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Tetraphase: Another Good Investment In Hot Antibiotic Market

Stocks in this article: TTPH CBST CEMP

WATERTOWN, Mass. ( TheStreet) -- The recent buyout of Trius Therapeutics (TSRX) and Optimer Pharmaceuticals (OPTR) by Cubist Pharmaceuticals (CBST) reinforces my view that small-cap antibiotic companies make for interesting investment opportunities. Tetraphase (TTPH) is an earlier stage of clinical development than both Trius and Cempra (CEMP) (another holding of mine) but it may offer the greatest long-term upside.

Tetraphase's lead antibiotic is eravacycline, a next-generation broad spectrum tetracycline for the treatment of multi-drug resistant (MDR) gram-negative bacteria. The opportunity for a successful broad-spectrum antibiotic that is also effective against MDR gram-negative bacteria is significant. For instance, levofloxacin had peak worldwide sales of $1.5 billion, the beta-lactam market in the United States is over $1 billion, and the recently approved next generation tetracycline tigecycline (marketed by Pfizer) is already generating $450 million in sales.

While the market potential is there, eravacycline still has a ways to go. The phase III trial for the treatment of complicated inter-abdominal infections (cIAI) is scheduled to start in the third quarter with data in the first quarter of 2015. Tetraphase additionally plan on starting a phase III trial for the treatment of complicated urinary tract infections (cUTI) in the fourth quarter, which is also scheduled to read out in the first quarter of 2015.

Tetraphase's phase II trial in cIAI showed that eravacycline was non-inferior to ertapenem with about half the number of drug-related adverse events (although total adverse events were similar to the ertapenem arm.) For antibiotics, however, efficacy (or in this case non-inferiority) is a necessary but in no way sufficient condition to create a blockbuster. The drug needs to differentiate itself from competitors, particularly tigecycline. While the efficacy of the drugs is likely too close to definitively call one more effective, eravacycline appears to have a cleaner gastrointestinal (GI) adverse event profile.

It is always difficult to compare between trials (especially given the difference in size) but eravacycline appears to have a cleaner GI profile. On label, tigecycline's nausea rate is 26 percent, vomiting 18 percent. This compares to the phase II eravacycline trial in which the rate of nausea was 6.4 percent and vomiting was 3.7 percent (combined rates from the two dosing regimes.) If this profile maintains in the phase III trials, it's a clear benefit for eravacycline.

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