Zeus Capital’s Healthcare Research Director Dr. Gary Waanders caught up with DirectorsTalk for an exclusive interview to discuss Motif Bio PLC (LON:MTFB)
Q1: So we’re talking about Motif Bio whose lead product is an antibiotic in late stage clinical development, what’s special about this drug?
A1: So the drug is called Iclaprim, it’s an intravenously-administered antibiotic which acts to rapidly kill bacteria and that includes things like the multi-resistant strains like MRSA, it acts through an underutilised mechanism of action and that’s critical for bacterial reproduction meaning that this antibiotic is extremely good because bugs are unlikely to develop resistance to the drug. Importantly also, the product had already demonstrated safety and efficacy in Phase III trials when it was being developed by a previous owner which sadly went into administration a number of years ago. The last thing about the product itself is that it’s got a special regulatory status in the USA which is granted by the FDA, one of these is called QIDP and the other is Fast Track Designation, and these are basically conferring market exclusivity conditions and favourable review submissions for the product. So I think all together it’s got a pretty good profile as a drug in development.
Q2: What is Iclaprim being developed to treat?
A2: So it’s being developed for the treatment of two serious and life-threatening infections, the first of these is acute bacterial skin and skin structure infections, so-called ABSSSI, and the other is hospital-acquired bacterial pneumonia, or HABP. Annually, there are probably over a million cases of ABSSSI in the USA and Europe and somewhere north of 500,000 cases or so of the hospital-acquired bacterial pneumonia.
Q3: How long will the Phase III trials take to complete?
A3: So two Phase III trials in the skin infection indication commenced just in March this year with first patients being treated, now the trials are large randomised, double-blind, multicentre, international studies comparing Iclaprim to the standard therapy of Vancomycin. Each of the trials will be treating around 600 patients and these are being recruited across 160 sites in the US, Europe and Latin America. The trials are being run by Covance which is probably the most experienced CRO for antibiotic trials globally and the company management is confident that the ABSSSI trials will be completed by the end of 2017.
Q4: What are the chances that it will be approved?
A4: It’s the 64 million dollar question isn’t it? I think the drug has a high chance of being approved, probably around the 75% level, and this is based on the earlier good Phase III results and these special regulatory status that the product has with the FDA. Ordinarily Phase III products you might think have a roughly 45%-50% chance of success but because of those earlier results it justifies that higher level that I mentioned.
Q5: How much might the product achieve at peak sales?
A5: So we’ve assumed that each course of treatment will cost about $3,500 per patient, this may seem high but actually a conservative estimate compared to a number of recently approved antibiotics where cost per course was somewhere over $10,000 and we need to remember that these are treatments for serious and life-threatening infections. So for Iclaprim, we’ve forecast peak global sales in the skin indication of $570 million globally, in the pneumonia indication we’ve got peak sales forecast of around $325 million so in total the global combined sales for these two indications are almost $900 million and that would be in about 2025 so 7 years or so after the product would be first launched, which we think will happen in 2018 in the US in skin.
Q6: Now Motif Bio are currently valued at just over $40 million and has cash of about $28.5 million and that was at the end of 2015, what’s your fair value estimate for the company?
A6: Based on our Discounted Cash Flow modelling, we’ve arrived at a risk-adjusted net present value of almost £190 million, roughly 174p per share. The risk-adjustment that we’ve included there make allowance for the remaining, albeit relatively small, uncertainties around trial success, market penetration rates and launch timing.
Q7: How does Motif Bio’s current market cap compare to other antibiotic developers with late-stage assets?
A7: The closest peers to Motif Bio are actually mostly US companies, there are a number of companies with antibiotics in place through development with the QIDP status and the Fast Track review regulatory as designations. As I said they’re currently based in the US, they’ve got market capitalisations of around the $200 million level, they’re companies like Paratek Pharmaceuticals, Tetraphase and Cellceutix up to companies like Cempa who have a market cap of almost $900 million. With most of these companies, the contrast to Motif in developing what I’d call ‘me-too’ antibiotics, meaning the drugs have mechanism of action which are very similar to products already on the market for example Tetracyclines or Macrolides so the market opportunity for those products might be limited by the drug class and the existing players. Iclaprim is a highly potent drug which rapidly kills bacteria including MRSA and has a low potential for resistance to emerge, as I mentioned it’s already got good safety and efficacy data and could be used, actually because of that novel mechanism of action, in combination with other antibiotic classes. So on that basis we believe that Motif Bio should be valued well above the current levels of $40 million market cap at the moment, strikes me as a great entry point actually so for people who are wanting to invest in antibiotic place.
