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MTFB: Initiating Coverage of Motif Bio Plc; Novel Antibiotic With Positive Phase 3 Results

09/05/2017
By David Bautz, PhD

NASDAQ:MTFB

We are initiating coverage of Motif Bio Plc (NASDAQ:MTFB) with a $28 valuation. Motif is a biopharmaceutical company developing novel antibiotic treatments for patients with life threatening multi-drug resistant infections. The company’s lead compound, iclaprim, is being developed for the treatment of acute bacterial skin and skin structure infections (ABSSSI) and hospital-acquired bacterial pneumonia (HABP). Iclaprim is currently being tested in a Phase 3 program (REVIVE) for the treatment of ABSSSI. In April 2017, the company announced positive results from the REVIVE-1 study, which compared the safety and efficacy of iclaprim with vancomycin (which is used in approximately three-quarters of ABSSSI patients). The results showed that iclaprim achieved the primary endpoint of non-inferiority at the early time point at 48 to 72 hours after the start of treatment. In addition, iclaprim achieved non-inferiority at the test of cure endpoint at 7 to 14 days after discontinuing treatment. As it is a nearly identical study simply performed at different clinical sites, we anticipate similar results in the REVIVE-2 study. 

Iclaprim has a number of positive attributes that we believe could lead it to become a commercially successful antibiotic treatment, including:

• Novel Mechanism of Action. Iclaprim is an inhibitor of bacterial dihydrofolate reductase (DHFR), which is a differentiated mechanism of action compared to other antibiotics. Trimethoprim is a DHFR inhibitor that is used along with a sulfonamide due to their synergism, however the use of a sulfonamide with iclaprim is unnecessary due to its increased potency. In addition, a certain mutation in some bacterial DHFR proteins confers resistance to trimethoprim, however iclaprim can overcome this resistance.

• Strong Safety Record. Iclaprim has been tested in over 1,300 patients and healthy volunteers during Phase 1, 2, and 3 clinical trials with no outstanding safety issues reported.

• Ability to Treat Patients With Renal Impairment. Thus far, iclaprim has not shown any signs of nephrotoxicity in clinical trials and there is no need for monitoring or dosage adjustment in patients with renal insufficiency. This is in contrast to vancomycin, which is known to cause nephrotoxicity and require dosage adjustment in patients with decreased renal function. 

• Expandable to Other Indications. Iclaprim has compelling Phase 2 data showing increased activity and decreased side effects compared to vancomycin in patients with HABP. The company is planning to initiate a Phase 3 clinical trial in HABP before the end of 2017. 

• Entering a Large Market. Motif is targeting the approximately 25% of the 3.6 million ABSSSI patients in the U.S. that have renal insufficiency. Vancomycin, which is currently used in approximately three-quarters of patients hospitalized with methicillin-resistant Staphylococcus aureus (MRSA) infections, requires therapeutic drug monitoring as it has been associated with nephrotoxicity. 

The company has a very important milestone coming up in the second half of 2017 with the release of topline data from the REVIVE-2 study. Positive results will lead to a new drug application (NDA) filing in the first half of 2018. Since iclaprim is designated a qualified infectious disease product (QIDP), which grants the compound Fast Track designation and priority review, approval could occur before the end of 2018. QIDP also confers an additional five-years of market exclusivity, which is added sequentially to the five-years of exclusivity granted to New Chemical Entities, for a total of ten years starting from the date of approval.

Numerous Acquisitions in Antibiotic Sector Point to Motif Being Undervalued

Over the past five years, there have been a number of acquisitions in the antibiotic sector that may help to put Motif’s current valuation (~$100 million) in perspective. 

➢ In 2013, Cubist Pharmaceuticals acquired Trius Therapeutics for $707 million plus up to $109 million in contingent payments based on future sales goals. Trius had one late-stage antibiotic candidate, tedizolid phosphate, which at the time of the acquisition had successfully met all primary and secondary endpoints in two Phase 3 clinical trials in ABSSSI. The company was planning to submit a New Drug Application in the U.S. in the second half of 2013 and a Marketing Authorization Application (MAA) in Europe in the first half of 2014. Trius had partnered with Bayer for the development and commercialization of tedizolid phosphate outside of the U.S., Canada, and the European Union. Tedizolid phosphate, now sold as Sivextro®, was approved in June 2014 and is currently sold by Merck. 

➢ At the same time as the Trius deal, Cubist also bought Optimer Pharmaceuticals for $535 million plus up to $266 million in contingent payments based on future sales goals. Optimer sold Dificid®, which was approved by the FDA in 2011 for the treatment of Clostridium difficile-associated diarrhea (CDAD). 

➢ In October 2014, Actavis bought Durata Therapeutics for $675 million plus contingent payments of up to $147 million based on future sales goals. Durata had received approval for dalbavancin (Dalvance®) in May 2014. Dalvance® is currently sold by Allergan, following its acquisition by Actavis in March 2015. 

➢ In December 2014, Merck bought Cubist for $9.5 billion, which included the assumption of $1.1 billion of Cubist debt. While Cubist had a substantial pipeline, Merck purchased Cubist mostly for Cubicin® (daptomycin), which achieved peak sales of $1.1 billion. 

The aforementioned deals all lend support to the idea that Motif is currently undervalued on a comparative basis, particularly the deal for Trius, as that company was in almost exactly the same position that Motif could find itself in over the next couple of months, assuming positive results from REVIVE-2. 

In addition to the past deals mentioned above, we believe a reasonable current comparison could be made to Paratek Pharmaceuticals, which is developing omadacycline. The company has reported positive Phase 3 data for omadacycline in a Phase 3 trial of ABSSSI as well as a Phase 3 trial of community-acquired bacterial pneumonia (CABP). Paratek currently has a market cap of $710 million. 

Valuation

We value Motif using a probability adjusted discounted cash flow model that takes into account potential future worldwide revenues for iclaprim in ABSSI. We anticipate Motif commercializing iclaprim on its own in the U.S. and signing a commercialization agreement with a multinational pharma company for sales outside the U.S. We estimate a 100-person sales force will likely be able to cover the approximately 1500 hospitals in the U.S. that are responsible for 70% of antibiotic prescriptions at a cost of approximately $20 million per year. 

Topline results from REVIVE-2 should be released in the second half of 2017. Assuming a positive outcome, we anticipate Motif filing a New Drug Application in the first half of 2018, and because iclaprim has QIDP designation it qualifies for Priority Review (six month review time instead of 10), thus the drug could be approved in the second half of 2018 and launched in the beginning of 2019.

There are an estimated 3.6 million people hospitalized with ABSSSI every year. We conservatively estimate that 20% of patients have renal insufficiency, based on the results of Halilovic et al. We believe iclaprim could attain peak market share among these patients of 20%. We model for a full course of treatment costing $3000 and an inflation rate of 2%, which leads to peak sales of approximately $500 million in the U.S. Outside the U.S., we believe Motif will sign a commercialization agreement that will result in an average 15% royalty on net sales, which we estimate will peak at approximately $225 million. Using an 80% probability of approval and a 15% discount rate leads to a net present value for iclaprim in ABSSSI of $452 million. Dividing this by the fully diluted ADS share count of 16.3 million leads to a valuation of $28 per share. Motif currently trades at a significant discount to our valuation, and we believe that positive results from REVIVE-2 is likely to result in a significant revaluation of the company more in line with our valuation. 

READ THE FULL INITIATION REPORT HERE

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