Cempra stock tanks on FDA concerns for lead drug’s side-effects; high hopes still riding on Friday AdCom meeting

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Cempra Inc.’s (Chapel Hill NC) experimental drug to treat community-acquired pneumonia, the kind recently suffered by presidential candidate Hillary Clinton, causes a potentially concerning rise in liver enzymes, according to a preliminary review by the US Food and Drug Administration. Cempra’s shares crashed 61% Wednesday to $7.30 on the news.

Cempra's experimental drug causes a potentially concerning rise in liver enzymes Click To Tweet

The review, posted on the FDA’s website (November 2, 2016), comes two days ahead of a meeting of outside experts who will discuss the drug, solithromycin, and recommend whether or not it should be approved, according to Reuters. The FDA is not obliged to follow its advisory commission’s advice but typically does so.

“A significant safety signal for hepatotoxicity was observed in the solithromycin development program,” agency reviewers noted. Another area of concern, they said, was “the high rate of infusion site-related reactions.”

Solithromycin is descended from an infamous drug made by Sanofi SA (Paris) called Ketek, or telithromycin, which was approved by the FDA in 2004 but later linked to dozens of serious or fatal liver problems and largely withdrawn.

Cempra constructed the same drug but without the elements it believes were responsible for the side effects associated with Ketek, which included visual, neurological and liver problems. The company is seeking approval for an oral and intravenous version of solithromycin.

Clinical trials show solithromycin to be as effective as the antibiotic moxifloxacin, the FDA said in its review, but rates of liver enzyme elevations were higher in patients treated with solithromycin than with moxifloxacin. High liver enzymes can be a signal of an underlying liver problem, especially if they remain elevated.

In the Cempra trials enzyme elevations were transitory. Patients did not develop clinical symptoms of liver problems, such as jaundice, and there was no evidence of acute liver damage.

Nonetheless the FDA is likely to be especially cautious as the Ketek disaster left a mark on the agency, says Reuters. It prompted Congressional investigations and accusations from FDA insiders that the agency stifled concerns over the drug voiced by its own reviewers and dismissed suspicious clinical data that were later shown to be fraudulent.

“We think the institutional memory of Ketek will force the division into a highly conservative and defensive stance on solithromycin’s safety profile,” Ritu Baral, analyst at Cowen and Company, said in a recent research note. Even so, she said, “we believe the agency would respect what we see as a likely positive panel vote for approval.”

Solithromycin belongs to a class of antibiotics known as macrolides that include erythromycin, clarithromycin and azithromycin and are used to treat a wide range of bacterial infections. Roughly 50% of the most common bacterium, the pneumococcus that cause chest and other infections, are resistant to macrolides, making the hunt for new antibiotics urgent.

The advisory panel will be asked to assess whether the efficacy of solithromycin in treating infections that kill more than 50,000 people a year in the United States outweigh a potential risk of liver toxicity.

“Although we expect a positive vote and approval, potential adverse outcomes for Cempra include a request for a large safety trial to further characterize risks,” Alan Carr, analyst at Needham & Company, said in a research note.

If approved, Carr sees the drug generating peak worldwide sales of $2 billion.

Pharmaceutical companies have been slow to develop new antibiotics. Solithromycin would be the first oral and intravenous antibiotic for community-acquired pneumonia since moxifloxacin in 1999. Since then several oral-only or intravenous-only drugs have been developed.

Steve’s Take: Talk about a punch in the stomach to start off your Wednesday. Of course, not if you’re a short seller.

North Carolina-based Cempra’s stock cratered, dropping a gut-wrenching 61% today after warnings from the FDA that its experimental antibiotic drug causes a higher rate of chemically induced liver damage compared to alternative treatments.

The FDA report called the potential for liver damage from the drug a “significant safety signal.” This report comes two days before outside experts meet to discuss whether to approve the drug. While the FDA is not required to adopt the panel’s recommendations, they do far more often than not.

The Ketek episode injured the FDA’s standing with the general public, points out Profit Confidential, prompting a US Congressional investigation and accusations from within the agency that it didn’t listen to the concerns of its own reviewers. They were also alleged to have written off suspicious clinical data that were later proved to be partially falsified. (Source: “FDA highlights liver safety issues in Cempra drug review,” Reuters, November 2, 2016.)

Investors with long memories dating back 12 years to the Ketek fiasco dumped Cempra in a hurry after the FDA’s concerns with solithromycin first hit the newswires.

But Reuters reported that Alan Carr, an analyst at Needham & Company, LLC, is singing a different tune. He sees the drug generating peak worldwide sales of $2 billion if approved. In a research note, Carr wrote that he expects the drug to be approved eventually, but could face a request for a large safety trail before its release.

I think the market’s reaction today was typical, but overdone. Just yesterday (November 1, 2016), Cempra announced the receipt of a $10 million milestone payment from Toyama Chemical Co., Ltd., a subsidiary of FUJIFILM Holdings Corporation, triggered by Toyama progressing to Phase 3 studies with solithromycin in Japan, the world’s second largest antibiotic market.

Earlier this year, Toyama completed a Phase 2 multi-center, randomized, double-blinded study of 135 Japanese patients with mild to moderate community-acquired bacterial pneumonia (CABP). Patients were randomized to either oral solithromycin or oral levofloxacin for five days. Overall safety and tolerability was similar in both treatment groups and all efficacy outcome measures favored solithromycin.

The Japanese Phase 2 study was similar in design to the Phase 3 CABP studies conducted by Cempra in accordance with guidance from the FDA and the European Medicines Agency (EMA), according to StreeInsider.com.

Toyama owns exclusive rights to develop and commercialize solithromycin in Japan for respiratory tract infections and other indications in adults and pediatric patients. In addition to the $10 million milestone payment for progressing to Phase 3, Cempra has also previously received $30 million of upfront and milestone payments and can earn an additional $30 million, for a total of $70 million, in payments from Toyama based on the achievement of certain objectives.

If approved in Japan, Toyama would pay tiered royalties, adjusted based on sales, to Cempra following launch of solithromycin there.

So despite witnessing the sickening freefall of its shares, Cempra can hold out hope that its solithromycin will ultimately follow the path it has taken in Japan. If Needham analyst Carr is anywhere close with his prediction of a $2 billion worldwide market, that longer-term view might warrant picking Cempra out of the rubble at a truly firesale price right now.

And if solithromycin is approved in Japan, a wholesale buyout of Cempra wouldn’t surprise me. That’s pretty much what happened to biotech InterMune in 2014 when it was acquired by Roche Holding for $8.3 billion.

Steve's Take: if #solithromycin is approved in Japan, a buyout of Cempra wouldn’t surprise me Click To Tweet

By the way, in case anyone thinks the FDA approval process just involves time and in-house development costs, here are the fees the agency collects from applicants to help fund the review process under the Prescription Drug User Fee Act (PDUFA).

(The FY 2017 user fees, posted 7/28/2016):

  • Application with clinical trial — $2,038,100
  • Application without clinical trial — $1,019,050
  • Supplemental with clinical — $1,019,050
  • Product — $97,750
  • Establishment — $512,200

The PDUFA was created by Congress in 1992 and authorizes FDA to collect fees from companies that produce certain human drug and biological products. Since the passage of PDUFA, user fees have played an important role in expediting the drug approval process.