true, or not:Longer-Term Thesis Looks Broken Following DILI Disclosure – Downgrading to Hold
Despite our inherent aversion for downgrading a stock after a move to near-cash levels amidst a still-fluid regulatory decision, our
confidence in the CEMP story is broken and we have zero conviction into Friday’s Advisory Committee meeting. 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. 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 (specifically on the strategic
front). While acknowledging the considerable uncertainty still embedded in our revised estimates, we’d much rather prefer to
watch Friday’s event from the sidelines. Our target price moves to $8 (previously $37).
Revelation of solithromycin-mediated DILI in the since-halted (also not
disclosed) COPD trial requires us to alter course. While one might argue the
long-duration (28 days) nature of solithromycin therapy in this trial isn’t applicable to
short-duration (7 days) CABP treatment, we’re inclined to believe otherwise.
Post-marketing instances of Ketek-induced DILI – which was similarly characterized by
immuno-allergic reactions and the activation of hypersensitivity pathways – also
occurred in the context of very short latency times (i.e. shortly after the initiation of
therapy) and was potentially driven by acquired hypersensitivity to prior macrolide
exposure. The significant inter-individual variation in: 1) the threshold concentrations of
solithromycin exposure required to trigger the hepatotoxic effects; and 2) the ability to
mount an adaptive hepatic response to solithromycin exposure creates additional
uncertainty around this notion of treatment duration. We believe this singular incidence
of DILI occurring within an admittedly limited number of solithromycin-treated patients
represents a significant obstacle for the agency, given these are generally
low-frequency events that typically only elucidate themselves in the context of a large
post-marketing safety database. We believe any prior disclosure of this event would
have significantly impacted our/investor sentiment around FDA’s interpretation of
solithromycin risk/reward. We believe the designated FDA hepatologist responsible for
the liver safety review summed it up best:
“Although a number of the enrolled study subjects in these studies appear to have
experienced adaptation, the presence of the symptomatic case of solithromycin-induced
cholestatic hepatitis described above raises a significant concern that there is a subset of
susceptible individuals in whom solithromycin may also trigger an idiosyncratic inflammatory
reaction with significant clinical consequences.”
(Continued on next page)
Changes Previous Current
Rating Buy Hold
Target Price $37.00 $8.00
FY16E EPS $(2.24) $(2.22)
FY17E EPS $(2.60) $(2.53)
FY16E Revenue — $24.6
FY17E Revenue $82.6 $25.1
Price (11/02/16): $7.30
52-Week Range: $34 – $7
Market Cap.(mm): 406.3
Shr.O/S-Diluted (mm): 55.7
Enterprise Val. (mm): $174.5
Avg Daily Vol (3 Mo): 1,026,061
LT Debt/Total Cap.: 4.6%
Net Cash/Share: $4.17
Book Value/Share: $3.73
Dividend($ / %) $0.00 / 0.0%
S&P Index 2,097.94
EPS 2015A 2016E 2017E
Q1 $(0.41) $(0.61)A $NE
Q2 (0.57) (0.51)A NE
Q3 (0.63) (0.62)A NE
Q4 (0.48) (0.48) NE
FY Dec $(2.09)A $(2.22) $(2.53)
Revenue 2015A 2016E 2017E
Q1
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