The Street's Confidence In Cempra Is Broken

Cempra Inc CEMP shares are now down a staggering 69 percent in the past month following new concerns by federal regulators about the safety of its experimental antibiotic solithromycin. The Federal Drug Administration is holding a public advisory panel this week and has acknowledged the drug’s efficacy.

However, investors have become concerned that elevated enzyme levels identified in certain patients could severely limit the end market for the drug.

Stifel analyst Stephen Willey is among the sellers who have lost confidence in the stock. In a note out this week, Willey downgraded the stock from Buy to Hold and slashed Stifel’s price target for Cempra from $37 to $8.

“We had previously argued liver enzyme elevations alone would be a navigable subject matter – but the revelation of a previously-undisclosed instance of definitive solithromycin-mediated drug-induced liver injury (DILI) occurring in a non-CABP/investigator-sponsored/UK-based COPD trial now fundamentally challenges this hypothesis,” Willey explains.

According to Willey, these revelations are enough to leave Stifel skeptical of the drug’s potential impact, even with the stock trading at near-cash levels.

“We struggle to see how any better/best-case scenario of approval with highly-restrictive labeling doesn’t significantly limit solithromycin utilization in the community setting – which is the end market singularly responsible for longer-term value creation,” he concludes.

Willey advises traders to simply watch Friday’s event from the sidelines and avoid exposure to the uncertainty all-together.