Ernie Tremblay’s teaser pitches about imminent FDA decisions or other biotech catalysts always get a lot of attention — not necessarily because he’s always right (ARLZ did get approval for their drug, but the stock is actually down… EARS did not “double by August 31” because the trial he was teasing failed on efficacy), but because his ideas are heavily distributed by his publisher to a huge audience.
And this latest one is no different — I have no idea what the outcome will be, but everyone’s asking me about the stock… so let’s see what it is.
This is another “new antibiotic” teaser, and it talks up the new “deadly strain of old man’s friend” by using horrific, scare tactic language that’s clearly designed to put retirees in a panic… and it’s no coincidence, I expect, that folks who are 60-70 years old are also the prime audience for investment newsletters. Here’s a little taste of that:
“If you’re retired – or even if you were born before 1961 – you need to pay very close attention.
“Your life may be in imminent danger, and the next few minutes could save you or a loved one…
“Time is short, so let me give you the facts…
“At this moment, a new, highly infectious strain of ‘Old Man’s Friend’ is quietly sweeping the heartland, killing nearly every 10 minutes…”
“Old Man’s Friend” is pneumonia, which is certainly a huge problem for many groups of people, particularly children and the elderly or hospitalized, but it’s also a complex disease with many causes. If you want a quick and more sober reality check there’s a “top 20 pneumonia facts” from the American Thoracic Society here just to give you a basic grounding in the situation, or the CDC page is here.
And while it’s true that deaths by pneumonia are growing, it’s not necessarily because of new antibiotic-resistant strains — from what I can tell by a quick scan of the data, it’s because the population is getting older. The age-adjusted death rate for pneumonia has been falling for decades, probably partly because of improved hospital procedures and partly because of much wider use of the pneumococcal vaccine or flu vaccine among the elderly (that’s just a guess on my part, influenza is a major cause of pneumonia). Antibiotic resistance is obviously a concern with pneumonia, as with other diseases and infections, but I have no idea what the scope of the problem (scope matters a lot for a drug developer — if a drug will be used by millions of people it has an easier chance of being very profitable, if it’s reserved for just the most dire cases it’s less likely to be a huge blockbuster).
Tremblay draws out a nice narrative, saying that antibiotics took down pneumonia and made it far less deadly… but that the pharmaceutical industry and government “dropped their guard,” failed to discovery any new antibiotics for decades, and new strains of antibiotic-resistant microbes developed. You all know this, antibiotic resistance is a big deal for lots of infections and diseases, and there has been more of a push from the government and a few pharma and biotech companies over the past five years to advance new antibiotics.
And, of course, the scare tactics continue — lots of all caps…
“retirees are dropping like flies….
“The new pneumonia strain is SAVAGE…
“And it kills without mercy….
“Every 10 minutes, another American gets the bad news….
“In fact, across the United States, antibiotics only stop pneumonia about 50% of the time…
“That means if you get this new strain of pneumonia, go ahead and flip a coin.
“Heads you live…
“Tails, you die…
“You’ve got a better chance of surviving a HEART ATTACK!”
So that’s his argument. I don’t know whether it’s fair to say that “we are fast approaching the day where pneumonia is UNSTOPPABLE,” but yes, it’s obviously a major cause of death in the US and worldwide (it’s in the top ten causes, when combined with influenza, though that ranking shifts a little some years), though I’d imagine that the reason “antibiotics only stop pneumonia about 50% of the time” is more because pneumonia is often caused by a virus, not a microbe, than it is because of the growing resistance to some antibiotics of some pneumonia-causing bacteria in some areas of the country.
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I’m not at all an expert on that, just trying to give a little perspective. Let’s move on to identifying the company… what clues do we get?
“Fortunately, there is a solution…
“And it comes from a most surprising source…
“A tiny North Carolina company has spent the last 10 years – an entire decade – developing a whole new class of drug …
“A new drug that can do what old-line antibiotics can’t…
“A new drug that’s poised to usher in the next chapter in modern medicine, saving millions of lives in the process….
“This new drug is the first and only of its kind…
“A breakthrough on par with the discovery of penicillin or the polio vaccine.
“In fact, the FDA has determined this drug is so critical to modern society, they’ve issued a special classification – called a QIDP – rushing it to market.
“And the way this drug works is like something out of “Star Wars” ….
“… while old Azithromycin attacks the ribosome in one location, the new drug attacks the strains of bacteria’s ribosome in THREE DISTINCT LOCATIONS….
“… the drug is brand new, bacteria are not immune to it.
“Consequently, in extensive placebo-controlled, double-blind clinical studies, this new drug proved up to 16 times more effective than Azithromycin….
“… while pneumonia is able to defend itself from one or two angles, it can’t stop an assault from three sides at the same time.
“In other words, if all three of the pneumonia’s ‘protein factories’ are shut down, it simply can’t survive.
“More importantly, it can’t mutate…”
So that’s the hope — that this drug will not only fight antibiotic-resistant pneumonia because the bacteria aren’t yet immune to it, but that the mechanism of action means that bacteria won’t be able to “communicate with each other” to share resistance to this new drug and ensure that it stays effective. I don’t know if that’s a reasonable interpretation of the drug’s progress or not.
But I can ID the stock for you, just need a few more clues. Here are some:
“… right now, this company books a mere $27 million in annual sales….
“Thanks to the U.S. government, it’s on the bullet train to FDA approval.
“It’s already sailed through two FDA clinical trials. And final FDA approval is imminent…
“In fact, the FDA is so eager to get this new drug deep into market, they are issuing a rare “double-shot decision,” expected in December…
“… this new drug does more than fight pneumonia.
“In extensive clinical studies conducted over the last decade, it’s proven to stop nearly every strain of deadly bacteria on the planet…”
That “double shot” is that they expect FDA decisions for both the oral and IV versions of the antibiotic in late December — December 27 for oral, 28 for intravenous. But before that there’s an “advisory meeting” ….
“… this tiny $27 million company’s CEO has been summoned to a face-to-face advisory meeting with the FDA outside Washington, D.C. on November 4.
“I’m confident the CEO could emerge with a smile on his face that will ignite an insider buying frenzy…
And, apparently, there’s already insider buying:
“In advance of the imminent FDA decision – expected by December 27 – folks inside this company are betting their own money at a frenetic pace.
“The company’s President and CEO, Executive Vice President, even their Board Members…”
OK, fine, we can make the company for you now — it doesn’t even require much chugging from the Thinkolator’s big engine to tell you that Tremblay here is teasing Cempra (CEMP).
Yes, a few folks have sent in questions about this worrying that CEMP wasn’t the pick, because it’s not a $27 million company… but remember, Tremblay doesn’t say the company has a $27 million market cap, but that it has $27 million in sales.
It is also technically true that there has been a huge amount of insider selling at Cempra, not buying… but newsletter promotions routinely mislead on this and conflate option exercises or stock grants with “insider buying.” There has been one insider who made a token purchase with his actual money this year, many months ago, but there has generally been selling both among insiders and among institutions.
But yes, Cempra does have an advisory meeting with the FDA on November 4 for solithromycin, which they’ve given the brand name Solithera (or you can see the Cempra press release here). Solithera/solithromycin also has PDUFA dates that match: December 27 and 28 for the oral and IV versions of solithromycin for use in Community Acquired Bacterial Pneumonia (CABP).
And we get more hints that imply that the size of the market will be massive:
“this strain of pneumonia has killed over 1,450 Americans in the last 10 days alone.
“That’s one death every 10 minutes, and the CDC projects the annual death toll will hit 53,000 by December…”
That’s not really a fair number to use — those are the total death totals for pneumonia and influenza, not just the antibiotic-resistant strain of bacterial pneumonia (though I don’t know if there’s a good number for that subset).
And what share will this company get? More from Tremblay:
“This throws open the door to the $2 billion pneumonia drug market… a market now ripe for the taking…
“How big a slice of that $2 billion will this new drug grab?
“Well, in theory, they could take over the entire market…
“After all, antibiotics are failing. As a result, people are dying…
“And the FDA has issued a special classification that grants this new drug a five-year monopoly!”
And he says that he expects sales to surge immediately upon approval:
“Extensive market research determines that doctors are clamoring for this new drug.
“They want it. And they want it now. In fact, 93% of doctors surveyed said they are likely to use this new drug instead of traditional antibiotics.
“Pharmacies are on board as well. Because pneumonia is life-threatening, patients can’t afford to wait a day or two.
“As a result, about 85% of pharmacies will stock the new drug within days of its launch.
“One pharmacists says: ‘Patients can’t wait 24 hours for this new drug to be ordered. So we will stock it on the first day available.'”
The survey numbers come from market research that Cempra did — there’s a slide of some of that data from one of their presentations here that was pulled from a local business article about Cempra over the summer here.
And Tremblay uses a technique that many newsletters attempt: Making an absurd claim sound like it’s reasonable and conservative…
“To say this drug could secure HALF the market is an understatement of epic proportions. But again, let’s keep it conservative…
“At half the market, this tiny $27 million company would see revenues of over $1 billion…
“That’s a sales surge of over 3,600%…
“A stock following this course could jump from $1 to $36…”
I wouldn’t ever say “never” … but Tremblay doesn’t really tie himself down on the time period. The analysts who follow Cempra are estimating that total revenue for the company will be about $60 million next year, and $150 million the following year… though some have used “peak” sales numbers near a billion dollars for solithromycin in their models (that’s out in 2030 or so, presumably based on broader approvals for the drug as a widely used antibiotic). Maybe Ernie Tremblay’s smarter or has greater insight than the average analyst, or is counting on numbers that are more than a decade into the future, or maybe those analysts just don’t understand the sales potential for solithromycin, I don’t know — but I wouldn’t bet a lot on that possibility, personally.
The company, in their investor presentations, indicates that their strategy (assuming FDA approval, which seems to be the consensus expectation) is to build awareness this winter so they’re ready for a big sales push in the 2017-18 pneumonia season — and they seem to put a lot of stock in the fact that a small number of specialists write the vast majority of the prescriptions for CABP, so their sales force should be able to make an impact fairly quickly. They’re aiming for a relatively low price (in the hundreds of dollars, they say) to avoid stressing out insurers and keep the market potential large, and they also note that they will be the only people actively selling into this market (since the competing drugs, primarily azithromycin, are generic).
Cempra has fallen about 50% since the highs of 2015, partly because news of some adverse effects in one of their trials was taken poorly by the market about a year ago (the stock rebounded from that news, but then fell again in January when they raised $175 million, which presumably is needed to start manufacturing and building a sales force to commercialize solithromycin as well as to complete their other clinical trials, including of a pediatric formulation of solithromycin).
Where will it go from here? I have no idea… but the next few months will be full of catalysts as the calendar catches up with the FDA advisory committee meeting on November 4 and the PDUFA decision dates in late December. Cempra is a billion-dollar company right now at $22 a share, and it’s pretty clear to me that expectations are that solithromycin will be approved to at least some degree and lead to sales… though analysts don’t think it will be enough to make Cempra profitable in the next couple years, and I don’t know what the odds of success are for their ambition to get broader approval or use of solithromycin in new indications (pediatric, other infections) or to advance their other pipeline antibiotics (primarily fusidic acid, which also has QIDP status).
Oh, and the QIDP status, while it is potentially important, does not necessarily imply that the FDA has qualitatively determined that this particular drug is worthy of something special… that program is generally intended to spur development of new antibiotics (and other anti-infectious disease drugs), and there have been dozens of antibiotics given QIDP status in the past few years. QIDP status does both expedite the FDA approval process and extend the monopoly period for new drugs by five years, both to get new treatments to market faster and to incentivize pharmaceutical companies to develop antibiotics, but it’s not a magic profit-maker unless the drug is approvable and sells well enough that those extra five years of marketing exclusivity are particularly valuable. (This incentive was created largely because antibiotics, otherwise, have not been of big interest to pharma companies… at least until this recent surge of antibiotic resistance and the breakthrough sales of Cubicin a few years ago. Competing with penicillin or the dozens of other widely-used antibiotics that are generic and very cheap is tough.)
It’s certainly possible that the news could be negative as well as positive in the coming months, but with a billion-dollar valuation I’d assume that the expectations are for a positive response and approval from the FDA… if not necessarily for a “blockbuster” size rollout of sales in the next couple years.
So what do you think? Interested in taking a flier on Cempra? Think it will boom or bust as the year closes? Let us know with a comment below.
P.S. Dr. KSS, who writes about biotech for the Irregulars, has consistently referred to Cempra as overvalued and said it “doesn’t justify the hype” in the past — that doesn’t mean the stock can’t go up, of course, but I’m sure he knows more about the science than I do.
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