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Trius Therapeutics, Inc. (TSRX) focuses on the discovery, development, and commercialization of antibiotics for serious infections. It develops tedizolid phosphate that has completed phase 3 clinical trial for the treatment of acute bacterial skin and skin structure infections; and completed phase 1 clinical trial for the treatment of pneumonia. The tedizolid phosphate is a novel antibiotic for the treatment of serious Gram-positive bacterial infections, including those caused by methicillin-resistant staphylococcus aureus.
With studies showing a better safety profile and patient compliance than current drugs on the market, Tedizolid is primed to not only get approved by the FDA, but also potentially grab a majority market share. However, Trius may never get to bring its drugs to market because there is a solid chance big pharmas are interested in acquiring its assets. Recently, investors have speculated that Trius will be bought out because the company just announced a notice of allowance of U.S. patent application related to tedizolid phosphate combination with daptomycin.
Daptomycin is marketed as Cubicin by Cubist Pharmaceuticals (CBST) and should pull in near $1 Billion in 2013. Cubist has turned Cubicin into a blockbuster antibiotic and its continued revenue stream is integral to the company’s success. The allowance of this patent makes Trius an even more prime target for a buyout for the several following reasons.
- Reduce Resistant Bacteria
Adaptation and evolution are two of the most troubling problems when it comes to developing antibiotics. For example, if scientists are able to develop a drug that kills 99% of bacteria, that 1% will survive and become the genetically most prevalent form. How long this takes depends on several factors including how rapidly the bacteria can adapt and replicate. In order to kill stronger or different strains of bacteria, scientists are always creating newer and more powerful drugs.
The prevalence of these mutant strains has become an increasing problem for daptomycin. Although daptomycin has been a successful drug in treating patients in the gram-positive bacteria market, it is slowly losing its effectiveness as the bacteria are becoming more resistant.
Dr. Ralph Corey, Professor of Medicine and Infectious Diseases at Duke University, stated:
MRSA bacteremia is a potentially fatal disease with limited treatment options. As a clinician who treats bacteremia patients, I am concerned by the growing resistance to one of our last effective treatment options, daptomycin, and welcome this news that tedizolid phosphate may prevent daptomycin resistance when used in a combination therapy.
Trius found that when a low dose of tedizolid phosphate is combined with daptomycin, the amount of bacteria resistant to daptomycin is significantly reduced. This is significant because it would increase the efficacy of daptomycin and extends its life as an antibiotic. In the same press release it stated:
As detailed in the patent application, tedizolid phosphate, at concentrations substantially below its current therapeutic dose to treat skin infections, unexpectedly prevents the formation of daptomycin resistant mutants of Staphylococcus aureus. Tedizolid appears to be unique in this mutant prevention activity given that seven other medicines tested, including linezolid, the only other drug of the same class as tedizolid, failed to show the same mutant prevention activity.
The allowance of this patent is of extreme importance to both Trius and Cubist. From a scientific standpoint, Cubist would be interested in the combination of tedizolid and daptomycin, since the combination of the two would solve the problem daptomycin has with resistant bacteria. This would extend the effectiveness of daptomycin and keep that revenue stream steady for Cubist. Also, as previously mentioned, analysts have speculated that tedizolid could reach peak sales of up to $900 Million — how much more in sales can be realized with the combo tedizolid phosphate/daptomycin that was just issued a patent allowance? With a market cap of $360M, Trius is ridicuously undervalued and under speculated in my strongest opinion.
- Extend Exclusivity
The allowance of this patent could also provide Cubist with an opportunity to extend the exclusivity period of Cubicin. Until 2018, no companies can create any generic forms of Cubicin and Cubist has been able to bring in large revenues because of that. After 2018, generic drug companies could create a cheaper alternative and grab some market share away from Cubicin. Obviously, it would be in the best interest of Cubist to extend the period of exclusivity for as long as they can do so, notwithstanding the potential for potentially significant additional revenue from tedizolid phosphate combination with daptomycin.
The combination of tedizolid and daptomycin would be a way for Cubist to extend and realize revenue from a patent exclusivity period by an additional five years. With guidance this year of near $1 Billion in revenues for Cubicin, exclusivetly from a more effective combo solution could easily realize $5 to $8 Billion in revenues before any generic potentially comes to market. Long-term Cubist shareholders should encourage and support a buyout or partnership with Trius because it should provide a huge revenue stream for several additional years.
- Broaden Profile
With a buyout, Cubist would gain the rights to tedizolid, along with the newly patented combo drug, plus the other drugs in the Trius pipeline. As stated previously, Trius reported positive Phase III data for tedzolid, meeting all primary endpoints when compared to Pfizer’s Zyvox. owever, tedizolid also appeared to have a better safety profile and dosing schedule. Cubist also could complete Trius’ scheduled Phase III program for the treatment of pneumonia in the second half of 2013. In the pipeline Trius also has an array of products ranging from preclinical to Phase III trials that would add additional value to Cubist.
Additionally, in the latest 8k from Trius, we read the following:
| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On May 21, 2013, our 2010 Equity Incentive Plan (the “2010 Plan”) was amended to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the 2010 Plan by 5,100,000 shares.
I saw similar activity with Obagi Medical Products before it was acquired recently. When considering the fundamental reasons why Cubist might acquire Trius, it makes sense that management would want “extra shares” to be awarded themselves upon an acquisition. This is an indicator to me that a buy-out may be in short order for the company.
Trius is a small cap biotech with a developing potentially huge story, with a transitional market cap of $360M. According to recent media reports, Cubist reportedly made an unsolicited $1 billion bid for another company in the segment, that was not accepted. With the timing of the patent grant along with Trius upping its authorized share count for the purpose of incentive rewards, its likely in my opinion that the company will be acquired soon by CUBIST for at least double its current price.
At the very least, Cubist could partner with Trius, and any such deal would be a lucrative one for Trius. However, Cubist would be better served buying Trius straight out for the reasons I have mentioned here.
Additionally, there is has been a lot of news about multi-drug-resistant organisms (MDROs), such as MRSA, vancomycin-resistant enterococci (VRE), and Carbapenem-resistant enterobacteriaceae (CRC).
NBC ran a story in February this year which stated that there has been a sharp jump in the number of rare but potentially deadly types of superbug bacterias resistant to nearly all last-resort antibiotics. As mentioned, Congress took action passing The Gain Act, to incentivize companies to develop new treatments to combat this problem, as new strains become more resistant to current treatments on the market.
Considering all these factors, my one year price target opinion for Trius is $20 a share, which would roughly equate to a $1B market cap — Which is what was reportedly offered by Cubist for another company in the segment. As already stated, I believe the stock will cross over the $10 mark soon.
