Can Cempra Clear Solithera Hurdle After FDA Reveal?

Shares of Cempra Inc CEMP plunged 60 percent to a new 52-week low of $7.35 after FDA briefing documents questioned whether solithromycin has some of the same safety risks as Ketek and potential for liver toxicity.

The FDA issue came on the heels of company announcing the receipt of a $10 million milestone payment from Toyama Chemical Co., Ltd. (Toyama), a subsidiary of FUJIFILM Holdings Corp. (ADR) FUJIY.

The brokerage noted that the documents put forth significant safety concerns that could threaten a first-cycle approval for the community-acquired pneumonia drug, and/or result in restrictive labeling.

“Approval with a restrictive label may be possible if Cempra can provide conviction Solithera provides an efficacy benefit outweighing these safety risks,” Morgan Stanley analyst Andrew Berens wrote in a note.

On Friday, Cempra should convince the panel solithromycin merits the risks and uncertainties of approving the drug without additional clinical trials. The recent fall in stock price suggests investor concerns that the panel will not encourage approving the drug without additional studies to address the safety concerns.

The analyst noted that there will be two voting hepatologists on the panel Friday. Although the FDA is not obliged to follow its advisory panel's advice, it typically does so.

Additionally, the documents also question Cempra's arguments that solithromycin is differentiated from Ketek with respect to idiosyncratic liver injury, which could appear with broader usage of the drug.

Solithromycin is based on Sanofi SA (ADR) SNY’s Ketek, which was linked to fatal liver problems and largely withdrawn following public outcry over its contentious approval in 2004.

Cempra, which argues that it removed the elements causing liver disorders, is seeking approval for both oral and intravenous versions of Solithera. Meanwhile, studies show solithromycin is as effective as antibiotic moxifloxacin.

“We had initially expected Solithera to be reserved as a"big gun" for CABP, especially given the price elasticity in the current market. Therefore, while none of these specific recommendations are particularly damning, the presence of a black box warning and a safety stigma could impact overall penetration and launch ramp, something we did not consider in our estimates,” Berens highlighted.

Berens has an Overweight rating on the stock, with a price target of $35.

At last check, shares of Cempra plummeted 57 percent to $8.00. The stock is one of the biggest mid-day losers for the day.