February 28, 2017 - 9:24am EST by
2017 2018
Price: 4.20 EPS 0 0
Shares Out. (in M): 52 P/E 0 0
Market Cap (in $M): 220 P/FCF 0 0
Net Debt (in $M): -233 EBIT 0 0
TEV ($): -13 TEV/EBIT 0 0

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I am by no means a biotech or life science expert. That said, in a market where certain areas appear stretched, I am finding interesting opportunities in the biotech sector. These are one off opportunities that present themselves when companies have blown up, trade around, or for less than cash, have a catalyst approaching (as was the case with ZSAN), or have news which I don't think is properly reflected in the current quote. Cempra falls into the later category.

To be clear, I am not just looking for negative enterprise value set ups, as those can easily be value traps. I am looking for companies which have blown up, have a healthy amount of cash, and have meat left on the bone in the context of future opportunities. Both ZSAN and CEMP blew up over either negative results or FDA mandates with one of their potential products, but had more than one shot on goal to recommend an interesting, and potentially assymetric speculation.  

Cempra states that they wish to be the leading antibacterial biotech. In late 2016, CEMP's stock blew up over disappointment with the FDA's decision over Solithromycin, an antibiotic meant to treat respiratory infections. The FDA rejected their application, asking for a safety study (huge dollars to do this) to be conducted before approval. CEMP initally dropped approximately 70%, and then continued a death march grind lower.

Last Friday, 2/24, Cempra came out with very positive Phase III data for another drug candidate, the antibotic Taksta (fusidic acid). The stock jumped of course, gaining approximately 30%. I believe there is still room to go, as investors re-examine the opportunity, and conclude that this company should not be trading at a negative enterprise value.

Taksta, is an oral antibiotic for skin and MRSA infections, along with chronic bone and join infections. Taksta, which is CEMP's brand for fusidic acid, has some unique advantages. There are 40+ years of safety and efficacy in accute and chronic oral use of fusidic acid for staph infections outside of the U.S. There is also no other known antibiotic available for longer term oral treatment of staph infections. Fucidic acid has been available in the EU for years, but is only available state wide as a topical cream. 

The trial results which Taksta reported last Friday, exceeded the outcome of the current standard of care, the antibiotic linezolid (Zyvox), for the treatment of skin infections. Importantly, Taksta was very effective in treating MSRA infections, which are particularly nasty.

On the IP front, Taksta has 12 years of protection assuming orphan status is granted. 

I anticipate that CEMP will be meeting with the FDA in fairly short, to discuss next steps, which will hopefully see the company filing for approval. In a perfect world, CEMP will receive orphan drug status for Taksta.

You have a security trading at a negative enterprise value, terrific results announced just days ago for a product with a large market, and another potential drug to bring to market. To wit, Solithromycin, which was hammered by the FDA last year, has a solid chance for approval in the EU. So there are potentially two products here, with large markets, for less than cash.

Risk : That they decide to spend a huge amount of their cash on a safety study for Solithromycin in the U.S.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


News of progress with the FDA; orphan status granted (or denied).

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