Investors may be correct predicting Cempra (CEMP) earns FDA approval for its antibiotic solithromycin, but the potential for a restricted label due to potential liver toxicity issues suggests that the company's estimates of $2 billion in peak sales may be overly optimistic.

Cempra's shares sold off a couple weeks ago when the company released topline data from the solithromycin phase III clinical trial. While the results showed the compound met the primary objective of statistical non-inferiority to moxifloxacin, investors were concerned about the adverse events reported.

The most common ones were mild to moderate pain at the infusion site, which should have been expected of any drug in the macrolide antibiotic class. However, a potentially more serious concern is the higher frequency of alanine transaminase (ALT) elevation, essentially a sign of liver toxicity, with 8.9% of solithromycin patients experiencing either a Grade 3 or 4 elevation versus just 3.9% in the control group. The company did note the elevations were generally reversible and were not associated with increased bilirubin or any reported cases of Hy's Law signifying serious liver damage.

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The good news for Cempra is these are very sick, mostly elderly patients who would be taking solithromycin as a second- or third-line defense after conventional antibiotics like Levaquin and Zithromax have failed due to antibiotic-resistance. The bad news for Cempra is these are very sick, mostly elderly patients -- many of whom have multiple disease pathologies. It seems doubtful, given the pressing need for new, more effective treatments for CAPB, that the FDA would reject solithromycin due to the safety profile. However, it won't be surprising if it the approval comes with a more restrictive label.

Patients with diabetes, hepatitis B or C, cirrhosis, or steatohepatitis; or cancer patients on chemotherapy and elderly patients who are reliant on medications that raise liver enzyme levels may be restricted from treatment with Cempra's solithromycin due to their already elevated ALT levels and the potential for permanent liver damage.

There is a precedent for this when it comes to the FDA: in the last few years, the agency has withdrawn two drugs from the market for causing severe liver injury: bromfenac and troglitazone.  They also warned about a third: pemoline (Cylert) having an overall risk of liver toxicity that outweighed the benefits (it's since been withdrawn in the U.S.). The agency has issued restricted labels limiting the use of several other drugs due to hepatotoxicity, including: felbamate (Felbatol), zileuton (Zyflo), tolcapone (Tasmar), trovafloxacin (Trovan), benoxaprofen, and tienilic acid.

When assessing the near and long-term prospects for Cempra, investors should remember the possibility that sales of its lead antibiotic could be pinched by the risk of liver damage in patients. 

This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.