CHAPEL HILL, NC ( TheStreet) -- Antibiotics certainly do not inspire the same excitement as oncology products and orphan disease drugs but one simply needs to look at Cubicin or Zyvox to see the right drugs can be significant winners. Cempra ( CEMP) has a potential winner in its lead antibiotic compound solithromycin. Solithromycin is a fourth generation macrolide with intravenous and oral formulations. Cempra's initial plan is to develop the antibiotic as a treatment for community acquired bacterial pneumonia (CABP) but the company also has a grant from BARDA to extend solithromycin into bio-terror infections, pediatric and special populations (pregnant women, for instance.) Right now, Cempra is conducting a single phase III trial for the oral formulation in CAPB, but a recent financing should provide the money necessary to start a second phase III oral-to-intravenous trial in CAPB. The best way to think about the market potential of solithromycin is to look at Sanofi's ( SNY) Ketek, a third-generation macrolide antibiotic marketed approved by the FDA in 2004. There was significant enthusiasm surrounding Ketek because it demonstrated strong efficacy against bacteria resistant to first and second generation macrolides. Early expectations had Ketek achieving peak sales of $1.5 billion in the U.S. alone. Ketek's first year on the market was strong, with 3.3 million U.S. prescriptions generating about$193 million in sales. Safety troubles lurked under the surface, however. Ketek use was linked to liver toxicity and liver failure, which were missed prior to the drug's approval, in part, due to falsified clinical trial data. Eventually, the FDA added a black-box safety warning to the Ketek label and sales collapsed. The Ketek story is critical for Cempra because it indicates both the market potential of solithromycin and highlights the safety risks that must be navigated. In general, solithromycin has shown strong efficacy even against the bacteria that are resistant to the first, second, and third generation macrolides. In this way, solithromycin's billion-dollar market potential is similar to what was expected from Ketek when it was approved. Of course, the real question is whether that efficacy comes with the same safety issues which derailed Ketek.
In a phase II trial comparing solithromycin to levofloxacin, efficacy was similar and there was no signal of liver toxicity. Patients treated with solithromycin actually reported fewer adverse events than the control (45.6% for levofloxacin versus 29.7% for solithromycin.) Perhaps the most important finding was solithromycin adverse events were both mild to moderate and gastrointestinal in nature. There were no cases of treatment-related elevations of liver enzymes (ALT, AST or GGT) reported in the solithromycin arm. There were some non-treatment related adverse events. One patient in the solithromycin group experienced a grade 3 elevation in the liver enzyme ALT but the patient also had hepatitis C and entered the study with ALT enzymes already moderately elevated. In addition, there were two cases of temporary elevations of AST in the solithromycin group but neither had concomitant increase in bilirubin -- a more serious signal of liver toxicity. Finally, there was one case of hyperbilirubinemia in the solithromycin group but this was attributed to Gilbert's syndrome. Overall, the rate of non-treatment related liver enzyme elevations were similar between the solithromycin and levofloxicin groups. The clinical evidence to date indicates solithromycin has an activity similar to Ketek (if not better as it is active against bacteria resistant to third-gneration macrolides) without the severe liver toxicities. If these results hold up in the larger phase III trials, solithromycin has a chance to capture the commercial potential that was once attributed to Ketek. The key will be maintaining a good safety profile. At Cempra's current stock price ($7.59 per share) and market valuation ($190 million) the risk/reward certainly favors the bullish case. Sobek is long Cempra.