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Bear Thesis On Durata Debunked

Jul. 05, 2013 5:03 PM ET1 Comment
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Durata (DRTX) has been trading at discount compared to its competitors such as TSRX and CEMP. There have been several arguments floating around among traders and analysts. Below I discuss each bearish reason and then provide the counterpoint argument.

1. Long half-life of Dalbavancin makes physicians hesitant to adopt it.

A drug's half-life is the time it takes for half of a given dose to be eliminated from the body or bloodstream. Some Durata bears believe that long duration of Dalbavancin in the blood may be a concern for physicians to adopt it.

As a matter of fact, the short half-life is the exact shortcoming of many current antibiotics. There are two types of antibiotics: bactericidal and bacteriostatic. Zyvox and Tygacil, are bacteriostatic, which means that although they stop bacteria from growing or reproducing, the patient's own immune system must be strong enough to kill the static bacteria itself. Bactericidal antibiotics kill the bacterial pathogen directly, which is particularly important for patients with weakened immune systems that cannot effectively eradicate the infecting bacteria on their own. Because of the short half-life of many currently available bactericidal treatment options, such as vancomycin and Cubicin, the killing effects of these drugs is limited by the duration of the drug in the blood, and these drugs do not exhibit bactericidal activity for a prolonged, or continuous, period following administration. Dalbavancin's relatively long half-life means that dalbavancin is bactericidal over a prolonged period of time following treatment, as opposed to only a short period after administration.

Notwithstanding dalbavancin's relatively long half-life, the rate and duration of adverse events in clinical trials to date for dalbavancin are similar to that of the comparator drugs used in the trials, and no negative drug-drug interactions were observed with dalbavancin in clinical development to date.

2. Dalbavancin does not have oral dosage form and can't compete with Tedizolid or linezolid that have both IV and oral forms.

First, let's compare dosing schedules of Dalbavancin and Tedizolid or linezolid. For tedizolid or linezolid, patients initially receive the IV dosage form, then switch to the respective oral dosage forms at the discretion of the doctors on or after the second day of treatment. Patients receive once a day for six days of oral Tedizolid or twice a day of oral linezolid. But for Dalbavancin, patients only need to receive IV injection once a week for two weeks. And that's all. No oral dosage form is NOT the disadvantage, but the advantage of Dalbanvancin, because Dalbavancin eliminates the need to take oral tablets on a daily basis. The doctors don't need to worry about that the patients may forget to take the pills at home.

Additionally, Gastrointestinal side effects and thrombocytopenia are common for Tedizolid or linezolid. According to Trius PR on March 25th, 16.0% patients in Establish 2 trial who took tedizolid developed Gastrointestinal side effects and 20.5% in linezolid. As a result, patients receiving oral treatments have significantly lower compliance rates, and may be at increased risk for hospital readmission. Dalbanvancin's once-weekly dosing will improve patient compliance compared to daily oral dosing antibiotics.

3. Long-Acting antibiotics will require a change in clinical practice and may hinder the initial uptake by conservative physicians.

The change in clinical practice from in-patient to out-patient is exactly the value proposition of Dalbavancin. The use of dalbavancin in the hospital may make an overall hospital stay shorter and less expensive. We believe that after dosing a patient with the initial infusion of dalbavancin, hospitals could discharge the patient after only a short stay and then schedule a follow-up appointment for the second infusion. This second appointment would serve the dual purpose of allowing a doctor to reexamine the patient and to administer the second dose of dalbavancin, all while limiting the duration of the patient's hospital stay.

Durata believes that with effective treatment of patients outside the hospital, the use of dalbavancin could decrease the threat of the spread of MRSA, both to and from a particular patient. Durata also believes that limiting the admission of patients for further treatment in the hospital and avoiding patient compliance and MRSA concerns could decrease readmission rates of patients with ABSSSI and therefore increase reimbursement rates for hospitals.

Based on a survey conducted by Durata, approximately 69% of the 150 physicians who responded, consisting of 50 hospitalists, 50 infectious disease doctors and 50 emergency room doctors, ranked dalbavancin's product profile at "8" or higher on a scale of "1" to "10," with "1" corresponding with "very poor" and "10" corresponding with "excellent." In addition, in this survey, physicians also favorably ranked specific attributes of dalbavancin's product profile, such as its dosing schedule and compliance levels, and indicated that dalbavancin could allow many patients that are currently treated in the hospital to be treated on an outpatient basis.

4. Vancomycin and other generic antibiotics are so cheap that dalbavancin won't sell well

Although generic vancomycin is a relatively inexpensive drug, the overhead costs of treatment with vancomycin can be very high. Among other costs, treatment with multi-day antibiotics such as vancomycin may require the insertion of a peripherally inserted central catheter, or PICC, line to deliver the drug and either overnight hospital stays or, if a patient is treated on an out-patient basis, at least daily follow-up visits. Durata believes that treatment with dalbavancin, even with branded pricing at a premium to generic products, would generally be less costly overall than treatment with a generic antibiotic, such as vancomycin.

Given above reasons, I Believe DRTX should be valued at least on a par with TSRX. Particularly considering DRTX is more advanced in the regulatory approval process, $400M market cap ($14/share) should be a fair value and will be reached quickly once the market has a better understanding of the company and the drug.

Disclosure: I am long DRTX. 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.

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