered by Melinta scientists using proprietary, structure-based design, to achieve higher ribosomal binding affinity, minimal off-target activity, and a broader spectrum of antimicrobial activity than is currently available in the class.

In a press release on January 18, 2018, Melinta announced “that its partner has commenced a new program for a topical formulation of radezolid, a second-generation oxazolidinone antibiotic discovered by Melinta scientists, in preparation for submitting an Investigational New Drug (NYSE:IND) application to the U.S. Food and Drug Administration (FDA) for the treatment of patients with bacterial vaginosis. Radezolid is also being studied by Melinta’s partner in a Phase 2 clinical study for the treatment of mild-to-moderate acne vulgaris. 

“Bacterial vaginosis BV represents a complex change in vaginal flora, with overgrowth of certain vaginal bacterial species such as Gardnerella vaginalis. If left untreated, BV can increase a person’s risk of contracting a sexually transmitted disease (STD) or HIV, and may increase the risk of premature delivery and low birth weight in children born from women with BV,” explained Sue Cammarata, M.D., Melinta’s chief medical officer. “Radezolid has demonstrated in-vitro activity against the species of bacteria often associated with bacterial vaginosis, which suggests it may be effective in this indication.”

The United States Food and Drug Administration has also recently designated radezolid a Qualified Infectious Disease Product (QIDP) for the indication of bacterial vaginosis. QIDP designation provides certain incentives for companies developing new antibiotics, including an additional five years of market exclusivity, priority NDA review and eligibility for fast-track development status.”

Solithromycin

Solithromycin is indicated for the treatment of moderate to moderately-severe community acquired bacterial pneumonia (CABP) and urethritis.

Solithromycin, when owned by Cempra, caused shareholders incredible losses due to the FDA's rejection of its NDA. Even though Solithromycin was shown to be effective during its clinical trials, the FDA rejected its new drug application because they wanted additional studies conducted regarding its safety. The FDA did not request additional information on the drug's efficacy.  Therefore, now that Solithromycin is owned by Melinta, additional safety studies could be conducted. Once Solithromycin proves its safety, according to FDA parameters, its NDA approval would surely follow.

Fusidic Acid

Fusidic acid is a bacteriostatic antibiotic that is often used topically in creams and eyedrops, but may also be given systemically as tablets or injections. Fusidic acid works by interfering with bacterial protein synthesis, specifically by preventing the translocation of the elongation factor G (EF-G) from the ribosome. It also can inhibit chloramphenicol acetyltransferase enzymes.

Fusidic Acid achieved positive topline results from a phase 3 study of oral fusidic acid in 716 patients with acute bacterial skin and skin structure infections (ABSSSI). Fusidic acid was well tolerated in the study and achieved the primary endpoint, demonstrating non-inferiority (10% NI margin) of oral fusidic acid compared to oral linezolid for early clinical response  in the intent to treat  patient population. 

Melinta Stock is On-Sale

At this writing, Melinta Therapeutics is trading at $14.55 per share.  Prior to the MDCO acquisition, it was given a median price target of $25 per share. It is estimated that the peak sales potential of the acquired drug portfolio, post-closure, exceeds $1 billion.  Adding $1billion to a company’s bottom line will, no doubt, cause analysts to raise their price targets for the “new” Melinta, significantly.  Currently, there is only 16% institutional ownership.  Smart money, such as Deerfield Management and Vatera Healthcare Partners, holds significant stakes in Melinta.  And Deerfield recently committed up to $240 million in debt and equity financing to the company. Even with the financial backing of Deerfield and Vatera, Melinta filed a prospectus on January 26, 2018 for a $150M mixed shelf offering.

After their outstanding presentation at the JP Morgan Healthcare Conference and the catalyst of the Baxdela launch in early 2018, MLNT could be anticipating an institutional stampede of buying. The shelf offering would have shares registered and ready for sale.  Of course, traders can spin the shelf offering as a negative which may cause the stock to dip this week. Such a dip would afford an even greater opportunity to purchase shares in a company that has FDA-approved antibiotics, a formidable pipeline, and the corporate dynamics to aggressively commercialize treatments that can conquer a variety of antibiotic-resistant pathogens.

The products, pipeline, people, and processes of the new and improved Melinta will surely yield profits to shareholders. But, more importantly, their products may help to prevent the grim future presented by Jim O’Neill, of ten million fatalities per year, from drug resistant pathogens, by 2050. Last week, political posturing over nuclear power moved our Doomsday Clock to two minutes before midnight. But, Jim O'Neill so clearly conveyed, nuclear war is only one of the man-made catastrophes that tick that clock forward. Hopefully, one day, if companies like Melinta can eradicate pernicious pathogens, our midnight hour may be moved back more than a minute or two. Meanwhile, the clock is ticking. Time will tell.

Disclosure: I am/we are long MLNT.

Additional disclosure: I wrote this article myself. I do own shares of Melinta as part of a diversified biotech portfolio and may accumulate additional shares this week. Biotechnology stocks are very risky. Be sure to consult your financial advisor prior to making any investment decisions.