NO, UTI's> Iterum's antibiotic treatment Sulopenem displayed superiority over standard-of-care Cipro in uUTI patients with quinolone resistant pathogens.
Iterum has submitted its NDA to the FDA, which has been accepted for priority review, with a decision date set for late July.
Management are eyeing a potential $6.5bn market, and peak sales ~$1bn, but successful antibiotics treatments typically make sales ~$300m.
Iterum stock has been on a recent bull run to ~$2.4, from $1.23, and if Sulopenem is approved, the share price ought to challenge May 20 highs of ~$4.2.
There's significant risk associated with an investment in Iterum, but the upside price catalysts are clear. Post approval it will be a hard slog for the company but an oral penem antibiotic has exciting potential.
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Investment Thesis
Iterum Therapeutics (ITRM) stock has been on a bull run in the past few days - shares have risen in value from $1.3 on February 4th, to $2.73 at the time of writing - a gain of 110%. At current price, however, Iterum stock still trades at a 40% discount to May 2020 highs of $4.3, and a 79% discount to its May 2018 IPO price of $13.
The stock's long-term losses relate to the stuttering progress the $221m market cap biotech has made toward securing approval for its lead candidate, Sulopenem - an oral and intravenous ("IV") antibiotic, licensed from Pfizer (PFE) and indicated for uncomplicated urinary tract infection ("uUTI"), complicated urinary tract infection (cUTI), and complicated intra-abdominal infection ("cIAI").
In the third quarter of 2018, Iterum launched pivotal Phase 3 trials across all three indications, evaluating oral and IV Sulopenem against standard of care oral Ciprofloxacin ("Cipro") in women with uUTI - the "SURE-1" trial - and oral Sulopenem against standard of care IV Ertapenem, followed by oral Ciprofloxacin, in cUTI and cIAI - the SURE-2 and SURE-3 trials.
Results from SURE-3 were the first to arrive in December 2019, showing that Sulopenem had narrowly failed to meet its endpoint of non-inferiority to Ertapenem based on clinical response at day 28. Next, in June '20, came results from SURE-2, with Sulopenem again failing to demonstrate non-inferiority to Ertapenem, based on overall clinical and microbiological response on day 21.
Later that month, Iterum reported results from SURE-1. Sulopenem once again failed to demonstrate non-inferiority, this time to Cipro, in patients with organisms susceptible to quinolones, although in patients with baseline pathogens resistant to quinolones, Sulopenem did demonstrate superiority.
Three pivotal trials, and three missed endpoints. It's not hard to see why the market lost faith in Iterum stock and why the share price had fallen from $4.2 in May '20 to <$0.5 by October / November.
Iterum's financial position also was perilous. The company had raised $80m immediately post IPO, and filed for a $150m mixed shelf arrangement in July 2019. Iterum then issued $52m of senior subordinated notes paying 6.5% interest and due in 2025 in January last year, and followed up with 2 $5m share offerings, and another for $17.5m in October. As of Q320, Iterum had racked up an accumulated deficit of $275.7m, and reported cash of just $8.7m, enough to last until the third quarter of this year, management forecast.
Now for the good news. Based on the positive endpoint from the SURE 1 trial of superiority to Cipro in patients with a quinolone non-susceptible pathogen, Iterum management filed a New Drug Application ("NDA") in November last year for that indication, which was accepted by the FDA in late January for priority review, with a decision date set for July 25 - less than six months away.
The news appears to have pleased the market and reinvigorated Iterum's stock price, and the company has capitalized by raising $40m in a share offering earlier this month. The market opportunity has never been in doubt - management estimates that upon approval (if secured), Sulopenem would be eligible to treat a US market of ~6.5m patients, which rises to 22m across the broader uUTI market, should Iterum successfully gain access via further clinical studies.
In fact, Iterum management believes Sulopenem can achieve blockbuster (>$1bn sales per annum), status, based on a $6.5bn quinolone non-susceptible market, and $15bn quinolone susceptible market, and already is planning a commercial launch campaign.
Against that, marketing antibiotic treatments is a hard task, with physicians prescribing treatments sparingly to preserve resistance, health insurers reluctant to provide reimbursement, and many alternative treatment options in Sulopenem's target markets.
Management has experience developing and launching new antibiotic therapies with CEO Corey Fishman and Board Member Michael Dunne having developed Dalbavancin - a treatment for acute bacterial skin and skin structure infections ("ABSSSI") at Durata Therapeutics, before selling the company to Actavis in a $675m deal in 2014.
As such, with a major price catalyst on the horizon, an experienced management team, fresh funding and a large target market, Iterum stock's bull run could be set up to continue until it is challenging May '20 highs of >$4, or perhaps even its IPO price of $13, while an acquisition also provides an attractive exit strategy.
Antibiotics is a difficult sector - a host of biotechs have gone bankrupt in the past decade after failing to make strong enough product sales in their first few years post-approval - but also one that often attracts government support, owing to the major pharmaceutical industry's reluctance to develop products for it.
On balance, in relation to an investment into Iterum, I think the positives currently outweigh the negatives and that acquiring a position in the stock may reward patient, risk-on investors. In the rest of this article I will provide a little more colour on the company.
Company Overview
Iterum was founded in 2015 and is headquartered in Dublin. Prior to going public, the company raised ~$110m across two private funding rounds, led by Frazier Healthcare Partners and Arix Biosciences respectively, with backers including Sofinnova Investments, New Leaf Venture Partners, Advent Life Sciences and Bay City Capital.
The company has a substantial institutional ownership, with Sarissa Capital owning a 31% stake in the company, RA Capital Management an 11% stake, Armistice Capital a 5% stake, and New Leaf a 10% stake, according to data from Fintel.
Corey Fishman has been CEO of the company since it was formed, and most of the senior management team - relatively inexperienced, by biotech standards - have been together since 2017. The board is mainly comprised of senior execs from Iterum's various institutional backers, including Canaan Capital, New Leaf, and Advent, alongside David Kelly - Executive Vice President at Horizon Therapeutics (HZNP) (my October note here).
Iterum has in-licensed the rights to research, develop, manufacture and commercialize Sulopenem from Pfizer since 2015, in exchange for regulatory milestone payments and sales milestones to a value of $250m - $1bn for each product type launched, as well as royalties on sales ranging from single-digit to mid-teen percentages based on marginal net sales.
Sulopenem
Sulopenem belongs to a class of antibiotics known as ß-lactams, which includes Penicillin and Cephalosporins, which are active against gram-negative bacteria which cause urinary tract and intra-abdominal infections, amongst others. Iterum inherited the intravenous form of Sulopenem from Pfizer, and developed it into an oral formulation, known as sulopenem etzadroxil-probenecid.
Pfizer retains control of all patents related to the IV formulation of Sulopenem, but in December last year Iterum filed a U.S. national phase patent application for the composition of its oral formulation - a bilayer tablet of sulopenem etzadroxil and probenecid - which could provide exclusivity coverage until 2039.
In addition, the FDA has granted Sulopenem Qualified Infectious Disease Product (QIDP) status for uUTI, cUTI and cIAI, and in March 2019, extended the QIDP to cover four further indications - community-acquired pneumonia, acute bacterial prostatitis, gonococcal urethritis and pelvic inflammatory disease.
Clinical Trials
Across its three pivotal trials, Iterum has enrolled >3,700 patients and treated >1,800 with Sulopenem.
In its SURE-3 cIAI trial, in which patients were administered either IV Sulopenem for five days followed by oral Sulopenem twice daily for seven to 10 days, or IV Ertapenem followed by oral Cipro 2x daily and oral metronidazole 4x daily, the difference between clinical responses on Day 28 was 4.7%, with 85.5% of patients in the Sulopenem arm achieving clinical response versus 90.2% in the Ertapenem arm.
In other words, Iterum fell 1 patient shy of securing non-inferiority out of a total of 249 patients. Adverse safety events were observed in 6% of Sulopenem patients vs. 5.1% of Ertapenem patients, and patient treatment discontinuations were low in both arms, - 1.5% versus 2.1% in the Ertapenem arm.
It was a similar story in the cUTI trial, in which Sulopenem elicited a clinical response in 67.8% of 444 patients, against a 73.9% readout (325 of 440 patients) in the Ertapenem arm - a difference of 6.1%. The difference in response rates in both trials, according to Iterum management, was due to higher rates of asymptomatic bacteriuria on Sulopenem relative to Ertapenem.
After the cUTI results read out in June last year, CEO Fishman suggested that management would be "evaluating its corporate, strategic and financial alternatives with the goal of maximizing value for its stakeholders while prudently managing its remaining resources." In other words, the company looked doomed.
The respite came via the mixed results from the third and final pivotal study in uUTI, SURE-1. This time there were two primary endpoints, and in the Quinolone non-susceptible arm of the trial, Sulopenem outperformed Ciprofloxacin, with 92/147 patients, or 62.6% of patients achieving a response, versus 36% in the Cipro arm (50/139 patients). The results in the Quinoline susceptible arm once again marginally failed to demonstrate non-inferiority (66.8% vs. 78.6%).
Sulopenem meets endpoint in SURE-1 trial - quinoline non-susceptible arm. Source: Iterum Corporate Presentation.
Narrowing The Market To Secure An Approval
The trial results were not what Iterum management had set out to achieve, but finally the company has a window of opportunity to secure an approval for Sulopenem in women with infections due to quinolone resistant pathogens - a market of around 5-6m patients per annum - or ~30% of all UTIs in women, the company has estimated.
In fairness to Iterum, the trial failures were marginal in cIAI and cUTI, and if approved, Sulopenem would be the first (or possibly the second - see Spero Therapeutics discussion below) UTI-treating antibiotic to hit the market in >20 years, which speaks to the difficulty of gaining entrance to this market. It appears management is confident that, having established a foothold in the market, the FDA may consider expanding the label for Sulopenem if further pre and post commercial positive clinical data is submitted.
Addressable market for uUTI - Quinolone susceptible / non-susceptible. Source: Iterum Corporate Presentation
As we can see above management has broken down its addressable market, estimating that 6.5m prescriptions are issued each year in the US for quinolone non-susceptible uUTI, 2.3m of which are for elevated risk patients.
Iterum also is making the argument that Quinolone resistance is growing, eroding the efficacy of alternative antibiotic treatments, suggesting that >20% of outpatient urinary gram negative bacteria are Quinolone-resistant in many of the most populous areas of the US.
Finally, Iterum also is pointing to the numerous safety concerns associated with current Quinolone, ß-lactam and other approved antibiotics, which include tendinitis, central nervous system conditions, and hyperkalemia, and often prevent physicians from making a prescription.
Iterum's marketing strategy for Sulopenem will focus on the outpatient, rather than the hospital setting, and will be based on four key pillars. Advocacy campaigns to highlight a growing quinoline resistance problem, attempting to secure payer reimbursement from health plan providers and Pharmacy Benefit Managers ("PBMs") (targeting >250m commercial and Medicare covered lives), sales force deployment in areas of high unmet need, and an education programme targeting physician awareness of bacterial resistance in certain regions.
Valuation
Iterum targets blockbuster Sulopenem sales based on approved antibiotics sales. Source: company presentation.
Iterum management claims that Sulopenem can target blockbuster sales but that seems a long way off at the present time, if achievable at all. Analysts had pegged Sulopenem for peak sales of $323m by 2024, and that was when all three of its pivotal trials were still ongoing.
Sulopenem could be the first drug in the penem class to be approved as an oral treatment, and therefore the first to become available in a community setting - helping reduce the length of patient hospitalizations - but initially the treatment will target at-risk patients, rather than the mainstream market, and the drug also faces some competition in the wider market.
Spero Therapeutics' (SPRO) oral formulation of tebipenem pivoxil - Tebipenem HBr - met its primary endpoint of non-inferiority to intravenous (IV) ertapenem in a Phase 3 trial for cUTI, and the company expects to file its NDA by Q221. Analysts' sales forecast for the treatment is for $373m by FY24, and presumably Spero will be chasing further approvals.
Antibiotic treatments are renowned for their sluggish sales in the first few years following an approval, and many new treatments do not survive this period, and neither do their developers
According to a recent article in Nature, Achaogen, Aradigm, Melinta Therapeutics and Tetraphase Pharmaceuticals have all gone out of business since 2010, and five of the 15 antibiotics approved since 2010 are either out of circulation, or scarcely available. Research quoted in the same article suggests that $300m is the minimum annual sales revenue that is required for an antibiotics treatment to be sustainable, and the majority of treatments earn $15 - $50m per annum.
With current liabilities of $41m, and long-term debt of ~$35m (as at Q320), despite its recent $40m share sale Iterum may struggle to fund its ambitious marketing campaign, while also making milestone payments to Pfizer and paying the big pharma royalties on sales, if approved.
That may sound like a gloomy prognosis, but the good news for investors, in my view, is that all these issues have been baked into the share price, which is still extremely low, notwithstanding the 91% gains over the past five days.
If Sulopenem wins approval in July - and I would personally rate the chances as 60/40 in favor of approval, and earns $50m in its first full year of sales, the revenue per share would be relatively low, at $0.6, but the price to sales ratio looks attractive at 3.8x. By then of course, the share price is likely to have either spiked or declined on the FDA's approval decision.
Looking ahead, $300m of sales seems a more realistic peak sales target than $1bn - for context, since going off patent in 2004 Cipro sales have averaged ~$200m per annum - but the opportunity to retry for approval in cUTI and cIAI and widen the addressable market - provided Iterum has sufficient funds - should not be discounted.
Post approval, the priorities for Iterum would be to try and secure some external funding, and to try to leverage the sales and marketing power of Pfizer, which still has a significant stake in Sulopenem - or possibly to put itself up for sale to the highest bidder, as was the case at CEO Corey Fishman's previous company, Durata, following Dalbavancin approval.
Conclusion
Antibiotics is a tricky business but there have been recent success stories, Paratek Pharmaceuticals (my September note here) being one - although Paratek was able to secure $285 of funding from BARDA, which will keep the company solvent through the difficult early years of commercial sales.
Paratek's shares have risen 98% in the past year, to $7.52, and its lead antibiotic treatment Nuzyra made sales >$10m in Q320. Paratek does not have the funding concerns that Iterum does, but the companies are comparable in other ways, with similar sized target markets and estimated peak sales opportunity.
In the short term, Iterum has the funds it needs to reach its PDUFA date in July, and if it wins an approval, the company will likely raise further funds at a higher share price. Not winning approval would be highly problematic for Iterum and probably be the end of the company, so any investment carries a high level of risk. Even if approval is won, management have limited experience of commercializing an asset.
Even so, the market appears to be waking up to the fact that Iterum shares are undervalued and if Sulopenem approval is won, the stock price ought to challenge recent highs of $4.20 at least, and then it will be very interesting to see what happens next, with a lengthy patent protection potentially in place, and QIDP status for up to 6 further indications.
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