What Investors Should Be Watching In The Antibiotic Space

The antibiotic space has been in the news frequently in the second half of 2014 and investors have taken notice.

The biggest headline was Merck & Co., Inc. MRK offering $8.4 billion to acquire antibiotic giant Cubist Pharmaceuticals Inc CBST. The acquisition was for about a 25 percent premium over the previous close.

Last year, Cubist made headlines with its acquisitions of Trius Therapeutics, Inc. TSRX and Durata Therapeutics Inc DRTX.

This year, Tetraphase Pharmaceuticals Inc TTPH announced it is exploring a sale after receiving takeover interest.

According to reports, Tetraphase could attract interest from Actelion Ltd ALIOF and Roche Holding Ltd ROG. On December 17, Tetraphase announced positive top-line results from its Phase 3 IGNITE 1 trial of Eravacycline in complicated intra-abdominal infections. Year-to-date the stock is up 183 percent and recently a Stifel analyst issued a $54 price target.

Cempra Inc CEMP has generally flown under investor radar until recently and is releasing data in the 1Q 2015. Cempra is set to announce Phase 3 trial results of CEM-101 (solithromycin) for Community Acquired bacterial pneumonia (CABP). Solitrhomycin is a safer version of Ketek, which reached over $1 billion in peak sales. Positive results would de-risk much of the Cempra portfolio.

Other large indications include the Gonorrhea market, which includes only one effective and approved treatment.

FDA guidelines have made it easier for antibiotic companies to gain approval after releasing positive Phase 3 data. The FDA requires that the antibiotic is safe, but does not require a large superiority in efficacy. This is fueled by the lack of new antibiotics on the market and the need for alternatives as bacteria adapts to current treatments.

Trius Therapeutics was acquired before FDA approval and Tetraphase is receiving interest just after releasing Phase 3 data. If Cempra announces positive Phase 3 data, this trend should bode well for the company in 2015. Achaogen Inc AKAO could also benefit from this trend, however its lead product candidate Plazomicin is in earlier stages of development.