Ladenburg Downgrades Cempra Following FDA's Complete Response Letter

Ladenburg Thalmann has downgraded Cempra Inc CEMP to Neutral from Buy following the complete response letter from the FDA for Solithromycin for treatment of Community Acquired Bacterial Pneumonia (CABP).

The letter cites both manufacturing deficiencies at contract manufacturer Wockhardt and a request for additional safety characterization of liver toxicity, including a 9,000-patient safety database.

Downgrade Justification

The primary justification for the downgrade is the potential language regarding labeling that limits the potential use of Solithromycin to a small market and does not support a viable commercial model for the product.

The letter states that even if future studies did not identify new cases of severe liver injury, labeling for Solithromycin likely would include, among others, language regarding hepatotoxicity.

“Based on currently available information, we do not see a path to approval of Solithromycin for treatment of CABP in the U.S.,” analyst Kevin DeGeeter wrote in a note.

A Positive Glimmer

That said, DeGeeter still believes Cempra's early-stage pipeline, including Taksta and potentially Solithromycin in markets outside the United States, represents significant potential value. Taksta is being developed for use in skin (ABSSSI) and prosthetic joint infections.

Hold Rating And Outlook

The analyst, who removed his $10.50 price target, prefers to be on the sidelines until Cempra’s FDA update late in the first quarter.

“If CEMP were to 1) reset the company's cost structure, and 2) explore strategic alternatives, including a potential sale of the company, in our view, there may be material upside from the current valuation,” DeGeeter continued.

On the news of FDA letter, shares of Cempra plunged to a new 52-week low of $2.55. At last check, they had plummeted 57 percent on the day to $2.65 on a volume of about 16.39 million shares versus its three-month average of about 2.18 million shares.