Street Check: Analyst Made The Right Call On Cempra's Drug

Cempra (CEMP) announced Thursday that the FDA had decided not to approve its solithromycin drug for community-acquired bacterial pneumonia in the near-term. In a December 20 note to investors, research firm SunTrust predicted that the FDA would delay a decision on the drug.

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FDA DECISION: Cempra reported that the FDA had issued complete response letters for both the oral and intravenous versions of the company's solithromycin drug for the treatment of community-acquired bacterial pneumonia, or CABP, in adults. In the letters, the FDA stated that it cannot approve solithromycin at this time and ordered Cempra to submit additional clinical safety information regarding the drug, the company stated. Additionally, the agency said that Cempra would be required to allow additional inspections of its factories, the company noted. In the wake of the complete response letters, Cempra does not expect solithromycin to be approved before 2018, the company reported.

SUNTRUST DOWNGRADE: On December 20, SunTrust analyst Edward Nash predicted that the FDA would refuse to approve solithromycin this month and consequentially downgraded Cempra two notches, to Sell from Buy. The analyst predicted that "manufacturing issues" involving the active ingredient in solithromycin would probably cause the FDA to delay approving the drug. Both the U.S. and the EU will eventually approve the drug, Nash wrote. However, he warned that the drug's launch would be "challenging," partly due to liver problems observed in patients during its clinical trials. Nash slashed his price target on Sempra to $5 from $18.

WHAT'S NOTABLE: The FDA is forcing Cempra to carry out "a large safety study" involving about 9,000 patients before solithromycin can be approved, wrote Christopher Raymond, an analyst at research firm Raymond James, in a note following the announcement. That study will place "a significant financial burden" on Cempra, even though it has $225M in cash, Raymond believes. Noting that he is "more cautious on solithromycin's future prospects," the analyst kept a Market Perform rating on the stock.

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Disclosure: None.

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